Former Congressman Barney Frank, coauthor of the eponymous Dodd-Frank Wall Street Reform Act, kicked off his keynote address to a standing-room only crowd in the main room at the ABS Vegas 2015, the Structured Finance Industry Group/IMN capital markets conference at the Aria Resort & Casino in Las Vegas.
More than 6,000 traders, investors and structured finance/securitization professionals turned out for the three-and-a-half day program, developed by leaders representing the full spectrum of industry participants including investors, issuers, financial intermediaries, regulators, law firms, accounting firms, technology firms, rating agencies, servicers and trustees.
“I have always been skeptical of the notion that the housing policy should be to expand homeownership,” Frank said. “People should have decent homes. Whether they own them is secondary.”
His remarks Monday reflected much of what he told HousingWire in an exclusive interview on Sunday, including his trademark sense of humor and partisan sharp elbows.
He said he’s a great believer in the free market but that policy should work to make things fairer in general.
“What happens is the private sector innovates. Only the innovations that offer real value succeed,” Frank said. “At some point the innovation in the private sector reaches a critical mass and it becomes a qualitatively different system than it started and the regulations have to catch up.”
Two innovations in the 1980s transformed things, he said.
“One was infusion of liquidity outside the banking system. Money was flowing in from Asian countries…and oil producing companies, (which) was outside the banking system,” Frank said. “Second was information technology – you could not have done securitization on the scale we have seen with a basic calculator.”
This was a transformation of lending that outpaced existing regulations, Frank said.
Flash-forward to the early 2000s, and the regulatory environment still hadn’t caught up, Frank argued.
“No one I know of in federal government wanted to bring those regulations,” he said, noting that much the regulatory groundwork was laid by the administration of former President George W. Bush, adding that the five big bailouts were initiated by Republicans, not Democrats.
A hardcore partisan even though he’s been retired from Congress for three years, Frank blamed a lot of the crisis fall out on intransigence by Republicans and not overreach by the Democrats. He was witty, too, calling a suit by Maurice Greenberg, the architect of AIG who is suing the federal government for not having been more generous to that company in the process of advancing $170 billion dollars to pay debts it had incurred, and could not pay, as an “arsonist suing the fire department for water damage.”
Frank said he wanted to reign in subprime loans, but he and the Democrats were opposed by the Republicans.
“The Wall Street Journal said we were creating a ‘Sarb-Ox for minority borrowers,” Frank said, referring to the much criticized Sarbanes-Oxley regulations.
“The Wall Street Journal hates when I remind them that they said ‘These loans are performing satisfactorily – 80% are being paid on time, and 10% are only a month behind,” Frank said.
On the heavy amount of restrictions on mortgage lending, he said he would prefer simply to keep risk retention.
“Don’t restrict – let’s just have risk retention,” Frank said.
As for the future of Dodd-Frank in light of the recent GOP takeover of the Congress, and the coming 2016 presidential elections, Frank said the law’s future could be in the balance.
“The notion that Republicans if they win in 2016 they might try to uproot the whole thing – I will predict that that will be a big issue in the election,” Frank said.