DeansTalk - business management education

President Obama's address to Congress February 24: Education

Full text of President Obama's address, February 24, 2009
 
....The third challenge we must address is the urgent need to expand the promise of education in America.

In a global economy where the most valuable skill you can sell is your knowledge, a good education is no longer just a pathway to opportunity – it is a pre-requisite.

Right now, three-quarters of the fastest-growing occupations require more than a high school diploma. And yet, just over half of our citizens have that level of education. We have one of the highest high school dropout rates of any industrialized nation. And half of the students who begin college never finish.

This is a prescription for economic decline, because we know the countries that out-teach us today will out-compete us tomorrow. That is why it will be the goal of this administration to ensure that every child has access to a complete and competitive education – from the day they are born to the day they begin a career.

Already, we have made an historic investment in education through the economic recovery plan. We have dramatically expanded early childhood education and will continue to improve its quality, because we know that the most formative learning comes in those first years of life. We have made college affordable for nearly seven million more students. And we have provided the resources necessary to prevent painful cuts and teacher layoffs that would set back our children’s progress.

But we know that our schools don’t just need more resources. They need more reform. That is why this budget creates new incentives for teacher performance; pathways for advancement, and rewards for success. We’ll invest in innovative programs that are already helping schools meet high standards and close achievement gaps. And we will expand our commitment to charter schools.

It is our responsibility as lawmakers and educators to make this system work. But it is the responsibility of every citizen to participate in it. And so tonight, I ask every American to commit to at least one year or more of higher education or career training. This can be community college or a four-year school; vocational training or an apprenticeship. But whatever the training may be, every American will need to get more than a high school diploma. And dropping out of high school is no longer an option. It’s not just quitting on yourself, it’s quitting on your country – and this country needs and values the talents of every American. That is why we will provide the support necessary for you to complete college and meet a new goal: by 2020, America will once again have the highest proportion of college graduates in the world.

I know that the price of tuition is higher than ever, which is why if you are willing to volunteer in your neighborhood or give back to your community or serve your country, we will make sure that you can afford a higher education. And to encourage a renewed spirit of national service for this and future generations, I ask this Congress to send me the bipartisan legislation that bears the name of Senator Orrin Hatch as well as an American who has never stopped asking what he can do for his country – Senator Edward Kennedy. 

These education policies will open the doors of opportunity for our children. But it is up to us to ensure they walk through them. In the end, there is no program or policy that can substitute for a mother or father who will attend those parent/teacher conferences, or help with homework after dinner, or turn off the TV, put away the video games, and read to their child. I speak to you not just as a President, but as a father when I say that responsibility for our children's education must begin at home.

Obama's Remarks on Education Get Mixed Reviews February 26, 2009, US News and World Report

Aswath Damodaran, Prof of Finance Stern (NYU) on the crisis

Aswath Damodaran's blog

Stern faculty page

Wikipedia profile

Professor Damodaran holds M.B.A. and Ph.D. degrees from the University of California, Los Angeles, as well as a B.Com. in Accounting from Madras University and a M.S. in Management from the Indian Institute of Management Bangalore.

Prior to joining NYU, he served as visiting lecturer at the University of California, Berkeley from 1984 to 1986. He was profiled in Business Week as one of the top 12 U.S. business school professors; he has also received awards for excellence in teaching from both universities.

He has written several books on equity valuation, as well on corporate finance, and is widely quoted on the subject of valuation.

Corporate Finance - post crisis, January 18, 2009

I just finished teaching my first corporate finance class in the post-crisis period (to an executive MBA class). Having taught this class for close to 25 years now, I was wondering how I would bring in the events of the last few months into the sessions and be able to draw out the implications for businesses. I must confess that it was a lot less trying than I thought it would be.

In broad terms, these are the corporate finance implications that I see for the near future and the long term:
a. In investment analysis: I see a shift away from expected value and base case valuations that have dominated financial analysis for the last few decades to more probabilistic approaches. Since both the data and the tools (Crystal Ball, @Risk etc.) are accessible and available now to most of us, I think this shift is long overdue.

b. In risk and hurdle rates: For the near term, I see a move towards higher risk premiums for both equity and debt...

The Crisis of 2008: Lessons learned, unlearned and reinforced, December 31st, 2008.

The one thing I can say about 2008 was this it was not boring. I know that there will be a flood of books coming out over the next few months telling us what happened, why it happened and most important of all, who to blame. I don't think that they will tell us much that we don't know already.  I have a different book in mind and this is what I want to do. I want to look inward and ask myself what I have learned from these last few weeks that I can incorporate into my "view of the world" looking forward. I The market collapse and investor reaction has been a humbling experience and has revealed how much I do not know or fully understand about finance.  Here is my initial list:

Things that I know now that I did not know on September 12....

1. Nominal interest rates can become negative.
2. There is no riskfree asset.
3. Equity risk premiums can change dramatically even in mature markets.

 

Things that I thought I knew on September 12, that I am not so sure about now...

