The Financial Crisis: An Inside View
This paper reviews the policy response to the 2007–09 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 Stearns’ collapse in March 2008 made rescue necessary and led to preparation of emergency options should conditions worsen. The Treasury saw Fannie Mae and Freddie Mac’s 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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Volume (Year): 40 (2009)
Issue (Month): 1 (Spring) ()
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- John B. Taylor & John C. Williams, 2009.
"A black swan in the money market,"
Federal Reserve Bank of San Francisco, issue Jan.
- Augustin Landier & Kenichi Ueda, 2009. "The Economics of Bank Restructuring: Understanding the Options; Understanding the Options," IMF Staff Position Notes 2009/12, International Monetary Fund.
- Markus K. Brunnermeier, 2008. "Deciphering the Liquidity and Credit Crunch 2007-08," NBER Working Papers 14612, National Bureau of Economic Research, Inc.
- Mark E Schweitzer & Guhan Venkatu, 2009. "Adjustable-rate mortgages and the Libor surprise," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jan.
- Larry Cordell & Karen Dynan & Andreas Lehnert & Nellie Liang & Eileen Mauskopf, 2008. "The incentives of mortgage servicers: myths and realities," Finance and Economics Discussion Series 2008-46, Board of Governors of the Federal Reserve System (U.S.).
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