Frank: Financial Reform Would Have Prevented Crisis

Although the financial reform bill that was hammered out by Democrats last month does nothing to address the very causes of the recession---the semigovernment entities Fannie Mae and Freddie Mac and their manipulation of the mortgage market---the bill's primary sponsor in the House of Representatives, Congressman Barney Frank of Massachusetts, said on Friday that it could have prevented the crisis if it had been in place all along.

According to Frank, who spoke with PBS' Charlie Rose, one of the reasons the bill would have averted financial turmoil is a set of "very tough rules that prevent the kind of mortgages going to people that can't afford them." The congressman conveniently bundles these together with all "abusive subprime mortgages," which perpetuates the Democrats' practice of blaming banks for selling bad mortgages but not the individuals who applied for the loans while knowing that they could never afford to pay them back.

Yet the bill does not, at all, curtail the entities that were largely responsible for providing such unsustainable mortgages. The government-sponsored Fannie Mae and Freddie Mac aren't even mentioned in it. Frank is no stranger to leaving those noble institutions, which are supposed to allow low income families to own property, alone. When Republicans pushed for tougher regulation of the two mortgage giants in 2004, Frank was among the Democratic lawmakers who pretended that everything was fine and that Fannie and Freddie were not to be restrained.

Rather than curbing the enormous market disturbing influence of Fannie and Freddie, Frank is going after small banks which, he believes, aren't lending out "enough" money yet to businesses. Democrats in the House have therefore urged the Federal Government to purchase $30 billion worth of stock in small banks to encourage them to provide additional credit. "And we will increase the dividend they have to pay us if they don't do that lending," Frank warned.

The lack of economic recovery, according to the Massachusetts congressman, is wholly to blame on Europe's debt crisis. "It was doing well," he said, "and then the crisis in Europe hit." The United States is still "gaining private sector jobs," though, "but not nearly at the rates that we had been in April and May or March and April."

Unfortunately this is simply untrue. At Hot Air, Ed Morrissey cites Bureau of Labor Statistics which show plainly that private sector job growth in the United States has been minimal since the beginning of this year. There were no "hundreds of thousands of new jobs" as Frank claims; there was no surge last spring. "The private sector," writes Morrissey, "has lost 3.2 million private sector jobs since Barack Obama's inauguration."

Just as the White House urged the rest of the world to keep spending ahead of the G20 summit in Toronto, Canada last month lest austerity measures imperil the global recovery, Frank believes that the opposition is "rooting for failure" when it proposes to discontinue unemployment compensation programs and restore balance to the budget. Republicans "don't mind that" though, according to Frank, "because they think they'll benefit from it in the congressional elections."

Originally published at the Atlantic Sentinel, July 18, 2010.