essays about the economic crisis

The Great Recession and Its Aftermath

The period known as the Great Moderation came to an end when the decade-long expansion in US housing market activity peaked in 2006 and residential construction began declining. In 2007, losses on mortgage-related financial assets began to cause strains in global financial markets, and in December 2007 the US economy entered a recession. That year several large financial firms experienced financial distress , and many financial markets experienced significant turbulence. In response, the Federal Reserve provided liquidity and support through a  range of programs  motivated by a desire to improve the functioning of financial markets and institutions, and thereby limit the harm to the US economy. 1    Nonetheless, in the fall of 2008, the economic contraction worsened, ultimately becoming deep enough and protracted enough to acquire the label “the  Great Recession ." While the US economy bottomed out in the middle of 2009, the recovery in the years immediately following was by some measures unusually slow. The Federal Reserve has provided unprecedented monetary accommodation in response to the severity of the contraction and the gradual pace of the ensuing recovery.  In addition, the financial crisis led to a range of major reforms in banking and financial regulation, congressional legislation that significantly affected the Federal Reserve.

Rise and Fall of the Housing Market

The recession and crisis followed an extended period of expansion in US housing construction, home prices, and housing credit. This expansion began in the 1990s and continued unabated through the 2001 recession, accelerating in the mid-2000s. Average home prices in the United States more than doubled between 1998 and 2006, the sharpest increase recorded in US history, and even larger gains were recorded in some regions. Home ownership in this period rose from 64 percent in 1994 to 69 percent in 2005, and residential investment grew from about 4.5 percent of US gross domestic product to about 6.5 percent over the same period. Roughly 40 percent of net private sector job creation between 2001 and 2005 was accounted for by employment in housing-related sectors.

The expansion in the housing sector was accompanied by an expansion in home mortgage borrowing by US households. Mortgage debt of US households rose from 61 percent of GDP in 1998 to 97 percent in 2006. A number of factors appear to have contributed to the growth in home mortgage debt. In the period after the 2001 recession, the Federal Open Market Committee (FOMC) maintained a low federal funds rate, and some observers have suggested that by keeping interest rates low for a “prolonged period” and by only increasing them at a “measured pace” after 2004, the Federal Reserve contributed to the expansion in housing market activity (Taylor 2007).  However, other analysts have suggested that such factors can only account for a small portion of the increase in housing activity (Bernanke 2010).  Moreover, the historically low level of interest rates may have been due, in part, to large accumulations of savings in some emerging market economies, which acted to depress interest rates globally (Bernanke 2005). Others point to the growth of the market for mortgage-backed securities as contributing to the increase in borrowing. Historically, it was difficult for borrowers to obtain mortgages if they were perceived as a poor credit risk, perhaps because of a below-average credit history or the inability to provide a large down payment. But during the early and mid-2000s, high-risk, or “subprime,” mortgages were offered by lenders who repackaged these loans into securities. The result was a large  expansion in access to housing credit , helping to fuel the subsequent increase in demand that bid up home prices nationwide.

Effects on the Financial Sector

After home prices peaked in the beginning of 2007, according to the Federal Housing Finance Agency House Price Index, the extent to which prices might eventually fall became a significant question for the pricing of mortgage-related securities because large declines in home prices were viewed as likely to lead to an increase in mortgage defaults and higher losses to holders of such securities. Large, nationwide declines in home prices had been relatively rare in the US historical data, but the run-up in home prices also had been unprecedented in its scale and scope. Ultimately, home prices fell by over a fifth on average across the nation from the first quarter of 2007 to the second quarter of 2011. This decline in home prices helped to spark the financial crisis of 2007-08, as financial market participants faced considerable uncertainty about the incidence of losses on mortgage-related assets. In August 2007, pressures emerged in certain financial markets, particularly the market for asset-backed commercial paper, as money market investors became wary of exposures to subprime mortgages (Covitz, Liang, and Suarez 2009). In the spring of 2008, the investment bank Bear Stearns was acquired by JPMorgan Chase with the assistance of the Federal Reserve. In September, Lehman Brothers filed for bankruptcy, and the next day the  Federal Reserve provided support to AIG , a large insurance and financial services company. Citigroup and Bank of America sought support from the Federal Reserve, the Treasury, and the Federal Deposit Insurance Corporation.

The Fed’s support to specific financial institutions was not the only expansion of central bank credit in response to the crisis. The Fed also introduced a number of  new lending programs  that provided liquidity to support a range of financial institutions and markets. These included a credit facility for “primary dealers,” the broker-dealers that serve as counterparties for the Fed’s open market operations, as well as lending programs designed to provide liquidity to money market mutual funds and the commercial paper market.  Also introduced, in cooperation with the US Department of the Treasury, was the Term Asset-Backed Securities Loan Facility (TALF), which was designed to ease credit conditions for households and businesses by extending credit to US holders of high-quality asset-backed securities.

Initially, the expansion of Federal Reserve credit was financed by reducing the Federal Reserve’s holdings of Treasury securities, in order to avoid an increase in bank reserves that would drive the federal funds rate below its target as banks sought to lend out their excess reserves. But in October 2008, the Federal Reserve gained the authority to pay banks interest on their excess reserves. This gave banks an incentive to hold onto their reserves rather than lending them out, thus mitigating the need for the Federal Reserve to offset its expanded lending with reductions in other assets. 2

Effects on the Broader Economy

The housing sector led not only the financial crisis, but also the downturn in broader economic activity. Residential investment peaked in 2006, as did employment in residential construction. The overall economy peaked in December 2007, the month the National Bureau of Economic Research recognizes as the beginning of the recession. The decline in overall economic activity was modest at first, but it steepened sharply in the fall of 2008 as stresses in financial markets reached their climax. From peak to trough, US gross domestic product fell by 4.3 percent, making this the deepest recession since World War II. It was also the longest, lasting eighteen months. The unemployment rate more than doubled, from less than 5 percent to 10 percent. 

In response to weakening economic conditions, the FOMC lowered its target for the federal funds rate from 4.5 percent at the end of 2007 to 2 percent at the beginning of September 2008. As the financial crisis and the economic contraction intensified in the fall of 2008, the FOMC accelerated its interest rate cuts, taking the rate to its effective floor – a target range of 0 to 25 basis points – by the end of the year. In November 2008, the Federal Reserve also initiated the first in a series of large-scale asset purchase (LSAP) programs, buying mortgage-backed securities and longer-term Treasury securities. These purchases were intended to put downward pressure on long-term interest rates and improve financial conditions more broadly, thereby supporting economic activity (Bernanke 2012).

The recession ended in June 2009, but economic weakness persisted. Economic growth was only moderate – averaging about 2 percent in the first four years of the recovery – and the unemployment rate, particularly the rate of long-term unemployment, remained at historically elevated levels. In the face of this prolonged weakness, the Federal Reserve maintained an exceptionally low level for the federal funds rate target and sought new ways to provide additional monetary accommodation. These included additional LSAP programs, known more popularly as quantitative easing, or QE. The FOMC also began communicating its intentions for future policy settings more explicitly in its public statements, particularly the circumstances under which exceptionally low interest rates were likely to be appropriate. For example, in December 2012, the committee stated that it anticipates that exceptionally low interest rates would likely remain appropriate at least as long as the unemployment rate was above a threshold value of 6.5 percent and inflation was expected to be no more than a half percentage point above the committee’s 2 percent longer-run goal. This strategy, known as “forward guidance,” was intended to convince the public that rates would stay low at least until certain economic conditions were met, thereby putting downward pressure on longer-term interest rates.

Effects on Financial Regulation

When the financial market turmoil had subsided, attention naturally turned to reforms to the financial sector and its supervision and regulation, motivated by a desire to avoid similar events in the future. A number of measures have been proposed or put in place to reduce the risk of financial distress. For traditional banks, there are significant increases in the amount of required capital overall, with larger increases for so-called “systemically important” institutions (Bank for International Settlements 2011a;  2011b).  Liquidity standards will for the first time formally limit the amount of banks’ maturity transformation (Bank for International Settlements 2013).  Regular stress testing will help both banks and regulators understand risks and will force banks to use earnings to build capital instead of paying dividends as conditions deteriorate (Board of Governors 2011).    

The  Dodd-Frank Act of 2010  also created new provisions for the treatment of large financial institutions. For example, the Financial Stability Oversight Council has the authority to designate nontraditional credit intermediaries “Systemically Important Financial Institutions” (SIFIs), which subjects them to the oversight of the Federal Reserve. The act also created the Orderly Liquidation Authority (OLA), which allows the Federal Deposit Insurance Corporation to wind down certain institutions when the firm’s failure is expected to pose a great risk to the financial system. Another provision of the act requires large financial institutions to create “living wills,” which are detailed plans laying out how the institution could be resolved under US bankruptcy code without jeopardizing the rest of the financial system or requiring government support.

Like the  Great Depression  of the 1930s and the  Great Inflation  of the 1970s, the financial crisis of 2008 and the ensuing recession are vital areas of study for economists and policymakers. While it may be many years before the causes and consequences of these events are fully understood, the effort to untangle them is an important opportunity for the Federal Reserve and other agencies to learn lessons that can inform future policy.

• 1  Many of these actions were taken under Section 13(3) of the Federal Reserve Act, which at that time authorized lending to individuals, partnerships, and corporations in “unusual and exigent” circumstances and subject to other restrictions. After the amendments to Section 13(3) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Federal Reserve lending under Section 13(3) is permitted only to participants in a program or facility with “broad based eligibility,” with prior approval of the secretary of the treasury, and when several other conditions are met.
• 2  For more on interest on reserves, see Ennis and Wolman (2010).

Bibliography

Bank for International Settlements. “ Basel III: A global regulatory framework for more resilient banks and banking system .” Revised June 2011a.

Bank for International Settlements. “ Global systemically important banks: Assessment methodology and the additional loss absorbency requirement .” July 2011b.

Bernanke, Ben, “The Global Saving Glut and the U.S. Current Account Deficit,” Speech given at the Sandridge Lecture, Virginia Association of Economists, Richmond, Va., March 10, 2005.

Bernanke, Ben,“Monetary Policy and the Housing Bubble,” Speech given at the Annual Meeting of the American Economic Association, Atlanta, Ga., January 3, 2010.

Bernanke, Ben, “Monetary Policy Since the Onset of the Crisis,” Speech given at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyo., August 31, 2012.

Covitz, Daniel, Nellie Liang, and Gustavo Suarez. “The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market.” Journal of Finance 68, no. 3 (2013): 815-48.

Ennis, Huberto, and Alexander Wolman. “Excess Reserves and the New Challenges for Monetary Policy.” Federal Reserve Bank of Richmond Economic Brief   no. 10-03 (March 2010).   

Federal Reserve System, Capital Plan , 76 Fed Reg. 74631 (December 1, 2011) (codified at 12 CFR 225.8).

Taylor, John,“Housing and Monetary Policy,” NBER Working Paper 13682, National Bureau of Economic Research, Cambridge, MA, December 2007.     

Written as of November 22, 2013. See disclaimer .

Essays in this Time Period

• Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
• Federal Reserve Credit Programs During the Meltdown
• The Great Recession
• Subprime Mortgage Crisis
• Support for Specific Institutions

Related People

Ben S. Bernanke Chairman

Board of Governors

2006 – 2014

Timothy F. Geithner President

New York Fed

2003 – 2008

Related Links

• FRASER: Text of Dodd Frank Act

Federal Reserve History

The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression

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Stimulus or laissez-faire? That’s the essential debate about what to about financial crisis in our time. It was the same in the 1930s.

In this world before and after the Great Depression, there was a lone voice for sanity and freedom: Ludwig von Mises. He speaks in The Causes of the Economic Crisis , a collection of newly in print essays by Mises that have been very hard to come by, and are published for the first time in this format.

Here we have the evidence that the master economist foresaw and warned against the breakdown of the German mark, as well as the market crash of 1929 and the depression that followed.

He presents his business cycle theory in its most elaborate form, applies it to the prevailing conditions, and discusses the policies that governments undertake that make recessions worse. He recommends a path for monetary reform that would eliminate business cycles and provide the basis for a sustainable prosperity.

In foreseeing the interwar economic breakdown, Mises was nearly alone among his contemporaries. In 1923, he warned that central banks will not “stabilize” money; they will distort credit markets and generate booms and busts. In 1928, he departed dramatically from the judgment of his contemporaries and sounded an alarm: “every boom must one day come to an end.”

Then after the Great Depression hit, he wrote again in 1931. His essay was called: “The Causes of the Economic Crisis.” And the essays kept coming, in 1933 and 1946, each explaining that the business cycle results from central-bank generated loose money and cheap credit, and that the cycle can only be made worse by intervention.

Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.

Did the world listen? The German-speaking world knew his essays well, and he was considered a prophet, until the Nazis came to power and wiped out his legacy. In England, his student F.A. Hayek made the Austrian theory a presence in academic life.

In the popular mind, the media, and politics, however, it was Keynes who held sway, with his claim that the depression was the fault of the market, and that it can only be solved through government planning.

Just at the time he wanted to be fighting, Mises had to leave Austria, forced out by political events and the rising of the Nazis. He wrote from Geneva, his writings accessible to too few people. They were never translated into English until after his death. Even then, they were not circulated widely.

The sad result is that Mises is not given the credit he deserves for having warned about the coming depression, and having seen the solution. His writings were prolific and profound, but they were swallowed up in the rise of the total state and total war.

But today, we hear him speak again in this book.

Bettina B. Greaves did the translations. It is her view that in the essays, Mises provides the clearest explanation of the Great Depression ever written. Indeed, he is crystal clear: precise, patient, and thorough. It makes for a gripping read, especially given that we face many of the same problems today.

This book refutes the socialists and Keynesian, as well as anyone who believes that the printing press can provide a way out of trouble. Mises shows who was responsible for driving the world into economic calamity. It was the inevitable effects of the government’s monopoly over money and banking.

Just as in his attack on socialism, here he was brilliant and brave and prescient. Mises was there, before and after. He was writing about contemporary events. He issued the warnings that the world did not heed, the warnings we must heed today.

Ludwig von Mises was the acknowledged leader of the Austrian school of economic thought, a prodigious originator in economic theory, and a prolific author. Mises’s writings and lectures encompassed economic theory, history, epistemology, government, and political philosophy. His contributions to economic theory include important clarifications on the quantity theory of money, the theory of the trade cycle, the integration of monetary theory with economic theory in general, and a demonstration that socialism must fail because it cannot solve the problem of economic calculation. Mises was the first scholar to recognize that economics is part of a larger science in human action, a science that he called praxeology .

Governments Never Give Up Power Voluntarily 03/01/2024 • Mises Wire • Ludwig von Mises [A selection from Liberalism .] All those in positions of political power, all governments, all kings, and all republican authorities have always looked askance at private property. There is an...

The Real Meaning of Inflation and Deflation 01/02/2024 • Mises Daily • Ludwig von Mises [Excerpted from Chapter 17 of Human Action.] The services money renders are conditioned by the height of its purchasing power. Nobody wants to have in his cash holding a definite number of pieces of...

Mises Explains the Santa Claus Principle 12/28/2023 • Mises Wire • Ludwig von Mises [From “The Exhaustion of the Reserve Fund” in Human Action, chap. 36.] The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population...

Auburn: Mises Institute, 2006

The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. 

Non-political, non-partisan, and non-PC, we advocate a radical shift in the intellectual climate, away from statism and toward a private property order. We believe that our foundational ideas are of permanent value, and oppose all efforts at compromise, sellout, and amalgamation of these ideas with fashionable political, cultural, and social doctrines inimical to their spirit.

What do you think? Leave a respectful comment.

How the 2008 financial crisis crashed the economy and changed the world.

Paul Solman Paul Solman

• Copy URL https://www.pbs.org/newshour/show/how-the-2008-financial-crisis-crashed-the-economy-and-changed-the-world

Ten years ago this week, the collapse of Lehman Brothers became the signal event of the 2008 financial crisis. Its effects and the recession that followed, on income, wealth, disparity and politics are still with us. Economics correspondent Paul Solman walks through those events and consequences with historian Adam Tooze, author of "Crashed: How a Decade of Financial Crises Changed the World."

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Notice: Transcripts are machine and human generated and lightly edited for accuracy. They may contain errors.

Judy Woodruff:

It was one of the most profound events in generations, with huge consequences for on the American economy and households throughout the country.

This was the time a decade ago when the financial crisis erupted, a crash that most experts didn't foresee.

Its effects, and of the recession that followed, on income, wealth inequality, and our politics are still with us.

Tonight, our economics correspondent, Paul Solman, revisits how it all went down, and the impact today of decisions made then.

It's part of our weekly series, Making Sense.

Paul Solman:

So, this is where, in some sense, the crisis began.

Adam Tooze:

Yes, this was the place where people were stumbling out of offices on the 15th of September, 2008, the world having ended.

The midtown Manhattan headquarters of Lehman Brothers, whose collapse 10 years ago this week was the signal event of the 2008 financial crisis.

It started in real estate, and it started with subprime, and that's the story everyone knows. How does that crisis in the suburbs of America move all the way back to the center of finance in New York?

OK. How does it?

Banks are fragile things. Classically, we think of them as being funded by deposits, with households putting their savings into the bank, and then the householders begin to get panicked and take all their money out.

But, says economist and historian Adam Tooze, author of the new book "Crashed".

Banks like Lehman don't have deposits. What they do is borrow money from other banks, and that money runs faster than any depositor can run.

So subprime mortgages begin to default. Lots of people are invested in those mortgages. Banks have a big stake. And so suddenly, when banks look vulnerable, then they don't lend to each other anymore, investors pull back. That's what happened?

Yes, that's the crucial thing. Afterwards, there was a congressional inquiry that went after the banks for selling the bad securities to investors who ended up being ripped off. That wasn't in fact the dangerous bit. The real problem were the bad debts, the securities that America's banks kept on their balance sheets.

In other word, Lehman not only created debt securities, bonds, backed by iffy subprime mortgages. It held on to them. When the debts started going bad, faith in Lehman collapsed.

No faith, no credit. No credit, no Lehman.

We came as close as we have ever come in history to a total cardiac arrest, not just of the American economy, but the entire world economy.

Meaning everybody is afraid to lend to everybody else. Credit simply freezes, and an economy, a modern economy can't function that way?

A modern economy can't function without credit for more than even a couple of hours, frankly, seconds. G.E., the pillar of American manufacturing, was having a hard time getting short-term credit. So was Harvard University. Wage bills were not being paid.

And soon enough, the whole world was watching, and enmeshed.

