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House Financial-Services Committee Chairman, Rep. Barney Frank (D) Massachusetts on "Kudlow & Company" with Larry Kudlow (Transcript Included)

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DATE: Monday, September 10, 2007
NETWORK: CNBC
PROGRAM: "Kudlow & Company"
TIME: 5:30pm ET

The following is the unofficial transcript of a CNBC interview with House Financia-Services Committee Chairman, Rep. Barney Frank on CNBC's "Kudlow & Company" today at 5:30 PM ET. All references must be sourced to CNBC.

LARRY: NOW WE HAVE THE HOUSE FINANCIAL-SERVICES CHAIRMAIN BARNEY FRANK. HE WAS NICE ENOUGH TO CALL INTO THE SHOW ON FRIDAY TO TALK ABOUT HIS THOUGHTS ON MEANINGFUL INTEREST RATES CUT FALLING MUCH WEAKER THAN USUAL JOB CUTS. THANK YOU AGAIN FOR COMING ON FRIDAY AND I WANT TO PURSUE IT SOME MORE WITH YOU SIR. IN PART OF YOUR STATEMENT, YOU ASSERT THE NOTION THAT INFLATION RISKS OUTWEIGH THE RISKS ON EMPLOYMENT GROWTH IS NOT SUPPORTED BY THE EVIDENCE. COULD YOU EXPAND ON THAT?

BARNEY FRANK: YES, I FELT THAT WAY WHEN WE'RE TESTIFIED BEFORE US AND YOU LOOK AT THE FINANCIAL REPORT AND THIS WAS BEFORE THE CRISIS REALLY HOT -- AHEAD WE EXPECTED UNEMPLOYMENT TO TAKE OFF, WE THINK GROWTH WILL BE BELOW TREND, WE THINK PRICE RISES ARE GOING TO BE WITHIN A REASONABLE BUBBLE AND GIVE ALL THESE STATISTICAL ARGUMENTS AND THEN SAID, THEREFORE WE'RE MORE WORRIED ABOUT INFLATION, IT JUST DIDN'T ADD UP I THINK YOU HAVE A BIAS THERE, AN INSTITUTIONAL BIAS OF THIS GUY, AND CLEARLY WE NEED THEM TO BE ALERT TO THE INFLATION, BUT I THINK ESPECIALLY NOW, I WAS SKEPTICAL OF THAT INFLATION AS THE MAIN DANGER THEN, ON THEIR OWN REPORT. I THINK IF YOU READ THE REPORT AND HADN'T READ THE CONCLUSION YOU WOULD HAVE EXPECTED THE CONCLUSION, BUT NOW WITH THE ECONOMICNUMBERS WITH SCENE, WITH THE SLOWDOWN THAT IS OBVIOUSLY COMING BECAUSE OF THE CREDIT CRUNCH WITH CONSUMPTION OBVIOUSLY GOING TO TAKE A HIT WITH PEOPLE FEELING INSECURE, IT IS TIME TO SAY NO, WE'RE WORRY ABOUT INFLATION BUT NOT NOW THE MAIN DANGER.

LARRY: YOUR POINT ON THE CONFLICTING FED STATEMENT, THE PUBLIC STATEMENT WAS AUGUST AUGUST 7th, INFLATION WAS STILL THE BIG TARGET ISSUE. THE 10 DAYS LATER, HAVING OBSERVED SOME OF THE CREDIT IN THE MARKET, THEY ISSUED THIS STATEMENT AND LOWERED THE DISCOUNT RATE DIDN'T EVEN MENTION INFLATION, DO THINK THAT THE FED IS RELYING TOO HEAVILY ON THEIR MODEL AND NOT ENOUGH ON THEIR GOOD COMMON-SENSE OR REAL WORLD CONTACTS OR JUDGMENT?

BARNEY FRANK: I'M AFRAID THAT MIGHT BE THE CASE BECAUSE YOU SAID WE DON'T WANT THE FED TO BE MAKING LOOKING LIKE THEIR LURCHING AROUND, THAT IS WHAT YOU JUST SAID WHICH REINFORCES MY POINT, THERE HAVE BEEN TOO MUCH FOCUSING ON INFLATION BEFORE PURPOSE UNLESS WE WOULD AGREE, IN FACT INFLATION WAS THE MAIN DANGER ON AUGUST 7, THE FACT WE HAD A CREDIT CRUNCH WOULD NOT HAVE BEEN CAUSED FOR TOTALLY REVERSING IT, IT WOULD NOT HAVE OVERSTATED THE FIRST PLACE, IT WOULDN'T HAVE BEEN LEGITIMATE TO SAY IT IS NOT THERE AT ALL, YET I DO THINK THERE WAS A RESISTANCE TO LOOKING AT WHAT WAS HAPPENING IN THE ECONOMY.

