Assignment Content Review Week 3 Resources Choose One Of The ✓ Solved

Assignment Contentreviewthewk 3 Resourceschoose1 Of The Following Top

Review the Wk 3 Resources. Choose 1 of the following topics related to the Great Recession: the housing price bubble, collapse, foreclosures, bailout of underwater mortgages; subprime mortgages and derivatives, bailout of Fannie Mae, Freddie Mac, and AIG; the banking industry crisis, bailout of commercial and investment banks.

Write a 350-word analysis of 1 of the following corrective actions taken by the Federal Reserve as a result of the crisis: quantitative easing, purchase of toxic assets from financial institutions, paying interest on reserve balances.

Address the following in your analysis: actions taken by the Federal Reserve to mitigate the crisis; how the corrective action helped to restore stability to the financial system; how the corrective action should prevent recurrence of a similar crisis. Use of charts and graphs is encouraged with appropriate citations. Any charts or graphs retrieved from the Federal Reserve Bank of St. Louis FRED website may only be included when the data sources used by FRED are US government sources such as the Bureau of Economic Analysis or the Bureau of Labor Statistics. Cite at least 2 academically credible sources. Format your assignment according to APA guidelines.

Sample Paper For Above instruction

The Great Recession, which peaked around 2008, was primarily driven by a combination of excessive risk-taking in the housing market, widespread issuance of subprime mortgages, and the collapse of the housing bubble. In response, the Federal Reserve implemented several corrective actions to stabilize the financial system and prevent a complete economic downturn. Among these, quantitative easing (QE) was a significant measure adopted to inject liquidity into the economy.

Quantitative easing involved large-scale asset purchases, particularly of government securities and mortgage-backed securities (MBS). By purchasing these assets, the Federal Reserve aimed to lower long-term interest rates, enhance liquidity, and stimulate borrowing and investment. This approach was crucial in alleviating the credit crunch that ensued from the financial turmoil. Charts depicting the Fed’s asset holdings from the FRED database highlight the exponential increase in asset purchases during the QE periods, illustrating the scale of intervention (Federal Reserve Bank of St. Louis, 2023).

The purchase of toxic assets, especially MBS that were now illiquid and devalued, helped to restore confidence in the financial markets. By absorbing these problematic securities, the Fed reduced the risk premiums and encouraged financial institutions to replenish their balance sheets. Consequently, this helped in stabilizing banks and preventing a complete freeze of credit markets, which are vital for economic recovery.

Furthermore, paying interest on reserve balances was another strategic move. It provided a new tool for the Federal Reserve to control bank reserves and influence the broader monetary policy environment. By paying interest, the Fed incentivized banks to hold excess reserves, which increased their safety and limited excessive lending that could lead to risky asset bubbles again.

This corrective action aimed to prevent recurrence by creating a more resilient financial framework, reducing the probability of a similar crisis. By addressing liquidity issues and stabilizing the banking sector, the Fed’s policies fostered a more stable economic environment. While some critics argue that such measures may encourage risky behavior, the overall effect helped in steering the economy toward recovery and setting the groundwork for future resilience.

In conclusion, the Federal Reserve’s responses during the Great Recession, especially quantitative easing and paying interest on reserves, played crucial roles in restoring stability and preventing a deeper economic downturn. These actions, supported by data from the Federal Reserve’s FRED database, exemplify how central banks can intervene effectively during times of financial crisis.

References

• Federal Reserve Bank of St. Louis. (2023). FRED Economic Data. https://fred.stlouisfed.org
• Bernanke, B. S. (2013). The Federal Reserve and the Financial Crisis. Princeton University Press.
• Gertler, M., & Rogoff, K. (2010). Anxiety and Outrage (The Role of Federal Reserve Policy in Crisis). Journal of Economic Perspectives, 24(4), 25–44.
• Cecchetti, S. G., & Schoenholtz, K. L. (2014). Money, Banking, and Financial Markets. McGraw-Hill Education.
• Joyce, M., Lasaosa, A., Stevens, I., & Tong, M. (2011). The Financial Market Impact of Quantitative Easing in the United Kingdom. International Journal of Central Banking, 7(3), 113–161.