1. Large companies in developed markets can always raise new capital.
2. Bank runs are things of the past, with the regulatory oversight, accounting rules (mark to market) and risk management tools that we have today.
3. Value investing (investing in low PE , high dividend yield and low PBV stocks) is less risky than growth investing.
4. Dividends are sticky.
5. Diversification across asset classes provides protection.

Things that I kind of knew on September 12 that have been reinforced since....

1. Debt is a double edged sword. (The costs and likelihood of distress can be much higher than I thought...)
2. A large cash balance is not just a wasting asset but protection against danger.
3. The line between hedging and speculation is a very fine one... and easy to cross...
4. Main Street and Wall Street are co-dependent. One cannot be healthy, if the other is not.
5. We are in a global economy.
6. Ignore illiquidity at your own peril.... Its cost can vary across time and across markets
7. Risk is not just a number.
8. Stocks don't always win in the long term.
9. Smart money is not that smart!!! 
10. Even great investors make mistakes! 

In fact, I have been collecting ammunition for each of these points, by scouring news stories from the the last three months. Sometime over the next year, I will sit down and start putting it down on paper. All I need is a good title!

Hardwired to deceive, December 23, 2008

As the Madoff story runs its course and investors express surprise and shock that they were taken to the cleaners, it may be worth noting that research in the social sciences suggests that this may be par for the course, given our genetic make-up. Here is the evidence:

3. We do feel guilty when we lie, but that does not stop us from lying again: The same study that uncovered the fact that students lie two times a day, on average, also found that while they felt guilt at doing it, the fact that they were able to get away with it reinforced the behavior. Put another way, if you get away with lying once, you will will try it again...

Bottom line for investing: All the ethics classes in the world and forcing everyone to attend religious services every week won't stop the next big fraud or even reduce its likelihood.

FT podcast - Paul Danos, dean of the Tuck School of Business, on levarage in a downturn

• Paul Danos, dean of the Tuck School of Business at Dartmouth College, talks about how companies need to adjust their attitude towards leverage

New Job Opportunities from EFMD network

www.efmd.org/jobs

Spanish Stimulus Plan for the Economy and Employment - Education 4th for forecasted job creation

  Plan E

Follow the updates on http://twitter.com/medidas

US: How the Stimulus Plan Will Impact Education - Ace Online Schools

Click here for the webpage sent to DeansTalk.

The American Recovery and Reinvestment Act (ARRA) of 2009, signed into law on February 17, aims to lend a helping hand to not only employment, health care and taxes, but significantly for the struggling state school systems: It more than doubles the education funding of the previous presidential administration.

Of the act’s $787 billion cost ($288 billion in tax cuts and $499 billion in spending), up to $141.6 billion will go to education, according to the Department of Education. Granted, most estimates are closer to $120 billion, but that’s still a sizable sum compared to previous allotments for education. The direct funding of education (as opposed to tax credits, tuition grants, renovations and administration) alone amounts to over $77 billion, a 159% increase over 2008 allocations for the Department of Education. The breakdown of the education budget is laid out after the jump…State Fiscal Stabilization Fund: $53.6 Billion

This amount will be given directly to states and school districts in order to prevent significant state education cuts, stemming the tide of teacher layoffs and cuts in various education services.

Student Financial Assistance: $15.84 Billion

These funds, available through September 30, 2011, include $15.64 billion for increasing the maximum amount available for Pell Grants (need-based grants to low-income undergraduate college students) by over $500 per student. The cap will be $5,350 in 2009 and $5,550 in 2010. Also included is $200 million for work-study programs.

American Opportunity Tax Credit: $13.9 Billion

This is a maximum $2,500-per-person tax credit for college students in 2009 and 2010, making college more affordable to those in their first four years of post-secondary education.

Education for the Disadvantaged: $13 Billion

This includes $10 billion for grants to local education agencies and $3 billion for school improvement grants, “to ensure that all children have a fair, equal, and significant opportunity to obtain a high-quality education and reach, at a minimum, proficiency on challenging state academic achievement standards and state academic assessments.” This money essentially goes to strengthening enforcement of the No Child Left Behind Act.

Special Education: $12.2 Billion

This amount is to aid in enforcement of the Individuals with Disabilities Education Act (IDEA), which governs how states and public agencies provide special education and related services to children with disabilities.

State Incentive Grants and Innovation Fund Grants: $5 Billion

This money will be distributed on a competitive basis to states who show the most progress in four areas: 1) teacher quality, especially in poorer and high-minority schools; 2) data systems to track the progress of student learning; 3)  academic standards and testing ability; and 4) support of struggling schools.

Head Start: $2.1 Billion

This amount includes $1 billion for Head Start and $1.1 billion for Early Head Start, which provide education, health, nutrition and parent involvement services to low-income children and their families.

Child Care Development Block Grant: $2 Billion

This funding is to support quality child care for struggling families through the Child Care and Development Fund (CCDF).

School Improvement Programs: $720 Million

This includes $650 million for technology grants through the Enhancing Education Through Technology (EETT) program and $70 million for grants to aid homeless students. The funding of EETT, which seeks to use technology to improve elementary and secondary student achievement, should improve online access and the technological capabilities of students in those grades, better preparing them for future employment.

