The following is an excellent excerpt from the book “FRANK: A Life in Politics From the Great Society to Same-Sex Marriage” by Barney Frank from Chapter 10 “Reforming Wall Street” on page 283 and I quote: “On Tuesday, September 16, Bernanke and Paulson summoned us to Harry Reid’s office to discuss the latest terrible news, and their response to it. Their plan came as a shock to us. With help from the Treasury, the Fed would advance $85 billion to the insurance giant AIG, in the hope of forestalling a general meltdown of the financial system.
AIG’s great success in selling actual insurance had produced great profits—more, we discovered, than they knew what to do with in a sensible way. As a result, they’d gone into selling “credit default swaps”–a security that became the poster child for Warren Buffett’s description of derivatives as “instruments of financial mass destruction.” The result was cataclysmic. (It is relevant to not that this problem was entirely of AIG’s doing. Not even the most devout free-market fundamentalist would think of a way to blame Fannie Mae and Freddie Mac for AIG’s recklessness.)
Paulson and Bernanke were not asking Congress for any action when they met with us. Nonetheless, what they were spending was a great amount, even by federal government standards, and their words startled us greatly. I have found it generally to be the case that when I do not understand some complex, unfamiliar transaction, most others don’t either, and I pride myself on being sufficiently self-assured to confess my ignorance. And so I asked Bernanke a simple question; “Where did you get 85 billion dollars?” Referring to a 1932 statute allowing the Fed to lend money, and to the total amount of money under its control, he replied, in his usual calm manner: “I have 850 billion dollars.”
But the very next day, it turned out that the Fed’s largesse was not enough. The panic had become widespread, and even institutions that had been more careful than AIG about incurring debt would need some financial backstop to avoid collapse. Not even the wonderfully elastic Section 13(3) that Benanke had cited could provide a deep enough money pot. “We are past the point of what the Feds and Treasury can do on their own,” Bernanke told his fellow administration officials.
This is where Congress had to come in. We reconvened on Thursday evening in Pelosi’s conference room to hear the bad news twins tell us that we had to appropriate hundreds of billions of dollars right away to prop up desperate firms—otherwise, there might not be a functioning economy by the next week. Paulson did not tell us exactly how many hundred billion he thought necessary, sensibly deciding to administer the terrible medicine in two doses. The next day he announced that his target was $700 billion. It was an admittedly arbitrary number, but it was of the approximate order of magnitude required while still being sufficiently short of $1 trillion to avoid complete political toxicity.
The response of the assembled congressional leadership was supportive, with the exception of the senior Senate Banking Committee Republican Richard Shelby. The economy was unmistakably in free fall, and no one—Shelby included—had any alternative plan to reverse it. Never in my career has Henny Youngman’s “Compared to what?” answered itself so conclusively.
We accepted the need for quick action, but the members unanimously told the administration officials that there was no way we could write the necessary bill in only a few days. We correctly assumed that an immediate announcement of our intention to act would sufficiently reassure the country—and the world. Speaking for Democrats, I also stressed the need for restrictions on top executives’ compensation. Their misjudgments had provoked the crisis. Why should they be the immediate beneficiaries of federal money to alleviate it? To my disappointment, Paulson resisted this request. His explanation for his opposition still stands as one of the worse things I have ever heard any responsible person about the personal values of the leaders of the financial community.
Paulson did not defend the compensation levels of the industry’s leaders, nor did he say, as many were, that congress had no right “Meddling” in the matter. His objection was entirely pragmatic. If government assistance came with restrictions on compensation, Paulson warned, the executives’ resentment at this interference with their prerogatives would lead some of them to refuse to participate. And widespread participation was essential. If only the most troubled institutions took part, taking the money would become a self-fulfilling prophecy that the entity was on its last legs.
As the extraordinary Troubled Asset Relief Program took shape, Pelosi designated me the House Democrats’ lead negotiator. I was flattered but also uneasy. Making decisions for yourself can be hard when conflicting values and complex realities are involved. But making them as the delegate of some greater authority is infinitely harder. The question is no longer just what is the best way to reconcile the competing considerations but whether your balancing act will seem appropriate to those on whose behalf you are acting.
My self-doubt was compounded by the recognition that I had not yet fully mastered the subject matter. I joined the Banking committee because I wanted to work for rental housing for low-income people. I added to this agenda my interest in making the World Bank and the International Monetary Fund more socially responsible. But I had never focused on the workings of private financial institutions, except when Massachusetts banks asked for help in coping with some legal quirk that was a problem for them. Since Massachusetts banking laws predated those of the country, there were sometimes glitches that needed fixing.
