The Barr Report August 29

The Belated Barr Report Aug 29

Representative Barr wrote a lengthy Op/Ed that was published in the Herald Leader this past Monday. It is available here.

Barr was responding to news reports from the New York Times that noted that he was one of the most prolific fundraisers on the House Financial Services Committee. The report was rebroadcast by the Herald Leader, and is available here.

I was surprised by the length of the response, and my initial impression was to paraphrase Hamlet: “Me thinks the Representative doth protest too much.” He was clearly stung by the criticism, and his need for a lengthy response seemed to indicate that the criticism hit close to the mark.

His response was voluminous, but I want to address two specific things that he discussed.

The first was that additional financial reforms were needed because Dodd-Frank failed “to fix Fannie May and Freddie Mac, the giant government-sponsored enterprises whose reckless policies were at the epicenter of the 2008 subprime mortgage crisis.” This is a common conservative trop, repeated often by Republican politicians, but not supported by any reputable economists. There is no doubt that government support of mortgages helped some people qualify for mortgages that were not qualified, but the main culprit in the collapse was the esoteric financial instruments known as derivatives, which allowed banks to move mortgages off their balance sheet and magically transform them from a debt to an asset.

The New York Review of Books has a lengthy analysis of Fannie and the Crisis. Did Fannie Cause the Disaster?

The Atlantic Magazine notes that the housing crisis occurred at the time that Fannie and Freddie’s market share of high risk mortgages dropped. For the Last Time, Fannie and Freddie Didn’t Cause the Housing Crisis

The best and most data filled (through links) analysis is from the Rortybomb blog: What Can We Say For Certain Regarding the GSEs?

Fannie and Freddie accounted for less than 5% of the subprime losses, and 84% of subprime loans were issued by private lending institutions. Certainly federal support for mortgages had a minor contributing role, but to say it was the main cause is to ignore the effects of the free market and to clearly expose your anti-government bias.

The second issue regards the Dodd-Frank bill which was supposed to reform the financial services industry in the aftermath of the crash. There are numerous criticisms of Dodd-Frank, most involving the way it has restricted commercial lending on the local level. This is a serious concern and needs to be addressed. But Barr’s proposed bill (which he mentions in his article) addresses consumer lending practices, which were (1) at the heart of the collapse, and (2) not the main complaint by banks and the financial industry about Dodd-Frank.

The conservative commentator Michael Barone had an interesting analysis based on a book review at the National Review Online [] The problem with Dodd – Frank is that is creates a separate set of rules for big banks and smaller banks. It allows larger banks to borrow at a lower rate than smaller banks, and creates a system to bailout larger banks that is not available for smaller banks. The idea is that large banks have such a major impact on the economy that their failure would harm the overall economy; i.e. they are too big to allow to fail.

Other criticism of Dodd-Frank is that it is a massive warren of regulation that make it hard for financial institutions to know what is allowed and what is not. See

These regulations create a far bigger burden on small banks than on large financial institutions that have massive legal teams to interpret the rules, and highly paid lobbyists to modify them in their favor. It is fairly well documented that these regulatory burdens put more directly harm the lending practices of small and regional banks that large banks, and that this mostly impacts commercial lending than consumer lending.

Finally, here’s a good Forbes Article with an overview of the problems and possible solutions to Dodd-Frank, and there is nary a mention of problems in consumer lending.

Author: Mike

I am a patent attorney in Lexington, Kentucky. My law firm web site is I ran for State Representative in 2010 and lost in the primary. Many of these posts are based on writing that I did for that election. Rather than delete it all, I decided to dump it onto the internet.

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