|
Page 1 of 2
Various actions have been taken since the crisis became apparent in
August 2007. In September 2008, major instability in world financial
markets increased awareness and attention to the crisis
Various agencies and regulators, as well as political officials, began to take additional, more comprehensive steps to handle the crisis.
Legislative and regulatory responses
The Federal Reserve
The U.S. central banking system, the Federal Reserve, in partnership with central banks around the world, has taken several steps to address the crisis. Federal Reserve Chairman Ben Bernanke stated in early 2008: "Broadly, the Federal Reserve’s response has followed two tracks: efforts to support market liquidity and functioning and the pursuit of our macroeconomic objectives through monetary policy."
• Between 18 September 2007 and 30 April 2008, the target for the Federal funds rate was lowered from 5.25% to 2% and the discount rate was lowered from 5.75% to 2.25%, through six separate actions.
• The Fed and other central banks have conducted open market operations to ensure member banks have access to funds (i.e., liquidity). These are effectively short-term loans to member banks collateralized by government securities. Central banks have also lowered the interest rates charged to member banks (called the discount rate in the U.S.) for short-term loans.
• The Fed is using the Term auction facility (TAF) to provide short-term loans (liquidity) to banks. The Fed increased the monthly amount of these auctions to $100 billion during March 2008, up from $60 billion in prior months.
• In July 2008, the Fed finalized new rules that apply to mortgage lenders.
• In October 2008, the Fed expanded the collateral it will loan against to include commercial paper, to help address continued liquidity concerns.
Regulation
Regulators and legislators are considering action regarding lending practices, bankruptcy protection, tax policies, affordable housing, credit counseling, education, and the licensing and qualifications of lenders.
Regulations or guidelines can also influence the nature, transparency and regulatory reporting required for the complex legal entities and securities involved in these transactions. Congress also is conducting hearings to help identify solutions and apply pressure to the various parties involved.
• A sweeping proposal was presented 31 March 2008 regarding the regulatory powers of the U.S. Federal Reserve, expanding its jurisdiction over other types of financial institutions and authority to intervene in market crises.
• In response to a concern that lending was not properly regulated, the House and Senate are both considering bills to regulate lending practices.
• In the wake of a subprime mortgage crisis and questions about Countrywide’s VIP program, ethics experts and key senators recommend that members of Congress should be required to disclose information about their mortgages.
• Non-depository banks (e.g., investment banks and mortgage companies) are not subject to the same capital reserve requirements as depository banks. Many of the investment banks had limited capital reserves to address declines in mortgage backed securities or support their side of credit default derivative insurance contracts. Nobel prize winner Joseph Stiglitz recommends that regulations be established to limit the extent of leverage permitted and not allow companies to become "too big to fail."
• UK regulators announced a temporary ban on short-selling of financial stocks on September 18, 2008.
• The Australian ferderal government has announed an investment of AU$4 billion in non-bank lender mortgage backed securities in an attempt to maintain competition in the mortgage market.
Economic Stimulus Act of 2008
President Bush also signed into law on 13 February 2008 an economic stimulus package of $168 billion, mainly in the form of income tax rebates, to help stimulate economic growth.
The economic stimulus package included the mailing of rebate checks to taxpayers. Such mailings started the week of 28 April 2008. These mailings, however, coincided with unexpected all-time jumps in food and gasoline prices. This coincidence prompted some to question whether the stimulus package would have the desired effect or whether consumers would just use it to make up for the gap generated by the higher food and fuel prices. Some Congressmen even contemplated legislation for a second round of stimulus rebate checks to ensure the initial intention of the stimulus package had the expected effect. The Treasury Secretary strongly opposed such initiative.
Housing and Economic Recovery Act of 2008
The Housing and Economic Recovery Act of 2008 included six separate major acts designed to restore confidence in the domestic mortgage industry. The Act included:
• Providing insurance for $300 billion in mortgages estimated to assist 400,000 homeowners.
• Establishing a new regulator to ensure the safe and sound operation of the GSE's (Fannie Mae and Freddie Mac) and Federal Home Loan banks.
• Raises the dollar limit of the mortgages the government sponsored enterprises (GSE)'s can purchase.
• Provides loans for the refinancing of mortgages to owner-occupants at risk of foreclosure. The original lender or investor reduces the amount of the original mortgage (typically taking a significant loss) and the homeowner shares any future appreciation with the Federal Housing Administration. The new loans must be 30-year fixed loans.
• Enhancements to mortgage disclosures.
• Community assistance to help local governments buy and renovate foreclosed properties.
EGYPT NEWS
» No Comments
There are no comments up to now.
» Post Comment
|
