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Macroeconomics Conference Presentation

Econ 206
by

Marwane Zouaidi

on 22 April 2013

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Transcript of Macroeconomics Conference Presentation

Housing Bubble Consumption and Investment Total Personal Consumption Expenditures: third quarter of 2008 with a -3.8% change which worsened to a -4.3% change in the fourth quarter. Consumption and Investment II Features A general slowdown in economic activity, a downturn in the business cycle, a reduction in the amount of goods and services produced and sold— all characteristics of a recession.

10 recessions between 1948 and 2011 - the most recent began in December 2007 and ended in June 2009 GDP & Unemployment Primary causes
low mortgage interest rates
low short term interest rates
relaxed standards for mortgage loans
irrational exuberance Recommendations Federal Agencies 2007- Freddie Mac stops purchasing high risk mortgage securities. 2007 - Secretary Paulson announces the Hope Now initiative. Government Response FOMC and FRB continuously reduce interest rates 2006-2007 Real Estate demand outstrips supply, bursting the USA's housing bubble
Home loans exceed the worth of the house
Foreclosure rate rises - millions default on their loans Federal Funds Rate 1 Congress and the President 2007- Mortgage Debt Relief Act 2008- Economic Stabilization Act (TARP) 2009- Fraud Enforcement and Recovery Act 2010 - Dodd-Frank Bill Passed Why is Growth Slow? Government Response was aimed at damage control Federal Reserve Followed expansionary monetary policy Bank regulation and bailouts impeded rapid economic growth March-July 2008 Bibliography 1 Traders Narrative, Long Term Chart of Federal Funds Rate, http://www.tradersnarrative.com/long-term-chart-of-federal-funds-rate-1513.html (January, 2008).

2 Federal Reserve Bank of St. Louis. The Financial Crisis: A Timeline of Events and Policy Actions, http://timeline.stlouisfed.org/index.cfm?p=timeline (2011)

3 Congressional Research Service: The 2007-2009 Recession: Similarities to and Differences from the Past. http://www.fas.org/sgp/crs/misc/R40198.pdf.4 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor: The Great Recession of 2008-2009: Causes Consequences and Policy Responses. http://ftp.iza.org/dp4934.pdf.

4 Stanford University: Consumption and the Great Recession: An Analysis of Trends, Perceptions and Distributional Effects. http://www.stanford.edu/~pista/cons_recess_August_2011.pdf.

5 The Journal of Business Inquiry. Jeff Holt: A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper. http://www.uvu.edu/woodbury/jbi/volume8/journals/SummaryofthePrimaryCauseoftheHousingBubble.pdf.

6 US Bureau of Labor Statistics: The Recession of 2007-2009. http://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf

7 European debt Crisis, http://www.youtube.com/watch?v=vnuAh3esdp

8 CFTC http://www.cftc.gov/lawregulation/doddfrankact/index.htm

9 The Financial Crisis, http://timeline.stlouisfed.org/pdf/CrisisTimeline.pdf

10 The Origin, Propagation and Magnification of the Financial crisis, http://www.aei.org/files/2009/10/09/Reinhart%20Prospectus.pdf 2 2 2 JP Morgan buys Bear Stearns as other failing banks start merging as well
Major investment banks stop lending money - credit market freezes
President Bush signs the Housing and Economic recovery Act (HERA)
Act Injects $300 billion into Fannie Mae and Freddie Mac September 2008 Government takes over Fannie Mae and Freddie Mac
Bank of America buys Merrill Lynch Congressional Research Service: The 2007-2009 Recession: Similarities to and Differences from the Past Lehman Brothers declare bankruptcy - creates domino effect for banks that lent them money
Government issues $85 billion to bail out failing insurance giant AIG The Journal of Business Inquiry. Jeff Holt: A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper US Bureau of Labor Statistics: The Recession of 2007-2009. Stanford University: Consumption and the Great Recession: An Analysis of Trends, Perceptions and Distributional Effects Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor: The Great Recession of 2008-2009: Causes Consequences and Policy Responses. US Bureau of Labor Statistics: The Recession of 2007-2009. US Bureau of Labor Statistics: The Recession of 2007-2009. The Great Recession October 2008 Congress passes Toxic Asset Relief Program or TARP - $700 billion bank rescue package Federal reserve loans money to banks - tries to free the Credit Market 2009 Congress passes a stimulus package - injects another $819 billion to revitalize the economy
Unemployment numbers reach 10.1%, highest since 1983 Credit Card reform bill becomes law - Government increases oversight of real estate market European Debt Crisis Dodd–Frank Wall Street Reform and Consumer Protection Act 9 Dodd–Frank Wall Street Reform and
Consumer Protection Act “The Wall Street reform bill will – for the first time – bring comprehensive regulation to the swaps marketplace. Swap dealers will be subject to robust oversight. Standardized derivatives will be required to trade on open platforms and be submitted for clearing to central counterparties. The Commission looks forward to implementing the Dodd-Frank bill to lower risk, promote transparency and protect the American public.” - CFTC Chairman Gary Gensler - Separates commercial and investment banking
(Volcker Rule)

- Creates the Consumer Protection Agency

- Enforces tougher regulations on credit rating firms - Gives the Fed new tools for dealing with a crisis

- Openly traded derivatives on an exchange

- Consolidation of regulatory agencies under Fed - Strengthening the Volcker Rule - Lessening interdependence between firms - Corporate bond market stabilization tools - Consistency 7 9 9 2010 - FDIC announces over 702 uninsured institutions at the end of 4th quarter in 2009 9 9 10
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