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DAVE COOK: Okay, folks. It's bright and early at eight o'clock. Here we go. I'm Dave Cook of the Monitor. Thanks for coming. Our guest today is Representative Barney Frank, Chairman of the House Financial Services Committee. This is his fifth visit. His last one was in February of 2009. Our guest was born in Bayonne, New Jersey and came to Massachusetts in 1957 to attend Harvard. He's called the Bay State home ever since. He was working on a Ph.D. in Government at Harvard in 1967 when Kevin White assigned Mr. Frank to work on his mayoral campaign, and then after winning the election, hired him as his executive assistant. As I've said before, the political wisdom in Boston is that Mr. Frank ran the city while Kevin White ran for governor. He was elected to the Massachusetts House in 1972, moved to Congress in 1980, through what he called "divine intervention," when Pope John Paul II approved new canon law requiring Father Drinan to retire. I guess became ranking minority member of the Financial Services Committee in 2003, chairman in 2007. So much for biography. Now onto to mundane matters of process. As always, we're on the record here. There's no embargo. There is no live blogging or tweeting. Let me repeat. There is no live blogging or tweeting. But after the breakfast is over, blog and tweet to your heart's content. If you'd like to ask a question, do the traditional thing and send me a subtle, non-threatening signal. I'll happily call on one and all and if my elderly synapses fail to fire and I can't conjure up your name, my abject apologies in advance. We'll start off by inviting the Chairman to offer whatever opening thoughts he'd like to share, and then we'll move to questions from around the table. Thank you sir, for doing this. I appreciate it. CHAIRMAN FRANK: You're welcome. I'd be ready to get right to questions. I do have one comment about this new Republican attack, and it's really quite clever, because it allows them to go on the attack without taking anything substantive, and that is blaming everything on uncertainty, so that they don't have to advocate any positions. And I -- this is another example, it seems to me, of trying to blame us for things. I think it's legitimate to point out the major uncertainty they're talking about now is the level of taxation, both the estate tax and the marginal rate. It ought to be clear. The reason we have uncertainty is that in 2001 and 2003, when they wanted to cut taxes with a deeper budget impact than they were prepared to have made clear, they hoped it up by putting this ten year thing in there. So the uncertainty is entirely a result of their budget gimmickry. I mean I was never for a situation where you could not tell the difference between the estate tax and a roller coaster. That was their decision. So yes, we have uncertainty. That's because they play games with the budget process, and put this tax situation in here. The other area that they have said we have caused uncertainty is in one area, that's the financial reform area, and one of the things I have come to envy the economists, because they have a counter-factual. When the economists are analyzing a situation, they can look at what happened and then they can look at what would have happened had the counter-factual been in there. They call it the counter-factual, but it's actually the same concept that was anebrated by Henny Youngman in his two-liner, "How's your wife? Compared to what?" "Compared to what" is always the question in public policy, and here is the alternative. We inherited a situation where a total lack of regulation has led to the worst economic crisis since the Great Depression. So we had a two-step process, first of all to respond to it, and I will make this an aside with this new anti-bailout fervor by the Republicans. Every single activity of the federal government that has been called a bailout was initiated by George Bush, every single one. We worked with them and we, I think, refined some of them and approved them. But we then moved on to try to prevent the recurrence. So they say there's uncertainty because we've got the financial reform bill, and there are decisions that have to be made to carry it out. The alternative, the counter-factual, is that we would have not done anything, and I think that would have been more uncertainty. That is, I don't think anybody thinks that the set of regulations that was in place when President Obama took office and we began to legislate, I don't think anybody thinks that was a sustainable situation. I believe that we have diminished uncertainty by passing a set of rules which most people find perfectly acceptable, albeit in some cases annoying. But we have not wrecked anybody's business model, and that's conscious. I think we've made significant improvements. But again, there would have been greater uncertainty if we hadn't legislated, because there would have been -- if derivatives had been left undone, if mortgages were left undone, there would have been this fear that oh, at some point they're going to go back to the other thing. I'm particularly proud, just two more points. I'm very proud of the bill. It was a collaborative process. As I said before, by the way, if you want to look at some of the basic outlines of the bill, you can go back to Hank Paulson's speech of March of 2008, where he outlined much of that, and I'm very pleased. Paulson had said -- well, Paulson and Bernanke both said if they had the tools that are in this bill that was signed into law, they could have avoided most of the worse aspects of the disaster that we had back then. The other point I want to make has to do with manufacturing, a very specific point. There is a new emphasis by all parties, sides, etcetera, that we have to make sure that we not only keep but expand manufacturing. The notion that you can just have this high-end, technology-oriented work doesn't make sense. It's not good for the country, it's not good socio-economically, and I think that's absolutely right. Simultaneously, one of the things that gets beat up is the intervention begun by George Bush and carried out by us into the automobile industry. There is just no question. The single most effective thing that the federal government has done to preserve and set the basis for expanded manufacturing in America was to intervene with General Motors and Chrysler. And by the way, among those who have argued for that was Ford, because Ford, while it wasn't planning to take the money, strongly argued that and they always made that very clear, because if General Motors and Chrysler had either gone out of business or substantially dropped in what they were doing, the supply chain in America would have been damaged. That is, you would have lost not simply the manufacturing of the cars, but all of those suppliers that go into the automobile industry. It is striking that that's still considered unpopular. That's