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Rep. Barney Frank speaks about economic crisis

Published: February 13, 2009
Section: Front Page

FRANKLY BARNEY: Rep. Barney Frank spoke at Raport Treasure Hall on Mon. about the nation’s economic crisis.<br /><i>PHOTO By Max Shay/The Hoot</i>

FRANKLY BARNEY: Rep. Barney Frank spoke at Raport Treasure Hall on Mon. about the nation’s economic crisis.
PHOTO By Max Shay/The Hoot

House Representative Barney Frank explained why the economy plummeted, what the Obama administration is currently doing to fix it, and what should be done in the immediate future during the Heller School’s Distinctive Public Policy Speaker event on Monday.

The day before the Senate approved the $789 billion economic stimulus package, Frank, who is a representative from Massachusetts and the Chairman of the House’s Financial Services Committee, detailed how past administrations relied too much on the hands-off economy approach.

“The default position has been that the government doesn’t do anything,” Frank said.

He described that during the Ronald Reagan, Bill Clinton, and George W. Bush administrations there was a focus on “taking the restraints off capital,” deregulation, and an over-emphasis on raising the GDP. The reasoning behind the concentration on the GDP, he explained, was caused by the belief that it would increase the economic well-being of all.

“[They’ve said] a rising tide lifts all boats… but what if you don’t have a boat?” he said. During his lecture, he expressed the need for policies that would lessen the gap between the wealthy and the impoverished.

In terms of globalization, he dismissed the logic that capitalism would result in democracy. “There’s nothing inherently democratizing about capitalism,” he said, citing the fact that the internet has not produced democratic values in China.

The current economic crisis, Frank described, was caused by insufficient regulation of securitization and of credit default swaps. Securitization is when illiquid assets like mortgages are bundled together and sold by a financial institution to investors. The problem with this, Frank said, is that “people are more careful with their own money than with other [people’s].” Credit default swaps are insurance policies which protect against defaulted loans.

“It’s like issuing life insurance to vampires and they start dying,” Frank remarked.

Securitization and credit default swaps made it possible for people who could not normally afford to take out loans to do so with the expectation that, in time, things would improve and they would be able to pay off the loan. Frank explained that stricter regulation of those practices is necessary to prevent the economic crisis from repeating itself.

<i>PHOTO By Max Shay/The Hoot</i>

PHOTO By Max Shay/The Hoot

An immediate obstacle the Obama administration will have to overcome in order to move past the recession, he emphasized, is the anger of the American people. Frank believed people’s anger was justifiable and that part of a way of appeasing them is to make real changes. However, he stressed the danger of “anger outpac[ing] change.” In describing the consequences of the credit crisis, he compared it to a situation of “collateral benefit.” He said, “the only way [to get out of the credit crisis] is to help people who we would rather not help.” Frank expressed concern over those who are “more interested in punishing banks than in getting them up and running again.”

For the long term, Frank strongly advised that there be universal healthcare and a halt to the “busting of the union movement.”

He suggested that universal healthcare should not be put off and that it could be gradually attained by issuing it to more and more groups of people.

In comparing Obama’s response to the economic recession to Bush’s response, he argued that overall Obama is doing a better job. He stated the main difference between the two presidents is that Obama’s administration wants to provide aid for foreclosure relief in his new economic stimulus bill.

Rapaporte Treasure Hall had a full audience for the lecture and the reaction to Barney Frank’s speech was generally positive.

Doug Nevins ’11 said he thought Frank was “witty” and stated, “I agree in theory…I liked his descriptions of polices that have not worked.”

Dean of the Heller School and Professor of Economics Lisa Lynch was also pleased with the event.

“It was a terrific opportunity to hear one of the most influential reformers [of the economy] about current strategy and historical context,” she said.