By Alison Vekshin and Michael Tackett
Oct. 22 (Bloomberg) -- U.S. Representative Barney Frank is walking through Statuary Hall in the Capitol, a portrait of rumples and wrinkles. His left shirttail hangs out over his belt. Reporters and photographers are hounding him. Cameras are whirring. Questions are being shouted.
``How's it going?'' one reporter shouts.
``If you let me get in, I can find out,'' Frank says, before disappearing into House Speaker Nancy Pelosi's office to begin negotiations with Treasury Secretary Henry Paulson and a handful of lawmakers on a $700 billion legislative package to rescue troubled financial institutions.
The talks on this Saturday night in late September drone on for hours. After returning from a dinner break, Frank again faces reporters.
``I have nothing to say except I know how Britney Spears feels,'' Frank says.
Rare are the times when Barney Frank has had nothing to say during his 40 years in public life. He has defended President Bill Clinton during impeachment hearings, skewered President George W. Bush's economic policies and argued in favor of gay and lesbian rights.
Frank's Moment
Since the Oct. 3 passage of the law designed to jumpstart America's troubled credit markets, Frank has met his moment. The Massachusetts Democrat, chairman of the House Financial Services Committee, is leading the congressional response to the crisis that has toppled the nation's largest investment banks, spurred record foreclosures and prompted levels of government intervention in markets not seen in 75 years.
As a new administration takes office in January, Frank -- who has served 14 terms in the House of Representatives -- will be at the center of almost all major decisions Congress makes to overhaul the U.S. financial system.
Frank says more regulations -- and perhaps additional regulators -- are needed.
``You need a new tool kit for new phenomena, and that's our job next year is to develop that tool kit,'' he says in an October interview in his Newton, Massachusetts, office.
He's training his sights on private equity firms and on hedge funds as well as on investment banks.
Reining in Risk
``There are insufficient constraints on risk taking outside of banks, outside of regulated entities,'' Frank says. ``We have to decide who's going to do the regulation and what it will consist of.'' He also wants to consider creating an exchange for the credit-default-swap market.
The bailout, passed in the twilight of the Bush administration, was only the beginning. ``Part one was figuring out what legislation is necessary to deal with the financial crisis,'' says H. Rodgin Cohen, chairman of New York law firm Sullivan & Cromwell LLP. ``The second will be to build a regulatory structure so that this never happens again.
``It's hard to imagine that anybody is going to be more important than Frank is in developing this,'' says Cohen, a specialist in bank acquisitions who advised Bear Stearns Cos. in its government-orchestrated sale to JPMorgan Chase & Co, which was completed in May.
In his 27 years in the House, Frank, 68, has exhibited a passion for helping the poor by creating affordable housing and advocating higher wages for the working class. He's also espoused legalizing online gambling and the medical use of marijuana. His role now in leading the financial market overhaul is of far greater scale and scope.
Liberal Policies
How will he define success? ``When the stock market comes back up, when people are able to borrow money and when we get back into job creation instead of job destruction,'' he says.
Frank says liberal policies and a healthy economy aren't mutually exclusive. ``I think it's possible to make the world fairer without making it less efficient,'' Frank says.
He wants to strengthen industry oversight, boost lenders' accountability to borrowers and curb the excessive leveraging that he says allowed the U.S. credit markets to implode.
Frank's committee oversees the Treasury, the Federal Reserve, the Federal Deposit Insurance Corp. and the Securities and Exchange Commission, and it develops policy governing the securities, banking, insurance and real estate industries.
The real estate industry has been the biggest contributor to Frank's campaign in the current election cycle, donating $182,101. The securities and investment industry, which gave $176,400, was No. 2, according to the Center for Responsive Politics, a Washington-based group that tracks campaign contributions.
Affordable Housing
Since the meltdown began, Frank has urged the mortgage industry to prevent foreclosures and has prodded the Fed into writing new rules to strengthen consumer protections in mortgage and credit card lending. He's also continued to push for affordable housing.
Congress approved a foreclosure prevention measure in July that Frank helped write and negotiate; it includes a provision to create a trust fund for constructing and preserving homes for low- income families.
