Praise for Barney Frank; apocalypse feared near

Many blog readers have asked why there hasn’t been closer scrutiny of the role the rating agencies (Moody’s, Fitch and Standard & Poor’s) played in the financial meltdown. To which I’ve always said: Good question.

Now, it appears that Barney Frank — yes, the same Barney Frank whose risky approach to subsidized housing via Fannie Mae and Freddie Mac also contributed greatly to the crisis — may have pushed Congress to take a step to remedy the rating agencies problem. From The Wall Street Journal (requires subscription):

Leading the House negotiating team in a conference committee, Mr. Frank persuaded his Senate counterpart, Chris Dodd, to break the cartel of the credit-ratings agencies. These government-anointed judges of risk … put triple-A ratings on junk mortgage paper during the housing boom. When the boom turned to bust, the apparently safe assets were revealed to be anything but, with disastrous consequences for investors.

The results were so bad because government policies force many institutional investors to follow these ratings, no matter how flawed. Without this requirement, analysis from the Big Three would have to compete in the marketplace, and investors could decide whose judgments they trust on risk. Money-market fund managers would have to embrace the old-fashioned idea of due diligence.

Mr. Frank’s reform, strengthened further by an amendment from Rep. Scott Garrett (R., N.J.), will end the ratings racket enjoyed by S&P and the other “Nationally Recognized Statistical Ratings Organizations.” All requirements to use these favored credit judges will be stricken from federal rules as well as laws.

State legislators who haven’t already enacted such reform should do the same to ensure that the ratings cartel doesn’t maintain a grip on pension and insurance rules.

Say what you will about Congressman Frank’s role in protecting the failed mortgage giants Fannie Mae and Freddie Mac — and we’ve said a lot, little of it admiring — he is close to eliminating one of the root causes of the financial meltdown of 2008. Whatever one’s views on the existence of miracles, this one is close.

Let’s hope this part of the financial reform makes it through the rest of the legislative process unscathed.

34 comments Add your comment

scrappy

June 17th, 2010
2:43 pm

“Let’s hope this part of the financial reform makes it through the rest of the legislative process unscathed.”

This seems doubtful, but I will remain hopeful.

CJ

June 17th, 2010
2:57 pm

Many blog readers have asked why there hasn’t been closer scrutiny of the role the rating agencies (Moody’s, Fitch and Standard & Poor’s) played in the financial meltdown. To which I’ve always said: Good question.

Despite Kyle’s ignorance on the subject, committees from both the House and Senate held hearings on precisely this subject when crafting the financial regulation reform legislation.

In addition to the reform described in Kyle’s post, there are a other components of the House and/or Senate bills that specifically address these rating agencies. For example, the Senate bill includes the Franken Rule which results in a requirement that the SEC must address the conflict of interest associated with these agencies rating instruments of the very institutions who pay them to provide such ratings (i.e., give my product a good rating or I’ll take my business elsewhere). If a strong alternative isn’t developed within two years, then going forward, the feds will match credit agencies with debt issuers, thereby removing the incentive for these agencies to give higher ratings than would otherwise be given.

There are also provisions allowing investors to sue the agencies for losses arising out of the poor performance of these agencies. Republicans, incidentally, are seeking to have this provision removed.

joan1

June 17th, 2010
3:33 pm

I guess that miserable excuse for humanity, Frank, isn’t sleeping with any of the rating agency principals, like he was with the Fannie Mae executive, and maybe they aren’t “contributing” enough to his campaign fund. And any federal legislation, by the way, is only as good as its enforcement, which we all know, doesn’t exist. But why should regulators work, when they can get paid by the people they are required to regulate, to close their eyes and play ball. So goes the banking industry, housing, the border, the oil companies, etc.

Peter

June 17th, 2010
3:37 pm

Yes Kyle…that is a question I have asked several times…….. some good news !

Kyle Wingfield

June 17th, 2010
3:38 pm

Sorry, Peter, but if you’ve had to ask about this then CJ thinks you’re an ignoramus.

arnold

June 17th, 2010
4:11 pm

If you write this blog, then you should have an accurate knowledge of the subject so to be able to defend it.

Kyle Wingfield

June 17th, 2010
4:19 pm

What’s inaccurate, arnold?

Gator Joe

June 17th, 2010
4:29 pm

Kyle,
There is hope for you. You have given praise, abeit faint and qualified, to a Democrat and a Liberal one at that. In all sincerity, I commend you for not automaticall taking the “anything Democratic is bad” position. Thanks

Gator Joe

June 17th, 2010
4:30 pm

excuse my spelling “albeit” sorry, old brain here

Kyle Wingfield

June 17th, 2010
4:32 pm

Gator: Don’t thank me, thank a Democrat for finally getting something right!

:-)

Gator Joe

June 17th, 2010
4:36 pm

Kyle,
Next we will work on your being able to accept compliments. Actually, Democrats do lots of things right, although it may difficult to see them through rose-colored Fox glasses. Keep up the progress.

Fix-It

June 17th, 2010
5:02 pm

Hey Barney, mind if i smoke some of that dope, er tobacco growing in your basement? Can you get me a job at Fannie or Freddie, I only need about 10 million a month, and 9 months should be about right.

Roger Rabbit

June 17th, 2010
6:24 pm

Wow, joan1 is the judge of who’s fit to be called ‘human’. I hope I measure up. LMK joan1.
Thanks Kyle, for giving credit where credit is due.

get out much?

June 17th, 2010
6:31 pm

Kyle, in 2003 (the date of the hearings you cited) Rep. Barney Frank (as well as all of the other representatives mentioned) was a member of the minority party in the House of Representatives. The House operates on simple majority vote. If the Republican Party (the majority party at that time) had wanted to put Fannie Mae and Freddie Mac under tighter scrutiny, all they had to do was vote the party line (something they seem quite adept at lately).