a very successful intervention. General Motors is doing very well; Chrysler not quite as much. Ford and General Motors are both doing better than people thought they would, and I don't think there's any question. Absent the intervention begun by Bush and carried out by Obama, with Congressional support, Ford and General Motors would not be doing nearly as well, and manufacturing in America would have been substantially diminished. The other point I want to make is -- I temporarily forgot it. I've been very pleased, to be honest with you, as I read the papers, which I still do although I don't -- I mean your blogs and tweets will not get to me. (Laughter.) CHAIRMAN FRANK: As to Twitter, I guess it's a great thing. But I am not all that interested in where my colleagues have had lunch, when compared to making a major point. But I read the newspapers a lot, and I have been very pleasantly surprised. In fact, Harry Gural, my new press person -- some of you haven't met him, we've compiled a list of newspaper references or other media references to the financial reform bill, that have come in articles not about the bill, but about other problems that have been mentioned that the bill is soft with. For example, most prominently the SEC had to let Moody's off the hook, even though they did things that were clearly wrong, but the actual actions had taken place in Europe. The SEC also noted that under our bill, they now have full authority to deal with that, and that goes on and on and on. But in particular, there were two articles after the Boswell court, one by Floyd Norris in the New York Times. Mr. Norris is not predisposed to say nice things about almost anybody I can see, but certainly not those of us who make financial public policy. And secondly, two guys in the FT; Patrick Jenkins was one of them, and they said there was one concern that Boswell deals only with facts and does not deal with the shadow banking industry. Both noted the exception is the U.S., because our financial reform bill does that there, and they -- both articles said the financial reform bill in the U.S. is the one place now where they have moved beyond Boswell to do the same kind of a court. So we feel good about that. With that, I'll be glad to -- MR. COOK: Thank you. Thank you for coming again. I'm going to ask one or two myself, and then we'll go to Cynthia Tucker, Kevin Hall and Mat Viser, Mark Shields, Dave Shepard and Jake Sherman to start. I want to ask you about the hearings you're holding this morning on executive compensation. As you know, there are critics, including Professor Bill George at Harvard Business School, who say that while well-motivated, the disclosure rule could lead to unintended consequences, businesses focused, I know, relating to financial firms. You were explaining on the way down on the elevator. But the concern that as it exerts sort of pressure on companies, that it could causes businesses to make sort of misleading statements, because it's focused on low wage or merging markets, would look especially bad in terms of executive compensation. CHAIRMAN FRANK: What you're saying -- by the way, we're not having a hearing on that. That's what's confusing here. MR. COOK: Okay. I started off confused. CHAIRMAN FRANK: You're talking about the provision -- you're talking about the provision that was added by Senator Menendez. That has not been the focus for us. Our focus today is on a provision that we put into the bill, which mandates the regulators of financial institutions to set rules that do not allow reverse incentives. It specifically has nothing to do with amounts. I think there are problems with the Menendez piece. That was something the Senate added, and in particular it's confusing as to cross-national comparisons, and that I think that needs refinement. That's not what we're talking about. What we're talking about is the pattern in financial institutions compensation, which I call "heads you win, tails you break even," where if you take a risk, if you're a major decision-maker and take a risk and the risk pays off, you get a bonus. If you take a risk and the risk blows up, you suffer no penalty. Any rational person, given that, will take more risks than would make sense. So that's what we put into the bill. We put into the bill a mandate that the regulators are to, for every financial institutions -- and besides, we also have in the bill that's now law a borrowing from the British that we called "say on pay," which is for any public corporation, not just financial, whereby when they do the annual proxy, they have to include the financial, the compensation for the top officials. If they vote no on that, then they have to go back and redo. Shell had to redo some of it. In neither case do we set a number. We empowered the shareholders in one case. In the other, you can pay the CEO of any financial company $20 million a year if you want to. What we say is we don't want it to be that they are paid $200,000 a year, and they get a bonus if they take a risk and it pays off and pay no penalty. We also -- and that includes a mandate that those provisions include clawbacks, so that you don't get an incentive to do a short-term gain and then it doesn't hold up. So that's what we're having a hearing on. Now a group of Bush and Clinton economists formed what they call the Squam Lake group. It's Bush II, and they -- Bob Schiller from the group wrote an article in the Sunday Times Business section, saying what the bill should have done. I called him and said "Well Bob, it did do that." He said "Oh, okay. Well, let's talk about it." So this is a hearing not about the Menendez disclosure provision, which are comparisons of wages, but how the financial regulators are going to be using the authority to put in both -- not, they don't deal with amount, but simply to say you cannot have a system where people get rewarded if a risk pays off, and pay no penalty if it doesn't. MR. COOK: But the hearing helped -- CHAIRMAN FRANK: It's reverse incentives. MR. COOK: --helped regulators refine the drafting of the implementation. CHAIRMAN FRANK: Right. When I talked to the Squam Lake people, they expressed concerns about how well this was redone. In fact, it gets to give the Squam Lake people a chance to put pressure on the regulators, although in this case, and I want, you know, to make a general point. A lot of the commentary was "Well, you passed the bill. It's got some good stuff. But you know, how do we know the regulators are going to use it? They'll be subject to all these pressures." Every regulator was an eager participant in writing that bill. So while there may be a problem down the road, whether you're talking about Sheila Bair or Ben Bernanke or Gary Gensler or Mary Schapiro, whoever, this is a bill which the people who are going to administer it are eager to do, and that would be the case here. MR. COOK: The last question from me, and it's on politics. The Herald, Boston Herald, recently