HW5-10 (2) - let them 3 Based on Ross Levine’s Autopsy of...

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Econ 1500--HW5: Financial markets 1. Based on the Economist ’s readings Another Pounding , and The Game is Up , answer the following questions: a. Why did the Fed and other central banks inject liquidity in early August 2007? b. What was the role of credit rating agencies in the recent financial crisis? c. Why were mortgage lending standard relaxed in recent years? What were the incentives for realtors, mortgage brokers, banks? d. Based on the articles’ data, what percent of adjustable rate mortgages were in negative equity in July 2007? e. Why were housing prices projected to continue to decline until 2009? 2. According to Nocera ’s, Calomiris & Wallison ’s and the IMF’s articles on Fannie Mae and Freddie Mac , a. What benefit did the GSE produce? b. Explain the failure of implementing appropriate regulation in 2005. c. Why did the GSE get into the business of buying sub-prime securities and why did Congress
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Unformatted text preview: let them? 3. Based on Ross Levine’s Autopsy of the US Financial System , a. Why is Levine pessimistic about the proposed reforms to the financial sector? b. Credit rating agencies earned fees for packaging CDOs and earned further fees for rating the CDOs. Was this “conflict of interest” due to policy-makers lack of information or lack of regulatory power? Explain c. Why are credit default swaps (CDS) not insurance policies? d. What did the Fed allow banks to do in 1996 that had a big effect on banks’ balance sheets? e. What entities did the SEC supervise? f. Which 3 policies did the SEC implement in 2004-08 that weakened its supervision. Whys did the SEC do this? g. How did Fannie Mae and Freddie Mac facilitate the expansion of the subprime lending market? h. Why sis Congress allow the Fannie and Freddie to do this?...
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