As for the ratings agency, it is about time some one looked at them.

Gerald West

June 17th, 2010
6:39 pm

I don’t get it! A democrat senator praised for proposing to straighten out some of the mess caused by government irresponsibility that started with Reagan, continued under the two Bushes, with a brief respite under Clinton?

Kyle has revealed his rational side! The Fox News commentators will be mortified! Russ will be livid!

Jack

June 17th, 2010
6:44 pm

I am outraged that anyone thinks an apology from Representatives Barton and Price is owed to anyone.

Both were dead on. Big business is the tool that drives America and is the friend of “real Americans”. Big oil is big business. So what if a little leaks out and gets a handful of people in a wad. These people are only looking for a free handout rather than going to work.

There are few things in life that are certain, but I can assure you these two statesman will never back down from apologizing on behalf of our country for what this Administration has done to this vital and honorable business that has done so much for our country.

Ragnar Danneskjöld

June 17th, 2010
6:53 pm

Good evening all, got a laugh when I read the WSJ editorial this morning. Now if only they would notice the 800 lb gorilla in the room, the corrupt failures at FNMA and FHLMC. One would think even democrats now would endorse liquidating those economy-killers.

Tyler Durden

June 17th, 2010
7:23 pm

Gator Joe: you’ve already proven yourself to be head &shoulders above the rightwing blogosphere. Stay classy, and keep taking chumps like Kyle to task for not realizing that, in order to be respected, you must first show respect.

Kyle: your progress, as always, is one step forward, two steps back. Less time spent carrying the GOP’s water and more spent looking for information, not opinions, will serve you well…

Intown

June 18th, 2010
8:37 am

Kyle: I’ve agreed with you twice in one week. Are you sure you are a real conservative?

Bob

June 18th, 2010
8:39 am

get out much, yes, the house does vote on majority basis but the repubs only had 55 votes in the senate. Some regs were voted on in the house but crashed in the senate.

songbird

June 18th, 2010
9:12 am

Jack – lmao!

get out much?

June 18th, 2010
9:30 am

Bob@8:39 – in that case, why target a member of the house?

JKL2

June 18th, 2010
9:36 am

fix-it-

The gay prostitution ring is in his basement. The pharmaceutical business is in the back yard.

YAWN

June 18th, 2010
10:38 am

Hey Kyle, Hannity called. He wants no mayo on that sandwich and a chai latte STAT

Finn McCool

June 18th, 2010
11:00 am

Kyle, CJ’s comment about Franken is important. Frank fought off franken’s idea to totally separate the credit ratings actual rating from the payment they receive from the banks for providing that rating (a definite conflict of interest)

So, we are still all fo*ked!

Ezra

June 18th, 2010
11:27 am

Well, I guess if I shoot somebody and then bandaged up their gun shot wounds that makes me a better person. Aint that right Kyle Wingfield? This garbage is why the progressive liberals continue to drag our country down. Take off that mask Kyle so we can see that liberal face of yours.

Dennis C. Brown

June 18th, 2010
11:49 am

Sorry, but anything that involves Barney Frank will always be suspicious to this reader. His unapologetic and leading role in the continuing Fannie Mae and Fannie Mac debacle is enough to suggest the questioning of not only his position on this rating agencies matter, but further investigation into his motives as well. This definitely smells like trusting the fox in the hen house solving the problem.

Dennis C. Brown

June 18th, 2010
11:54 am

Give us a break Wingfield. To this conservative, having Barney Frank involved even a little bit in “solving the financial meltdown” is like trusting the fox in the hen house. His initial leadership role, and now unapologetic protection of the Fannie Mae and Fannie Mac debacle is enough already.

Horrible Horrace

June 18th, 2010
12:20 pm

How will a company solvency be judged? Or did I miss something…

BADA BING

June 18th, 2010
12:39 pm

I agwee, I think Bawney Fwank should be pwaised.

mmm, mmm, mmm, Barack the LIAR Obama

June 18th, 2010
1:11 pm

There is NOTHING good about Barney Frank, PERIOD. He played a BIG roll in the Fanny and Fredy MESS.

mmm, mmm, mmm, Barack the LIAR Obama

June 18th, 2010
1:16 pm

Oh, Gator Joe, PLEASE name ONE thing the dems have done right? Try some of the LA Oil Kool-aid next time you’re thirsty! Unemployment near 10% Hell of a job Obama is doing. He is so ONE TERM and even makes Jimmy Carter look smart (a very hard thing to do).

Peter Haskett

June 18th, 2010
1:31 pm

“Many blog readers have asked why there hasn’t been closer scrutiny of the role the rating agencies (Moody’s, Fitch and Standard & Poor’s) played in the financial meltdown. To which I’ve always said: Good question.”

Kyle, do you truly believe Barney Frank and Fannie Mae & Freddie Mac caused the mortgage meltdown? You DO know that those two agencies are only responsible for about 8% of all mortgages, don’t you? Furthermore, those two agencies were out of the high-risk mortgage lending business by 2005, and sub-primes made up only a small percentage of their business to start with.

The bills before Frank and Dodd are written by their friends at S&P & Moody’s. I can call either Frank or Dodd and ask them not to go to lunch with their rating service cronies, but the lobbyist at S&P & Moody’s can take them out to lunch, say “vote yes” for financial reform, write a 2 million page bill, then 10 years down the road, whoever wrote the bill gets to rate bonds at Moody’s or S&P.

When this happens, you can blame Frank, I’ll blame Dodd.

[...] with Barney Frank twice in two months? Don’t worry, the Massachusetts Democrat wasn’t right about everything in his interview [...]