Rehabilitation Services and Disability Research: $680 Million

This money provides grants through the Rehabilitation Services Administration (RSA) to states to “empower individuals with disabilities to maximize employment, economic self sufficiency, independence and inclusion and integration into society” by providing job rehabilitation programs, plus independent living centers and services for older blind individuals.

Institute of Education Sciences: $250 Million

This money is for competitive grants to state educational agencies to enable them to construct statewide data systems for tracking individual student progress.

Innovation and Improvement: $200 Million

These funds go toward grants to any agencies or institutions of higher education “to support nationally significant programs to improve the quality of elementary and secondary education at the state and local levels and help all children meet challenging state academic content and student academic achievement standards.”

Impact Aid: $100 Million

This goes towards the Impact Aid Program, which provides funding and technical support to “local educational agencies that are financially burdened by federal activities.”

Higher Education: $100 Million

This amount goes toward increasing academic achievement by improving teacher and principal quality, as mandated by the Higher Education Act.

Student Aid Administration: $60 Million

This money goes to aid in the administration of delivery of student financial aid, including loans, grants and work-study programs.

Office of the Inspector General: $14 million

These funds, available through September 30, 2012, provide for salaries and expenses necessary for oversight and audit of programs, grants and projects funded by the ARRA.

While not necessarily historic in scope, the ARRA is a big step forward for the state of American education, providing at least some level of stability to eroding state budgets, minimizing faculty layoffs and improving accessibility to students struggling in the economic downturn.

Paul Krugman (on video conf. from Princeton Uni) on C-Span, Stimulus and Banking, Feb 13, 2009

GERMANY: Bologna process gets nod of approval

Click here for the article of University World News, 15 February 2009

A senior Education Ministry official has taken a positive view of the impact the Bologna process has had on Germany's higher education system. Speaking at a symposium in Berlin in the run-up to the Bologna Conference of Ministers next April, Parliamentary State Secretary Andreas Storm told government, higher education officials and students that Bologna had contributed to what he referred to as a successful modernisation of German higher education.

"Bologna is a comprehensive reform process that is providing better links between the individual higher education systems while simultaneously taking advantage of the benefits that the diversity of institutions offers," Storm said. "Overseas, the ideas and concepts of the Bologna process have met with considerable interest. This is reflected in the dialogue with American, Asian and Latin American experts."

Storm also referred to progress made so far in the introduction of new courses. Out of 12,000 courses throughout Germany in the 2008-09 winter semester, around three quarters had been converted to masters and bachelor degrees, compared with just 61% a year before. Around two thirds of all first-year students opted for these courses in 2008-09 while in the 2006/2007 winter semester just 44.4% had enrolled for masters and bachelor courses.

More German students are studying abroad, too. Over a 10-year period, the number of German students undertaking courses in other countries grew steadily to 78,000 in 2005 and 83,000 in 2006.

Video: "Sachs & Stiglitz address a seminal stimulus issue" (2 min 19 sec) 22nd Feb

Jeffrey D. Sachs (DeansTalk post 17th Feb) & Joeseph Stiglitz (DeansTalk post 11th Feb and 19th Feb) address a seminal stimulus issue.

Skip the recession, get an MBA? - Fortune Magazine

Click here for the article of Fortune magazine. February 20, 2009

Many people think this is the perfect time to go back to school and hide out from the lousy job market. But don't say that on your application.

(Fortune) -- Dear Annie: I lost my job at Lehman Brothers (LEHMQ) last September and have not succeeded in finding another finance position (for obvious reasons). But finance is all I know. While I was working at the firm, I completed almost one year of course work toward an MBA. I'm thinking of trying to transfer my credits to a full-time program and finishing the degree, which just seems like a more productive use of my time than job hunting right now. Do you agree? Also, will admissions people hold it against me that I worked at a failed firm, even though I had nothing to do with the problems? -Out in the Cold...

Dear Out: Ah, it happens every time the economy hits the skids:

Calculated Risk: Finance and Economics Blog

"Calculated Risk" blog

Tuck Professors, Alumni, and Students Weigh In on the credit crisis

Professor Robert Hansen moderates a panel on the ongoing credit crisis. Hansen asks panelists to discuss such issues as: why this asset bubble is different from others, what the crisis says about market management, what direction public policy will take, whether we need more regulation or regulation of a different kind.

Panelists include: Professor Jonathan Lewellen, Professor Sydney Finkelstein, Matthew Vamvakis T'09, Tuck Overseer John Jacquemin T'73, and Tuck Overseer Harvey Bundy T'68.

Recorded October 11, 2008, during Tuck reunion weekend.

Pablo Mieres, director of Social Sciences Catholic University of Uruguay, How the crisis will impact the left in Latin America.

How the crisis will impact the left in Latin America, as published in the Safe Democracy Foundation blog, 11th February 2009

A new round of elections in a region showing diminished growth

Chile and Uruguay will kick off a new round of elections in Latin America at the end of the year. Will there be a shift towards the center or will the left reassert its dominance? How will the electoral results in these two countries influence the rest of the Latin American elections?

