FRANK RIPS "ONE-WAY STREET" ON EXECUTIVE COMPENSATION

By Kyle Cheney
STATE HOUSE NEWS SERVICE

BOSTON, MARCH 19, 2008.....Congressman Barney Frank took aim today at the compensation of executives atop major financial institutions across America, recommending a change in corporate structure to ensure that the leaders of big companies feel the pain of risky decisions gone awry.

"It's not just that they make too much money by any rational standard," he said, adding that when their business decisions fail, they still receive major payouts, and "if the risk pays off" they get paid even more. "It's a one-way street. So they get an incentive to take risks."

Frank's remarks came in advance of an address he plans to make Thursday morning to the Greater Boston Chamber of Commerce, which has promised "major economic policy announcement" from Frank.

Last Thursday, Frank announced legislation to stem the significant rise in mortgage foreclosures by allowing the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. Frank is seeking input on that bill.

Frank, who chairs Congress's Financial Services Committee, said advocates of loosening regulations on lending institutions had been proven wrong about the effects of allowing the market to operate freely.

"They told us, 'Regulation is no good' and 'the markets are smart, the government is dumb,'" Frank said. "Well, the dumb government is bailing out the smart market."

Speaking to reporters afterward, Frank said that loan securitization had "dislodged the discipline of the lender-borrower relationship."

"We have to figure out how, while preserving the advantages of securitization, you get back some of that discipline," he said. "So the [executive] compensation is part of it. Regulating investment firms is part of it."

Executive pay of a different kind was recently targeted in the state Legislature by Sen. Mark Montigny (D-New Bedford), who proposed legislation aimed at limiting compensation of non-profit heads, specifically aimed at high-earning health care company CEOs. The bill would cap pay at $500,000 for non-profits that take in more than $1 million per year, while authorizing an appeal process.

Proponents say the bill would stem ballooning executive salaries at the same time as health care costs are skyrocketing. Opponents of the measure say pay for executives is market-based, and high dollar amounts were meant to keep Massachusetts's non-profits competitive with those elsewhere in the country.

Frank, joined by U.S. Rep. Michael Capuano and Attorney General Martha Coakley at a town hall-style forum hosted by SEIU Local 615, heard tales about identity theft, credit card company bureaucracy and subprime lending from some of the consumers they are working to protect.

One woman said she filed for bankruptcy when her credit card company denied it had received her payment, and it took her more than a year to contact the appropriate corporate official to sort out the dilemma. Another man said he lost $500,000 in an identity theft scheme despite having requested a fraud alert from his bank.

Coakley said state officials would "devise a plan with Congress" to help protect consumers in Massachusetts.

Kevin Kiley, chief operating officer of the Massachusetts Bankers Association, told the News Service that traditional banks, on the whole, were not to blame for the predatory and dangerous loans that have caused rampant foreclosures in Massachusetts and around the country.

"There was an explosive growth of non-bank lenders that came into the marketplace over the last five to 10 years that by and large were the most active participants in originating and funding loans that were focused on the subprime market," he said. "That isn't historically banks in Massachusetts. Banks and credit unions, particularly, have been making a concerted effort to reach out to consumers to work with them and to moderate the impact."

Capuano told the crowd that partisan differences in Congress are the biggest impediment to reforming banking and lending practices and fostering stronger consumer protections.

"I could sit here all day long and tell you I agree on all your issues ... and you'll clap for me," he said. "I don't want to be in Washington unless I can be effective. I can't do it alone. I can't even do it when we have a majority of the House. I need more help to take over the Senate."

Capuano urged members to apply their resources and energy to Senate races in New Hampshire and Maine, where sitting Republicans may be vulnerable and would help bolster a thin Democratic majority in the Senate.

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DISABLED ADVOCATES ANNOUNCE MAJOR CARE SETTLEMENT

Under a $72.3 million settlement reached late Tuesday, state government has agreed to provide community placements for 640 individuals under age 65 with intellectual and developmental disabilities who are currently in nursing homes, according to advocates. The placements will be provided over the next four fiscal years at a cost of $16.9 million per year, according to the Arc of Massachusetts, and less than 70 individuals remaining in nursing care will receive specialized court-monitored services required under federal laws.  An outline of the class action lawsuit settlement provided by the advocacy group described another $3.8 million for “transition services” and more than $1 million for “service coordination.” Department of Mental Retardation (DMR) Commissioner Elin Howe led negotiations in a case where state officials and advocates have been trying unsuccessfully to reach a settlement since 2001.  “It’s a very significant event for us because it basically allows us to come to the end of a very long litigation process,” Howe said when asked about the settlement at the State House Wednesday. “From our perspective, it’s a win-win all around.” Under a previous settlement, about 800 individuals were placed in community care settings between 2000 and 2007, but another 750 were still left, according to the Arc. Health and Human Services Secretary JudyAnn Bigby praised the settlement and said information about it would be released from her office later Wednesday. The settlement dovetails into the administration’s “Community First” initiative, she said. The program, a waiver funded at $45 million in Medicaid money, gives elderly people and disabled individuals the choice of staying at home, according to administration officials. Speaking to disabled advocates from the Grand Staircase on Wednesday, Gov. Deval Patrick said the initiative would “treat institutionalization as a last resort.” “This is an initiative borne out of a need for community-based services,” he said before advocates split off to lobby lawmakers. “We need your help to get it done.”