To illustrate your point about how the crisis spread globally, I thought we'd go to a Greek food stand. But you said, no, no, an Irish pub. And, lo and behold, there's one right across the street from the old Lehman.

Yes, because 2008 is all about banks. And the failure of the Irish banks in September 2008 is really the moment when the panic spreads to Europe in a way that the European states ultimately find almost impossible to handle.

Because European banks have a stake in Irish banks?

All of Europe is tied up with the Irish banking boom, as using Dublin as an offshore financial center. And Dublin finds itself in a position on the 29th of September of having to guarantee the entire balance sheet of the Irish banking system.

Back in the U.S. of A., September 29 was also the day Congress rejected President Bush's bailout bill.

The motion is not adopted.

And the Dow fell a record 777 points.

This is where the crisis goes from being a banking crisis to a crisis of the American economy as a whole, with stock market values crashing in September 2008.

We were now in the belly of the beast.

So, here we have Wall Street with all the global banks, and then over here, the New York Stock Exchange.

Which is where we are now.

And the heart of the crisis-fighting effort, the Federal Reserve Bank of New York.

Ground zero 9/29, the New York Fed. Here is where the system was saved.

And what the New York Fed decided to do, what the United States Federal Reserve system decided to do was play the classic role it's always intended to play, to be the lender of last resort to American financial institutions.

Yes. There's a lot of emphasis, for obvious reasons, on the unconventional side of Fed policy in '08, the bailouts, taking equity stakes in banks or quantitative easing.

But what really made the difference in the survival of the American and the global banking system in September 2008 was indeed liquidity provision, to take an asset which is very unattractive to sell in the moment of the crisis because its value may be suspect.

Assets like loans backed by failing mortgages, which the Fed took off the hands of the banks.

And to give you in exchange a cash loan that will tide you over for a matter of days, weeks or months.

Ready cash. liquidity.

And this saved the American financial system?

This didn't just save the American financial system. It saved the financial system of the world. More than half of the liquidity provision to large banks in the United States was to European banks in the United States, and then on top of that, the Fed lent $4.5 trillion to European and Asian central banks, who indirectly provided dollars to their local banks in Europe and in Japan.

And this, says Adam Tooze, is the key to understanding the crash of '08, a global financial crisis because of global financial interconnectedness, a crisis that would have been far worse had the U.S. not dispensed dollars worldwide.

Wall Street is a global banking center. So you have banks from all over the world. And the Fed is providing them liquidity not out of the goodness of its heart, but to stabilize the American financial system, to stabilize the American housing market.

And to stabilize the intricately interconnected global financial system, with players like Barclays of London, which bought the remains of Lehman.

Yes, Barclays got hundreds of billions in liquidity too.

So, in the end, the system worked, right? I mean, we're on Wall Street, stock market almost double what it was before the crash.

Well, it did, if you happened to be one of the minority of Americans who actually has stock. Most Americans don't. And large parts of America have not recovered from the crisis.

The San Francisco Fed was estimating that, as a result of the lost growth in the U.S. economy, the decade in which America grew below where it might otherwise have been, the recession probably cost the average American about $70,000.

Seventy thousand dollars in lifetime income, that is.

So that is not something we're ever going to get back, regardless of what happens in the stock market.

Which prompted a final question, about the political ramifications of the crash of '08, at a final location.

This is Zuccotti Park, just by Wall Street, the site of the famous encampment in 2011 that spawned Occupy and the discourse of the 1 percent against the 99 percent, the place where inequality in America today was really put back on the political map.

Huge rage against bailing out the banks. And the other great political reaction to the crisis came two years earlier in the form of the Tea Party, the idea that irresponsible borrowers who had taken on debts they couldn't afford were now going to be rescued by the federal government.

One opens, if you like, the door to a more radical politics on the right. The other opens the door to a more radical politics on the left.

Which is, of course, just where we are on the 10th anniversary of the crash of '08.

For the "PBS NewsHour," this is economics correspondent Paul Solman, reporting from New York.

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Financial Crisis

• The Financial Crisis
• Financial Data Tools

Articles and Papers

Monetary Policy and the Crisis

Historical perspectives on the crisis, what caused the crisis, the role of subprime mortgages.

• Possible Solutions

Financial Crisis Articles & Papers: All Topics

The articles and papers listed here cover aspects of the financial crisis and represent a range of opinions and analysis. The Federal Reserve Bank of St. Louis does not endorse the views presented in these articles or papers.

The Crisis: An Overview

The "Surprising" Origin and Nature of Financial Crises: A Macroeconomic Policy Proposal by Ricardo J. Caballero and Pablo Kurlat in Federal Reserve Bank of Kansas City Symposium , August 2009

The authors discuss three key ingredients for severe finanical crises in developed financial markets. Then they offer a policy proposal of tradable insurance credits to address a systemic crisis.

Bank Lending During the Financial Crisis of 2008 by Victoria Ivashina and David Scharfstein in SSRN , December 2008

This paper documents that new loans to large borrowers fell by 37% during the peak period of the financial crisis (September-November 2008) relative to the prior three-month period and by 68% relative to the peak of the credit boom (Mar-May 2007). New lending for real investment (such as capital expenditures) fell to the same extent as new lendi...  

The Commercial Paper Market, the Fed, and the 2007-2009 Financial Crisis by Richard G. Anderson and Charles S. Gascon in Federal Reserve Bank of St. Louis Review , November 2009

Since its inception in the early nineteenth century, the U.S. commercial paper market has grown to become a key source of short-term funding for major businesses, with issuance averaging over $100 billion per day. In the fall of 2008, the commercial paper market achieved national prominence when increasing market stress caused some to fear that,...  

The Credit Crunch of 2007-2008: A Discussion of the Background, Market Reactions, and Policy Responses by Paul Mizen in Federal Reserve Bank of St. Louis Review , September 2008

This paper discusses the events surrounding the 2007-08 credit crunch. It highlights the period of exceptional macrostability, the global savings glut, and financial innovation in mortgage-backed securities as the precursors to the crisis. The credit crunch itself occurred when house prices fell and subprime mortgage defaults increased. These event...  

The Crisis: Basic Mechanisms, and Appropriate Policies by Olivier J. Blanchard in IMF Working Ppaer , April 2009

The purpose of this lecture is to look beyond the complex events that characterize the global financial and economic crisis, identify the basic mechanisms, and infer the policies needed to resolve the current crisis, as well as the policies needed to reduce the probability of similar events in the future.

Deciphering the Liquidity and Credit Crunch 2007-08 by Markus K. Brunnermeier in Journal of Economic Perspectives , November 2008

This paper summarizes and explains the main events of the liquidity and credit crunch in 2007-08. Starting with the trends leading up to the crisis, Brunnermeier explains how these events unfolded and how four different amplification mechanisms magnified losses in the mortgage market into large dislocations and turmoil in financial markets.

Economic Recovery and Balance Sheet Normalization by Narayana R. Kocherlakota in Federal Reserve Bank of Minneapolis , April 2010

Speech before the Minnesota Chamber of Commerce

The Economics of Bank Restructuring: Understanding the Options by Augustin Landier and Kenichi Ueda in IMF Staff Position Note , June 2009

Based on a simple framework, this note clarifies the economics behind bank restructuring and evaluates various restructuring options for systemically important banks. The note assumes that the government aims to reduce the probability of a bank’s default and keep the burden on taxpayers at a minimum. The note also acknowledges that the design of...  

Factors Affecting Efforts to Limit Payments to AIG Counterparties by Thomas C. Baxter Jr. in Federal Reserve Bank of New York , February 2010

Testimony before the Committee on Government Oversight and Reform, U.S. House of Representatives

Facts and Myths about the Financial Crisis of 2008 by V. V. Chari, Lawrence Christiano and Patrick J. Kehoe in Federal Reserve Bank of Minneapolis Working Paper , October 2008

This paper examines three claims about the way the financial crisis is affecting the economy as a whole and argues that all three claims are myths. It also presents three underappreciated facts about how the financial system intermediates funds between households and corporate businesses.

The Federal Reserve Bank of New York's Involvement with AIG by Thomas C. Baxter and Sarah J. Dahlgren in Federal Reserve Bank of New York , May 2010

Joint written testimony of Thomas C. Baxter and Sarah Dahlgren before the Congressional Oversight Panel, Washington, D.C.

The Federal Reserve's Balance Sheet by Ben S. Bernanke in Speech , April 2009

The Federal Reserve has taken a number of aggressive and creative policy actions, many of which are reflected in the size and composition of the Fed's balance sheet. Bernanke provides a brief guided tour of the Federal Reserve's balance sheet as an instructive way to discuss the Fed's policy strategy and some related issues.

The Financial Crisis: Toward an Explanation and Policy Response by Aaron Steelman and John A.Weinberg in Federal Reserve Bank of Richmond Annual Report 2008 , April 2009

The essay is divided into the four sections. First, what has happened in the financial markets. Second, why those events took place. Third, possible market imperfections that could produce turmoil in the financial markets and an assessment of the role they have played in this case. And, fourth, how policymakers should respond in these difficult and...  

Financial Turmoil and the Economy by Frederick Furlong and Simon Kwan in Federal Reserve Bank of San Francisco Annual Report 2008 , May 2009

An overview of the financial crisis.

The Global Recession by Craig P. Aubuchon and David C. Wheelock in Federal Reserve Bank of St. Louis Economic Synopses , May 2009

Presents information on the percentage of economies around the world that are in recession, and offers comparisons with previous economic declines.

The Global Roots of the Current Financial Crisis and its Implications for Regulations by Anil K. Kashyap, Raghuram Rajan and Jeremy Stein in 5th ECB Central Banking Conference , November 2008

Where did the current financial crisis come from? Who or what is to blame? How will it be resolved? How do we undertake reforms for the future? These are the questions this paper will seek to answer. The analysis will have three parts. The first is a rough and ready sketch of the global roots of this crisis. Second, the authors focus in a more d...  

Interest on Excess Reserves as a Monetary Policy Instrument: The Experience of Foreign Central Banks by David Bowman, Etienne Gagnon, and Mike Leahy in Board of Governors International Finance Discussion Papers , March 2010

This paper reviews the experience of eight major foreign central banks with policy interest rates comparable to the interest rate on excess reserves paid by the Federal Reserve. We pursue two main lines of inquiry: 1) To what extent have these policy interest rates been lower bounds for short-term market rates, and 2) to what extent has tighteni...  

Lending Standards in Mortgage Markets by Carlos Garriga, in Federal Reserve Bank of St. Louis Economic Synopses , May 2009

Examines the mortgage denial rates by loan type as an indicator of loose lending standards.

Lessons Learned from the Financial Crisis by William C. Dudley in Speech , June 2009

In assessing the lessons of the past two years, Dudley focuses on five broad themes that are interrelated: Interconnectedness of the financial system; System dynamics—How does the system respond to shocks?; Incentives—Can we improve outcomes by changing incentives?; Transparency; How should central banks respond to asset bubbles?

Liquidity Risk, Credit Risk, and the Federal Reserve’s Responses to the Crisis by Asani Sarkar in Federal Reserve Bank of New York Staff Reports , September 2009

In responding to the severity and broad scope of the financial crisis that began in 2007, the Federal Reserve has made aggressive use of both traditional monetary policy instruments and innovative tools in an effort to provide liquidity. In this paper, the author examines the Fed’s actions in light of the underlying financial amplification mechanis...  

Looking Behind the Aggregates: A Reply to "Facts and Myths about the Financial Crisis of 2008" by Ethan Cohen-Cole, Burcu Duygan-Bump, Jose Fillat and Judit Montoriol-Garriga in Federal Reserve Bank of Boston Working Paper , November 2008

In reply to the FRB of Minneapolis article by Chari et al. (2008) the authors of this paper argue that to evaluate the four common claims about the impact of financial sector phenomena on the economy, (which the FRB Boston authors conclude are all myths), one needs to look at the underlying composition of financial aggregates. This article find ...  

A Minsky Meltdown: Lessons for Central Bankers by Janet Yellen in FRBSF Economic Letter , May 2009

In this essay, Federal Reserve Bank of San Francisco President Yellen reconsiders the notion of a 'Minsky Meltdown' and suggests that it is time to reconsider the notion that a central bank can not intervene in bubbles. Yellen also outlines her thoughts on supervisory and regulatory policies going forward, and the importance of varying capital req...  

Overview: Global Financial Crisis Spurs Unprecedented Policy Actions by Ingo Fender and Jacob Gyntelberg in BIS Quarterly Review , December 2008

A four-stage overview of the crisis. Market developments over the period under review went through four more or less distinct stages. Stage one, which led into the Lehman bankruptcy in mid-September, was marked by the takeover of two major US housing finance agencies by the authorities in the United States. Stage two encompassed the immediate impl...  

The Panic of 2007 by Gary B. Gorton in Federal Reserve Bank of Kansas City's Symposium: Maintaining Stability in a Changing Financial System , October 2008

How did problems with subprime mortgages result in a systemic crisis, a panic? The ongoing Panic of 2007 is due to a loss of information about the location and size of risks of loss due to default on a number of interlinked securities, special purpose vehicles, and derivatives, all related to subprime mortgages. Subprime mortgages are a financial...  

Preparing for a Smooth (Eventual) Exit by Brian P. Sack in Federal Reseve Bank of New York , March 2010

Remarks at the National Association for Business Economics Policy Conference, Arlington, Virginia

Putting the Financial Crisis and Lending Activity in a Broader Context by Kevin L. Kliesen in Federal Reserve Bank of St. Louis Economic Synopses , February 2009

This paper discusses how banks typically tighten credit standards and/or loan terms as the economy weakens and nonperforming loans increase. But an adverse shock from outside the financial sector can be just as important—such as a sharp increase in oil prices or a plunge in house prices.

The Response of the Federal Reserve to the Recent Banking and Financial Crisis by Randall S. Kroszner and William Melick in Chicago Booth School of Business Working Paper , December 2009

The authors present an account of the policy actions taken by the Fed, providing a narrative that brings together information that otherwise requires consulting a variety of sources. They also present a framework for thinking about the central bank policy response that gives the reader a means of organizing her own understanding of the response. A...  

The Role of Liquidity in Financial Crises by Franklin Allen and Elena Carletti in Federal Reserve Bank of Kansas City's Symposium: Maintaining Stability in a Changing Financial System , September 2008

The purpose of this paper is to use insights from the academic literature on crises to understand the role of liquidity in the current crisis. Allen and Carletti focus on four of the crucial features of the crisis that they argue are related to liquidity provision. The first is the fall of the prices of AAA-rated tranches of securitized products be...  

Speculative Bubbles and Financial Crisis by Pengfei Wang and Yi Wen in Federal Reserve Bank of St. Louis Working Paper , July 2009

Why are asset prices so much more volatile and so often detached from their fundamental values? Why does the bursting of financial bubbles depress the real economy? This paper addresses these questions by constructing an in?nite-horizon heterogeneous agent general equilibrium model with speculative bubbles. We characterize conditions under which st...  

The Supervisory Capital Assessment Program--One Year Later by Ben S. Bernanke in Speech , May 2010

At the Federal Reserve Bank of Chicago 46th Annual Conference on Bank Structure and Competition, Chicago, Illinois

The Taylor Rule and the Practice of Central Banking by Pier Francesco Asso, George A. Kahn, and Robert Leeson in Federal Reserve Bank of Kansas City Working Paper , February 2010

The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one in...  

Toward an Effective Resolution Regime for Large Financial Institutions by Daniel K. Tarullo in Board of Governors Speech , March 2010

At the Symposium on Building the Financial System of the 21st Century, Armonk, New York

A Word on the Economy (with audio) by Julie L. Stackhouse in Federal Reserve Bank of St. Louis Educational Resources , September 2009

A powerpoint slideshow describing the subprime mortgage meltdown and how it relates to the overall financial crisis. Updated September 2009

“How Central Should the Central Bank Be?” A Comment by Christopher J. Neely in Federal Reserve Bank of St. Louis Economic Synopses , April 2010

The Reserve Bank presidents are fully accountable to our democratic institutions and the decentralized structure promotes healthy debate on monetary policy and regulatory issues.

Actions to Restore Financial Stability: A summary of recent Federal Reserve initiatives by Niel Willardson in The Region (Minneapolis Fed) , December 2008

This article provides a summary of recent Federal Reserve initiatives designed to reestablish normal credit channels and flows in the wake of the current financial crisis.

Activist Fiscal Policy to Stabilize Economic Activity by Alan J. Auerbach and William G. Gale in Federal Reserve Bank of Kansas City Symposium , August 2009

This paper examines the effects of discretionary fiscal policy in the current financial crisis.

Alt-A: The Forgotten Segment of the Mortgage Market by Rajdeep Sengupta in Federal Reserve Bank of St. Louis Review , January 2010

This study presents a brief overview of the Alt-A mortgage market with the goal of outlining broad trends in the different borrower and mortgage characteristics of Alt-A market originations between 2000 and 2006. The paper also documents the default patterns of Alt-A mortgages in terms of the various borrower and mortgage characteristics over th...  

Asset Bubbles and the Implications for Central Bank Policy by William C. Dudley in Federal Reserve Bank of New York , April 2010

Remarks at The Economic Club of New York, New York City

An Autopsy of the U.S. Financial System: Accident, Suicide, or Negligent Homicide? by Ross Levine in Brown University Working Paper , April 2010

In this postmortem, I find that the design, implementation, and maintenance of financial policies during the period from 1996 through 2006 were primary causes of the financial system’s demise. The evidence is inconsistent with the view that the collapse of the financial system was caused only by the popping of the housing bubble and the herding ...  

Bank Exposure to Commercial Real Estate by Yuliya Demyanyk and Kent Cherny in Federal Reserve Bank of Cleveland Economic Trends , August 2009

As rising home foreclosures and delinquencies continue to undermine a financial and economic recovery, an increasing amount of attention is being paid to another corner of the property market: commercial real estate. This article discusses bank exposure to the commercial real estate market.

Bankers Acceptances and Unconventional Monetary Policy: FAQs by Richard G. Anderson in Federal Reserve Bank of St. Louis Economic Synopses , March 2009

An expansion and FAQ following on an earlier article ("Bankers Acceptances: Yesterday's Instrument to Re-Start Today's Credit Markets?"). Describes possible implementation of a Banker's Acceptances program at the Federal Reserve.

Bankers’ Acceptances: Yesterday’s Instrument to Restart Today's Credit Markets? by Richard G. Anderson in Federal Reserve Bank of St. Louis Economic Synopses , January 2009

This note suggests considering an old—not new—financial market instrument: bankers’ acceptances. Bankers’ acceptances are one of the world’s older financial instruments, used as early as the twelfth century. Bankers’ acceptances have a long history in the Federal Reserve. Bankers’ acceptances are an old idea whose time may have returned—but with c...  

