On Economy, Unlikely Allies Forge Winning Strategy

Housing Bill to Test Treasury Chief, Democrat's Ties

One is a free-market Republican from Wall Street with roots in the rural Midwest and a passion for bird-watching. The other is a rumpled, union-hall Democrat from Bayonne, N.J., who once famously described himself as "a left-handed, gay Jew."

About the only thing Treasury Secretary Henry M. Paulson Jr. and Massachusetts Rep. Barney Frank have in common is a Harvard degree. Yet the two have forged a remarkably productive relationship in the waning days of the Bush administration, steering complicated bills to overhaul two federal agencies through the Democratic House and shaping Washington's response to the nation's credit crisis.

Now that relationship is about to be tested. Frank, along with Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), is championing Washington's most aggressive response to the rising tide of foreclosures that has dragged down the nation's economy -- a $300 billion plan to help thousands of distressed homeowners. The White House has declared its opposition to the bill. But Frank plans to tie it to some of the administration's top housing priorities in hope that Paulson will help him push the package across the president's desk.

"There would be a lot to urge the president to sign it," Frank said. "You may have a critical mass saying: 'Hey, guys, this is everything reasonable.' "

In an interview, Paulson refused to discuss Frank's bill beyond stating the administration's view that it is "a bit too prescriptive and goes too far in shifting some of the risk" of bad home loans from lenders to taxpayers. But he commended Frank, who chairs the House Financial Services Committee, as a market-savvy pragmatist who consistently "looks for areas of agreement because he wants to get things done."

"Barney, I think, is in many ways unique in that he really grasps" the forces behind the housing crisis and its reverberations in global markets, Paulson said. "I thought it was remarkable when I came down here to find someone who had not been in the private sector and the capital markets who understood the capital markets as well as Barney Frank did."

Such praise may seem surprising for one of the most liberal lawmakers in Washington, a man who was the focus of Republican attacks during the 2006 campaign. With Democrats poised to take control of Congress, Vice President Cheney warned that Frank could become a powerful committee chairman, and "I don't need to tell you what kind of legislation would come." Rep. John Hostettler, an embattled Indiana Republican, ran a radio ad charging that a Democratic takeover would "put in motion [a] radical plan to advance the homosexual agenda, led by Barney Frank," Washington's first openly gay lawmaker.

Two years later, Hostettler is gone, Cheney is on his way out and Barney Frank has hardly lived up to the hype. The investment banks, mortgage lenders and other powerful industries subject to his committee's scrutiny give him mostly glowing reviews.

"He's become a good chairman," said Rick Lazio, a former Republican representative from New York who worked on housing issues with Frank and is now a managing director at J.P. Morgan Chase. "You'd have to give him pretty unreserved respect for the way he has managed that committee. He hasn't veered off into crazy land. In fact, he has been responsible and constructive and inclusive."

Frank also has developed a good working relationship with the Bush administration, a task made easier, Frank said, by Paulson's decision in the spring of 2006 to leave his post as Goldman Sachs chairman and become Bush's third Treasury secretary.

Paulson has close relationships with many Democrats in both chambers, including House Speaker Nancy Pelosi and Senate Majority Leader Harry M. Reid. But he won Frank's special gratitude last summer when, at Frank's request, Paulson appealed to Chinese Vice Premier Wu Yi to release one of Frank's constituents. Pro-democracy activist Yang Jianli was quickly freed after spending five years and four months in Chinese prisons.

Paulson is "a transactional kind of guy. He makes deals," Frank said. "He is very smart. Very pragmatic. And reality-driven. And that's what has enabled us to work together."