Financial Crisis? The Liquidity Crunch of August 2007 (CRS Report for Congress)
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| Release Date |
Sept. 21, 2007 |
| Report Number |
RL34182 |
| Report Type |
Report |
| Authors |
Darryl E. Getter, Mark Jickling, Marc Labonte, and Edward V. Murphy, Government and Finance Division |
| Source Agency |
Congressional Research Service |
Summary:
The financial volatility observed in August is particularly significant because itillustrates how stress in one financial market - in this case, housing - may spreadto other markets, causing losses to investors and intermediaries not directly involvedin the market where the trouble originated. These events raise questions about theability of policymakers to respond to financial crises since an increasing share ofcredit market activity now occurs outside the banking system, in unregulatedinstitutions such as nonbank mortgage lenders and hedge funds.This report describes the preceding events that instigated the August 2007liquidity crunch, followed by the major events that occurred during the crunch. Itthen analyzes the structure of financial markets today to identify underlying causesfor the crunch. It ends by analyzing policy issues raised by the liquidity crunchrelating to macroeconomic stabilization policy and financial regulation.
