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Bloomberg Barney Frank, a former congressman, shown in 2012 House Financial Services Committee hearing.
After a career in public service, it’s common for politicians to retire to cushy, corner-office jobs, often on Wall Street or other corners of the financial markets, often as lobbyists for the industries they once oversaw.
Trust Barney Frank to do things a bit differently.
Frank may be best known as one of the architects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the massive financial-regulation legislation passed by Congress in the wake of the 2008 crisis, even though his time in public office goes back to the 1970s. He became the first openly gay U.S. congressman in 1987, several years after being elected to the House from Massachusetts. Frank retired in 2012.
Issues of equality and advocacy also infuse his newest role, as a member of the board of an exchange-traded fund that will invest in companies that encourage workplace equality for employees of all gender and sexual orientations, as well as those with high loyalty and brand awareness among the LGBTQ community and with “high standards” on environmental, social and governance issues broadly. (It’s worth noting that Frank also sits on the board of New York-based Signature Bank, for which he collects compensation about double that of U.S. representatives.)
MarketWatch sat down with Frank to talk about the fund, which will be called LGBTQ + ESG100, and is expected to launch “late in Q1 2020.” He also spoke about the financial system, now that he can view it from a distance. The interview is lightly edited for clarity.
MarketWatch: How did the idea for the ETF come about?
Barney Frank: I was approached by a good friend of mine, Billy Bean, who was a former Major League Baseball player, the only out, gay major leaguer. He explained it to me and I thought it made perfect sense. It’s an idea whose time has come, joining the movement for full equality for LGBT people and ETFs as a popular means of investing. I advanced a gay rights bill in 1972 in the Massachusetts legislature. For most of the last almost 50 years, gay and lesbian and bisexual people have been fighting against discrimination. America has made great progress there and we are at the point now, while there are some issues of discrimination, they’ve diminished and a lot of people don’t have to worry so much about defending their rights. It’s time to be able to focus on aggressive things, affirmative things.
Related: What is an ETF?
MarketWatch: How will you define success for the ETF? What will it look like if you’ve done a good job?
Frank: Two things: first of all, it has to be profitable. We’re not asking people to sacrifice on behalf of LGBT rights. This is not a charity. This is an investment vehicle, so it will have to pay at least as much as any other, and hopefully may do a little better. The other way is if a number of people subscribe to it. Obviously, there are various costs involved in putting this together and administering it, so success is defined both by the fund doing a good return, above market hopefully, and getting a large degree of participation. Obviously, the two are related: the better the fund’s track record the more likely it is for people to invest in it.
‘Yes, the financial system is significantly better off. I believe we have substantially reduced the dangers both of individuals being swindled or cheated or misled and of financial instability. And we were able to do that without in any way endangering the ability of the financial system to produce money.’
MarketWatch: You’ve been in public service for so many years. How does it feel to be, to some extent, a steward of peoples’ financial well-being?
Frank: That’s an interesting point. I guess I became that involuntarily in 2008. I became the chairman of the Committee on Financial Services of the U.S. House in 2007…unexpectedly, not because of any merit on my part. I had hoped to focus on housing — I’m hoping we get back to that — we [still] have a terrible housing crisis, not just here, but everywhere. But then the financial crisis hit and I found myself with the major responsibility of dealing with it. So really since 2008, when you had the Bear Sterns-JPMorgan Chase amalgamation dictated by the federal government, in a way, I’ve been one of the stewards of peoples’ financial issues. There is a continuity there. I gained a familiarity with the financial system. One of the things I say about my role here, with the ETF, is it combines two of my major legislative foci: LGBT rights and an appropriate financial system that one, provides stability for the economy but two, fairness for individuals. I think an ETF very much does the latter.
MarketWatch: That’s a fantastic segway into my next question. It’s coming up to the 10-year anniversary of Dodd-Frank and I wonder if you could just comment a little on its legacy. Do you think you accomplished everything you wanted to? Is the financial system better off now?
Frank: Let’s go in reverse order. Yes, the financial system is significantly better off. I believe we have substantially reduced the dangers both of individuals being swindled or cheated or misled and of financial instability. And we were able to do that without in any way endangering the ability of the financial system to produce money. Let me cite a recent commentator who talked about how successful the bill was, and that’s President Trump. At his China trade signing, he said to the people at JPMorgan Chase JPM, +0.36%, boy, thanks to my administration you’ve been doing wonderful. Well, Trump started out falsely claiming that we had somehow hurt the banks, now he’s bragging about how well JPMorgan Chase is doing. How can you have a marvelous economy if a major instrument of that economy, the financial system, wasn’t working?
I didn’t get everything I wanted. The key problem with the financial crisis was that people figured out a way to lend money and not be responsible if the borrower didn’t pay it back, through various mechanisms like securitizations, etc. etc. We dealt with that to a great extent, but not entirely. I would like it to be that anyone who makes a decision to lend money has to bear some of the financial responsibility if the loan isn’t paid off. Other than that, I’m pretty happy with what we did.
MarketWatch: But what about some of the recent, ongoing efforts to roll back some of what you did? I’m thinking of the CFPB for example.
Frank: Yeah. The legislation has not been weakened at all. There are some things that are being talked about now that might do that. I am particularly worried about derivatives. Bad mortgage loans commanded the attention, but it was a slapdash trading of derivatives that generated the problem. Bad mortgages were the bullets, but derivatives were the automatic weapons that sprayed those bullets everywhere. I am watching carefully.
MarketWatch: There was a disruption in the overnight repo markets this past fall, and many of the banks took that opportunity to say, not necessarily Dodd-Frank, but some of the postcrisis regulations should be rolled back.
