The Federal Reserve opened various liquidity facilities to support commercial paper/money markets during the 2007-2009 recession....

The Federal Reserve opened various liquidity facilities to support commercial paper/money markets during the 2007-2009 recession. What was the rationale behind it? Discuss one such liquidity facility and explain how it may have helped to stabilize the credit markets.

Solutions

Expert Solution

Commercail paper / money market collapse during 2007 recession . Asset based commercial paper was triggered by the crisis in the subprime mortgae market . Federal goverment has taken some intiaves to support these market for that Fed made provision of liquidity directely to borrower & investors in key credit market.

These invention includes commercial paper funding facility. ABCP MMF liquidity facility, Money market investors funding facility & term asset based security loan facility, commercial paper funding facility is to provide liquidity to u.s. issures of commercial paper. under this program fed provide loan for 3 months to specially created limted liability companies, these companies used this fund to purchase commercial paer directely from issuer.money market investors funding facility is designed to provide fund to U.S. money market investors. in this facility a senior secured loan is created to purchase a special purpose vehicle to finance the purchase of eligibe assets from eligible investors.

Term asset backed security loan was created to help market participants meet the credit need of house holds & small businesses by supporting the issuance of asset basd securities collateralized by consumer and small businessses loan: auto loans, student loans, credit card loans,equipment loans, floor plan loans etc.

THe goal was to revive consumer credit securitization market.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

During the 2007-2009 recession, the Federal Reserve Bank loaned $85 billion to AIG to prevent the...

During the 2007-2009 recession, the Federal Reserve Bank loaned $85 billion to AIG to prevent the large insurance company from filing for bankruptcy. Lehman Brothers filed for bankruptcy during the same week and did not receive any government assistance. The Federal government also insured loans to General Motors and Chrysler. In July, 2008, 5644 companies went bankrupt in the United States. That represented an 80% increase from the previous year. Should the federal government bail out some companies experiencing financial...

The Federal Reserve used two unconventional policies to stimulate the economy during the 2007-2009 recession: (1)...

The Federal Reserve used two unconventional policies to stimulate the economy during the 2007-2009 recession: (1) Quantitative Easing and (2) Forward Guidance. Briefly explain these policies and particularly, highlight how these policies worked and explain the channels (transmission mechanisms) through which these policies helped to stimulate the economy.

2. How did the Federal Reserve’s actions during the Great Recession in 2007–2009 in response to...

2. How did the Federal Reserve’s actions during the Great Recession in 2007–2009 in response to the financial crisis affect its balance sheet? \

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

What is the Bank Regulations during 2007-2009 ( Great Recession ) ?

What is the Bank Regulations during 2007-2009 ( Great Recession ) ?GIVE DEFINITIONS ABOUT ALL OF THESE TERMS:TARP; HERA; Federal Housing Finance; Regulatory Reform Act of 2008; HOPE for homeowners act of 2008; SAFE Secure and Fair Enforcement for Mortgage Licesing Act of 2008; Forecosure Prevention Act of 2008 and FHA Modernization 2008; Emergency Economic Stabilization Act of 2008; Helping Families Ave Their Homes Act of 2008.

In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the...

In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the federal funds rate to about 0 percent, but still wanted to stimulate the economy more. The inflation rate in 2009 was about –1%, but households’ and businesses’ inflation expectations for the upcoming year were higher and positive, about 1.5%. a) First, do households’ and businesses’ investment demand depend on the ex ante or ex post real interest rate? Briefly explain why. b) Draw an...

After the Financial Crisis of 2007-2009, the Federal Reserve dropped the Federal Funds rate to 0.25%...

After the Financial Crisis of 2007-2009, the Federal Reserve dropped the Federal Funds rate to 0.25% until late 2015. Between December 2015 and December 2018, the Fed steadily increased that rate to 2.5%. Provide your opinion on how banks should react to the Federal reserve expectations for interest rates in 2019.

What Happened During the 2007–2009 Recession? How were GDP, inflation, and unemployment affected during the recession,...

What Happened During the 2007–2009 Recession? How were GDP, inflation, and unemployment affected during the recession, and how does the model show this? What monetary policies and fiscal policies were implemented during the recession? How did the recession affect U.S. trade relations and the U.S. dollar exchange rate?

TOPIC: Achieving monetary policy goals and the Great Recession of 2007-2009. A) What are the Federal...

TOPIC: Achieving monetary policy goals and the Great Recession of 2007-2009. A) What are the Federal Reserve's established economic goals? B) What are the policy tools that the Fed directly controls? What are the policy instruments and intermediate targets? C) What were the contributing factors to the Great Recession of 2007-2009? D) What were the unconventional monetary measures that the Fed used to combat the recession? E) How did international policy coordination help keep the Great Recession from becoming an...

1) In the Great Recession of 2008 -2009, the Federal Reserve resorted to quantitative easing because......

1) In the Great Recession of 2008 -2009, the Federal Reserve resorted to quantitative easing because... Select the correct answer below: a) because it has better results than slashing the federal funds rate b) the interest rates were already down to 0% and the economy was still in deep recession. c) increasing the interest rates did not help the economy d) the unemployment rate was finally starting to decline in 2009 2) Suppose that the economy is producing above the...

Subjects