(From Montevideo) URUGUAY’S NATIONAL ELECTIONS, which will take place in October, will mark the beginning of a new string of elections in Latin America. Indeed, they will be followed a month later by elections in Chile, and many others countries in the region will hold their own in 2010 and 2011.

This new round of elections will be characterized by a significant change in the region’s economic situation. The previous round “The troubling data regarding the performance of the Mexican and Brazilian economies will spread to the rest of the continent”–which began with the Argentinean presidential elections in 2003 and came to an end in May 2008 with the elections in Paraguay– took place during a very positive economic time period, characterized by strong growth throughout the entire region, together with a very significant increase in the international price of the region’s principal exports, low levels of inflation and decreasing unemployment.

However, this new period of government transition is going to take place within the framework of a profound global crisis, which is beginning to affect the Latin American continent to a great degree.

A CRISIS OF ENORMOUS MAGNITUDE...

Dean, Darden School of Business, Robert Bruner, A Time to Hang in there.

Taken in its entirety as posted by Robert Bruner on his own blog  02/10/2009 12:09 AM

“I want to quit the MBA Program.  The job situation is miserable.  The economy is headed down the drain.  I enrolled here with expectations that I would get into brand management—I deserve it!   Now, it seems that you can’t deliver.  I can’t see doing the work and running up more debt just to go back to the job I had before B-school.  I’m outta here.”[1]

These are words that chill a teacher.  They reveal a gap between expectations and achievement.  They suggest a failure of courage and ambition.  They are a symptom of the jarring adjustment required by the current economic crisis.  And they imply confusion about the role of professional education in society and in the life of the individual.    

Sure enough, these are tough times for everyone.   The students now in B-school applied at a time when it looked like school was a sure thing: an entry to a better life.  Then came the crunch.  Money for student loans became scarce.  Job prospects declined.  Companies scaled back their recruiting—but they have not tempered the salaries they did offer.  The aspirations and outlook of MBA students have shifted.  Some openly wonder whether they should quit.    I attended a big meeting of B-school Deans last week; this topic was a subject of conversation.

Plainly, there is an alternative to B-school, the school of hard knocks.  An article published in the Wall Street Journal makes the pitch: “How to Succeed in Business: Drop Out of School?”  It glowingly details the examples of three drop-outs who succeeded: Bill Gates (founder of Microsoft), Mark Zuckerberg (founder of Facebook), and Larry Ellison (founder of Oracle).   The odds of hitting it that big are quite small.  You should read the comments that follow the article: they tilt on the side of “stay.”  Ironically, the article was published on December 21, 2007, about the time that the present recession began.  Taking the advice of the Journal, one would have tried to launch his or her small business boat into the face of a rising gale.

I don’t have a lot of experience with this problem.  The overwhelming majority of MBA students stick it out; they vote with their feet in favor of the MBA value proposition.  Voluntary departures from Darden in mid-program are extremely rare.  From my time at

G20 LondonSummit (April 2,'09) uses VoxEU.org's Global Crisis Debate, a policy portal of the Centre for Economic Policy Research (www.CEPR.org) with a consortium of national sites, promoting research-based policy analysis & commentary by leading scholars

Voxeu About Voxeu

www.CEPR.org: Centre for Economic Policy Research

In January 2009, Vox launched the Global Crisis Debate in partnership with the UK government’s own website devoted to what is sometimes called the G20 Summit that they are hosting on 2 April. The UK government is currently in the process of crafting the agenda for that summit – to be known as the London Summit. The partnership with Vox is helping them broaden the catchment area for economic thinking on the crisis beyond the usual suspects that dominate the main Western media outlets, the Financial Times, Economist magazine, and other major national papers. One of the contributions to Vox’s Global Crisis Debate is featured every day on the front page of UK government’s site www.LondonSummit.gov.uk. (see "Time to join the debate" link). See G20 website.

Smart ways to prepare for a world beyond recession - Palmisano - IBM Chairman

Click here for the article of the FT, February 19 2009

Governments around the world are grappling with some of the toughest decisions faced in generations. In severe recession, they are collectively considering as much as $4,500bn (€3,600bn, £3,200bn) in stimulus investments.

Understandably there is a sense of urgency, sometimes verging on desperation. But while the need for immediate economic stimulus is clear, we should not and need not panic.

Let us not revert to old-world thinking about new-world challenges. Launching “public works” projects – putting people to work with shovels and jackhammers to put money into their pockets – is not the way to jump-start a 21st-century economy – or to build competitive advantage in the different world that is taking shape....power grids....wireless in India...traffic congestion

Paul Krugman's Blog "The conscience of a Liberal" Time magazine Top 25 Best Blogs 2009

Time magazine Top 25 Best Blogs 2009

Click here for the Paul Krugman's Blog

Mr. Roubini quotes Mr. Johnson who supports Herr Minister Steinbrueck (German Finance minister) who would support Ireland ("Ireland is fiscally sound even with the contingent liabilities")

Mr. Johnson "Germany shows leadership" February 17, 2009

"A much better approach would be to address the underlying fundamental questions, and show everyone - clearly and persuasively - that Ireland is fiscally sound even with the contingent liabilities it has taken on through guaranteeing bank liabilities".

