Bernanke confirms contracting economy
Federal Reserve Chairman Ben Bernanke did not use the "R" word in his semiannual monetary report to Congress last week, but he confirmed that the economy is showing all of the signs of a recession nonetheless.
Bernanke expressed concerns about contracting gross domestic product, the icy housing market, rising inflation and rising unemployment.
"The economic situation has become distinctly less favorable since the time of our July report. Strains in financial markets, which first became evident late last summer, have persisted; and pressures on bank capital and the continued poor functioning of markets for securitized credit have led to tighter credit conditions for many households and businesses. The growth of real gross domestic product (GDP) held up well through the third quarter despite the financial turmoil, but it has since slowed sharply. Labor market conditions have similarly softened, as job creation has slowed and the unemployment rate – at 4.9 percent in January – has moved up somewhat," Bernanke said.
Bernanke noted that housing prices have "flattened or declined" in most markets. He acknowledged that the housing contraction has been "more severe" than he previously expected.
"As the housing market began to turn down, however, the slump in subprime mortgage originations, together with a more general tightening of credit conditions, has served to increase the severity of the downturn. Weaker house prices in turn have contributed to the deterioration in the performance of mortgage-related securities and reduced the availability of mortgage credit. The housing market is expected to continue to weigh on economic activity in coming quarters. Homebuilders, still faced with abnormally high inventories of unsold homes, are likely to cut the pace of their building activity further, which will subtract from overall growth and reduce employment in residential construction and closely related industries," Bernanke said.
Bernanke said rising energy costs have "eroded real incomes and wages," likely causing a slowdown in consumer spending.
"The business sector has also displayed signs of being affected by the difficulties in the housing and credit markets. Reflecting a downshift in the growth of final demand and tighter credit conditions for some firms, available indicators suggest that investment in equipment and software will be subdued during the first half of 2008. Likewise, after growing robustly through much of 2007, nonresidential construction is likely to decelerate sharply in coming quarters as business activity slows and funding becomes harder to obtain, especially for more speculative projects. On a more encouraging note, we see few signs of any serious imbalances in business inventories aside from the overhang of unsold homes. And, as a whole, the nonfinancial business sector remains in good financial condition, with strong profits, liquid balance sheets, and corporate leverage near historical lows," Bernanke said.
He hinted that the Fed may be inclined to consider additional interest rate cuts.
To read the full text of Bernanke’s testimony today, visit
http://www.federalreserve.gov/newsevents/testimony/bernanke20080227a.htm.
State bills would protect credit cards
Wisconsin credit unions are applauding state lawmakers for advancing through the State Legislature two companion bills, AB 745 and SB 439, which aim to keep safer the personal data stored on credit and debit cards.
The legislation, introduced by State Rep. Brett Davis (R-Oregon) and State Sen. Bob Wirch (D-Pleasant Prairie), captured 43 co-sponsors with strong bi-partisan support during its initial circulation period at the Capitol.
AB 745 passed last week through the Assembly Committee on Financial Institutions by a vote of 9-1 and is expected to pass through committee in the State Senate on Wednesday.
"This legislation is just common sense. It has no effect on the state budget, but enormous impact on every consumer in Wisconsin who uses plastic cards for purchases," said Brett Thompson, president and chief executive officer of The Wisconsin Credit Union League, the Pewaukee-based trade association for 260 not-for-profit, member-owned financial institutions.
Thompson said sensitive authentication data from credit and debit cards is often retained without cardholders’ knowledge and lost by companies that, by the credit industry’s existing standards, should not have collected and kept it in the first place. Hundreds of millions of records of consumer information have been lost over the last few years, costing consumers and businesses billions of dollars and countless hours to sort out, Thompson said.
The proposals advancing through the state legislature, however, would put the force of law behind industry standards dictating what information may be taken, transmitted and stored from a consumer’s credit or debit card.
Uunder the proposed law, merchants would be prohibited from retaining PINs or security codes after processing a credit or debit card transaction. If a merchant were to ignore the law and collect and keep that information and if the information were lost, the party responsible for that loss would be required to pay the costs to close consumers’ accounts and re-issue cards. The party responsible for the loss would also be required to pay for steps that intend to prevent any ensuing fraudulent use of a consumer’s personal information and cover certain costs enabling continued financial services to the card holder, such as notifying affected customers or crediting accounts for fraudulent transactions.
"Current law has allowed misbehavior related to payment card processing to go unchecked, and the result has been a tacit declaration of open season on consumers’ private information," Thompson said.
Also supporting the proposals are the Community Bankers of Wisconsin, the Wisconsin Bankers Association, the Wisconsin Insurance Alliance, CUNA Mutual Group and the Wisconsin Federation of Co-ops.
Bill would put pressure on credit unions to serve low-income communities
Wisconsin credit unions would be required to document efforts to serve lower-income and minority consumers in the market areas they serve under a bill introduced in the legislature Thursday.
The proposed legislation (AB 897), introduced by Rep. Mark Gottlieb (R-Port Washington), is a reaction to reports critical of the credit union industry’s commitments to serving lower-income populations, according to the Wisconsin Bankers Association (WBA).
In 2005, the National Community Reinvestment Coalition (NCRC) issued a report that called the credit union industry’s service to lower income and minorities as "lackluster." The NCRC study concluded that credit unions "fail in their mission to serve people of modest means as they trail banks in making home loans to hard-working minorities, women and lower-income Americans."
In 2007, the WBA released a study that concluded that Wisconsin’s largest credit unions are "trending away" from serving low- and moderate-income populations in favor of upper-income customers.
"This bill is not just about creating regulatory parity between competing financial institutions. It is about insuring that taxpayers and lower income consumers receive the social benefits they were promised in exchange for granting a multibillion dollar tax subsidy to an increasingly aggressive member of the financial sector," said Kurt Bauer, president and chief executive officer of the WBA.
AB 897 also formalizes a process to allow a state-chartered credit union to convert to a state-chartered mutual savings institution.
