Barney Frank: “I thank the gentleman. The other thing I want to do is to disagree very strongly with the gentleman from California (Mr.…”

“I thank the gentleman. The other thing I want to do is to disagree very strongly with the gentleman from California (Mr. Rohrabacher) on the causality of the savings and loan crisis. I do not believe, having served here at the time, and I have seen very few analyses that said the deposit insurance issue was effective, it increased the cost but it was not the cause of the failure. And those are really two quite distinct things. The causes of the failure I believe were two. First of all, we imprudently loosened substantially what savings and loans, thrift institutions could invest their money in. So they became invested in things that were much less insured. They were not just doing houses; they were doing a lot of open land, et cetera. Secondly, this Congress in 1981 passed tax legislation that greatly inflated the value of real estate and then in 1986 undid it. If you wanted a dictionary example of going from one extreme to another, it was the treatment of real property and real estate in the 1981, 1986 tax act. So we kind of baited and switched people. In the 1981 act we gave, I say ``we'' because I voted against the 1981 act. I vote for the 1986 act, but Congress gave people incentive to invest in real estate. And because of the tax advantages, it made sense to buy an empty building and not have anybody in there in some cases literally because of the tax advantages.…”