Frank: I have not seen anybody make a linkage between any of the legislation and those disruptions. The Fed itself — by the way, Donald Trump keeps denouncing the Fed, but people should not forget that he appointed all but one of the members. This is a Trump Fed. This man has an extraordinary ability to denounce, as if someone imposed them on him. But the Fed has said no, this is simply a kind of liquidity issue that does not suggest any systemic issues and they were able to deal with it. You know, you don’t expect the system to work perfectly. I take some comfort in the fact that we did have this disruption caused by some liquidity issues or whatever and we dealt with it.
I’m on the board of a bank, Signature Bank of New York, a very good bank that does some good multifamily lending, and at one of my first board meetings we went over the regulatory issues. They listed the three bills that cause regulatory issues. One was the anti-money-laundering bill, one was the Patriot Act and one was the Bank Secrecy Act. Not one of them was Dodd-Frank. The thing people find very onerous is “know your customer.” That’s not in Dodd-Frank, that’s in, I think, Bank Secrecy. So when I ask people specifically what do they have a problem with, I don’t see it. The smaller banks had a problem with being told they had to show they were complying with the Volcker rule. (Regulatory relief passed last summer) got rid of that. I was in favor of that.
See: Banks delayed foreclosures to influence discussion of Dodd-Frank, paper finds
See: Banks offered homeowners refinances after the crisis, but Americans had stopped trusting banks
MarketWatch: You talked about the continuing housing crisis. I’d like to come back to that in a moment, but while we’re still on postcrisis issues, I wonder if you’d like to talk a little bit about Fannie Mae and Freddie Mac still being in conservatorship 12 years on.
Frank: Yes, I think that shows how phony the Republican claims were that Democrats caused the bubble with support for Fannie FNMA, -1.24% and Freddie FMCC, -0.98%. They took their current form in ‘92 in a bill passed by a Democratic Congress and signed by George H.W. Bush. Later, when people began to worry about it, the Republicans had control of Congress. From 1994 to 2006, Republicans controlled Congress and they did nothing about Fannie and Freddie. They had a fight about it. Mike Oxley who was the Republican chair of the [House Financial Services] Committee, tried to do something about Fannie and Freddie and it failed. He said the reason it failed was that George W. Bush had given him the one-finger salute. So, they try to blame the Democrats. We were not in power. We came to power in the House in 2007. And in our very first year, I worked with the new Secretary of the Treasury under Bush, Hank Paulson, and we passed the bill that is the basis of Fannie and Freddie today. It hasn’t completely changed them, but it stopped the bleeding. It put them in receivership.
See: Congress wouldn’t do it, so Fannie and Freddie reformed themselves
Fannie and Freddie have had a constructive role since then under Democrats. The Republicans complain that we did not do a major overhaul of them in Dodd-Frank. It would have been too much. You can’t do too much. We also didn’t rationalize their administrative structure the way I think we should. So, the Republicans then took over in 2011 and, until today, the Republicans once again have done nothing to fix Fannie and Freddie. I think the fact now that there’s an argument about market share, etc., may do some good. But Fannie and Freddie stopped being a threat to the financial stability of the country in 2009.
Related: Fannie Mae to turn to taxpayers after $6.5 billion loss
MarketWatch: So what does the future state of Fannie and Freddie and the housing finance system look like, in your view, that makes an accessible, affordable housing market?
Frank: I think we have to move beyond the market in terms of single-family. I would cite the Economist, which in their last issue criticized the overemphasis on homeownership. I agree with that. I’m very proud of that. Larry Lindsay, who was a major Republican economic regulator, said I was one of the few politicians he knew who differed with the push for homeownership for everybody. A lot of people shouldn’t own a home, can’t own a home, and rental is a perfectly good thing. The notion that we should encourage homeownership among lower-income people to help them build wealth is simply wrongheaded. We should encourage them to do investments, to have accessible IRAs and other tax-supported savings. Housing is not, over the long term, a rational way to build wealth or a reliable one. I don’t see any argument that the current system is retarding housing construction. What we need, I believe, is a massive federal program to encourage housing construction of all sorts, including multifamily housing, which is very important.
The major housing subsidy from the Department of Housing and Urban Development is Section 8. But we used to have a Section 8 program where you got a certificate (to rent an apartment) if you were a tenant, and if you were a developer you got a subsidy to build. The Republicans succeeded in knocking out that second part. Section 8 is now purely a rental subsidy. The problem is, that adds to the demand for housing without in any way increasing the supply. Nobody is going to build housing based on a one-year certificate that some tenant might get. We have to get back into the federal subsidy of construction. One of the things that we did in our Fannie and Freddie bill was to include a provision that a small percentage of the profit went to state housing finance agencies. That’s still there and I hope will be expanded.
MarketWatch: Is there anything else you want to talk about?
Frank: This fund puts two of my major legislative goals together: fairness for LGBT people and financial protection for individuals. You don’t have to be a sophisticated financial expert with an ETF to take advantage of the upside of the American economy. One political sign makes me especially optimistic about the ETF. Our market is gay and lesbian people, bisexual, transgender, who have some discretionary money, who have a commitment to fairness and an end of discrimination. We are offering them a chance to basically put their money where their mouths are. Well, there’s an example of people responding to that. It’s the enormous success that [presidential candidate] Pete Buttigieg has had in raising money. The Buttigieg campaign contributors are essentially our market. They are disproportionately gay men and women who have some discretionary money and combine that with a commitment to the cause of fairness. That’s a similar opportunity as to what we are offering them. Here’s a way for you to invest your money, get a decent return and advance the cause.
MarketWatch: Is that an endorsement, Congressman?
Frank: Oh no, I’m not endorsing. That’s an observation.
Related: Four years, $13 million and dozens of hands: How ‘affordable housing’ gets made in America
