Role of the treasury and the fed in the credit crisis during 2007 - 2010

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Introduction

Treasury and Fed play a great role in the US economy they are even more significant during financial crisis and other periods of economic difficulties . Some of the roles played by Fed include open market operations , adjusting rates of interest , purchasing of securities and adjusting the requirement ratio of reserves . These are very essential roles in the American economy as Fed and treasury are able to apply them in regulating the given time . These roles thus make it possible for Fed and

treasury to control inflation in the economy , while at the same time controlling the level of activity in the financial and money markets . These roles are therefore very important fostering faster economic growth and stability (Acharya , pp 11

Causes of the financial crisis

Several factors are indirectly or directly responsible for causing the current financial crisis which started in 2007 . One of the major causes of the financial crisis was the bursting of the housing bubble in the United States ' mortgage industry . Prior to the commencement of the current credit crisis that is , the period 1997 - 2006 , prices of houses in the United States increased by more than 124 . Homeowners were therefore in a position to access more credit facilities from the banking industry . However , upon the bursting of the housing bubble in 2006 , the prices of houses dropped sharply and it became very difficult and even impossible for the homeowners to...