---

Mr. Roubini's post of Mr. Johnson's from blog baseline, Feb 17, 2009

Comment 1

Makes sense to me. These countries are the major export markets for Germany, and if your best customers go bust then you will feel the heat too. Anyhow, if Germany provides loans to these countries then they will be not cheap either, for example Herr Steinbrück could borrow money on the markets for 3% and lend them for 6% to Ireland, Spain or Greece. He would make a neat profit of 3% on such a transaction. Besides, any bailout is effectively a stimulus programme for the German economy.

Do expect more European integration as a result though. Any EU-wide bailout will require an institutionalised set up to monitor the countries that have received money. So the economic government that Sarkozy wanted for so long will become reality soon..

Comment 2

A large part of the reason Ireland is in the difficulty it is is because of European interest rates being set by France and Germany to suit France and Germany with little consideration of other countries positions, this helped to build up the property bubble that is bursting. Germany isn't an innocent passive victim being taken for a ride, it used its power in europe to ensure its own interests were served and got itself into a stable position, Ireland got over-ridden by them and forced into a bubble. Even still Ireland doesn't need bailing out - it has a national debt less than half its GDP, it has years to get its house in order, 2 or 3 years of 8% deficits when most of that is capital spending is just fine. I'm glad German politicans are coming around though, the German foreign minister's expression of solidarity will be enough to get the traders in their offices in Frankfurt to lay off trying to gang up on Ireland and pick it off.

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German Finance Minister Mr. Steinbrueck on Bloomberg 17 February, 2009

"The euro-region treaties don’t foresee any help for insolvent countries, but in reality the other states would have to rescue those running into difficulty.”

While declining to identify countries facing problems, the German finance chief said Ireland, which has a widening budget deficit, is in a “very difficult situation.”

Business Schools: "Recession 101: Courses for a Crisis"

Wall Street Journal article, February 18, 2009

Business Schools Revamp Offerings to Focus on Weathering a Downturn

But the recession itself is fueling demand in some areas -- namely, classes that help senior managers weather a downturn and manage through turbulent times. Many business schools have dreamed up a series of new offerings. And some schools are changing the focus of programs by combining classic business topics with rapidly developing research about the downturn.

It's all in response to demand from clients, who aren't willing to wait a year or more for a new course to help guide managers through tough times.

The Economists' Voice - editor Joseph Stiglitz with Brad DeLong and Aaron Edlin

Click here for The Economists' Voice

About this journal

The Economists' Voice, edited by Joseph Stiglitz, recipient of the 2001 Nobel Prize for Economics, together with Brad DeLong and Aaron Edlin, is the decade's most successful publishing innovation for professional economists. It was shortlisted for Best New Journal in the 2007 ALPSP/Charlesworth Awards. Its short, focused policy articles fill a gap between the op-ed pages of the newspaper and full-length journal articles. Contributors include seven Nobel Prize winners, four past chairs of the President's Council of Economic Advisors, public intellectuals like Paul Krugman and Richard Posner, and a veritable "Who's Who" of modern economic theory and policy. The Economists' Voice is a source of expertise directed at once at the professional economist, policy makers, students, and anyone curious about the economy today. Articles from The Economists' Voice have been prominently featured on the Op-Ed pages of The New York Times, The Washington Post, Salon.com, The Wall Street Journal's MarketWatch.com, and distributed by Project Syndicate to newspapers around the world...

"Huge increase in demand (in UK) for postgraduate degree courses" The Guardian

Click here for the article of The Guardian, Tuesday 17 February 2009

A dramatic rise in applications for postgraduate degree courses as the recession bites is being reported by universities.

At Manchester University, which has seen a dramatic increase in applications from overseas students to do postgraduate courses, Dr Tim Westlake, director of student recruitment, said: "Our applications have risen dramatically on this time last year – up 14% from home and EU students, and 34% from international students."

"Greenspan backs bank nationalisation" - tells FT

Click here for the article of the Financial Times, February 18, 2009

The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.

In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

Dealbook, The New York Times, "Greenspan Said to Support Some Bank Nationalizations"

Mauro F. Guillén, Professor of International Management (Wharton) FT video lessons from past crisises- Chile, Mexico, Sweden, South Korea-> Swedish solution best

Wharton faculty page,  Personal website,  Director of Lauder Institute (Wharton/SAS)

1. Santander, The Bank, by Mauro Guillén 2007 Banco Santander’s Road to the Top-10 List of Global Banks

2. Building a Global Bank The Rise of Banco Santander: The Transformation of Banco Santander Mauro Guillen (Publisher: Princeton University Press,  Pub. Date: May 2008) read chapter1

Video:   Click here (or the image) for the Financial Times video!

"Global approach needed".

"The only place in the world where FDI can come from is the emerging economies".