quoted you as mocking those who think you are putting unusual effort into your reelection race, in a year with incumbents being threatened, and they had you saying "I call it campaigning. I'm trying to win an election, and that's what you do in campaigns. If I campaign effectively, that means I'm scared. But if I don't campaign, that means I'm arrogant," unquote. How would you describe the election climate that you face, and sort of in a more broader sense, you know, both for the Bay State, do you see any chance of it turning purplish and what do you see happening to your chances of keeping a gathering -- CHAIRMAN FRANK: To go back to this, yes. The specific statement with the Republican running against me, it's going to be like saying that the fact that I've asked Bill Clinton to come in and campaign for me shows that I'm desperate. The fact is that I tried to get him two years ago, but it just didn't work out. We didn't have -- I was so busy with the bailout, TARP, rescue, etcetera. But so what I also said, and I guess the (inaudible) had this, is well, I guess there were three choices. I cannot campaign at all and be accused of being arrogant, which he had. Earlier, he was saying I was so arrogant I wouldn't campaign, or I could campaign the best I knew how. Or alternatively, I could campaign but ineffectively. And I said I suppose instead of inviting Bill Clinton in, I could have invited Jimmy Carter in. (Laughter.) CHAIRMAN FRANK: That would have been unpopular, because especially after his decision to attack Ted Kennedy. Let me tell you I was not very high on that decision. So clearly it is a subject here, but for me it's the same -- it's not that much different from the last time. I have been the target of a lot of right wing attacks. Glenn Beck, Sean Hannity, Limbaugh, etcetera, and I'm talking, really it began very clearly when the Democrats won in 2006, and I was about to become the chairman, and clearly there were a lot of people who were worried about exactly what we just did, the financial reform. Part of what I had is a great deal of misinformation, trying to hold me responsible for what wasn't done during the period up until 2006. Particularly bizarre to me is people accusing me of pushing low income people into home ownership. In fact, I'm very proud of a quote from Larry Lindsey, I've been one of the people from the beginning who said "Look, you're not doing poor people a favor when you give them home ownership. I've been for rental housing." On Fannie Mae and Freddie Mac, I had early on in 2003 said I thought they were okay. By 2004, I changed my view. There was an argument that said I blocked reform of Fannie Mae and Freddie Mac. That is only plausible if you believe that I had a lot more influence with Tom DeLay than I turned out to have, because the Republicans in fact did pass a bill in the House in 2005 to deal with Fannie Mae and Freddie Mac. The Senate objected to it, the President objected to it. That was an intra-Republican fight. But the Democrats had no influence on that. If you go back to that bill in 2005, and some of the Republicans said it was too weak, there were amendments in the committee, amendments on the floor. No amendment to change Mike Gotsley's (ph) bill got as many as more than a third of the Republican votes. So there no Democratic vote on that bill where the outcome would have been different. When 2007 came, we passed the bill through. At any rate, I speak from prominence, because I'm chairman of the committee. I can't expect every voter to know exactly when I became the chairman. So I -- but that's been true since 2006. So yeah, I thought it was important to push back. But the notion that you're desperate, you know. As to a purple thing, I mean Scott Brown said that he did not see a big revolt in that (inaudible). I think frankly Senator Brown understands it, but he is a little bit troubled by the notion that he was just swept in by a wave, and that had nothing to do with it. Because what I've got to tell you about Scott Brown is -- he's one of the best technical candidates I've ever seen. I mean people talk about Martha Coakley not running a good race. People don't talk enough about the technically excellent campaign that Scott Brown did. That is, he took his own persona and played it up, and he was comfortable with it because it was really him. So no, I don't see a huge, a huge wave. On the other hand, I am aware that there has been -- and my opponent sort of surprisingly, it seemed to me, again was quoted a year ago saying that he expected there to be outside expenditures against me. Now he's not supposed to know that. (Laughter.) CHAIRMAN FRANK: He then went on to -- of course, I don't want to have any improprieties, so I think somebody (inaudible). So, and I have to be ready for that. But I'll tell you the other thing about Clinton. I've been wanting to do it. Obviously, we work very closely. An aside, by the way. One of the things we're going to have with the Republicans is the impermissibility of doing anything significant in a lame duck session. You've heard them say you're not supposed to do anything significant in a lame duck session. Well, they are not hypocrites only if you believe that impeaching a President of the United States is not significant, because not only did they do that in the lame duck session of 1998, but of the three counts that were adopted, one would not have passed if the people elected in the previous election had been there. Now that's a count they didn't pursue in the Senate. Two others would have passed anyway. But so, you know, given that, (inaudible). I know the City of Taunton has been in my district less than other times. It's a city I like. I haven't had as much work with them, and it's a city that doesn't get as much attention as some others. It's kind of been sort of New Bedford and Boston. It's in the middle. It's kind of a place that you get more attention. I am -- it's part of even other campaigns. If I would have gotten a chance to get Bill Clinton to come to Taunton, I would have done that. MR. COOK: Cynthia. MONITOR BREAKFAST: Congressman, I have a two-part question, a political question. First off, why did Democrats blink on a vote on the tax cuts? It seems to me it's hard to blame Republicans for the uncertainty, if Democrats don't even try to have a vote in the Senate or the House. The second part of my question is back to the stimulus. Why is it that the vast majority of voters don't know that a third of that bill was tax cuts? Was that a deliberate decision on the part of the Obama administration and Democrats not to play up the tax cuts in the stimulus? CHAIRMAN FRANK: First, in the (inaudible), but I reject the notion, because we haven't voted on it yet, the Republicans have no responsibility for a very irresponsible way to do the tax cut. I mean this notion that you do these things for ten years. Now in particular, what they did with the estate tax is just bizarre, and