The Federal Reserve
Yesterday and today’s videos discussed at length the powers of the Fed and the extraordinary powers that the Fed used during the banking crisis. To begin, reflect on what the overall mission of the Fed. Next, consider how the Federal Reserve handled the banking crisis. What were the actions that it took? Was it legal? Was it in keeping with the “spirit” of its mission? Why or why not?
With these thoughts in mind, respond to this week’s second Discussion prompt.
First:
Post a one to three paragraph analysis of the powers of the Fed and the powers it used during the banking crisis. Be sure to cite information from the videos to support your response.
Second:
- Read through a sampling of the postings of your colleagues, focusing particularly on those to which you can add relevant or insightful comments that expand the Discussion.
- Respond to two or more of your colleagues' postings in any of the following ways:
- Build on something your colleague said.
- Explain why and how you see things differently.
- Ask a probing or clarifying question.
- Share an insight from having read your colleague's posting.
- Offer and support an opinion.
- Validate an idea with your own experience.
- Expand on your colleague's posting.
- Ask for evidence that supports the posting.
- Return to your initial posting. Continue the dialogue as desired by responding to your colleagues’ thoughts.
Please proceed to the Federal Reserve Discussion.
I am not sure, but I think that the Fed was unable to help, becuse it would end up causing a recession, according to the previous chairman of the Fed
ReplyDeleteBen Berneke, though, seems to be doing well in working on fixing the economy. People say he is putting a bandaid on the problem by bailing out the major banks and the insurance company. But, I think that it is leading to a better solution, we cannot let the major banks fall because of the impact it would make on everyone.
The federal reserve was definitely to blame for the 2008 crash. Greenspan was too caught up in trying to stimulating the economy by increasing the money supply that he completely deflated mortgage interest rates. Since money was so plentiful, banks started lending out to non-qualified borrowers. Since Greenspan is a libertarian his attitude towards deregulation allowed Wall Street to issue all these subprime loans without worry. This eventually lead to the housing bubble and along with wall street's CDO's caused the fall of the financial system & the recession.
ReplyDeleteThe federal reserve was created to help situations like this. People say that Berneke is just putting a bandaid on the problem but if he hadnt done anything the entire financial sector would have come down. the fed handled the crises as well as they could have. They averted a major crises that would have greatly harmed our economy.
ReplyDeleteShifts in the economy are the results of varying consumer and investor confidence. Actual results do not drive stocks up or down, rather, it is the public perception of the company. Therefore, when the banks began to fail, the Fed's hand was forced into making a decision of some sort, else stocks fall even more. Injecting captial functioned less as a way to save individual banks and more to tie up the deveastated value of the banking system with the traditional unwavering confidence in the American government. The major cause of the Great Depression was not the stock market crash itself but the failure of banks that resulted in people's money and savings vanishing overnight. Bernanke's area of expertise is the Great Depression and he did everything in his power to prevent a second one.
ReplyDeleteWhile the Federal Reserve has a plan in place to go forward with its original purpose of dealing with financial panics, I believe its success is dependent on whether politics allows the federal government to work its magic to ensure the economy recovers. Ben Bernake believes that during the Great Depression, it was the monetary policy and letting the banks fail that caused the depression. They had less transparency then and even two to three years ago that would have allowed more dramatic action to take place. But now, with everyone in the world watching the US’s economy and everyone internationally affected by the choices of the Federal Reserve, each move is watched significantly more than it has been in years past. -Sarah Iyere
ReplyDeleteIn the video, Ben Berneke said that since the Fed is really big, they should be more open in their actions/solutions.
ReplyDeleteThe Fed, aside from decreasing the mortgage interest rates, did very little during the crisis. That in itself was what allowed for housing bubble burst. Burst like T-90 shooting Ukrainian pig.
ReplyDelete(reply to Alex Lam) I dont think the fed was to blame for this crises. They only lowered interest rates to encourage borrowing and in turn more consumption. The shortcuts taken by lenders, borrowers, and wall street execs were more to blame because they just wanted to make money. The ways they went about making that money is what played the major role in this crises
ReplyDeleteI agree with Alexi Laminator.
ReplyDeleteThe Federal Reserve did not keep a close eye on banks which were loaning money to pretty much anyone. People were unable to pay back the loans which led to many of the big banks going bankrupt. The Fed bailed out many of them and the banks did not use the money given to them in the way that they were asked to because of the weak regulations so things got worse.
ReplyDeleteThe Fed could decrease mortgage interest rates to encourage consumers to take loans and invest, they can supply banks with money through collateral, and also print money, but most likely won't because it will cause inflation. But according to the video, they did anyway.
ReplyDeleteThe Fed is to control and handle the nations Monetary Policy through increasing/decreasing interest rates and regulating the supply of money. However, sometimes putting that interest rate way too low as Greenspan did leads to more problems fizzling out such as this 2008 crash. Ben brought up great points though of why he was so focused with Wall St. instead of Main St. Wall St, has great influence on the nations economy so he had to remain focused. As we've seen Wall St. can cause large unemployment and huge bailouts.