"without the emerging economies we cannot fix the problems that we are currently confronting in North America and Europe"

On the book. "Guillén and Tschoegl have a solid grasp of the dynamics of global banking and critically integrate the Santander story into that framework. Santander has had successes and missteps, and will have more of both in the years ahead. This book will leave the reader with an unrivalled observation platform to watch developments as they unfold."--Ingo Walter, New York University

Building a Global Bank contributes much to the current debate among policymakers, academics, and bankers on the wisdom of universal banking and the characteristics of good governance....In any case, the Santander experience is worth reading about and Building a Global Bank offers an excellent opportunity to do so. In addition to archival materials and secondary sources, the authors draw extensively on myriad interviews with financial-industry leaders, policymakers, and journalists Joseph M. Santos, professor of economics at South Dakota State University (review)

For US Education Chief, (Education) Stimulus (100 billion$) Means Power and Risk

Click here for the article of The New York Times, February 16, 2009.

WASHINGTON — The $100 billion in emergency aid for public schools and colleges in the economic stimulus bill could transform Arne Duncan into an exceptional figure in the history of federal education policy: a secretary of education loaded with money and the power to spend large chunks of it as he sees fit.

But the money also poses challenges and risks for Mr. Duncan, the 44-year-old former Chicago schools chief who now heads the Department of Education.

Jeffrey D. Sachs, Prof Health Policy & Management (Columbia U), Special Advisor to U.N. Sec-Gen Ban Ki-moon - his writings on the Economic Crisis

Wikipedia entry

Jeffrey D. Sachs is the Director of The Earth Institute, Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University. He is also Special Advisor to United Nations Secretary-General Ban Ki-moon. From 2002 to 2006, he was Director of the UN Millennium Project and Special Advisor to United Nations Secretary-General Kofi Annan on the Millennium Development Goals, the internationally agreed goals to reduce extreme poverty, disease, and hunger by the year 2015. Sachs is also President and Co-Founder of Millennium Promise Alliance, a nonprofit organization aimed at ending extreme global poverty.

"He is widely considered to be the leading international economic advisor of his generation" (Earth.Inst). For more than 20 years Professor Sachs has been in the forefront of the challenges of economic development, poverty alleviation, and enlightened globalization, promoting policies to help all parts of the world to benefit from expanding economic opportunities and wellbeing. He is also one of the leading voices for combining economic development with environmental sustainability, and as Director of the Earth Institute leads large-scale efforts to promote the mitigation of human-induced climate change.

In 2004 and 2005 he was named among the 100 most influential leaders in the world by Time Magazine. He was awarded the Padma Bhushan, a high civilian honor bestowed by the Indian Government, in 2007. Sachs lectures constantly around the world and was the 2007 BBC Reith Lecturer. He is author of hundreds of scholarly articles and many books, including the New York Times bestsellers Common Wealth (Penguin, 2008) and The End of Poverty (Penguin, 2005). Sachs is a member of the Institute of Medicine and is a Research Associate of the National Bureau of Economic Research. Prior to joining Columbia, he spent over twenty years at Harvard University, most recently as Director of the Center for International Development. A native of Detroit, Michigan, Sachs received his B.A., M.A., and Ph.D. degrees at Harvard University.

Show full bio

The Earth Institute at Columbia University was "Education Webby Award" winner 2008.

Writings on the Economic Crisis

2009

"A proposal on how to clean the banks," Huffington Post Blog - http://www.huffingtonpost.com/jeffrey-sachs/, 12 February 2009.

"A strategy of contingent nationalisation," FT.com, 5 February 2009. 

"Rewriting the rule book for 21st Century capitalism," The Guardian, 28 January 2009.

"The Case for Bigger Government" Time Magazine,  8 January 2009.

2008

"Blackouts and Cascading Failures of the Global Markets" Scientific American, December 2008

"Monday Meltdown: How Lehman's Fall Created a Global Panic" Fortune, 15 December 2008.

"A Bridge for the Carmakers" Washingfton Post, 17 November 2008.

"Obama Needs Time to Rescue Economy" Irish Times, 11 November 2008

"Work With the World: The US cannot go it alone if it is to get through the financial mess", The Guardian, 10 November 2008.

"Boom, Bust, and Recovery in the World Economy" Project Syndicate, October, 2008

"How to Fix the U.S. Financial Crisis" Scientific American, Online 3 October 2008, Printed December 2008

"The Best Recipe for Avoiding a Global Recession", FT.com, 27 October 2008.

"Amid the rubble of global finance, a blueprint for Bretton Woods II", The Guardian, 21 October 2008.

"How to Rebuild America", Fortune, 14 October 2008

"Puzzlement at banks' bail-out while aid commitments flounder", FT.com, 23 September 2008.

Becker and Posner (Nobel Prize winners) - pay issue only a distraction from "depression"

Becker and Posner blog

February 12, 2009 Notice We will not be blogging this week.

---

Against the Pay Caps--Posner, February 8th.

The government has decided to impose a $500,000 ceiling on the senior executives of banks and other financial institutions that accept bailout money. This is a bad idea, though politically inevitable because of public indignation at financiers, thus illustrating a point I make in my forthcoming book about the depression--for I insist that it is a depression, and not a mere recession, that the country is in--that a depression is a political rather than just an economic event. (The book is entitled A Failure of Capitalism: The Crisis of '08 and the Descent into Depression, and will be published early in April by the Harvard University Press.)