no matter when we had acted, you know. Even if we had acted now, that was this -- it drops and it goes back up again. Why? Because there is some -- well, I guess it's that way is because of the filibuster. I think increasingly things are problematic because of the filibuster. You have House members saying now I don't want to take contrary positions if they're not going to go anywhere in the Senate. This notion that everything is subject to the filibuster is the most radical de facto amendment to the U.S. Constitution that I can remember, probably since the Supreme Court said that the bill of rights applies to the states and the 14th Amendment. I mean it's really quite radical in its impact, and it has had a major effect. So that was -- the fear is that with the Senate not being able to know for sure what they can do, House members were reluctant to take a controversial position. Anyway, to be clear, avoiding taking tough positions is a pretty constant goal of most members of Congress most of the time. Secondly, you're asking me why the fact that a third with tax cuts hasn't been done more. Well probably it's because you people haven't said so. I don't write the newspapers and I don't write the TV. My guess is you did a content analysis, but the responsibility there would be more from the media. Many of us have tried to do that. There was no conscious effort. It's probably just distortion on the Republicans' parts. They're the ones who say "Oh, you added all these exemptions," and slip over the fact that a third of it was tax cuts. Although by their definition, and it should be clear. Some of the tax cut in that was the EITC. So they would say well that's not really a tax cut; that's an expenditure. But clearly there still was a big tax cut. Yes look, I've said that in hearings when they started talking about oh, you guys have raised taxes. In fact, taxes on the whole are lower than they were before, because of what was in the economic recovery bill and because of cash for clunkers and because of the first time home buyers. So we brought taxes down some. But I would say the Republicans and the media both didn't mention that, and in our case, I think it was just we didn't do as good a job as we should have done. That was a conscious decision not to talk about it. MR. COOK: Kevin. MONITOR BREAKFAST: Two questions, Mr. Chairman. One just to follow-up on Dave's, if he could characterize this campaign as to other campaigns in recent years. Is this tighter, closer, tougher? CHAIRMAN FRANK: Well, I think the general, you know, in 2006 and 2008, the Democrats had sort of an advantage and now the Republicans do. The economic recovery has been much slower than we had hoped. It is the case that one, in every area of the American economy, things are better than they were in 2009. But they're not nearly better enough. There have been some problems with that. I think people have not focused as much on the international aspect of that. If you chart this, the recovery was doing much better until, and I don't know if it's causal, but it's certainly at least coincidental, the problems in Greece, the European crisis. Confidence has a lot to do with it and, you know, the interconnectedness of the world is a big plus but also a big minus. But because the economic recovery has been much slower than expected, that makes it tougher for Democrats. I think that it's overwhelmingly the answer. I think that the President came to power determined to try work with Republicans. I think he always overestimated the extent to which you can do that with the current Republican party. You know, I read today about how one of the problems, just reading in one of the Roll Call (inaudible), one of Robert Bennett's problems was that he was accused of working with Ron Wyden. Scott Brown has been attacked because he and I collaborated on the financial reform bill, to make sure that we preserved the legitimate business practices of Massachusetts businesses while within doing the regulation. I don't think he ever had much of a chance to work with them, but in pursuit of that, he didn't do what he could have -- what he's now doing is talking about how bad the situation was that he inherited. If he had been doing that in January, February and March, I think it would have had more of an impact, and I think that was part of the problem. MONITOR BREAKFAST: But on your district, that's a part of that question. Robert Reiss in his new book lays out a pretty convincing argument, looking at the income and equality stats that I think all of us have looked at, and making an argument that the middle class, until the middle class has consumption power, the flat wages, that this income that keeps spreading and your economy is going to be stuck in a rut. How much, from a legislative perspective, can you do to address this widening income and equality? CHAIRMAN FRANK: Some, and I've been asking people about it at the Fed for some time. One way you do that, frankly, is to support unions. You know, when I was in college, taking courses from John Dunlop, there was -- a lot of the academic economists argued that unions really couldn't affect wages, that they were set by the impersonal factors of the market. There's now, I think, an academic consensus, no, that's not true, that unions can have an effect. I think the effective gutting of unions in the private sector by appointing people to the NLRB who were just going to ignore the law, and by the weak remedies that are there when unionization (inaudible), by trade policies that undercut the ability of unions to do things, that's a significant factor. And so part of this is to support unionization. Another is, and this is a real problem, it's a public sector thing. I asked both Alan Greenspan and Ben Bernanke over a period of years exactly that question. What can we do from public policy to diminish this kind of inequality? Both of them said among the most important things you can do is to fund community colleges. Community colleges are an important transmission belt for good jobs for people, and then the kind of jobs you're talking about, you know, people who do TV and air conditioning repair, people who do food preparation, nurses. Nursing is very important. You know, I'm not an isolationist, but one of the nice things about nursing from this standpoint is you can't stick a needle in somebody's ass from Mumbai. (Laughter.) MR. COOK: You heard it here first. CHAIRMAN FRANK: But what's happening is the opposite. Because of the crunch on the public sector, I mean part of it's unions. Part of it is appropriate public sector expenditures. The private sector in and of itself isn't going to do that. The private sector is going to exacerbate it. That's not because -- they're not bad people; that's just bad trend, and what's happened now is look, I think the economy, we're seeing tremendous paydown. It's very difficult to deal with and frustrating. But I believe the economy is frankly in position