Financial innovation had outstripped regulation in the United States, making new policies necessary, the chairman of the House Financial Services Committee tolda Brown University audience Monday.
Rep. Barney Frank, D-Mass, who gave the speech,is considered a major player in the bailout legislation that passed Friday. Frank called thenew lawabsolutely necessary, and said the spending won't come out of taxpayers' pockets.
"The bill that we just passed is the consequence," he said. "The question is, how did we get here?"
Frank, who has served in Congress since 1981, said the absence of financial regulation had allowed investors to practice the risky behaviors that caused the crash. Strengthening regulations on investing, he said, will ultimately help the market by renewing investors' confidence.
"When the chairman of the Federal Reserve and the secretary of the Treasury say there will be a crisis if you don't do something, then if you don't do something, there's a crisis," he said. "We had to act."
The massive bailout should not affect taxpayers, Frank said. If there is a net loss, legislation will likely pass to move that charge from the general taxpayers to the financial sectors, he added.
Along with the bailout, he said, Congress is looking to cut down on CEO compensation and to take away incentives that reward risk-taking.
But Frank also said it was necessary to note that Democrats and Republicans disagree about these economic matters.
"The rising tide will lift all boats," an adage often used by Republicans, is misleading, Frank said. He quipped, "people are not boats and the economy is not the tide."
A succeeding economy does not mean each individual in that economy is reaping the benefits of success, he said. "If you're standing on tiptoe in the water, the rising tide is not good news," he added.
Frank said partisanship is "essential" and "necessary" to democracy. He cautioned against what he termed "excessive partisanship," but said it is "a much-underappreciated commodity." He added that partisanship is particularly relevant in light of next month's presidential election.
"As I hear people denounce partisanship, saying we need post-partisanship, I get post-partisan depression," he quipped.
Frank also fielded the audience's questions, which covered the economic crisis and his liberal stances on social issues.
He told the audience that he expects the military's "don't ask, don't tell" stance, which blocks gays and lesbians from serving openly in the military, to be repealed within the first term of a potential Obama administration. The policy is "probably generational," said Frank, one of two openly gay members of Congress.
Frank said the balance between commitment to his constituents and his own philosophical beliefs is the "central question of a democracy."
"Listen to your constituents and pay attention to what they say... They're very important as input, but in the end I think you have to make your own judgment," he said.
The event was part of the Noah Krieger Memorial Lecture Series, a program that sponsors annual lectures in honor of Noah Krieger '93, who died shortly after graduating from Brown. Past speakers have included Sen. Charles Schumer, D-N.Y., former Sen. Paul Simon of Illinois and former Sen. Carol Moseley Braun of Illinois.