During the financial crisis of 2007 to 2008, the Federal Reserve attempted to calm markets by increasing liquidity and serving as a lender of last resort. The U.S. government also bailed out Fannie Mae and Freddie Mac along with numerous commercial banks, insurance companies, and investment banks.

a)What are the strengths of lender of last resort programs and government bailouts?

b)Do the lender of last resort and government bailouts lead to any additional problems?