MULTINATIONAL CORP-EVOL & CUR ISSUE Movie Review - 2

MULTINATIONAL CORP-EVOL & CUR ISSUE - Movie Review Example As the financial crisis got worse, the Federal Reserve took unusual and unparalleled actions to re-establish financial stability. Unemployment rate continued to rise until mid-2003, as the United States economy was rebounding from a small recession in 2001. The Federal Reserve was worried that the economy would slide into recession so they kept the federal funds rate very low. The rate reached 1 percent by mid-2003 (Labonte and Makinen 9). As the economy began to expand and prices began to increase, the federal funds rate was increased to 5.25 percent by mid-2006. According to Labonte: It is now argued by some economists that the financial crisis was, at least in part, due to Federal Reserve policy to ensure that the then-ongoing expansion continued. In particular, critics now claim that the low short-term rates were kept too low for too long after the 2001 recession had ended, and this caused an increased demand for housing that resulted in a price bubble (Labonte and Makinen 9). The economy was more and more susceptible to changes in short-term interest rates largely due to the move to floating interest rate mortgages from fixed interest rate financing for housing. The Chairman of the Federal Reserve Benjamin Bernanke stated that the low home mortgage rates were largely caused by a glut in global savings. Bernanke went on the say that the Federal Reserve had little control over these savings due to constraints in the regulatory framework. The Federal Reserves later policy of tightening monetary policy was to burst the housing bubble, claim critics. The critics further suggest that lax lending standards, which were regulated by the Federal Reserve, also contributed to the crisis. The subsequent increase in bank leverage ratios meant that they could borrow more overnight and create collateralized debt obligation (subprime loans) in the securitization chain. When the housing bubble burst, it led to a