The law empowered the Federal Housing Administration to insure as much as $300 billion in refinanced mortgages for struggling homeowners once the companies that hold the loans agree to forgive part of the mortgage amount.
Fashioning a solution to the current economic crisis will require no small combination of wit, wiliness and smarts -- all qualities that even Frank's political opponents say he has in abundance.
`Smartest' Member of Congress
``I think he's probably Congress's smartest member in sheer IQ,'' says Jim Leach, the former Republican Congressman from Iowa who preceded Frank as committee chairman. ``I've worked with him for 30 years,'' says Leach, who led a group of Republicans supporting Democratic Senator Barack Obama for president.
``He has a lot of experience and perspectives that are a bit different than many people assume. He is more pro-industry than someone would expect from someone who is very liberal.''
National Journal assessed Frank's voting record in 2006 as 90 percent liberal and 9 percent conservative. In 2007, he opposed Bush's policies 96 percent of the time, according to Congressional Quarterly Inc.
In October, Frank fended off criticism from Republicans including presidential candidate John McCain that Democrats opposed efforts to tighten restrictions on Fannie Mae and Freddie Mac.
Obama's ``Democratic allies in Congress opposed every effort to rein them in,'' McCain said in an Oct. 11 radio address. Frank dismissed that assertion, saying he moved legislation through his committee that would have strengthened oversight of Fannie and Freddie right after he became chairman. The House approved the bill in May 2007.
Conservative Resistance
Frank's efforts to increase regulation of financial firms will face resistance from free-market conservatives.
``The case for regulation is very weak,'' says Peter Wallison, a fellow specializing in financial policy at the Washington-based American Enterprise Institute and a former Treasury Department lawyer. ``Banks are heavily regulated. Despite that, many of them have failed and many others are in trouble.''
A plan Frank unveiled in March calls for Congress to either create a new regulator or give authority to an existing one to assess risk across financial markets and intervene where appropriate.
The regulator, which would report regularly to Congress on the health of the financial system, would inspect companies and get timely market information from them in an effort to prevent a build-up of excessive risk.
`Discipline of Old'
Mortgage-lending practices will be another of Frank's targets. He says he wants to examine securitization, the bundling of mortgages into securities for sale to investors, which he says has reduced lenders' accountability for the loans they make.
``It used to be that most money was lent to people who were going to pay it back to the person who lent it to them,'' Frank says. ``We need to find some kind of regulatory substitute for the lender-borrower discipline of old.''
Frank says he wants to focus on mortgage servicers -- companies that collect and process loan payments -- and the investors who buy the mortgage securities. A servicer has the power to modify terms to protect the lender from defaults. Servicers have cited the threat of investor lawsuits and their contractual obligations to investors as a reason for resisting changes to loan terms.
Frank also says he will continue to push the mortgage industry to modify loans that are at risk of foreclosure. Frank, FDIC Chairman Sheila Bair and policy makers have criticized the industry for not acting quickly and broadly enough to help homeowners avert foreclosure.
Threats
Frank isn't above threatening mortgage companies to get what he wants done. ``All we do is make it clear to them that the less cooperative they are, the worse it's going to be legislatively,'' he says.
As if Frank's ``to do'' list weren't long enough, he'll also have to decide how to restructure Fannie Mae and Freddie Mac. The government seized the mortgage-finance companies in September after their combined $14.9 billion in net losses over four quarters threatened to further disrupt the U.S. housing market.
In his push to get things done, Frank can be brash, rude and condescending -- even to members of his own party.
``I ask my questions quickly and succinctly,'' says Representative Luis Gutierrez, an Illinois Democrat who sits on Frank's committee. ``My greatest fear of asking my chairman a question is he'll say, 'Now that's an asinine question, Luis. '''
Frank has posted a sign on his office door in Capitol Hill quoting one of George Washington's 110 ``Rules of Civility and Decent Behavior in Company and Conversation'': ``Be not tedious in discourse, make not many digressions, nor repeat often the same manner of discourse.''
Who's Stupid?
At a February 2007 hearing, one witness testifying before Frank's committee argued against letting national security concerns prompt the building of new barriers to foreign investment in the U.S.
``So with all do [sic] respect to the members of this committee: It's the economy, stupid,'' David Heyman, director of the homeland security program at the Washington-based Center for Strategic and International Studies, wrote in his prepared remarks.
