Subprime mortgage crisis: Difference between revisions - Wikipedia

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The U.S. Treasury Department is working directly with major banks to develop a systematic means of modifying loans for a significant portion of borrowers facing ARM increases, rather than working through loans on a case-by-case basis.<ref>http://www.businessweek.com/magazine/content/07_50/b4062000057239.htm?chan=investing_investing+index+page_top+stories</ref>

Bush also announced an economic stimulus package of $145 billion, mainly in tax cuts, to contain the fallout from the crisis. The announcement failed to arrest a [[January 2008 stock market downturn|stock market crash]] due to renewed fears of an American recession. <ref>{{cite web| url=http://www.washingtonpost.com/wp-dyn/content/article/2008/01/18/AR2008011800429.html?hpid=topnews|title=Bush Proposes $145 Billion Stimulus Plan |author=Peter Baker and Neil Irwin|publisher=[[Washington Post]]|date=2008-01-18|accessdate=2008-01-23}}</ref>

===The Federal Reserve===▼

Within the Federal Reserve, Chairman Ben Bernanke signals towards making interest rate cuts. Financial markets expect the interest rate reduced to 3.75%.<ref>{{cite web|url=http://www.reuters.com/article/ousiv/idUSN1130392420080111?sp=true

|title=Fed pledges to act to counter market turmoil|date=2008-01-11|accessdate=2008-01-11|work=Steven C. Johnson|publisher=Reuters}}</ref>

▲===The Federal Reserve===

Within the Federal Reserve, Chairman Ben Bernanke signals towards making interest rate cuts. In early 2008, [[Ben Bernanke]] said: "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." <ref>http://www.federalreserve.gov/newsevents/speech/bernanke20080110a.htm</ref> Tougher regulatory standards are proposed. Additionally, a freeze of interest payments on certain sub-prime loans is announced.<ref>{{cite web|url=http://news.bbc.co.uk/2/hi/business/7150352.stm|title=Fed to help US mortgage holders|date=2007-12-18|accessdate=2008-01-18|work=|publisher=BBC}}</ref> The Fed also slashed a key interest rate by 75 basis points to 3.5%, the biggest cut since 1984.<ref>{{cite news|author=Michael M. Grynbaum and John Holusha|title=Fed Cuts Rate 0.75% and Stocks Swing|url= http://www.nytimes.com/2008/01/22/business/23cnd-fed.html |work=[[The New York Times]]|publisher=[[The New York Times Company]]|date=2008-01-22 |accessdate=2008-01-22}}</ref>

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. <ref>http://federalreserve.gov/newsevents/speech/bernanke20071015a.htm</ref> Both measures effectively lubricate the financial system, in two key ways. First, they help provide access to funds for those entities with illiquid mortgage-backed assets. This helps lenders, SPE, and SIV avoid selling mortgage-backed assets at a steep loss. Second, the available funds stimulate the commercial paper market and general economic activity. Specific responses by central banks are included in the [[subprime crisis impact timeline]].