MR. SCARBOROUGH: Let's bring in right now House Financial Services Committee Chairman, Democratic Massachusetts Congressman Barney Frank.
Mr. Chairman, how are you doing this morning?
REP. FRANK: Well, thank you.
MR. SCARBOROUGH: Good.
Hey, tell me, Barney, what happened yesterday that caused markets to be reassured that hadn't happened over the past two weeks? What was in this package, or this plan, that we didn't see before yesterday?
REP. FRANK: The decision by the secretary of the Treasury, which I am glad he took because, frankly, it's something that I and other members of Congress pushed him to do, not simply to buy up distressed assets, bad mortgages, but to put money into the banks.
The problem we have now is, look, this is still a wealthy country, but the fear that's come about because so many bad investments were made and so many people got burned and so many people are worried that other institutions may go under, the banks just haven't been lending.
And what the secretary decided -- again, this went back to the debates we had when he was asking us for this authority and, as I said, many of us said to him this is one of the things you should do.
He's doing it even more enthusiastically than I had hoped he would. He's going to provide money to the banks, to the big banks.
And I want to stress this. The first 125 billion (dollars) is going to the nine largest banks. But I spoke to the secretary yesterday and he assures me community banks, the local banks who have been merely the victims of this crisis, because they've always -- they've lent responsibly. They didn't make subprime loans. They will also be eligible for this program.
So I think that's a part of it, that money will now start flowing. There will be loans.
Secondly, I think people took a lot of confidence from the fact that there was a coordinated effort. A couple of weeks ago our European allies were kind of gloating that America was in trouble. That didn't last very long. Their gloating -- suddenly they realized they're in this same situation. So I think it is both.
Now, obviously, you're not going to get an unbroken, (long ?)line forward, but I do think this is a sign that --
Look, we have the capacity. We hadn't found a way to unlock it, and I believe this begins to do it.
MR. SCARBOROUGH: Barney, obviously, Republicans have had -- there's been a back-and-forth; we've had concerns about CRA and Democrats have had a concern about leverage. A lot of finger pointing.
We could debate those battles. I'd rather look forward, though, and ask you just about the last two weeks.
Because there has been a suggestion over the past 24 hours that George Bush and my party was reluctant to put money straight into these banks because it smacked of -- we heard socialism; we heard nationalism. But, in fact, is that what it took for banks and for the markets internationally to be secured?
And I guess my bottom-line question here is is it safe to say that if Republicans had gone along with that two weeks ago -- and I'm going to get killed for suggesting this -- if I had gone along with it two weeks ago, could this crisis have been averted, or could it have been shortened, since that seems to be what international markets were demanding?
REP. FRANK: In fairness, Joe, I don't think anybody can be certain about that. I think it would have been better if that had been the original plan.
And let's also note, the market, over any long-term period, is a fairly rational allocator of resources. But in the short term, nervousness, and hysteria even, sets in because if you're in the market -- and I understand this -- you're not reacting to reality. You're reacting to how you think other people will react to reality, and that can be distorting.
But it is clear that this should have been done from the beginning, but I give Secretary Paulson credit. He looked at the situation; he listened to people.
Again, I do take credit for the bipartisan effort in Congress to put this in there. I worked with Spencer Bachus, who wanted to put it in. Many Democrats as well; he's a Republican, of course. And yeah, I do think this is helpful going forward.
Because again, I want to stress -- and Joe, you're right. There's no point in looking backwards, except to figure out what went wrong so we know what to do going forward.
MR. SCARBOROUGH: Right.
REP. FRANK: And there were two things I think we should do.
With regard to the CRA, and I will -- we made the mistake of assuming -- and I tried to protest against to this -- that everybody could be a homeowner.
Homeownership is a good thing, but for many people in this country, decent rental housing is the appropriate form. And people have said to me, well, gee, don't you wish everybody could own a home? I wish I could eat more and not gain weight, but I don't act on that.
At least, I do more than I should.
We, I think, know better, going forward. And in fact, with regard to Fannie Mae and Freddie Mac, I have been pushing them, and one of the things we did finally do was to create an affordable housing rental program.
Secondly, with regard to the leverage you mentioned, if you look at the banks, particularly the smaller the bank, the better they were. They didn't make subprime loans. They didn't get into credit default swaps and collateralized debt obligation derivatives.
We need to put some regulation on the whole financial industry. We've regulated the banks pretty well; we haven't regulated the rest.
And given that, I think, going forward -- and I'm more confident that going forward we know how to prevent these things from happening again. So that does mean we have to focus on how we resolve them. And I am encouraged by this.
By the way, let's also give credit to one of the best appointments George Bush has made -- well, frankly, any president -- Sheila Bair, the head of the Federal Deposit Insurance Corporation. She's creative, she's thoughtful, and she's also added a provision here.
