It is always unfortunate to see a highly intelligent and knowledgeable member of Congress retire, and that is also true of Barney Frank (D-Massachusetts). Although he was the principal protector of Fannie Mae and Freddie Mac for many years—claiming that he could see no need for additional regulation and arguing that the Bush administration’s effort to control the GSEs would have the adverse effect of reducing their commitment to affordable housing—he had the good sense to change his mind and develop strong regulatory legislation that became law just before the financial crisis hit.
Still, his career was marred by excessive partisanship, defensiveness, and an intellectual arrogance that prevented him from recognizing his errors until it was too late to save Fannie and Freddie or prevent the 2008 financial catastrophe in which they played the primary role. By the time Fannie and Freddie failed, they had accumulated 12 million subprime and other low quality and risky loans—about 40 percent of the 27 million outstanding—mostly for the purpose of meeting the affordable housing goals he fought to protect. The defaults on these loans, which are continuing, will ultimately cost the U.S. taxpayers $300 to $400 billion.
He will say, of course, that he did not become chairman of the House Financial Services Committee until 2006—that the Republicans were at fault for failing to act sooner when they were in the majority. There is some truth in this, but if he had been willing to work with the Republicans on the HFSC instead of insisting that there were no problems with Fannie and Freddie, legislation might have been adopted in the early 2000s that could have prevented the financial crisis and saved the taxpayers from severe losses.
In the end, he realized his mistake, telling Larry Kudlow in a 2010 interview: “I hope by next year we’ll have abolished Fannie and Freddie . . . it was a great mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.”