Barney Frank and friends exposed

Feb. 12 (Bloomberg) -- The chief executive officers of Wall Street’s too-big-to-fail banks traipsed up to Capitol Hill yesterday to submit to questioning from Barney Frank and the House Financial Services Committee he heads.

It was the latest installment in a series of show trials featuring the likes of Major League baseball, the Detroit auto industry, Big Oil and Bad Tobacco.

Not that Congress is outside its jurisdiction in inquiring after the taxpayer money it has doled out. (If only lawmakers were as vigilant about the rest of their spending.) When our elected representatives are out for blood, a legitimate form of inquiry quickly degenerates into finger-pointing and grand- standing for the folks back home.

Yesterday’s hearing was relatively tame, as far as lynchings go. The eight Wall Street CEOs, including Citigroup Inc.’s Vikrim Pandit, JPMorgan Chase & Co.’s Jamie Dimon, and Bank of America Corp.’s Ken Lewis were questioned about their lending, or lack of it, since they received an injection of government capital under the Troubled Asset Relief Program. They were scolded for spending the money unwisely. They were asked about salary, bonuses and “planes and perks” (a show of hands, please).

The bankers were appropriately contrite in admitting mistakes and sincere in their commitment to make amends. Pandit volunteered to take a salary of $1 and no bonus until Citigroup is profitable again.

The execs had to dance around some of the questions, such as one on raising credit-card rates, with prosecutor Maxine Waters, Democrat of California, cutting off the witness before he could explain how banks make a profit.

Reversal of Fortune

Just imagine if the tables were reversed. Frank and Waters are seated at the witness table instead of perched on the hearing room dais. The questioning would go something like this:

Chairman Frank, on July 14, 2008, you made the following pronouncements about Fannie Mae and Freddie Mac, the two huge government-sponsored enterprises that are the key players in mortgage finance:

“Fannie and Freddie are fundamentally sound.”

“They are not in danger of going under.”

“Looking at the financials, they’re solid.”

You followed that analysis with a forecast. Referring to legislation before your committee to allow the Treasury to lend to and buy unlimited shares in the GSEs, you said: “We’re doing three separate things that make it much less likely -- very, very unlikely -- that we’ll have this kind of a housing crisis six months or a year from now.”

Less than two months later, Fannie and Freddie were wards of the state.

Just answer the questions, Mr. Chairman.

GSE Enabler

As the ranking member of the House Financial Services Committee -- before you became chairman in 2007 -- you consistently opposed stricter regulation of Fannie Mae and Freddie Mac. I would just note that you received $42,350 from Fannie’s and Freddie’s political action committees and employees from 1989 to 2008.

In 2004, you received a report from the GSE regulator showing that Fannie and Freddie had manipulated their earnings, enriching their senior executives in the process. Yet you and your fellow committee members, primarily Democrats, looked the other way.

Even worse, you shot the messenger, Armando Falcon, director of the Office of Federal Housing Enterprise Oversight, who found accounting irregularities at both companies.

‘Innovation’ Lending

This is what you said to Falcon at a committee hearing:

“I don’t see anything in your report that raises safeness and soundness problems.”

Your distinguished colleague, Maxine Waters, was right there to back you up.

“We do not have a crisis at Freddie Mac, and particularly at Fannie Mae, under the outstanding leadership of Franklin Raines,” she said.

She went on.

“What we need to do today is to focus on the regulator, and this must be done in a manner so as not to impede their affordable housing mission.” That mission, as you noted, has seen “innovation flourish from desk-top underwriting to 100 percent loans.”

We all know how that worked out. Fannie had to restate earnings back to 2001, erasing $6.3 billion in previously reported profits.

Doing Penance

Former CEO Franklin Raines kept the lion’s share of the $91 million bounty he received for his six years of service at the company. (Raines had to cough up $24.7 million last year to settle a claim that he inflated earnings.)

Questioned by former congressman Chris Shays, Republican of Connecticut, about Fannie’s teensy 3 percent capital cushion, Raines said of the multi- and single-family loans the company holds: “These assets are so riskless that capital for holding them should be under 2 percent.”

Finally, Mr. Chairman, you used your influence as chairman of the House Financial Services Committee to secure $12 million for a troubled home-state bank under the TARP program. Treasury had stipulated that the banks be healthy.

It’s disingenuous to be critical of legislation you passed and a program you implemented when you’re the one bending the rules.

Mr. Chairman, we thank you for your candor in appearing before us today.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

http://www.bloomberg.com/apps/news?pid=20601110&sid=a5UrNNsvQepQ

 

Barney, like all radical leftists can make a compelling argument, on one condition. The opposition must have a very, very short memory.

 

He was on CNBC yesterday - basically said he and his democrat pals had nothing to do with Fannie and Freddie's downfall. It was the republicans he said...

And of course, no one CNBC challenged him.

 

I particularly liked it when Bill O'Reilly called Frank a coward to his face!

http://www.youtube.com/watch?v=RAuOEdttjZQ