Beyond the Crisis: Reflections on the Challenges by Terrence J. Checki in Federal Reserve Bank of New York Speech , December 2009

A discussion of the challenges facing the financial system and reform.

A Black Swan in the Money Market by John B. Taylor and John C. Williams in Federal Reserve Bank of San Francisco Working Paper , April 2008

At the center of the financial market crisis of 2007-2008 was a jump in spreads between the overnight inter-bank lending rate and term London inter-bank offer rates (Libor). Because many private loans are linked to Libor rates, the sharp increase in these spreads raised the cost of borrowing and interfered with monetary policy. The widening spread...  

Central Bank Exit Policies by Donald L. Kohn in Speech, Board of Governors , September 2009

Kohn briefly underlines some aspects of the Federal Reserve's framework for exiting the unusual policies put in place to ameliorate the effects of the financial turmoil of the past two years

Central Bank Response to the 2007-08 Financial Market Turbulence: Experiences and Lessons Drawn by Alexandre Chailloux, Simon Gray, Ulrich Klüh, Seiichi Shimizu, and Peter Stella in IMF Working Paper , September 2008

The paper reviews the policy response of major central banks during the 2007–08 financial market turbulence and suggests that there is scope for convergence among central bank operational frameworks through the adoption of those elements that proved most instrumental in calming markets. These include (i) rapid liquidity provision to a broad rang...  

Central Banks and Financial Crises by Willem H. Buiter in Federal Reserve Bank of Kansas City's Symposium: Maintaining Stability in a Changing Financial System , August 2008

This paper draws lessons from the experience of the past year for the conduct of central banks in the pursuit of macroeconomic and financial stability. Macroeconomic stability is defined as either price stability or as price stability and sustainable output or employment growth. Financial stability refers to (1) the absence of asset price bubbles...  

Commercial Bank Lending Data during the Crisis: Handle with Care by Silvio Contessi and Hoda El-Ghazaly, in Federal Reserve Bank of St. Louis Economic Synopses , August 2009

A discussion of commercial bank lending data, inferences that can be drawn from the data, and some caveats about the data.

Confronting Too Big to Fail by Daniel K. Tarullo in Speech, Board of Governors , October 2009

Tarullo suggests that the reform process cannot be judged a success unless it substantially reduces systemic risk generally and, in particular, the too-big-to-fail problem. This speech addresses the task of forging an effective response to this problem

Conventional and Unconventional Monetary Policy by Vasco Cúrdia and Michael Woodford in Federal Reserve Bank of New York Staff Reports , November 2009

We extend a standard New Keynesian model both to incorporate heterogeneity in spending opportunities along with two sources of (potentially time-varying) credit spreads and to allow a role for the central bank’s balance sheet in determining equilibrium. We use the model to investigate the implications of imperfect financial intermediation for famil...  

Crisis and Responses: the Federal Reserve and the Financial Crisis of 2007-08 by Stephen G. Cecchetti in NBER Working Paper (requires subscription) , June 2008

Realizing that their traditional instruments were inadequate for responding to the crisis that began on 9 August 2007, Federal Reserve officials improvised. Beginning in mid-December 2007, they implemented a series of changes directed at ensuring that liquidity would be distributed to those institutions that needed it most. Conceptually, this me...  

The Curious Case of the U.S. Monetary Base by Richard G. Anderson in Federal Reserve Bank of St. Louis Regional Economist , July 2009

Recent increases in the monetary base are far greater than any previously in American history, surely a "noble experiment" in policymaking. Whether these policies can succeed—and without accelerating inflation—remains to be seen.

The Dependence of the Financial System on Central Bank and Government Support by Petra Gerlach in BIS Quarterly Review , March 2010

How much does the banking sector depend on public support? Utilisation of many support facilities has declined, due mainly to a fall in demand. Supply factors play a smaller, but not insignificant role, as governments and central banks have tightened the conditions on which certain support measures are available or have phased them out entirely. Ho...  

Do Central Bank Liquidity Facilities by Jens H. E. Christensen, Jose A. Lopez, and Glenn D. Rudebusch in Federal Reserve Bank of San Francisco Working Paper , June 2009

In response to the global financial crisis that started in August 2007, central banks provided extraordinary amounts of liquidity to the financial system. To investigate the effect of central bank liquidity facilities on term interbank lending rates, the authors estimate a six-factor arbitrage-free model of U.S. Treasury yields, financial corporate...  

The Economic Outlook and the Fed's Balance Sheet: The Issue of "How" versus "When" by William C. Dudley in Speech , July 2009

Dudley comments on the economy and the economic outlook—where we have been and where we may be going. He suggests that the balance of risks is still tilted toward weakness in growth and employment and not toward higher inflation. He also discusses the impact of the Federal Reserve’s lending facilities and purchase programs on the size of the Fed’s ...  

Economic Policy: Lessons from History by Ben S. Bernanke in Board of Governors Speech , April 2010

At the 43rd Annual Alexander Hamilton Awards Dinner, Center for the Study of the Presidency and Congress, Washington, D.C.

The Effect of the Term Auction Facility on the London Inter-Bank Offered Rate by James McAndrews, Asani Sarkar and Zhenyu Wang in Federal Reserve Bank of New York Staff Report , July 2008

This paper examines the effects of the Federal Reserve’s Term Auction Facility (TAF) on the London Inter-Bank Offered Rate (LIBOR). The particular question investigated is whether the announcements and operations of the TAF are associated with downward shifts of the LIBOR; such an association would provide one indication of the efficacy of the TAF ...  

Effective Practices in Crisis Resolution and the Case of Sweden by O. Emre Ergungor and Kent Cherny in Federal Reserve Bank of Cleveland Economic Commentary , February 2009

The current fi nancial crisis is a painful reminder that the developed world is not yet immune to these devastating shocks. But while we haven’t learned to prevent them, we have learned some lessons about what is necessary to contain them once they begin and to limit the damage that follows. As policymakers worldwide focus on resolving the current ...  

The Fed as Lender of Last Resort by James B. Bullard in Federal Reserve Bank of St. Louis Regional Economist , January 2009

Because our central bank has relied on the federal funds rate target for so long to guide the economy, many people think that the target rate is the only tool at the Fed’s disposal. As we are seeing in the current financial crisis, the Fed has other options. Most visible so far have been the lending programs that have been created in the past year,...  

The Fed's Response to the Credit Crunch by Craig P. Aubuchon in Federal Reserve Bank of St. Louis Econoimc Synopses , January 2009

The Federal Reserve Board has used Section 13(3) of the Federal Reserve Act to create several new lending facilities to address the ongoing strains in the credit market.

The Fed, Liquidity, and Credit Allocation by Daniel Thornton in Federal Reserve Bank of St. Louis Review , January 2009

The current financial turmoil has generated considerable discussion of liquidity. Moreover, it has been widely reported that the Federal Reserve played a major role in supplying liquidity to financial markets during this distressed time. This article describes two ways in which the Fed has supplied liquidity since late 2007. The first is traditiona...  

The Federal Reserve as Lender of Last Resort during the Panic of 2008 by Kenneth N. Kuttner in Committee on Capital Markets Regulation Report , December 2008

This report examines the impact of the Fed’s unprecedented lending on its formulation and implementation of monetary policy. The first section provides some background on the Fed’s recent actions within the context of its role as lender of last resort (LOLR). The second outlines some of the ways in which the surge in Fed lending has affected the...  

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Federal Reserve Assets: Understanding the Pieces of the Pie by Charles S. Gascon in Federal Reserve Bank of St. Louis Economic Synopses , March 2009

This paper examines the composition of assets on the Fed’s balance sheet and groups them according to the objectives of the programs used to acquire them.

The Federal Reserve's Balance Sheet: An Update by Ben S. Bernanke in Speech, Board of Governors , October 2009

Bernanke reviews the most important elements of the Federal Reserve's balance sheet, as well as some aspects of their evolution over time. With this, he explains the steps the Federal Reserve has taken, beyond conventional interest rate reductions, to mitigate the financial crisis and the recession, as well as how those actions will be reversed as ...  

Federal Reserve's exit strategy by Ben S. Bernanke in Board of Governors Testimony , February 2010

Statement before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C. as prepared for delivery. The hearing was postponed due to inclement weather.

The Federal Reserve's Term Auction Facility by Olivier Armantier, Sandra Krieger and James McAndrews in Federal Reserve Bank of New York: Current Issues in Economics and Finance , July 2008

As liquidity conditions in the term funding markets grew increasingly strained in late 2007, the Federal Reserve began making funds available directly to banks through a new tool, the Term Auction Facility (TAF). The facility is designed to improve liquidity by making it easier for sound institutions to borrow when the markets are not operating ...  

The Federal Reserve’s Commercial Paper Funding Facility by Tobias Adrian, Karin Kimbrough, and Dina Marchioni in Federal Reserve Bank of New York Staff Reports , January 2010

The Federal Reserve created the Commercial Paper Funding Facility (CPFF) in the midst of severe disruptions in money markets following the bankruptcy of Lehman Brothers on September 15, 2008. The CPFF finances the purchase of highly rated unsecured and asset-backed commercial paper from eligible issuers via primary dealers. The facility is a liquid...  

Financial Crises and Bank Failures: A Review of Prediction Methods by Yuliya Demyanyk and Iftekhar Hasan in Federal Reserve Bank of Cleveland Working Paper , June 2009

In this article the authors analyze financial and economic circumstances associated with the U.S. subprime mortgage crisis and the global financial turmoil that has led to severe crises in many countries. They suggest that the level of cross-border holdings of long-term securities between the United States and the rest of the world may indicate...  

The Financial Crisis: An Inside View by Phillip Swagel in Brookings Papers on Economic Activity , April 2009

This paper reviews the events associated with the credit market disruption that began in August 2007 and developed into a full-blown crisis in the fall of 2008. This is necessarily an incomplete history: the paper is being written in the months immediately after Swagel left Treasury, where he served as Assistant Secretary for Economic Policy from D...  

Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008 by Maurice Obstfeld, Jay C. Shambaugh and Alan M. Taylor in AEA Presentation Paper , December 2008

In this paper the authors connect the events of the last twelve months, “the Panic of 2008” as it has been called, to the demand for international reserves. In previous work, the authors have shown that international reserve demand can be rationalized by a central bank’s desire to backstop the broad money supply to avert the possibility of an in...  

Financial Intermediaries, Financial Stability and Monetary Policy by Tobias Adrian and Hyun Song Shin in Federal Reserve Bank of Kansas City's Symposium: Maintaining Stability in a Changing Financial System , September 2008

In a market-based financial system, banking and capital market developments are inseparable. Adrian and Shin document evidence that balance sheets of market-based financial intermediaries provide a window on the transmission of monetary policy through capital market conditions. Short-term interest rates are determinants of the cost of leverage and ...  

Focusing on Bank Interest Rate Risk Exposure by Donald L. Kohn in Board of Governors Speech , January 2010

At the Federal Deposit Insurance Corporation's Symposium on Interest Rate Risk Management, Arlington, Virginia

A Framework for Assessing the Systemic Risk of Major Financial Institutions by Xin Huang, Hao Zhou, and Haibin Zhu in Federal Reserve Board, Finance and Economics Discussion Series , September 2009

In this paper the authors propose a framework for measuring and stress testing the systemic risk of a group of major financial institutions. The systemic risk is measured by the price of insurance against financial distress, which is based on ex ante measures of default probabilities of individual banks and forecasted asset return correlations. Imp...  

Further Results on a Black Swan in the Money Market by John B. Taylor and John C. Williams in Stanford University Working Paper , May 2008

Using alternative measures of term lending rates and counterparty risk and a wide variety of econometric specifications, we find that counterparty risk has a robust significant effect on interest rate spreads in the term inter-bank loan markets. In contrast, we do not find comparably robust evidence of significant negative effects of the Fed’s t...  

Getting Back on Track: Macroeconomic Policy Lessons from the Financial Crisis by John B. Taylor in Federal Reserve Bank of St. Louis Review , May 2010

This article reviews the role of monetary and fiscal policy in the financial crisis and draws lessons for future macroeconomic policy. It shows that policy deviated from what had worked well in the previous two decades by becoming more interventionist, less rules-based, and less predictable. The policy implications are thus that policy should “g...  

Government assistance to AIG by Scott G. Alvarez in Testimony before the Congressional Oversight Panel, U.S. Congress , May 2010

Housing, Mortgage Markets, and Foreclosures at the Federal Reserve System Conference on Housing and Mortgage Markets, Washington, D.C. by Ben Bernanke in Speech , December 2008

Housing and housing finance played a central role in precipitating the current crisis. Declining house prices, delinquencies and foreclosures, and strains in mortgage markets are now symptoms as well as causes of our general financial and economic difficulties. The most effective approach very likely will involve a full range of coordinated measu...  

How Did a Domestic Housing Slump Turn into a Global Financial Crisis? by Steven B. Kamin and Laurie Pounder DeMarco in Board of Governors International Finance Discussion Papers , January 2010

The global financial crisis clearly started with problems in the U.S. subprime sector and spread across the world from there. But was the direct exposure of foreigners to the U.S. financial system a key driver of the crisis, or did other factors account for its rapid contagion across the world? To answer this question, we assessed whether countr...  

How Not to Reduce Excess Reserves by David C. Wheelock in Federal Reserve Bank of St. Louis Economic Synopses , August 2009

The author looks back to a simliar economic situation during the 1930s for insights into how to handle excess reserves.

How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads by Barry Eichengreen, Ashoka Mody, Milan Nedeljkovic, and Lucio Sarno in NBER Working Paper (requires subscription) , April 2009

How did the Subprime Crisis, a problem in a small corner of U.S. financial markets, affect the entire global banking system? To shed light on this question we use principal components analysis to identify common factors in the movement of banks' credit default swap spreads. We find that fortunes of international banks rise and fall together even...  

How to Avoid a New Financial Crisis by Oliver Hart and Luigi Zingales in University of Chicago Booth School of Business Research Paper , November 2009

This paper discusses the origins of the financial crisis in terms of risk, and then offers proposals for ways to fix the system.

International Policy Response to the Financial Crisis by Masaaki Shirakawa in Federal Reserve Bank of Kansas City Symposium , August 2009

A discussion of the future of international coordination between central banks in the wake of the current financial crisis.

Interview with Raghuram Rajan in Federal Reserve Bank of Minneapolis Region , December 2009

An interview with Rajan discussing the current financial crisis and possible solutions for the future.

Is Monetary Policy Effective During Financial Crises? by Frederic S. Mishkin in NBER Working Paper (requires subscription) , January 2009

The tightening of credit standards and the failure of the cost of credit to households and businesses to fall despite the sharp easing of monetary policy has led to a common view that monetary policy has not been effective during the recent financial crisis. Mishkin disagrees and believes that financial crises of the type we have been experiencing ...  

Is the Financial Crisis Over? A Yield Spread Perspective by Massimo Guidolin and Yu Man Tam in Federal Reserve Bank of St. Louis Economic Synopses , September 2009

Our finding is consistent with some recent, substantial volatility in the U.S. corporate bond market and leaves open a possibility that additional, future shocks to default premia may have long-lived effects.

Lessons Learned? Comparing the Federal Reserve’s Responses to the Crises of 1929-1933 and 2007-2009 by David C. Wheelock in Federal Reserve Bank of St. Louis Review , March 2010

The financial crisis of 2007-09 is widely viewed as the worst financial disruption since the Great Depression of 1929-33. However, the accompanying economic recession was mild compared with the Great Depression, though severe by postwar standards. Aggressive monetary, fiscal, and financial policies are widely credited with limiting the impact of...  

Lessons of the Crisis: The Implications for Regulatory Reform by William C. Dudley in Speech, Federal Reserve Bank of New York , January 2010

Remarks at the Partnership for New York City Discussion, New York City.

The Longer-Term Challenges Ahead by William C. Dudley in Federal Reserve Bank of New York Speech , March 2010

Remarks at the Council of Society Business Economists Annual Dinner, London, United Kingdom

Macroprudential Supervision and Monetary Policy in the Post-crisis World by Janet L. Yellen in Board of Governors Speech , October 2010

Speech at the Annual Meeting of the National Association for Business Economics, Denver, Colorado

The Mechanics of a Graceful Exit: Interest on Reserves and Segmentation in the Federal Funds Market by Morten L. Bech and Elizabeth Klee in Federal Reserve Bank of New York Staff Reports , December 2009

To combat the financial crisis that intensified in the fall of 2008, the Federal Reserve injected a substantial amount of liquidity into the banking system. The resulting increase in reserve balances exerted downward price pressure in the federal funds market, and the effective federal funds rate began to deviate from the target rate set by the Fed...  

Monetary Policy and Asset Prices by Brett W. Fawley and Luciana Juvenal in Federal Reserve Bank of St. Louis Economic Synopses , April 2010

reminder that asset prices can and do run wild at rates capable of negative effects on real economic activity. Not surprisingly, this has reinvigorated debate over whether central banks should respond to asset price bubbles.

Monetary Policy and the Recent Extraordinary Measures Taken by the Federal Reserve by John B. Taylor in U.S. House Committee on Financial Services , February 2009

Written testimony before the Committee on Financial Services U.S. House of Representatives on monetary policy and the "extraordinary measures" taken by the Federal Reserve over the past 18 months.

Monetary Policy in the Crisis: Past, Present, and Future by Donald L. Kohn in Board of Governors Speech , January 2010

Speech given at the Brimmer Policy Forum, American Economic Association Annual Meeting, Atlanta, Georgia

More Lessons from the Crisis by William C. Dudley in Federal Reserve Bank of New York Speech , November 2009

Remarks at the Center for Economic Policy Studies Symposium

More Money: Understanding Recent Changes in the Monetary Base by William T. Gavin in Federal Reserve Bank of St. Louis Review , March 2009

The financial crisis that began in the summer of 2007 took a turn for the worse in September 2008. Until then, Federal Reserve actions taken to improve the functioning financial markets did not affect the monetary base. The unusual lending and purchase of private debt was offset by the sale of Treasury securities so that the total size of the ba...  

Moving Beyond the Financial Crisis by Elizabeth A. Duke in Board of Governors Speech , June 2010

At the Consumer Bankers Association Annual Conference, Hollywood, Florida

On the Effectiveness of the Federal Reserve's New Liquidity Facilities by Tao Wu in Federal Reserve Bank of Dallas Working Paper , May 2008

This paper examines the effectiveness of the new liquidity facilities that the Federal Reserve established in response to the recent financial crisis. I develop a no-arbitrage based affine term structure model with default risk and conduct a thorough factor analysis of the counterparty default risk among major financial institutions and the underly...  

