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The banking system and recessions

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Reference no: EM131500175

Topic: The Banking System and Recessions

The low interest rates allowed by the Fed had a large impact on the 2009 recession. However, the Fed is not the only party to blame. By backing home loans, the U.S. government contributed to the recession as well. With loans being guaranteed by the federal government, and interest rates being low, banks were willing to approve mortgages for candidates who could not afford them, or did not have adequate credit. This led to an increased demand in the housing market, since mortgages were readily available. Once the housing bubble popped, the value of homes decreased below the balance of the mortgage. This meant borrowers who couldn't make payments were unable sell their homes to satisfy the loan. This could have been avoided if the Fed and the government left the banking in the hands of the private sector (Murphy, 2008).

Matt

Murphy, R. (2008, December 15). Evidence that the Fed Caused the Housing Boom. Retrieved May 11, 2017, from https://mises.org/library/evidence-fed-caused-housing-boom

Reference no: EM131500175

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