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Since I've been busy for a few weeks with exams and all, there is much to catch up on. Chairman Bernanke spoke on April 17, 2009 at the Federal Reserve System's Sixth Biennial Community Affairs Research Conference, Washington, D.C. Bernanke commented "financial innovation, it seems, has fallen on hard times" in that it is often now seen as the problem (for a transcript, see the Federal Reserve website). Bernanke made some important points about the potential link between complexity of financial products and the potential for "unfair and deceptive" practices. That is, even a diligent consumer may not be fully aware of the whole host of potential fees associated with each credit card they have. The complexity of financial products can reduce transparency either because the terms are hard to deduce or perhaps to understand.

When turning to the problems faced by the Federal Reserve in drafting regulations to enhance consumer education, Bernanke placed great emphasis on the benefits of consumer testing. The caution to testing, though, is that disclosure does not always lead to consumer understanding. Therefore, sometimes the Federal Reserve must prohibit certain practices, such as double-cycle billing. I couldn't agree more with some of these observations. Transparency cannot solve all ills in the financial industry. It is not enough to say that consumers should find another provider if all providers use the same practices or consumers do not fully understand the practices. In the end, the Federal Reserve must address both complexity and transparency.

- JSM

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