Rep. Barney Frank on financial reform
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TEXT OF INTERVIEW
Tess Vigeland: It’s been almost two years since the U.S. financial system found itself on the brink of collapse. Since then, the economy spiraled into what we now call the Great Recession. The stock market fell down the rabbit hole and then bounced right back out. All the while, promises of reform burbled quietly in the background. Now we have a compromise bill — what’s being called the most significant overhaul of financial regulations since the Great Depression. It creates a Consumer Financial Protection Bureau within the Federal Reserve that will regulate everything from mortgages to credit cards to payday lenders. Another new agency has the authority to break up and liquidate banks that are in enough trouble to affect the entire economy. You’ll no longer be able to get a mortgage without showing that you can pay for it.
There’s a lot more. And here to discuss it with us is Congressman Barney Frank, the chair of the House Financial Services Committee. Thanks for being with us.
Rep. Barney Frank: You’re welcome.
Vigeland: This law is the direct outgrowth of the crisis of the fall of 2008. So let me ask you, if we had this law in place in June of 2008 — two years ago this week — would we have avoided the meltdown?
Frank: We might have been able to deal with it better. It wouldn’t have been quite as bad. If we had these laws in place in 2004 or ’05 then we would have avoided it. By 2008 a lot of bad things had already happened. But we wouldn’t have been able to avoid them, we would have been able to cope with it better. If an institution is in trouble, you put it out of business. There will be no more AIGs kept alive while we have to pay off some of their debts. There will be death panels, but they won’t be for old women, they will be for financial institutions. Secondly, the federal government will be able to pick and choose and pay some of the expenses that result from these collapses, but not all of them. And they will do it, finally, not with any taxpayer money, but with money that’s assessed on the financial institutions. So good question, if we had that in June of 2008, we would have been able to mitigate the danger. If we had it in 2005, we would have been able to prevent the crisis.
Vigeland: Is this bill strong enough to prevent that from happening again?
Frank: Oh, without question. We can’t say there won’t be another crisis, obviously. But it is highly unlikely — very highly unlikely — that we’ll have a crisis caused by the kinds of irresponsible actions that triggered the current one.
Vigeland: What do you think is missing that you were really hoping to see?
Frank: Well, I would have liked to go further in the consumer bureau. Its independence is a little compromised by the ability of the other federal regulators to, by two-thirds vote, override them. Otherwise, I would have liked to have a little bit more in which the financial institutions contributed to help cities deal with foreclosure-related blight and to help unemployed people avoid foreclosure.
Vigeland: How do you think this will change how you interact, as a consumer, with the banking system?
Frank: First of all, we’ve already changed and protected people on credit cards. They will get more protection on credit cards from a consumer bureau. We passed a good law restricting some credit-card abusive practices, but the banks were then free to go into new ones. And it takes us too long to pass another law. With the in-place consumer agency, they won’t be able to do that. They won’t be able to do something new, they’ll be hit again. Overdraft fees will undoubtedly be addressed. The other thing is this: An investment device, frankly I’m — you asked me about me personally — I’ve got severe conflict-of-interest rules, so I am almost entirely invested personally in Massachusetts municipal bonds and double-tax exempt — absolutely secure. But if you do have a financial adviser, if you deal with a broker dealer who is selling you products, they will now have a fiduciary responsibility and that’s very important. There will be fiduciary responsibilities on the people who are selling many of these products to individuals, and that’s another area that, I think, we have improved consumer protection.
Vigeland: Undoubtedly, in a 2,000-page bill, the banking industry is probably going to find some loopholes. What are your major concerns about the financial industry trying to get around what you’ve done today.
Frank: That’s a perfectly reasonable question. And we’ve anticipated it. We gave the regulators the power, not simply to enforce the current set of regulations, but to impose new ones if that come up. For the first time, every financial entity of any size in America will be covered by a regulator and will have to report to that regulator. And we give the regulators the power to step in. If any institution or pattern of activity threatens a crisis, the regulators can step in with non-enumerated powers and say, “All right, stop it. You’ve got to knock this off.” If there is a new activity that we haven’t thought of, some regulator will be in charge of it. So we have given a residual power to the regulators to go beyond our specifics in case of exactly what you suggested.
Vigeland: Congressman Barney Frank, thank you so much for your time today.
Frank: My pleasure.
Vigeland: This bill, by the way, once signed, will be known as the Dodd-Frank Act for Congressman Frank and his Senate cohort Christopher Dodd.
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