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FIRST ON CNBC: CNBC TRANSCRIPT: REP. BARNEY FRANK, HOUSE FINANCIAL SERVICES COMMITTEE CHAIRMAN, ON CNBC'S "STREET SIGNS" TODAY

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Barney Frank

WHEN: TODAY, THURSDAY, JULY 29TH AT 2PM ET

WHERE: CNBC'S "STREET SIGNS"

Following is the unofficial transcript of a FIRST ON CNBC interview with Rep. Barney Frank, House Financial Services Committee Chairman, today on CNBC's "Street Signs."

All references must be sourced to CNBC.

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ERIN BURNETT: LET'S GET STRAIGHT TO THAT. AGAIN, THE HEADLINE, IN CASE CHAIRMAN FRANK DIDN'T YET HEAR IT, ST. LOUIS FED PRESIDENT JAMES BULLARD SAYS HE THINKS THE U.S. IS CLOSER TO A JAPANESE STYLE OUTCOME THAN EVER BEFORE. WHICH IS A PERILOUS STATEMENT GIVEN JAPAN HAS BEEN HOVERING AROUND RECESSION FOR TWENTY YEARS AND BATTLING DEFLATION. WHAT CAN BE DONE TO STOP THIS? YOU SEE CHAIRMAN BARNEY FRANK THERE MAKING A LOT OF THE DECISIONS ON THIS, CHAIRMAN OF THE HOUSE FINANCIAL SERVICES COMMITTEE. CHAIRMAN FRANK, ALWAYS A PLEASURE TO BE WITH US -- OR TO BE WITH YOU, I'M SORRY. HOUSE GOES ON SUMMER RECESS TOMORROW. A QUESTION WITH THIS BULLARD COMMENT THAT THE MARKET'S SO FOCUSED ON IS THIS. IS THERE A WILL OR A WAY FOR CONGRESS TO DO ANYTHING ELSE FOR THE U.S. ECONOMY, OR IS IT REALLY UP TO THE FED AND BEN BERNANKE, PERIOD?

BARNEY FRANK: WELL, FIRST, I THINK THAT'S MUCH TOO PESSIMISTIC. WE ARE NOT IN A SITUATION OF JAPAN, I BELIEVE. WE'VE LEARNED FROM IT. WE'VE ALREADY DONE THINGS. THE VERY GOOD STUDY BY MARK ZANDY LAID OUT WHAT WE'VE DONE. TWO, WE COULD DO MORE THINGS. WITH US IN RECESS IT IS GOING TO BE HARD BUT RECESS DOESN'T MEAN WE'RE ALL GOING TO BE SOMEWHERE ON A MOUNTAIN TOP. WE COULD BE CALLED BACK. I AM DISAPPOINTED. THE REPUBLICANS I WILL RUEFULLY CONCEDE HAVE BEEN SUCCESSFUL IN PERPETRATING THE MYTH THAT THE ECONOMIC RECOVERY BILL DIDN'T HELP. IT OBVIOUSLY HELPED. THE PROBLEM, OF COURSE, IS THAT IT DIDN'T HELP AS MUCH AS WE HAD HOPED. WHILE I THINK THE ADMINISTRATION'S ECONOMIC POLICY HAS BEEN VERY WELL DONE, THEY DID MAKE ONE MISTAKE. THEY UNWISELY PREDICTED WHEN THE STIMULUS BILL WAS FIRST COMING UP THAT IT WOULD BRING UNEMPLOYMENT DOWN INTO THE 8% RANGE. THERE WAS NO REASON TO DO THAT. THERE WAS NO WAY TO KNOW IT. SO THAT SUCCESS IS NOW BEING TURNED INTO FAILURE IN THE PUBLIC MIND. IT'S ALSO FRUSTRATING TO ME THAT MY COLLEAGUES VOTE UNLIMITED HUNDREDS OF BILLIONS OF DOLLARS FOR AN UNSUCCESSFUL AND UNNECESSARY WAR IN IRAQ AND A FRUSTRATING WAR IN AFGHANISTAN. SOMEHOW THAT DOESN'T COUNT. WITH ALL THAT, YES, THERE ARE THINGS WE CAN DO. I MUST SAY, AND I HATE TO HAVE TO COME TO THIS CONCLUSION, THAT MY REPUBLICAN COUNTERPARTS DON'T WANT TO SEE NEAR TERM SUCCESS. THEY DON'T WANT THE DOW TO GET UP. THEY DON'T WANT UNEMPLOYMENT TO GO DOWN. THEIR ARGUMENT IS IT'S IN THE LONG-TERM INTEREST FOR THE COUNTRY FOR THE DEMOCRATS TO LOSE. THE SMALL BUSINESS LOAN FUND, $30 BILLION FOR SMALL BANKS TO LEND TO SMALL COMPANIES, THERE'S NO EXPLANATION FOR THE OPPOSITION OTHER THAN THE FACT THAT THEY THINK THEY'RE BETTER OFF IN THEIR LONG TERM IF WE HAVE SHORT-TERM PROBLEMS.

