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Exclusive Interview: Rep. Barney Frank

As Chairman of the House Financial Services Committee, Representative Barney Frank (D-Mass)is one of the most powerful legislators in Washington. His committee oversees many industries and sectors key to both the financial markets and business.

CNBC's Mary Thompson sat down with Rep. Frank in late March for an in-depth and wide-ranging interview. In this special four-part series, Frank talks about CEO pay, the subprime lending mess, reforming Sarbanes-Oxley and U.S. competitiveness. But that's not all. Frank also discusses some important personal issues that deeply define his life and career. Here are excerpts of our special four-part interview.

Part One

Rep. Frank talks about assuming the chairmanship of the committee and some of his plans and goals.

Executive Pay

"When we come back from the Congressional recess, I hope to have on the floor the executive compensation bill, which is not Congress telling anybody anything but in fact letting the shareholders express their opinion on compensation which is a shareholder democracy bill not an intrusive Congressional fiat."

Spreading The Wealth

""We have a terrible problem in America and elsewhere in the world which is economic growth in its current form through globalization and technological change and increased productivity is going forward but it is increasing two things -- total wealth but inequality. And obviously you don't want equality in a capitalist system, you need some inequality but we've gone beyond what's healthy."

Rep. Frank also discusses how Sarbanes-Oxley might be watered down, the need for more affordable housing and changes in the Federal Housing Administration.

Part Two

Rep. Frank talks about the origins of the subprime lending mess and a crackdown on lenders as well as the dark side of the "American Dream " of home ownership.

Subprime Mortgages

The subprime lending mess already appears to be spilling over into the broader housing market and Congress has already held public hearings on the issue.

"There will be some people who are higher risk and if the private sector lends to them they are going to have to pay more but there ought to be some prudent limits on what you lend," says Frank. "You shouldn't be lending people money that they are very unlikely to pay back in the hopes that when you take over the home it will be worth more than when you lent it to them. That’s not just a problem for that individual. it has negative social consequences and I think we need to restrict it."

Home Ownership

Current mess aside, there are still supporters of a subprime market, partly because it opens home ownership to more people.

"Why is the American Dream only if you own a home," asks Frank. "I wish everybody in America was wealthy enough so that housing was available but there are tens of millions of Americans who don't earn enough money to own a home, particularly if they live in high cost areas. I wish it were different but it's a grave mistake. I think it is part of our problem to say that everyone must own a home."

Parts three and four of the interview

Part Three

Rep. Frank discusses the backlash over Sarbanes-Oxley and the need to reform the law, lightening the regulatory burden on the banking industry, the decline in new listings on U.S. exchanges and concerns that excessive litigation is hampering business.

Banking Regulation

The banking industry says it is suffering from "double regulation" because of Sarbanes-Oxley and reporting requirements mandated under the Patriot Act.

"I think we have overdone it," says Frank. "I want law enforcement to be able to protect us from terrorists and their financing. But you know I think what we have done. We have overreacted and they are required to send much too much information."

Sarbanes-Oxley

"We are going to reduce Sarbanes-Oxley for everybody. Banks do have a legitimate issue here they are the only set of industries. In fact, it turns out and I didnt realize it at the time, the key section of Sarbanes-Oxley, section 404, was apparently taken from a law called FIRIA, which was what was passed after the S&L crisis to try to prevent things and it did effectively help stave off any similar crisis in commercial banks. So commercial banks are already subject to that and i think they have a good case and I'm going to try to thin that down."

Part Four

Rep. Frank discusses being gay and being a public official, his relationship with a prostitute and a formal House reprimand in 1990, as well as his passion for politics and a legislative career following capitalism.

Personal Life

"In 1987 I volunteered to the "Boston Globe" that I was gay, They wanted to ask me but they were afraid to ask me and I gave them permission to ask me and they asked me and I acknowledged that I was gay in May of 1987. And I frankly, previously I was afraid that it would have a lot of negative consequences. It didn't. I overestimated that. Two years later or two and three months after than in 1989, there was a male prostitute that I had been involved with. Listen, one of the reasons I came out was its very hard to be a closeted prominent gay person, You can be closeted and gay because you can have a private life that is separate from your career. When you're somewhat prominent as I became as a member of Congress, it's hard to do that and consequently I did stupid things. I’m not looking for excuses. I did them voluntarily stupid things including using prostitutes."

Capitalism

"I think I understand capitalism better than some of the conservatives, because if you read Adam Smith he never said there was any need for work and there is this doctrine of market failure which is a legitimate economic doctrine. What you understand is what capitalism can and cannot do. I honestly believe, I think that American capitalism is a lot stronger than a lot of conservatives think.

Economics

"Economics always interested me as soon as i discovered it in college. I'm not good in math. I am better verbally so i took as much economics as possible in college without being a great mathematician.... Today economics has gotten more mathematical. So i was always interested in economics and I've always had I think a pretty good understanding of the capitalist system which understands both its strengths and where it doesn't really have a role."

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