A small piece of advice. Don't be too confident in wording your skills/knowledge on your resume. Case in point: I recently interviewed a recent graduate who wrote that he was an expert in monetary econonmics in his cover letter. He has a BBA in economics so I'm sure he knows something- but he's no expert (nor would I expect him to be- nor does the job position require it). So the question I asked him is that after the 07-08 financial crisis, the fed wanted to ease a classic liquidity shortage. So why did they employ special lending facilities instead of just increasing bank reserves? If someone can answer this intelligently without reseraching it than I would say they have "good" knowledge of monetary policy (similar to mine- not expert knowledge). But unfortunately this particular candidate couldn't.
This is similar to people who write they are procificent in a foreign langauge that they only familiar with. Often times, it doesn't matter, but if people catch you in an exaggeration they deduce that you are either (a) lying or in this case (b) naive. I definitely can't speak for all interviewers, but this would make me dislike your candidacy at least a little.
Agreed. If anything, understate your foreign language competency...I once had an interview where the language i had listed on there was his native tongue, so he proceeded to do the 30min interview entirely in that.
Fantastic points!
so why did they employ special lending facilities?
A classic case of why it always best to "under promise and over deliver".
For foreign language proficiencies, I simply state ( )th semester proficiency. This gives recent graduates a good idea where you're at while also allowing some wiggle room.
I have just recently made the move into advisory/M&A after 2 years in restructuring and insolvency here in Australia despite the current market conditions.
The reason why I got the job in my honest opinion, was that I didn't oversell myself. I was honest about what I did/didn't know and assured them that I was keen to learn and would learn very quickly. I even cited some of the resources I have been using (e.g. lectures and books) that they themselves were familiar with, and this added to the credibility of my statements.
The reality is, when you have little or no experience, and the interviewer have 10-20 years experience - you are no match at all. Don't presume you know it all or an expert, and by doing this, you may well and truly differentiate yourself from the rest of the pack!
Hope this helps!
I have had this happen as well. someone trys to go heads up with me on a topic that I have over 5 years on while they have a 2 month internships. While I like the fact that they have some balls... they get toasted quickly.
Just curious about the special lending facility, is it because of the horrible liquidation situation that simply adding banks' reserves won't be much of help?
Was it because the banks wouldn't have increased lending very much had they just increased reserves (banks would have held onto it and paid off their debts to prove their liquidity via balance sheets) whereas the special lending facilities and preferred stock gave the gov't more influence over how the banks used the money they were given (helping reduce the credit freeze)?
This question is killing me because a class I had two semesters ago spent 2 weeks answering this exact question and I can't remember the answer. If you decide not to post the answer on this thread, please PM me the answer (I'm getting frustrated with my lack of long term memory).
OP, call me an idiot, but your question makes no sense. Increasing reserves is an outcome and employing special lending facilities is a measure. You can increase banking reserves in a number of ways, one of which is lending banks money, be it through special, non-special or whatever-you-wanna-call-it facilities (well, actually its either that or outright giving out cash). So what's your point?
" So why has the Fed done so much in terms of special programs?
As I see it, there are four major reasons behind the dramatic expansion of the Fed’s liquidity programs:
...
The second major intent of the liquidity facilities has been for the Fed to expand its balance sheet and, by doing so, offset some of shrinkage that has been occurring among non-bank financial intermediaries. The fact is the banking system is capital-constrained, with insufficient capital to expand its balance sheet fast enough to offset the shrinkage evident in the non-bank sector. Although the Federal Reserve cannot create capital for banks, it can provide funding directly to the private sector, attenuating the consequences caused by a balance-sheet-constrained banking system.
...
The third goal of these policy interventions has been to improve market function. By dramatically reducing rollover risk, the Federal Reserve’s willingness to serve as the lender or investor of last resort has helped improve market function in a broad number of areas. Rollover risk is the risk that a borrower may not be able to obtain new funding in order to repay an investor when the investor needs the funds for other uses. If rollover risk is high, the investor is going to be concerned about getting its funds back and, thus, may be unwilling to make the investment in the first place. The impact of the Fed’s intervention on rollover risk has been especially important in the triparty repo market and in the commercial paper market.
The triparty repo market is a market in which investors such as money market mutual funds lend funds, mostly on an overnight basis, to securities dealers, with the loans collateralized by high-quality securities. During the crisis, this market became less stable. As the financial condition of some of the major securities dealers worsened, the clearing banks became more reluctant to return the cash that the triparty repo investors had invested the prior evening. The clearing banks were worried that if a dealer were to fail, they could be stuck with a large obligation. The nervousness of the clearing banks, in turn, spilled back to the investors. If there is some chance that I might not get my cash back and instead be stuck with the collateral, do I really want to make the loan in the first place? The Primary Dealer Credit Facility essentially broke this dynamic by putting the Federal Reserve in the position of lender of last resort in the triparty repo system. With the Federal Reserve willing to lend against collateral, the clearing banks no longer have significant intraday risk exposure. The triparty repo investors have been reassured that they would be paid back. As a consequence, they were willing to keep investing."
There's a lot more than this in the Vanderbilt speech but these were some highlights. I don't claim to be an expert.
Taken from http://www.newyorkfed.org/newsevents/speeches/2009/dud090418.html
The Fed employed lending facilities because systemic trust had broken down to such a degree, banks wouldn't have lent an adequate amount of money regardless of reserve levels. Toxic assets were floating around like icebergs - nobody knew where they were. Only once toxic assets were removed/addressed could some semblance of normal lending resume.
Great, I try to be nice and get shit thrown all over. Nice one.
Anyway, coming back to the question - is the issue here that the Fed lent directly to financial and non-financial institutions, sidestepping the banking system? Because if so, then I want to hear the answer to that myself now. And a good one. For what its worth they could've just dropped money of a helicopter, and the effect would be more or less the same.
haha way for everyone to look past the advice and focus just on the example lol
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