BURNETT: MID-TERMS OBVIOUSLY PLAY A ROLE IN ALL OF THIS. I WANT TO GET TO THE HEART OF WHAT EVERYONE'S TALKING ABOUT. THAT IS, OF COURSE, TAXES. CHAIRMAN FRANK, A LOT OF PEOPLE THINK THAT ONE THING THAT WILL HELP THE ECONOMY GOING IN CONSUMER SPENDING IS NOT RAISING TAXES. AND SOME DEMOCRATS, YOU KNOW, IN YOUR PARTY HAVE COME OUT AND SAID THEY SUPPORT EXTENDING THE BUSH TAX CUTS NOT JUST FOR PEOPLE WHO EARN UNDER $250,000, BUT FOR EVERYBODY. WHERE DO YOU STAND?

FRANK: FIRST OF ALL, THE REPUBLICANS AGAIN HAVE SOMEHOW GOTTEN PEOPLE TO BELIEVE THAT TAXES HAVE GONE UP. TAXES WERE REDUCED IN THE STIMULUS BILL BY OVER $200 BILLION. IT WAS MOSTLY SPENDING, BUT $200 BILLION WAS TAX REDUCTION. WE'VE HAD THE HOME BUYERS TAX CREDIT. WE HAVE OTHER THINGS THAT HAVE, IN FACT, REDUCED TAXES. TAXES ARE LOWER TODAY THAN THEY WERE WHEN OBAMA TOOK OFFICE. SECONDLY THE ARGUMENT THAT RAISING THE MARGINAL RATE SOME HOW HURTS ECONOMIC ACTIVITY HAS BEEN-- WHEN BILL CLINTON BECAME PRESIDENT IN 1993, I VOTED WITH HIS POLICY TO TAKE THE MARGIN OVER EIGHT. THIS IS FOR THE TOP PARTS OF INCOME. NOT WHOLE INCOME. FROM 36% TO 39%.IT HAD ZERO NEGATIVE IMPACT.

BURNETT: THAT'S TRUE.

FRANK: THIS NOTION THAT PEOPLE ON WALL STREET, WHAT, THEY'RE NOT GOING TO WORK ON SATURDAYS BECAUSE THE AMOUNT OF INCOME OF INCOME AT $2, 3, 4 AND 5 HUNDRED THOUSAND IS BEING TAXED 3% HIGHER? IT MAKES NO ECONOMIC SENSE.

BURNETT: IT MAY NOT. SO IS THIS YOUR WAY OF SAYING, LOOK, I DON'T THINK IT MAKES ECONOMIC SENSE SO I AM GOING TO GO AHEAD AND PUSH HARD FOR THOSE TAX CUTS TO GO AWAY, FOR THE TAX RATE TO EFFECTUALLY GO UP ON THOSE PEOPLE IN JANUARY?

FRANK: I FEEL I'M BEING SOMEWHAT CONSERVATIVE HERE. BECAUSE THAT NOTED RADICAL ALAN GREENSPAN IS FOR LETTING ALL THE TAX CUTS EXPIRE. PEOPLE IN THE MODERATE INCOME LEVEL WHERE I DISAGREE BECAUSE I DO THINK WE NOT ONLY HAVE AN EQUITY ISSUE, BUT THAT BOOSTS THE CONSUMPTION. BUT YOU CANNOT CONSISTENTLY VOTE WITHOUT ANY COMPENSATION FOR AN EXTENSION OF THAT WAR IN IRAQ WHICH HAS BEEN SUCH A FAILURE FOR MORE TROOPS IN AFGHANISTAN, FOR TAX CUTS FOR PEOPLE WHO MAKE MILLIONS OF DOLLARS AND SAY, BY THE WAY, I'M AGAINST THE DEFICIT SO LET'S NOT HAVE UNEMPLOYMENT INSURANCE.