It is a bad idea for three reasons. First, it directs attention away from the really culpable parties in the depression, who are not the financiers. They were engaged in risky lending, that is true; but the fact that a risk materializes does not prove that it was imprudent. A small risk of bankruptcy--a risk that almost every business firm assumes--can be, when it is a risk faced by most firms in an industry and the industry is financial intermediation, catastrophic. But the responsibility for preventing catastrophic risks to the economy caused by a collapse of the banking industry lies with the Federal Reserve, other regulatory bodies, and the Treasury Department. A banker is not going to forgo a risk that should it materialize would wreck the economy, because his forbearance would have no consequence, as long as his competitors continued running the risk; it is a classic case of external costs, requiring government intervention. Because the Federal Reserve under Alan Greenspan pushed interest rates too low and kept them low for too long, and because regulation of financial intermediaries had over the years dwindled and became especially lax during the Bush Administration, the bankers were allowed, and competition forced them, to take risks that could have and have had disastrous results. If the government thinks that shaming the bankers and capping their pay will prevent future banking disasters, it will be distracted from making the regulatory changes that are necessary to restore effective public supervision of a vital industry.

Second, the pay cap contributes nothing to getting us out of the depression...

Pay Controls Do Not Work at Any Level-Becker, February 8, 2009

Several big banks and other companies have badly fumbled their public relations during these difficult times, such as the big three auto makers who took their private jets to Washington to beg Congress for a bailout, or the board and CEO of Merrill Lynch that granted generous bonuses to their executives just as the company was avoiding bankruptcy through being taken over by Bank of America. However, anger, even when justified, is not a good reason for ceilings on the pay of top executives at companies receiving assistance from the federal government.

The main problem with wage (and price) controls is that they never work, although governments have imposed them throughout history. They will not work in this case either...

Raghuram G. Rajan, Professor of Finance and Economy, (Chicago Booth Business School)(ex IMF-Chief Economist) - Bankers’ pay is deeply flawed

Chicago Booth Faculty page

Wikipedia entry 

(Bhopal, India, February 3, 1963)^[1] was the "Economic Counselor and Director of Research" (Chief Economist) at the International Monetary Fund from September 2003 until January 2007. He was the youngest individual to hold the position (beginning at the age of 40).

Raghuram G. Rajan served as Chief Economist at the International Monetary Fund between 2003 and 2006. His major research focus is on economic growth, and the role finance plays in it. Rajan believes there is no issue with greater urgency or moral imperative than economic development.

FT.com: "Bankers’ pay is deeply flawed" January 8 2008

Banks have recently been acknowledging enormous losses, yet those losses are barely reflected in employee compensation. For example, Morgan Stanley announced a $9.4bn charge-off in the fourth quarter and at the same time increased its bonus pool by 18 per cent. The justification was that many employees had a banner year and their compensation should not be held hostage to mistakes that were made in the subprime market. The chief executive, John Mack, however, assumed some responsibility and agreed to take no bonus for 2007 – although he got a $40m payout for 2006.

....

The typical manager of financial assets generates returns based on the systematic risk he takes – the so-called beta risk – and the value his abilities contribute to the investment process – his so-called alpha. Shareholders in asset management firms, such as commercial banks, investment banks and private equity or insurance companies are unlikely to pay the manager much for returns from beta risk. For example, if the shareholder wants exposure to large traded US stocks she can get the returns associated with that risk simply by investing in the Vanguard S&P 500 index fund, for which she pays a fraction of a per cent in fees. What the shareholder will really pay for is if the manager beats the S&P 500 index regularly, that is, generates excess returns while not taking more risks. Hence they will pay for alpha.

In reality, there are only a few sources of alpha for investment managers. One of them comes from having truly special abilities in identifying undervalued financial assets. Warren Buffett, the US billionaire investor, certainly has it, yet this special ability is, by definition, rare.

A second source of alpha is from what one might call activism...

---

Raghuram G. Rajan,  draws the distinction between “liquidation values” and those of calmer times, or “going concern values.” In a troubled time for banks, Mr. Rajan said, analysts are constantly scrutinizing current and potential losses at the banks, but that is not the norm.

“If they had to sell these securities today, the losses would be far beyond their capital at this point,” he said. “But if the prices of these assets will recover over the next year or so, if they don’t have to sell at distress prices, the banks could have a new lease on life by giving them some time.”

Simon Johnson, Professor of Entrepreneurship (MIT Sloan)(ex IMF-Chief Economist) "The G7 Needs To Act, This Weekend, On Ireland" + UPDATE on Sun - The G7 Are Asleep At The Wheel. Why?

His MIT bio
Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at MIT's Sloan School of Management, a position he has held since 2004.

Simon Johnson's IMF bio
Economic Counsellor and Director, Research Department, IMF (March 2007-August 2008)

Simon Johnson was Economic Counsellor and Director of the Research Department (Chief Economist) at the IMF from March 2007-August 2008. Mr. Johnson was on leave from the Sloan School of Management at MIT, where he was the Ronald A. Kurtz Professor of Entrepreneurship. Mr. Johnson is an expert on the financial sector and economic crises. Over the past 20 years he has worked on crisis prevention and mitigation, as well as economic growth issues in advanced, emerging market, and developing countries. His work focuses on how policymakers can limit the impact of negative shocks and manage the risks faced by their countries. His PhD is in economics from MIT, while his MA is from the University of Manchester and his BA is from the University of Oxford.

