According to a recent news story in Associated Press, It is highly unlikely that Federal Reserve Bank will change the key interest rates any time soon. Since the interest rates are currently at historic low for some time now and practically this is as low as Fed can keep them to kick start the jammed US economy. Despite the faint signs of improvement in economic activity, Fed is not likely to touch the rates at least not for next two quarters.

After spending more than a year in deep recession, US economy finally started to grow in the last quarter. The rate of growth is very minimal and no one knows if the growth can sustain itself over next few quarters or not. So far the economy is running on essential life support system provided by federal government.  It is yet to be seen how it performs without oxygen mask.

The Core policy making team at Federal Reserve Bank of America resumed its meeting on Wednesday morning. They are likely to discuss and analyze available economic and financial data over the period of next two days.

Although their is some data that indicates the recovery but still the rising un-employment and non-availability of easy credit to individuals and small business owners are some of the factors that are putting a drag on faster recovery from recession. Commercial and residential real estate markets have yet to coup with the impact from loans that went bad and took along them many a banks.

Mortgage rates are still very high. In September, when the key policy makers of Fed met, the team outlined  a very pragmatic plan to bring the mortgage rates down for the main street consumers and try to kick start the housing sector. It is very likely that we will see some positive movement in the same direction at end of current meeting.

Since the inflationary effect of recent stimulus packages is almost none, Fed might try to take some drastic measures to keep Prime Mortgage Rates at or around 3.25 percent. These measures, that would seem stupid if seen out of context, include pushing the target rate for it bank lending further down and keep it between zero percent and 0.25 percent. This will impact all aspects of economy as the commercial bank’s prime lending rate is used as a yard stick to determine interest rates  for home equity loans, credit cards and other types of consumer finance products.

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In the past, it was possible for virtually everyone to get a few hundred thousand dollars to buy a home, as private lenders flooded the market, aggressively trying to get customers. The borrowers thus got what they wanted, i.e. the mortgage no matter what their financial history was.

However, things are not the same not any more. Currently, only one lender remains, which is the federal government. In order to rescue the firms from the financial crisis, the government took control a year ago of the two largest mortgage finance companies in the world, Fannie Mae and Freddie Mac.

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Until now, Fannie Mae and Freddie Mac have been able to defeat all kinds of predictions regarding their failure. They have come out of trouble every time, and have succeeded in building their image as an eternal formulation.

But it is about time that their eternity may be coming to a halt. The two mortgage giants, who were once sponsored by the government, which now controls it, could really be facing their ends. The MBA wants to split up Fannie Mae and Freddie Mac, and it is possible if a functioning mortgage market is maintained without them.

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Although most of the analysts think that their prices are almost certain to go to zero, investors are still trading common shares of Fannie Mae, Freddie Mac and American International Group Inc. by the billions.

The government owns the majority of all three, and they are losing huge sums of money. The Securities and Exchange Commission and other regulators don’t have the authority to end the trading of stocks in such companies that are technically alive, until the government takes them off life support.

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This week, the mortgage rates for 30-year fixed loans fell to the lowest level since May. This has led to reduced borrowing costs for hesitant buyers. Recent signs show that the recession in the U.S. housing market may be bottoming.

According to Freddie Mac of McLean, Virginia, the average 30-year rate fell to 5.12 percent from 5.29 percent. The 15-year rate was 4.56 percent.

The fall in home prices and a government tax credit for first- time buyers is reinforcing the tepid demand. According to the Washington-based MBA, the Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose 5.6 percent to 527.

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Mortgage debt has become more appealing for some buyer due to the federal first-time home buyer tax credit, which expires Dec. 1, especially combined with lower home prices and lower interest rates, but the president of Bills.com, Ethan Ewing, has cautioned buyers to be aware of the new changes to mortgage borrowing.

Fannie Mae and Freddie Mac are two very large government-sponsored enterprises that purchase mortgages from the lenders that originate home loans. The U.S. mortgage industry largely follows rules established by Fannie Mae and Freddie Mac. These both back nearly half of all U.S. home loans.

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If we look into history of different countries we will find that different countries faced the financial crises at different times. As the world is facing now financial crisis now also, the question comes in mind that who are those who run this finance horse, what are the reasons which leads to financial crises? Or is there is someone who is holding all the strings and keep them pulling? So many questions come in mind when mind starts thinking about it.

Well I had searched about this and compiled these ten nasty crises. Check out these ten dramatic crises.

1 – Argentine economic crisis (1999 – 2002)

Argentinean economy was destabilized in 1980s when Latin American Crisis struck it. Argentine was an import dependent country where people usually convert their peso into dollars to feel secure. The high inflation rate leads its currency to lose the confidence and adding oil to fire the government that time spent generously on itself while ignoring the country’s crumbling industrial infrastructure.

Mexico and Brazil were the major trade partners of the Argentine in 1980s both countries suffered the economic crises which spread out in Latin America. Brazil’s currency was devalued in 1999 that damaged a lot Argentinean exports and adding fuel to fire the dollar was revalued giving a harsh blow to Argentinean Peso.

Till 1999 the country was having 3^rd consistent year of economic decline but the government haven’t devalued the peso, which made the crisis worse. In such conditions the investors ran on banks for dollars to send abroad for safety. Meanwhile the government freezes everyone’s bank accounts. This step of the government raised violence amongst citizens and protests through out country were started. The government was collapsed in 2001. While in crisis the people were bartering for goods because lack of cash, many people eked out a living by scavenging cardboard for recycling plants.

The new government 1^st tried to setup a third currency between dollar and peso but that failed. Then it instructed the banks to convert all dollars into pesos. That step worked and peso was lead to diminish in value. Because of that exports got higher and in meanwhile the government tightened its tax policies, improves social welfare, encourages business growth and put the reserve dollars up for sale in market. The country got the surplus trade because of its agricultural products anyhow its still struggling with inflation.

Lesson

Freezing bank accounts leads the crises to get worst. It can’t be a smart step to tackle the crisis.

2 – Russian Financial Crisis (1998)

The Russian government in 1993 introduced inflation-free short-term treasury bills known as GKOs to finance the country’s deficit. GKOs were traded on currency exchanges. Most of it was state owning while only 1/3 of funding came from foreign speculators who were attracted by high interest rates. Like a classic Ponzi scheme the government used proceeds from sales of new GKOs to payoff interest on matured bills.

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