BURNETT: I'M GOING TO ASK YOU ABOUT THOSE WARS. I WANT TO MAKE SURE BECAUSE YOU KNOW OUR VIEWERS CARE ABOUT THIS VERY MUCH, THAT WHAT YOU'RE SAYING IS YOU SUPPORT WHAT THE OBAMA ADMINISTRATION SAID RIGHT NOW. IF YOU'RE OVER $250,000, TAXES GO BACK UP.

FRANK: VERY MUCH. WE DID THAT IN 1993. AFTERWARDS WE HAD A VERY SOLID ECONOMY. I SEE NO EVIDENCE THAT MAKING PEOPLE WHO MAKE $500,000 AND $600,000 AND $700,000 A YEAR PAY AN EXTRA 3% ON THAT TOP AMOUNT HAS ANY NEGATIVE ECONOMIC EFFECT. I DON'T SEE HOW IT DISCOURAGES ECONOMIC ACTIVITY AT ALL.

BURNETT: WHAT ABOUT THE VALUE ADDED TAX? IS THAT SOMETHING -- I REMEMBER WATCHING YOU JUST THE OTHER DAY WHEN WE WERE WATCHING A HEARING YOU WERE IN. YOU MADE A POINT OF CALLING OUT WHOEVER IT WAS, I FORGET WHO IT WAS ASKING A QUESTION, SAYING YOU HAD NOT NOR HAD THE ADMINISTRATION PUT FORTH A VALUE ADDED TAX. BUT WHAT DO YOU THINK? GOOD IDEA?

FRANK: NO. IT'S DEAD AS A DOOR NAIL. PEOPLE HAD SOME APPEAL BECAUSE IT COULD HAVE AN EFFECT FOR THE COMPANY TO HAVE A VALUE ADDED TAX YOU GET A CERTAIN EXPORT ADVANTAGE THERE WAS ZERO CHANCE OF IT GOING FORWARD. IT WAS VERY UNPOPULAR. IT'S NOT GOING TO EASILY BE INTEGRATED. THE REPUBLICANS, THAT'S ONE OF THEIR FAVORITE STRAW MEN. THERE WAS NO REALITY TO IT. THERE'S ZERO CHANCE OF A VALUE ADDED TAX EVEN BEING PROPOSED.

BURNETT: NOW LET'S GET TO THE DEFICITS. BECAUSE YOU'VE BROUGHT IT UP. I WANTED TO ASK YOU ABOUT THE OTHER SIDE OF THE LEDGER SPENDING. THE TOP THREE ITEMS, WE ACTUALLY -- I KNOW YOU KNOW THEM LOUD AND CLEAR. WE'LL THROW THE SCREEN UP. TOP THREE ITEMS IN TERMS OF WHAT AMERICA SPENDS THIS YEAR IN THE BUDGET. DEFENSE, SOCIAL SECURITY AND THEN INCOME SECURITY. THAT'S A LOT OF ENTITLEMENTS IN THERE. THEN YOU'VE GOT MEDICARE AND HEALTH CARE. YOU'VE BROUGHT IT UP BEFORE ON THIS SHOW. I HEARD YOU RECENTLY ON KEITH OLBERMANN'S SHOW SAYING -- MAKING THE VERY CLEAR POINT THAT A LOT OF COUNTRIES IN THE MIDDLE EAST AND IN EUROPE FREE RIDE OFF OUR DEFENSE SPENDING. WE LOOK AT DEFENSE AT NEARLY $8 BILLION A YEAR. HOW MUCH WOULD YOU CUT?