Paying Interest on Deposits at Federal Reserve Banks by Richard G. Anderson in Federal Reserve Bank of St. Louis Economic Synopses , November 2008

The implementation of monetary policy in developed economies relies on three interest rates: a policy target rate, one or more lending (or, discount) rates, and a remuneration rate, the rate of interest the central bank pays on the deposits that banks hold at the central bank. In the current economic crisis, management of the remuneration rate has ...  

Policies to Bring Us Out of the Financial Crisis and Recession by Donald L. Kohn in Speech , April 2009

Kohn discusses the actions the government is taking to address our current financial and economic difficulties, focusing on the economic and financial problems and policy responses in the United States.

Provision of Liquidity through the Primary Credit Facility during the Financial Crisis: A Structural Analysis by Erhan Artuç and Selva Demiralp in Federal Reserve Bank of New York Economic Policy Review , October 2009

In response to the liquidity crisis that began in August 2007, central banks designed a variety of tools for supplying liquidity to financial institutions. The Federal Reserve introduced several programs, such as the Term Auction Facility, the Term Securities Lending Facility, and the Primary Dealer Credit Facility, while enhancing its open market ...  

Putting the Low Road Behind Us by Governor Sarah Bloom Raskin in Speech at the 2011 Midwinter Housing Finance Conference, Park City, Utah , February 2011

In this speech Governor Raskin shares some thoughts about the powerful impact the housing and mortgage markets have on the nation's economic recovery, presents some ideas to effect positive change in the mortgage servicing industry, and finally imparts a guiding principle that should help us find our way through the current struggles and drive the ...  

Quantitative Easing: Entrance and Exit Strategies by Alan S. Blinder in Federal Reseve Bank of St. Louis Homer Jones Memorial Lecture , April 2010

Blinder discussed the concept of quantitative easing, the Fed's entrance strategy, the Fed's exit strategy, and its implications for central bank independence.

Questions about Fiscal Policy: Implications from the Financial Crisis of 2008-2009 by N. Gregory Mankiw in Federal Reserve Bank of St. Louis Review , May 2010

This article is a modified version of remarks given at the Federal Reserve Bank of Philadelphia’s policy forum “Policy Lessons from the Economic and Financial Crisis,” December 4, 2009.

Questions and Answers about the Financial Crisis by Gary Gorton in Prepared Testimony for the U.S. Financial Crisis Inquiry Commission , February 2010

All bond prices plummeted (spreads rose) during the financial crisis, not just the prices of subprimerelated bonds. These price declines were due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) – short?term, collateralized, agreements that the Fed rightly used to count as money...  

Reaping the Full Benefits of Financial Openness by Yellen, Janet L. in Federal Reserve Board of Governors Speech , May 2011

Speech at the Bank of Finland 200th Anniversary Conference, Helsinki, Finland

Reflections on a Year of Crisis by Ben S. Bernanke in Federal Reserve Bank of Kansas City Symposium , August 2009

The opening remarks at the Jackson Hole conference, "Financial Stability and Macroeconomic Policy"

Resolution Process for Financial Companies that Pose Systemic Risk to the Financial System and Overall Economy by Thomas M. Hoenig, Charles S. Morris, and Kenneth Spong in Federal Reserve Bank of Kansas City Speech , September 2009

The Under current law, financial regulators do not have the authority to resolve financial holding companies and non-depository financial companies that are in default or serious danger of default as they have with depository institutions. Although the normal bankruptcy process is a very effective process for most non-depository financial companie...  

Rethinking Macroeconomic Policy by Olivier Blanchard, Giovanni Dell’Ariccia, and Paolo Mauro in IMF Staff Position Note , February 2010

The great moderation lulled macroeconomists and policymakers alike in the belief that we knew how to conduct macroeconomic policy. The crisis clearly forces us to question that assessment. In this paper, we review the main elements of the pre-crisis consensus, we identify where we were wrong and what tenets of the pre-crisis framework still hold, a...  

The Risk of Deflation by John C.Williams in Federal Reserve Bank of San Francisco Economic Letter , March 2009

This article examines the risk of deflation in the United States by reviewing the evidence from past episodes of deflation and inflation.

The Role of the Federal Reserve in a New Financial Order by Paul A. Volcker in Speech at the Economic Club of New York , January 2010

Paul Volcker's discussion of the role of the Federal Reserve in light of the Financial Crisis.

The Role of the Securitization Process in the Expansion of Subprime Credit by Taylor D. Nadauld and Shane M. Sherlund in Board of Governors Finance and Economics Discussion Series , April 2009

The authors analyze the structure and attributes of subprime mortgage-backed securitization deals originated between 1997 and 2007. Their data set allows us to link loan-level data for over 6.7 million subprime loans to the securitization deals into which the loans were sold. They show that the securitization process, including the assignment of cr...  

Shadow Banking by Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, Hayley Boesky in Federal Reserve Bank of New York Staff Reports no. 458 , July 2010

This paper documents the origins, evolution and economic role of the shadow banking system. Its aim is to aid regulators and policymakers globally to reform, regulate and supervise the process of securitized credit intermediation in a market-based financial system.

The Shadow Banking System: Implications for Financial Regulation by Tobias Adrian and Hyun Song Shin in Federal Reserve Bank of New York Staff Report , July 2009

The current financial crisis has highlighted the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments. This trend has been most pronounced in the United States, but it has had a profound influence on the global financial system. In a market-...  

Should Monetary Policy “Lean or Clean”?* by William R. White in Federal Reserve Bank of Dallas Working Paper , August 2009

It has been contended by many in the central banking community that monetary policy would not be effective in “leaning” against the upswing of a credit cycle (the boom) but that lower interest rates would be effective in “cleaning” up (the bust) afterwards. In this paper, these two propositions (can’t lean, but can clean) are examined and found ser...  

Some Observations and Lessons from the Crisis by Simon M. Potter in Federal Reserve Bank of New York Speech , June 2010

Remarks at the Third Annual Connecticut Bank and Trust Company Economic Outlook Breakfast, Hartford, Connecticut

Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture’ by James Crotty in University of Massachusetts Amherst Working Paper , August 2008

The main thesis of this paper is that the ultimate cause of the current global financial crisis is to be found in the deeply flawed institutions and practices of what is often referred to as the New Financial Architecture (NFA) – a globally integrated system of giant bank conglomerates and the so-called ‘shadow banking system’ of investment ban...  

Systemic Risk and Deposit Insurance Premiums by Viral V. Acharya, João A. C. Santos, and Tanju Yorulmazer in Federal Reserve Bank of New York Economic Policy Review , October 2009

While systemic risk—the risk of wholesale failure of banks and other financial institutions—is generally considered to be the primary reason for supervision and regulation of the banking industry, almost all regulatory rules treat such risk in isolation. In particular, they do not account for the very features that create systemic risk in the first...  

Systemic Risk and the Financial Crisis: A Primer by James Bullard, Christopher J. Neely, and David C. Wheelock in Federal Reserve Bank of St. Louis Review , September 2009

How did problems in a relatively small portion of the home mortgage market trigger the most severe financial crisis in the United States since the Great Depression? Several developments played a role, including the proliferation of complex mortgage-backed securities and derivatives with highly opaque structures, high leverage, and inadequate risk m...  

The Term Securities Lending Facility: Origin, Design, and Effects by Michael J. Fleming, Warren B. Hrung and Frank M. Keane in Federal Reserve Bank of New York Current Issues in Economics and Finance , February 2009

The Federal Reserve launched the Term Securities Lending Facility (TSLF) in 2008 to promote liquidity in the funding markets and improve the operation of the broader financial markets. The facility increases the ability of dealers to obtain cash in the private market by enabling them to pledge securities temporarily as collateral for Treasuries, wh...  

Three Funerals and a Wedding by James B. Bullard in Federal Reserve Bank of St. Louis Review , January 2009

A discussion of three macroeconomic ideas that may be passing away, and one macroeconomic idea that is being rehabilitated.

Three Lessons for Monetary Policy from the Panic of 2008 by James Bullard in Federal Reserve Bank of St. Louis Review , May 2010

This article is a modified version of a presentation given at the Federal Reserve Bank of Philadelphia’s policy forum “Policy Lessons from the Economic and Financial Crisis,” December 4, 2009.

The U.S. Financial System: Where We Have Been, Where We Are and Where We Need to Go by William C. Dudley in Federal Reserve Bank of New York Speech , February 2010

Remarks at the Reserve Bank of Australia's 50th Anniversary Symposium, Sydney, Australia

Unconventional Monetary Policy Actions by Glen D. Rudebusch in Federal Reserve Bank of San Francisco FedViews , March 2009

Glenn D. Rudebusch, senior vice president and associate director of research at the Federal Reserve Bank of San Francisco, states his views on recent unconventional monetary policy actions. Charts are included.

United States: Financial System Stability Assessment by The Monetary and Capital Markets and Western Hemisphere Departments of the International Monetary Fund in International Monetary Fund, IMF Country Report No. 10/247 , July 2010

A forceful policy response has rolled back systemic market pressures, but the cost of intervention has been high and stability is tenuous. Comprehensive reforms are being legislated, addressing many of the issues that left the system vulnerable. Given the severity of the crisis and the many weaknesses revealed, bolder action could have been envi...  

Valuing the Treasury’s Capital Assistance Program by Paul Glasserman and Zhenyu Wang in Federal Reserve Bank of New York Staff Reports , December 2009

The Capital Assistance Program (CAP) was created by the U.S. government in February 2009 to provide backup capital to large financial institutions unable to raise sufficient capital from private investors. Under the terms of the CAP, a participating bank receives contingent capital by issuing preferred shares to the Treasury combined with embedded ...  

A View of the Economic Crisis and the Federal Reserve’s by Janet L. Yellen in Federal Reserve Bank of San Francisco Economic Letter , July 2009

The Federal Reserve has responded to a severe recession by developing programs to bolster the financial system and restore economic growth. The Fed has the tools to unwind these programs when appropriate, maintaining price stability. The following is adapted from a speech delivered by the president and CEO of the Federal Reserve Bank of San Francis...  

Walter Bagehot, the Discount Window, and TAF by Daniel Thornton in Federal Reserve Bank of St. Louis Economic Synopses , October 2008

In response to the mortgage-related distress in financial markets, the Fed has implemented a number of new lending programs. Prominent among these is the Term Auction Facility (TAF), through which the Federal Reserve Banks auction funds to depository institutions. Under the TAF, depository institutions compete for funds by indicating the amount th...  

Would Quantitative Easing Sooner Have Tempered the Financial Crisis and Economic Recession? by Daniel L. Thornton in Federal Reserve Bank of St. Louis Economic Synopses , August 2009

The author examines the timing of the quantitative easing employed by the Federal Reserve.

The Aftermath of Financial Crises by Carmen Reinhart and Kenneth S. Rogoff in Harvard University Working Paper , December 2008

This paper presents a comparative historical analysis that is focused on the aftermath of systemic banking crises. This study of the aftermath of severe financial crises includes a number of recent emerging market cases to expand the relevant set of comparators. Also included in the comparisons are two prewar developed country episodes for which w...  

Banking Crises: An Equal Opportunity Menace by Carmen M. Reinhart and Kenneth S. Rogoff in Harvard University Working Paper , December 2008

The historical frequency of banking crises is quite similar in high- and middle-to-low income countries, with quantitative and qualitative parallels in both the run-ups and the aftermath. The authors establish these regularities using a unique dataset spanning from Denmark’s financial panic during the Napoleonic War to the ongoing global financial ...  

The Crisis through the Lens of History by Charles Collyns in International Monetary Fund: Finance and Development , December 2008

The current financial crisis is ferocious, but history shows the way to avoid another Great Depression

The Current Financial Crisis: What Should We Learn from the Great Depressions of the Twentieth Century? by Gonzalo Fernández de Córdoba and Timothy J. Kehoe in Federal Reserve Bank of Minneapolis Staff Report , March 2009

Studying the experience of countries that have experienced great depressions during the twentieth century teaches us that massive public interventions in the economy to maintain employment and investment during a financial crisis can, if they distort incentives enough, lead to a great depression.

The Evolution of the Subprime Mortgage Market by Souphala Chomsisengphet and Anthony Pennington-Cross in Federal Reserve Bank of St. Louis Review , January 2006

This paper describes subprime lending in the mortgage market and how it has evolved through time. Subprime lending has introduced a substantial amount of risk-based pricing into the mortgage market by creating a myriad of prices and product choices largely determined by borrower credit history (mortgage and rental payments, foreclosures and bankru...  

Financial Statistics for the United States and the Crisis: What Did They Get Right, What Did They Miss, and How Should They Change? by Matthew J. Eichner, Donald L. Kohn, and Michael G. Palumbo in Board of Governors Finance and Economics Discussion Series , April 2010

Although the instruments and transactions most closely associated with the financial crisis of 2008 and 2009 were novel, the underlying themes that played out in the crisis were familiar from previous episodes: Competitive dynamics resulted in excessive leverage and risktaking by large, interconnected firms, in heavy reliance on short-term sourc...  

The Global Credit Crisis as History by Barry Eichengreen in University of California Berkeley Polcy Paper , December 2008

During the Great Depression the Fed waited too long to execute its responsibilities as a lender of last resort, thus allowing the banking system to collapse. This time, there has been little hesitation on the part of the Fed to act, which leaves two questions: Why, given that this is a global credit crisis, have policy makers in other countries fai...  

An Historical Perspective on the Crisis of 2007-2008 by Michael D. Bordo in Bank of Chile Conference , November 2008

The current international financial crisis is part of a perennial pattern. Today’s events have echoes in earlier big international financial crises which were triggered by events in the U.S. financial system. Examples include the crises of 1857,1893, 1907 and 1929-1933. This crisis has many similarities to those of the past but also some important ...  

Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007 by Gary B. Gorton in SSRN Paper , May 2009

The 'shadow banking system' at the heart of the current credit crisis is, in fact, a real banking system – and is vulnerable to a banking panic. Indeed, the events starting in August 2007 are a banking panic. A banking panic is a systemic event because the banking system cannot honor its obligations and is insolvent. Unlike the historical banking p...  

Stock-Market Crashes and Depressions by Robert J. Barro and José F. Ursúa in NBER Working Paper (requires subscription) , February 2009

Long-term data for 25 countries up to 2006 reveal 195 stock-market crashes (multi-year real returns of -25% or less) and 84 depressions (multi-year macroeconomic declines of 10% or more), with 58 of the cases matched by timing. The United States has two of the matched events--the Great Depression 1929-33 and the post-WWI years 1917-21, likely drive...  

Systemic Banking Crisis: A New Database by Luc Laeven and Fabian Valencia in IMF Working Paper , November 2008

This paper presents a new database on the timing of systemic banking crises and policy responses to resolve them. The database covers the universe of systemic banking crises for the period 1970-2007, with detailed data on crisis containment and resolution policies for 42 crisis episodes, and also includes data on the timing of currency crises and s...  

This Time is Different: A Panoramic View of Eight Centuries of Financial Crises by Carmen M. Reinhart and Kenneth S. Rogoff in Harvard University Working Paper , April 2008

This paper offers a “panoramic” analysis of the history of financial crises dating from England’s fourteenth-century default to the current United States sub-prime financial crisis. Our study is based on a new dataset that spans all regions. It incorporates a number of important credit episodes seldom covered in the literature, including for exampl...  

Using Monetary Policy to Stabilize Economic Activity by Carl E. Walsh in Federal Reserve Bank of Kansas City Symposium , August 2009

This essay examines the role of monetary policy in stabilizing real economic activity. The author discusses the consensus on monetary policy that developed over the last twenty years. He then examines monetary policy when the policy interest rate has fallen to zero. The paper also assess issues relevant for post-crisis monetary policy.

Where We Go from Here: The Crisis and Beyond by Richard W. Fisher in Federal Reserve Bank of Dallas Speech , March 2010

Remarks before the Eller College of Management, University of Arizona

Booms and Busts: The Case of Subprime Mortgages by Edward M. Gramlich in Federal Reserve Bank of Kansas City Economic Review , September 2007

Booms and busts have played a prominent role in American economic history. In the 19th century, the United States benefited from the canal boom, the railroad boom, the minerals boom, and a financial boom. The 20th century brought another financial boom, a postwar boom, and a dot-com boom. The details differed, but each of these cases featured init...  

Central Bank Tools and Liquidity Shortages by Stephen G. Cecchetti and Piti Disyatat in Federarl Reserve Bank of New York Economic Policy Review , October 2009

The global financial crisis that began in mid-2007 has renewed concerns about financial instability and focused attention on the fundamental role of central banks in preventing and managing systemic crises. In response to the turmoil, central banks have made extensive use of both new and existing tools for supplying central bank money to financial ...  

Changes in the U.S. Financial System and the Subprime Crisis by Jan Kregel in Levy Economics Institute Working Paper , April 2008

The paper provides a background to the forces that have produced the present system of residential housing finance, the reasons for the current crisis in mortgage financing, and the impact of the crisis on the overall financial system.

The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis by Atif R. Mian, Amir Sufi in SSRN Working Paper , December 2008

We conduct a within-county analysis using detailed zip code level data to document new findings regarding the origins of the biggest financial crisis since the Great Depression. The recent sharp increase in mortgage defaults is significantly amplified in subprime zip codes, or zip codes with a disproportionately large share of subprime borrowers as...  

Counterparty Risk in the Over-The-Counter Derivatives Market by Miguel A. Segoviano and Manmohan Singh in IMF Working Paper , November 2008

The financial market turmoil of recent months has highlighted the importance of counterparty risk. Here, we discuss counterparty risk that may stem from the OTC derivatives markets and attempt to assess the scope of potential cascade effects. This risk is measured by losses to the financial system that may result via the OTC derivative contracts fr...  

The Credit Crisis and Cycle Proof Regulation by Raghuram G. Rajan in Federal Reserve Bank of St. Louis Review , September 2009

Rajan offers what he called "cycle proof regulation" to help head off a future crisis. Among other things, he proposed: -Highly leveraged financial institutions would be required to buy fully collateralized insurance. This insurance would inject contingent capital into those institutions when they're in trouble. -Financial institutions considered...  

The Credit Crisis: Conjectures about Causes and Remedies by Douglas W. Diamond and Raghuram G. Rajan in AEA Presentation Paper , December 2008

What caused the financial crisis that is sweeping across the world? What keeps asset prices and lending depressed? What can be done to remedy matters? While it is too early to arrive at definite answers to these questions, the focus of this paper is to offer offer informed conjectures.