to take off. People have paid down their debt. Inventories and housing and elsewhere are down. People have gotten, have learned how to be very productive. Unfortunately, some sectors are producing very efficiently with less. So I think it's going to take some public policy expenditures to do this. But the trends of anti-unionization and of the defunding of relevant public sector activities is a part of it. MR. COOK: Matt Viser. MONITOR BREAKFAST: Yesterday, Scott Brown had some critical comments of Harvard and its policy on barring ROTC from its campus until it repealed Don't Ask, Don't Tell. He also criticized them on -- the Harvard president specifically for her advocacy of the Dream Act at the same time. What do you make of Harvard's policy and his comments? CHAIRMAN FRANK: I haven't paid much attention to it. I mean one is that you can be Harvard student and you can take ROTC at MIT. MONITOR BREAKFAST: Right. CHAIRMAN FRANK: So I think it's largely a kind of a symbolic fight, which I have enough real fights to worry about. MR. COOK: Mark. CHAIRMAN FRANK: I mean I think it's kind of, you know, Harvard's a private institution. I thought, you know, the Republicans were for letting the private sector make its own choices. MR. COOK: Mark. MONITOR BREAKFAST: Mr. Chairman, earlier this year, you commented that it was very difficult to run a national campaign, presumably for your party, on the slogan that things would have sucked worse if we hadn't been in power. Could you bring us up to date on that? CHAIRMAN FRANK: I don't know in what forum you heard that, but I'm not repeating it in this one. But no. That is the problem with what I said about the counter-factual. It is very clear, I mean, if you've read the or have seen the report, that the excellent analysis by Mark Zandi and Alan Blinder, there's no question that a combination of policies begun in the Bush administration. By the way, people forget that the first stimulus happened under George Bush. There was a lot of your tax cut one, but you know, the first stimulus happened in 2008 under George Bush, and I think we have improved on the policies. But the interventions, the Feds' interventions, not just that the AIG was more controversial, but that set of acronyms that the Fed had, the TALF or the TALC and all those things, those were good for the economy and made money for the federal government. Although it got to the point where nobody could keep up with it. At one point, in a meeting with Bernanke in the committee offices, he said "Well, we are having a problem with turf," and I thought that was a new acronym. (Laughter.) CHAIRMAN FRANK: But it was just jurisdiction. I asked him, "what does that stand for?" you know. But it seems to have gotten better. They haven't gotten better for that though. The biggest mistake the administration made was the prediction that if the stimulus bill passed, unemployment would drop below 90 percent. There was no reason to say that. I told people, I said "Why make a prediction? The answer is we're going to do the best we can." In fact, it is beyond dispute that there is less unemployment than there would have been if we hadn't passed that bill. All, virtually every economist said that. But it hasn't done well enough and the public doesn't grade on a curve. The public grades on the reality, particularly when expectations have been raised. So that's the reality. As I said, I believe frankly, the timing is bad for Congressional Democrats. I think in some ways it's analogous, frankly, to President Reagan. `82 was bad for the Congressional Republicans. But by `84, the economy was in great shape and it was very good for the president's reelection. I think you're going to see a similar phenomenon. I think the economy is getting ready to take off. That's not anything to be happy about, because people are getting all this pain. But I think that's -- people deal with the reality. MR. COOK: We've got about 28 minutes left. We'll go to Dave Shepard, Jake Sherman, Lorraine Woellert, Victoria McGrane, Al Eisele, Francine Kiefer and Dave Michaels. Mr. Shepard. MONITOR BREAKFAST: Mr. Chairman, you talked about the auto bailout. Why do you think it's so deeply unpopular still, and do you think with GM launching its IPO in the next few months, if the government ends up losing 10 or 20 billion dollars on the bailout, can it still be declared a success? CHAIRMAN FRANK: Yes. Again, if you believe that we should be keeping manufacturing going in America, because what you would have lost if we hadn't gotten involved is not simply GM, but a substantial part of the supply chain, and that would have had a negative effect on Ford. I mean Alan Mullaly said this was very important, and you say 10 to 20 billion. That's a pretty wild guess obviously, when you're talking about that kind of a range. But I think some loss, if the price, given that the alternative would have been either no General Motors or a substantially diminished General Motors; no Chrysler and the problems for Ford and a drop in the auto supply. Yes. I don't understand how anybody could say we want to support manufacturing in America and have been against that intervention. I also think the economic situation would have been much worse. So I think it's a success. Again, it's how do you define success. I define it as we are better off as a country economically for having done it than we would have been if we hadn't. The problem is if you say oh, you lost ten billion, it's a failure. But at what -- okay, we would have had ten billion dollars and no significant automobile manufacturing in America, and no affiliated set of industries manufacturing in America. I think that it would have been worse. MONITOR BREAKFAST: Just the economy has lost about two million manufacturing jobs in the last five years. Is there anything more Congress could do to return some of those manufacturing jobs? CHAIRMAN FRANK: Yes. Trade policy is a part of it. There was in the question. Maybe we look at tax policy and how we do it. Again, you know, I would put the two questions together. If we hadn't intervened in the automobile industry, your two million figure would have had to go higher. There would have been a significant higher loss throughout, and there is -- We can begin now focusing on the right kind of training. Manufacturing has gotten more sophisticated. You want a manufacturing work force that's got a higher level of skill than the manufacturing work force of 40 years ago, and it's important for us to be able to provide that, joining that to public policy. MR. COOK: Sorry sir. Jake. MONITOR BREAKFAST: I was wondering if you could predict -- you've worked with this set of Republicans on the Financial Services Committee for two years now or longer. With President Obama in the White House, if Republicans were to take over, what kind of things do you think they would do on the Financial Services Committee? What do you see so far? CHAIRMAN FRANK: Well look. I want to