Barney Frank’s Legacy of Financial Reform

0:00— Former Democratic Congressman Barney Frank died on Tuesday. Frank had a huge impact on America's financial system, possibly more than any other politician this century. He was the lead architect of the Dodd-Frank Act, which passed in the wake of the 2008 financial crisis. — Barney Frank, there's no one like him in Congress that I've ever covered. Damian Poletta heads the Wall Street Journal's D.C. Bureau. He was hilarious. He was mean. He was brilliant. He would kind of slump in his chair. Ma 'am, trying to have a conversation with you would be like trying to argue with a dining room table. I have no interest in doing it.

0:46I think that I love this job, but the biggest problem is there are thousands of people in Washington who earn a living by trying to waste my time. One of the advantages to me of not running for office is I don't even have to pretend to try to be nice to people I don't like. Damien first started writing about Barney Frank about 20 years ago. This was an era when I covered him really from 2006, I'd say, to 2012. An era where a lot of lawmakers were figuring out how to monetize their term in Congress and how to raise tons of money. and he was just the same old Barney, you know, shirt untucked, you know, suit wrinkled, always hair kind of pushed around.

1:27And he was kind of an old school guy in an era when Congress was changing.

1:36So Barney Frank died this week. And in the pantheon of powerful lawmakers, where does Frank stand? I think he's an iconic figure. Whether you appreciated him or really reviled him, I mean, he was a force to be reckoned with for his time in Congress. And no matter where he was, what issue he was weighing in on, he had something really kind of thoughtful and poignant to say and provocative often. And so no matter whether you were the most conservative member or the most liberal member, you know, Barney Frank always got everyone's attention.

2:12Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Thursday, May 21st.

2:25Coming up on the show, how Barney Frank changed the U.S. financial system.

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4:17So before you were Washington Bureau Chief for the Wall Street Journal, you were a reporter on Capitol Hill chasing people like Barney Frank around. Who is Barney Frank and what's he like? He always was the smartest person in the room and no one knew that more than him. And so he was always kind of interjecting and butting in and had, you know, making wise remarks and trying to shut people down. And no one could deliver fiercer feedback than he could. Did he ever deliver fierce feedback to you? Oh, yeah. I mean, I remember this was, so this was 15 years ago. I remember it like it was this morning.

4:55Damien had written a story that Frank didn't like, about a Boston bank that wasn't eligible for bailout money, but that Frank helped steer money toward anyway. The story made a big splash because it showed that there was some political influence in how the money was being doled out. So the next day, I go up on Capitol Hill, and he comes right up in my face. I swear, he was like two inches from my face. I could smell his breath. I could smell the tobacco on his breath. That's how close he was to my face. And he said, Damien, you betrayed me. And, I mean, I don't know what he was talking about, betrayed.

5:30I'm a reporter. But he was so intense. It was so personal for him, like that story. And he read every single thing you wrote, and he had comments and feedback on it. And I will never forget that moment. Wow. So before, I want to talk about, obviously, his most famous piece of legislation, Dodd-Frank. But before we get there, can you tell me the story of his early career? What are the highlights up to that moment? And how did he get to be in this position where he was so influential in Congress? It's sort of a classic Massachusetts Democratic machine story. He kind of grew up in an era where there were people looking out for you.

6:07You learned how to do things the old school way, how to do favors for each other, how to look out for each other, and you rose through the ranks. Frank made an impression on people based on his smarts and wasn't someone who cared much about his appearance. I just didn't pay a lot of attention to how I dressed and how I looked, especially during campaigns. and I had a tendency to eat a lot when I was stressed. So people would try to get me to keep my hair going better or dress better, buy more, you know, buy suits before the old one wore out. In 1987, Frank came out as gay, which was a pioneering move for a politician at the time.

6:51He later recalled telling then-House Speaker Tip O 'Neill about it before the announcement. I said, I just wanted to alert you that there may be some stuff coming out about my being gay. He said, oh, Barney, don't be listening to that crap. They say all that stuff about all of us. I said, well, Tip, the point here is that it's true. Well, I remember him telling me that Tip O 'Neill, at the time, who was the House Speaker, was really trying to mentor Barney Frank to be a future House Speaker. And, you know, when he came out as gay, and there was a scandal, to be sure, that was kind of associated with part of his coming out in this way.

7:27There was a conversation between Tip O 'Neill and Barney Frank that acknowledged that Barney Frank would never get to that spot, that he was smart enough to be House Speaker one day, but it was because of the scandal that he had and the fact that he was gay that he would never get to that position. And so I think that made him scrappier and, you know, work harder. And so instead he had to kind of forge a different path. And for him, that path would lead him to be chairman of the House Financial Services Committee, which was an incredibly powerful committee. Where did he get all this finance and banking chops?