LARRY: AS YOU KNOW, SIR, ALL THE GOVERNORS ON THE FEDERAL RESERVE BOARD ARE APPOINTED BY THE PRESIDENT CONFIRMED BY THE UNITED STATES SENATE. THERE IS THIS OTHER ANIMAL, 12 RESERVE BANK PRESIDENTS WHO VOTE, THEY HAVE THE SAME VOTE AT THE FEDERAL OPEN COMMITTEE MEETINGS IN RECENT DAYS WE HAVE HEARD HAWKISH VIEWS FROM CHARLES PLAWSER, OF THE PHILADELPHIA FED, TOM HONIG OF KANSAS CITY, DICK FISHER OF DALLAS, BILL POOL OF ST. LOUIS. WHAT IS YOUR THOUGHT ON RESERVE BANK PRESIDENTS ARE NOT APPOINTED BY THE PRESIDENT, THEY'RE NOT SUBJECT TO CONFIRMATION BY EITHER THE HOUSE OR THE SENATE, AND YET THEY HAVE REALLY AN EQUAL VOTE, WHAT IS YOUR THOUGHT ON THAT?

BARNEY FRANK: AS YOU KNOW, NOT ALL THEM VOTE, ITS 4 OUT OF THE 12 AT ONE TIME, BUT THOSE ARE STILL VOTES THAT IS A SERIOUS ISSUE FOR THE DEMOCRACY TO LOOK AT. THEY ARE THE ONLY PURELY PRIVATE INDIVIDUALS IN THE COUNTRY, I BELIEVE, WHO EXERCISE VERY SIGNIFICANT GOVERNMENT POWER. THEY ARE APPOINTED THEIR PRIVATE ENTITIES APPOINTED BY PRIVATE ENTETIES, BY THE WAY, I WILL DO A STORY, WHEN WE WERE FIRST ASKED BY SOME BANKS AND OTHERS LOOKING INTO THE VERY IMPORTANT ACCORD, WE FOUND THAT THE COMMITTEE WHO DEALT WITH IT WAS THE ONE WHO DEALT WITH THE CURRENCY, THE FEDERAL RESERVE, ONE OTHER OFFICIAL, AND THE NEW YORK FED. WHEN DID THE NEW YORK FED BECOME THE EQUIVALENT OF ALL THESE OTHERS CONFIRMED PRESIDENTIAL APPOINTEES? IT WAS LIKE IN THE DAYS AFTER WORLD WAR II, TO MAKE THE SOVIET UNION HAPPY WE GAVE EXTRA VOTES TO BELARUS AND UKRAINE. THAT IS THE MENTALITY, SO I AGREE WITH YOU IT IS A SERIOUS ISSUE. ITS NOT FED BASHING. YOU HAVE PRIVATE CITIZENS, THESE FED BANKS ARE APPOINTING IN A PRIVATE WAY THERE IS NO GOVERNMENTAL ROLE, AND YES, I DO QUESTION WHETHER THEY SHOULD HAVE THE DEGREE OF GOVERNMENT POWER. THEY CAN SIT, THEY CAN TALK, AND IT DOES APPEAR, AS YOU NOTICED, THIS IS WHAT THEY GO ASK MY STAFF TO DO,ID LIKE TO GIVE YOU CREDIT FOR JOGGING INTO THIS, I WANT TO ANALYZE THAT BY THE TIME THE FED VOTES IT IS LIKE THE POINT. IN THE OLD DAYS, YOU CAN ANALYZE THE STATEMENTS, OF WHICH WERE TO TURN OUT THAT THE PRESIDENTS OF THE REGIONAL BANKS WERE JUST NOT APPOINTED BY THE PRESIDENT,CONFIRMED BY THE SENATE, BUT THERE WAS A SUBSTANCE OR BIAS THERE, THAT TO BE SOMETHING TO LOOK AT.

LARRY: I THINK IT IS, WE REALLY APPRECIATE IT VERY MUCH. THANK YOU.


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