Question

How did the Federal Reserve use liquidity to protect banks during the 2008-09 recession?

Answer 1

Money for Mortgages
Throughout the years of America's recent recession and subsequent slow recovery, the Fed, under chairman Bernanke, has been actively attempting to restart the faltering economy. In recent years, the Fed announced it was to buy a significant amount of mortgages.The money would be used to buy mortgage debt and government bonds, a move designed to stimulate spending, reduce long-term interest rates and fire up the stock market. This Fed action was known as quantitative easing, or QE for short.


Lending for Banks
In 2008 and 2009, as the nation's economic problems became severe, the Fed provided lines of credit to financial and lending institutions. This cash infusion provided funds for consumer loans and consequent consumer buying - the engine that drives the economy. A follow-up effort to pull down long-term interest rates was initiated in 2010, with an additional $267 billion earmarked by the Fed for bond buying.

Besides these actions by the Fed, America's central bank loaned money to J.P. Morgan Chase to help the banking giant takeover the failing investment bank, Bear Stearns. The Fed also established a line of credit and financing for the government's acquisition of American International Group (AIG), one of the largest global insurance firms.

Money for Mortgages
Throughout the years of America's recent recession and subsequent slow recovery, the Fed, under chairman Bernanke, has been actively attempting to restart the faltering economy. In recent years, the Fed announced it was to buy a significant amount of mortgages.The money would be used to buy mortgage debt and government bonds, a move designed to stimulate spending, reduce long-term interest rates and fire up the stock market. This Fed action was known as quantitative easing, or QE for short.


Lending for Banks
In 2008 and 2009, as the nation's economic problems became severe, the Fed provided lines of credit to financial and lending institutions. This cash infusion provided funds for consumer loans and consequent consumer buying - the engine that drives the economy. A follow-up effort to pull down long-term interest rates was initiated in 2010, with an additional $267 billion earmarked by the Fed for bond buying.


Besides these actions by the Fed, America's central bank loaned money to J.P. Morgan Chase to help the banking giant takeover the failing investment bank, Bear Stearns. The Fed also established a line of credit and financing for the government's acquisition of American International Group (AIG), one of the largest global insurance firms.

Help for Unemployment
Fed announced that it would continue its "Operation Twist" program to reduce long-term interest rates. The program is designed to make borrowing cheaper for businesses and consumers when the Fed sells short-term U.S. debt and takes the cash to buy long-term U.S. debt. Fed Chairman, Ben Bernanke, said that additional Fed action may be required if unemployment doesn't fall below 8.2%. The labor market showed signs of modest improvement in the early months of 2012, but had slowed through the spring and early summer.