By the time of our negotiations, I prided myself on having become very well informed, but I was still self-administering my crash course. I needed help, representing the Democratic membership and on the substance of the bill. Fortunately, one of my colleagues supplied both. Rahm Emanuel had worked in the financial industry and was a member of the House Democratic leadership. I asked Pelosi if I could call on him to work with me. He agreed, and we immediately became a very effective team.
The TARP bill that followed was an insufficiently understood bipartisan accomplishment. Indeed, there’s no more compelling example in our peacetime history of one party in Congress putting aside any consideration of political advantage and extending complete cooperation to a president of the opposite party. The Bush administration’s request for extraordinary legislative powers came at the most fraught time in America’s political calendar—six weeks before a presidential election. Conventional wisdom about politics says that in that time frame, as things got worse for the country, the fortunes of Republican candidates should have been devastated. Despite this, Pelosi, Reid, Chris Dodd (chairman of the Senate Banking committee), and I, with the full backing of the other Democratic leaders in both houses, did everything we could to ensure adoption of the administration’s plan. At no point in any of the Democratic strategy sessions in which I participated—and I was part of all the important ones—did anyone even allude to the electoral benefits we would reap if we made a convincing show of being helpful but stopped short of the extraordinary effort that would be needed to guarantee success. To the extent we had any political motive for seeking to restrict executive compensation and protect taxpayers, it was to win votes in the House and Senate, not on Election Day.
Our role was critical because Democrats were not only supportive of the Bush position but also far more supportive than his fellow party members, who’d become so hostile to government action. In one of the most unexpected emotions I’d has since discovering at fourteen that I was sexually attracted to other males, I came to feel sympathy for Spencer Bachus, the Financial Services Committee’s ranking Republican member. His obvious instinct to be helpful was overruled by the Republican leadership. This put him in the humiliating position of attending bipartisan meetings under the explicit instruction that he was neither to agree to anything nor to explain very clearly why not. The House Republican whip, Eric Cantor, did put forward a scheme for some form of insurance against failure that Paulson knew would do no good. The treasury secretary unsuccessfully tried to downplay his views of Cantor’s approach in the interest of intraparty comity. Unable to fully observe our partisan monasticism, we Democrats needled Paulson into giving his real opinion of Cantor’s proposal.
As negotiations over our financial rescue package accelerated, the presidential campaign pitting Barack Obama against John McCain intruded itself. On September 24, John McCain endorsed the House Republicans’ refusal to support our efforts. He also insisted on delaying the upcoming presidential debate and suspending his campaign so that he could fly to D.C., and settle what he claimed was a serious enduring dispute over the bill. As I put it at the time, McCain’s maneuver was “the longest Hail Mary pass in the history of either football or Marys.”
Furious at being blindsided while I was doing everything I could to maximize Democratic votes for a politically unappealing bill, I called Paulson and vented. I do not remember everything I said, but I do recall beginning the conversation with the phrase “What the fuck.” He did his best to mollify me and assured us that he and the president were doing everything they could to keep their copartisans on board. In fact I knew that this was true, but at that point in a very tension-filled week, I had to yell at somebody.
I’d previously had good relations with McCain. I had been his ally in passing the McCain-Feingold, Shays-Meehan campaign finance reform bill—in the good old days before five Supreme Court justices decreed that unlimited campaign spending was a constitutional necessity. But I did realize that when I analogized his intervention in the TARP talks to Mighty Mouse singing, “Here I come to save the day,” I would weaken the bonds of our friendship.
At McCain’s behest, President Bush convened a special White House meeting, I am told that the administration, probably with McCain’s eager acquiescence, had sought to leave me off the list of attendees. But that would have required excluding Bachus, as well as Shelby and Chris Dodd, so I was included—a form of access by association. In any case, if the ensuing events had been portrayed on The West Wing, they would have been criticized as an outrageous departure from that show’s sober, realistic depiction of national politics. (I will pass over the bizarrely scripted dark fantasy of House of Cards, which too many uninformed viewers believe beats some remote resemblance to the facts.)
