Barney: Speaking Frankly on financial services reform and Pentagon budgets

With the passage of health insurance reform behind us, look for the President to sign financial services reform by Memorial Day, give or take. That, according to Congressman Barney Frank at this morning’s Greater Boston Chamber of Commerce breakfast. “The public is overwhelmingly in favor of financial services reform, so the banks can’t expect too many Tea Party rallies in their behalf,” he quipped.

The powerful chairman of the House Committee on Financial Services calls the reform legislation “market-oriented.” He prefers incentivizing behavior, rather than heavy-handed regulation. The bill requires greater risk retention in the banking business, based on the product being sold. A 30-year fixed rate mortgage, for example, would require a lower rate of risk retention by the bank than some other kind of product. “If I’m working to be paid back,” he said, “I’m more concerned than if I’ve sold off the loan to someone else.”

Other changes would protect taxpayers by altering how the government would respond if an institution is going to go belly up. “We’re going to have death panels, but in failing banks, not in health care,” he said. He did point out that, of the $244 billion in federal dollars that went to prop up banks, $186 billion has already been paid back and the government has made several billions off the deal.

After the breakfast, he acknowledged that, while the bill would create transparency in the derivatives market, he’d have preferred stronger measures to regulate that product. He's right about that.  Credit default swaps and other derivatives were supposed to spread risk around but ended up spreading toxicity.  Too bad the Congress wimped out on derivatives!  (See Mary Schapiro's more detailed analysis in The Washington Post or an equally cogent piece in the Huffington Post.)

Frank is funny, smart, neatness-challenged and practical, a phenomenally effective Congressman, able to work across the aisle to get things done. Right now, for example, he is working with Republican Ron Paul and with the CATO Institute on reducing the Defense Department budget.

“Once we have committed American military to foreign action, we must do everything we can to support them,” he said. “But I object to the Pentagon being the reserve military for the world.” Frank doesn’t think American military need to be in Europe any longer. Europe can defend itself. If Germany feels threatened, it can defend itself. He doesn’t think Iran is going to attack Romania. Elsewhere, he says, we don’t need 3000 Marines in Okinawa.

“We shouldn’t equate the (size of) Pentagon budget with national security,” he admonished.

An alumnus of Boston City Hall under then-Mayor Kevin White, a former state legislator representing Beacon Hill, Back Bay and the South End, and now, for 30 years, a congressman, representing an ever changing district, Barney Frank turned 70 yesterday. I, for one, am glad he is there.

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