FRANK: FIRST OF ALL, I WOULD STOP THE WAR IN IRAQ. I WOULD GET OUT OF IRAQ. WE'RE NOW TOLD WE'RE ONLY GOING TO HAVE NONCOMBAT TROOPS IN IRAQ. THEY'RE ASKING FOR LIKE $40 BILLION TO KEEP THESE NONCOMBAT TROOPS THERE FOR A YEAR AND A HALF. THAT'S A WASTE OF OUR TROOPS. THEY'RE TRYING TO RESOLVE A POLITICAL DISPUTE WHICH IS AN INAPPROPRIATE THING TO GIVE THE AMERICAN MILITARY. SO IF YOU GOT OUT OF IRAQ ALTOGETHER AND BEGAN TO PHASE DOWN AFGHANISTAN, YOU SAVE WELL OVER $100 BILLION A YEAR. IN ADDITION, I THINK YOU COULD SAVE ANOTHER $100 BILLION BY SAYING TO WESTERN EUROPE, THE FREE RIDE IS OVER. IF YOU ARE WORRIED, DEFEND YOURSELF. BY SAYING TO JAPAN, YOU CAN DEFEND YOURSELF.BY SAYING, FRANKLY, WE DO NOT NEED AS MUCH CAPACITY TO DESTROY THE SOVIET UNION WHICH NO LONGER EXISTS IN A THERMONUCLEAR WAR AS WE USED TO HAVE.PRIMARILY IT IS TO CUT BACK THIS NOTION THAT AMERICA MUST PROTECT EVERYBODY EVERYWHERE AND THE OTHER COUNTRIES, FRANKLY, I TELL YOU, ERIN, I THINK THE MOST POPULAR BOOK IN EUROPE IS "TOM SAWYER." THEY FIGURED OUT A WAY TO GET US TO PAINT THEIR FENCE AND ACT LIKE THEY'RE DOING US A FAVOR.

BURNETT: IT'S TRUE. BUT THEN AS A PART OF THAT WE SORT OF, I GUESS FOR LACK OF A BETTER WORD, TO PUT IT SIMPLY, GET TO TELL THEM WHAT TO DO A LITTLE BIT. WE MIGHT LOSE THAT.

FRANK: LET THEM DO WHAT THEY WANT. THE POWER TO ORDER FRANCE AROUND IS NOT WORTH AN ENORMOUS DEFICIT. THEY DON'T DO IT ANYWAY, BY THE WAY. WE MUST BE THE MOST INFLUENTIAL PEOPLE IN THE WORLD. NO. YOU KNOW, IF SWEDEN OR DENMARK OR JAPAN OR -- THEY DON'T LIKE US OR IF SOMEBODY IN AFRICA WANTS TO DEAL WITH CHINA, FINE. WHAT ARE WE A BUNCH OF KIDS AND WHO GETS THE MOST VALENTINE'S IN THE FOURTH GRADE? I AGREE WITH THAT THAT'S THEIR VIEWPOINT. WE MUST PROJECT OUR POWER. WE MUST DEFEND OURSELVES. OBVIOUSLY WE HAVE A PROBLEM WITH TERRORISM. I WISH SUPER SOPHISTICATED WEAPONS DEFEATED TERRORISM. I WISH WE COULD KILL TERRORIST WITH NUCLEAR SUBMARINES. IF WE COULD, WE'D BE SAFER. YOU DON'T DO THAT WITH THE KIND OF SUPER EXPENDITURES. IF WE TOOK THE MONEY OUT OF IRAQ WE'RE SPENDING AND TOOK 10% OF IT AND SPENT HERE AT HOME IN TRYING TO MAKE OURSELVES MORE SECURE, WE'D BE SAFER AS WELL AS BETTER OFF ECONOMICALLY.

BURNETT: YOU'VE GOT AT LEAST $140 BILLION A YEAR THERE. SOCIAL SECURITY, RETIREMENT AGE GOING UP TO 67. HOW MUCH HIGHER DO YOU THINK YOU COULD GET THROUGH IN CONGRESS. 70? 72?

