The Financial Crisis of 2007-2008 and The Federal Reserve

2618 WordsJul 7, 201811 Pages
Did the monetary policy of the Federal Reserve lead the financial crisis of 2007-2008? Outline Introduction Literature review and critical discussion -1. How could the Federal Reserve prevent and solve financial crisis? – The function of Federal Reserve. -2. The background of the financial crisis.—what kind of monetary policy the federal reserve made? -3. The defending for the low interest policy. -4. The against to the monetary policy -4.1 Loose Fitting Monetary Policy -4.2 The relevant between federal fund rate and housing boom and bust. -4.3 Did the global saving glut push the interest rate down? -4.4 Comparing with other countries’ monetary policy. -1.5 The interaction between subprime mortgage…show more content…
When the financial market is disrupted, the Federal Reserve can provide shot term credit to the financial institutions that can not find source of funding. Then the financial crisis may mitigate and the financial system could get well. Thirdly, the Federal Reserve has the tool of regulation and supervision. The Federal Reserve usually supervises the banking system and assesses the extent of risk on their portfolios to make sure the financial system healthy. If the financial system could keep healthy, the risk financial crisis occurring will be low. 2. The background of the financial crisis.—what kind of monetary policy the federal reserve made? In the late 1990’s, there was a boom and bust on information technology stocks. Because of that, a mild recession happened in 2001. The mild recession made people have over confidence to the stability of financial system and the whole economy. Therefore, the authorities started to ignore the work of keeping financial stability. The houses price rose 130 percent between late 1990’s and early 2006. The lending of new mortgages became very low, during this period. Because of the decreasing of credit, more people invested in house market. Then, the prices of houses kept the rapid growth. Accordingly, the mental factor was an important factor leading the housing boom and bust. The monthly mortgage payments grew up with the houses price. It took more and more share of the personal disposable income, the demand of
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