Hi, could someone help me with this assignment ASAP please? Thanks. The Fed Uses

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Hi, could someone help me with this assignment ASAP please? Thanks.

The Fed Uses New Policy Tools to Respond to Financial Crisis Ben Bernanke, while he served as chairman of the Board of Governors of the Federal Reserve System, explained how the Federal Reserve used new policy tools to respond to the financial crisis and recession that occurred between 2007 and 2009. The following are excerpts from a speech Bernanke gave at the London School of Economics in January.2009 The Federal Reserve has responded aggressively to the crisis since he summer of 2007 One important tool is communicaton the FOMC sho ld be able ton u ce lo g r. n nt est rates by informing the public's expectations about the tuture course of monetary policy the Federal Reserve [has used otherl policy tools. (that) all make use of the asset side of the Federal Reserve's balance sheet.. The first set of tools... involve the provision of short-term liquidity to sound financial institutions.. These actions include creating new facilities for auctioning credit and making primary securities dealers, as well as banks, eligible to borrow at the Fed's discount window [to] address instability in critical nonbank markets, the Federal Reserve has developed a second set of policy tools we have introduced facilities to purchase highly rated commercial paper at a term of three months and to provide backup liquidity for money market mutual funds. the Federal Reserve and the Treasury have jointly announced a facility that will lend against AAA-rated asset-backed secunities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Smali Business The Federal Reserve's third set of policy tools involves the purchase of longer-term secunties for the Fed's porttolio. Some observers have expressed concern that, by expanding its balance sheet, the Federal Reserve is effectvely printing money, an action that will utimately be inflationary The Fed's lending activities have indeed resulted in a large increase in excess reserves held by banksHowever, banks are choosing to leave the great buik of their excess reserves idle g a reduction in excess reserves the Federal Reserve will be able to return to its traditional As lending programs are scaled back the size of the Federal Reserve's balance sheet will decine, implyin means of making monetary policy-namely, by setting a target for the federal funds rate Make sure to address the following questions a How did the policies that Federal Reserve used to respond to the financial crisis and the recession of 2007-2009 which differ from policies they used during earlier recessions? b. What risk did the Federal Reserve take by responding aggressively" to the economic crisis of 2007-2009? Protocol Please make sure your submission is 2-3 pages in length and meet the minimum APA formating guidelines 12-pt, Times New Roman font Double-spaced 1" margins on all sides Please provide a title page including your Name, Course Number, Date of Submission, and Assignment name Paraphrasing of content - Demonstrate that you understand the case by summarizing the case in your own words. Direct quotes sh ould be used minimally

Explanation / Answer

a) The financial crisis of 2007-09 is widely viewed as the worst financial disruption since the Great Depression of 1929-33. However, if we compare these two economic recessions, the 2007-09 recession was mild compared with the Great Depression. Aggressive monetary, fiscal, and financial policies are widely credited with limiting the impact of the recent financial crisis on the broader economy. We can compare Federal Reserve’s responses to the financial crises of 1929-33 and 2007-09 by focusing on various aspects related to the Fed’s actions on the composition. Although different in character, the crisis of 2007-09 was fundamentally a banking crisis like those of the Great Depression and many of the earlier crises that preceded large declines in economic activity. The recent recession was mild compared with the economic declines of 1929-33 and 1937-38. For example, real GDP fell 36 percent during 1929-33, and the unemployment rate exceeded 25 percent. Moreover, the price level, measured by the consumer price index (CPI), fell by 27 percent. By contrast, the CPI rose 2.76 percent between December 2007 and June 2009. Monetary, fiscal, and financial policies are widely credited for limiting the impact of the financial crisis of 2007-09 on the broader economy.

Chairman Bernanke (2009c) has also cited “aggressive” policies for insulating the global economy, to some extent, from the financial crisis. Bernanke noted that, in contrast, monetary policy was “largely passive” during the Great Depression.

Howerver, If we thoroughly compare the response of Federal reserves to two different recessions, we can figure out the following facts.

By contrast, during the crisis of 2007-09, Fed officials acted quickly to encourage banks to borrow from the Fed—first by issuing a statement that the discount window was available to meet the liquidity needs of banks, then by reducing the primary credit rate and increasing the maximum term of discount window loans, and finally by introducing the TAF to provide an anonymous source of term funds without any of the stigma associated with discount window borrowing.

3. During the crisis of 2007-09, the Fed also proved willing to provide loans to avoid the bankruptcy of financial firms that posed significant systemic risk. Further, Federal Reserve officials supported the Treasury Department’s program to stabilize banks through capital purchases and stress testing. By contrast, with the exception of the New York Fed’s massive injection of liquidity following the October 1929 stock market crash, the Fed paid little attention to systemic risks during the Great Depression.

4. During the Depression, the Federal Reserve elected not to save the Bank of United States from failure, which Friedman and Schwartz (1963) contend was a major mistake that worsened the economic contraction. A key difference between the Lehman and Bank of United States events, however, was that the Fed acted swiftly to limit the financial distress caused by Lehman’s bankruptcy in 2008, whereas the Fed did little in response to the failure of the Bank of United States or other bank failures during the Great Depression.

5. Another lesson of the Great Depression is how not to reduce bank excess reserves. In the 1930s, the Fed doubled reserve requirements to rein in excess reserves. This led to a sharp decline in monetary growth and a recession. In 2009, by contrast, the Fed seems to have rejected the option of increasing reserve requirements to reduce excess reserves and rather has focused on more flexible options that could be adjusted to market conditions and circumstances in the event that it becomes desirable to slow the growth of bank lending.

Thus, the Federal Reserve did not repeat the disastrous policies of the Great Depression during the crisis of 2007-09

b) The risks that federal reserve took by “responding aggressively” to the economic crisis of 2007-09 were:-

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