The meeting was ideal from our standpoint. Pelosi and Reid began the session by designating Senator Obama our spokesman. When he finished agreeing with the Bush administration’s stance, it was obviously McCain’s turn to speak. But he didn’t—at least not substantively. He said that he was attending to make sure that House Republicans were given a chance to present their view, and he declined to state his own preference. We also repeated our request that McCain tell us what he thought personally was the best way to proceed, and he continued to refuse. I joined in pressing him, unaware, until I was informed later, that I had violated protocol by speaking out in a meeting with the president without having been called on. In my defense I noted that the president had made no effort to run the meeting and had in fact sat there throughout looking bemused. One of my Republican colleagues whispered to me that he looked as if he was already mentally back in Texas.
While I was not the one seeking an answer from McCain. I did take pride in learning from Paulson’s later report that McCain had called him the next day to explain that “the reason I didn’t say anything at the end was because it’s pretty hard to say anything with Barney Frank screaming at you.” I do not think that my admittedly emphatic tone qualified as screaming, and in any case that does not explain why he hadn’t said anything substantive at any other point in the session. Any responsibility I might have felt for McCain’s silence dissolved when Jim pointed out that it seemed highly unlikely that a man who had shown incredible bravery in resisting North Vietnamese torture would be intimidated because I raised my voice in a White House meeting.
After Bush dismissed us, with obvious relief, the Democratic participants caucused to help Obama decide what he would say to the assembled media in the White House driveway. That caucus proved memorable. Paulson joined us, got down on one knee before Pelosi, and begged her not to react to his party’s theatrics by moving away from the deal. She didn’t—although my recollection is that she did move slightly away from the starling sight of a kneeling secretary of the treasury.
Pelosi was good to her word, as she has always been in my experience, and we went back to the House to prepare for the vote. With both parties in the Senate strongly supportive, it was clear that the outcome turned on the House, where Democrats would have to supply the bulk of the votes. The Democratic leadership launched a full-scale effort to muster support.
I became the bill’s main presenter. Over the next two evenings, I spent hours explaining and defending it to out undecided members. Fortunately, we had more votes when these sessions concluded than we had at the start.
Through all the stress and strain that fall, Jim remained the most understanding partner. He had not signed up for a D.C.-based relationship. Herb and Sergio had lived in Washington; Jim did not. His business was in Maine, where he had put up a large share of the awnings on the businesses lining Main Street in Ogunquit. His house was a short distance from his favorite surfing sites, and he was also within a few hours’ drive of good snowboarding locales. In the first months of 2007, I did not foresee any serious problem with our two homes. Being chairman does put more demands of your time, but offsetting that is the control you have over the committee’s schedule. With somewhat more attention to time management than I was used to, I could give both my personal and official lives the time—and, more important, the emotional energy—required.
Then came the crisis. By 2008, Jim was sharing my Friday afternoon doses of bad news from Paulson and becoming one of Ogunquit’s leading authorities on subprime mortgages, securitization, and failing financial institutions. The equanimity with which he made the transition from being a purely private citizen, practicing his craft in a small town, to immersion in a global financial crisis was one of the greatest gifts I have ever received.”
(THE FOLLOWING IS SOME PRAISE FOR THE BOOK ON THE BACK COVER AND I QUOTE:
“Barney Frank will be remembered as one of the hardest-working, quickest-thinking, most effective—and most quotable—congressmen in our nation’s history. Frank tells his story with characteristic candor, form coming out of the closet and working for LGBT rights to fighting for sensible financial reforms. Frank’s belief that government can improve people’s lives has given passion and energy to every part of his remarkable career in public service.”
—ELIZABETH WARREN, U.S. Senator for Massachusetts
“This is authentic Barney—a compelling narrative because it mixes the personal with the professional and with his one-of-a-kind sense of humor. It’s also an important piece of history by a skilled legislator who has been able to get things done in Washington, D.C., that have made a real difference in all of our lives. I was privileged to work with him.”
—HANK PAULSON, former Secretary of the Treasury
“You will learn so much that’s new from this spectacular anecdote-riddled book—even if, like me, you’ve known Barney Frank for forty-nine years. Who better than the smartest, funniest man in Congress, as Barney was widely perceived to be, to make the case for government, for pragmatism, for the little guy, for equality. . . and to explain how things really work—and could work better? He was there for all of it.”
—ANDREW TOBIAS, author of The Best Little Boy in the World
LaVern Isely, Progressive, Independent, Overtaxed Middle Class Taxpayer and Public Citizen and AARP Members