Posts filed under ‘Economy’

So Far So Good On Tax Reform

Image result for paul ryan announces tax reformWith the caveat that this is just Round 1 of a 15 round fight, the tax reform bill unveiled by the House leadership yesterday, gets a lot of things right. In fact, it shows that the Republicans learned from their healthcare mishaps and are determined to actually show that they can come up with sensible ideas.

First, as for the things that most affect credit unions, it’s of course good news to see that the first draft does not include the elimination of the credit union tax exemption. This does not mean that we can put our  guard down as an industry. Remember, that the House is determined to stay within a $1.5 trillion price tag and a tweak in one part of the code means that revenue has to be gained from another.

Second, the plan is reasonable. In contrast to the healthcare debate where Republicans argued for years that Obama Care had to be reformed only to have no idea how to reform it when they got the opportunity to do so, the tax plan is a thoughtful, mainstream Republican piece of legislation that cuts the corporate income tax, maintains higher tax rates for the wealthy and will probably make paying taxes a little simpler for low-income Americans. In fact, I will bet you right now that the tax plan will get some Democratic votes.

The most problematic part of the legislation is that it takes dead aim at high tax states such as New York. It caps at $10,000, the deduction for state and local taxes. It also eliminates the mortgage interest deduction for loans of $500,000 or greater for new home purchases.  It’s not a coincidence that both of these changes will have the biggest impact in big states that didn’t vote for Donald Trump. For example, the median home price in Palo Alto, California is a mere $2,695,000. While the mortgage interest tax deduction remains intact for existing homes, Congressmen from the most impacted areas are already complaining that the Republican tax plan will hurt resale values.

The question at the end of the day is, will the elimination of these exemptions have a discernible impact on home buying activity for your average credit union? And if I lived in a state other than New York, I would ask why the Federal government should be in the business of subsidizing the high tax policies of the Northeast and West Coast?

Washington has lowered the bar pretty low in recent years but from what I’ve seen so far, this is tax reform we can all live with.

Powell Named New Fed Chair

In case you missed it because of all the talk about tax reform, President Trump nominated Jerome Powell to be the next Chairman of the Federal Reserve, replacing Janet Yellen whose term ends early next year. The conventional wisdom is that Powell will continue Yellen’s gradualist approach to raising interest rates while being more open to mandate relief for the largest banks. Remember, that in recent years under Yellen, the Fed has moved aggressively to have the largest institutions develop credible plans for winding down their businesses in the event of bankruptcy (so-called living wills) and also instituted stress tests.

One more personnel note. I forgot to mention that Jeb Hensarling, the Republican Chairman of the House Financial Services Committee announced he’s retiring from Congress. The American Banker is already speculating that he may be filling a regulatory post for the Trump Administration.

This Just In…

One of the first things Powell will have to decide is how quickly to slow down the economy. The labor department just announced that the unemployment rate fell to 4.1% in October, its lowest level since December 2000. Wages rose 4.2%. I’m going to go out on a limb here and say that these numbers guarantee that the Fed will raise interest rates in December.

November 3, 2017 at 9:12 am Leave a comment

On The Yankees and Four Other Things You Should Know

Image result for yankees 2017 beat clevelandHumor me this morning.

The Yankees became the seventh team to come back from a 2-0 deficit to win the first round of the baseball playoffs since the new format was put in place in 1995. This proves yet again that it’s a good thing I don’t live in Vegas because I would have given the Yankees about as much chance as coming back against the Cleveland Indians as Donald Trump does of getting into charm school. Here are some things that you should ponder as you start your credit union day.

To Raise Or Not To Raise, That Is The Question

The September minutes of the Federal Reserve’s policy making Open Markets Committee were released yesterday and they confirmed what we already know: The Fed is as confused as the rest of us about what exactly is going on with the economy and whether or not now is a good time to be raising interest rates.

