Frank Talk

Congressman Barney Frank this morning called for stricter regulations of investment banks and took direct aim at the “excessive” compensation of executives, particularly those who have left top posts at financial services companies with million-plus severance packages while losses are being counted in the billions.

The chair of the House Financial Services Committee and longtime representative of the 4^th District of Massachusetts, speaking before the Boston Chamber of Commerce, said “there are really few issues that are as important this” in reference to the credit crisis.

In an interview on WBUR-FM before the breakfast where he was expected to outline his investment bank plan, Frank said nothing should be done “right away…We should make it clear. We are in a crisis and the absence of sensible regulations and the consequent irresponsible actions has given us a dilemma.”

Comparing this dilemma to treating a sick patient, Frank said, “there are some thing you can do later on that you can’t do immediately.”

Part of the proscription may be requiring investment banks—like their commercial counterparts—to keep reserves to back up unpaid loans. “The investment banks have not had to do that. But now it turns out that they think the federal government does stand behind them and to some extent we’re coerced into doing that because of the damage to the economy when they unravel.”

Frank also took aim at what motivates investment bankers to take big risks. “If they take big risks and invest in very, very exotic structured investments and those bets pay off, they get a big pay off from that. The problem is if the debts don’t pay off, they don’t lose. It’s what the economists call a free option: heads: I win. Tails: we’re even. I don’t like having to put taxpayer money at risk…there needs to be more disincentive and they should not be compensated for failure.”