Historical Echoes: Noir Gold—The Case of the Brasher Doubloon

Amy Farber



Whatever the vagaries of the market, gold is a perennially hot commodity in the popular imagination—especially in the minds of authors and screenwriters. In this Historical Echoes post, we take a look at Raymond Chandler’s 1942 Philip Marlowe novel The High Window, which uses a stolen gold coin—the Brasher Doubloon—as a plot device.

QE Frictions: Could Banks Have Favored Refinancing over New Purchase Borrowing?

Dong Beom Choi, Hyun-Soo Choi, and Jung-Eun Kim



Quantitative easing (QE)—the Federal Reserve’s effort to provide policy accommodation lowering long-term interest rates at a time when the federal funds rate was near its lower bound—has generated a great deal of research, both about its impact and about the frictions that might limit that impact. For example, this recent study finds that weak competition in local mortgage markets limited the pass-through from QE to mortgage rates for borrowers, and another study suggests that QE expanded banks’ mortgage lending while crowding out their commercial lending. In this post, we look into a different friction—whether banks’ limited risk-taking capacity after the crisis led them to favor refinance mortgages over new mortgage originations.

Being Up Front about the FHA’s Up-Front Mortgage Insurance Premiums

W. Scott Frame, Kristopher Gerardi, and Joseph Tracy



The Federal Housing Administration (FHA) played a significant role in maintaining mortgage credit availability following the onset of the subprime mortgage crisis and through the Great Recession. Not surprisingly, the FHA’s expansion during a period of falling home prices and deteriorating economic conditions resulted in material losses to its mortgage insurance fund arising from mortgage defaults and foreclosures. These losses, in turn, have generated increased policy interest in the design of the FHA mortgage insurance program. In this post we analyze how the cost of FHA insurance is shared between mortgage defaulters and non-defaulters and find that non-defaulters pay a disproportionate share. Although the ten-year cumulative default rate for our sample of FHA mortgages is 26 percent, defaulters only pay 17 percent of total mortgage insurance premiums. We discuss changes to the FHA mortgage insurance pricing that would shift more of the premium cost to defaulters.

From the Vault: Factor This In

Anna Snider

In May 2014, Liberty Street Economics bloggers shared a new approach for calculating the Treasury term premium as well as a link for downloading their estimates of it. It has been gratifying to see the “ACM” model (named for current and former New York Fed economists Tobias Adrian, Richard Crump, and Emanuel Moench) make eye-catching headlines, and become “increasingly canonical,” as one reporter described it.

The Need for Very Low Interest Rates in an Era of Subdued Investment Spending

Thomas Klitgaard and Harry Wheeler



Why have interest rates stayed low for so long after the financial crisis—and will they remain low for the foreseeable future? One way to answer these questions is to use the accounting identity that global saving must equal physical investment spending and argue that low rates have been necessary to prop up investment spending enough to match saving. From this perspective, the extent of any recovery in interest rates depends on whether weak investment spending is driven primarily by secular demographic trends that are a long-term drag on aggregate demand or by the residual effects of the financial crisis.

Money Market Funds and the New SEC Regulation

Catherine Chen, Marco Cipriani, Gabriele La Spada, Philip Mulder, and Neha Shah



On October 14, 2016, amendments to Securities and Exchange Commission (SEC) rule 2a-7, which governs money market mutual funds (MMFs), went into effect. The changes are designed to reduce MMFs’ susceptibility to destabilizing runs and contain two principal requirements. First, institutional prime and muni funds—but not retail or government funds—must now compute their net asset values (NAVs) using market-based factors, thereby abandoning the fixed NAV that had been a hallmark of the MMF industry. Second, all prime and muni funds must adopt a system of gates and fees on redemptions, which can be imposed under certain stress scenarios. This post studies the effect of the amendments on the size and composition of the MMF industry and, in particular, whether MMF investors shifted their assets from prime and muni funds toward government funds in anticipation of the tighter regulatory regime.

Historical Echoes: The Bank That Never Existed, or You Say ‘Immigrant’ and I Say ‘Emigrant’

Amy Farber



Just because an entity is referred to all over the place, does that mean it exists? We are not talking about heaven or hell. We are talking about the “Immigrant Savings Bank.”

Historical Echoes: That Pesky, Well-Overdue Library Book

Amy Farber



The “extremely overdue library book” has had a long run as a sitcom trope. As a source of humor, the ludicrously large library late fine pays off in at least two ways: first, there’s the enormity of the fine when compared with the insignificant monetary value of the book itself (paving the way for jokes about inflation and compound interest); and second, there’s the idea of the “criminality” of the offender, who is probably unlikely to commit any other kind of crime, with the concomitant image of “library police” (or actual police) coming after the negligent borrower . . . One day, that could be you, dear reader.

Just Released: The Regional Economy Is off to a Good Start in 2017

Jaison R. Abel and Jason Bram



The New York Fed’s latest Beige Book report, released this afternoon, shows the regional economy gathering steam in early 2017. The report, based on information collected through February 17, suggests the regional economy, which had been essentially flat for the second half of 2016, saw growth pick up to a modest pace at the start of the year. Manufacturers, in particular, note a sharp rise in activity, as do businesses in wholesale distribution and transportation. Consequently, the market for industrial and warehouse space was pretty robust in the opening weeks of 2017. Meanwhile, businesses in most service industries continue to report steady to moderately expanding activity. And even though consumer spending has remained fairly subdued, consumer confidence climbed to highs not seen in more than a decade. All in all, it appears the regional economy has gotten off to a good start in 2017.

When Debts Compete, Which Wins?

Jacob Conway and Matthew Plosser

Editors’ note: The labels on the x-axis of the chart “Debt Payment Prioritization by Year” have been corrected. (March 7, 2017, 9:10 a.m.)



When faced with financial hardship, borrowers might choose to repay some debts while falling behind on others—potentially going into default. Such choices provide insight into consumers’ spending priorities and can help us better understand the condition of borrowers under financial distress. In this post, we examine how consumers prioritize their default choices. Do consumers under financial stress default on their credit cards first? Or are they more likely to default on their mortgage?