Good News For The Market

This news alone should drive the market 200 points:

Rep. Barney Frank (D-Mass.) will announce Monday that he is not seeking re-election, a spokesman said Monday morning.

Frank, the ranking member of the House Financial Services Committee was the architect with Sen. Chris Dodd (D-Conn.) of the sweeping financial reform bill that bears their names.

If there is any one single individual who is the face of blame for the housing bubble and the resulting recession, it’s Barney Frank.

Very good news that this man is retiring.

One response to “Good News For The Market

  1. Barney Frank to blame for the housing bubble? That is utterly absurd. The housing bubble was driven by the willingness of big financial institutions to buy mortgages (overwhelmingly refis rather than actual home sales) to bundle up into CDOs and sell on the unregulated OTC derivatives market. Moreover, these banks then played with credit default swaps (like insurance on these mortgages) and used them to create synthetic CDOs, which were very volatile.

    Why did this create the bubble? It lead to high demand for mortgages that big banks would buy without concern about the risk. This meant that the subprime mortgage brokers did not have any restraint — if they could make a long a bank would take it, so they cheated on forms, got rid of standards and didn’t care if it could be paid back. They made a lot on fees and moved on. The banks didn’t care about risk because they thought they were passing the risks on to bond holders (bonds that were ranked AAA because the ratings agencies had no clue what the bonds really were and took models from the big banks to rank them). Barney Frank was not involved in any of this, this is a crisis created by an under-regulated private sector free market.

    If you want to blame one person the most it would be Alan Greenspan who rejected the idea that derivatives trade was dangerous and said “the market knows best” rather than government. That stupidity caused him to fight against efforts to regulate derivatives trade (even just to make it transparent — to report what was traded) and allowed this hidden market to explode. Wall Street insiders often got individual bonuses in the tens of millions based on that bubble, their firms leveraged themselves to the hilt. None of this was caused by Barney Frank.

    There are reasons to dislike Frank on policy grounds, but to blame him for the bubble and recession is like blaming President Obama for the Vikings poor season. It’s just absurd!

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