Testimony of Dr. Alan Greenspan Committee of Government Oversight and Reform

Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.

For this assignment I picked “the role of the Federal Reserve” a mere recital of the economic policies of government all over the world is calculated to cause any serious student of economics to throw up his hands in despair (pg, 74). The Federal Reserve is now in the business of enforcing the United States government’s drug laws, even if that means making a mockery of both state governments’ right to set their drug policies and the Fed’s governing statutes. A Federal Reserve official who played a key role in the government 's response to the 2008 financial crisis says the government should do more to prevent a repeat of that crisis and should consider whether the nation 's biggest banks need to be broken up. Neel Kashkari says he believes the most major banks still continue to pose a "significant, ongoing" economic risk. The next ten years will see an explosion of government debt and an implosion of government’s ability to fulfill its promises. Any economic or investment model based on past performance under previous economic conditions will be worthless just as useless as the Federal Reserve’s models.

Our nation faces many problems, and has for many years. Today’s generations, and especially the mainstream media, seem most concerned with social issues such as abortion and same sex marriage. While these issues are important, our economic situation should receive more urgent attention. Americans are desperate for better days, but lack a meaningful understanding of how our financial system works. Almost 100 years ago, the creation of the Federal Reserve Banking System was instated. One could argue that this system is the base of why we are 18 trillion dollars in debt, and rising. The Federal Reserve Banking System has contributed

The San Francisco branch of the Federal Reserve has a diversion on its site that gives you a chance to play at being Chair of the Federal Reserve. In the wake of tinkering with it, I 've arrived at a few conclusions: Modeling the economy is a mug 's diversion, fleeting loan costs are a poor instrument for guiding the economy, and I ought to never be given the employment of running a national bank.

The Federal Reserve System is the most powerful institution in the United States economy. Functioning as the central bank of the United States, acting as a regulator, the lender of last resort, and setting the nation’s monetary policy via the Federal Open Market Committee, there is no segment of the American economy unaffected by the Federal Reserve [endnoteRef:1]. This power becomes even more substantial in times of “unusual and exigent circumstances,” as Section 13(3) of the Federal Reserve Act gives authority to the Board of Governors to act unilaterally in lending and market making operations during financial crisis[endnoteRef:2]. As illustrated by their decision making in the aftermath of the 2007-2008 Great Recession,

All day and all night, they battled the emergency with each instrument available to them to keep the United States and world economies above water. Working with two U.S. presidents, and under flame from a crabby Congress and an open angered by conduct on Wall Street, the Fed—nearby associates in the Treasury Department—effectively settled a wavering monetary framework. With inventiveness and definitiveness, they kept a financial fall of incomprehensible scale and went ahead to create the strange projects that would resuscitate the U.S. economy and turn into the model for different nations. Rich with detail of the basic leadership prepare in Washington and permanent representations of the real players, The Courage to Act relates and clarifies the most exceedingly bad budgetary emergency and monetary droop in America since the Great Depression, giving an insider 's record of the approach reaction (http://www.forbes.com/sites/richardsalsman/2012/03/06/five-financial-reforms-that-would-prevent-crises-and-promote-prosperity/#).

In the midst of the current economic downturn, dubbed the “Great Recession”, it is natural to look for one, singular entity or person to blame. Managers of large banks, professional investors and federal regulators have all been named as potential creators of the recession, with varying degrees of guilt. No matter who is to blame, the fallout from the mistakes that were made that led to the current crisis is clear. According to the Bureau of Labor Statistics, the current unemployment rate is 9.7%, with 9.3 million Americans out of work (Bureau of Labor Statistics). Compared to a normal economic rate of two or three percent, it is clear that the decisions of one group of people have had a profound affect on the lives of millions of

The collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. Considered by many economists to have been the worst financial crisis since the Great depression of the 1930s. Economist Peter Morici coined the term the “The Great Recession” to describe the period. While the causes are still being debated, many ramifications are clear and include the failure of major corporations, large declines in asset values (some estimates put the drop in the trillions of dollars range), substantial government intervention across the globe, and a significant decline in economic activity. Both regulatory and market based solutions have been proposed or executed to attempt to combat the causes and effects of the crisis.