``Mr. Heyman, I can't resist,'' Frank said when Heyman finished his testimony. ``When you misspell a three-letter word, don't call people stupid.''
Frank lambasted the Republicans after the House voted against the financial rescue package on Sept. 29. The bill fell 12 votes short. Some GOP lawmakers blamed the bill's failure that day on what they considered a partisan speech by House Speaker Pelosi ahead of the vote.
``Because somebody hurt their feelings, they decide to punish the country,'' Frank said at a news conference.
New Jersey Childhood
``I'll make an offer,'' Frank said. ``Give me those 12 people's names and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are, and maybe they'll now think about the country.''
Frank's support for the poor can partly be traced to his childhood in Bayonne, New Jersey, a working-class industrial town that was also home to the boxer Chuck Wepner, the inspiration for the movie Rocky who was known as the ``Bayonne Bleeder.'' In Frank's youth, it was a place dominated by Italian, Irish and Polish immigrants.
``I thought I'd be a lawyer,'' Frank says. ``I was always into politics, but I thought that being both Jewish and gay meant that I would probably never be able to be elected to anything.''
Frank, the son of a Jersey City truck stop operator and a homemaker, went to Harvard University in Cambridge, Massachusetts. He graduated with a Bachelor of Arts in government in 1962, then began studying at Harvard toward a Ph.D., which he didn't complete.
Frank Enters Politics
Frank entered public life when Democrat Kevin White tapped him in September 1967 to help in White's mayoral campaign in Boston. White went on to win and became the city's longest-serving mayor.
``I remember that it did not take me very long to figure out that this was about the smartest guy I have ever come across,'' says Dick Flavin, White's former press secretary. ``He also understands politics as well as he understands issues. That's what made him -- even back then -- special.''
White won, and Frank became his executive assistant. Frank threw himself into his work.
``He was quite slovenly in his appearance,'' says Flavin, 71, who's now a playwright. ``All he did was work and eat. At restaurants, he would gobble down two main courses, and go back to work.''
Frank leveraged the connections he was making in the world of Democratic politics to help his own career. He won a seat in the Massachusetts state legislature in 1972. While serving there, Frank attended Harvard Law School and continued to build his political network.
`100 Words a Minute'
He worked the press along with the pols. ``He always had that aspect of being a great quote,'' Flavin says. ``One guy said of his speaking style that 'Barney Frank speaks 100 words a minute with gusts to 125.'''
Soon after Frank's 40th birthday, he had a stroke of luck that led him to Washington. Father Robert Drinan, a House member whose district included the Boston suburbs of Newton and Brookline, announced he wouldn't seek re-election after Pope John Paul II called for all Catholic priests to resign public office.
Frank ran for the office in 1980 and won with 52 percent of the vote.
His career has been controversial. In 1987, Frank announced that he was gay, a rare display of candor for an elected official at the time. Before that, he had met with House Speaker Thomas P. ``Tip'' O'Neill of Massachusetts to tell him of the revelation he was about to make.
`Out of the Room'
O'Neill was both angry and disappointed because he'd thought that Frank could become the first Jewish speaker. After Frank left his office, a secretary asked the visibly upset O'Neill what was wrong, according to an account in Tip O'Neill and the Democratic Century by John Aloysius Farrell (Little Brown & Co., 2001).
``Oh, it's Barney Frank. He's decided to come out of the room,'' O'Neill said.
Two years later, Frank was embroiled in scandal after the Washington Times reported that a personal assistant, Stephen Gobie, had operated a prostitution ring out of Frank's Washington apartment. Frank admitted hiring Gobie but denied that he knew about the prostitution business.
Such a scandal would have brought down most politicians. Frank decided to deal with it with characteristic bluntness, apologizing for his relationship with Gobie to members of the House in a speech on the floor. He invited an ethics investigation of himself.
Reprimand
While Frank could have been censured, his colleagues decided on a milder form of punishment: a formal reprimand.
``I think members will agree I have had a reputation for honesty, not always tact or tolerance,'' Frank said at the time.
The Ethics Committee found Frank had no knowledge of any prostitution that may have taken place in his apartment. Gobie was not convicted of prostitution in connection with his association with Frank.
