The essence of finance is the 5 1 book I read in 2020. I didn't expect to read another book at the end of the year. This book was read from the decision of 65438+February 2 1. In fact, it took me five days to finish reading it. It is not difficult to understand, but also let me see how the subprime mortgage crisis happened in 2008. The author of this book is Ben Bernanke, chairman of the Federal Reserve during the subprime mortgage crisis in 2008. This book gave me some insight into the background, mission and practice of the Federal Reserve during the financial crisis. After reading this book, it will be easier to understand after reading other books related to the subprime mortgage crisis.

This book in my hand is bilingual, and the four lectures are about *** 160 pages. I generated 18 cards in one * *. Judging from the number of cards, it brought me a lot of knowledge. 1 The lecture introduces the background and mission of the Fed, the second lecture introduces the Fed after World War II, the third lecture is the Fed's policy to deal with the financial crisis, and the fourth lecture is the enlightenment brought to the Fed by the crisis.

The United States is a federal country. Under such a system, there was no central bank to manage and supervise American finance at first. In the more than 40 years after the end of the Civil War, the United States experienced six major banking system panics. In this context, an institution that undertakes the functions of the central bank is ready to appear, and it is the Federal Reserve.

The Federal Reserve was established in 19 13, with two major missions: ① to maintain the stability of the financial system, and to alleviate or even prevent financial panic and financial crisis. ② Maintain economic stability, low inflation and steady economic growth. At first, the Fed did not operate independently. It was not until 195 1 that the US government explicitly admitted for the first time that the Fed should be allowed to operate independently. Judging from the means of the Fed's macro-control, it can be divided into three parts: ① Monetary policy tools. By adjusting interest rates, the economy will warm up and cool down. 2 financial instruments. It mainly provides short-term loans to financial institutions to provide liquidity for the market. (3) Financial supervision tools, but this book doesn't mention much.

To talk about the Great Depression, we have to mention the Great Depression of 1929. At that time, the Federal Reserve was only established in 16. In this great depression, some people were even at a loss. It is precisely because of a series of economic phenomena and problems brought by the Great Depression that the United States has accumulated a lot of experience, so that in the face of the subsequent financial crisis, the United States can quickly return to the track of economic recovery.

1929 the great depression was not limited to the United States, but global. Large financial institutions in the world have closed down one after another, and major economies in the world have experienced depression and recession. It is complicated to analyze the causes of the Great Depression, including but not limited to the aftermath of the First World War, the gold standard, the stock market bubble and the spread of financial panic. After the economy gradually recovered from the Great Depression, American monetary policy became too loose in the mid-1960s, which eventually led to inflation. Economic theory and practice at that time believed that there was a fixed balance between inflation and employment. If inflation is slightly higher than the normal level, employment growth and unemployment may last for a long time. In the early 1970s, when the United States was still in the stage of inflation, President Nixon introduced a wage and price control policy-prohibiting enterprises from raising prices. Because this policy can't meet the growing demand, the inflation rate has been artificially depressed, which has caused the inflation rate to soar after the cancellation of this policy. At the same time, because this policy has brought too many economic problems, it has left many problems for the Fed to regulate the macro-economy.

After President Volcker's hard work, the economy gradually recovered. From the mid-1980s to 2006, American GDP and inflation tended to be stable, which was called the Great Moderation Period until the subprime mortgage crisis broke out.

Robert Shiller, an economist who specializes in economic bubbles, believes that the real estate bubble in the United States has existed since 1998. At that time, there were two explanations for the continuous rise in house prices. The explanation of 1 is that the middle stage of the technology bubble stimulated the soaring stock price and also led to the soaring house price. Another explanation is that after the Asian financial crisis subsided in the late 1990s, many emerging market countries began to accumulate a large amount of foreign exchange reserves, and dollar assets, including real estate, were used as foreign exchange reserves. From the time axis, the time node of foreign currency flowing into the United States happens to be at the beginning of 1998.

