What are the policy actions taken by the Fed and the U.S. Treasury in response to the financial crisis?

Question

What will be an ideal response?

Answer 1

The Fed and the U.S. Treasury have undertaken eight policies designed to combat the financial crisis. The Fed conducted massive open market operations to provide liquidity to banks. To provide liquidity to money market funds, the Fed also created an asset-backed commercial paper money market mutual fund liquidity facility. To provide liquidity to other financial institutions, the Fed allowed created programs that allowed term auction credit and also primary dealer and other broker credit. The U.S. Treasury engaged in two Troubled Asset relief Programs, TARP 1 and TARP 2 . TARP 1 was designed to give banks more liquidity. Under it banks were to sell troubled assets to the U.S. Treasury in exchange for U.S. government assets. This program did not work well and was replaced by TARP 2 . Under TARP 2 the U.S. Treasury directly purchased stock in financial institutions, thereby increasing their solvency and making their failure less likely. Finally, accounting rules were changed to allow financial institutions to use fair value accounting rather than mark-to-market accounting to value assets. This change also increased their solvency and made failure less likely.