FRANK: IT'S ALREADY -- I FORGET EXACTLY WHAT THE TOP IS. I DO KNOW WHEN I TURN 65, I WASN'T ELIGIBLE. I WAITED UNTIL I WAS 70, BECAUSE I WANTED TO TAKE THE -- LEAVE THE MOST IN THE SYSTEM. YOU CAN'T SAY NOW, LOOK, THERE MAY BE CHANGES IN PEOPLE'S JOBS. YOU KNOW, YOU STILL HAVE PEOPLE NOW WHO WORK IN VERY PHYSICAL JOBS. CLEARLY YOUR LIFE EXPECTANCY HAS CHANGED. MEDICAL CARE HAS CHANGED. WE'VE ALREADY GOT IT GOING UP TO A CERTAIN LEVEL. AND I WOULD PAUSE NOW. AND BY THE WAY SOCIAL SECURITY AS WE SPEAK TODAY IS NOT IN DEFICIT. IT'S STILL TAKING IN MONEY.

BURNETT: NOT YET.

FRANK: THERE ARE MORE PROBLEMS IN THE HEALTH CARE.

BURNETT: YEAH.

FRANK: UNLIKE THE WAR IN IRAQ, WHICH IS A TOTAL DEFICIT OF OVER A TRILLION DOLLARS. IF WE DIDN'T HAVE THE WAR IN IRAQ, WHICH I WAS AGAINST FROM THE BEGINNING, BASED ON FALSE PREMISES, THESE ARE CONSCIOUS POLICY DECISIONS, BUSH AND OTHERS AND MAYBE SOME DEMOCRATS.

BURNETT: LOTS OF DEMOCRATS.

FRANK: THAT'S OVER A TRILLION DOLLARS WE WOULD HAVE NOW AND WOULDN'T BE WORRIED ABOUT A DEFICIT.

BURNETT: LET'S TALK ABOUT FINANCIAL REFORM. I KNOW NOW WE'RE IN THE SIX-MONTH PROCESS WHERE A LOT OF DETAILS ARE GOING TO GET FIGURED OUT. SOME BANKS HAVE FIGURED OUT WAYS TO MAKE MONEY ON THIS. GOLDMAN SACHS SAYS IT'S GOING INTO DERIVATIVES BUSINESS. GOING TO HAVE CLEARING OVER THE COUNTER DERIVATIVES. ARE YOU AT ALL WORRIED THE UNINTENDED CONSEQUENCES OF THE BILL COULD END UP MAKING YOU REGRET PARTS OF IT?

FRANK: NOT AT ALL. WE NEVER SAID NOBODY SHOULD HAVE DERIVATIVES. DERIVATIVES CAN PLAY A USEFUL ROLE. IF YOU'RE AN AIRLINE, YOU SHOULD HEDGE. YOU WANT TO BE ABLE TO CONTROL YOUR DEMAND PROJECTIONS. YOU WANT TO LOOK AT YOUR COSTS, YOU DON'T WANT WILDLY VOLATILE FUEL PRICES INTERVENING. SO WE NEVER SAID DERIVATIVES HAD NO ROLE. SECONDLY, PEOPLE WHO SAID, WELL,THEY'RE GOING TO OUTSMART THE REGULATORS, NO, HERE'S WHAT PEOPLE FORGET. THESE ARE THE REGULATORS WHO HELPED US WRITE THESE LAWS. MARY SHAPIRO AT THE SEC, SHEILA BAIR AT THE FDIC.THERE'LL BE A NEW ECONOMIC--A NEW BANK SUPERVISOR MERGING THE CONTROL OF THE CURRENCY OF THE OTS, GARY GENSLER AT CFTC, THEY ARE GOING TO BE VERY ENERGETIC. THEY KNOW WHAT'S IN THOSE LAW. THEY ARE GOING TO BE ENFORCING THEM. SO NO, WE NEVER SAID, OH, PEOPLE GOING OUT OF BUSINESS. I HAVE SEEN THE PROJECTIONS THAT IT'S GOING TO COST SOME OF THESE FINANCIAL INSTITUTIONS SOME PROFIT. I THINK THAT'S A GOOD THING. BECAUSE WHAT I WOULD HOPE, BY THE WAY, IS SOME OF THESE PEOPLE WOULD MAKE LESS MONEY ON FEES AND OVERDRAFTS, ETCETERA, AND MAKE MORE MONEY LENDING PEOPLE MONEY, WHICH IS WHAT WE REALLY WANT BANKS TO DO.