Did Credit Scores Predict the Subprime Crisis? by Yuliya Demyanyk in Federal Reserve Bank of St. Louis Regional Economist , October 2008

One might expect to find a connection between borrowers' FICO scores and the incidence of default and foreclosure during the current crisis. The data don't show such a cause and effect, however.

Did Prepayments Sustain the Subprime Market? by Geetesh Bhardwaj and Rajdeep Sengupta in Federal Reserve Bank of St. Louis Working Paper , October 2008

This paper demonstrates that the reason for widespread default of mortgages in the subprime market was a sudden reversal in the house price appreciation of the early 2000's. Using loan-level data on subprime mortgages, we observe that the majority of subprime loans were hybrid adjustable rate mortgages, designed to impose substantial financial ...  

The Fed's Expanded Balance Sheet by Brian P. Sack in Federal Reserve Bank of New York Speech , December 2009

The Fed’s balance sheet has moved to the forefront of its policy efforts. Accordingly, to understand the policy choices that lie ahead for the Federal Reserve, one has to understand how the balance sheet got to where it is and what effects it has had on financial markets.

Financial Crises and Economic Activity by Stephen G. Cecchetti, Marion Kohler and Christian Upper in Federal Reserve Bank of Kansas City Symposium , August 2009

The authors use historical data to examine past systemic banking crises and compare them to the current crisis. They also look at the long-term effects of a crisis on economic output.

The Financial Crisis and the Policy Response: An Empirical Analysis of What Went Wrong by John B. Taylor in Stanford University Working Paper , November 2008

This paper is an empirical investigation of the role of government actions and interventions in the financial crisis that flared up in August 2007.

Financial Reform or Financial Dementia? by Richard W. Fisher in Federal Reserve Bank of Dallas Speech , June 2010

Remarks at the SW Graduate School of Banking 53rd Annual Keynote Address and Banquet

Fixing Finance: A Roadmap for Reform by Robert E. Litan and Martin N. Baily in Brookings Institution , February 2009

This paper suggests a roadmap for reform of the financial system. The authors suggest that the guiding principles should be market discipline and sound regulation, and provide a detailed outline for changes in financial policy.

Has Financial Development Made the World Riskier? by Raghuram G. Rajan in Federal Reserve Bank of Kansas City's Symposium: The Greenspan Era: Lessons for the Future , August 2005

This paper (written pre-crisis in 2005) examines the revolutionary changes in financial systems around the world, such as greater borrowing at lower rates, the multitude of investment options catering to every possible profile of risk and return, and the ability to share risks with strangers from across the globe. The author questions the costs of...  

Has the Recent Real Estate Bubble Biased the Output Gap? by Chanont Banternghansa and Adrian Peralta-Alva in Federal Reserve Bank of St. Louis Economic Synopses , December 2009

The authors offer a word of caution to policymakers: Policies based on point estimates of the output gap may not rest on solid ground.

Hedge Funds, Systemic Risk, and the Financial Crisis of 2007-2008 by Andrew W. Lo in U.S. House Committee on Oversight and Government Reform , November 2008

This article is the written testimony of Andrew Lo on the role of hedge funds in the U.S. financial system and their regulation. For the preliminary transcript, see http://oversight.house.gov/documents/20081114143312.pdf

The Information Value of the Stress Test and Bank Opacity by Stavros Peristiani, Donald P. Morgan, and Vanessa Savino in Federal Reserve Bank of New York Staff Reports, no. 460 , July 2010

We investigate whether the “stress test,” the extraordinary examination of the nineteen largest U.S. bank holding companies conducted by federal bank supervisors in 2009, produced information demanded by the market. Using standard event study techniques, we find that the market had largely deciphered on its own which banks would have capital ga...  

Lessons for the Future from the Financial Crisis by Eric S. Rosengren in Speech before Massachusetts Newspaper Publishers Association Annual Meeting , December 2009

In a storytelling format, Rosengren explains why it was necessary to “bail out” certain firms – like AIG – and what this story teaches us about avoiding such necessities in the future. Also, why the Federal Reserve took such aggressive action to dramatically expand its balance sheet to address the crisis – and what implications and effects we expe...  

Making Sense of the Subprime Crisis by Kristopher S. Gerardi, Andreas Lehnert, Shane M. Sherland, and Paul S. Willen in Federal Reserve Bank of Boston Working Paper , December 2008

This paper explores the question of whether market participants could have or should have anticipated the large increase in foreclosures that occurred in 2007 and 2008. Most of these foreclosures stem from loans originated in 2005 and 2006, leading many to suspect that lenders originated a large volume of extremely risky loans during this period. ...  

Monetary Policy and the Housing Bubble by Ben S. Bernanke in Board of Governors Speech , January 2010

Speech given at the Annual Meeting of the American Economic Association, Atlanta, Georgia

Quick Exits of Subprime Mortgages by Yuliya S. Demyanyk in Federal Reserve Bank of St. Louis Review , March 2009

All holders of mortgage contracts, regardless of type, have three options: keep their payments current, prepay (usually through refinancing), or default on the loan. The latter two options terminate the loan. The termination rates of subprime mortgages that originated each year from 2001 through 2006 are surprisingly similar: about 20, 50, and 8...  

Regulation and Its Discontents by Kevin Warsh in Board of Governors Speech , February 2010

At the New York Association for Business Economics, New York, New York

Rethinking Capital Regulation by Anil K. Kashyap, Raghuram G. Rajan and Jeremy C. Stein in Federal Reserve Bank of Kansas City's Symposium: Maintaining Stability in a Changing Financial System , September 2008

Recent estimates suggest that U.S. banks and investment banks may lose up to $250 billion from their exposure to residential mortgages securities. The resulting depletion of capital has led to unprecedented disruptions in the market for interbank funds and to sharp contractions in credit supply, with adverse consequences for the larger economy. A n...  

The Rise in Mortgage Defaults by Chris Mayer, Karen Pence and Shane M. Sherlund in Federal Reserve Board Finance and Economics Discussion Series , November 2008

The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income.

The Subprime Crisis: Cause, Effect and Consequences by R. Christopher Whalen in SSRN Working Paper , June 2008

Despite the considerable media attention given to the collapse of the market for complex structured assets that contain subprime mortgages, there has been too little discussion of why this crisis occurred. The Subprime Crisis: Cause, Effect and Consequences argues that three basic issues are at the root of the problem, the first of which is an odio...  

Subprime Facts: What (We Think) We Know about the Subprime Crisis and What We Don't by Christopher L. Foote, Kristopher Gerardi, Lorenz Goette and Paul S. Willen in Federal Reserve Bank of Boston Public Policy Discussion Paper , May 2008

Using a variety of datasets, the authors document some basic facts about the current subprime crisis. Many of these facts are applicable to the crisis at a national level, while some illustrate problems relevant only to Massachusetts and New England. The authors conclude by discussing some outstanding questions about which the data, which they beli...  

Subprime Lending and Real Estate Markets by Susan M. Wachter, Andrey D. Pavlov, and Zoltan Pozsar in SSRN Working Paper , December 2008

The recent credit crunch, and liquidity deterioration, in the mortgage market have led to falling house prices and foreclosure levels unprecedented since the Great Depression. A critical factor in the post-2003 house price bubble was the interaction of financial engineering and the deteriorating lending standards in real estate markets, which fed o...  

Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures by Kristopher Gerardi, Adam Hale Shapiro and Paul S. Willen in Federal Reserve Bank of Boston Working Paper , May 2008

This paper provides the first rigorous assessment of the homeownership experiences of subprime borrowers. We consider homeowners who used subprime mortgages to buy their homes, and estimate how often these borrowers end up in foreclosure. In order to evaluate these issues, we analyze homeownership experiences in Massachusetts over the 1989–2007 per...  

The Subprime Turmoil: What's Old, What's New, and What's Next by Charles W. Calomiris in Federal Reserve Bank of Kansas City's Symposium: Maintaining Stability in a Changing Financial System" , October 2008

We are currently experiencing a major shock to the financial system, initiated by problems in the subprime market, which spread to securitization products and credit markets more generally. Banks are being asked to increase the amount of risk that they absorb (by moving off-balance sheet assets onto their balance sheets), but losses that the banks...  

U.S. Monetary Policy and the Financial Crisis by James R. Lothian in Federal Reserve Bank of Atlanta CenFIS Working Paper , December 2009

This paper reviews U.S. Federal Reserve policy prior to and during the course of the recession that began in December 2007. It compares those policies to monetary policy during the Great Depression of the 1930s, with which this recession has been likened. The paper then discusses what policymakers will need to do to in future to avoid a surge in in...  

Understanding the Securitization of Subprime Mortgage Credit by Adam B. Ashcraft and Til Schuermann in Federal Reserve Bank of New York Staff Reports , March 2008

In this paper, the authors provide an overview of the subprime mortgage securitization process and the seven key informational frictions that arise. They discuss the ways that market participants work to minimize these frictions and speculate on how this process broke down. They continue with a complete picture of the subprime borrower and the subp...  

Understanding the Subprime Mortgage Crisis by Yuliya Demyanyk and Otto Van Hemert in SSRN Working Paper , December 2008

In this paper the authors provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but they were masked by high house price appreciation between 2003 and 2005.

What to Do about Systemically Important Financial Institutions by James B. Thomson in Federal Reserve Bank of Cleveland , August 2009

The Federal Reserve Bank of Cleveland is proposing a three-tiered system for regulating systemically important financial institutions. Tier one would include high-risk institutions, such as large, interstate banks and multi-state insurance companies. Tier two would include moderately complex financial institutions, such as larger regional banks. An...  

Where's the Smoking Gun? A Study of Underwriting Standards for US Subprime Mortgages by Geetesh Bhardwaj and Rajdeep Sengupta in Federal Reserve Bank of St. Louis Working Paper , October 2008

The dominant explanation for the meltdown in the US subprime mortgage market is that lending standards dramatically weakened after 2004. Using loan-level data, Bhardwaj and Sengupta examine underwriting standards on the subprime mortgage originations from 1998 to 2007. Contrary to popular belief, the authors find no evidence of a dramatic weakening...  

Have the Fed Liquidity Facilities Had an Effect on Libor? by Jens Christensen in Federal Reserve Bank of San Francisco Economic Letter , August 2009

In response to turmoil in the interbank lending market, the Federal Reserve inaugurated programs to bolster liquidity beginning in December 2007. Research offers evidence that these liquidity facilities have helped lower the London interbank offered rate, a key market benchmark, significantly from what it otherwise would have been expected to be.

Macroprudential Supervision of Financial Institutions: Lessons from the SCAP by Beverly Hirtle, Til Schuermann, and Kevin Stiroh in Federal Reserve Bank of New York Staff Reports , November 2009

A fundamental conclusion drawn from the recent financial crisis is that the supervision and regulation of financial firms in isolation—a purely microprudential perspective—are not sufficient to maintain financial stability. Rather, a macroprudential perspective, which evaluates and responds to the financial system as a whole, seems necessary, and t...  

Paulson’s Gift by Pietro Veronesi and Luigi Zingales in NBER Working Paper , October 2009

The authors calculate the costs and benefits of the largest ever U.S. Government intervention in the financial sector announced the 2008 Columbus-day weekend. They estimate that this intervention increased the value of banks’ financial claims by $131 billion at a taxpayers’ cost of $25 -$47 billions with a net benefit between $84bn and $107bn. B...  

Quantitative Easing—Uncharted Waters for Monetary Policy by James Bullard in Federal Reserve Bank of St. Louis Regional Economist , January 2010

A discussion of the use of quantiative easing in monetary policy

What the Libor-OIS Spread Says by Daniel L. Thornton in Federal Reserve Bank of St. Louis Economic Synopses , May 2009

This paper offers a discussion of the current Libor-OIS rate spread, and what that rate implies for the health of banks.

Possible Solutions / Next Steps

Addressing TBTF by Shrinking Financial Institutions: An Initial Assessment by Gary H. Stern and Ron Feldman in Federal Reserve Bank of Minneapolis , May 2009

In this essay, the authors review concerns about the "make-them-smaller" reform. They recommend several interim steps to address TBTF that share some similarities with the make-them-smaller approach but do not have the same failings. Specifically, they support (1) imposing special deposit insurance assessments for TBTF banks to allow for spillover-...  

Aiding the Economy: What the Fed Did and Why by Ben S. Bernanke in Board of Governors , November 2010

Federal Reserve Chairman Bernanke's Op-ed column published in The Washington Post on November 4, 2010

Are All the Sacred Cows Dead? Implications of the Financial Crisis for Macro and Financial Policies by Asli Demirgüç-Kunt and Luis Servén in World Bank Policy Research Working Paper , January 2009

The recent global financial crisis has shaken the confidence of developed and developing countries alike in the very blueprint of financial and macro policies that underlie the western capitalist systems. In an effort to contain the crisis from spreading, the authorities in the US and many European governments have taken unprecedented steps of prov...  

As In the Past, Reform Will Follow Crisis by James Bullard in Federal Reserve Bank of St. Louis Regional Economist , July 2009

Historically, crises have led to significant legislation. The current financial crisis will undoubtedly spur further regulation. Successful regulation should be aimed not at preventing all failures, but rather at establishing a clear and credible process such that if a failure were to occur, it would take place in an orderly fashion and not cause i...  

Asset Bubbles and Systemic Risk by Eric S. Rosengren in Federal Reserve Bank of Boston Speech , March 2010

The Global Interdependence Center's Conference on "Financial Interdependence in the World's Post-Crisis Capital Markets" Philadelphia, Pennsylvania

Bank Capital: Lessons from the Financial Crisis by Asli Demirguc-Kunt, Enrica Detragiache, Ouarda Merrouche in World Bank Policy Research Working Paper, WPS5473 , November 2010

Using a multi-country panel of banks, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis.

Bank Relationships and the Depth of the Current Economic Crisis by Julian Caballero, Christopher Candelaria, and Galina Hale in Federal Reserve Bank of San Francisco Economic Letter , December 2009

The financial crisis has been worldwide in scope, but the severity has differed from country to country. Those countries whose banks played a more central role in the global financial system, were important intermediaries, or had extensive direct relationships tended to be less seriously affected, as measured by the extent of the decline in their s...  

Buying Troubled Assets by Lucian A. Bebchuk in Harvard Law and Economics Discussion Paper (via SSRN) , April 2009

This paper analyzes how government intervention in the market for banks’ troubled assets is best designed, and also uses this analysis to evaluate the public-private investment program announced by the U.S. government in March 2009. The author begins by presenting the case for using government funds to restart the market for troubled assets. He the...  

Can Monetary Policy Affect GDP Growth? by Yi Wen in Federal Reserve Bank of St. Louis Economic Synopses , April 2009

Discusses whether the growth of the monetary base is associated with gaster growth of real output.

Challenges for monetary policy in EMU by Axel Weber in Homer Jones Memorial Lecture , April 2011

Bundesbank President discussed the financial crisis and its lessons for monetary policy in a lecture at the St. Louis Fed.

The Changing Nature of Financial Intermediation and the Financial Crisis of 2007-09 by Tobias Adrian and Hyun Song Shin in Federal Reserve Bank of New York Staff Reports , March 2010

The financial crisis of 2007-09 highlighted the changing role of financial institutions and the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments. This trend was most pronounced in the United States, but it also had a profound influence o...  

The Consolidation of Financial Market Regulation: Pros, Cons, and Implications for the United States by Sabrina R. Pellerin, John R. Walter, and Patricia E. Wescott in Federal Reserve Bank of Richmond Working Paper , May 2009

The U.S. financial system has changed significantly over the last several decades without any major structural changes to the decentralized financial regulatory system, despite numerous proposals. In the past decade, many countries have chosen to consolidate their regulators into a newly formed "single regulator" or have significantly reduced the n...  

Cracks in the System: Repairing the Damaged Global Economy by Olivier Blanchard in International Monetary Fund: Finance and Development , December 2008

The financial crisis has exposed weaknesses in the current regulatory and supervisory frameworks, which have made clear that action is needed to reduce the risk of crises and to address them when they occur.

Credible Alertness Revisited by Jean-Claude Trichet in Federal Reserve Bank of Kansas City Symposium , August 2009

A discussion of three issues facing central banks: the relationship between asset prices and monetary policy; the effectiveness of the standard interest rate instrument; and the design of non-standar monetary policy measures such as the ECB's enhanced credit support.

Credit Derivatives: Systemic Risks and Policy Options by John Kiff, Jennifer Elliott, Elias Kazarian, Jodi Scarlata, and Carolyne Spackman in IMF Working Paper , November 2009

Credit derivative markets are largely unregulated, but calls are increasingly being made for changes to this “hands off” stance, amidst concerns that they helped to fuel the current financial crisis, or that they could be a cause of the next one. The purpose of this paper is to address two basic questions: (i) do credit derivative markets increase ...  

The Crisis by Alan Greenspan in Brookings Papers on Economic Activity , April 2010

To prevent a future financial crisis, the primary imperative must be increased regulatory capital and liquidity requirements on banks and significant increases in collateral requirements for globally traded financial products, irrespective of the financial institutions making the trades, Greenspan says. He offers his views about regulatory reform,...  

Emerging from the Crisis: Where Do We Stand? by Ben S. Bernanke in Board of Governors Speech , November 2010

Speech by Federal Reserve Chairman at the Sixth European Central Bank Central Banking Conference, Frankfurt, Germany

The Fed at a Crossroads by James Bullard in Federal Reserve Bank of St. Louis Speech , March 2010

Remarks at St. Cloud State University's 48th annual Winter Institute

Fed Confronts Financial Crisis by Expanding Its Role as Lender of Last Resort by John V. Duca, Danielle DiMartino and Jessica J. Renier in Federal Reserve Bank of Dallas Economic Letter , February 2009

The unprecedented actions the Fed has taken to combat the financial crisis have had some success in unclogging the economy's financial arteries, according to this article.

Federal Reserve Liquidity Programs: An Update by Niel Willardson and LuAnne Pederson in The Region (Federal Reserve Bank of Minneapolis) , June 2010

A review of the size, status and results of the Fed's programs to cope with crisis

The Federal Reserve's Asset Purchase Program by Janet Yellen in Speech at the The Brimmer Policy Forum, Allied Social Science Associations Annual Meeting, Denver, Colorado , January 2011

Yellen discusses the rationale for the decision by the Federal Open Market Committee (FOMC) in November 2010 to initiate a new program of asset purchases, and addresses questions (FAQs) regarding the program's economic and financial effects both in the U.S. and abroad.