8:00Where did he learn all this stuff? He's a really smart guy. He would always show up at every committee hearing. He would ask really good questions. And I think as time went on and more and more banks and securities firms would come to brief him on their issues, he was learn and learn and learn. And obviously, Boston, there's some major financial institutions in Boston, and they always had access to him. And so Barney Frank always knew who to reach out to and who to ask information about some of these issues. So that when really push came to shove, he knew exactly where to zero in. So the financial crisis hits, Lehman Brothers collapses.

8:37Barney Frank is in this powerful position on the Financial Services Committee in Congress. How did that change the trajectory of his career? Well, early 2008, we have Bear Stearns. And then it's sort of a domino effect. So in the summer, we have Fannie and Freddie. Then we have Lehman Brothers. Then, you know, Washington Mutual. And then all hell breaks loose. Traders here working the phone say a lot of their customers are freaked out, waiting to see how low the Dow will go. The Dow tumbled more than 500 points. It was the worst day on Wall Street since the crash of 1987. And so the financial crisis kind of picked up momentum.

9:16It's like one of those snowballs in a cartoon going down a hill where soon it's like, oh my gosh, this is out of control. And so when you need a big, powerful Democratic voice on the most important issue at that time, unfairness, banks ripping off consumers, people losing their homes, they had Barney Frank. And so there's Barney, and he's got the megaphone, which is exactly what he wants. We have two options. One, do nothing and let this market deteriorate and let jobs be lost and let people not be able to get loans, people not be able to buy cars, people not be able to shop in stores, because that's what happens when credit dies.

9:52Or we can put up some federal money. And so the Democratic Party has someone to line up behind and they have liberal ideas for them, progressive ideas about home ownership, about housing, about the government playing a bigger role, which was big for the Democrats at the time. and Barney Frank was there to lay it all out. Frank worked with Senator Chris Dodd to write legislation that sought to put tight restrictions on the banking industry and to try and prevent another financial crisis from happening again. And I'll never forget one night, so Dodd-Frank did not just pass, like, cleanly through Congress.

10:25It was, there was all these twists and turns and crazy amendments and kind of weird Democratic amendments for their parochial banks and stuff like that. And so to get the thing through, They had one night where they went around the clock, right? And so we were all, the reporters were there too. It was in this room. And they just went all the way through the night to reconcile the House and Senate bills. And it was one of those nights where as the night went on, people are just fading. I mean, it was like, it was such a bizarre scene because like lawmakers are walking around like zombies. They can't leave, but there's, it's like three in the morning.

10:58And Barney's there through the whole thing. He's there through the whole thing. He knew this was like his glory because he knew that this bill was being designed and it was going to be, you know, something that was going to stand the test of time. And so there we are. And finally, I think it was like five or six in the morning and they finally finished the bill up. And one of the final things that was done was a decision to name it Dodd-Frank before it had been called some other, you know, financial rescue act or something. But there was a decision made at the end to call it the Dodd-Frank Act.

11:26And that was when it kind of cemented that his name would be on a historic piece of legislation. So what did this legislation actually do? What were its biggest changes that it made for the financial system? It aimed to take risk out of the financial system. One of the goals was to make it harder for banks to become too big to fail. And in the future, to prevent there from being a government bailout and putting taxpayers on the hook. And it wanted to create a system where if a company got out over its skis, a bank, that it would be able to fail in a contained way, in a way that didn't cause kind of a domino effect.

12:04The common theme in the bill, as I saw it, was to say to a great extent people who make decisions that are risky, which should be done in the business community, will not be able to escape the consequences of poor decisions because that way they'll make better ones. The Dodd-Frank Act sought to regulate the financial industry in a number of ways. It's kind of like an octopus, with tentacles touching every part of the financial system. It created the Consumer Financial Protection Bureau to protect Americans from shady lending practices. It required banks to regularly undergo something called a stress test to see whether they could withstand major economic downturns.

12:40It increased capital requirements, meaning banks had to basically hold on to more cash. And it banned banks from making risky, speculative bets with customer deposits. This is also known as the Volcker Rule. In 2010, the bill passed the House and Senate, with only a handful of Republicans supporting it. That summer, President Obama signed it into law. For the last year, Chairman Barney Frank and Chris Dodd have worked day and night.

13:13How big of a deal was it when this law was passed in 2010? Huge, huge deal. I mean, for the Obama administration, I think this and the Affordable Care Act were two of the most consequential pieces of legislation that Obama passed, this was the answer for the left to the financial crisis. This was their way of saying never again. And so it took a Herculean effort by Barney Frank and Chris Dodd and others to get this through. There were so many times when this bill almost died. But almost immediately, the law's opponents started trying to dismantle it. After the break, the Dodd-Frank pushback. Thank you.

