The Financial Crisis

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The Financial Crisis The Federal Reserve, created in 1913, serves as the central bank of the United States and plays a significant role in economy stabilization which was the core reason for its formation. With authority vested in it enjoys the freedom of choice to the many options it has in restoring the economy in times of crisis. The agency can alter the credit, loan and mortgage rates in the event of an economic recession or the case of inflation accordingly. This was the situation back in 2007. The financial performance was going down. The Federal Reserve in the effort to restore the economy decreased the credit, loan and mortgage rate from 6.5% to 1% to stimulate and motivate the consumers to get active in the economic sector. This move saw very many people acquire loans and mortgages. The agency is also authorized to support financial institutions in the event they face financial difficulties too big to bear. When the recession crisis of 2007 was solved through reduction of rates, so many people acquired loans and mortgages to an extent they were unable to repay. The banks which had in good faith issued these finances could not stand the loss, and therefore the Federal Reserve agency had to chip in. It offered to bail the banks out with a total sum of $700 billion in pursuit to save the economy. The agency also has the power to stimulate the economy through the addition of disposable finance if to their opinion; it can do better. This resolution is done through financial institutions. For instance, in 2009, the president signed out an $800 billion stimulant aimed at increasing investment and creating jobs for the people as an overall result. The housing bubble

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