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Discussion Paper
The Final Crisis Chronicle: The Panic of 1907 and the Birth of the Fed

The panic of 1907 was among the most severe we’ve covered in our series and also the most transformative, as it led to the creation of the Federal Reserve System. Also known as the “Knickerbocker Crisis,” the panic of 1907 shares features with the 2007-08 crisis, including “shadow banks” in the form high-flying, less-regulated trusts operating beyond the safety net of the time, and a pivotal “Lehman moment” when Knickerbocker Trust, the second-largest trust in the country, was allowed to fail after J.P. Morgan refused to save it.
Liberty Street Economics , Paper 20161118

Discussion Paper
Crisis Chronicles: Defensive Suspension and the Panic of 1857

Sometimes the world loses its bearings and the best alternative is a timeout. Such was the case during the Panic of 1857, which started when a prestigious bank in New York City collapsed, making all banks suddenly suspect. Banks, fearing a run on their gold reserves, started calling in loans from commercial firms and brokers, leading to asset sales at fire-sale prices and bankruptcies. By mid-October, banks in Philadelphia and New York suspended convertibility, meaning they would not allow gold to be withdrawn from their vaults even while all other banking services continued. Suspension then ...
Liberty Street Economics , Paper 20151002

Discussion Paper
Crisis Chronicles: The Cotton Famine of 1862-63 and the U.S. One-Dollar Note

When the U.S. Civil War broke out in 1861, cotton was king. The southern United States produced and exported much of the world’s cotton, England was a major textile producer, and cotton textiles were exported from England around the world. At the time, many around the world depended on cotton for their livelihood. The South believed this so deeply that when the North blocked Southern ports to cut off the South’s primary means of financing war—cotton sales—Southern leaders were sure that Britain would enter the war on their side. That never happened. So when cotton supplies dried up in ...
Liberty Street Economics , Paper 20151120

Discussion Paper
Beyond 30: Long-Term Treasury Bond Issuance from 1953 to 1957

Ever since “regular and predictable” issuance of coupon-bearing Treasury debt became the norm in the 1970s, thirty years has marked the outer boundary of Treasury bond maturities. However, longer-term bonds were not unknown in earlier years. Seven such bonds, including one 40-year bond, were issued between 1955 and 1963. The common thread that binds the seven bonds together was the interest of Treasury debt managers in lengthening the maturity structure of the debt. This post describes the efforts to lengthen debt maturities between 1953 and 1957. A subsequent post will examine the period ...
Liberty Street Economics , Paper 20170206

Discussion Paper
Is There Discount Window Stigma in the United Kingdom?

At the onset of the financial crisis in the summer of 2007, news that Barclays had borrowed from the Bank of England (BoE) received wide media coverage. This information triggered concerns that the BoE's lending facility may have become stigmatized, prompting market participants to interpret borrowing from the BoE as a sign of financial weakness. If such stigma discouraged borrowing, of course, it would defeat the purpose of the facility. We review the history of the BoE's lending facilities and experiences with stigma, both historically and in the recent period. We also compare the BoE's and ...
Liberty Street Economics , Paper 20160912

Discussion Paper
Crisis Chronicles: The Gold Panic of 1869, America’s First Black Friday

Wall Street in the late 1860s was a bare-knuckles affair plagued by robber barons, political patronage, and stock manipulation. In perhaps the most scandalous instance of manipulation ever, a cabal led by Jay Gould, a successful but ruthless railroad executive and speculator, and several highly placed political contacts, conspired to corner the gold market. Although ultimately foiled, they succeeded in bankrupting several venerable brokerage houses and crashing the stock market, causing America’s first Black Friday.
Liberty Street Economics , Paper 20160115

Discussion Paper
A Discussion of Thomas Piketty's Capital in the Twenty-First Century: By How Much Is r Greater than g?

Thomas Piketty’s 2014 book Capital in the Twenty-First Century may have been a greater sensation upon publication than Karl Marx’s nineteenth-century Das Kapital. It made the New York Times bestseller list, generated myriad reviews and responses from economists at top institutions, and was the subject of a standing-room-only session at the recent American Economic Association annual meeting. In Capital, Piketty argues that wealth inequality is set to rise from its relatively low levels in the 1950s through the 1970s to the very high levels it once occupied at the dawn of the Industrial ...
Liberty Street Economics , Paper 20150713b

Discussion Paper
Crisis Chronicles: The Long Depression and the Panic of 1873

It always seemed to come down to railroads in the 1800s. Railroads fueled much of the economic growth in the United States at that time, but they required that a great deal of upfront capital be devoted to risky projects. The panics of 1837 and 1857 can both be pinned on railroad investments that went awry, creating enough doubt about the banking system to cause pervasive bank runs. The fatal spark for the Panic of 1873 was also tied to railroad investments—a major bank financing a railroad venture announced that it would suspend withdrawals. As other banks started failing, consumers and ...
Liberty Street Economics , Paper 20160205

Discussion Paper
A Discussion of Thomas Piketty's Capital in the Twenty-First Century: Does More Capital Increase Inequality?

My aim in the second post of this series on Thomas Piketty's Capital in the Twenty-First Century is to talk about the economist's research accomplishment in reconstructing capital-output ratios for developed countries from the Industrial Revolution to the present and using them to explain why wealth inequality will rise in developed countries. I will then provide a critical discussion of his interpretation of the history of capital in the developed world. Finally, I'll end by discussing Piketty's main policy proposal: the global tax on capital.
Liberty Street Economics , Paper 20150715

Discussion Paper
Back to the Future: Revisiting the European Crisis

Recent financial developments are calling into question the future of regional economic integration. Market confidence deteriorates across countries in a contagious way. The place is Europe, the time is . . . now? Or twenty years ago? In fact, in the early 1990s Europe went through a systemic crisis that displays remarkable similarities to today’s events. In this post, we go back to those momentous times and briefly recall how the last Europe-wide crisis started, unfolded, and concluded. The 1992 crisis was eventually resolved, suggesting that there may be some light at the end of the ...
Liberty Street Economics , Paper 20111017

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