Joining us now is Congressman Barney Frank. Good morning.

Congressman BARNEY FRANK (Democrat, Massachussetts; Chairman, House Financial Services Committee): Good morning.

MONTAGNE: What would be more appropriate? You say the rest of the bailout money should be used in more appropriate ways. Give us some specific examples.

Congressman FRANK: Well, the single biggest one is to try to diminish foreclosures. And I was very disappointed. I genuinely admire Secretary Paulson, we work well together, but I think he made a serious error towards the end here. The bill passed, the 700 billion, in part because we did put in there very specific mandates to the administration to use some of that money to reduce foreclosures.

And the reason to reduce foreclosures is both a matter of compassion for some individuals - many of whom are in this mess and it's not their fault - but also because it's really the key to getting out of the economic situation we're in. The foreclosures, really, were the single biggest cause.

And inexplicably to me, the Bush administration ignored the very specific language in their first efforts to deal with foreclosure. Secondly, and we've mandated in this bill - I put a bill on the floor because I think members need a chance to vote to show what they really want in this. And we we asked that up to 100 billion of the 350 go to foreclosures, and if they don't do that, they've got to explain why they couldn't.

MONTAGNE: Well, let's talk, Congressman, just momentarily about foreclosures. Given that a significant percentage of loans modified in 2008 went back into foreclosure, how can you assure that mortgages will be modified in such a way that the borrower doesn't go back into default and keep this mess going?

Congressman FRANK: That's precisely the point. Because these modifications that were done so far were done without this TARP money, they were done inadequately and insufficiently. And what people claimed as modifications were simply stretching out the terms, in many cases. The programs we have adopted would deal with this.

For example, one of the major ones that we adopted - and it had some flaws in it, and we need the TARP money to fix it up - would be to reduce the amount of principal people owe. If you reduce the principal, you're much less likely to get these re-defaults. Even there, by the way, there's been a high number of re-defaults, but they've been cut - the foreclosures have been cut in half in those programs. We could do a lot better than that. So that's precisely the point. Without this kind of money and without this sort of effort, it won't be as successful.

MONTAGNE: As we just heard from our reporter, President-elect Obama wants to spend the second 350 billion in different ways - this time, putting the focus with some of that money on housing and on small business. How will this work better than the way the first half was spent?

Congressman FRANK: Well, that's what we were just talking about. I'm sorry, my...

MONTAGNE: Small business.

Congressman FRANK: OK. Well, we are going to require - that was the second thing I was trying to get to - we're going to require the banks that get money to agree in advance that if they get money, they will re-lend it. The second major reform in the program, in addition to not doing anything about foreclosures, the way the Bush people read it, was to inject capital into banks, which was useful.

And by the way, even, you know, President-elect Obama, Secretary Summers have said this is better than nothing. It's not that it didn't do any good, it could have done a lot more good. And the money was injected into these banks with no requirement that they re-lend it. Some of them didn't lend some of it. Some of it used it, in one case, for an acquisition. So there will be very strict requirements that any institution that gets the money, re-lend it.

We also specifically say in there that we want help for automobiles, that we want help for student loans, we want help for municipal governments that have been stalled out, and we want consumer credit and small-business credit. And if those aren't done, then the administration has to specifically explain why it won't do it.

Now, the fact is, frankly, what you're going to see here is a kind of laboratory experiment to the different approaches of Democrats and Republicans. Republicans have tended much more to say, let's not intervene in the economy, even when things have gone bad. So their view was, the way to deal with this money is simply give it to the financial institutions and assume that they'll do the best.

The different approach that you're going to see under President Obama is, yes, we're going to give this money to financial institutions - in part. Some of it will go in foreclosure and elsewhere, but we are not simply going to give it to them and sit back and assume they'll do the best. We are going to prescribe more rules as to how they spend it.

MONTAGNE: We're talking with Congressman Barney Frank, the chairman of the House Financial Services Committee. We just have a few seconds left, but let me just ask you, many lawmakers from both parties are unhappy with the way the first installment of the bailout money was spent.

Congressman FRANK: Everybody is.

MONTAGNE: Right. Is it going to - is Congress going to release that next 350 billion?

Congressman FRANK: I think so because, you know, it's like saying, look, we don't like the Bush foreign policy, so let's not let Obama have a foreign policy. I don't like the Bush tax policy, let's not have a tax policy under Obama.

In other words, this is part of a very big change. And yes, it is true that almost everybody is dissatisfied with the way in which the Bush administration administered the first half. But it is precisely because of that dissatisfaction, I believe, that we've elected President Obama. And to deny him tools that he could use constructively because you're unhappy with the way the Bush people used them would really be to kind of say, well, what was the point of having the election?

MONTAGNE: Thank you very much for joining us. Congressman Barney Frank is chairman of the House Financial Services Committee.

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