In his final term as Massachusetts Congressman, Barney Frank joins us in the Jab room with thoughts on his career, the economy, his reaction to Obama’s support of gay marriage and his plans for retirement.
Click here to listen to the full interview.
Mark Walsh: So 1980 you ran and you won, it’s been a long and eventful road. If I may ask, and I know this a stupid, dumb question you’ve answered a million times: what was the “ah-hah” moment that made you say this is the last term I’m going to serve?
Barney Frank: Well, the final decision point was the creation of a new district in which I would be running. I had previously decided that this next term would be my last term. I had gone back and forth. Earlier in 2010, I thought I would have been retiring, as I now am. When the Republicans took the house back, I said ‘well, I don’t want it to look like I’m retreating on the fire, I’ll run again.’ There are a number of reasons why I was going to be retiring either this term or next. First of all, and this may be the most important, I like to write. I have a great respect for the written word. I think that it’s a very important part of the national debate. Some people can write and then do other things. Senator Moynihan is a great example of that. I can’t. I have a short attention span. I will find any excuse not to write if there is one. So if I have any other set of duties, so the blank screen will just terrify me. So I did want to retire so I can write while I can still breathe.
BF: I’m very proud of the constituent services that I provide. I talk to people and say, ‘If you got problems, whether they’re personal problems with social security, or a government project that you need some complicated federal help for, or some business that’s working on some legitimate federal issue, then I’ll provide you help’. But those things rarely get resolved in a short period of time. So if I were to go, I would be going to 325,000 new people and I’d say here’s the deal: I’ll be in charge of your problems, but at the end of 2 years I’m leaving. So if you came to me with a problem in February of 2014 I’d be your Congressman. But there would be very little chances I could be there ’til the end.
The other thing is, I’m 72 years old. I think I’m in good shape now, although my energy level isn’t what it was. And people say well, do the job a little less. But that is hard to do. You do a job with a certain level of energy and you create a certain set of expectations, it’s kind of hard to turn those off. I just couldn’t find a way of doing 80 or 90% of what I used to do. I think its very important when you’re leaving any job, you want to leave before the question “why are you leaving?” turns into the question “why are you staying?”
David Goodfriend: Well, Congressman, this is Dave Goodfriend. I think it’s safe to say that you have more energy at age 72 than most of us would hope to have at age 52. So, you’ve done a great bit of work in your life. I want to drill down on probably your signature achievement in the last decade, maybe even your whole career, and that was the passage of the Dodd-Frank Wall Street regulation law. A lot of people are now saying, in retrospect, that it didn’t go far enough; it should have more “teeth.” How do you respond to that?
BF: That they haven’t read the law. The people that say the law should have had more teeth don’t understand what it has. Now there has been this problem… that the Republicans would take over the House and refuse to fund the agencies. That’s been the problem. Derivatives was the major area of financial activity that we covered that had previously been largely unregulated. And the main agency for doing that, a fairly obscure agency until now, is the Commodities Futures Trading Commission. The republicans have been starving it. In fact, one of the things that going to happen in the next few weeks we think, after the JP Morgan Chase loss, is that we may be able to embarrass them into adequately funding it.
Some people say well why didn’t you reinstitute Glass Steagall? Well we went far beyond Glass Steagall. Here’s the problem: Glass and Steagall were pretty smart guys I guess, in 1931. They never heard of derivatives. They never heard of sub-prime mortgages. They never heard of the process of securitization, whereby you make a lot of loans to people, package them, and sell them and don’t have any concern about whether or not they are being paid. Now those are the major causes of today’s crisis. If we had simply reinstated Glass Steagall, we wouldn’t have prevented any of them. AIG was the precipitating cause of much of the crisis. AIG was perfectly legal under Glass-Steagall because they weren’t a bank. Part of the Glass Steagall principal, which was if you’re a bank getting deposit insurance, you should be particularly restricted. But even with regard to JP Morgan Chase, it wouldn’t be a good solution if all we did was to say, ‘look, we don’t want JP Morgan Chase engaging in their risky business, but its okay if some other entity does.’ And much of what we did with the bill was to put regulations in across the board.
BF: I’ll tell you what: Sarah Palin was half-right in her description of the Congress in 2009 and 2010, which for her by the way, is like way above her average.
