Supplementary Notespt.5 - house prices crashed . 2. Banks...

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Supplementary Notes - ‘The Great Recession’ Pt. 5 1
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The views from Mankiw (2009, 332-4) The causes The developments The government responses 2
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The causes 3 1. To help recovery from the Dotcom Recession, 2001, The Fed cut interest rate to historically low levels, house market boomed 2. To promote subprime mortgage loans, mortgages got securitized 3. To make home ownership more attainable for the low income, the needed regulations were not in place Housing prices doubled in the US, 1995-2006 .
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The developments 4 1. Mortgage defaulted on interest payments; banks foreclosed;
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Unformatted text preview: house prices crashed . 2. Banks owning mortgage-backed securities lost heavily, many folded; healthy banks afraid to lend; financial system failed 3. Companies reliant on banks lending became illiquid; stock prices fell 4. Consumers lost confidence; households would not spend The government responses 5 1. The Fed cut interest rate 5.25% to near 0, September 2007 to December 2008. 2. The Treasury bailed out banks by injecting cash and become part owners 1. Obama Administration proclaimed stimulus plan with massive government spending...
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This note was uploaded on 03/10/2010 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell University (Engineering School).

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Supplementary Notespt.5 - house prices crashed . 2. Banks...

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