Geithner and Bernanke Case Study Essay

883 Words Jul 2nd, 2012 4 Pages
Geithner & Bernanke Amid the Global Financial Crisis
1. Fiscal policy: Given the breadth and depth of this recession, it was clear that the Treasury and the entire Obama administration had to take bold actions. In fact, right at the beginning, they were committed to a fiscal stimulus policy package which would be “substantial” enough to pull the economy out of the recession. The final stimulus package signed into law in 2009, the American Recovery and Reinvestment Act, was totaled $787 billion including about one-third tax cuts and one-third aid for states and the unemployed. Of the rest, labor health and education investment got 8%, and infrastructure investment got about 7%. It also included a large amount of government money to bail
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These programs were designed to provide short-term liquidity to financial institutions. Second, the Fed developed a set of facilities to provide liquidity directly to borrowers and investors in key credit markets such as commercial paper market, money market mutual funds, and ABS market. Third, the Fed started purchasing longer-term securities including mainly the GSE-guaranteed MBS to lower mortgage rates and to support housing activity and the broader economy. During the financial crisis, the Fed’s monetary policy and the Treasury’s fiscal policy were both expansionary and thus essentially complementary to each other. Both policies aimed at stimulating the economic activities and stabilizing the credit market and the entire financial system. During the crisis, the inflation rate dropped significantly as the commodity prices plummeted, which freed the Fed from worrying about inflation risk. The foreign investors poured their money into the U.S. Treasury, allowing the U.S. government to borrow at extremely low interest rates. The various actions taken by the Treasury and the Fed served to work together to address the problems which were critical to save the U.S. financial system from collapse and to end the most severe recession since the Great Depression.
2. In the time of crisis, fortunately, Geithner and Bernanke did not need time to get to know each other. They had been working closely together since 2003 when…

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