Playing for Time: The Fed's Attempt to Manage the Crisis as a Liquidity Problem

Robert Eisenbeis () and R.J. Herring

Chapter 5 in The First Great Financial Crisis of the 21st Century:A Retrospective, 2015, pp 101-144 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This paper examines the events leading up to the Great Recession, the US Federal Reserve's response to what it perceived to be a short-term liquidity problem, and the programs it put in place to address liquidity needs from 2007 through the third quarter of 2008. These programs were designed to channel liquidity to some of the largest institutions, most of which were primary dealers. We describe these programs, examine available evidence regarding their effectiveness, and detail which institutions received the largest amounts under each program. We argue that increasing financial fragility and potential insolvencies in several major institutions were evident prior to the crisis. While it is inherently difficult to disentangle issues of illiquidity from issues of insolvency, failure to recognize and address those insolvency problems delayed necessary adjustments, undermined confidence in the financial system, and may have exacerbated the crisis.

Keywords: Financial Economics; Banks; Depository Institutions; Micro Finance Institutions; Mortgages; Macroeconomics; Monetary Economics; Dodd-Frank; Financial Crisis; Financial Regulations; Regulatory Framework; Bankers; Systemic Risk; Recession (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Journal Article: Playing for time: the Fed’s attempt to mange the crisis as a liquidity problem (2015)
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