Crossposted from another fine community, SwordsCrossed
At the height of the housing bubble in 2005, Massachusetts Democrat Barney Frank gave a boilerplate speech on the House floor in support of a meaningless resolution to honor National Home Ownership Month. This speech, forgettable at the time, reveals much of what is wrong with our legislative process, and gives insight into the complacency that has found us at the precipice of the most severe economic crisis since the Great Depression.
I am very pleased to join in support of this resolution. Indeed, I was a prime cosponsor. The main sponsor is our colleague, the gentleman from California (Mr. Gary G. Miller), who comes to Congress with a distinguished record himself in building homes.
Distinguished record, indeed– if you’re willing to overlook Congressman Miller’s federal tax evasion, making false statements in connection with land sales, and misuse of Congressional staff in connection with a land sale…
This is a very important resolution, particularly at this time, because we have, I think, an excessive degree of concern right now about homeownership and its role in the economy.
Yes, Congressman Frank– it was much more important in 2005 to pass a resolution recognizing National Home Ownerhsip Month than to listen to the "excessive" concerns of those who were warning that the housing bubble was about to burst.
Obviously, speculation is never a good thing. But those who argue that housing prices are now at the point of a bubble seem to be missing a very important point. Unlike previous examples, where substantial excessive inflation of prices later caused some problems, we are talking here about an entity, homeownership, homes, where there is not the degree of leverage that we have seen elsewhere.
"Not the degree of leverage??" The plain fact is that, as he spoke, the housing bubble was being fueled by historic amounts of leverage. A transaction whereby a person can gain control of an asset worth half a million dollars or more with a 3% down payment represents 33 to 1 leverage (debt to equity) for the homebuyer. For comparison, this is ten times the amount of leverage which is available to most people for common stock purchase on margin in retail brokerage accounts. And, unlike homeowners, most retail shareholders use no financial leverage at all– part of the reason why the housing bubble is so much more dangerous to the economy than the dot-com bubble was.
And Mr. Frank, supposedly one of the foremost experts in the House on matters of banking and finance, must have also been ignorant of the fact that hedge funds were busily concocting byzantine layerings of financial instruments to create mortgage-backed securites which themselves could be leveraged 30 to 1. While Mr. Frank was asleep at the wheel, hedge funds were engaged in perhaps the most reckless use of leverage in history.
This is not the dot-com situation. We had problems with people having invested in business plans for which there was no reality and people building fiber-optic cable for which there was no need. Homes that are occupied may see an ebb and flow in the price at a certain percentage level, but you will not see the collapse that you see when people talk about a bubble.
I guess when you’re absolutely dead wrong about a situation that ends up costing the economy trillions, it’s only natural that you get appointed as the Chairman of the House Financial Services Committee the next time the seat needs filled…
So those of us on our committee in particular will continue to push for homeownership. And I very much agree with the gentleman from Ohio who has chaired the Subcommittee on housing and Community Opportunity of the Committee on Financial Services about the importance of this and about the various ways in which we do that.
That gentleman from Ohio to which Mr. Frank is referring is none other than Congressman Bob Ney, who was soon to be tried and convicted for various corrupt activities.
Obviously, the market will take care of a large number of people, but it will not take care of everybody. And if we are going to expand homeownership, there will have to be a sensible set of public policies, such as reducing the downpayment in the FHA, such as protecting people from lending practices that may at first seem to benefit them but then victimize them. And I hope our committee will pass legislation that will protect people against that.
Of course among the most damaging and least sensible policies were those which encouraged buyers to purchase homes with virtually no equity cushion. FHA loans were available with a 3% downpayment, with assistance often available to meet that tiny downpayment with a second mortgage if the buyer didn’t have the cash, but even those minimal requirements were too much, according to Mr. Frank. In essence, Mr. Frank was suggesting that FHA could back the equivalent of subprime mortgages with federal insurance. If Mr. Frank had gotten his way, the taxpayer would be footing the bill for all these bad loans right now.
I just want to add, as I bring these remarks to a close, Mr. Speaker, and I enjoyed working with the gentleman from California (Mr. Gary G. Miller), that I want to pay tribute to a couple of organizations that have done a good deal to help us with this. I found the National Association of Home Builders has been a very constructive participant in our efforts to promote homeownership. The National Association of Realtors has also played a very useful role in helping us shape public policies that expand homeownership.
Good thing that nobody slipped some truth serum into Barney Frank’s lunch, because otherwise, he might have said this:
I just want to add, as I bring these remarks to a close, Mr. Speaker, and I enjoyed working with the crook from California (Mr. Gary G. Miller), that I want to pay tribute to a couple of organizations that have bought their way into the legislative process to further the narrow self interests of their dues-paying membership. I found the National Association of Home Builders has been very generous to my campaigns in the past to the tune of $35,500. The National Association of Realtors has also ponied up $62,000 to my past campaigns, so I let them shape public policies that will keep the commission checks flowing to Realtors.
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The fact that Mr. Frank was dead wrong at the height of the housing bubble does not stop him from positioning himself now as the guy who knew it all along. Chairing a hearing last September entitled "Recent Events in the Credit and Mortgage Markets and Possible Implications for U.S. Consumers and the Global Economy", Frank conveniently forgot how he dismissed the existence of any housing bubble just two years earlier, and instead shamelessly said this:
We will be focusing today on the question of what happened in the market situation, and my concern is this: For some time now, we have seen the subprime crisis. I believe that those in charge were a little bit surprised that the subprime crisis spilled over as such as it did into other parts of the mortgage market. And more specifically, you know, you are supposed to pretend that you don’t ike to say, ”I told you so.” But as I have said before, I find that to be one of the few pleasures that come with age.
I guess it takes a long measure of hubris and a short memory to serve in Congress nowadays…