Swagel, Phillip (2009): The financial crisis: an inside view. Published in: Brookings Papers on Economic Activity No. Spring 2009 (1. April 2009): pp. 1-63.
Download (341kB) | Preview
This paper reviews the policy response to the 2007–09 financial crisis from the perspective of a senior Treasury official at the time. Government agencies faced severe constraints in addressing the crisis: lack of legal authority for potentially helpful financial stabilization measures, a Congress reluctant to grant such authority, and the need to act quickly in the midst of a market panic. Treasury officials recognized the dangers arising from mounting foreclosures and worked to facilitate limited mortgage modifications, but going further was politically unacceptable because public funds would have gone to some irresponsible borrowers. The suddenness of Bear Stearns’ collapse in March 2008 made rescue necessary and led to preparation of emergency options should conditions worsen. The Treasury saw Fannie Mae and Freddie Mac’s rescue that summer as necessary to calm markets, despite the moral hazard created. After Lehman Brothers failed in September, the Treasury genuinely intended to buy illiquid securities from troubled institutions but turned to capital injections as the crisis deepened.
|Item Type:||MPRA Paper|
|Original Title:||The financial crisis: an inside view|
|Keywords:||financial crisis; Treasury Department; TARP; housing; foreclosures; Lehman Brothers|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General
N - Economic History > N2 - Financial Markets and Institutions
G - Financial Economics > G0 - General > G01 - Financial Crises
|Depositing User:||Phillip Swagel|
|Date Deposited:||06. Mar 2010 04:18|
|Last Modified:||17. Feb 2013 21:08|
Allen, Franklin, and Elena Carletti. 2008. “The Role of Liquidity in Financial Crises.” In Maintaining Stability in a Changing Financial System: A Symposium Sponsored by the Federal Reserve Bank of Kansas City. Kansas City, Mo.
Ausubel, Lawrence, and Peter Cramton. 2008. “A Troubled Asset Reverse Auction.” University of Maryland. www.cramton.umd.edu/papers2005-2009/ausubel-cramton-troubled-asset-reverse-auction.pdf.
Brunnermeier, Markus. 2009. “Deciphering the Liquidity and Credit Crunch 2007-08.” Journal of Economic Perspectives. 23, no. 1: 77-100.
Cordell, Larry, Karen Dynan, Andreas Lehnert, Nellie Liang, and Eileen Mauskopf. 2008. “The Incentives of Mortgage Servicers: Myths and Realities.” Finance and Economics Discussion Series Paper 2008-46. Washington: Federal Reserve Board (September).
Gorton, Gary. 2008. “The Panic of 2007.” In Maintaining Stability in a Changing Financial System: A Symposium Sponsored by the Federal Reserve Bank of Kansas City. Kansas City, Mo.
Greenlaw, David, Jan Hatzius, Anil K Kashyap, and Hyun Song Shin, eds. 2008. Leveraged Losses: Lessons from the Mortgage Market Meltdown: Proceedings of the. U.S. Monetary Policy Forum. Rosenberg Institute, Brandeis International Business School, and Initiative on Global Markets, University of Chicago Graduate School of Business.
Ivashina, Victoria, and David S. Scharfstein. 2008. “Bank Lending during the Financial Crisis of 2008.” (December 15, 2008). Harvard Business School.
Schweitzer, Mark, and Guhan Venkatu. 2009. “Adjustable-Rate Mortgages and the Libor Surprise.” Economic Commentary. Federal Reserve Bank of Cleveland (January 21). www.clevelandfed.org/research/commentary/2009/012109.cfm.
Veronesi, Pietro, and Luigi Zingales. 2009. “Paulson’s Gift.” University of Chicago Booth School of Business. www.aeaweb.org/annual_mtg_papers/2009/
Zingales, Luigi. 2008. “Plan B.” The Economist’s Voice, v. 5, i. 6, Article 4. Berkeley Electronic Press.