be cooperative, but then I get a headline, "Oh Frank says Republican Takeover Imminent" or something. I think they've been pretty clear about it. I will -- so you know, well, I take it back. I'm not clear. I haven't yet read their sort of platform for the future. I didn't in the reports of it see any reference to the financial reform bill. Now some of them have said they want to undo it. What I'm afraid they would do if they got control in the House, Senate or they got both, they can't repeal it with the President there, but they could unfund it. We need the SEC and other agencies to have the funding to do what we have asked them to do in the Consumer Bureau, in particular. MONITOR BREAKFAST: They said they'd freeze, they would freeze. CHAIRMAN FRANK: They said they'd freeze it? MONITOR BREAKFAST: Not hiring --. CHAIRMAN FRANK: Yes. Well then, you know, then you would have a real problem with being able to carry it out. MR. COOK: Lorraine. MONITOR BREAKFAST: The economy is being driven partially or strongly by a housing crisis right now. I know you have a bill in the works to rebuild Fannie Mae and Freddie Mac and the rest of the system. CHAIRMAN FRANK: Now. We're not rebuilding Fannie Mae and Freddie Mac. They're going to be abolished. MONITOR BREAKFAST: They're going to be abolished. CHAIRMAN FRANK: We've said that every time we can. I don't know -- MONITOR BREAKFAST: To rebuild the mortgage system. CHAIRMAN FRANK: Yes, the housing finance system. MONITOR BREAKFAST: Okay. So what can you do? What can you do in the near-term though, while you're working on that, to help the housing crisis? CHAIRMAN FRANK: The one thing that I believe is important, trying to help people avoid foreclosure is important, both economically and socially. It's important in the cities. All those foreclosed properties is a problem. We've tried to express there is a problem. It has been clear from the outset that there was not going to be public money. You had people who had mortgages they could not sustain. In some cases, the people were irresponsible in taking out those mortgages. In some cases, they were encouraged into the irresponsibility by lenders. In some cases they were defrauded. One group of people frankly that are in trouble are people who chased out. They took home equity loans. Well, they're not the most sympathetic people in the world if they, you know, (inaudible), they took their money out and now they can't pay it back. There was never any chance nor should there have been that public money would have gone to pay off either the lenders who had made these loans or the borrowers who were stuck with the loans that didn't make sense, because -- and so we tried various ways to diminish foreclosures. They have helped some but not a lot. About a year ago Chandra Vidot (ph) told me about a program they had in Pennsylvania, which we have finally gotten into law for $3 billion, which is the one thing that I wish we had done earlier and we are now doing it as a result of our bill. It's to lend money to people who are unemployed, and have houses that -- who didn't make bad loans in the first place, and give them, make their mortgage payments until they get employed and pay us back. CBO says that it will cost us 50 cents on a dollar. That's $3 billion. That's one of the things -- that's the best way to slow down foreclosures. We finally got that one, got it. We had some money for it in the bill. I've been pushing the administration, and we have that. That's the only major intervention I can see that -- Oh the other one is we did give money to the cities for them to buy up foreclosed properties, which also helped, because you get the foreclosed properties off their -- I hope the cities will use them for affordable housing. Those are the two things that I think help. We're talking about -- it was a good thing that housing prices came down. The problem was that they came down much too rapidly. I'd like to lose 15 pounds, but not by Sunday. That wouldn't be good. (Laughter.) CHAIRMAN FRANK: So those are the two specific public policy things that we can do in the near term. MR. COOK: Victoria. MONITOR BREAKFAST: Chairman, one of the provisions in the financial reform law is, requires regulators to remove all references to credit rating agencies, and that has, you know, provoked certain concern among the regulators. Now some people are saying that it could delay the implementation of bond rollovers. Do you think that that's true, or do you think there's something that should be done to fix it? CHAIRMAN FRANK: No. None of them told me that. Who said that? MONITOR BREAKFAST: Well, Bloomberg has a story out today saying that. CHAIRMAN FRANK: I didn't know Bloomberg was in charge of bond rollovers. I haven't heard that from any -- I haven't heard that from any of the regulators. I talk regularly to Sheila Bair and to Ben Bernanke and you know, to people in the Treasury. No, I think that's very important. Yes, there's always a transitional problem, but so you'll know what the provision is, it's the one that Scott Garrett and I worked on together, and the Wall Street Journal. One of the problems in the rating agencies is that they were telling people more than they know. There's a conflict of interest in the business model, where they are paid to rate people who pay them. But even if it was totally arms-length, there was simply no way an agency like that can tell you how good hundreds of thousands of loan originations were. There's just no way to do it. They were making it up. And what happened was people were relying on the rating agencies and not looking at what was there. So what we said in the bill was rating agencies may continue to rate, but we -- all we did was remove from the law any requirement that they be used. We didn't ban anybody from using them. What we say is you can't use them as a crutch. We urge people to do their own diligence, and I don't see how that -- I know the regulators are talking that's a problem. Yes, there are often problems with the transitions. But I'm very proud of that provision, because I think that over-reliance on the ratings agencies was a big problem, and we're now telling people to do their own. And if they say well, some of the municipalities have said to us well, you know what? When we get one of these complicated deals, we don't really have the capacity to evaluate it. We need to go to the rating agencies. You know what the answer is? Don't do the deal. Don't take the taxpayers' money and get into something with a bunch of sophisticated people who know ten times as much as you do, and buy into it. You know, go with something more solid. So but the other thing we're getting at is that we give a fiduciary responsibility in the bill to anybody who was advising the government about how to spend money. But again, I have not heard that from the regulators. MONITOR BREAKFAST: And just, I mean you say that there is a transition period. You do say that, though. Will