MW: That’s right!
BF: She said we had death panels, and we did have death panels. But we had them for big financial institutions, not for old ladies.
In 2008, a number of financial institutions got AIDS, and they survived. And it was led by taxpayers, although most of it was paid back. What we say now is this: if an institution cannot pay its debts, like AIG, the federal government may have to step in to pay some of the debts to keep this from becoming a spiraling downward crisis. But first of all, the institution is put out of business, the shareholders are wiped out, the CEO and all the other officers are fired, the board of directors is dissolved. The federal government will take the institution over and get rid of it just the way it gets rid of a failed bank. There may have to be some dispensing of funds over the course of that. But the law is very clear on this: any funds that are paid out as we wind one of these down, as we put it to death in effect, will have to be repaid by the financial institutions. And we empowered, we directed the Secretary of the Treasury: if any failed institution has cost you any money, you assess…When we brought the bill to the conference committee, we were told it was going to cost $20 Billion dollars to administer this bill. So we said fine: we will assess financial institutions that have $50 Billion or more in assets, and they’ll have to pay that cost over a 5-year period. Frankly, for them, not a lot of money. JP Morgan Chase just lost 15% of that in one shot. But 3 Republican Senators at the time, who were voting for the bill, and we needed their votes, we needed to get to 60, we only had 59 Democrats, and 1 wasn’t going to vote for it. So we needed 2 of the 3, and they locked arms and said it would be all or none. They made us take the $20 Billion dollars off the backs of the financial institutions and put it on the taxpayers. So yeah, the bill didn’t have everything I wanted in it, but we did need 60 votes in the Senate.
DG: Now you mentioned something that has come up, which is the exercise of shareholder rights, the executive pay for Citigroup’s CEOs, one of them. But I have a deeper question for you, which is: is this perhaps the key to bringing back more grassroots democracy? In other words, so many Americans are shareholders in one form or another, either through their pension funds, or their 401Ks, or their investments in other areas, and yet they don’t really use their proxy votes. Does your law or does the trend that your law sets in motion suggest that maybe this is a new kind of activism? That people can actually make things happen in other issue areas, whether it’s in environmentalism or trade or whatever, through exercising their corporate votes?
BF: One of the things that is very clear is that the Boards of Directors are useless at best. The problem is: who is on the Board of Directors? A handful of very important people who appoint each other to each other’s boards. There are people serving on 2, 3, 4 boards of directors. They really don’t cover anything. All you have is the Board of directors in these worse cases was they would come after the crisis and say “Ok were going to fire somebody”… Don’t rely on the directors… The CEO appoints the directors, and the directors set the CEO’s pay, and they’re totally working together. We also tried to mandate in the bill that it would be easier to challenge the Boards of Directors. Unfortunately we couldn’t get the votes we needed in the senate to do that. So we authorized the SEC to require that. They did it, and they were sued and they lost, and I urged them to go back at it.
Part of the problem with compensation is not that it’s too high, but the way it’s structured. The way it works would be this: if you were the top decision maker and you took a risk and that risk paid off, you got a big bonus. But if you took a risk and the risk didn’t pay off, you didn’t get any penalty. It was heads you won, tails you broke even. So rational people took a lot of risks. So we mandated every financial regulator, whether its the Federal Reserve for banks or the SEC for other corporations, for financial corporations to require provisions that say, if you are one of the top decision makers and you have a compensation system that rewards you if you do well, it’s got to equally punish you if you do badly.
The fundamental cause of this problem was that people were taking risks way beyond what made sense, because they didn’t have to pay the penalty for the risk. That’s what much of the bill does. It does 2 things: first of all, it diminishes the risk taking. Secondly, it makes them keep a lot more money in reserve if they are going to take those risks.
If you think the bill wasn’t tough enough, you don’t agree with Wall Street. Because a lot of these financial people who gave money to Obama in 2008 have overwhelmingly turned against him… and I found that in 2010. I ran against a guy in 2010 who wasn’t very impressive between declaring he was going to run and the primary in September of 2010, as he admitted he had raised $300,000. Then when he won the primary and it was him vs. me, he raised $2 Million in 7 weeks, and the same is happening, except even worse, to the President. All these people, and what’s interesting is that these are Democrats some of them, these are believe that are up for same sex marriage, and believe that we need to fight climate change; they sound very enlightened. But the fact that we put some rules in place that say that “look, you guys were irresponsible and you can’t do it”, they may disagree with the right wing Republicans and everything else, but for their own narrow economic interest and because we insulted them, they are overwhelmingly supporting Romney… That’s why money is pouring in against the President.