The growing real estate bubble will burst one day, and the whole chain of events of the subprime mortgage crisis in 2008 originated from the decline of house prices. The bankruptcy of Lehman Brothers can clearly show the transmission process of panic. After the house price fell, the mortgage debt defaulted, which led to the loss of commercial real estate investment of Lehman Brothers, and the company was finally insolvent. In this case, Lehman Brothers had difficulty in financing, and its cash flow lost its liquidity, and eventually Lehman Brothers went bankrupt. Bankruptcy means that the commercial paper issued by Lehman Brothers has become worthless, and those fund companies holding Lehman Brothers' bills have been run on, and panic has spread rapidly in the bill market. In order to calm the market panic as soon as possible, at that time, the Federal Reserve provided loans to banks to buy money fund assets to stabilize the liquidity of the money fund market, and the Ministry of Finance launched a temporary guarantee plan to ensure the safety of investors' funds. Finally, with the efforts of government agencies, the run was quelled.

From this series of events, we can see that the financial crisis did not occur between banks and depositors, but between economic traders and repurchase markets, money market funds and commercial paper. At the time of the financial crisis, the Federal Reserve, as the lender of last resort, has the necessity and obligation to provide sufficient liquidity to the market. According to walter bagehot's principle (Lombardy Street, 1873), the best way to alleviate financial panic is to provide liquidity for those institutions that lack funds. According to the third paragraph of Article 13 of the Federal Reserve Law, the Federal Reserve can provide loans to entities other than banks in extraordinary times and emergencies.

The subprime mortgage crisis in 2008 had a great impact on companies like Lehman Brothers, which held a large number of mortgage-related securities and commercial real estate. Bear Stearns and American International Group are two typical examples. In March 2008, half a year before the subprime mortgage crisis broke out, a loan from the Federal Reserve contributed to JPMorgan Chase's acquisition of Bear Stearns and avoided its bankruptcy. On June 5438+ 10, 2008, AIG was on the verge of bankruptcy. As the largest insurance group in the world, it has close ties with the financial systems in the United States and Europe and global banks. If it goes bankrupt, the financial crisis is bound to spread to the global scope more quickly and become out of control. At that time, considering the overall situation, the Federal Reserve provided it with a loan of $85 billion, which calmed the potential risks. At the same time, it also made the United States start to think about how to let the "too big to fail" companies go bankrupt with minimal impact.

Getting the American economy back to the growth channel as soon as possible is the core issue that the Fed needs to solve after the subprime mortgage crisis. As a central bank, the main tool that can be used is monetary policy. The traditional monetary policy is to adjust the federal funds rate, that is, to raise or lower the interest rate. Unconventional monetary policy is the use of large-scale asset purchase plans, that is, quantitative easing.

After the subprime mortgage crisis in 2008, two rounds of quantitative easing were launched. The first round was 1 in March 2009, and the second round was 20 1 1. The impact of quantitative easing is the Fed's balance sheet, which has increased by more than $2 trillion. After the Federal Reserve bought the securities of enterprises supported by the state or government, investors had to turn to other types of securities, thus reducing the overall yield of securities. Keeping the fund interest rate low is more conducive to stimulating economic growth, which is exactly what the Fed wants. From this perspective, quantitative easing, a non-traditional monetary policy, will inevitably appear in the face of the financial crisis.

As a means of macro-control, monetary policy is based on financial supervision. If neither supervision nor intervention can stabilize the financial system, monetary policy will be implemented. Although monetary policy is a powerful tool, it cannot solve all existing problems. The Federal Reserve can provide economic stimulus and net interest rate, but monetary policy itself cannot solve structural problems, fiscal problems and other important problems affecting the economy. It can be said that the high frequency and transparency of the Fed's reflection and improvement mechanism under repeated crises have shaped its reputation and played a key role during the financial panic and financial crisis.

After reading this book, I am also thinking that the measures after one crisis often set the stage for the next crisis. At the same time, the system and mechanism are becoming more and more perfect, and the pace of economic recovery can be better guided by policies. Finance is really interesting.