It’s safe to say the economists at the Fed have run out of hands. On the one hand, unemployment was down to 4.2% in September, its lowest level since 2001. This would, make raising rates a no-brainer. On the other hand, inflation has remained well below the Fed’s 2% target. On the one hand, talk of massive tax cuts in a relatively strong economy would militate strongly in favor of preemptively raising rates, lest the Fed standby as policy makers throw stimulus gasoline onto the economic fire. On the other hand, if the Republicans have proven anything in the last several months it is that you can’t assume that they will get tax reform through Congress any time soon. All this leads to confusion as to whether or not the Fed will raise rates at least one more time before the end of the year. For what it’s worth, the market had a rally after the minutes were released, meaning that the conventional wisdom is that interest rates will remain low and the Wall Street rally will continue.

Trump To Move On Healthcare Reform

With or without Congress, there’s much that the Trump administration can do to dismantle the Affordable Care Act. If news reports are correct, as early as this morning the Trump administration will sign an executive order directing agencies to make it easier for Associations to offer healthcare plans. It appears that one of the goals is to make it easier for associational groups to offer healthcare plans across state lines and to opt out of providing minimum benefits mandated by the ACA.

A Sad Day For Soccer Moms

Yesterday, the United States failed to qualify for soccer’s World Cup for the first time since 1985. For a country as big as America, this is like being the only kid on the block not to get a date to their Senior Prom. But I have to admit I am somewhat pleased. For years yours truly has bit his tongue while well-meaning soccer moms and dads explain that with so many of their sons now on travel teams and trading in football helmets for soccer balls, it’s only a matter of time before America becomes a soccer power house.

News flash. Our most talented athletes don’t play soccer. There is a reason why the only position Americans are really good at is goalie. It’s because we have a sports culture that actually uses all four limbs and we always will. By the way, to put the American failure in perspective, Iceland, with a population of 325,000, not only qualified for the last World Cup but made it into the elimination round.

Is This Where The Next Banking Crisis Will Come From?

Interesting article in today’s news. The International Monetary Fund has taken the unusual step of publicly listing nine of the world’s largest international banks which it feels could be in financial trouble. The only American bank on the list is City Bank.

October 12, 2017 at 9:02 am Leave a comment

RIP To The Twist

At the conclusion of yesterday’s Federal Open Market Committee, Chairman Yellen confirmed what had been speculated about for weeks now: The Federal Reserve will start unloading the treasury bonds and mortgage back securities it has purchased to keep interest rates low. No one knows for sure what impact this will have on interest rates, but it is certainly something that lenders should be paying attention to.

Since 2011, the Federal Reserve has aggressively brought a combination of mortgage-backed securities and treasury bonds, utilizing a strategy called Quantitative Easing. The idea is that by supporting the price of treasuries and mortgage securities, the Federal Reserve could keep interest rates from growing higher. In 2014, it stopped buying additional securities but it continued to rollover its existing portfolio. It now has a balance sheet of $4.5 trillion which, according to Bloomberg, represents a quarter of the country’s gross domestic product. From the start, the program has been controversial.

Critics had two primary concerns: First, they argued that by keeping interest rates artificially low, the Federal Reserve was effectively subsidizing large banks and companies that had the ability to capitalize on low rates. They argued that the program penalized small lenders such as community banks and credit union that are more dependent on interest rates than are the behemoth lending institutions. Secondly, critics argued that the Federal Reserve would not be able to reintroduce these purchases into the market place without causing economic disruption. It’s that second proposition that is now being tested.

Under the Fed’s approach, it will gradually shrink its balance sheet by not reinvesting in securities once they mature. The Fed will cap the size of its balance sheet reduction in the hope of minimizing the impact of this buy-down.

No one knows for sure what exactly the impact of this unwinding will be, but at the very least, it should create some upward pressure on interest rates. Given the start of this grand experiment as well as continued uncertainty about the direction of the economy, now is one of the key times for your credit union to be keeping a close watch on how sensitive your credit union is to sudden changes in interest rates.

CFPB Releases Important HMDA Regulations

I have not yet had time to read these babies, but I wanted to give you a heads-up that our good friends at the CFPB released two important regulations related to HMDA yesterday. A final regulation harmonizes the requirements of the Equal Credit Opportunity Act, which forbid lenders from taking an applicant’s race into account when making lending decisions with the mandates of HMDA which require lenders to obtain information about a lender’s race and ethnicity.