that delay or will that make -- do you perceive that delaying the bond rollovers? CHAIRMAN FRANK: No, no, no. But I mean for this, that means people just got to get used to it. People have got to get used to it on their own. But no regulator, you tell regulators don't buy them. Tim Geithner just testified before us about bond rollovers. Nobody with an official responsibility has ever said that was a problem. MR. COOK: Al Eisele. MONITOR BREAKFAST: Mr. Chairman, I'm not sure of that earlier question about Larry Summers, and whether this is repetitive, because I didn't hear it all. But let me ask you. Summers, like you, is known for not suffering fools gladly. What's your candid assessment of his performance as the President's economic advisor? CHAIRMAN FRANK: Well first, did you lose that 15 pounds by Sunday? You lost more than 15 pounds. MONITOR BREAKFAST: I'm sorry? CHAIRMAN FRANK: You've lost more than 15 pounds, I guess not by Sunday. My candid assessment of Larry is he was a great asset. When we were doing the financial reform, obviously you were talking about -- the financial reform was a clear case of where you had to do micro and macroeconomics together. We were doing microeconomic things in the sense of regulations of specific activities. But you always want to be conscious of the macroeffect of that. Larry was a great source of advice and information. We worked very closely. I think the cooperation among Senator Dodd, myself and the administration, the Treasury Secretary and the other people, that was a very good one, and Larry was very, very helpful. I mean we had meetings from time to time and talked about things, and I found him very useful. That was my major interaction with him. MR. COOK: We've got about 15 minutes left. We're going to do four more questions. Francine Kiefer, Dave Michaels, Steve Sloan and Dan Stone. Francine. MONITOR BREAKFAST: In the debate about whether the White House should or has too many academic background economic advisors and not enough people from the corporate business world, where do you come down on that debate, and do you think that background should come to bear in the choice for the replacement of Mr. Summers? CHAIRMAN FRANK: I don't think that's a real debate. That is, I think -- I don't think anybody has in the abstract a position on that. I think what happens is, as is often the case with these kind of arguments, people either like or don't like the policies, and then they find reasons that stem from that. I will say this. One of the major interactions obviously this administration has had and the Congress was in the bill that came out of the Financial Services Committee and the Senate Banking Committee. There are people who may not like what we did. I have not found anybody who has argued in the financial community that we didn't know what we were doing, that it was too academic. I am frankly proud of being told by many people in the banking industry and the insurance industry and mutual fund industry, the investment bank industry, that we understood their issues and dealt with it. You know, I would -- I don't think anyone can show that we suffered from a lack of understanding, because what we did, we spent a lot of time talking to people in that field. So I don't see any sign of that. I don't see any sign that -- I don't know. The economy, the recovery is (a) underway, and (b), much slower than anybody wanted it to be. I think that is the source of all the public complaints, and that that's -- and I don't understand -- I don't see that it would have made a big difference who had people in there. As to who replaces Larry Summers, I haven't given it much thought because I have a lot of work to do on things I have to decide. So I've got no room in my head for things that nobody's going to pay any attention to me about. MR. COOK: Dave, Dave Michaels. MONITOR BREAKFAST: A quick question on defense spending. Do you think that cuts, particularly in non-war spending, are inevitable, and under what political conditions would the Defense Department's budget be cut? CHAIRMAN FRANK: In order to be cut, you know, Ron Paul and I had a (inaudible) initiative on this. America is substantially over-committed in the world. I was just reading something that Hillary Clinton said, and there was a quote from a woman I admire greatly, Madeleine Albright, and a quote I disagree with. I've forgotten that Madeleine Albright said "America is the indispensible nation," by which she meant any time there's a problem, anywhere, any time, any place, we're there. Well, people have got to learn to dispense with us, because we can't afford it. We have got to bring down the deficit. It is impossible to bring down the deficit without doing great harm, I believe, to the quality of life in this country, unless you include a very substantial reduction in military spending, something on the order of 20 percent. We are subsidizing our wealthy European and Asian allies. One of notions is well, we've got to spend a lot of money to keep the sea lanes open from Asia to the U.S. Well, China uses those sea lanes to make an enormous amount of money. So we have to pay them so they can send us all these goods? We intervene too many places. There was a guy, a Russian -- I'm trying to get it sent to us, and there was a guy in Russia. Everywhere we were, this country, that country, the other country, he would show up. But we couldn't be in all these countries. But I would feel morally conflicted if I thought we could do a lot of good in a lot of these places. But people just get mad at us, and you certainly can't -- well and Iraq is a great example. We have 50,000 non-combat troops in Iraq. Unfortunately, the bad guys don't know they're non-combat troops. That doesn't stop them from shooting at them and putting them in a very difficult kind of position. What are they there for if it's not combat? We should have just great fighting forces. Young people should be very well-equipped. But if there's no combat, what the hell are they doing there? Mediating an election? Arbitrating religious disputes? Let's get them home. That's tens of billions of dollars that we're spending there. America has got to scale back its worldwide military footprint. Yes, we've got to fight terrorism. Unfortunately, you don't beat terrorists with nuclear submarines, because if you could, we would. We have them and they don't. Fighting terrorism is tougher, but also less expensive. You don't do it with all this hardware. Well I am passionate obviously about this. We have got to substantially reduce, and I like what Gates is doing. But you can't just do it by efficiency. You have to scale back the reach. You have to say we have to more narrowly pursue our national interests, and not be the intervenor of last resort whenever there's a civil war or a problem here or there or elsewhere. MONITOR BREAKFAST: Speaking of hardware, on acquisition programs, if programs were caught like the ones mentioned in the