On the record: the dangers of complacency about risk: a conversation with Harvey Rosenblum

Dallas Fed Research Director Harvey Rosenblum discusses the stability of the U.S. economy's Great Moderation and how it set the stage for the financial turmoil that has gripped the nation since August 2007.Economic conditions - United States ; Recessions ; Mortgage loans

What reforms are needed to improve the safety and soundness of the banking system?

To further improve bank safety and soundness in the years ahead, the author makes two recommendations: that banks be examined and rated specifically on their organizational complexity and that systemically important banks that are too big to resolve quickly be recapitalized according to a model that is known in advance by their competitors and by the general public.Banks and banking ; Bank supervision

Gauging the odds of a double-dip recession amid signals and slowdowns

Public sentiment says the recession isn't over. Never mind that the National Bureau of Economic Research (NBER), the arbiter of recessions, declared that the Great Recession of 2008 and 2009 officially ended in June 2009. An unrelenting pessimism constrains the recovery as consumers spend reluctantly while paying down debt, gripped by persistent fears of unemployment. The economy grew at a 2.5 percent annualized pace in the third quarter, according to the second estimate of real gross domestic product (GDP), a moderate improvement after two quarters of decelerating growth during the recovery. This tepid expansion has raised concern that things could get worse again before getting better and that the likelihood of another recession may have risen.Recessions ; Economic conditions - United States ; Interest rates ; Unemployment ; Petroleum products - Prices

The U.S. economy: a brighter outlook after a bumpy ride

Economic conditions - United States

Regulatory and monetary policies meet "too big to fail"

In 2010, the U.S. economy has been showing signs of pulling out of its tailspin. But questions remain about why it took so much monetary policy firepower to deal with the crisis.Global financial crisis ; Monetary policy ; Regulation ; Bank failures ; Financial institutions

From complacency to crisis: financial risk taking in the early 21st century

During the first half of this decade, the belief that new financial products would adequately shield investors from risk encouraged financial flows to less creditworthy households and businesses. By late 2006, U.S. financial markets were flashing warning signals of a potential financial crisis. ; In a sign that investors had become too complacent, risk premiums had all but vanished in junk bond and emerging-market interest rate spreads. Then, conditions changed abruptly. In the important and usually stable market for asset-backed commercial paper, premiums on three-month paper over Treasury bills jumped from 0.17 percentage point in February 2007 to 2.15 points in August. Meanwhile, rising subprime mortgage defaults led investors to abandon their sanguine beliefs about the risk of many mortgage and nonmortgage products. ; The backdrop for these events was a period of macroeconomic stability that fed complacency about risk. This relatively benign economic environment, when combined with the new, structured financial products, increased financial flows to nonprime mortgage and business borrowers. The result was an overeager acceptance of risk taking that began correcting itself only after mounting subprime mortgage defaults reverberated through the broader financial markets.Risk ; Financial markets

Fed intervention: managing moral hazard in financial crises

At the end of September 2008, U.S. policymakers had been working for more than a year to contain the shock waves from plunging home prices and the subsequent financial market turmoil. For the Federal Reserve, the crisis has given new meaning to the adage that extraordinary times call for extraordinary measures. The central bank has dusted off Depression-era powers and rewritten old rules to address serious risks to the global financial system.Monetary policy - United States ; Financial crises ; Financial markets ; Federal Reserve System