The new HMDA regulations will not only result in the collection of much more information about applicants, but also will result in much more of this information being readily available to the general public starting in 2019. Yesterday, the CFPB released a proposed guidance and is seeking feedback on how to balance greater transparency with the need to protect consumer privacy.

September 21, 2017 at 9:01 am Leave a comment

Two Reports You Have To Read

Those of you in charge of anticipating where interest rates are headed or attracting and retaining the best employees, should take the time, assuming that your retinas are still in working condition, to read two recent reports released by the Federal Reserve Banks of San Francisco and New York. One report unveils a new survey intended to gauge employee sentiment and the other offers yet another plausible explanation for why we have not seen pressure to increase wages even as the unemployment rate continues to tumble at a rate almost as fast as the President’s approval ratings.

As readers of this blog will know, yours truly is becoming obsessed with the issue of inflation and wage growth. Simply put, if the economy is growing and the unemployment rate is dropping, why aren’t we seeing more upward pressure on prices in general and wages in particular?

The New York Federal Reserve has just introduced a new labor market survey which may help answer those questions. According to the New York Fed, the survey is the first which focuses on employee experiences and expectations. For example, it asks respondents how many job offers they have received and breaks them down by age. In July, 22% of persons under 45 reported receiving at least one job offer in the past four months compared to about 13% of older respondents.

A key question that this survey may help answer is, why has there been so little churn or job movement? In a well-functioning free market economy, churn is key since it both creates jobs for young employees and rewards the best performers with new growth opportunities. According to the survey, workers with annual household income of $65,000 or less are more likely to predict that they will be switching jobs or becoming unemployed in the near future than higher income employees. According to the Fed, these predictions are actually good indications of where the economy and the labor force is headed.

A second report produced by the Federal Reserve Bank of San Francisco has me scratching my head a little. It reports that wage growth is improving and that such growth, “may be even better than the headline number suggests.”

The good news is that wage growth for continuously full-time employed workers is currently in line with the wage growth peak of 2007. The bad news is that the entry of new and returning workers to full-time employment is holding down aggregate wage growth. The bank goes on to explain that, “As the labor market has continued to strengthen, many workers have moved from the sidelines of the labor force or part-time positions into full-time employment. The vast majority of these new workers earn less than the typical full-time employee, so their entry brings down the average wage.”

Now I don’t know why  the Bank considers this good news exactly. It means that the glut of under employed workers is so large that there is little pressure on wage growth. This type of report makes me wonder why the Fed is even considering raising interest rates any time soon.

August 22, 2017 at 8:48 am Leave a comment

Is The Fed Playing Where’s Waldo With The Economy?

That is the question I pondered on Friday as I settled in for a long weekend at a lake house outside of Cooperstown, New York. As the Fed nudges the Fed Rate higher at what point will consumers expect a greater return for placing their deposits with you? Or as the WSJ put it in this great article ” For now, most bankers are happy to keep deposit yields low, standing pat even as the Federal Reserve hikes short-term rates. No one is sure, though, how long customers will tolerate that.”

The chart accompanying this  blog (which I created using the FRED website) demonstrates that something really strange is going on here: on the one hand employment is that a 16 year low;  on the other hand inflation has Hardly nudged and wage growth has been anemic. Not surprisingly interest rates on  12 month certificates of deposit  are flat.

History says it’s not supposed to be this way. After all, the Fed has gradually been raising rates and has signaled that it intends to start selling  all those mortgage back securities back into the economy, but despite impressive  job gains we haven’t seen the type of upward pressure on wages that would make raising rates the logical thing  for your credit union and the Fed to do  The WSJ reported that from a year earlier, average hourly earnings increased 2.5%, in July  thanks to a 9 cents-an-hour increase from the prior month. That is slower than normal in the past  quarter. In fact,  one of the reasons the market is booming is because it’s the only place persons planning for retirement can make any money off their money.

