The Fed’s new front in the financial crisis

Tatom, John (2008): The Fed’s new front in the financial crisis. Published in: Research Buzz , Vol. 4, No. 8 (31 October 2008): pp. 1-6.

Abstract

The continuing foreclosure crisis worsened in October 2008. The Federal Reserve (Fed) continued the aggressive expansion of new private credit that it began in mid-September and it created three new credit facilities to add to the plethora of other facilities created since the financial crisis component of the foreclosure crisis began in August 2007. These new facilities are aimed at stabilizing the commercial paper (CP) market, most recently adversely affected by the failure of Lehman Brothers and the failures of several money market mutual funds (MMMF). From mid-September to the end of October, the Fed more than doubled its total assets, largely by expanding its private sector lending. Perhaps the most significant question to emerge over the past two months is whether the Fed has an exit strategy to pull all of this new financial asset creation out after it succeeds in stemming deflation and before it kick starts the economy into a major inflation problem.

• Item Type: MPRA Paper
• Language: English
• Keywords: commercial paper; monetary policy; financial crisis
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

References

Chari, V.V., Lawrence Christiano, and Patrick J. Kehoe, “Myths about the Financial Crisis of 2008,” Federal Reserve Bank of Minneapolis Working Paper 666, October, 2008.

Tatom, John A., “The Continuing Foreclosure Crisis, New Institutions and Risks,” Research Buzz, Vol. 4, Issue 7, September, 2008a.

______, “The U.S. Foreclosure Crisis: A Two-Pronged Assault on the U.S. Economy, Networks Financial Institute Working Paper 2008-WP-10, July, 2008b.

Thornton, Daniel L. “Walter Bagehot, The Discount Window and TAF,” Economic Synopses, No. 27, 2008. http://research.stlouisfed.org/publications/es/08/ES0827.pdf