credit is only one factor – and perhaps not the most important one – that affects the affordability of housing in our cities. i ’ ve addressed the importance of geographic mobility in supporting income mobility from the perspective of providing parents options for better neighborhoods in which to raise their children. geographic mobility is also important in terms of individuals receiving the highest return to their human capital. local economic shocks can depress employment and wages in some labor markets. this creates a strong incentive for individuals to move to an alternative labor market in order to more fully utilize their skills. financial frictions to geographic mobility can reduce this movement of individuals across labor markets leading to less - efficient outcomes for the economy. income mobility can be enhanced through policies that attempt to limit these financial frictions. this argues for avoiding, where possible, policies that create “ in - place ” subsidies where the household can access the benefits only while remaining in a specific location. the federal reserve has the twin objectives of maximum sustainable employment and price stability. achieving the first of our objectives requires that every individual has the opportunity to achieve her full potential in life. where you happen to be born should not determine your chance of living the american dream. research is highlighting possible key determinants of economic opportunity and income mobility. more research is necessary to inform future policy choices in this critical area. see baum - snow ( 2007 ) and jackson ( 1987 ). bis central bankers ’ speeches references angrist, joshua, sarah cohodes, susan dynarski, parag pathak and christopher walters. 2016. “ stand and deliver : effects of boston ’ s charter high schools on college preparation, entry, and choice, ” journal of labor economics, 34 ( 2 ) : 275 – 318. aslund, olof, per - anders edin, peter fredriksson and hans gronqvist. 2011. “ peers, neighborhoods, and student achievement : evidence from a placement policy, ” american economic journal applied economics, 3 ( 2 ) : 67 – 95. baum - snow, nathaniel. 2007. “ did highways cause suburbanization? ” quarterly journal of economics, 122 ( 2 ) : 775 – 805. bayer, patrick, steven l. ross and giorgio topa. 2008. “ place of work and place of residence : informal hiring networks and labor market outcomes, ” journal of political economy, 116 ( 6 ) : 1150 – 1196. chakrabarti, rajashri and joydeep roy. 2015.

stress test their counterparty exposures adequately and therefore underestimated the size of the uncollateralized exposure that they could face in volatile and illiquid markets. in part, this also reflected an underappreciation of the volume and nature of the risks ltcm had undertaken and its relative size in the overall market. by failing to make those determinations, its fellow market participants failed to put an adequate brake on ltcm ’ s use of leverage. to be sure, sometimes decisions are based on judgements about the soundness of borrowers that are accepted from third parties or, possibly in this case, that are founded on the impressive qualifications of ltcm ’ s principals. in some cases, such truncated risk appraisals may be accurate, but they are not a substitute for a rigorous analysis by the lender of the borrower ’ s overall credit worthiness and risk profile. third, in this regard what lessons are there for bank regulators? domestic commercial bank exposure to ltcm included both direct lending and acting as counterparties to the firm in derivatives contracts. a preliminary review of bank dealings with ltcm suggests that the banks have collateral adequate to cover most of their current mark - to - market exposures with ltcm. the unexpected surge in risk aversion and the dramatic opening up of interest rate spreads in august obviously caught ltcm wrong footed. counterparties, including banks, continued to collect collateral for marks to market. what they were not collateralized against was the losses that might have occurred when prices moved even further and market liquidity dried up in a fire sale. supervisors of banks and security firms must assess whether current procedures regarding stress testing and counterparty assessment could have been improved to enable counterparties to take steps to insulate themselves better from ltcm ’ s debacle. more important will be the assessment of whether those procedures are adequate for the future. but this is an area in which much work has been ongoing. during the fourth quarter of 1997 and the first quarter of 1998, supervision staff of the federal reserve bank of new york and the board met with managers at several major new york banking institutions to discuss their current relationships with hedge funds, updating a similar study conducted 3½ years earlier. fourth, does the fact that investors have lost most of their capital and creditors may take some losses on their exposure to ltcm call for direct regulation of hedge funds? it is questionable whether hedge funds can be effectively directly regulated in the united states alone.