Week 8

Question 1

What do people usually do when they want to break panics??

Answer 1

They stack up money in their windows

Question 2

HOw big was the US financial system relative to the economy?

Answer 2

relatively small in the US. GB came first

Question 3

Was the central banks credibility high?

Answer 3

Yes, the central banks credibility was very high.

Question 4

What was one the major problems in dealing with the crisis from the FED´s viewpoint?

Answer 4

no authority. no authority to inject capital into banks.The FED could lend money to commercial banks.

Question 5

What could the FDIC do?

Answer 5

it could insure deposits up to 100k but foreign deposits, repo etc was not included.

Question 6

How much credit was insured?

Answer 6

Most was left outside of governments control to downsize the panic

Question 7

What was the overall strategy of the FED?

Answer 7

To risk to do too much instead of too little

Question 8

When did policy makers let the crisis burn?

Answer 8

August 2007 to March 2008

Question 9

What did the FED do in the letting it burn phase?

Answer 9

it lowered interest rates aggressively and tried to get liquidity in the banking system by reducing the stigma of te discount window.

Question 10

What did the FED not do that would have been a good thing to do?

Answer 10

to step in and fincance the securites the market did not want to finance. They also led many smaller banks fail and they led in this period more than two dozen morgage lenders fail.

Question 12

What did the FED do in the second phase that began in March 2008 and ended in the summer of 2008?

Answer 12

to adress the funding tools also to investment banks.They helped to merge J.P Morgan and Bear Stearns

Question 13

When did the thrid phase happpen?

Answer 13

September 2008 - January 2009

Question 14

What happened in the third phase with the economy?

Answer 14

people kept loosing their jobs and morgage prices continued to fall

Question 15

What did the FED do in the third phase of the crisis?

Answer 15

it expanded liquidity into critical markets into the entire system. Provided additional support to key institutions. Ban of America, Citi Bank and Ban of America.

Question 16

What did the FED do in September 2008?

Answer 16

Helped encourage the acquisition of a failing investment bank, Merrill Lynch, by a bank, Bank of America, tried but failed to find a buyer for Lehman, leading to its bankruptcy.Acted to prevent the failure of a large global insurance company, AIG, and imposed loses on the creditors of a major bank, WaMu, in the context of facilitating its merger, its acquisition by JP Morgan.

Question 17

What was one of the main problems that the FED had to face?

Answer 17

It did not have the tools that it needed

Question 18

what is the difference between a normal crisis and a sytemic one

Answer 18

What seems sensible ina normal crisis can be very dangerous in a sytemic one

Question 19

When did phase 4 of the crisis begin?

Answer 19

In February 2009

Question 20

What did secretary Geithner had to tell obama one wek after he tok over?

Answer 20

That despite all these investments, they had to put more money into the system

Question 21

Who was prevented from failure?

Answer 21

Ber Stearns Fannie and Freddie, AIG, Market Monetary Fund, Wachovia

Question 22

Whom led they fall?

Answer 22

Indymac, Lehmann, reserve Primary Fund, Washington Mutual

Question 23

What was bad about the policy of the FED?

Answer 23

There was still much uncertainty, you just could not tell who would be saved and who would not be saved.

Question 24

Summarise what the FED did in phase 4 of the crisis

Answer 24

Powell doctrine to revive growth - fiscal, monetary, financial. They put a 800 billion fiscal stimulus in. They coordinated global keynesian response. Stress tests to restore confidence. HArdened the guarantees of the system. They also managed that the policies would cover a vast bulk of the financial system.

Question 25

How muhc confidence was there in the financial system?

Answer 25

Almost no confidence, still

Question 26

What was stress testing?

Answer 26

So, what we did, is we designed this thing we called the stress test, drawing on some earlier supervisory work. And what we did, is we had the Fed estimate the scale of losses that firms might face in the event of a terrible, much more damaging, much more prolonged recession. And then said we would disclose those losses, that we’d disclose those losses for each individual firm. And we committed to make sure that those firms had more capital, had enough capital to survive losses that large. We’d give them a window to go raise capital from the private markets. And if they were unable to raise that capital successfully, we’d put additional capital in using the emergency resources that Congress had given us.

Question 27

Why were the stress tests so important?

Answer 27

Because they demonstrated that there was enough capital in the american system to survive. The put enough money in the window.

Question 28

Was the recovery wuick?

Answer 28

Yes the recovery was really quick

Question 29

Was the policy of the FED after the crisis of 2008 similar to the one of 1929?

Answer 29

No, not at all, it was the opposite

Question 30

Did the FED do a lot in the housing market?

Question 31

By the fall of 2009, how many people had lost tgeir jobs?

Answer 31

9 million

Question 32

Ho many morgages were under water in 2009?

Answer 32

1 out of 5

Question 33

What were the three goals of the FED?

Answer 33

Stop the drop in prices, stop wealth from disappearing, 2 Keep morgage rates low and help families to access credit. 3 Provide targeted foreclosure relief

Question 34

Were they effective in making rates stay low?

Answer 34

Yes.

Question 35

Did the FED have many tools in the morgage market?

Answer 35

No

Question 36

What was the FED unable to do in the morgage market?

Answer 36

Discharge homeowner debt in bancruptcy. Create a homeowners loan coporation. Start another morgge refinancing programme.