Derivatives are the major area of risk. With derivatives, the leverage is incredible. That is, for a relatively small amount of money, hundreds of billions are at stake. There is more money theoretically at risk under derivatives than there is money in the world. I mean that seriously: hundreds of trillions of dollars. Because you can make a very small bet and not have any money to pay it off. That’s what happened to AIG. They sold a lot of contracts, a form of derivative called credit default swaps, and when it came down to it they couldn’t pay them up. So we have said: ‘no, you can’t do that anymore.’ In the first place, we want all these things to be public, we want them to go on exchanges, we want them to post margin. And the agency that is supposed to referee and set the rules is the Commodities Futures Trading Commission under Gary Gensler. The Republicans in the House have refused to fund that agency adequately. They need about another $150 million. JP Morgan Chase just lost $3 Billion and counting on derivatives, but they won’t give an extra $150 million to the agency that’s supposed to take care of it.
MW: Is true bipartisan behavior on the hill dead in your opinion?
BF: It’s now in trouble for a single reason… In 2009 and 2010 we got things done in Congress. And then in 2010 the Tea Party people elected a majority of the Republican Party, and these are people who explicitly don’t believe in compromise. Look at the guy who just beat Senator Lugar in the primary in Indiana. He said we have too much bipartisanship in Washington. People have said to me, why don’t you get along with your Republicans and make deals? My answer is, look you’ve seen this play out in the presidential primary. How easy do you think it would be for me to work things out with Michelle Bachman? So they say, ‘well are you saying they’re all Michelle Bachman?’ The answer is no, in the House of Republicans only half of them think like Michelle Bachman. But the other half are afraid of losing the primary to someone who thinks like Michelle Bachman. If the Republicans lose ground this November, then maybe some of the main stream Republicans will have the guts to fight back. But as long as you’ve got people like Eric Cantor and the Tea Party in charge, that’s what stops bipartisanship… You can’t force cooperation on someone.
DG: Ok, Congressman this is Dave. The interview would not be complete if we didn’t ask you for your reaction, and for that matter for your partner’s reaction, to President Obama’s statement about gay marriage.
BF: Obviously, it was great. It made a happy time for us even happier.
DG: That’s great.
BF: Hang on one second…
MW: You have to go?
BF: No I don’t. I was just checking with Jim to make sure that I wasn’t misrepresenting him, you know, marriage is a partnership.
Actually, I’ll tell you this, this is great: when I announced my retirement, the President called and invited me to have lunch with him. I became very, very satisfied when he took the really tough step of saying the Defense of Marriage Act was unconstitutional.
It was a very nice thing to be able to get married; for me, for Jim. For us to be able to get married while I’m still a member of the House. For us to go back to Washington after we were married, and for me to serve out my last couple of months as a married member of Congress, married to someone of the same sex. It can’t help but have some impact on some of these Republicans who think this is the end of the world. They’re going to sit in the same room as a gay married couple, and survive.
MW: So when am I going to walk into a Barnes and Noble and see a book with your name on it as the author? And will it be a novel or some other kind of book?
BF: I hope to start writing, as I said, it’s a major reason…I hope by the end of next year. I want to write about what I think liberals should do, both strategically and tactically. I also plan to write about the movement for LGBT rights, because just serendipitously, my career and that movement are coterminous. And in both cases, about liberalism and LGBT rights, I partly want to talk about the substance, and I partly want to try to influence my allies to be smarter about their politics. People have asked me what I think about the Occupy movement and I say, at least I wish, strategically, it was more like the Tea Party movement. One of the things that discouraged me about the Occupy movement is that I never saw a voter registration table at any of the Occupy places. And part of what I think people on the left need to do is to be smarter about the political strategies we follow.
MW: I think you’re exactly right, sir. Barney Frank, thank you for your time, and congratulations. We look forward to your writings and we really enjoyed having you on the show tonight.
BF: Thank you.
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