The Federal Reserve's Liquidity Facilities by William C. Dudley in Speech , April 2009

Remarks at the Vanderbilt University Conference on Financial Markets and Financial Policy Honoring Dewey Daane, Nashville, Tennessee

The Federal Reserve's Policy Actions during the Financial Crisis and Lessons for the Future by Donald L. Kohn in Board of Governors Speech , May 2010

Speech at the Carleton University, Ottawa, Canada

The Financial Crisis and the Recession: What is Happening and What the Government Should Do by Robert E. Hall and Susan E. Woodward

Woodward and Hall frequently update a document on the crisis and recession. The highlights of the document are: Low interest rates in the early part of the decade were responsible monetary policy to head off deflation, not an irresponsible contribution to a housing price bubble. The most important fact about the economy today is the collapse of s...  

The Financial Crisis of 2008: What Needs to Happen after TARP by Campbell R. Harvey in Duke University Working Paper , October 2008

Harvey argues that the Trouble Asset Relief Program (TARP), signed into law on October 3, 2008, is an insufficient policy initiative to end the current credit crisis. In addition to modifications in implementing the program, other policy initiatives are necessary. Harvey sets forth several proposals to help end the crisis.

Fiscal Responsibility and Global Rebalancing by Janet L. Yellen in Federal Reserve Board of Governors , December 2010

Speech by Federal Reserve System Board of Governors Vice Chair at the Committee for Economic Development 2010 International Counterparts Conference, New York, New York .

The Future of Securities Regulation by Luigi Zingales in University of Chicago Working Paper , January 2009

The U.S. system of securities law was designed more than 70 years ago to regain investors’ trust after a major financial crisis. Today we face a similar problem. But while in the 1930s the prevailing perception was that investors had been defrauded by offerings of dubious quality securities, in the new millennium, investors’ perception is that they...  

The High Cost of Exceptionally Low Rates by Thomas M. Hoenig in Federal Reserve Bank of Kansas City , June 2010

Speech at Bartlesville Federal Reserve Forum

Implementing a Macroprudential Approach to Supervision and Regulation by Ben S. Bernanke in Federal Reserve Board of Governors Speech , May 2011

Speech at the 47th Annual Conference on Bank Structure and Competition, Chicago, Illinois

Implications of the Financial Crisis for Economics by Ben S. Bernanke in Board of Governors Speech , September 2010

Speech at the Conference Co-sponsored by the Center for Economic Policy Studies and the Bendheim Center for Finance, Princeton University, Princeton, New Jersey

Implications of the Financial Crisis for Potential Growth: Past, Present, and Future by Charles Steindel in Federal Reserve Bank of New York Staff Reports , November 2009

The scale of the recent collapse in asset values and the magnitude of the recession suggest that activities connected to the increase in values over the 2002-07 period—notably, expansion of the financial markets, homebuilding, and real estate—were overstated. If this is true, aggregate U.S. economic growth would have been overstated, implying that ...  

Improving the International Monetary and Financial System by Janet L. Yellen in Speech at the Banque de France International Symposium, Paris, France , March 2011

In this speech Yellen contributes her thoughts on steps we can take to improve our international economic order. In the case of the recent global financial crisis and recession, she apportions responsibility to inadequacies in both the monetary and financial systems.

It's Greek to Me by Kevin Warsh in Board of Governors Speech , June 2010

At the Atlanta Rotary Club, Atlanta, Georgia

The Lack of an Empirical Rationale for a Revival of Discretionary Fiscal Policy by John B. Taylor in AEA Presentation Paper , January 2009

Despite this widespread agreement of a decade ago, there has recently been a dramatic revival of interest in discretionary fiscal policy. The purpose of this paper is to review the empirical evidence during the past decade and determine whether it calls for such a revival. Taylor finds that it does not.

The macroeconomics of financial crises: How risk premiums, liquidity traps and perfect traps affect policy options by Manfred Gärtner und Florian Jung in University of St. Gallen Discussion Paper , July 2009

The paper shows that structural models of the IS-LM and Mundell-Fleming variety have a lot to tell about the macroeconomics of the current global crisis. In addition to demonstrating how the emergence of risk premiums in money and capital markets may drive economies into recessions, it shows the following: (1) Liquidity traps may occur not only whe...  

Monetary Policy Research and the Financial Crisis: Strengths and Shortcomings by Donald L. Kohn in Speech, Board of Governors , October 2009

Kohn, in his speech, asks "What aspects of the existing literature in monetary economics have been particularly helpful in formulating the course of monetary policy since the onset of the financial crisis? Second, what are the gaps in this literature that have become particularly evident since the onset of the financial crisis and, therefore, would...  

Monetary Policy Stance: The View from Consumption Spending by William T. Gavin in Federal Reserve Bank of St. Louis Economic Synopses , October 2009

The author suggests that we should expect a third business cycle in succession in which the real federal funds rate reaches its trough well after the economy begins to recover

Mortgage Choice and the Pricing of Fixed-Rate and Adjustable-Rate Mortgages by John Krainer in Federal Reserve Bank of San Francisco Economic Letter , February 2010

In the United States throughout 2009, the share of adjustable-rate mortgages among total mortgage originations was very low, apparently reflecting the attractive pricing of fixed-rate mortgages relative to ARMs. Government policy could have changed the relative attractiveness of the fixed-rate mortgages and ARMs, thereby shifting the market share o...  

Negating the Inflation Potential of the Fed’s Lending Programs by Daniel L. Thornton in Federal Reserve Bank of St. Louis Economic Synopses , July 2009

The Term Auction Facility (TAF), instituted in December 2007, was the first in a series of Fed lending facilities designed to allocate credit (and thus liquidity) to certain institutions and markets. The most recent of these lending facilities is the Term Asset-Backed Securities Loan Facility (TALF), which began operation in March 2009. Initiall...  

The New Shape of the Economic and the Financial Governance in the EU by Olli Rehn in Institute of International Finance , October 2010

Keynote Speech by EU Economic & Monetary Affairs Commissioner at The Annual Meeting Institute of International Finance

On the Record with Bernanke in PBS NewsHour Forum , July 2009

At a forum in Kansas City, Mo., Federal Reserve Chairman Ben Bernanke discussed the central bank's actions in handling the economic crisis, saying he did not want to be the Fed chief who "presided over the second Great Depression." Here is the full transcript of the forum, which was moderated by Jim Lehrer.

Paradise Lost: Addressing ‘Too Big to Fail’ (With Reference to John Milton and Irving Kristol) by Richard W. FIsher in Remarks before the Cato Institute’s 27th Annual Monetary Conference , November 2009

"In the words of Milton, I would say that regulation should be designed to enable financial institutions to be 'sufficient to have stood, though free to fall.'"

A Plan for Addressing the Financial Crisis by Lucian A. Bebchuk in Harvard Law School Working Paper , September 2008

This paper critiques the proposed emergency legislation for spending $700 billion on purchasing financial firms’ troubled assets to address the 2008 financial crisis. It also puts forward an alternative for advancing the two goals of the proposed legislation – restoring stability to the financial markets and protecting taxpayers.

Preventing Future Crises by Noel Sacasa in International Monetary Fund: Finance and Development , December 2008

This article takes a look at substantive issues in the current debates on reforming the financial sector. The first section identifies crucial weaknesses that the reforms need to address, and the second outlines key areas for policy action.

The Public Policy Case for a Role for the Federal Reserve in Bank Supervision and Regulation by Ben S. Bernanke in Board of Governors , January 2010

The Board's views on the importance of the Federal Reserve's continued role in bank supervision and regulation. The document discusses (1) how the expertise and information that the Federal Reserve develops in the making of monetary policy enable it to make a unique contribution to an effective regulatory regime, especially in the context of a more...  

Rebalancing the Global Recovery by Ben S. Bernanke in Board of Governors , November 2010

Speech by the Federal Reserve Chairman at the Sixth European Central Bank Central Banking Conference, Frankfurt, Germany

Regulating Systemic Risk by Governor Daniel K. Tarullo in Speech at the 2011 Credit Markets Symposium, Charlotte, North Carolina , March 2011

This speech addresses the implementation of the new statutory regime for special supervision and regulation of financial institutions whose stress or failure could pose a risk to financial stability.

The Regulatory Response to the Financial Crisis: An Early Assessment by Jeffrey M. Lacker in The Institute for International Economic Policy and the International Monetary Fund Institute , May 2010

Assessment of the regulatory response to this crisis will depend predominantly on how well it clarifies and places discernable boundaries around the federal financial safety net.

Remarks on "The Squam Lake Report: Fixing the Financial System" by Ben S. Bernanke in Board of Governors Speech , June 2010

At the Squam Lake Conference, New York, New York

Report on the Lessons Learned from the Financial Ccrisis with Regard to the Functioning of European Financial Market Infrastructures by European Central Bank in European Central Bank , April 2010

This report considers issues relating to the impact of the financial crisis on the functioning of European financial market infrastructures (FMIs), including systemically important payment systems, central counter parties, and securities settlement systems.

Second Chances: Subprime Mortgage Modification and Re-Default by Andrew Haughwout, Ebiere Okah, and Joseph Tracy in Federal Reserve Bank of New York Staff Reports , December 2009

Mortgage modifications have become an important component of public interventions designed to reduce foreclosures. In this paper, we examine how the structure of a mortgage modification affects the likelihood of the modified mortgage re-defaulting over the next year. Using data on subprime modifications that precede the government’s Home Affordable...  

Securitization Markets and Central Banking: An Evaluation of the Term Asset-Backed Securities Loan Facility by Sean Campbell, Daniel Covitz, William Nelson, and Karen Pence in Finance & Economic Discussion Series, #2011-16 , January 2011

This working paper studies the effects of the Term Asset-Backed Securities Loan Facility and finds that it lowered interest rate spreads for some categories of asset-backed securities but had little impact on the pricing of individual securities.

Seeking Stability: What's Next for Banking Regulation? by Simona E. Cociuba in Federal Reserve Bank of Dallas Economic Letter , April 2009

Cociuba reviews the Basel I regulatory framework, and then considers some of the improvements and shortcomings of Basel II. Cociuba then presents the example of Northern Rock to illustrate the shortcomings of Basel I, before considering what the future of bank regulation should look like.

Still More Lessons from the Crisis by William C. Dudley in Federal Reserve Bank of New York Speech , December 2009

Remarks at the Columbia University World Leaders Forum, New York, New York

The Success of the CPFF? by Richard G. Anderson in Federal Reserve Bank of St. Louis Economic Synopses , April 2009

Describes the Commercial Paper Funding Facility and its effect on the availability of commercial credit.

Uncertainty About When the Fed Will Raise Interest Rates by Michael W. McCracken in Federal Reserve Bank of St. Louis Economic Synopses , June 2009

In response to the current economic crisis, the Federal Reserve has reduced its federal funds rate (FFR) target to zero. With the FFR at zero and a negative rate practically infeasible, the Fed is now in largely uncharted territory when conducting monetary policy. Other types of policies are now the focus of attention.

What's Under the TARP? by Craig P. Aubuchon in Federal Reserve Bank of St. Louis Economic Synopses , April 2009

This article provides an outline of the TARP plan and the Financial Stability Plan.

Will Regulatory Reform Prevent Future Crises? by James Bullard in Federal Reserve Bank of St. Louis Speech , February 2010

Remarks at CFA Virginia Society, Richmond, Virginia

Will the U.S. Bank Recapitalization Succeed? Lessons from Japan by Takeo Hoshi and Anil K. Kashyap in NBER Working Paper , December 2008

The U.S. government is using a variety of tools to try to rehabilitate the U.S. banking industry. The two principal policy levers discussed so far are employing asset managers to buy toxic real estate securities and making bank equity purchases. Japan used both of these strategies to combat its banking problems. There are also a surprising number o...  

The Global Financial Crisis has been a watershed event not only for many advanced economies but also emerging markets around the world. This book brings together research and policy work over the last nine years from staff at the IMF. It covers a wide range of issues such as the origins of the financial crisis, the policy response, spillovers and contagion, case studies, bank stress testing, and debt sustainability and sovereign debt restructuring.

• Front Matter
• Introduction

International Monetary Fund Copyright © 2010-2021. All Rights Reserved.

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The Causes of the Economic Crisis: And Other Essays Before and After the Great Depression Hardcover – January 1, 2006

ISBN 1-933550-03-1

• Print length 207 pages
• Language English
• Publisher Ludwig von Mises Institute
• Publication date January 1, 2006
• ISBN-10 1933550031
• ISBN-13 978-1933550039
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• Publisher ‏ : ‎ Ludwig von Mises Institute (January 1, 2006)
• Language ‏ : ‎ English
• Hardcover ‏ : ‎ 207 pages
• ISBN-10 ‏ : ‎ 1933550031
• ISBN-13 ‏ : ‎ 978-1933550039
• Item Weight ‏ : ‎ 11.2 ounces
• #2,352 in Theory of Economics
• #4,500 in Economic History (Books)

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The 1973 Oil Crisis and Its Economic Consequences

Written by: Gregory L. Schneider, Emporia State University

By the end of this section, you will:.

• Explain the various military and diplomatic responses to international developments over time
• Explain how and why policies related to the environment developed and changed from 1968 to 1980

Suggested Sequencing

Use this Narrative in the first half of the chapter to discuss the impact the 1973 oil crisis had on the economy and how it affected the growing environmental movement.

After an invasion by three Arab states in the Six Day War in 1967, Israel acquired the Sinai Peninsula from Egypt, the West Bank from Jordan, and the Golan Heights from Syria. Six years later, on October 6, 1973, Anwar Sadat of Egypt and Hafez al-Assad of Syria caught Israel by surprise with a massive attack on both its southern and northern borders. The Yom Kippur War that followed was so named because it began on the High Holy Day of the Jewish faith.

The Nixon administration decided to come to Israel’s rescue and resupplied its army with weapons. Because of the Cold War and their friendships with Middle Eastern nations, the Soviets countered, supplying both Syria and Egypt with weapons. This led to fears on both sides of a major war between the superpowers as Nixon raised the defense condition (DefCon) level to 4 (on a scale from 5 to 1, which was war) during the conflict. After three weeks of fighting, a United Nations -brokered resolution ended the conflict, with Israel remaining in control of territories it had gained in the 1967 war.

While the fighting was still going on, on October 17, 1973, Saudi Arabia and the members of Organization of the Petroleum Exporting Countries (OPEC) wanted to punish the supporters of Israel by announcing a 5 percent cut in oil output. President Nixon and Congress responded by providing an additional $2.2 billion to the Israelis. That led to a Saudi decision, backed by OPEC, to go further and place an embargo on oil shipments to the United States and Western European countries, a decision that caused the first oil crisis of the 1970s.

Five nations – Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela – had formed the OPEC cartel in 1960. With an additional seven nations joining by 1973, OPEC countries’ production accounted for half the oil produced in the world. OPEC had powerful leverage in setting production output and in establishing a benchmark price for crude oil in the world. It was willing to use this leverage politically in a number of crises in the 1970s.

Through World War II, the United States had been the biggest producer of oil in the world (a status it regained in 2018). Oil fields in Texas, Oklahoma, other states, and the Gulf of Mexico produced enough oil to maintain the cheap gasoline Americans enjoyed in the 1950s and 1960s. By 1973, U.S. consumption of oil was also the highest in the world; with only 6 percent of the world’s population, the United States consumed one-third of the oil produced. Moreover, with tremendous industrial growth and the expansion of highways and automobile production, oil imports were increasingly necessary to sustain America’s economic expansion and growth. By the early 1970s, imports accounted for about 30 percent of the oil consumed in the United States, which had begun to curtail domestic production and exploration due to environmental concerns and governmental regulations.

The OPEC embargo showcased the new power of the cartel in the world economy and struck many Americans as another example of their nation’s decline in the 1970s. When the embargo took hold, oil prices jumped from $2 per barrel to $11. The impact hit American consumers in their wallets as retail prices for gasoline soared by 40 percent in November 1973 alone. Fearful of shortages of gasoline, Americans lined up at the pump to refuel while gas stations raised their prices several times per day. The gas lines exposed the panic that set in during the embargo as motorists worried that if they did not fill up today, then the price might be higher tomorrow. Not surprisingly, with demand high, many stations ran out of fuel, and signs saying “Sorry, No Gas Today” became quite common in the late fall months.

During the 1973 oil crisis, a man and his son warn that gas thieves will be punished.

Nixon was diverted from the problem by the Watergate scandal. On October 20, 1973, he had fired the special prosecutor in the Watergate investigation, Archibald Cox, and found himself embattled because of his own cover-up of the Republican break-in at the Democratic National Committee headquarters at the Watergate Hotel in June 1972. The Western European countries and Japan, key allies of the United States, faced much more difficult problems with the embargo, because they relied on the OPEC states for 45 to 50 percent of their oil.

However, a break in the oil crisis came in January 1974 when National Security Advisor Henry Kissinger met with King Faisal of Saudi Arabia and persuaded him that the conditions for the embargo had ended with the end of the Yom Kippur war. More importantly, Egypt’s Sadat realized that the embargo was hurting his country’s image. After Kissinger negotiated the terms for reconciliation and helped end the embargo, Nixon visited Israel, Egypt, and Saudi Arabia in May 1974 and gained a massive outpouring of support from the Egyptian people, who welcomed the U.S. president, the first ever to visit Egypt. Three months later, Nixon resigned the presidency.

President Nixon meeting with Syrian President Hafez al-Assad at Damascus, Syria, in July 1974.

Beyond the oil crisis, rising energy costs were only one manifestation of the great inflation that ripped through the economies of the West during the 1970s. Prices rose for several reasons: expansion of government spending on social programs and the war in Vietnam; low interest rates established by the Federal Reserve Board, which encouraged more borrowing by businesses; rising energy costs; and, in 1971, the end of the Bretton Woods monetary system linking the value of the U.S. dollar to the value of gold. The result was skyrocketing consumer prices that outpaced wage increases for workers. Nixon responded by applying artificial wage and price controls to the economy in 1971. They began to produce shortages until, when they were lifted after 90 days, prices skyrocketed again.

President Gerald Ford, lacking any better solutions, used psychology to get control of inflation, asking citizens to wear Whip Inflation Now (WIN) buttons. President Jimmy Carter reined in government spending by reducing its growth and began deregulating industry, but kept price controls on oil. Carter also appointed Paul Volcker, an anti-inflation hawk, as chair of the Federal Reserve Board in 1978, and his policy of driving up interest rates ended the great inflation by 1983 (but the result was a recession in 1979-1980 and again in 1981-1982). Clearly, more than just high oil prices was responsible for the inflation of the 1970s. As economist Milton Friedman wrote in his 1979 book Free to Choose: “There is one simple way to end the energy crisis and the gasoline shortages tomorrow. Eliminate all the controls on the prices of crude oil and other petroleum products.”

