Sherman J. Maisel, former governor of the Federal Reserve and professor emeritus of the Haas School, died from respiratory failure on Sept. 29 in San Francisco. He was 92. Maisel was known, among other things, for his role in developing the modern mortgage market for housing and policy procedures of the Federal Reserve.
As a young man in the 1940s, Maisel was struck by the loss of income and great distress caused by the fluctuations in homebuilding he witnessed. As a result, he devoted much of his career to studying the housing and mortgage market and developing monetary policies that would smooth the severity of the industry’s cycles.
Maisel first joined the faculty of the School of Business (now Haas School of Business) at the University of California, Berkeley, in 1948, where he helped found the Center for Real Estate and Urban Economics — one of the first in its field in the country. He took leave from UC Berkeley in 1965, when President Johnson appointed him to the Board of Governors of the Federal Reserve System. He returned to the business school in 1972. In 1986 he retired as California State Professor of Real Estate and Urban Economics, and was awarded the Berkeley Citation for distinguished achievement.
Maisel’s research on monetary policy, housing, the mortgage market, and economic forecasting has been published in 14 books and more than 100 academic articles, including “Determinants of Residential Construction,” “Impact of Monetary Policy” for the Commission on Money and Credit, and “Financing Real Estate” (1965). He also contributed to the first large-scale computer model of the U.S. economy, the Brookings Model, in 1965.
His work showed that large fluctuations in housing starts and construction were greatly influenced by changes in the mortgage market and by the long lags in the building process. Mortgages remained primarily a local product, dependent upon the uneven flow of deposits into savings and loan institutions and banks. To make matters worse, the government mortgage programs had a cyclical bias that suppressed home construction during recessions because their fixed rates lagged behind changes in the major credit markets.
“His work on housing cycles and mortgage markets was path-breaking,” said Kenneth Rosen, current chairman of the Fisher Center for Real Estate and Urban Economics, who was hired by Maisel to build up the center in 1979. “His many papers on monetary policy and housing markets formed the foundation of current housing finance research. His textbook Real Estate Finance was used by a generation of real estate finance students around the country.”
In addition to his academic work, Maisel was very active in the Berkeley community. He was a member of the Berkeley Unified School District Board of Education from 1962 to 1965 where he led efforts to increase the funding, improve the quality, and reduce what he and others on the board considered de facto segregation in the city’s schools.
His son, Lawrence Maisel, recalls, “In order to help pass a bond issue to finance the schools and, later, to win a special recall election brought by those objecting to redrawing school boundaries, he encouraged a campaign to register UC Berkeley students as voters in the city. Thanks to the new voters, plus get-out-the-vote drives on campus, Berkeley’s political landscape changed within five years from a very conservative one to the liberal one we know today.”
President Johnson drew on Maisel’s mortgage expertise when he nominated him to the Federal Reserve Board in 1965. When Maisel met the president to discuss the pending nomination it was, to his surprise, not his views on monetary policy the President wanted to discuss. Instead Johnson was interested in the fact that Maisel had won the Berkeley School Board recall election, saying how important he thought it was to have faced the electorate in an active campaign.
While a member of the Fed, Maisel was appointed by the President to a White House task force to recommend changes in federal mortgage policies. This task force drafted proposals to allow the Government National Mortgage Association, also known as Ginnie Mae, to guarantee securities backed by pools of mortgages. It also made the successful proposal that the Federal National Mortgage Association, also known as Fannie Mae, become a government-sponsored agency, removed from the constraints of the federal budget.
These steps led to the creation of the modern national market for mortgages, where most money for housing is obtained through securities backed by pools of mortgages, whose safety is guaranteed by government agencies. Mortgage prices and availability today depend on the national bond markets rather than the strength and liquidity of local institutions. Funds are not rationed to potential borrowers because of a failure of the mortgage market to adjust to money market moves.
In addition to his work on housing finance reform, Maisel chaired several internal committees of the Federal Reserve that made a number of critical recommendations to the Federal Open Market Committee. Their adoption led to significant improvements in the committee’s deliberations and decisions, particularly in better uses of available economic data and forecasts. Maisel’s book Managing the Dollar remains one of the few studies of the Fed’s operations based on a participant’s knowledge.
Maisel was a fellow and past president of the American Finance Association. From 1972 to 1980, he also served on the senior research staff of the National Bureau of Economic Research and as a director of its West Coast office. From 1978 to 1980, he and his colleagues at the bureau conducted a detailed study of risk and capital adequacy in banks and savings institutions for the National Science Foundation and the government deposit institutions. Their report explained the danger to the deposit insurance funds of a concentration of risks, particularly from interest rate changes and also from too little attention to real, in contrast to book, net worth. They emphasized that dangerous moral hazards existed because banks and savings and loans could make risk-free bets against the insurance funds. The administration adopted policies exactly opposite those recommended, leading to the savings and loan crisis of 1985, causing billions of dollars of losses to the government.
Professor Maisel was born in Buffalo, New York. He received four degrees from Harvard University, including a bachelor’s of arts (1939) and a PhD in economics (1949). From 1939 to 41 he worked as a research economist at the Federal Reserve Board in Washington, DC He served in the U.S. Army from 1941 until 1945, rising from private to captain and serving as an ordnance officer at U.S. air bases and ordnance depots. He also served one year in the U.S. Foreign Service in Brussels, Belgium.
Maisel met his wife, Lucy Cowdin, in 1939 in Washington, DC. Both had been chosen to be among the first group of interns at the National Institute for Public Affairs, a program designed to attract recent college graduates to careers in government service. Among Maisel’s enthusiasms were bridge, golf, and travel. Says his daughter, Peggy Maisel, “My parents have traveled to almost every country in the world.”
Maisel is survived by his wife of 68 years, Lucy Cowdin Maisel; a son, Lawrence Maisel, of New York City; a daughter, Margaret (Peggy) Maisel, of Miami, Fla.; and two grandchildren.
The family asks that donations in memory of Sherman Maisel be made to the Haas School of Business, University of California, Berkeley (direct your gift to any of the listed giving options and specify “In memory of Sherman Maisel” in the Special Instructions box); the World Affairs Council of Northern California; or to a charity of the donor's choice.
To view a video conversation between Ken Rosen and Sherman Maisel, click here.
A more complete biography of Sherman Maisel may be found in B. S. Katz ed., Biographical Dictionary of the Board of Governors of the Federal Reserve (Greenwood Press, 1992).