Question

What do you think may have happened had the Federal Reserve not taken extraordinary measures during the financial crisis in 2008?

Answer 1

Problems first surfaced in subprime mortgages, but they soon spread far beyond. At one point, nearly 10% of all mortgages were in serious trouble or in foreclosure. As foreclosures and delinquencies skyrocketed, lenders and other financial institutions that had placed big bets on the mortgage market posted massive losses. Investors in U.S. mortgages were spread all over the world. No one was sure who was left holding the bag. Financial institutions became afraid to lend money to anybody, including other financial institutions. That choked off the routine flow of funds that financial institutions depend on to finance their day-to-day operations. It culminated in 2008 in an enormous financial panic that destroyed some of the biggest players in the financial industry and came close to bringing down the global financial system.