The
Fed will taper… the Fed will not… the Fed will taper… the Fed will not…
Last
week, investors and traders obsessed about the Federal Reserve and the
possibility it might begin to end its quantitative easing program. The Fed
began its first round of quantitative easing during the financial crisis in an
effort to prop up the American economy. In general, quantitative easing helps
increase money supply and promote lending and liquidity. Investors’ fears about
what may happen when the program ends were apparent when, despite abundant
positive economic news, major U.S. stock markets lost value last week.
On
Tuesday, after the Memorial Day holiday, the Standard & Poor’s Case-Shiller
home price index posted its biggest gain in seven years. Housing prices
increased in every one of the 20 cities it tracks. U.S. stock markets initially
responded positively to the news. However, it wasn’t long before investors
began to worry that stronger housing prices might speed up the Fed’s timetable
for quantitative easing, and U.S. stock markets moved lower on Wednesday.
On
Thursday, weaker-than-expected economic data – first quarter gross domestic
product (GDP) growth for the United States was revised downward from 2.5 percent
to 2.4 percent – pushed markets higher.
On
Friday, positive news – the Thomson Reuters/University of Michigan index of
sentiment showed consumer confidence had reached its highest level in six years
– caused markets to move lower.
U.S.
stocks generally finished higher for the month of May despite last week’s
performance. The Dow Jones Industrial Index gained 1.9 percent, the Standard
& Poor’s 500 Index rose by 2.1 percent, and the NASDAQ was up 3.8 percent.
Treasuries,
however, delivered their worst monthly performance since 2010. During the last
four weeks, yields on 10-year Treasury notes rose from 1.6 percent to 2.1
percent – an increase of 50 basis points.
some say the
consumer financial protection bureau (CFPB) unnecessarily
limits consumers’ choices and is not subject to
sufficient oversight; others say it protects consumers from unethical business
practices and unnecessary financial hardship. Regardless of the hoopla
surrounding it, consumers have begun turning to the CFPB for help.
The CFPB is funded
by the Federal Reserve and operates independently of Congress which is one
reason some believe it does not have sufficient oversight. According to the
CFPB’s web site, its purpose is:
“Above all… ensuring
that consumers get the information they need to make the financial decisions
they believe are best for themselves and their families – that prices are clear
up front, that risks are visible, and that nothing is buried in fine print. In
a market that works, consumers should be able to make direct comparisons among
products and no provider should be able to use unfair, deceptive, or abusive
practices.”
From July 2011
(the date the CFPB became effective) through February 2013, the CFPB had received
and worked to address more than 131,000 consumer complaints, including 5,000 issues
raised by members of the military, veterans, and their families. The complaints
typically are related to mortgages, credit cards, bank accounts and services, private
student loans, consumer loans, and credit reporting. According to a recent
article in Barron’s, the CFPB is:
“…Progressing in
its original mission of reducing predatory lending by mortgage and auto
lenders, credit-card issuers, and other consumer-finance outfits… So far, the
agency has forced financial institutions to repay $425 million to consumers,
and tackled bias in auto loans made by finance companies via car dealers. The
CFPB has formulated tighter mortgage-lending rules that are being challenged in
Congress. The bureau is about to begin regulating an estimated 22,000 payday
offices.”
For banks and
financial firms, complying with CFPB rules may require operational makeovers
and the not-insignificant expenses which may accompany them, according to
American Banker.com. One financial institution spent 900 hours analyzing how its
mortgage operations, servicing, collections, and legal compliance measured up
to CFPB rules. Then it modified its systems, processes, and training programs (or
created new ones) to ensure it would remain in compliance. One outcome was the firm’s
compliance team grew from four to 17 employees.
So, what is the
CFPB? Is it an overreaching compliance nightmare or an effective consumer
watchdog? Only time will tell.
Weekly Focus – Think
About It
“The
optimist thinks this is the best of all possible worlds. The pessimist fears it
is true.”
--J. Robert Oppenheimer, American theoretical physicist
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