MATTHEWS: So, will these reforms play well with angry populists and will they push Republicans back on their heels?

Democratic Congressman Barney Frank of Massachusetts is the chairman of the Financial Services Committee.

Congressman Frank, thank you so much.

I don‘t understand high finance at all. I don‘t understand it at all. But I think the politics here are important to watch. Is there something that you and Congress and the president can sign that will deal with this public disaffection with our banking industry?

REP. BARNEY FRANK (D-MA), FINANCIAL SERVICES COMMITTEE CHAIRMAN:

Well, I hope so, but that‘s not the main reason to do it.

Look, here‘s the problem. It was the irresponsibility of the financial community over the years, unchecked by a government which was run by people, as Alan Greenspan has admitted, who made the mistake of thinking no regulation was necessary, that the market would take care of itself.

Alan Greenspan, to his credit, has admitted that that was his mistake, and the mistake shared by others of that conservative philosophy. We then were confronted-we have to go back to September of 2008, when the two top Bush administration appointees, the secretary of the treasury, Henry Paulson, the chairman of the Federal Reserve, Ben Bernanke, come to Congress and say, if you do not give us this fund of hundreds of billions of dollars, we‘re going to have a serious economic meltdown. It will be a total collapse.

Now, I think they were probably right. Even if they weren‘t right, the fact that they said it publicly made it right.

MATTHEWS: Right.

FRANK: And we had no option, I believe, but to help them.

Here‘s our problem. It was kind of like de-Baathification in Iraq. The only way to prevent a total meltdown of the economy and enormous greater hardship for all kinds of people in this country was to do some things that helped the banks, not because we loved them or wanted to help them or because we thought they were guiltless, but because that was the lifeline. You needed credit. So, there was no way to do that.

I analogize it to the mistake the Bush people made the other way, when they went into Iraq, fired everybody who had worked in the Baath Party, and then they had chaos for a year, because there was nobody left.

MATTHEWS: Yes.

FRANK: Sometimes, you have to work with the people you‘re not happy with to keep things going. That kindled a great deal of anger.

What then happened was-and it turns out this recession that Barack Obama inherited from George Bush was worse than people had thought. Unemployment has been deeper and longer. So, you have people angry at an unemployment that was caused by financial institutions which generated the crisis, and they‘re getting some benefit.

Now, we did two things. We did provide some benefit, because that was the only way to keep the country going. At the same time, we began the process of putting restrictions on them. Frankly, what the president is doing now, in terms of being tough on them, isn‘t a lot different than what we were doing earlier in the congressional session in the committee I chair.

The problem was-and maybe this is a poor choice the Democratic leadership made-attention was on health care and cap and trade. I have been fighting with the banks, fighting with the financial institutions, pushing restrictions on credit card abuses for several months.

I think what‘s happened is, we have now finally got that as the focus of attention. And, yes, I do think the public is going to respond appropriately, because we‘re doing the right thing.

MATTHEWS: You know, I-I‘m looking at a campaign in Massachusetts which blew me away. I was watching it up there in Massachusetts this week. And you‘re the expert up there. You have got a great constituency. A lot of those people voted for the Republican because he showed up in a truck, the optics of a guy up against, I guess, big government, against big taxes, against what.

What‘s the public that you talk to up there, what do they feel is their problem? Is it big government? Is it Wall Street? Where‘s...

FRANK: Well, that‘s-it‘s ironic.

MATTHEWS: Where‘s their head at on this?

FRANK: Ironic. Somebody‘s big government-here‘s the irony. I think it‘s a great triumph of the conservatives. In fact, what we need is a government that has got sufficient heft to protect people...

MATTHEWS: Yes.

FRANK: ... so that, in the financial area, the problem was, the government wasn‘t there. The government-the cop went off the beat when they were doing all these abuses, when they were making mortgage loans that shouldn‘t have been made. And Democrats tried to stop it.

And Alan Greenspan said, no, no, you know, you‘re interfering with the market. And that was the Bush administration approach. Here‘s the problem. And then, of course, we had Katrina, where the government behaved abominably.

The fact is that, under the conservatives, the government didn‘t do very much. And people-now that we say, wait a minute, we want to have the government used to stop these abuses and do other things, they say, gee, we‘re pretty skeptical.

In other words, the conservatives, by their years in power, so discredited the very idea of government, that they created an anti-government feeling...

MATTHEWS: Right.

FRANK: ... ironically, by doing it badly.

And, yes, Democrats are seen as the party that believes that government can be used constructively, from Woodrow Wilson, and FDR, and John Kennedy, and Lyndon Johnson. And the problem is that notion of coming together and using government to solve some of the problems that many were private-sector-caused is unpopular right now.

MATTHEWS: Well, one of great political phrases in Philadelphia is middling somebody. Can you middle these guys, these Republicans, and force them to choose between their anti-big-shot rhetoric and their defense of big shots behind the scenes? Can you force them to choose between their rhetoric and their ideology?

FRANK: I hope so.

(CROSSTALK)

FRANK: I will-I will say, middling makes sense in the Philadelphia context. In fact, middle is the last place you would find any of these Republicans today. If they aren‘t over on the extreme, they get heartburn.

It‘s already happened. When we voted in the House in December on financial regulation, the final vote, as you know, is a motion to recommit that the minority, the Republicans, can offer. They don‘t need anybody‘s permission as to how to shape it. They can offer any motion they want.

MATTHEWS: Yes.

FRANK: They offered a motion that would have killed literally every single type of financial reform we have proposed, no consumer protection agency, no restriction on derivatives, no restriction on excessive borrowing so you can be failing, no restriction on the Federal Reserve‘s power to lend money to anybody it wants and give money to anybody it wants.

The problem was, the country wasn‘t looking. When we said we want to give the regulators the power to break at-break up a conglomerate that‘s gotten too big, they unanimously voted no. When we set a consumer agency to protect people on credit cards and overdrafts and these other abuses, pay day lenders, they unanimously voted no. Nobody was looking then.

So the answer is I don‘t think we have to do anything to position them. That‘s where their ideology drives them. And I hope now that this is the focus of attention, that will be the political response.

MATTHEWS: There aren‘t too many Teddy Roosevelts in the Republican party these days. Thank you very much, Congressman Barney Frank, chairman of the Finance Services Committee in the House of Representatives.