Economy Needs ‘First Amendment’ Curb, Columbia’s Bollinger Says

By Nancy Hass

July 29 (Bloomberg) -- The U.S. needs a “First Amendment for the economy” to check excesses in financial markets, said Columbia University President Lee Bollinger.

Bollinger, a constitutional scholar and one of three Federal Reserve Bank of New York directors representing the public, said in an interview yesterday that an independent regulator modeled on the judicial system should issue written rulings and “if it’s wrong, go back and change the precedent.”

Bollinger, 63, who has led New York-based Columbia since 2002 and served on the New York Fed’s board since 2006, called the economic crisis a “huge failure of public regulation.” He cautioned against relying on Congress or “the people who are engaged in the economic act to say, ‘Stop, we’re taking too much risk.’”

The Federal Reserve might be the right body to “stand outside the system” as an independent regulator, said Bollinger in the interview, in New York. In the same way the U.S. Constitution’s First Amendment protects free speech against censorship during wartime, a “First Amendment for the economy” could rein in financial excesses, he said.

President Barack Obama, as part of the overhaul of U.S. financial rules, last month proposed giving the Fed power to supervise all financial firms “whose failure could threaten the stability of the system.”

The credit system freeze that followed last year’s Lehman Brothers Holdings Inc.’s bankruptcy and Bear Stearns Cos. collapse ushered in the biggest financial crisis since the 1930s. The government since September has spent billions of dollars bailing out Citigroup Inc., Bank of America Corp., American International Group Inc., General Motors Corp. and housing finance companies Fannie Mae and Freddie Mac.

Lax Regulation

Global financial firms reported more than $1.47 trillion of writedowns and credit losses since 2007. Obama, elected in November, said during his campaign that lax government regulation helped lead to the crisis.

Bollinger criticized former Federal Reserve Chairman Alan Greenspan’s “mystique” and “lack of disclosure.” He praised the more open approach of current chairman Ben Bernanke, 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.

Columbia’s endowment declined about 20 percent for the year ended June 30, less than Harvard University and Yale University, 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.

Columbia plans to break ground on its 17-acre Manhattanville campus before the end of the year, Bollinger said. Investment declines of about 25 percent at Yale and about 30 percent at Harvard have forced those schools to curb construction and slash spending. Columbia used its endowment for 13 percent of its operating budget in the fiscal year that 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.

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 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. Alumni include President Obama, Supreme Court Justice Ruth Bader Ginsburg, and the actress Maggie Gyllenhaal.

To contact the reporter on this story: Nancy Hass in New York at nhass1@bloomberg.net