Sitting in a Board meeting last week, I listened to a number of financial consultants and Mutual Fund presidents describe the economy as “recovering” or in one instance as “recovered.” I was incredulous at these pronouncements and proceeded to challenge these assertions. On Wednesday, the FDIC announced that it is bracing for a new wave of bank failures. This is amidst a looming commercial real-estate crisis where of the $1.4 trillion in commercial real estate loans that come due in the next few years, almost half are underwater, meaning that the borrower owes more than the property is worth. This is part of the reason that many of the nation’s 8,000 banks remain under enormous stress. Yet because the Treasury has rejected calls to extend stress tests to smaller, regional banks, the same ones they conducted on the 19 big banks, no one is quite sure of the severity of the potential commercial real-estate problem.As the economy stares new challenges in the face, the new financial regulation proposed by the Obama Administration recently, known as the “Volcker Rule,” that aims to regulate some investment banking areas that led to this financial crisis is finding tough sledding in Congress. On Thursday, Fed Chair Ben Bernanke testified before the Senate Banking Committee and expressed skepticism about the Volcker Rule, saying “If you go about imposing the Volcker Rule, I think it would be difficult to do it on a purely legislative basis, because of the potential for having unintended consequences.” This comes after the Senate Banking committee members have discussed scrapping the Volcker rule, which would completely ban proprietary trading at commercial banks, for regulation on a “case-by-case” basis. The President, however, still vigorously backs the Volcker Rule, according to senior White House advisor David Axelrod. Any new financial regulation of Wall Street will take a steel backbone we have not seen from this Congress. According to TARP director Professor Elizabeth Warren, the financial industry has flooded Capital Hill with lobbyists in unprecedented fashion. Members of Congress are receiving visits from Wall Street lobbyists up to three and four times a day as Congress debates re-regulating the financial sector.
Tiffany S.
ReplyDeleteThis should be rather interesting in the coming months as the idea develops. As mentioned, the economy has not yet stabilized and markets are overstretched already. This new enactment may provide excuse to sell off which could create an even greater problem. As I understand it, the White House also wants to create a Consumer Financial Protection Agency to police mortgages and credit cards. Members of the Senate Banking Committee, have opposed the agency may be exploring whether a new consumer division could instead be created within the Treasury Department. I don’t think it should matter as long as it’s gets done, I guess that’s just the politics of it all. The modified language senators are considering is similar to a rule in financial-overhaul legislation passed by the House last year. Financial institutions, i.e. banks, are contending the language is unnecessary, in part because regulators already have discretion to stop banks from certain practices. But in my opinion, the issue is not whether regulators are in place and have discretion to stop banks, rather, the regulators are, in fact, stopping them.
I believe the definition of recovery has changed drastically in the last few years. But, most importantly, I believe the definition depends on whom you are speaking with. There are some who had to give up a seasonal vacation or wait an extra year to buy another Aston Martin. To people who have had to make these life-changing decisions, the economy probably is recovering. However, for the population of U.S. Americans who were dealing with financial hardships even before the economy took a downfall, they have yet to recover. For those persons who have been out of work for multiple years, they are not in recovery. And for those who are choosing to exclude some of their education for fear of being labeled as overqualified - they have certainly not recovered.
ReplyDeleteMaybe the huge downturn in the economy is an eye-opener for U.S. Americans to start taking charge of our lives, and to not wait for the government to help us. Perhaps now we will wake up and realize that our economy, and the all-mighty dollar bill is not as invincible as we initially thought. So if you ask me if something has recovered, I would say "yes." That something is definitely not the U.S. American economy, but fight in Americans, similar to the struggles our predecessors had to suffer during their times of "recovery." Patience builds endurance. The economy will bounce back, but not before we have learned some valuable lessons about gluttony, luxury and what we really need to survive and be happy.
Maybe the huge downturn in the economy is an eye-opener for all U.S. Americans to start taking charge of our lives and to not wait for the government to help us. Perhaps now we will wake up and realize that our economy, and the all-mighty dollar bill is not as invincible as we initially thought. So if you ask me if something has recovered, I would say "yes." But that something is definitely not the U.S. American economy, but is the fight, the very same fight our predecessors had to have during other times of "recovery."
How anyone can consider the economy recovered with a 11% unemployment rate is beyond me. The economic downturn has a greater effect then just numbers. It has more to do with the personal suffering of millions of Americans. Until this is alleviated, I don't believe that the economy has truly recovered.
ReplyDeleteI believe that we all have different interpretations of the word recovery. I do agree that there is still a troubling amount of American society that are struggling to meet month to month expenses as well as daily households expenses, but there has and will continue to be a portion of our population that will never recover. There are some improvements to be noted in the American economy such as the seasonally adjusted unemployment rate, which has dropped .3% since December of 2009. I’m not sure if the improvements are because we have already lost so much that the numbers are lower than before or because there really is starting to be some turn around in the economy. I know that until we see a drastic change in the amount of Americans out of work, working middle class Americans will continue to be negatively affected by the slow improving economy.
ReplyDeleteThough the term "recovery" is relative and subjective, recovery has to start somewhere. I believe that the general American population has been living beyond their means for years. This has heightened our perception of the standard of living to an unrealistic place. It is now normal for middle class children to have iPod's, cell phones, and TV's.
ReplyDeleteAmerica is founded on capitalism and optimism. We like our material things...I'm not advocating that we struggle by any means. However, Americans need to be more careful and realize that the economy is not invincible and save some pennies for a rainy day.
I agree with the above comment that recovery is relative and definitely has to begin somewhere. In my opinion just because the economy is not where it has been in the past, it has recently decreased from 10.0% to 9.7%. Whether it is a small recovery, there is still a recovery which opens the door for more recovery in the future. I am by no means content with the economic crisis, and until there is a noticeable change many, Americans will continue to be negatively affected. The Federal Reserve has taken the proper measures to promote a stable economic recovery. Policies are an effective way to help stabilize and recover the economy. Obama’s plan to limit the size and trading activities of financial firms, the “Volcker Rule,” has been met with criticism from lawmakers and some in banking. It is a policy that the Administration has put in place to aid the economy in recovery. It will be interesting to see how the vote on this policy will turnout.
ReplyDeleteTurner Sothoron said...
ReplyDeleteDon't forget that the main reason why we are even in this mess in the first place is all because of the housing market and the generous loans the banks were distributing. Since there was a lack of regulation, banks and mortgage companies handed out loans to people who had no business receiving them. Most Americans were spending outside their means because they were able to. 20 years ago you couldn't get a loan to buy a house without putting down a sizable down payment. Until recently, you could get a loan without showing any proof of income for a 30 year mortgage. That is why the Volcker Rule is a good idea. We need to set up some sort of regulation plan for banks, so this mortgage crises never happens again. However, too much regulation can be a bad thing, and loans are good, because it enables people to buy homes. The economy will pick back up again sometime, we just need to learn from this, and correct our mistakes.
The Standard & Poor's 500-stock index is up more than 74 percent from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10 percent since Nov. 25 against six major currencies. Housing prices have stabilized. Mortgage rates are low. Are we in a recovery??? I don’t know…but what I do know is that there is a lot of buzz about how we are entering a secular bear market. Stagnant income in a global economy and declining personal wealth restricts our ability to manage outstanding liabilities and the interest expense it generates. With unemployment at wedged 9.7% some say these bear markets affect shall be with us until these imbalances are cured, that requires time. I am not an economist but until the majority Americans start to live within their means and start to preserve their wealth, the affects of a secular bear market are here to stay.
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