Kevin Duffy on the legacy of the 2008 financial bailouts

In his recent interview in Barron's (“Hank Paulson Says the Financial Crisis Could Have Been 'Much Worse’,” September 17, 2018), former Treasury Secretary Henry Paulson claimed, “The timing, cause, and severity of the next financial crisis are impossible to predict.  Of course someone will get it right and will be credited with doing so, but he or she won’t spot the next one.”  Having warned about the late ‘80s Japan bubble, late ’90s tech bubble and mid ‘00s credit bubble (“For Whom Do the Bells Toll?,” June 18, 2007), I’ll take that as a challenge.  The root cause is always artificially low rates set by central banks.  Since this period of low rates was longer (7 years vs. 2 ½ from 2002-04), deeper and more global, the next crisis will be more widespread and prolonged.  As for timing, it’s anyone’s guess but with rising rates, narrowing leadership (just 5 of 35 country stock markets up on the year), investor euphoria (record low cash levels at Schwab), and wild speculation (first cryptocurrencies, now cannabis stocks), the lights are flashing red.

There are plenty of areas of fragility.  Within the U.S., since the end of 2008 student loan debt is up 127%, auto loan debt 57%, corporate debt 76%, public debt 98%.  Margin debt has more than tripled.  Outside the U.S., Canada and Australia are experiencing housing bubbles while emerging market debt has gone from 110% of GDP to 194% according to the Bank for International Settlements.  Other potential landmines: Chinese corporate debt has increased by 64% of GDP, Italian government debt by 40% of GDP, and Japanese government debt by 61% of GDP.

Unlike the tech and credit bubbles, which were sector-specific, the bubble today is in “everything.”  This is the true legacy of Paulson, Geithner, Bernanke, Frank & Co.

~ Kevin Duffy, September 21, 2018

Barney Frank explains the essence of Washington, DC

If it is [a conflict of interest], then much of Washington is involved [in conflicts].

~Barney Frank, US representative, on helping his former lover, Herb Moses, land a lucrative position at Fannie Mae in the early 1990s

Jim Cramer on financial regulation

This laissez faire really has killed us.

~ Jim Cramer, as appeared on CNBC interviewing Rep. Barney Frank, January 21, 2010

Barney Frank on the GSEs: "We see entities that are fundamentally sound financially" (2003)

The more people, in my judgment, exaggerate an issue of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury - which I do not see - I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. And even if there were a problem the federal government doesn't bail them out, but the more pressure there is there, then the less I think we see in terms of affordable housing.

~ Representative Barney Frank (D-MA), September 10, 2003

Barney Frank: GSEs are "fundamentally sound" (2008)

I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They're not in danger of going under…I think they are in good shape going forward.

~ Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008

(Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.)

Barney Frank on how nobody foresaw the credit crisis

In 2003, nobody that I knew of foresaw the crisis of subprime lending, and that is what caused this problem.

~ Rep. Barney Frank, chairman of the House Financial Services Committee, "Barney Frank feeling heat in crisis," BostonHerald.com, September 30, 2008

Barney Frank on the package to rescue Fannie Mae and Freddie Mac

Of the problems that were created by the reckless deregulation that led to the subprime crisis and the neglect of affordable housing that has marked Republican rule in Congress, this package of measures is the best response we could make. It cannot solve all of these deep rooted problems immediately but the bill does represent a mutually reinforcing set of approaches that will begin to diminish the problem. This will begin to lay the groundwork for a turnaround in the housing market and hopefully in the broader economy as well.

~ Barney Frank (D-MA), House Financial Services Committee Chairman, House Committee on Ways and Means press release, July 30, 2008