Which brings us back to Where’s Waldo? If you read their analysis  or listen to their interviews economists  are convinced that inflation is hiding  out there somewhere, they just haven’t looked in the right place  yet.  Conventional wisdom says they are right but if they are wrong than we aren’t anywhere near  the point  yet where the Fed should raise rates again or  your  members will demand a higher return on their deposits

August 7, 2017 at 9:27 am Leave a comment

Industry Talks the Talk and Walks the Walk

The credit union industry’s long, national nightmare dealing with the fallout from the mortgage meltdown is not quite over, but, NCUA, by laying out its roadmap for a post-crisis framework and giving some money to credit unions in the process, has taken an important step in ongoing efforts to move beyond the crisis once and for all.

For those of you who haven’t seen the news yet, the agency announced several important steps yesterday. It announced that it would be shutting down the Temporary Corporate Credit Union Stabilization Fund which has been in existence since 2009. In addition, it wants to raise the Share Insurance Fund equity ratio to 1.39% of insured credit union assets from 1.30%. If all goes according to plan, credit unions will be getting some money back.
While it’s too early to comment on the specifics – which is a fancy way of saying I need to get a lot more comfortable with the proposal’s intricacies before I start blogging about them – I’ve said it before and I will say it again: the credit union industry writ large should be proud of how it has conducted itself over the last several years. It demonstrated that it not only talks-the-talk but walks-the-walk when it comes to the shared benefits and responsibilities that come with being part of a cooperative system.
• It repaid its debts without costing the American taxpayer a cent.
• All institutions contributed and sacrificed to get the job done.
• Credit unions working jointly with NCUA scaled back the size of the corporate system and limited its powers, doing more to address systemic risk than the banking industry, which created this mess in the first place.
• The agency’s aggressive and innovative use of the legal system to recover funds from some of these banks not only saved credit unions money but has provided a model that all regulators will use in the future to save taxpayer money.
That is a record to be proud of. Had the banking industry and its regulators conducted themselves with the same level of competency and accountability, the American public wouldn’t be quite as cynical as it is today.

July 21, 2017 at 9:12 am Leave a comment

And down the stretch they come…

With the legislative session scheduled to end sometime tomorrow, this is the time when most of the really important stuff is voted on, amended, or left to wither on the vine until next January.

While there are a bunch of bills that I will be talking about in the coming weeks there is of course one that continues to grab the attention of all faithful bloggers; I am talking about the Banking Development District bill which continues to advance. Yesterday it passed the Assembly without being laid aside for debate. The final tally was 83 to 9.

Remember now is the time to be contacting all those Senators and debunk all the nonsense the banks have been telling them. For one thing, credit unions do pay taxes, lots of them. You may also want to point out that this bill does nothing more than allow credit unions to participate in a program that would assist areas with a dearth of banking services.

A second issue that came up yesterday doesn’t deal with legislation, but it is a pressing concern not only in NY, but to anyone who offers mortgage loans across the country. State Comptroller, Thomas DiNapoli, issued a report calling for enhanced state/federal coordination of water quality standards. This gives me the opportunity to sound off on one of my personal pet peeves.

No one is ever going to accuse me of being a tree-hugger, but my research of issues surrounding the water contamination in Hoosick Falls and the potential ramifications of hydro-fracking has demonstrated to me that lenders must get clearer guidance from the federal government and the GSE’s in particular about baseline environmental standards including water quality.

As it stands right now any time a mortgage is sold to the secondary market the seller is making strict liability guarantees regarding the environmental safety of the area in which the property is located. If these warranties are breached the lender can be made to repurchase the mortgage. Obviously, this makes sense if someone is selling land in love canal, but most environmental issues are not as clear cut as the extreme cases that get national attention. The result is that lenders who work with the GSE’s are forced to make tough decisions about the long term environmental impacts dealing with issues such as water quality and mediation, often with little guidance from the Federal Government.

Furthermore, many of the areas in need of environmental remediation are already suffering from economic decline. The hesitancy of lenders to lend in these areas (even for a short time) makes these declines even more dramatic.

I applaud Comptroller DiNapoli for highlighting the importance of this issue, but I would suggest that any comprehensive analysis is incomplete unless it also highlights the need for the GSE’s to work more closely with lenders, lending in areas where the water quality is in need of mediation. One of the most basic things they can do is limit the scope and or length of warranties.


June 20, 2017 at 9:44 am Leave a comment

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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