ReplyDeleteIn my opinion, the Fed did minimal work... but then again, there's not much it could have done. No matter what was done, a recession or some sort of economic downfall would have occurred. It was a question of now or later.
ReplyDeleteI agree that fed should become more transparent and I like the changes that they are making. However, I also support fed's effort to stay independent from media and other influences from making its decision.
ReplyDeleteAlthough I agree that some of our class's opinion that Greenspan is to blame for 2008 crisis with his lassiz faire ideals, I think Fed led by Bernanke did better job attacking the crisis after he took over job as a chairmen. Although I believe in the free market and idea of lasseiz faire, after 2008 criss I also learned the importance of government's role in economy to regulate private sector. Therefore, I support the decisions that Fed made during 2008 financial criss to bail out the failing bankings to prevent even bigger crisis in U.S. economy. Plus, I predict that the fed will play even bigger role in recovery in the future especially monitoring the inflation rate because of current close to zero interst rate as well as increased money supply.
The Federal Reserve has a number of powers that allow them to help regulate and control our nations money supply, economy, and prices. One power of the Federal Reserve that they use to largely influence the economy is the ability to control interest rates. There is immense significance in this power in that through lowering and raising interest rates, the Fed encourages/discourages banks to make loans to people, and in doing this, either increases or decreases spending by the American people. Without the lowering of interest rates by the Federal Reserve and money printed and provided by the Federal Reserve, the banks would not have been able to make the sub prime mortgage loans that were made and not paid back, creating the housing bubble that busted and left our economy is such extreme disrepair. Here lies a major criticism: Austrian Business Cycle Theory, pioneered by such economists as Nobel Prize for Economics winner F.A. Hayek, states that the Federal Reserve then is responsible for economic booms/busts in that the Fed artificially influences the economy leading to imminant recessions. By lowering interest rates and allowing banks to give out loans to say housing developers who would normally need an increase in demand and revenue to invest in new housing developments, instead money is given to those who do not actually have a demand for their products but are tricked into thinking they do by the illusion of demand from the money they were able to receive in loans, where as without the Federal Reserve creating this artificial bubble, that money would have to come about by more sound means. Further, the banks gave out sub prime loans to buyers to purchase things like these new houses being created from artificial motivation of these lower interest rates. Eventually, however, when the money had to all be paid back and the companies did not actually have more buyers or profit and the people did not actually have an equal increase in income to pay for these new houses, the loans were defaulted on, the banks were flooded with toxic assets and loans, and the banks started to fail and leave our economy in the rubble. Of course, it is important to consider that even with the artificially lowered interest rates, the irresponsiblility and carelessness of the loan companies and banks in lending out money to people who they were unsure could pay the money back is still largely to blame and without these factors the recession could have still been avoided. End the Fed. Boys. Get big.
ReplyDelete(reply to Terrance)They lowered the interest rates to encourage borrowing and more consumption except it was during a booming time period when the economy was already running along smoothly and did not need additional stimulation. Additional stimulation during good economic times only leads to inflation and irresponsble loaning which is exactly what happened.
ReplyDeleteWall Street is also to blame but mostly the SEC for not regulating Wall Street. Wall Street wouldn't have done any of this as long as the SEC did their job and regulated the securities.
I agree with Terrance, they prevented another great depression.
ReplyDeleteIn 2008, the Fed took action to increase the money supply without realizing the consequences of such an action. There weren't really any long term gains to the Fed's actions at this point. Because there was so much money available, banks started lending to borrowers who clearly were not qualified. People were unable to pay back the loans, leading to TERRIBLE TIMES. This eventually led to the housing bubble and decreased confidence of the American people in the financial system.
ReplyDeleteDisregard my previous comment, I agree with Alex over Terrance.
ReplyDelete(reply to Alexandra)
ReplyDeleteI agree. What is worse, doing nothing, or doing what the constiuents allow you to do. I believe the Fed did what it was capable of doing with the resources it had. I would like to know a solution other than what the Fed did that would have effectively solved the problem. -Sarah Iyere
The Fed's actions to combat the crash were to decrease interest rates and provide money to large banks. Both these actions were done in order to encourage greater spending, a goal that will help bring the economy back to good health. Ben Bernanke tried everything in his power to prevent banks from going under, a major contributor to the Great Depression. Though the results of his actions are still unclear, the power he exercised through the Fed was both legal and reasonable.
ReplyDelete@Christian
ReplyDeleteВ России, ваш мышц будет рассматриваться в качестве оружия и могут быть проданы русская мафия убить сербских КТО.
Seth,
DeleteEvery class has to have one and you are it. Thanks for being the example of what not to do. Please see the rubric on how this will affect you.
To reply to Monet, I believe the Fed did way more work than what people expected during 2008 crisis. When the criris occurred, the poured money into the failing financial firms and organized the sale of failing banks to the FDIC insured banks that can be regulated by the Fed. Also, by selling the investment to FDIC banks, the fed could loan them the money like Bear Stearns were bailed out via JP Morgan in first bailout. They also actively engaged in lowering interest rates and meet up with congressmen in washington to bailout series of other firms. In my opinion, the Fed played really active role and as we saw in video, it was Bernanke's belief to play an active's role during a crisis.
