Just occasionally, we feel as if we might be a little too harsh with Barney Frank. He has, after all, been something of a singular lightning rod for many of the more adverse consequences of the housing boom. Without question he has taken a disproportionate share of the heat generated by increasing scrutiny of Government Sponsored Entities like Fannie and Freddie. True, he was involved directly in crafting provisions of the Troubled Asset Relief Program. Indeed, as he chairs the House Committee on Financial Services, he is uniquely exposed to all things "credit crisis" and most things "bailout." Yes, his loose alliance with figures like, say, Maxine Waters, tends to draw sporadic sniper fire from the trenches (well, and sustained grazing fire from the MG42 nests). And, obviously, some of the more publicly scrutinized aspects of his personal life have aligned social conservatives against the Congressman. The combined effect of these disparate circumstances gives us pause in those moments when we begin to form our critiques of the Distinguished Gentleman from Massachusetts. Then we come to our senses.
With the exception of the last item on our list, Frank has richly earned the ire, skepticism, dismay and disgust that has begun to plague him. The disproportionate housing bust radiation to which he has been exposed is actually directly in line with the disproportionate level of grandstanding, aloof and arrogant presumption Mr. Frank has exhibited over all matters housing for the last two decades. His shameless use of the "minority" and "redlining" rationales to enable his personal (and taxpayer funded) socio-regulatory experiments and expand his personal empire of finance policy micromanagement power makes his re-purposing of TARP language to support politically connected (and inept) banking ventures is the worst kind of cronyism. His continual leveraging of his Committee chair responsibilities to expand risk and limit scrutiny over the GSEs make it easy to mistake him for the most egregious deregulators in the Republican party. The latest news today prompts us again to assert that it is simply time for Frank to go.
In the heat of the credit crisis and as TARP was being hurriedly drafted, Frank injected language to carve in eligibility for OneUnited, a middling Boston bank facing near imminent and ignominious failure. Some $12 million in bailout funds (a pittance in the larger scheme of things) eventually made its way to OneUnited. In itself, this raises eyebrows. Then again, perhaps one can dismiss as somewhat noble the efforts of a Congressman to carve out special interest exceptions for businesses in his home state. That is, until you dig a little deeper.
OneUnited got in trouble in the first place by being heavily invested in, you might have guessed it, Fannie and Freddie. So large were its holdings in the GSEs that when they were pressed into receivership, OneUnited's reserves sunk below limits. Frank originally claimed his intent in giving OneUnited special attention was to preserve one of the few (and largest) minority owned banks in the country. Forgetting for a moment questions surrounding the desirability of permitting politically popular classes preferential treatment in the disbursement of crisis aid, OneUnited exposes deeper flaws in neo-Keynesian bailout theory. Funds disbursed at the whim of politicians tend, quelle surprise, to be allocated on political criteria. So when Frank intervenes directly, one is prompted to look for connections. It's a short look.
Unsurprisingly, one finds that Maxine Waters, who shares a number of legislative duties and frequent camera and mic time with Frank, has a former OneUnited director and recent (if not current) OneUnited stockholder for a husband. Waters is presently entangled in a House Ethics Committee investigation into allegations that she broke ethics rules to help broker a deal for the bank. Would it surprise you to know that, though based in Massachusetts, BankUnited does most of its lending in Maxine's home state of California? Probably not if you've been reading Zero Hedge for any length of time.
How is it that a Boston bank ends up lending mostly to the multi-thousand miles distant home state of its politically connected former director and stockholder and is also mostly (and eventually disastrously) invested in the pet projects of one of its most senior legislative regulators that also happens to be a close colleague of that stockholders wife? One might ask the question "Were any of OneUnited's major investments commercially motivated?" But wait, there's more.
OneUnited is one of a subset of banks to enjoy non-cumulative dividend terms on the securities bought by the government with bailout funds. We are certain that you will be shocked to learn that the bank (despite showing a profit so far in 2009) hasn't actually been paying these dividends, and that in not paying them they are automatically forgiven. It will be seen that OneUnited has, in effect, an interest free loan from the taxpayers. According to Congressman Frank, Congressman Frank is shocked and dismayed to learn this (though his personal involvement in crafting the terms of OneUnited's bespoke bailout causes one to wonder how he missed the import of non-cumulative dividends).
The most dismaying part of our work here at Zero Hedge is often the self-realization that narratives like these simply no longer surprise us. Neither do reports like the one recently issued by Ran Duchin and Denis Sosyura which concludes, unsurprisingly, that connections to finance committee legislators and the Federal Reserve boards are a fairly reliable predictor for a bank's likelihood of sucking down TARP funds.
Expect much more of the same.