In 1994, when Republicans took control of the House for the first time since the Eisenhower era, Frank found himself in the congressional minority with little power.
Though he was a spirited defender of President Clinton during impeachment proceedings in 1998, he was otherwise not a major figure in Congress. Frank said that the charges against Clinton amounted to little more than ``what did he touch, and when did he touch it?''
Frank can be self-deprecating. One of his old campaign posters, displayed in his office, bears the slogan ``Neatness isn't everything.''
`Rapier Wit'
Frank has been known as much for what he says and how he says it as he is for what he does. ``He has probably the most rapier wit on Capitol Hill,'' Leach says. ``He has a thoroughly interesting personality. He would be the antithesis of the legislative dullard.''
That personality has been more visible since November 2006, when the Democrats regained control of the House and the party caucus named Frank chairman of the Financial Services Committee.
During committee hearings, Frank has squared off with Fed Chairman Ben S. Bernanke, who makes semiannual appearances before the panel. At a July 2006 hearing, Frank, who never uses prepared remarks, grilled Bernanke, arguing that wages have lagged inflation, productivity and corporate profits. Bernanke told Frank that he expected wages to rise.
``You expect them,'' Frank said. ``But, you know, I don't mean to be rude -- nobody can eat your expectations.''
Ties to Bernanke
Frank has forged strong ties with Bernanke, a relationship that Frank says has been strengthened by the housing meltdown. He says Bernanke's predecessor, Alan Greenspan, believed that ``the market was always going to be better than regulation.'' Frank calls Bernanke the ``anti-Greenspan'' for his willingness to write rules to stem abuses in mortgage and credit card lending.
On Sept. 24, as negotiations on the $700 billion rescue plan were getting under way, Frank closed a committee hearing on the financial market crisis by telling Bernanke and Paulson: ``I hope neither will take offense if I express the sincere wish -- after some time in the next few days -- not to speak to either of them for some time.''
``Wish granted,'' replied Paulson, who along with Bernanke had briefed Frank and other congressional leaders the week before on the grave state of the U.S. economy.
Frank has developed a close working relationship with Paulson, a former Goldman Sachs chief executive officer and a Bush appointee.
Common Ground
``He's very pragmatic and also has the administration's confidence, which his predecessors didn't have, so you could deal with him,'' Frank says. ``He's also somebody you can get right down to business with.''
Frank says he discovered common ground with Paulson when they worked together on legislation to strengthen oversight of Fannie Mae and Freddie Mac that required the mortgage finance companies to set aside funds for affordable housing. The measure passed the House and was later incorporated into a broad housing bill that Congress passed in July.
Frank says Paulson is ``a free-market guy with a social conscience, and that's what I've tried to be.''
Frank's time with Paulson, however, is probably numbered in days, since Paulson has said he won't stay in his post after the end of the Bush term.
As the global financial crisis continues to engulf Wall Street, Frank will be one of the principal policy architects. He's leading the biggest reshaping of U.S. financial services regulation since Congress created the SEC in 1934.
Frank says he's up to the task. ``I think we have proved that it is a myth that liberal Democrats can't understand the financial markets and the private sector,'' he says.
Face Off
Frank will face off with free-market conservatives who believe the market knows best.
``If you regulate every kind of company that is participating in the capital markets in some way so that you control their activities or their capital or something else, then these companies will move out of this country,'' the American Enterprise Institute's Wallison says.
Frank will also have to work with colleagues on the financial services committee. ``Overall, I believe he's a fair man,'' says Representative Jeb Hensarling, a Texas Republican. ``Occasionally, the input is taken; mostly it is not. I've come to him with about 100 ideas. I think he's accepted two or three.''
On Oct. 3, the day Congress approved the rescue plan, Frank told reporters that he's still adjusting to life in the limelight. ``It's like an out-of-body experience,'' he said. ``I have to go home, take out the garbage, hope I get to the laundry before it closes at 5 o'clock. I'm on my last clean shirt. And then you're doing things that are historic.''
Whatever history says about the results of the 2008 economic crisis, it will bear Frank's imprint.
To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net and Michael Tackett at mtackett@bloomberg.net.
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