ReplyDelete(In reply to Travis WAY UP THERE):
ReplyDeleteI agree.... this was just a man-made mistake. We were in too far for anyone to help anyone. Ben did the best he could; the Fed did the best it could. Maybe we should take a lesson and not be so greedy? ... MERP.
Ben Berneke decided to not bail out the lehman brothers, which failed on september 15 2008. that decision led to wide spread panic and forced the fed to take procautions. the fed and the treasury department had to spend muti millions of dollars to ensure that there is no meltdown.the fed ended up bailing out AIG and Bear Stearns. The decision not to bail out the Lehman brothers showed that the fed cannot let an internationally active firms fail, or else it will cause other bad things to happen in a sort of butterfly effect. Later that year in october 2008, DOW fell 18%, which was the most it has ever fallen. Such things as this, are causes of the banking crisis and fear in our economy.
ReplyDeleteSo basically the Fed was part of the reason for the crisis as well as the solution?
ReplyDeleteThe Fed Today Video stated that the main purpose of the Fed is to ensure confidence in the nation's banking system. In 2008 when the financial system took a turn for the worse, the Fed seized Fannie Mae and Freddie Mac but it let Lehman Brothers fail because it was unsure on whether or not it should bail out banking companies plus the bailout plan would have to be approved by Congress. However, as the crisis got worse, the Fed decided to intervene. In his interview, Ben Bernanke used the analogy that banking companies failing was like your neighbor's house catching on fire and said that you would not just stand by and let the whole neighborhood catch fire, you would put it out and that would control the situation. So, the Fed decided that it would bail out companies such as Bear Stearns and AIG in order to temporaily get a handle on the situation. This was an unpopular response but it did stop some of the "fire" from spreading. Although the initial crisis is over now, there are still some devastating efefcts such as a high unemployment rate and low public confidence in the system. To restore the confidence, Bernanke says the Fed will continue to do what it needs to do to get the banking system back to where it needs to be and hopes that the banks will eventually be able to raise private equity so it can get back in the lending game for the confidence to return. Although it will take a while, I do believe that the plan could work and bring our country back into good standings.
ReplyDelete(reply to Christian Lemonster)
ReplyDeleteI agree that we need to get big because youre wearing my coat and its big so that means that you are correct about everything else so i agree with that.
Response to LeMonster:
ReplyDeleteYour point is very interesting. After reading it, I agree with what you are saying. In a sense, banks and people have a false security knowing that the government will come to save them if anything goes wrong. Something will inevitably go wrong because of human nature (and since the world isn't perfect), so I believe the Fed shouldn't be completely ended but instead minimalized.
(In reply to Beebe):
ReplyDeleteI agree. Ben did what was best. Wall Street's influence is way to big. Good point, kid. I like it...
(reply to alex)The economic situation was good at the time but it wasnt exactly booming. It wasnt until the interest rates came down that things got kicked into high gear. There was considerable growth and many people had money. Then lenders ran out of good risks and began to give money to those who couldnt afford it.
ReplyDeleteI do agree with the SEC part, it is their job to make sure things like this do not happen.
@Rachel I dont think the Fed's plan alone will suffice in recovery, but it will help.
ReplyDelete@Oh I disagree with the Fed being minimalized.
yes Alexandra, there was really no way to stop that recession from happening, but as i said in my post, if there was anything to be learned from let such banks fail as Lehman brothers, we quickly found out that we CANNOT let internationally active banks fail, because there will be bigger reprocautions than just spending the money to bail it out. it caused wide spread panic that aided the collapse.
ReplyDelete@ Monet, the greediness will never go away. We are Americans. We still need a Federal Reserve to control us, Or maybe a functional SEC.
ReplyDelete(reply to Terrance)
ReplyDeleteI agree because if the Fed had not done anything the entire banking system would have failed and we would be in a much worse situation than we are currently in. The Fed did what it had to do even though most people aren't in favor of government intervention.
The Oh, you're right. Human nature plays a greater role in government than most people would like to admit. For this reason alone the Fed should not be ended, if only minimized.
ReplyDelete(in response to beebe):
ReplyDeleteokay. (:
(reply to Monet)
ReplyDeleteWhat would you suggest we do to decrease the "greed" that caused the crash? It is unfortunately the same greed that made us a successful country in the first place.
Christian take my coat off
ReplyDelete(reply to Rachel)
ReplyDeleteTerrance was refering to the time period in the late 1900's and early 2000's when the economy was good, the fed still tried to stimulate the economy which lead to way too low interest rates = irresponsbile loans.
(Reply to Alex Lam)
ReplyDeleteI don't agree with the fact that you said the Fed was to blame because it was the decision of the banking companies to give out subprime mortages which led to the housing bubble and the collapse of the the financial system, not the Fed's. And the Fed reponded the only way it could by trying to bail out some companies so we wouldn't be sent into another Depression.