Reading The Economy's Latest Signals: Signs Of Hope?

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It was a pretty good week on Wall Street. The Dow Jones Industrial Average surged above 9,000 for the first time since January. And the banking industry reported big profits. Host Scott Simon talks to New York Times business columnist Joe Nocera about whether the economy has started to stabilize and about Federal Reserve Chairman Ben Bernanke's visits to Capitol Hill this week.


We turn now to economic news - a pretty good week on Wall Street. The Dow Jones Industrial Average surged above 9,000 for the first time since January. And the banking industry reported, actually, very big profits. We're joined now of our friend, New York Times business columnist Joe Nocera. Morning, Joe.

Mr. JOE NOCERA (New York Times): Morning, Scott.

SIMON: So is the economy starting to at least stabilize?

Mr. NOCERA: Well, by a bunch of indicators, the answer to that question is yes. Fed Chairman Bernanke was on the Hill quite often this week, and he reiterated his belief that we're coming out of the recession. The leading economic indicators are up for the third month. Stock markets up. Bank profits are up. Some are real, some are not - depends on which bank. Goldman's profits are real. The real question on the profits, Scott, is whether it's a result of, you know, increased sales or it's really a function of cost-cutting. And a lot of the companies that are showing increased earning, it really is cost-cutting. So I think the jury's still a little bit out.

SIMON: So for example, when you say the profits of a bank aren't real, does that mean they've just cut operating revenues or…

Mr. NOCERA: Well, in the case of Bank of America and Citi, which are the most troubled banks, you know, there were sort of one-time gains and, you know, sales of this and that, one-time things, and as opposed to, you know, JPMorgan's profits, which were based, you know, much more on sort of ongoing businesses. That's the distinction that I was making.

SIMON: As you mentioned, the Fed Reserve chairman, Ben Bernanke, went to Capitol Hill several times this week. And he said that he thought things were getting better. And he defended the idea of expanding the Fed's regulatory powers.

Mr. NOCERA: That's right. The two most controversial pieces of the -Obama's regulatory overhaul are to expand the powers of the Federal Reserve, and to institute this new consumer protection agency.

They're both, you know - the Fed did not acquit itself all that well prior to the crisis. So there's serious skepticism that the Fed really can crack down on the banks. And you know, Bernanke himself, like all regulators, loves the idea of having more authority. So he got into it quite a bit with Congress this week on that issue.

SIMON: Well, because he - I mean, he doesn't think a consumer protection agency is necessarily good idea, right?

(Soundbite of laughter)

Mr. NOCERA: Well, this is one of those…

SIMON: Or at least the one proposed. Maybe we should put it that way.

Mr. NOCERA: This is what - this is a classic example of where you stand - where you sit is where you stand. You know, he thinks that the Fed already has a lot of consumer protection authority, although to be honest, during the Greenspan era they didn't use it very much. And he thinks that it rightfully should be under the auspices of the Federal Reserve. Now, then you go to Sheila Bair, the head of the FDIC. She thinks that the new entity should make rules but that, you know, the top bank regulator should be in charge of enforcing them.

So everybody has got their spin on this, which is actually helping the opponents because it allows them to kind of divide and conquer. And this is especially true of the bank lobby, which doesn't want this thing at all.

SIMON: Because it - well, a couple of things I want to follow up on. I was a little surprised that Mr. Bernanke was outspoken about that, because I haven't heard that he doesn't want to be reappointed. And of course, his job is coming up for reappointment.

Mr. NOCERA: That's right, it is. And I do believe he would like the job - and I think the chances are that he will get it. But you know, we are in this sort of catfight right now where the Obama administration has put out these sprawling new ideas for regulatory upheaval. And every single player is trying to maximize the power and interest of their own regulatory body, and Mr. Bernanke is not immune to that.

SIMON: Why are, for example, the banks - and not just the banks - skeptical about a consumer protection agency? Why do they think it would be bad for them or business generally?

Mr. NOCERA: Well, you know, nobody wants an additional regulator, number one. Number two, you know, a lot of institutions came outside of regulatory authority that got us into trouble, like the big mortgage brokers and so on.

And this agency would kind of crack down on that. Number three, every time you can't - one of the things this agency wants to do is enforce any institution that's putting out an exotic product to also offer a plain-vanilla product, so that the consumer can compare. And I suspect that there are a lot of large financial institutions that aren't really keen on that idea.

SIMON: Joe, thanks so much.

Mr. NOCERA: Always a pleasure, Scott.

SIMON: Joe Nocera writes the Talking Business column for the New York Times.

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