Congressman Barney Frank: Biography and Economic Impact
Frank's Role in the 2008 Financial Crisis
Barney Frank is a former Democratic Congressman from the Fourth District in Massachusetts. He served from 1981 to 2013. He was Chair of the House Financial Services Committee from 2007 to 2011. He played a key role in government efforts to stop the 2008 financial crisis. He also sponsored legislation to keep it from ever happening again.
He has a reputation for being well-informed on the complex financial environment in the United States. He was an expert on housing and mortgage regulation. He focused on protecting homeowners, especially those with lower incomes. 2008 American Housing Rescue and Foreclosure Prevention Act.
Frank was criticized for defending Fannie Mae and Freddie Mac. For that reason, some blame him for the subprime mortgage crisis. The true cause was banks' overreliance on derivatives. For more, see What Caused the Subprime Mortgage Crisis?
Frank tried to decrease military spending. He argued that federal funds are better spent rebuilding infrastructure at home. It must be done to reduce the deficit and U.S. debt.
He has long been an advocate of limits on executive compensation which, as he says, "...rewards a CEO for taking risks but if he incurs losses goes home to dinner as usual."
What the Financial Service Committee Does
The Committee oversees all components of the nation's housing and financial services sectors including banking, insurance, real estate, public and assisted housing, and securities. It reviews programs relating to the Federal Reserve, FDIC, the SEC, Fannie Mae and Freddie Mac, HUD and international agencies such as the World Bank and the International Monetary Fund. The Committee also ensures enforcement of consumer protection laws such as the U.S. Housing Act, the Truth In Lending Act, the Housing and Community Development Act, and the Community Reinvestment Act, among others.
Why Frank Is Important to the Economy
As Chairman of the Housing Financial Service Committee, he was responsible for developing a response to the $700 billion bailout proposed by U.S. Treasury Secretary Henry Paulson. Fortunately, he understood all too well how derivatives caused the banking crisis. That meant he agreed with Paulson that doing nothing was not an option.
Frank knew what alternatives need to be included. His expertise meant he could help shepherd a solution through Congress. The additional measures included:
- Aid for homeowners trying to avoid foreclosure.
- An oversight structure that will review Treasury's purchase and sale of mortgages.
- A government equity stake in companies that receive bailout assistance.
- Limits on executive compensation of rescued firms.
The measures addressed the concerns of moral hazard. No one wanted the bailout to let banks off the hook morally. Bankers took excessive risk. A bailout had to have enough pain so they wouldn't do it again. The bailout didn't relieve bankers from the consequences of their bad decisions without compensating taxpayers.
He was also responsible for ushering through the Dodd-Frank Wall Street Reform Act, named after himself and Senator Chris Dodd, D,Conn. Its eight measures fixed some of the problems that caused the financial crisis. It also established the Consumer Financial Protection Bureau. It limited banks' use of depositors' funds with the Volcker Rule.
Frank's Early Career
Barney Frank was a Massachusetts State Representative (1972-1980). He has taught at several Boston area universities. He is a graduate of both Harvard College (1962) and Harvard Law School (1977). He pursued a Ph.D. at Harvard. He left in 1968 to become chief assistant to Mayor Kevin White of Boston. He served in the Massachusetts House of Representatives from 1972 to 1980, and was admitted to the bar in 1979.
In 2012, Frank retired from politics. In 2015, he published his memoir: Frank: A Life in Politics from the Great Society to Same-Sex Marriage. He is currently a professional public speaker.