The U.S. needs a “First Amendment for the economy” after a failure of regulation that could be remedied by giving the Federal Reserve more responsibility, said Lee C. Bollinger, president of Columbia University in New York.
An independent regulator modeled on the judicial system should issue written rulings and “if it’s wrong, go back and change the precedent,” said Bollinger, a constitutional scholar and one of three Federal Reserve Bank of New York directors representing the public, in an interview yesterday. Bollinger, 63, who has led Columbia since 2002 and served on the New York Fed’s board since 2006, called the economic crisis a “huge failure of public regulation.”
The U.S. shouldn’t rely on Congress or “the people who are engaged in the economic act to say, ‘Stop, we’re taking too much risk,’” Bollinger said. The Federal Reserve may be the right body in government to “stand outside the system” as an independent regulator, he said. In the same way that the U.S. Constitution’s First Amendment protects free speech against censorship during wartime, a “First Amendment for the economy” could correct regulatory failure, he said.
President Barack Obama, a Columbia alumnus, last month proposed “Financial Regulatory Reform: a New Foundation,” an overhaul of U.S. financial rules that include giving the Fed power to supervise all financial companies “whose failure could threaten the stability of the system.”
Credit Markets
Credit markets seized up in August 2007 and have only in the last six months been restored to health after the Fed — spending $1.68 trillion as of March 31, according to government figures — initiated an unprecedented rescue of financial institutions. The Fed and U.S. government agencies spent, lent or committed a total of $12.8 trillion to stem the recession.
Insurer American International Group Inc., based in New York, got taxpayer funds in September in a bailout that has swelled to $182.5 billion. New York-based Citigroup Inc., the third-biggest U.S. bank by assets, received $52 billion from the government.
Global financial companies reported more than $1.47 trillion of writedowns and credit losses since 2007. Obama, elected in November, said during his campaign that laxness in government regulation helped lead to the crisis.
Bollinger said former Federal Reserve Chairman Alan Greenspan had a “mystique” and operated with a “lack of disclosure.” He said current Chairman Ben Bernanke has a more open approach, citing Bernanke’s July 27 speech at a public meeting in Kansas City, Missouri, that was taped for broadcast on PBS television.
Bollinger was dean of the University of Michigan Law School in Ann Arbor from 1987 to 1994 and is on the Columbia Law School faculty in addition to being the university’s president.
Lawsuits Over Race
As president of the University of Michigan, Bollinger was the defendant in two 1997 lawsuits that challenged the school’s policies of considering race in admissions. In 2003, the U.S. Supreme Court said Michigan’s law school could consider the race of applicants. At the same time, the court ruled that the school’s method of awarding points to minority applicants was too “narrowly tailored” to achieve the school’s stated wish for diversity on campus.
Columbia, whose graduates include Supreme Court Justice Ruth Bader Ginsburg and the actress Maggie Gyllenhaal, has an endowment that declined about 20 percent for the year ended June 30, less than Harvard University’s and Yale University’s, and the school will press ahead with a $6.2 billion campus expansion, Bollinger said.
Less Leverage
Columbia, with an endowment of $7.1 billion as of June 30, 2008, “used less leverage” than its peer universities, Bollinger said. Columbia relied less on its endowment for operating costs than Harvard, in Cambridge, Massachusetts, or Yale, in New Haven, Connecticut.
Harvard estimated that its endowment declined 30 percent to $25.8 billion on June 30, from $36.9 billion a year earlier. Yale estimated a 30 percent drop, including a payout from the fund, to $16 billion, from $22.9 billion. Princeton University in Princeton, New Jersey, estimated its fund fell 25 percent to $12.2 billion, from $16.3 billion. Stanford University, in Palo Alto, California, estimated its fund will drop at least 30 percent, to $12 billion, for the year ending Aug. 31, from $17.2 billion a year earlier.
Investment declines at Yale and Harvard prompted those schools to curb construction and slash spending. Columbia used its endowment for 13 percent of its operating budget in the fiscal year ended June 30, while Harvard relied on its endowment for about 35 percent of its annual budget and Yale for about 44 percent, the schools have said.
Manhattanville Project
Columbia plans to break ground on its 17-acre Manhattanville campus before the end of the year, Bollinger said. Columbia’s main campus in Morningside Heights and medical center in Washington Heights sit on 56 acres. Harvard occupies 246 acres in Cambridge and Boston, not including its 360-acre Allston property, while Yale is on 337 acres in New Haven and Princeton has a 500-acre campus, according to the schools’ Web sites.
The Manhattanville project “is unbelievably important to Columbia,” Bollinger said. While Harvard can wait for the economy to improve before resuming its expansion, “we can’t,” he said.
The school’s economics department, which includes Nobel Memorial Prize winners Joseph E. Stiglitz, Robert A. Mundell and Edmund S. Phelps, needs to grow to a faculty of about 40, from about 25, to remain competitive, he said.
“Space is critical to quality,” Bollinger said. “Universities have to grow.”
Science Buildings
The project, in west Harlem adjacent to Columbia’s campus in the Morningside Heights section of Manhattan, will take more than two decades to complete and will include business, science and arts buildings, said Victoria Benitez, a school spokeswoman.
Columbia, founded in 1754, had 25,459 students, including 4,247 undergraduates at Columbia College, during the last academic year, according to the university.
By Nancy Hass – bloomberg.com
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