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(Revised from original 2008 version)
U.S. Subprime Mortgage Crisis: Policy Reactions (A)
By March 2008, the U.S. Government and the U.S. Federal Reserve Board had taken various policy measures over the last few months to tackle the subprime mortgage crisis that threatened to drag the economy into a recession. The Bush administration approved a fiscal stimulus package exceeding $150 billion. Interest rates had been repeatedly cut at the fastest pace in decades, to 2.25% as of March 2008. The Fed, in an unprecedented move, helped JPMorgan Chase to take over Bear Stearns, which was on the brink of collapse. Yet as the global economy faced slower growth stemming from the U.S. mortgage crisis, policy makers were caught in an intense debate over what the 'right' solution would be, and the implication of these policies on global imbalances.
Keywords: Financial Crisis;
Inflation and Deflation;
Business and Government Relations;