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15:04In the years since this law passed, it's just been slowly kind of chiseled away at. Yeah. What are some of the big moments when the bill was watered down or changes to it were made? Sure. So one of the biggest moments is in the first Trump administration, he put Mick Mulvaney, who at the time was his, I think at the time he was either his chief of staff or his budget director. Mulvaney had a bunch of jobs. Yeah. He put Mick Mulvaney in charge of the Consumer Financial Protection Bureau. And essentially, I think the message to people was, OK, I'm going to put Trump hated the Consumer Financial Protection Bureau and so did Mick Mulvaney.

15:41Here's Mulvaney at the time. The place is just, it's a wonderful example of how a bureaucracy will function if it has no accountability to anybody. It turns up being a joke, and that's what the CFBB really has been, in a sick, sad kind of way. He's going to put Mick Mulvaney in charge of it, which means this thing is no longer going to be doing a lot of the consumer enforcement that it had been doing before. And it has not lived up to the dreams that Democrats had for it originally. Dodd-Frank has taken several blows over the years. In 2018, Congress passed a law that, among other things, made it so that fewer banks were considered too big to fail, and thus subject to fewer regulations.

16:24It also exempted smaller banks from the Volcker Rule, meaning they were now allowed to make riskier investments using customer deposits. Another change weakened capital requirements for smaller banks. Still, the overall framework of the law remains intact.

16:44I think the supporters of this law would say that one of the reasons there has not been a financial crisis is because this law exists and because the regulators have the power and that prevents banks and others from getting out of control and doing crazy things. Certainly the supporters of the law would say that. The critics of the law would say that it's maybe held back trillions of dollars of economic growth and that, you know, allowing a little more risk in the economy is not a bad thing. So, you know, the different people see different realities when it comes to this law. But the real test is going to be the day when there's some ticking time bomb within a financial institution, whether it's a bank or some other company.

17:24And then we see whether the regulators really can use these tools they have to prevent this from getting out of control. How did Barney Frank, toward the end of his life, reflect on this piece of legislation that he was so crucial in getting passed? He was very proud of it. He was incredibly proud that he was there in this moment, not just for this piece of legislation, but for the government's response to the financial crisis. I think, you know, all lawmakers know that as time goes on, pieces of legislation are going to be chipped away at. And I think he tried to protect the bill, the core pillars of the bill.

18:02But, you know, politics is going to be politics. And I think the legacy that he leaves behind and the people who worked with him on it leaves behind it is a definitive piece of legislation, the likes of which we may never see again in terms of its scale. and this for Democrats was, you know, one of the biggest achievements of this era, the Obama era and beyond, a piece of legislation that really took it to Wall Street in a moment when Wall Street was, you know, kind of on its back and put rules in place that many Democrats have been trying to put in place for decades. Frank retired from Congress in 2013.

18:40What grade do you give yourself, one to 10? Oh, I give myself a 10 for being smart enough not to answer that question. Either you sound humble in a way that is literally incredible, not credible, or you sound arrogant. I'll say none of the above. On Tuesday night, Frank died of congestive heart failure. He was 86. Do you think we'll ever see another Barney Frank? I think about this a lot, actually. I don't think we will. in part because for a lot of lawmakers, there is no interest in passing legislation anymore. A lot of lawmakers come here, you know, and do a podcast as a side hustle, or they want to be influencers, or they want to be, you know, bomb throwers.

19:27There's not a lot of time spent in committee rooms late at night talking about the ins and outs of legislation. I mean, the hours that he put in, just in that committee room, kind of grinding away at hearings. And that just doesn't happen anymore. And so I think that era of lawmaker is something that this country is not going to see again. The challenge there, whether it's a conservative version of Barney Frank or a liberal version of Barney Frank, is that there's going to be a moment when Congress is going to have to pass a law on a crisis, right? We had the CARES Act during COVID. We obviously had the Biden administration past the rescue plan at the beginning, there's going to be moments when you need people who are smart to do things that are hard.

20:10And Barney Frank was a smart person who could do things that were hard. Now, not everyone agreed with him and he ticked a lot of people off and he took things personally and he could be super mean. But when it was really important to get something done or, you know, the economy could hang on the brink, Barney Frank was there. Is someone willing to be that person now? I don't know if that person exists right now and it's only a matter of time before we find out if they do.

20:41Before we go, we have a question for you. Are you in college or a recent college graduate? If so, how are you feeling about AI in your career? Hopeful, annoyed, excited, anxious? Why? We want to hear from you. Send us a voice memo to thejournalatwsj.com and we might include it in an upcoming episode.

21:05That's all for today. Thursday, May 21st. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Richard Rubin.

21:19Thanks for listening. See you tomorrow.

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