Political Economy Commons^™

The Rescue Of Fannie Mae And Freddie Mac–Module F: Federal Reserve’S Large-Scale Asset Purchase (Lsap) Program, Daniel Thompson, Adam Kulam

Journal of Financial Crises

By late 2008, the secondary mortgage markets were suffering high default rates, causing mortgage lending to slow and the value of mortgage securities to plummet. The Federal Reserve lowered the federal funds rate, and the government placed Fannie Mae and Freddie Mac into conservatorship, yet credit in housing and other financial markets remained tight. On November 25, the Fed announced its intent to purchase up to $500 billion in agency mortgage-backed securities (MBS) and $100 billion in agency debt to reduce the cost and increase the availability of mortgage credit, which would support housing markets and improve conditions in financial …

The Rescue Of Fannie Mae And Freddie Mac – Module E: The Housing And Economic Recovery Act Of 2008, Daniel Thompson

Journal of Financial Crises

As the U.S. housing crisis worsened in 2007, and through 2008, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) headed towards insolvency. At the same time, contractions in private securitization resulted in these two government-sponsored enterprises (GSEs) purchasing nearly half of all new mortgages. In July, the government passed the Housing and Economic Recovery Act of 2008 (HERA) to provide a more effective regulator and to address public uncertainty regarding whether the government would back the GSEs’ assets and liabilities. HERA provided Treasury and the newly formed Federal Housing Finance Agency (FHFA) …

Incorporating Macroprudential Financial Regulation Into Monetary Policy, Aaron Klein

Journal of Financial Crises

This paper proposes two insights into financial regulation and monetary policy. The first enhances understanding the relationship between them, building on the automobile metaphor that describes monetary policy: when to accelerate or brake for curves miles ahead. Enhancing the metaphor, financial markets are the transmission. In a financial crisis, markets cease to function, equivalent to a transmission shifting into neutral. This explains both monetary policy’s diminished effectiveness in stimulating the economy and why the financial crisis shock to real economic output greatly exceeded central bank forecasts.

The second insight is that both excess leverage and fundamental mispricing of asset values …

European Central Bank Tools And Policy Actions B: Asset Purchase Programs, Chase P. Ross, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

Beginning in August 2007, the European Central Bank (ECB) used standard and non-standard monetary policies as the global financial markets progressed from initial turmoil to a widespread sovereign debt crisis. This case describes the key features of the ECB’s asset purchase programs throughout the Global Financial Crisis and subsequent European sovereign debt crisis. These programs include the Covered Bond Purchase Programs (CBPP1, CBPP2, CBPP3), Securities Markets Program (SMP), Outright Monetary Transactions (OMT), Asset-backed Securities Purchase Program (ABSPP) and the Public Sector Purchase Program (PSPP).

In combating the crises, the ECB designed various innovative programs which it successively employed as the …