ECON308 Study Guide - Final Guide: Freddie Mac, Monetary Policy, Quantitative Easing
18 Jan 2017
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Document Summary
Causes: poor lending practices by institutions, rating agencies giving bonds good ratings that were actually poor, low interest causing excessive demand. Bad mortgage practices: interest only adjustable-rate mortgages, option arms (varying monthly payments, long amortization, giving aaa ratings to sub-prime securities. What did the fed do: liquidity provision, policy convictions, regular stress tests, fdic can close failing systemic firms. Term deposit facility - like a cd that the fed offers to banks. Banks will commit excess reserves to the fed and they will pay banks interest (enacted 2014) Reserves (together make monetary base: if someone withdraws money, reserves will decrease, and currency increases, balancing each other out. This will cause the monetary base to remain unchanged when someone withdraws from the bank: when reserves are released in to the banking system (omp), monetary base increases. Term auction facility - wanted the banks to convince people to keep buying stocks, made it a competition.
