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ECO 535 WK3_Federal_Reserve_and_the_Great_Recession_Analysis.docx Federal Reserve and the

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ECO 535 WK3_Federal_Reserve_and_the_Great_Recession_Analysis.docx Federal Reserve and the Great Recession Analysis ECO/535 Federal Reserve and the Great Recession Analysis The Federal Reserve play... s a huge role in our economy “ they either ease or increases the interest rates on the banking system. The ease of interest™s rates from the federal Reserve allows banks to create money through the loans they make. The mortgage Default Crises of 2007 was a difficult time for Americans. Americans were given subprime mortgages to those who should not have qualified for the loan to begin with. A major wave of defaults on home mortgage loans threatened the health of not only the original mortgage lenders but of any financial institution that had made such loans or invested in such loans either directly or indirectly. Economics: Principles, Problems, and Policies (McConnell, C. R., Brue, B. L., & Flynn, S. M., 2018) defines subprime mortgage loans as œhigh-interest-rate loans to home buyers with above-average credit risk. Since the Federal Reserve has many ties with banks, they encouraged banks to make these loans in an order to grow and broaden home ownership. The Recession was precipitated by a combination of excess money and financial frenzy that led to overvalued real estate and unsustainable mortgage debt. Institutions bundles this debt into new securities or (œderivatives) that were sold to financial investors. Some of these investors bought insurance against losses that might arise from securities. As real estate prices fell and mortgage d. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. .. . . . . . . . . . . . . . . . . . .. . . . . [Show More]

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