read page 92 for hedge funds
page 95 libor
In the recent crisis, the Fed and other central banks couldn't immediately bring the crisis under control.
(1) the size and scope of the meltdown made many of the usual tools useless
(2) investment banks and shadow banks lacked ready access to the lifelines that had served central banks so well in previous crises.
Investment banks, like ordinary banks, borrow short and lend long, but they don't have access to lender of the last resort, and their creditors cannot rely on deposit insurance if thing go awry. Being less regulated, they tend to be much more leveraged.They are also highly dependent on short-term financing in the repo market.
The interpretation that reducing a crisis to one spectacular failure simplifies an extraordinary complex chain of events is misleading.
page 106, 108
By 2008 both Freddie Mac and Fannie Mae had great loss
(1) the insurance premiums no longer covered the losses
(2) investment portfolios burst with subprime mortgages and subprime securities.
page 111, Fed purchased all AIG's tranches with full value. (moral hazard)
The existence of toxic securities make people panic about the commercial paper market. Corporations found it hard to borrow money. The collapse of the commercial paper market posed the risk that otherwise solid corporations would go insolvent because of ta run on their short-term liabilities. As a result, the Fed set up another lending facility to make loans to firms with an A rating or better.
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