Quantitative Easing and the US Financial Crisis in 2008

Rabana Arif, Verrazano Class of 2019, completed Majors in Business Finance and EconomicsBeing accepted into the College of Staten Island’s School of Business was an honor in itself. However, becoming part of The Verrazano School added on to this great undergraduate experience. I came here with the passion to pursue my Bachelors of Science in Business Finance. Little did I know taking some prerequisite courses for Finance would lead me into pursuing a double major in Economics. I was fascinated by most of the topics that were being covered in Economics. I started enjoying it way more than Finance and when it was time for me to work on my Capstone project I already had an idea of what I wanted to do. After meeting with my advisor Professor HyoungSuk Shim, I decided to research and evaluate more about Quantitative Easing. 

Quantitative Easing is a massive expansionary monetary policy initiated in response to sharp increases in the unemployment rate due to the subprime mortgage crisis in 2008. The crisis led to a radical reorganization of the investment banking industry with the failure of the nation’s two major investment banks: Lehman Brothers and Bear Stearns, which left many individuals unemployed. 

The recession lasted from December 2007 to June of 2009, beginning with the bursting of the housing bubble and quickly spreading to the United States financial sector. It greatly impacted the investment banks, mortgage lenders, insurance companies, commercial banks and numerous companies that relied heavily on credit. The overall result was a widespread slowdown of growth in the United States economy with an incredibly high unemployment rate.

I was not living in the United States while the recession took place. It was mind blowing to find out the statistics of the individuals who were left unemployed by this economic downturn. I examined the impact of QE on the United States Financial Market, and evaluated its effectiveness as a business cycle stabilization policy. I also examined the effectiveness of QE by analyzing the U.S. monthly unemployment rate and related statistics of the U.S. banking sector and identified the specific actions that were taken by The Federal Reserve to address the issue. Quantitative Easing was the unconventional monetary policy initiated by the Fed to decrease the unemployment rate and bring the economy back on track. Since higher unemployment rate is one of the widely recognized indicators of a recession, it was important to examine how any of the monetary policies initiated by the Fed impacted it. 
According to the Fed, Quantitative Easing was one of the most fundamental steps to help stimulate the economy during the recession. However, upon my evaluation of the QE, it can be concluded that this policy failed to respond to the anticipated criteria set by the Fed. The unemployment rate was expected to decline as soon as the QE was initiated but it failed to do so. 

This capstone project helped me better understand the United States Economy during the 2007-2009 recession and provided me with information that I lacked before doing the research.