BURNETT: NOW, WHAT ABOUT FANNIE AND FREDDIE? THEY'RE NEXT. PRESIDENT SAYS HE'S GOING TO START THAT IN AUGUST. FANNIE AND FREDDIE AND HOW BIG AND I GUESS NASTY THEY GOT WAS A MIX OF DEMOCRATIC AND REPUBLICAN POLICIES OVER THE YEARS.

FRANK: NO QUESTION.

BURNETT: I JUST WANT TO READ YOU A STATEMENT YOU SAID EARLIER THIS WEEK ABOUT HOUSING FINANCE AND THE RESTRUCTURING COMING. YOU SAID, QUOTE, WE WILL MAKE SURE THERE ARE NO IMPLICIT GUARANTEES, HINTS, SUGGESTIONS OR WINKS AND NODS. WE WILL BE EXPLICIT ABOUT WHAT IS AND WHAT IS NOT AN OBLIGATION OF THE FEDERAL GOVERNMENT. AT THIS MOMENT AS YOU KNOW, FANNIE AND FREDDIE OWN $145 BILLION AND COUNTING. THE U.S. TAXPAYERS HAVEN'T PAID BACK A DOLLAR. NINE IN TEN MORTGAGES NOW IN THIS COUNTRY BACKED BY FANNIE AND FREDDIE. MORE THAN BEFORE THE CRISIS.THEY'RE EVEN BIGGER. DO YOU REALLY THINK THE U.S. GOVERNMENT MUST CUT THAT IMPLICIT PROMISE?

FRANK: ABSOLUTELY. THE POINT IS IN THE STATISTICS YOU MENTIONED, THE MONEY THAT IS OWED IS MONEY THAT WAS LOST BEFORE THEY WERE PUT IN CONSERVATORSHIP. PEOPLE MAY FORGET THIS. THE REPUBLICANS CONTROLLED THE CONGRESS FROM 1995 TO 2006. I WAS IN THE MINORITY. THEY NEVER PASSED BILL INTO LAW DEALING WITH FANNIE AND FREDDIE AND GEORGE BUSH PUSHED THEM MORE INTO HOUSING FOR LOWER INCOME PEOPLE. IN 2007 I BECAME THE CHAIRMAN. WE PASSED IN 2008, I WISH WE'D DONE IT QUICKER. THE SENATE IS NEVER AS QUICK AS YOU WANT IT TO BE. THE BILL THAT PUT THEM INTO CONSERVATORSHIP. BUSH'S SECRETARY OF THE TREASURY HANK PAULSON PUT THEM INTO CONSERVATORSHIP. SINCE 2008 THEY HAVE BEEN RUN VERY DIFFERENTLY.WE'VE ALREADY TAKEN MAJOR STEPS TO REFORM THEM. INTERESTINGLY, LAST SATURDAY, JOE NOCERA A VERY GOOD COLUMNIST "NEW YORK TIMES" IN THE COMPLAINED THAT FANNIE AND FREDDIE AS THEY ARE NOW BEING RUN ARE TOO TOUGH AND THEY'RE INSISTING ON A CERTAIN LEVEL OF CREDIT SCORE AND AREN'T GIVING PEOPLE ENOUGH MORTGAGES. GRETCHEN MORGENSON IN THE "TIMES" THE WEEK BEFORE THE HAD SAID GOOD FOR FANNIE AND FREDDIE. THEY'RE TAKING SOME OF THESE PEOPLE WHO SOLD THE MORTGAGES AND MAKING THEM TAKE THEM BACK.

BURNETT: THEY'RE STILL LOSING BILLIONS OF DOLLARS EVERY QUARTER.