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

Leading central banks around the world assisted in regaining the financial system and bringing the economy back to good terms at the peak of the financial crisis. Together they helped stop the financial system from upturning, and with tremendous effort, helped reestablish financial and economic stability. The United States’ central bank is known as the Federal Reserve, and they are accountable for making sure the country’s financial system functions effortlessly. During the crisis of 2007-2009 the Federal Reserve was passive and did not take the lengths necessary to help stop or slow down the upcoming crisis. Throughout this paper I will discuss what steps were taken and what steps should have been taken to help the United States during this time of financial instability.

In the insightful and informative novel “After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead” by Alan S. Blinder, the author offers an intriguing point of view towards what factors caused the 2008 financial crisis, the ways in which the federal government acted and regulated the crisis as well as what “10 financial commandments” bankers, regulators, and market participants should be attentive of in the future. Before delving into the novel itself, let’s take a look at the author, Alan S. Blinder. Blinder is an American economist who serves at Princeton University as the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs in the Economic Department, and the Vice Chairman of the Observatory Group. In addition, Blinder was involved in government affairs when he served on President Bill Clinton’s Council of Economic Advisers from July 1993 to June 1994 as well as serving as the Vice Chairman of the Board of Governors of the Federal Reserve System from June 1994 to January 1996. As Vice Chairman, he advised against raising interest rates too rapidly to slow inflation because of the delays in prior rises feeding through into the economy. In addition, Blinder advised against overlooking the short term costs in terms of unemployment that inflation-fighting could cause. In more recent years, he has focused much of his attention towards academic work in monetary policy and central banking along with writing articles for

During the largest recession the United States has seen since the great depression, the Treasury Department sprung into action to stave off another depression. Within a short period of time after the housing bubble burst, financial institutions started to fail. Credit and liquidity virtually vanished within days. The government was forced to react quickly to thwart a complete financial collapse. An estimate from the public interest group Better Markets has calculated the cost of the recession close to $12.8 trillion (Puzzanghera, 2012). This number is criticized since it includes losses in economic output, GDP, and bail-outs, while home equity losses and consumer net wealth are not. This figure does give a good idea of the magnitude of the Treasury Department’s actions. A multitude of industries, and companies received direct financial aid. The government identified key economic areas where policies were needed, and provided credit and liquidity for growth in those areas. The quick response of the Treasury Department helped in reducing the negative effects of the financial crisis. The three economic theories that I identified in this financial crisis consist of classical economics, Keynesian economics, and aggregate market (AS-AD) analysis. There was also a fear of monetarism which has not come to fruition at this time.

The U.S. subprime mortgage crisis was a set of events that led to the 2008 financial crisis, characterized by a rise in subprime mortgage defaults and foreclosures. This paper seeks to explain the causes of the U.S. subprime mortgage crisis and how this has led to a generalized credit crisis in other financial sectors that ultimately affects the real economy. In recent decades, financial industry has developed quickly and various financial innovation techniques have been abused widely, which is the main cause of this international financial crisis. In addition, deregulation, loose monetary policies of the Federal Reserve, shadow banking system also play

“Ultimately, market participants themselves must address the fundamental sources of financial strains – through deleveraging, raising new capital and improving risk management.”1 – Ben Bernanke

In relation to the increase in house’s price, the rise of financial agreements such as mortgage-backed securities (MBS) and collateralized debt obligations (CDO) encouraged investors to invest in the U.S housing market (Krugman, 2009). When housing price declined in the U.S, many financial institutions that borrowed and invested in subprime mortgage reported losses. In addition, the fall of housing price resulted in default and foreclosure and that began to exhaust consumer’s wealth and