Question

Please respond to one of the following.

What were some key events in the summer of 2007 that indicated that the "house of cards" was beginning to fall?

The FOMC: What were some key decisions by the FOMC during this period--which policy decisions made history, so to speak?

Fannie Mae and Freddie Mac: in 2007 and 2008, what were some key events and policy decisions related to these?

Answer 1

ans 1=The problem actually started in the summer of 2007 when BNP-Paribas declared that some of its hedge funds had lost substantial worth on account of exposure to subprime advances. This led to a realization among financial institutions globally; their invulnerable American MBS might not be secure investments. Suddenly all desired to sell off mortgage-backed securities & none desired to purchase them. This led to prices dipping. On account of the sharp fall in the worth of MBS, investment & retail banks wrote-down losses on MBS they held. This led to huge losses throughout the banking business in the 3^rd & 4^th quarters of 2007. On 16^th March, 2008 the disaster deepened as Bear Stearns failed . Thereafter, Lehman Brothers filed for insolvency on 14^th September, 2008,again suggesting that the disaster was broader than anticipated.