from a housing problem to a financial crisis
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From a Housing Problem to a Financial Crisis. U.S . Housing Prices since 2000. The best of times. Capital Inflows. Escalating House Prices. Easy Money Policy. Eager Home Buyers. Ambitious Mortgage Brokers. Developer Clout. Innovative Banks. Rating Agencies. Securitization - PowerPoint PPT PresentationTRANSCRIPT
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From a Housing Problem to a Financial CrisisU.S. Housing Prices since 2000
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Easy MoneyPolicy
Capital Inflows
Eager Home Buyers
InnovativeBanks
Rating Agencies
AmbitiousMortgage Brokers
SecuritizationMBSs
EscalatingHouse Prices
Gov’t SponsoredEnterprises
Developer Clout
Bank Regulators
The best of times
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The Ted Spread since 2007
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The Use and Limits of Policy
Yields on 10-Year U.S. Government Treasury, AAA, and BBB Corporate Bonds since 2007
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Easy MoneyPolicy
Capital Inflows
Eager Home Buyers
InnovativeBanks
Rating Agencies
AmbitiousMortgage Brokers
SecuritizationMBSs
EscalatingHouse Prices
Gov’t SponsoredEnterprises
Developer Clout
Bank Regulators
The best of times
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U.S. Consumer and Business Confidence, since 2007
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The T-Bill Rate, since 2007
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Responses: No Bank Left BehindLender of Last Resort / Spender of Last Resort
• Tax Rebate $124 bil.• Fed Fund Rate Cuts• Fannie/Freddie $200 bil.• Bear-Stearns $29 bil.• AIG $174 bil.Fed “Facilities”• Primary Dealer Credit Facility (PDCF) $58 bil.• Treasury Security Loan Facility (TSLF) $133 bil.• Term Auction Facility (TAF) $416 bil.• Asset- Backed Commercial Paper Funding Facility (CPFF) $1,777 bil.• Money Market Investor Funding Facility (MMIFF) $540 bil.• More Fed Fund Rate Cuts … Hold At ~0%• Fed Purchases of Long-Term Securities: GSEs & MBSs $600 bil.• Term Asset-Backed Securities Loan Facility (TALF) $200 bil.• Emergency Economic Stabilization Act/TARP $700 bil.
Government LoansGovernment Equity
• Stimulus Package $787 bil. aka The American Recovery and Reinvestment Act
• TARP II
• Stress Tests
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Money Demand, Money Supply, and the Liquidity Trap
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LM Curve in the Presence of a Liquidity Trap
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The IS–LM Model and the Liquidity Trap
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The Interest Rate in Japan since 1990. Japan has been in a liquidity trap since the mid-1990s.
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Government Spending and Revenues (as percent of GDP), Japan, since 1990.
• Increasing government spending and decreasing revenues have led to steadily larger deficits.
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The Slow RecoveryThe Liquidity Trap and Adjustment Failure
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Do Banking Crises Affect the Natural Level of Output?The Evolution of Output after Four Banking Crises