Americans faced a second, more severe shock at the pump after Iran cut oil exports entirely from December 1978 until the autumn of 1979, during the consolidation of power by the new Iranian Islamic government under Ayatollah Khomeini. Other nations, like Saudi Arabia, picked up the slack, but the result was a second major panic that tripled the price of gasoline at the pump (to more than $1.00 per gallon, which, adjusted for inflation, was the highest gas price U.S. consumers had ever paid). The price per barrel more than doubled from $15 per barrel to $39 per barrel by mid-1979. Again, panic ensued as drivers lined up for gas and shortages resulted.

Long lines at gas stations became common again during the 1979 oil crisis in the United States.

The 1979 Three Mile Island nuclear accident in Pennsylvania that resulted in a partial nuclear meltdown turned the public against nuclear power and triggered additional fears of skyrocketing energy costs. The price of home heating oil doubled in the harsh winters of 1979 and 1980. Most importantly, the oil crunch fueled a new round of inflation because railroads and airlines were hit hard by the fuel crisis and raised fares in response. Jimmy Carter spoke to this topic in his 1979 “malaise speech,” calling the oil crisis “the moral equivalent of war,” yet he chose not to ease up on regulations on oil production in the United States to expand supply and lower prices to meet the crisis.

That regulatory policy took effect after the election of Ronald Reagan. Reagan wanted to steer the country toward greater energy independence. In part because of the Reagan administration’s success in persuading Saudi Arabia to keep production up despite a drop in demand (to limit the oil profits the Soviet Union was using to fund its military), the price of oil plummeted during the 1980s and 1990s, from $20 per barrel to $5 by the end of the 1980s.

The oil shocks of the 1970s had a profound impact on the American economy and politics. They signified the beginnings of an effort to examine renewable energy sources, like solar and wind energy. Eventually, ethanol production from corn also was subsidized by the federal government in an attempt to produce alternatives to oil in the refining of gasoline. Auto producers began to build smaller, more fuel-efficient cars. (However, when oil prices dropped, American consumers turned back to fuel-hungry trucks and sport utility vehicles). Domestic energy sources and producers received new encouragement from the Reagan administration, and by the mid-2000s, the development of fracking, the use of high-pressure sand and water to unlock oil stored in shale rock, led to the development of the Bakken Oil Field in North Dakota and the Permian Basin in Texas. With this development, by 2018, the United States was once again the largest oil producer in the world.

Politically, the deregulation of oil contributed to the conservative revolution in American politics. Carter lost his reelection bid due to the country’s economic troubles and the Iran hostage crisis, while oil-friendly Republican administrations, including those of Reagan, George W. Bush, and Donald Trump, encouraged greater American production and exploration. Yet the oil market remains volatile, and although the Middle Eastern nations comparatively produce less oil than in the 1970s, geopolitics and the demand for energy will likely make oil a key part of world politics for the foreseeable future.

Review Questions

1. Why did the Yom Kippur War produce the first oil embargo in 1973?

• President Nixon supported Israel.
• The Soviet Union ordered OPEC to embargo oil.
• The price of oil declined because of the war.
• Saudi Arabia needed the hard currency.

2. The 1979 oil crisis was sparked by

• President Carter’s curtailing of domestic oil production
• OPEC’s embargo of oil
• Iran’s cut of oil exports
• the war between Israel and the Arab States

3. A major concern the Yom Kippur War raised for the United States was

• an economic depression in the United States
• an ensuing war between the world’s superpowers
• fear that the United States would no longer be the world’s biggest oil producer
• the annihilation of the state of Israel

4. For the United States, the most significant impact of the 1973 oil embargo was

• the need to increase domestic oil production
• a loss of economic support from important allies
• a 40 percent increase in gas prices
• the end of its alliance with Israel

5. All the following were major impacts of the oil shocks of the 1970s except

• America began to examine the use of renewable energy sources
• the federal government subsidized alternative forms of automobile fuel
• automobile companies began to build smaller cars
• Richard Nixon was reelected in a landslide victory

6. The domestic event that made oil shocks more problematic in the 1970s was

• the Watergate scandal
• the Three Mile Island incident
• the end of the Bretton Woods monetary system
• the introduction of ethanol production

7. Which of the following is an accurate comparison of the 1973 and 1979 oil crises?

• Both crises led to a renewed interest in examining renewable energy sources.
• The 1973 crisis resulted from cuts in domestic oil production, whereas the 1979 crisis was the result of the Yom Kippur War.
• The 1973 crisis was more severe than the crisis of 1979.
• Both crises led to reduced regulations to expand domestic oil production.

Free Response Questions

• Explain how the Organization of the Petroleum Exporting Countries (OPEC) was successful in its oil embargo in 1973.
• Analyze the impact of price controls on the 1970s oil crisis in the United States.

AP Practice Questions

Cars lining up for fuel at a Maryland service station in June 1979.

1. Events like those in the photograph were most directly related to

• stagflation of the 1970s
• the oil embargos of the 1970s
• recessions of the 1970s
• the Whip Inflation Now campaign

2. Which event contributed most to events such as those depicted in the photograph?

• The Yom Kippur War
• The Watergate scandal
• The Islamic Revolution in Iran
• Increased government spending on social programs

3. A significant federal reaction to the economic crisis that accompanied the event in the photograph was

• President Nixon’s trip to the Middle East to negotiate lower oil prices
• temporary wage and price controls
• the use of the Whip Inflation Now campaign to improve the economy
• the appointment of Paul Volcker as Federal Reserve chair

Primary Sources

Richard Nixon, Address to the Nation about National Energy Policy, November 1973. https://www.nixonlibrary.gov/sites/default/files/2018-08/energycrisisspeech_transcript.pdf

Jimmy Carter, “A Crisis of Confidence” speech, July 1979. https://www.americanrhetoric.com/speeches/jimmycartercrisisofconfidence.htm

Ronald Reagan, Radio Address to the Nation on Oil Prices, April 1986. https://www.reaganlibrary.gov/research/speeches/41986a

Suggested Resources

Jacobs, Meg. Panic at the Pump: The Energy Crisis and the Transformation of American Politics in the 1970s . New York: Hill and Wang, 2017.

Samuelson, Robert J. The Great Inflation and its Aftermath: The Past and Future of American Affluence . New York: Random House, 2011.

Yergin, Daniel. The Prize: The Epic Quest for Oil, Money and Profit . New York: Simon and Schuster, 1991.

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Why Are People So Down About the Economy? Theories Abound.

Things look strong on paper, but many Americans remain unconvinced. We asked economic officials, the woman who coined “vibecession” and Charlamagne Tha God what they think is happening.

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By Jeanna Smialek

The U.S. economy has been an enigma over the past few years. The job market is booming, and consumers are still spending, which is usually a sign of optimism. But if you ask Americans, many will tell you that they feel bad about the economy and are unhappy about President Biden’s economic record.

Call it the vibecession . Call it a mystery. Blame TikTok , media headlines or the long shadow of the pandemic. The gloom prevails. The University of Michigan consumer confidence index , which looked a little bit sunnier this year after a substantial slowdown in inflation over 2023, has again soured. And while a measure of sentiment produced by the Conference Board improved in May, the survey showed that expectations remained shaky.

The negativity could end up mattering in the 2024 presidential election. More than half of registered voters in six battleground states rated the economy as “poor” in a recent poll by The New York Times, The Philadelphia Inquirer and Siena College. And 14 percent said the political and economic system needed to be torn down entirely.

What’s going on here? We asked government officials and prominent analysts from the Federal Reserve, the White House, academia and the internet commentariat about what they think is happening. Here’s a summary of what they said.

Kyla Scanlon, coiner of the term ‘Vibecession’

Price levels matter, and people are also getting some facts wrong.

The most common explanation for why people feel bad about the economy — one that every person interviewed for this article brought up — is simple. Prices jumped a lot when inflation was really rapid in 2021 and 2022. Now they aren’t climbing as quickly, but people are left contending with the reality that rent, cheeseburgers, running shoes and day care all cost more.

“Inflation is a pressure cooker,” said Kyla Scanlon, who this week is releasing a book titled “ In This Economy? ” that explains common economic concepts. “It hurts over time. You had a couple of years of pretty high inflation, and people are really dealing with the aftermath of that.”

But Ms. Scanlon also pointed out that knowledge gaps could be part of the problem: A Harris poll for The Guardian this month found that a majority of Americans (incorrectly) believed that the United States was in a recession. About half said they believed the stock market was down from last year, though it is up considerably.

“Yes, there is economic frustration, but these are objectively verifiable facts,” she said.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta

Part of this is about memory.

A big question is why — when the economy is growing, unemployment is historically low and stock prices are climbing — things feel so dim.

“When I talk to folks, they all tell me that they want interest rates to be lower, and they also tell me that prices are too high,” Raphael Bostic told reporters last week. “People remember where prices used to be, and they remember that they didn’t have to talk about inflation, and that was a very comfortable place.”

Mr. Bostic and his colleagues at the Fed have raised interest rates to a more-than-two-decade high in an effort to bring down the rapid price increases, and he said the key was wrestling inflation back to normal quickly.

Jared Bernstein, CHAIRMAN OF THE White House Council of Economic Advisers

Catching up with inflation takes time.

As inflation cools, there is some hope that the negativity could fade. Jared Bernstein noted that for the past 14 months, middle-class wage growth has been beating inflation, and predicted that people would feel better as wages caught up to higher price levels.

“If that were wrong, everyone would be walking around eternally upset that gas doesn’t cost $1 a gallon,” Mr. Bernstein said. “The two components of that adjustment are time plus rising real pay.”

Loretta Mester, President of the Cleveland Fed

Wages have lagged.

But not everyone has broken even at this point, and that could be part of the explanation behind the continued pessimism. On average, pay gains have not fully caught up with the jump in prices since the start of the pandemic, if you compare Consumer Price Index increases with a wages and salary measure that Fed officials watch closely.

“They still haven’t made up for all of the lost ground,” Loretta Mester said. “They’re still in a hole, a little bit.”

Ms. Mester noted that people were also struggling to afford houses, because prices have shot up in many places and high interest rates are making first-time homeownership difficult, putting that part of the American dream out of reach for many.

Lawrence H. Summers, Harvard economist and commentator

Interest rates are part of the issue.

That touches on an issue that Lawrence H. Summers recently raised in an economic paper : For most people, the higher interest rates that the Fed is using to try to slow demand and squash price increases feel like just another form of inflation. In fact, if high interest rates are added into inflation, that explains most of the gap between where consumer confidence is and where one might expect it to be.

“The experienced cost of living is much greater than inflation as reflected by the Consumer Price Index,” Mr. Summers said in an interview. He noted that consumer confidence improved when market-based rates, which feed into mortgage and leasing costs, eased early this year, then sank again as they rose.

Charlamagne Tha God, radio host

People remember more comfortable times.

Whatever is causing the unhappiness, it seems to be translating into negativity toward Mr. Biden. In the recent Times poll, many said they thought the economic and political system needed to be changed, and fewer said they thought that Mr. Biden, as opposed to former President Donald J. Trump, would usher in big alterations.

Charlamagne Tha God recently suggested on “ The Interview ,” a Times podcast, that Black voters in particular might be turning from Mr. Biden and toward Mr. Trump because they associated the former president with the last time they felt financially secure. Mr. Trump’s administration sent out two rounds of stimulus relief checks, which Mr. Trump signed. Mr. Biden sent out one, which he did not. And inflation began to pop in 2021, after Mr. Trump left office.

“People are living paycheck to paycheck,” Charlamagne said during a follow-up interview specifically about the economy. “You don’t know struggle until you’ve had to decide whether you’re going to pay for your car or pay for your rent.”

To his point, rents are up drastically since before the pandemic, and auto loan delinquencies are rising sharply. While inflation and higher interest rates have been a global phenomenon, people tend to blame the current economic challenges on whoever is in office.

“People can’t see past their bills,” Charlamagne said. “All we want is upward mobility and security, and whoever can provide that, even for a fleeting moment, you never forget it.”

Susan Collins, president of the Boston Fed

People are anxious postpandemic.

In fact, the recent economy has offered something of a split screen: Some people are doing really well, watching their retirement portfolios improve and their home prices appreciate. But those people were often already well off. Meanwhile, people carrying credit card balances are facing much higher rates, and many Americans have exhausted whatever savings they managed to amass during the pandemic.

“There are groups that are doing really, really, well, and there also are groups that are struggling,” Susan Collins said. “We talk to individuals who are having a lot of trouble making ends meet.”

But she also noted that the period since the pandemic had been wrought with uncertainty. Changes to interest rate policies, years of inflation, and headlines about war and geopolitical upheaval may have shaken how people view their economic situations.

“I think that there is a different level of anxiety postpandemic that is hard to rule out,” Ms. Collins said.

Aaron SOJOURNER, the W.E. Upjohn Institute

Some of this may be about media negativity.

Still, there’s one enduring mystery about the vibecession. People tend to be more optimistic about their personal economic situations than they are about the economy as a whole.

That could be because Americans rely on the media for their perception of national economic conditions, and news sentiment has grown more downbeat in recent years, said Aaron Sojourner, who recently wrote a study suggesting that economic news coverage has become more negative since 2018, and much more negative since 2021.

“For the last six years, the tone of economic news has been considerably more sour and negative than would be predicted based on macroeconomic variables,” he said.

But he acknowledged that journalists factored in real experiences and consumer sentiment data into their reporting, so it is difficult to know to what degree bad vibes are driving negative news and how much negative news is driving bad vibes.

“Does the sentiment cause the news, or does the news tone cause the sentiment? I don’t know,” Mr. Sojourner said.

Jeanna Smialek covers the Federal Reserve and the economy for The Times from Washington. More about Jeanna Smialek

Economic Crisis: Causes, Impacts, and Way Forward

• Aamir Sohail
• December 7, 2023
• CSS , CSS Essays , CSS Solved Essays , Economy of Pakistan

CSS and PMS Solved Essays | Economic Crisis: Causes, Impacts, and Way Forward

Aamir Sohail , a Sir Syed Kazim Ali student, has attempted the CSS essay “ Economic Crisis: Causes, Impacts, and Way Forward ” on the given pattern, which Sir  Syed Kazim Ali  teaches his students. Sir Syed Kazim Ali has been Pakistan’s top English writing and CSS, PMS essay and precis coach with the highest success rate of his students. The essay is uploaded to help other competitive aspirants learn and practice essay writing techniques and patterns to qualify for the essay paper.

1- Introduction

2- Understanding the term: economic crisis

3- A brief overview of the current economic situation of Pakistan

4- What are the causes behind the severe economic crisis in the country?

• Case in point : Pakistan turning to the IMF for the 23 rd time
• Case in point : The recent political crisis resulting in the Pakistan Democratic Movement and political instability in the country
• Case in point : The underdeveloped Automotive industry in the country; a glaring example in this case
• Case in point : Ministry of Power Division report 2023, highlighting demand of 30,154 MW against supply of 22,000 MW
• Case in point : According to Transparency International’s Corruption Perception Index, 2022, Pakistan ranks 140th out of 180 countries
• Case in point : According to Pakistan’s Institute of Development Economics, the country’s tax-to-GDP ratio is stagnant at 10%

5- What are the consequences of the economic crisis in Pakistan?

• Case in point : According to the State Bank of Pakistan, the country’s Current Account Deficit jumped to $0.5 billion in June 2023.
• Case in point : Low production and manufacturing industries in the country with heavy reliance on agriculture
• Case in point : According to the Pakistan Bureau of Statistics report in June 2023, there is an inflation rate of 29.4% 
• Case in point : A report by the World Bank ranking Pakistan 108th out of 190 countries in the formation of a new business
• Case in point : FDI decline of 23.2% as indicated by the Pakistan Economic Survey 22-23
• Case in point : Research by Bloomberg indicating a 38% devaluation of the Pak rupee in FY 22-23

6- Suggestions to overcome the economic crisis in the country

• ✓ To pursue the independent economic path
• ✓ To create a charter of the economy
• ✓ To boost exports and curb luxury imports
• ✓ To mobilize tax collections
• ✓ To improve governance system
• ✓ To control the inflation rate and pursue a determined exchange rate policy

7- Conclusion

In today’s world, no nation can truly achieve greatness without a strong and independent economy that benefits all segments of society. An economically stable country is a prerequisite for inclusive politics, women empowerment, and the development of a just society. Conversely, nations that fail to establish a sound economy suffer from deplorable socio-political indicators and cannot attain prosperity. Sadly, Pakistan is currently facing a severe economic crisis that has shaken the country’s foundations and led to a quagmire of issues. Over-dependence on international lenders, chronic political instability, lack of industrialization, severe energy crisis, and poor governance are the primary reasons behind this dire situation. The consequences of this crisis are grave and can be seen in rising twin deficits, surging inflation rate, declining foreign direct investment, and devaluation of the Pakistani rupee. However, all hope is not lost, and Pakistan can overcome this crisis by introducing effective structural reforms. It is high time that the country pursued an independent economic path and created a charter of the economy. Boosting exports while curbing lavish imports will also promote economic stability. The only way to address the country’s severe economic difficulties is by taking action now. Pakistan must act decisively to overcome this crisis and achieve a prosperous future. With concerted effort and effective measures, Pakistan can emerge from this crisis stronger than ever before.

An economic crisis is a period of severe economic disruption characterised by sharp economic activity declines. It can take various forms, such as banking crises, currency crises, debt crises, and more. The common features of an economic crisis include the decline of gross domestic product (GDP) growth, tightening of monetary rates, and rising inflation rate. The world has faced several economic crises over the period of time. For instance, the global financial crisis of 2008 led to a global recession and a sharp decline in economic activity, and the COVID-19 pandemic has caused a global economic crisis, affecting businesses worldwide.

At present, Pakistan faces a severe economic crisis that has jolted the country’s foundations. The economic crisis in the country is evident from slow economic growth, rise in CAD, surge in inflation, and stagnant exports. According to the Pakistan Bureau of Statistics report in June 2023, the inflation rate in the country has reached 29.4% and is projected to increase further. The unprecedented increase in inflation has eroded the purchasing power of low-middle-income groups in the country. Further, according to the State Bank of Pakistan, the country had CAD of $0.5 billion in June 2023. The CAD has resulted in a balance of payment crisis and has led to constant devaluation of the Pak rupee in the recent two years. The economic crisis has become a looming threat to the country and has engulfed the country on all fronts.  

