Alan Meltzer, Professor of Political Economy, Carnegie Mellon University
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Allan H. Meltzer is Professor of Political Economy at Carnegie Mellon University's Tepper School of Business and one of the world's foremost authorities on the history of the U.S. Federal Reserve. He is a visiting scholar at the American Enterprise Institute. From 1973 to 1999, he served as the chair of the Shadow Open Market Committee, a group of economists that critiqued the decisions of the Fed's Open Market Committee. He served on the Council of Economic Advisers for Presidents Kennedy and Reagan. In 2001, he published the first of a two volume history of the Federal Reserve and is completing work on the second volume. He chaired the International Financial Institution Advisory Committee which in 2003 recommended reforms at the International Monetary Fund and World Bank.
Yes. In Congressional testimony and elsewhere I proposed that the Congress should limit too big to fail, leaving the choice of size to the bank. The rule should require banks above moderate size to increase capital more than in proportion to their increase in asset size. That would shift risk from taxpayers to bank owners. As part of this change, Congress and the Federal Reserve should agree on a lender of last resort rule to encourage counterparties of failed banks to hold collateral that the Fed will accept for discounts.… Read more
Can elephants fly? The Obama plan is open-ended. No one has offered an operational definition of systemically important. Every member of Congress would be obligated to act as if any large failure in his or her district was "systemic". Much capital would go to rescue failing enterprises instead of supporting new, efficient enterprises. Once again: Capitalism without failure is like religion without sin. It doesn't work because incentives are weak or non-existent. … Read more
Changing regulators or giving regulators additional power shifts more responsibility away from bankers and on to regulators. That is the opposite of wise policy. We should shift responsibility the other way. The two most useful changes would be: (1) end too-big-to-fail policies that have been growing for 30 or more years (since First Pennsylvania, and (2) eliminate ALL government credit programs that are off budget, especially Fannie Mae Freddie Mac. Put the housing and other subsidies on the budget where the rules of democratic government say they belong. Who knows more about the portfolio risk, the banker or the regulator?… Read more
A big mistake. To see the future, look at what happened when Great Britain started British Motors (British Steel and many others). Overmanning. The taxpayers subsidized the excess work-force. Costly, inefficient, and uncompetitive. It took Margaret Thatcher to change the rules and eventually sell the companies. We do not have a Margaret Thatcher in sight. We have continued subsidies paid by taxpayers. … Read more
The problem is not a failure of economic theory, although economists should do more to incorporate political responses and actions in their policy models. Current problems in financial markets and housing have many causes. The two most important are: (1) maintaining too big to fail for 30 or 40 years then abandoning it without prior notice when Lehman Brothers failed, and (2) a housing policy that the Congress used to subsidy housing by expanding Fannie Mae and Freddie Mac. Housing subsidies and other credit subsiidies should be on the budget. If the adminisration and Congress do not end too… Read more
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