We have businesses that have checking accounts in banks which don't get interest. And because they're above the -- even 250,000 (dollars) level, and they're smaller banks, they were pulling their money out of the smaller banks, fearing well, they may fail, and putting them in the bigger banks.
That's not healthy, because the smaller banks were a great source of loans. To her credit, FDIC chair Bair also, as part of this package yesterday in coordination with the secretary of the Treasury, is announcing, I believe, shortly -- maybe I'm scooping her, but not by much -- that she's going to insure the deposits of these checking accounts in these banks for an unlimited amount for a period of time. And that also is going to keep the deposits in the banks, so they get more loans.
MR. SCARBOROUGH: All right. We've got a lot of people who want to ask you questions. Let's move this around.
MS. MITCHELL: Two quick things, Barney. The Brits did this so quickly, within five days they'd set up the whole system. Is the Treasury moving quickly enough now? They've got a lot to do; they've got a lot of bureaucratic things that they've already done --
REP. FRANK: I think they ought --
MS. MITCHELL: Yeah.
REP. FRANK: Andrea, in fairness, again, if they'd done it a week ago, it would have been better. But they are moving quickly. They have already got nine banks in here.
And I want to stress again, half of this is going to the big banks, but half of this money --
By the way, this is the first 250 (billion dollars). There's none -- in this first round, we're not buying any bad assets. People were worried we would get stuck with bad paper. The entire 250 (billion dollars) that was first allocated is going here.
The president's going to have to make a declaration to get the second hundred billion (dollars).
MS. MITCHELL: And just quickly, in a crisis like this, aside from the politics, does it matter what Barack Obama and John McCain are proposing, when you guys are working together, Democrats and Republicans, you're working with the Treasury secretary, with Sheila Bair -- you're actually getting this stuff done.
Is it good or bad that everybody else is chiming in?
REP. FRANK: Well, look, it's democracy, and that's the way it works.
People have said to me, keep politics out of this, and my answer has always been, if you don't want politics involved, don't ask 535 elected officials to deal with it. We do the best we can, but we can't ignore democracy.
Secondly, I think you need a separation here. It's what I was just talking about with Joe. We are -- those of us in office now are dealing with the current crisis, and we are trying to alleviate it.
It's equally important, maybe even more important for the future of the country that we get some agreement on what we do to keep this crisis from happening again.
And we're getting there. Ben Bernanke has already promulgated some rules that will keep bad subprime loans from being made. I hope we will get together and put some limits on these unlimited credit default swaps.
So I think it's appropriate for the two presidential candidates to talk about what they would do if elected after November, while the rest of us work on trying to alleviate the current crisis.
MR. SCARBOROUGH: All right. Let's go up to Chuck Todd in New York.
MR. TODD: Congressman, the rules of what Hank Paulson is going to do with the $700 billion continue to change. What was the rush to get something passed through Congress if this wasn't the plan?
Had the original plan been to invest directly into banks, there is no way you'd have gotten the number of Republicans that you got.
So why wasn't there more of a pause on Capitol Hill, to say let's continue to look at this for a week or so?
REP. FRANK: Well, first, we did take two weeks. Actually, we took a little over two weeks --
MR. TODD: You didn't mean to take two weeks, though.
REP. FRANK: -- but that wasn't entirely voluntary, because it failed the first time.
But one of the things we did -- we didn't spend a lot time, but it took a lot of effort. There were 20-hour days by a whole lot of people. This particular provision, this right to invest capital in the banks that seems to be working so well was, in fact, a congressional add-on. So it wasn't as if we just took what he did and ran with it.
But the other reason for the hurry is this: Maybe there wasn't a terrible crisis. I think there was one. I have some regard for Paulson and Bernanke. (Inaudible.)
In America in particular, once the secretary of the Treasury and the chairman of the Federal Reserve tell you if you don't act quickly, there'll be a crisis, then there probably is going to be a crisis even if there wasn't going to be one, because psychology and confidence is so important.
But the other thing I would say is that when we passed the bill, we did have the foresight to put into it a lot of flexibility. And again, I want to stress, the bill calls for 250 billion (dollars) right away, then 100 billion (dollars) if the president makes a declaration, then a later 350 (billion dollars), subject to a congressional vote to block it.
The first 250 (billion dollars) is now going to this. So none of the first tranche, as we call it in fancy talk, is going to go to assets.
The other thing I want to give credit for --
MS. BRZEZINSKI: (Inaudible.)
REP. FRANK: -- many of us felt it was important to restrict CEO compensation to the beneficiaries, and that will be part of this. I think that's very important for the country to understand.
MS. BRZEZINSKI: Well, that's good. Yeah, that would help a little bit.
Congressman Barney Frank, thank you very much for your insights this morning from Capitol Hill. Take care, sir.
REP. FRANK: (Inaudible.)