Over the past several years, the nation has experienced its most severe financial crisis since the Great Depression. In response, policymakers undertook a series of extraordinary actions to stabilize financial markets and institutions. The Federal Reserve System (FR) used its policy tools to reduce short-term interest rates and increase the avail. of funds to banks, and it created a variety of non-traditional credit programs to help restore liquidity and confidence to the financial sector. This study describes the various actions by the FR to stabilize the financial markets and how those actions will affect the fed. budget in coming years. Also presents estimates of the risk-adjusted subsidies that the FR provided to financial institutions through its emergency programs.

And introduction -- Actions by the Federal Reserve to address the financial crisis -- The projected impact of the Federal Reserve's actions on the Federal Budget -- Estimates of fair-value subsidies from the Federal Reserve's actions -- Appendix A : Programs created by the Federal Reserve during the financial crisis -- Appendix B : CBO's fair-value methods.

The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.

In August 2007, asset-backed securities (ABS), particularly those backed by subprime mortgages, suddenly became illiquid and fell sharply in value as an unprecedented housing boom turned into a housing bust. Losses on the many ABS held by financial firms depleted their capital. Uncertainty about future losses on illiquid and complex assets led to firms having reduced access to private liquidity, sometimes catastrophically. In September 2008, the financial crisis reached panic proportions, with some large financial firms failing or having the government step in to prevent their failure. Initially, the government approach was largely ad hoc, addressing the problems at individual institutions on a case-by-case basis. The panic in September 2008 convinced policy makers that a system-wide approach was needed, and Congress created the Troubled Asset Relief Program (TARP) in October 2008. In addition to TARP, the Treasury, Federal Reserve (Fed) and Federal Deposit Insurance Corporation (FDIC) implemented broad lending and guarantee programs. The primary goal of the various interventions was to end the financial panic and restore normalcy to financial markets, rather than to make a profit for taxpayers. This book presents how much the programs ultimately cost (or benefited) the taxpayers based on straightforward cash accounting as reported by the various agencies. This book describes the various actions by the Federal Reserve to stabilise the financial markets and how those actions are likely to affect the federal budget in coming years. The book also presents estimates of the risk-adjusted (or fair-value) subsidies that the Federal Reserve provided to financial institutions through its emergency programs.

As the Federal Reserve’s statutory objectives are defined as specific goals for the U.S. economy—to pursue maximum sustainable employment and price stability—and its policy decisions are targeted to achieve these dual objectives, there might seem to be little need for its policymakers to pay attention to developments outside the United States. But such an inference would be incorrect: the state of the U.S. economy is significantly affected by the state of the world economy, and of course, actions taken by the Federal Reserve influence economic conditions abroad, which in turn spill back on the evolution of the U.S. economy and therefore must be taken into account in the Federal Reserve’s monetary policy choices. This Per Jacobsson Lecture first reviews the effect of the Federal Reserve’s monetary policies on the rest of the global economy, particularly emerging market economies. It then addresses prospective outcomes and possible risks associated with the normalization of the Federal Reserve’s policies. Finally, it discusses the Federal Reserve’s responsibilities in the world economy.

Congress has delegated responsibility for monetary policy to the nation's central bank, the Federal Reserve (the Fed), but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of "maximum employment, stable prices, and moderate long-term interest rates." To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation. The Fed's control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in September 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the financial crisis and its aftermath. Starting in December 2015, the Fed has been raising interest rates and expects to gradually raise rates further. The Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. While the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed's balance sheet was $4.5 trillion-five times its precrisis size. After QE ended, the Fed maintained the balance sheet at the same level until September 2017, when it began to very gradually reduce it to a more normal size-a process that is expected to last for several years. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools-by raising the rate of interest paid to banks on reserves and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility. The Fed "expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run." Thus, although rates are being raised, the Fed plans to maintain an unusually stimulative monetary policy for the time being. In terms of its mandate, the Fed believes that unemployment has reached the rate that it considers consistent with maximum employment, but inflation has generally remained below the Fed's 2% goal since 2013 by the Fed's preferred measure. Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly at full employment will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.

The Federal Reserve (the Fed) defines monetary policy as its actions to influence the availability and cost of money and credit. Because the expectations of market participants play an important role in determining prices and economic growth, monetary policy can also be defined to include the directives, policies, statements, and actions of the Fed that influence future perceptions. Traditionally, the Fed has implemented monetary policy primarily through open market operations involving the purchase and sale of U.S. Treasury securities. The Fed traditionally conducts open market operations by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. Beginning in September 2007, in a series of 10 moves, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% on December 16, 2008, where it has remained since. With the federal funds target at this zero lower bound, the Fed attempted to provide additional stimulus through unconventional policies. It provided forward guidance on its expectations for future rates, announcing that it “anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” The Fed also added monetary stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed's balance sheet was $4.5 trillion—five times its pre-crisis size. In September 2014, the Fed announced plans for normalizing monetary policy after QE, explaining that it will raise interest rates (perhaps beginning in 2015) in the presence of a large balance sheet mainly by raising the rate of interest paid to banks on reserves and engaging in reverse repurchase agreements (reverse repos). The Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. Through this channel, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions by households and businesses. Debate is currently focused on whether the Fed's commitment to keeping rates low will cause inflation to become too high or whether inflation is more likely to continue running below the Fed's desired rate of 2%. Congress has delegated responsibility for monetary policy to the Fed but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of “maximum employment, stable prices, and moderate long-term interest rates.” Congressional debate on Fed oversight has focused on audits by the Government Accountability Office (GAO). The Dodd-Frank Act (P.L. 111-203) broadened GAO's ability to audit the Fed and required audits of the Fed's emergency programs and governance. H.R. 24 and S. 264 would remove all statutory restrictions on GAO audits and require a GAO audit. Similar legislation has passed the House in recent Congresses. Other issues of congressional interest include the impact of reserve requirements; requiring the Fed to testify more frequently and to increase the scope of information it publicly discloses; subjecting Fed rulemaking to cost-benefit analysis; the Fed's “13(3)” emergency lending authority; and rules-based monetary policy as an alternative to discretionary monetary policy.