Tuesday, June 23, 2009

Economic Update

On Wednesday, June 23, President Barack Obama held a press conference at which he gave prepared remarks on the situation in Iran, and on legislation moving through Congress relating to clean energy and health care reform. During the Q&A that followed, questions were raised on these issues, as well as on the state of the economy and the administration's recently issued financial regulatory reform plan. You can read the full transcript of the press conference (including the Q&A); we provide a few brief highlights on the subject of the economy below.

On Financial Regulatory Reform and the Fed
Jeff Mason of Reuters asked: "[I]n light of the financial regulation and reform that you have made, how do you rate the performance of the Fed in handling the financial crisis? And more specifically, how do you rate the performance of Ben Bernanke, and would you like him to stay on when his term ends in January?"

The President responded: "I'm not going to make news about Ben Bernanke -- [laughter] -- although I think he has done a fine job under very difficult circumstances. I would say that all financial regulators didn't do everything that needed to be done to prevent the crisis from happening. And that's why we've put forward the boldest set of reforms in financial regulation in 75 years, because there were too many gaps where there were laws on the books that would have brought about a prevention of the crisis; the enforcement wasn't there. In some cases, there just weren't sufficient laws on the books -- for example, with the non-banking sector. I think that the Fed probably performed better than most other regulators prior to the crisis taking place, but I think they'd be the first to acknowledge that in dealing with systemic risk and anticipating systemic risk, they didn't do everything that needed to be done. I think since the crisis has occurred, Ben Bernanke has performed very well. And one of the central concepts behind our financial regulatory reform is that there's got to be somebody who is responsible not just for monitoring the health of individual institutions, but somebody who's monitoring the systemic risks of the system as a whole. And we believe that the Fed has the most technical expertise and the best track record in terms of doing that. But that's not the only part of financial regulation. One of the things that we're putting a huge amount of emphasis on is the issue of consumer protection -- whether it's subprime loans that were given out because nobody was paying attention to what was being peddled to consumers, whether it's how credit cards are handled, how annuities are dealt with, what people can expect in terms of understanding their 401(k)s. There's a whole bunch of financial transactions out there where consumers are not protected the way they should, and that's why we said we're going to put forward a consumer financial protection agency whose only job it is to focus on those issues. Now, the Fed was one of the regulators that had some of those consumer responsibilities. We actually think that they're better off focusing on issues of broad systemic risk, and we have just one agency that's focused on the consumer protection side.

On the Economy and Economic Stimulus
Hans Nichols of Bloomberg asked: "When you were selling the economic stimulus package, you talked and your advisors and economists talked about keeping unemployment below 8 percent. Last week you acknowledged that unemployment is likely to reach double digits, being 10 percent. Do you think you need a second stimulus package?"

The President responded: "Well, not yet, because I think it's important to see how the economy evolves and how effective the first stimulus is. I think it's fair to say that -- keep in mind the stimulus package was the first thing we did, and we did it a couple of weeks after inauguration. At that point nobody understood what the depths of this recession were going to look like. If you recall, it was only significantly later that we suddenly get a report that the economy had tanked. And so it's not surprising then that we missed the mark in terms of our estimates of where unemployment would go. I think it's pretty clear now that unemployment will end up going over 10 percent, if you just look at the pattern, because of the fact that even after employers and businesses start investing again and start hiring again, typically it takes a while for that employment number to catch up with economic recovery. And we're still not at actual recovery yet. So I anticipate that this is going to be a difficult -- difficult year, a difficult period." He later added, "[W]hat I am saying is that -- here are some things I know for certain. In the absence of the stimulus, I think our recession would be much worse. It would have declined -- without the Recovery Act -- we know for a fact that states, for example, would have laid off a lot more teachers, a lot more police officers, a lot more firefighters, every single one of those individuals whose jobs were saved. As a consequence, they are still making their mortgage payments, they are still shopping. So we know that the Recovery Act has had an impact. Now, what we also know is this was the worst recession since the Great Depression, and people are going through a very tough time right now. And I don't expect them to be satisfied... the American people have a right to feel like this is a tough time right now. What's incredible to me is how resilient the American people have been and how they are still more optimistic than the facts alone would justify, because this is a tough, tough period. And I don't feel satisfied with the progress that we've made. We've got to get our Recovery Act money out faster. We've got to make sure that the programs that we've put in place are working the way they're supposed to... This is a very, very difficult process. And what I've got to do is to make sure that we're focused both on the short term, how can we provide families immediate relief and jumpstart the economy as quickly as possible; and I've got to keep my eye on the long term, and the long term is making sure that by reforming our health care system, by passing serious energy legislation that makes us a clean energy economy, by revamping our education system, by finally getting the financial regulatory reforms in place that are necessary for the 21st century -- by doing all those things, we've got a foundation for long-term economic growth, and we don't end up having to juice up the economy artificially through the kinds of bubble strategies that helped to get us in the situation that we're in today."

Republican Response
In the Republican response to the President's remarks, House Minority Whip Eric Cantor stated: "The West Wing press conference is the latest public relations effort to combat the American people’s growing discomfort with the actions of this Administration."

He continued, "Plain and simple, the American people are concerned about the economy, job creation and the incredible debt obligations incurred in the last 6 months. Republicans have offered common-sense ideas and solutions that would have created real jobs, improved our economy and spent less tax dollars. The President continues to push for a government healthcare plan that will increase costs, reduce patient choice and flexibility, and lower the quality of care. Now we hear that Speaker Pelosi intends to pass the Cap & Tax plan this week which will impose a hard-hitting tax upon families and small businesses costing our struggling economy thousands of jobs. We stand ready to work together with the President to get America back to work, but we refuse to sit by idly as the Democrat majority tries to force this unfocused assortment of tax increases and job-killing policies upon the American people. Democrat-controlled Washington is completely disconnected with the reality faced by millions of Americans who are growing weary with the lack of focus, accountability and results."

Additional reporting on some of the more aggressive questioning thrusted on Obama at the press conference can be found in The Hill.com

CFO's Confidence in Economy Rises; Audit Fee Survey Also Released
In related news on the economic front, just-released results of the FEI-Baruch College 2nd Quarter 2009 CFO Outlook Survey revealed that the CFO optimism index showing confidence in the U.S. economy improved for the first time in over two years; however, CFO confidence in their own companies' prospects declined to its lowest point in the history of the 11 year-old survey. CFO's surveyed forecast an end to the recession by 2011. Complete survey results can be obtained from the Financial Executives Research Foundation (FERF) bookstore.

FERF, the research affiliate of FEI, also recently released FEI's 2009 audit fee survey. The survey showed a 2.2% increase in total audit fees at public companies, and a 3.7% increase in total audit fees at private companies.

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