Sustainable Task Force's report, like the joint strike fighter, wouldn't we be losing some of the manufacturing jobs that you talked about? Many of them are union. CHAIRMAN FRANK: You would, right. But you don't, I don't, I'm not in favoring of manufacturing being done we don't need. In other words, refrain from intervention, because I think we need cars. But the notion, and this is what's interesting. What you're alluding to, I know you're just, you know, passing it along and I don't mean to impute this to you, but it's -- what the conservatives have perfected, which is military Keynesianism. They don't believe that there's a government role in job creation anywhere except with weapons, and then they exaggerate it. I asked Alan Greenspan -- again, there's a transitional issue. But I asked Alan Greenspan once what's the effect on the economy of military spending. He said oh, there's no question. If you decide that you don't need this military spending and scale it back, it will over a fairly short period of time be good for the economy, because one of the things about military spending is when you build most things, you build them to use, and there's a recycling effect. But if you build weapons not to use them, you build them to store them, they don't have this kind of repeated effect. So yes, there would be a short-term job loss. But I also believe that we are not talking about throwing people out of work now. We are talking about not hiring new people and not new contracts, and scaling back the number of people in the military. I see no reason why we have 15,000 Marines in Okinawa. Look, I'm worried about the Chinese, and we need to have a capacity to reassure the Taiwanese. But we're not sending the 15,000 Marines to the Chinese mainland. That's a sea power/air power thing. That's just a cultural lag from the Cold War. MR. COOK: Steve. MONITOR BREAKFAST: Can you talk a little bit about what you're working on with CRA? Will we see a bill before recess? CHAIRMAN FRANK: No. We may see a bill. With CRA, one of the things I think is now clear, there was this greatly inaccurate view that CRA had caused some of the mortgage funds. That was never remotely true and to give the Bush people credit, every Bush financial regulator said that wasn't true. There's just no argument for that whatsoever. For the public, when CRA was adopted, it was 1977. All loans were made by banks. Now we have this whole non-bank system. So we do think it makes sense to expand it. But that will be a next year issue. MONITOR BREAKFAST: Can you say how far you want to expand it? CHAIRMAN FRANK: Not yet. Well, to non-bank financial institutions. But exactly how many, I have to see. Banks have a geographic footprint. But what do you -- but it's ultimately who goes into that bank. What's the CRA obligation look like in the absence of a geographic footprint, and that's something we are talking about. MR. COOK: Dan? MONITOR BREAKFAST: Mr. Chairman, you started off saying the reason Democrats are in trouble is the recovery has taken longer than expected. President Clinton said a few days ago give Democrats two more years. We need two more years, and if it's not better then, then throw us all out. What's your assessment of the timeline from what it might take to really get on better footing? CHAIRMAN FRANK: Well one, that's easier for him -- (Laughter.) CHAIRMAN FRANK: If we were Parliament, we could wait two years. We have fixed election years. No, I think that's right. I think the election of 2012 will be much better for Democrats than this one. As I said before, I think the economy is poised to do much better. There's terrible pain and it's hurting people. But I think it's producing a leaner economy, ready to thrive. Enterprise is more productive; inventories are down; individuals' debt limits have been pared. I think the President's going to be a beneficiary of all this. Then on the other side, things like the financial reform bill, we have, you know, there won't be any bad things happening. It could be (inaudible). But I think we have a financial system that's going to be leaner and work better. So I do believe in 2012 things will be much better. MR. COOK: Mark? MONITOR BREAKFAST: Mr. Chairman, just to sort of a perspective question. At my calculation, you've served in Washington under eight different Presidents, and I'd just like to get your sense of who in that time was, in your judgment, the most effective White House chief of staff, and what does make an effective White House chief of staff? CHAIRMAN FRANK: Well, let's see. I never really got that close to them, and I had not really thought of it. Obviously Jim Baker was. Probably it was because -- there was an unusual situation. Ronald Reagan was a very unusual President. He had a fairly clear general set of things he wanted to do, and an inclination to then just give the chief of staff, you know, all that authority, and James Baker seemed to me to be a very effective one, as I think back about it. I guess I'm not really in a position to judge most of them, but I would -- and that was early obviously for me being here. I'd give it to him. But that's probably because of this unusual relationship he had with the President. MONITOR BREAKFAST: Any particular skills of his, of Baker himself, that were -- there were other people who held that job. I mean Donald Regan and certainly not as successful. CHAIRMAN FRANK: Yes. Like I said, Baker kept his own ego in check, and he understood the job very well. I think he was also strategic about what to do, but that was helped by Reagan, that you could give priorities to what you were doing. But like I said, I'm a little skeptical of my own ability to judge. I haven't really watched them all that closely. MR. COOK: The White House last night sent out or Gibbs sent out something explaining why, despite a filing that the Justice Department had made, the President still remained committed to doing away with Don't Ask, Don't Tell. How would you assess the President's progress so far on that? CHAIRMAN FRANK: Good. Not great, but clearly very good, and I'll tell you, for those of us are gay and lesbian, Admiral Mullen's statement was one of the most moving affirmations of a country that's risen above discrimination that we've ever seen, and that resonated very strongly with us. But it's a good job. I said to my friend, and I did say on this when I thought he could justify not defending it, but I'm told by a number of friends, we don't want to set the precedent that anytime the chief executive doesn't like a law, he can refuse to defend it in court, because that will come back and bite us in a lot of ways. But I do think in this case, with the House and the Senate committee having voted against it, that he would be justified in taking that last step and getting rid of it. MR. COOK: Thank you for spending this time with us, sir. I appreciate it very much. CHAIRMAN FRANK: You're welcome. (Whereupon, the meeting was adjourned.)