EconomicCrisis.US

The financial crisis has left conservative policymakers on their heels. The notion that all financial innovation is good is not holding water and wonks on the right are scrambling to concoct viable alternatives to the Consumer Financial Protection Agency (CFPA) advocated by the White House and, in a weaker form, by Rep. Barney Frank’s Financial Services Committee.

In testimony to that committee today, Heritage Foundation scholar David John suggested that a CFPA “would be a huge mistake that would hurt consumers far more than it helps them.” Instead, John proposed the creation of the Federal Financial Institutions Examination Council (FFIEC). The Council would examine regulatory standards set by individual states and federal regulators in order to create uniform standards that apply to all financial institutions and meet “the challenges posed by complex new financial products.”
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The U.S. Federal Reserve will carefully evaluate economic forecasts to judge exactly when and how to exit out of its extraordinary rescue programs, and the withdrawal will happen “well before” inflation has a chance to rise out of control, the Fed’s vice chairman said Wednesday.

“We must begin to withdraw accommodation well before aggregate spending threatens to press against potential supply, and well before inflation as well as inflation expectations rise above levels consistent with price stability,” said Fed Vice Chairman Donald Kohn in a speech to the Cato Institute.
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A year after the financial system nearly collapsed, the nation’s biggest banks are bigger and regaining their appetite for risk.

Goldman Sachs, JPMorgan Chase and others – which have received tens of billions of dollars in federal aid – are once more betting big on bonds, commodities and exotic financial products, trading that nearly stopped during the financial crisis.

That Wall Street is making money again in essentially the same ways that thrust the banking system into chaos last fall is reason for concern on several levels, financial analysts and government officials say.
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Home values in 20 U.S. cities climbed in July by the most in almost four years, helping stem the record plunge in household wealth that’s depressed spending.

The S&P/Case-Shiller home-price index rose 1.2 percent in July from the prior month, the biggest gain since October 2005, the group said today in New York. Another report showed consumer confidence unexpectedly fell in September, while holding above the record low reached earlier this year.

Home values are rebounding as low borrowing costs and government tax credits lift home sales. Combined with rising stock prices, the gains will begin to restore the $13 trillion plunge in net worth caused by the worst financial crisis since the Great Depression, a process that economists such as Brian Bethune say will take years to complete.
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