Multiple causes have contributed to the severe economic crisis in Pakistan. First, over-dependence on international lenders leads to an economic crisis in the country. The country signed a nine-month economic stabilization program with the International Monetary Fund (IMF) in July 2023. Pakistan has a regular history of borrowing from international lenders to avert the balance of payment crisis. Since its independence, Pakistan has borrowed twenty-three times from the IMF to stabilize its economy. The borrowing comes with strict covenants and forces the country to adopt austerity measures to stem the economic decline. It raises the country’s debt, increases debt servicing costs, and makes the country vulnerable to external shocks, ultimately affecting the economic stability of the country. Hence, excessive reliance on international financial institutions leads to economic crises in the country. 

Second, chronic political instability has led to the economic crisis in Pakistan. Political stability is a prerequisite for sustained economic growth and uniform business policies and leads to an inclusive economy in a country. However, Pakistan faces acute political instability that has debilitated the country’s economic progress. The country’s recent political crisis resulted in the national assembly’s dissolution and the formation of a democratic alliance called the Pakistan Democratic Movement. The constant changing of governments in the country has created uncertainty in investors’ minds unwilling to invest in a high-risk environment where economic policies change at the whelm of the new government. Therefore, frequent interventions in the democratic functioning of a government have contributed towards the economic crisis in the country.

Besides political instability, the lack of industrialization is one of the major factors behind the grave economic situation of the country. Industrialization drives economic growth, fueling production and creating employment in a country. However, Pakistan’s economy has been heavily reliant on agriculture and has failed to increase its share in manufacturing and service domains. For instance, the Automotive industry in Pakistan is a glaring example in this case, as the country only assembles cars and motorcycles and has failed to produce any of the major components, such as engines and transmissions. Several other industries demonstrate the same example, as the country relies on imports instead of building the capacity of the local industry. Hence, the lack of industrialization slows economic growth and ultimately pushes the country toward economic decline.

Furthermore, the severe energy crisis is also one of the major impediments behind the country’s economic crisis. An efficient and adequate energy supply is vital for industries and fuels the economic growth of a country. However, being an energy-starved country, Pakistan faces numerous challenges due to constrained energy resources. According to the Ministry of Division report in 2023, Pakistan’s electricity demand is 30,154 MWs, while the country produces 22,000 MWs, resulting in a shortage of over 8,000 MWs. Limited energy supply to industries affects their production patterns, increases operational costs, and raises business costs. Frequent power outages further disrupt business operations, resulting in the country’s closure and relocation of industries. Therefore, the energy crisis is a major factor behind the economic crisis in Pakistan.  

In addition, the country’s poor governance system has stimulated the country’s economic crisis. A country facing a governance crisis fails to allocate its resources effectively, hold wrongdoers accountable, and efficiently deliver public services. Unfortunately, Pakistan presents a similar case as the country’s economic woes result from a poor governance. According to Transparency International’s Corruption Perception Index, 2022, Pakistan ranks 140th out of 180 countries worldwide. Corruption in the country has diverted resources away from productive activities and has resulted in unfair business practices that have created havoc on the country’s public institutions. Hence, Pakistan’s governance crisis has exacerbated the country’s economic woes.

Last but not least, the ineffective mobilization of the country’s tax resources has resulted in an economic crisis. Effective tax measures generate revenue, which is used for domestic expenditure, import payments, and averting balance of payment crises. However, Pakistan’s taxation system has proved ineffective and has failed to enhance the country’s revenue. According to Pakistan’s Institute of Development Economics, the country’s tax to Gross Domestic Product (GDP) ratio is stagnant at 10%. The low tax-to-GDP ratio has limited the government’s ability to finance public services and investments and has made the country reliant on external support to cover its expenditures. Therefore, the ineffective mobilization of tax resources has resulted in the economic crisis in Pakistan.

These causes indeed have grave consequences for Pakistan. First, the Current Account Deficit (CAD) and the fiscal deficit are the major impacts of the economic crisis that has engulfed the country. The CAD is the excess of a country’s imports over its exports, and fiscal deficit is an increase in a government’s expenditures over its savings during a financial year. According to a report by the Ministry of Finance, Pakistan’s fiscal deficit stood at 7.9% on 30 th June 2023, while the State Bank of Pakistan reported CAD of $0.5 billion in June 2023. The twin deficits have resulted in lower private investments and have made the government vulnerable to external stocks due to excessive reliance on international lenders to finance its expenditures. Thus, the twin deficits are the grave impact of the economic crisis that the country faces.

Second, the economic crisis in the country has resulted in an undiversified economy. An undiversified economy depends on a few sectors and fails to venture into new industries and sectors. For instance, the economic crisis in Pakistan has made the country’s economy reliant on traditional sectors, such as agriculture and textile industry, and the country has been unable to develop innovative industries and new sectors. The undiversified economy has limited the country’s competitiveness in the world and diminished the country’s economic growth rate. Therefore, the economic crisis has led to an undiversified economy in the country.

Moreover, the unprecedented rise in the inflation rate directly impacts the economic crisis. Inflation is the general increase in the price of commodities over some time, and it erodes consumers’ purchasing power. In Pakistan, inflation has overshadowed previous boundaries and has created havoc on the low-middle income groups. According to the Pakistan Bureau of Statistics report in June 2023, the inflation rate in the country has reached 29.4% and is projected to increase further. The massive rise in the inflation rate has surged price levels for all essential items, affecting the populace’s ability to afford even the necessities. Hence, the surging inflation rate is a major impact of the economic crisis that the country faces.     

Besides unprecedented inflation, the hindrances to establishing a new business are also the impact of the economic crisis. In Pakistan, the economic crisis has made it difficult for businesses to start and grow. According to a study by the World Bank, Pakistan ranks 108th out of 190 countries in the formation of a new business. Several hindrances in complex regulations, difficult access to finance, and bureaucratic delays have deterred investors from committing their capital under strict restrictions. Therefore, the impact of the economic crisis hinders the formation of new businesses. 

Furthermore, the decline in Foreign Direct Investment (FDI) is one of the major impacts of the economic crisis. FDI fuels economic growth by establishing new businesses and increasing employment opportunities in a country. However, due to its economic woes, Pakistan has failed to attract FDI in recent years. This is evident as Pakistan’s Economic Survey 2022-23 indicated an FDI decline of 23.2%. Short-sighted economic policies, poor economic infrastructure, and uncertainty in the country’s economic sphere have discouraged foreign investors from investing. Hence, the decline in FDI is a result of the economic crisis.

In addition, the economic crisis has resulted in the constant devaluation of the Pak rupee. Pak rupee has depreciated significantly in the last two years against the major currencies, resulting in a balance of payment crisis in the country. According to research by Bloomberg, the Pak rupee depreciated by 38% in Financial Year 22-23. The pressure created on the Pak rupee can be illustrated by the rise in the Current Account Deficit, as the country’s imports have grown substantially and have increased the demand for foreign currencies at the expense of the local currency. Thus, the rapid devaluation of the Pak rupee results from the economic crisis.

However, despite the severity of the crisis, Pakistan can avoid it by adopting some crucial measures. First, Pakistan shall pursue an independent economic policy to overcome the crisis. Pakistan’s reliance on international lenders, especially the IMF, has influenced and shaped its macroeconomic decisions. The country has to accept and complete several conditionalities placed by the lenders to ensure the release of agreed funds. By pursuing an independent economic path, the government can freely decide how to stabilize its economy by independently pursuing fiscal and monetary tools. Hence, pursuing an independent economic path that creates a favourable environment for local investors can steer the country out of the economic crisis.

Second, the country shall create a charter of the economy to overcome the economic crisis. A charter of economy is a document that outlines the government’s economic policies and actions. Currently, the economic policies are being formulated at the will of incumbent governments with nominal input from the concerned stakeholders. However, by creating a charter, a roadmap for reform can be created that will provide a sense of certainty and stability to investors, irrespective of the changes in government. The charter shall only be created after consultation with the concerned stakeholders to ensure it is comprehensive and addresses the underlying economic problems. Hence, by creating a charter of the economy, the country can pave the way towards economic growth.

Besides creating a charter of the economy, the government shall introduce measures to boost exports while curbing lavish imports. The country’s CAD has seen a significant rise in recent years due to a massive increase in imports, while the exports have remained stagnant. It is high time that the government shall take concrete steps by providing businesses with easy access to credit, subsidies, tax advantages, and consultancy to boost their exports. In the case of imports, special measures shall be introduced to discourage luxury imports that serve the purpose of the elite class. Restrictions such as quotas, tariffs, and import duties shall be increased to curb lavish imports. Thus, the country can overcome the economic crisis by boosting exports and curbing lavish imports. 

Furthermore, the effective mobilization of tax resources can assist the country to overpower the economic crisis. An effective tax system gives a country adequate revenue to finance domestic expenditures and meet external fiscal requirements. Unfortunately, Pakistan’s current % tax-to-GDP ratio of 10% is significantly below the Scandinavian countries’ ratio of over 40%, which have achieved high economic gains due to effective tax collections. By broadening the tax base, simplifying the tax code, and improving tax administration, the country can manifold its revenue to strengthen its fiscal base, ultimately overcoming the economic crisis.

In addition, the country can overcome the economic crisis by improving its governance system. Good governance is essential for the sustainable development of the economy as it ensures the rule of law, strict accountability, and adequate management of resources. Unfortunately, Pakistan faces an acute governance crisis that has hampered its economic growth. However, the country shall take measures such as strengthening public institutions, curbing corruption, and ensuring accountability to augment the governance system that will ultimately steer the country out of the economic crisis. 

Last but not least, to overcome the economic crisis, the country shall adopt measures to control the inflation rate and pursue a market-determined exchange rate policy. In Pakistan, the inflation rate has reached a record high, and the exchange rate has plummeted, with massive devaluation of the Pak rupee. The country can control the unprecedented increase in inflation by tightening monetary policy and reducing government spending on non-essential items. At the same time, the exchange rate can be strengthened by reducing the government interference in the foreign exchange market and exporting more than the country’s imports. Hence, the government can overcome the economic crisis by controlling the inflation rate and following a market-determined exchange rate policy.  

To conclude, Pakistan is plagued with a severe economic crisis that has dented its socio-economic fabric and led to many issues for the country. The country’s GDP growth has stagnated, foreign reserves have plummeted, and the rupee has seen a massive downward spiral. Indeed, the economy is the base upon which a nation’s progress stands. However, a weak economy can stifle a country’s progress. The reasons behind the economic crisis in Pakistan can be attributed to over-dependence on international lenders, lack of political stability, and severe energy crisis while the consequences are evident from the rising twin deficits, surging inflation rate, and devaluation of the Pak rupee. However, all hope is not lost as the country can overcome the crisis by introducing effective measures. For this purpose, the government shall pursue independent economic policies, create a charter of the economy, boost exports, and control the inflation rate to steer the country towards economic stability.

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The 2008 Financial Crisis: Causes and Consequences Essay

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Introduction

Credit crisis is a term that has been coined to describe the situation whereby accessibility of loans or credit finance becomes limited due to their unavailability. It is a trend that results to financial institutions reducing the amount of loans that they can disburse to clients irrespective of increased interest rates that they can charge on such loans (Turner).

Credit crisis is said to occur when the relationship between interest rates and credit loans being disbursed are heavily skewed, or when there is a general reduction of loans available in spite of increased demands. Ideally the relationship between interest rates and available financial credit is such that increased interest rate in the market means that financial institutions are willing to increase lending in order to increase profits.

Foster and Magdoff Perspective of 2008 Financial Crisis

Foster and Magdoff theory that attempts to explain the 2008 financial crisis attributes it to broader factors of monopoly finance capitalism which is a function of a phenomenon that they refer as stagnation which is a characteristic of mature capitalist systems. Generally credit crisis can be triggered by any of the various factors in the financial sector or combination of several such factors.

There are mainly five reasons that directly affect financial institutions loans and which in extension can trigger a credit crisis. One of the reasons is anticipated fall in value of collateral assets that are used by creditors to obtain loans from banks (Graham 2008). In this case the financial institutions become reluctant and unwilling to give out loans that are secured by such assets where all indications points to their market values plummeting.

Other reasons could be sudden exogenous adjustment in regulation by central bank that touches on lending requirements by banks or which elevates reserve requirements (Graham). The central bank might also trigger credit crunch through regulations that intend to tightly control financial institutions lending.

In such instances the banks usually respond by enacting measures that prevent their loss or transfer their operating risks to the creditors usually through increased interest rates of loans or reduction in lending. However these factors alone cannot by their own trigger credit crunch, more often credit crisis is caused by an array of factors that combine together over a long duration of time.

While Foster and Magdoff recognize these as causal factors that contributed to the 2008 financial crisis, they argue that by and large the major reason that greatly contributed to the financial meltdown was the stagnant nature of the current capitalist system. Foster and Magdoff describe mature capitalist system as “stagnant” because of its monopolistic nature that is caused by few corporations that dominates and control most of the available capital flow (Fostor and Magdoff).

When this happens as it has been taking place since the 1980s less capital becomes available for investment in economic sectors that are most in need while the real capital becomes restricted and unavailable, this outcome is what Foster and Magdoff also attributed to the occurrence of financialization.

The implication of this unbalanced excessive capital availability to particular players creates demands for investment opportunities that offer high returns; this is where the evils of monopoly-finance capital begin. The resulting scenario is massive injection of liquid capital in very questionable investment initiatives which Foster and Magdoff says includes bankrolling of wars abroad as a way of investment at the expense of other sectors which are integral in economic growth.

This form of capitalism is undesirable and dangerous according to Foster and Magdoff since it is unsustainable in the long run mainly because it ceases to become a “freely competitive system” which is an underlying feature of all “young capitalism” systems as described by Marx’s theory (Foster and Magdoff).

Because all forms of mature economies eventually leads to stagnations which ultimately causes credit crisis, the system that mature capitalism has created is reliance on various financial bubbles that are designed to counter the problem of credit crunch but which ends up crumbling and therefore exposing the inherent weaknesses of this system.

These financial bubbles are the final stages in a chain reaction process that is rooted in the monopolistic capitalist system that Foster and Magdoff attribute to the “casino economy” because of the resulting effects that saw working class families loose trillions of US dollars in the aftermath of the financial crisis.

Causes of Financial Explosion

The hallmarks of a credit crunch usually include extensive sustained losses by lenders caused by sloppy and hasty lending policies over given period of time. Sometimes it is due to plummeting of collateral assets that were used to secure loans which substantially lose value overnight as it happened to the United States housing industry.

When this happens the bank sustains huge losses caused by loss in value of the assets. The implications that follow are two parts: the bank has no adequate loan reserve that they can continue disbursing to future consumers, and two despite the availability of loans the banks becomes timid and cautious towards future lending.

This becomes the early stages of a credit crisis since availability of loans get scarce and associated interest rates shoots up through the roof. The next phase of credit crisis is limited lending and inaccessibility of the loans by consumers and lack of funds in general that virtually affect every other sector of the economy triggering what is then referred as economic recession (Turner).

However the effect of a credit crisis last for sometime only depending on the extent of loans that were disbursed by the banking industry and the extent in which the losses can be absorbed assuming the banks affected were not many.

The global credit crisis that is just ebbing away has its roots in United States banking system, more specifically as a result of lending towards mortgage housing and credit lending in general. The credit crisis did not only result to worldwide financial crisis but also caused slowed economic growth of the world’s largest and leading economy that eventually triggered global recession that started around as early as 2006 (Turner).

In 2005 the United States housing industry flourished and reached its peak in terms of value and business bustle, by then the banking industry had aligned their lending funds towards this end as a result of the positive and sustained growth in the housing industry.

By the time in what is now referred as housing bubble busted most banking institutions have invested significant amounts in the housing industry that had accumulated over time in a sort of loose credit lending. The aftermath was increased mortgage payment defaults and foreclosures on existing loan repayment that was taking place on large scale.

The other cause is the amount of mortgage that borrowers had obtained that were purely for speculative purposes and therefore for investment only. By 2006 the number of mortgage and houses that had been secured as investment options were approximately 40% of all the total houses in the market (Turner).

This was the main factor that greatly contributed to the housing surplus that made their price fall. Another cause was the securitization, a term that is used to describe a practice where bank can transfer the value of the mortgage to their investors and therefore continue to obtain further funds to lend to borrowers (Turner). Ideally the bank is supposed to hold on the mortgage as security until it is paid in full or forfeited, this way additional funds cannot be secured until such time when any of the two outcomes occur.

However securitization system allowed banks to continue pumping funds to an already saturated sector while hoodwinking investors to believe housing industry to be thriving by transferring mortgage agreements to them. In the process the banks were able to ease the lending terms and lower rates due to availability of funds in a bid to disperse as much funds as possible and therefore make profits.

The lending conditions to borrowers were even questionable verging on illegal practices, figures released by Federal Reserve indicates that 47% of borrowers did not make any down payment of the mortgages as required by law (Turner). Over time borrowers were not required to provide evidence of income nor employment as should usually be the case, instead banks focus was on credit score which depended mainly on the amount that a borrower had in the bank beside other factors.

Limitation of Foster and Magdoff Analysis of Global Crisis

The analysis of the 2008 financial crisis in the book The Great Financial Crisis offers great comprehensive and in depth insight of the nature of the present monopoly capitalist system.

To achieve this, the authors provide detailed analysis of various financial figures such as GDP, unemployment rates, income levels and so on that are very convincing. However what this analysis lacks is a global perspective since almost the entire analysis is based on US economy; despite the fact that financial crisis originated from US economy a more broad analysis would have generalized this findings and explained the origin of financial crisis beyond the US perspective.

Works Cited

Foster, J. & Magdoff, F. The Great Financial Crisis: Causes and Consequences . New York: Monthly Review Press. 2008. Print

Turner, Graham, Turner. The Credit Crunch: Housing Bubbles, Globalisation and the Worldwide Economic Crisis. London, UK: Pluto Press. 2008. Print.

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IvyPanda. (2018, July 10). The 2008 Financial Crisis: Causes and Consequences. https://ivypanda.com/essays/financial-crisis/

"The 2008 Financial Crisis: Causes and Consequences." IvyPanda , 10 July 2018, ivypanda.com/essays/financial-crisis/.

IvyPanda . (2018) 'The 2008 Financial Crisis: Causes and Consequences'. 10 July.

IvyPanda . 2018. "The 2008 Financial Crisis: Causes and Consequences." July 10, 2018. https://ivypanda.com/essays/financial-crisis/.

1. IvyPanda . "The 2008 Financial Crisis: Causes and Consequences." July 10, 2018. https://ivypanda.com/essays/financial-crisis/.

Bibliography

IvyPanda . "The 2008 Financial Crisis: Causes and Consequences." July 10, 2018. https://ivypanda.com/essays/financial-crisis/.