Barney Frank Right About One Thing Only

House Financial Services Committee chairman Barney Frank (D-Massachusetts) has been savaged by the Wall Street Journal and others for his efforts over the years to kill off attempts to reform the troubled government sponsored enterprises (GSEs) we keep reading about.

Critics, including then-Fed chairman Alan Greenspan and banking consultant Bert Ely, warned for years that the two titans of the secondary mortgage market were both overexposed to risk. They posed “systemic risk” to the financial system because their investment portfolios were massive and markets expected the federal government to bail out the companies in the event of trouble.

As the Journal points out, Frank, who became committee chairman in early 2007 after the Democrats won control of Congress, claims he supported reform, but he resisted with all his might efforts to achieve one particularly crucial reform that would have limited the size of the GSEs’ troubled mortgage-backed securities (MBS) portfolios. The Journal notes:

The MBS portfolios have long been both the chief source of the systemic risk posed by the two mortgage giants and of the profits that so handsomely enriched shareholders and officers alike for decades. Without the extreme leverage inherent in those portfolios — which the companies borrowed heavily, at taxpayer-subsidized rates, to accumulate — their federal takeover might never have become necessary.

But in recent years Frank did make one point over and over again that his fellow lawmakers and the Bush administration, euphoric at every new media report of record-breaking homeownership rates, chose to ignore: Not everyone has the financial wherewithal to purchase a home.

Frank repeated his mantra in a recent Money magazine interview:

But we have made a mistake in this society. The assumption that everybody can be a homeowner is wrong. We pushed and encouraged people into home ownership – people who, in some cases, weren’t ready for it. You can’t act on wishes that are unrealistic without having negative consequences.

It’s probably the only time the socialist blowhard has been right about anything.