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Actions of Federal Reserve

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Actions of Federal Reserve


This article reviews the action of the Federal Reserve in lieu of saving all major banks from the financial crisis that gripped the western world recently. The Fed, under its special loan program, initiated its efforts to protect the bonds market from the crisis by providing loans of up to $9 trillion overnight. These substantially huge amounts of loan were backed by collaterals and were extended to the giants in banking sector without any notification whatsoever. Although the financial institutions were needed to be supported in crucial times like this, the magnitude of monetary assistance provided by the Fed invited skepticism and incomprehension. The main argument that Fed received regarded to the banks' potential to help small and medium businesses in the face of the crunch and to support the consumers rather than just amassing more wealth and assets. Merrill Lynch, Citigroup, and Morgan Stanley were the financial giants receiving heaviest of loans while they strengthened their ability to cope with the crisis. Barclays received the largest single loan. The efforts of Fed in stabilizing the financial system was however, lauded. Some people argued that the Fed needed to notify loans as they extended and should not have provided substantial amounts to the already-capable banks. Other than this, the Fed also purchased in mortgage, and backed the loans of consumers and businesses. The Fed also issued commercial papers to help businesses meet their short term debt obligations. It defended all arguments by saying that the notification of the loans could have surpassed the secrecy levels of banks and their image could be worsened by disclosing their financial health openly.


After reviewing the article, the viability of Fed can be held accountable. In such a financial crisis, providing monetary backing at such a ...
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