The Financial Crisis: An Inside View
AbstractThis paper reviews the policy response to the 2007â09 financial crisis from the perspective of a senior Treasury official at the time. Government agencies faced severe constraints in addressing the crisis: lack of legal authority for potentially helpful financial stabilization measures, a Congress reluctant to grant such authority, and the need to act quickly in the midst of a market panic. Treasury officials recognized the dangers arising from mounting foreclosures and worked to facilitate limited mortgage modifications, but going further was politically unacceptable because public funds would have gone to some irresponsible borrowers. The suddenness of Bear Stearnsâ collapse in March 2008 made rescue necessary and led to preparation of emergency options should conditions worsen. The Treasury saw Fannie Mae and Freddie Macâs rescue that summer as necessary to calm markets, despite the moral hazard created. After Lehman Brothers failed in September, the Treasury genuinely intended to buy illiquid securities from troubled institutions but turned to capital injections as the crisis deepened.
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Bibliographic InfoArticle provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.
Volume (Year): 40 (2009)
Issue (Month): 1 (Spring) ()
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Web page: http://www.brookings.edu/economics.aspx
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macroeconomics; financial crisis; U.S. government; Bear Stearns; Lehman Brothers; Fannie Mae; Freddie Mac;
Other versions of this item:
- E0 - Macroeconomics and Monetary Economics - - General
- N2 - Economic History - - Financial Markets and Institutions
- G01 - Financial Economics - - General - - - Financial Crises
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