Bernanke Talks Recession; Groups Oppose Treasury Plan

by Amy Lillard

Confirming what many in the industry and throughout the country already believe, Federal Reserve Chairman Ben Bernanke suggested this week that the U.S. might be in a recession.

In comments to the congressional Joint Economic Committee, Bernanke projected the economy could shrink and contract during the first half of this year. He couched his first use of the term "recession" with optimism, saying he expects growth in the second half of the year, and thinks 2009 will be solid on the basis of the recent interest rate cuts and the fiscal stimulus package.

Bernanke outlined the issues that contribute to his assessment of recession, including a stagnant unemployment rate, decelerating consumer spending, tighter credit, and reduction in business prospects and spending.

Analysts believed the Fed Chair's comments explained some of the unprecedented actions in recent weeks, including continuing interest rate cuts and an intervention to save Bear Stearns from bankruptcy. Bernanke claimed the move to help the Wall Street company is a direct motion to preserve credit and financial solvency for the country.

Bernanke's comments came as opposition grows to the Treasury plan to overhaul the nation's financial regulatory structure in attempts to streamline government response to such crises in the future.

The plan, released this week by Treasury Secretary Henry M. Paulson Jr., offers up a wholly revamped system of regulation in the coming decade, correcting the oversight mistakes that led to today's current crisis. The Treasury hopes to create three more powerful agencies to monitor and oversee banking, market stability, and consumer and investor protection in mortgage lending and other activities. Another goal is to ease the approval process from the Securities and Exchange Commission for mortgage-backed bonds, so oversight is more complete. Eventually the SEC would merge with the Commodity Futures Trading Commission. Finally, the plan also grows the role of the Treasury into chief regulator of financial markets.

The mounting opposition (from lobbyists and members of the Bush administration) contends the plan is too widespread, shutting down longtime financial institutions. Banks could have less choice among regulators and credit unions could be placed under new, business-killing regulations. The SEC and CFTC are crying foul about their major overhauls. Finally, many opponents are questioning the wisdom of centralizing regulation into the Treasury, and the benefits of it for the greater economy.

Washington Post Article:
It Might Be a Recession, Fed Chief Tells Congress?
Opposition To Treasury's Blueprint Gains Steam