FRANK: THEY ARE NOT LOSING ON CURRENT OPERATIONS. THESE ARE LOSSES THAT WERE INCURRED BY DECISIONS MADE BEFORE 2008. YES, THEY WERE FORCED INTO AND JUMPED INTO COMBINATION MAKING BAD DECISIONS. BUT THE LOSSES HAVE NOT BEEN ACCRUING BY CURRENT DECISIONS. THESE ARE SUB COST. AND GOING FORWARD WE ARE GOING TO SEPARATE IT OUT AND HAVE, I WOULD HOPE FOR A TRULY PRIVATE OPERATION NOW THE FINANCIAL SERVICES ROUND TABLE, VERY CONSERVATIVE BUSINESS PEOPLE, SMART PEOPLE, THINK THAT SOME KIND OF GUARANTEE, PAID FOR, NOT AN UNLIMITED GUARANTEE, BUT SOME KIND OF GUARANTEE PER MORTGAGE PAID FOR BY A FEE ON THOSE MORTGAGES COULD BE A USEFUL THING GOING FORWARD. THAT'S WHAT WE HAVE TO LOOK OUT. I DO WANT TO BE VERY CLEAR. THEY HAVE BEEN IN CONSERVATORSHIP FOR TWO YEARS. THE LOSSES WERE FROM WHEN THEY WERE NOT IN CONSERVATORSHIP. THEY'RE BEING RUN IN A TOUGHER WAY.

BURNETT: AS WE RETHINK ABOUT HOUSING IN AMERICA, PEOPLE ASK THIS QUESTION. WHY IS IT THAT HOMEOWNERSHIP IN AMERICA WHERE WE HAVE SPENT A TRILLION DOLLARS OF MONEY, ENCOURAGING MORTGAGES, IS NO HIGHER THAN IN OTHER COUNTRIES WHERE THEY DIDN'T DO THAT? AND TAX DEDUCTIBILITY OF MORTGAGE COMES STRAIGHT FROM THAT QUESTION. IT'S NOT TAX DEDUCTIBLE IN PLACES LIKE CANADA WITH A HIGHER HOMEOWNERSHIP RATE. WOULD YOU SUPPORT ELIMINATING THE TAX DEDUCTIBILITY IN MORTGAGE INTEREST IN AMERICA.

FRANK: NO. FOR THIS REASON. IF YOU WERE STARTING FROM SCRATCH, I THINK IT WOULD BE A GOOD ARGUMENT THAT YOU SHOULDN'T INCLUDE IT. BUT RIGHT NOW PEOPLE HAVE BOUGHT AND SOLD HOUSES, AND THAT DEDUCTIBILITY OF MORTGAGE INTEREST IS AN INHERENT PART OF WHAT'S THE LARGEST SINGLE ASSET STILL FOR MOST AMERICANS. SO YOU CAN'T UNSCRAMBLE THE EGG. YOU WOULD HAVE A VERY INEQUITABLE EFFECT ON PEOPLE. PEOPLE DECIDE, OKAY, I'M GOING TO PUT MY MONEY INTO THIS HOUSE RATHER THAN HERE. THE VALUATION THAT LED THEM TO DO THAT INCLUDED THE MORTGAGE IN-- DEDUCTION. I WILL SAY THIS PART OF THE PROBLEM AND IT IS ONE THING THAT I HAVE BEEN ARGUING FOR YEARS THERE WAS FIRST UNDER CLINTON AND EVEN WORSE UNDER BUSH A VIEW THAT HOMEOWNERSHIP WAS THE ONLY GOOD WAY FOR PEOPLE TO LIVE. WE HAVE DENIGRATED RENTAL HOUSING. THERE ARE PEOPLE IN OUR SOCIETY WHO FOR ECONOMIC AND OTHER REASONS ARE NOT REALLY GOOD CANDIDATES FOR HOMEOWNERSHIP. AND THEY WERE PUSHED INTO IT. SOMETIMES THEY JUMPED INTO IT. I HOPE GOING FORWARD WE WILL DO MORE TO PROVIDE DECENT, AFFORDABLE RENTAL HOUSING FOR PEOPLE IN THIS CATEGORY. I BELIEVE WE HAVE ALREADY RECOGNIZED THAT AND NEED TO STOP PUSHING THEM. FOR YEARS SOME OF US TRIED TO STOP THE BAD SUBPRIME MORTGAGES. THE VERY IMPORTANT PART OF THE BILL THAT WAS SIGNED LAST WEEK BANS, LEGALLY BANS THE KIND OF MORTGAGES TO PEOPLE WHO CAN'T AFFORD THEM THAT WERE SO MUCH OF A PROBLEM.

BURNETT: CHAIRMAN FRANK, THANK YOU VERY MUCH. WE APPRECIATE IT. HOPE YOU GET SOME TIME OFF ON YOUR SUMMER RECESS.

FRANK: THANK YOU.

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