(Adds Frank's comments to reporters starting in the fifth paragraph.)
By Jessica Holzer Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- House Financial Services Chairman Barney Frank, D-Mass., predicted that 2009 will be the "best year" for public policy since the New Deal.
Speaking before the Consumer Federation of America Thursday, Frank said Congress would pass a regulatory overhaul comparable to the antitrust laws of the late 19th century and the creation of the Securities and Exchange Commission in 1934.
Democrats will tighten consumer protections for credit cards, put "very tough rules in" to govern subprime lending and give "appropriate liability" to the institutions that securitize mortgage loans, he said. Frank added that Democrats now had the votes to pass legislation giving shareholders greater say on executive compensation.
Frank said the economic crisis has run counter to the philosophy first espoused by President Ronald Reagan that "government is part of the problem." He said the U.S. was experiencing the third example of a familiar pattern, where the private sector innovates but there are "no rules to contain the innovation."
Speaking to reporters after his speech, Frank said Democrats would only support relinquishing an additional $350 billion in financial rescue funds if the Treasury Dept. agrees to apply a portion of them to stem home mortgage foreclosures.
"At the very least, (Treasury Secretary Henry Paulson) would have to agree that money would be used for foreclosure relief," Frank said.
The Treasury has so far burned through $330 billion of its $700 billion financial rescue authority, meaning it has only $20 billion immediately available. To tap the last $350 billion, Paulson must receive approval from Congress, where dissatisfaction over the implementation of the Troubled Asset Relief Program, or TARP, is running high.
Frank also said he would support Federal Deposit Insurance Chairman Sheila Bair staying on in the new Obama administration. A Republican, Bair has won friends on Capitol Hill for her advocacy of aggressive federal action to reduce foreclosures.
But she has tangled with Bush administration officials and, reportedly, with New York Fed President Timothy Geithner, President-Elect Barack Obama's nominee for Treasury Secretary, over key actions in response the financial crisis.
Frank said Bair "has annoyed the old boy's club" by pushing a proposal to use federal guarantees to modify loans. He added that she has "really been very good."
Frank compared the recent era of vast innovation in the financial markets to the age of the robber barons and the rampant stock speculation before the market crash of 1929. "Our problem has not been deregulation, but nonregulation," he said. "It was a failure to put the rules in."
Frank said Democrats' goal in revamping the regulatory system would be to diminish excessive risk-taking through strengthening investor and consumer protections. "This has not become an anti-capitalist society," he said. "I think we can make the argument, as the New Deal did, that in fact we are being very pro-market."
Frank said that securitization - used to repackage mortgage loans and sell them to investors as bonds - has "good aspects" when done right but can also lead to abuses. He said his top goal would be to "create a set of government rules that constrain the abuses of this activity, while allowing us to continue to benefit from the good it can do."
He said the institutions that package the loans into securities for sale should be required to retain a portion of the risk.
Frank predicted that legislation to crack down on credit card practices and to rein in lending abuses would become law. He also said the Consumer Product Safety Commission would be revamped. And bank regulators would adopt a code to prevent unfair and deceptive practices, he said.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com
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(END) Dow Jones Newswires
December 04, 2008 16:44 ET (21:44 GMT)

Publié le 04 Décembre 2008 Copyright © 2008 Dowjones