The G7 Needs To Act, This Weekend, On Ireland

February 13, 2009

Look at the latest Credit Default Swap spreads for European sovereigns (these are the data from yesterday’s close).  As we’ve discussed here before, CDS are not a perfect measure of default probability but they tell you where things are going - and changes within an asset class (like European sovereigns) are often informative.

European CDS have been relatively stable - albeit at dangerously high levels - for the past month or so.  But now Ireland has moved up sharply (click on the graph to closer see the green line in the chart).  We’ve covered Ireland’s problems here before (banking, fiscal and - big time - real estate); type “Ireland” into our Search box for more.

My point today is simple: a key warning sign just moved from orange to red. 

The G7 ministers of finance and central bank governors need to focus on this problem during their discussions today and tomorrow.  What is the strategy for Ireland?  Does the European Union come in to help?  Is this a job for the IMF? 

Just don’t, please, tell me more about the “basic principles” of financial reform (and similar nostrums in the draft communique) unless and until you have addressed the Irish Problem.  And don’t tell me, “the Irish have to sort this out for themselves.”  Eventually, the world always comes to help; check your notes on Iceland.  It’s much better and much cheaper to come in early and decisively - of course, the Irish will have to do some painful things, but we really can help (or, if we can’t, this will be a long dark winter for the eurozone).

We need a plan of action for Ireland, and we need it now.  What we don’t need is another Iceland-type situation

Axelrod And Emanuel Were Right (On The American Bank Oligarchs)

with 23 comments

When you cut through the technical details and the marketing distractions, sorting out the US banking fiasco comes down to one, and only one, question. How tough are you willing to be on the people who control the country’s large banks? Read the rest of this entry »

UPDATE (the day after)

The G7 Are Asleep At The Wheel. Why?

The global crisis approaches another major twist in its downward spiral.  A key barometer of financial and fiscal pressure - the credit default swap (CDS) spread - has widened sharply for Irish government debt over the past few days; the markets think that the risk of a sovereign default is rising sharply.  Immediate action is needed to forestall a dramatic deterioration of growth prospects across Europe and around the world.

New York Times Credit Crisis -- The Essentials, Feb 13.

Credit Crisis -- The EssentialsLatest Developments: Updated: Feb. 13, 2009

"It Is Time to Nationalize Insolvent Banking Systems" Economics Professor Nouriel Roubini (NYU)

The post on Nouriel Roubini's blog | Feb 10, 2009

A year ago I predicted that losses by US financial institutions would be at least $1 trillion and possibly as high as $2 trillion. At that time the consensus such estimates as being grossly exaggerated as the naïve optimists had in mind about $200 billion of expected subprime mortgage losses. But, as I pointed out then, losses would rapidly mount well beyond subprime mortgages as the US and global economy would spin into a most severe financial crisis and an ugly recession. I then argued that we would then see rising losses on subprime, near prime and prime mortgages; commercial real estate; credit cards, auto loans, student loans; industrial and commercial loans; corporate bonds; sovereign bonds and state and local government bonds; and massive losses on all of the assets (CDOs, CLOs, ABS, and the entire alphabet of credit derivatives) that had securitized such loans. By now writedowns by US banks have already passed the $1 trillion mark (my floor estimate of losses) and now institutions such as the IMF and Goldman Sachs predict losses of over $2 trillion (close to my original expected ceiling for such losses).

But if you think that $2 trillion is already huge, our latest estimates RGE Monitor (available in a paper for our clients) suggest that total losses on loans made by U.S. financial firms and the fall in the market value of the assets they are holding will be at their peak about $3.6 trillion. The U.S. banks and broker dealers are exposed to half of this figure, or $1.8 trillion; the rest is borne by other financial institutions in the US and abroad. The capital backing the banks assets was last fall only $1.4 trillion, leaving the U.S. banking system some $400 billion in the hole, or close to zero even after the government and private sector recapitalization of such banks. Thus, another $1.4 trillion will be needed to brink back the capital of banks to the level they had before the crisis; and such massive additional recapitalization is needed to resolve the credit crunch and restore lending to the private sector. So these figures suggests that the US banking system is effectively insolvent in the aggregate; most of the UK banking system looks insolvent too; and many other banks in continental Europe are also insolvent.

There are four basic approaches to a clean-up of a banking system that is facing a systemic crisis: (see his blog)

UPDATE

New York Times article 12 February, 2009, "Ailing Banks May Require More Aid to Keep Solvent" Mr. Roubini’s numbers may be the highest, but many others share his rising sense of alarm. Simon Johnson, a former chief economist at the International Monetary Fund, estimates that the United States banks have a capital shortage of $500 billion. “In a more severe recession, it will take $1 trillion or so to properly capitalize the banks,” said Mr. Johnson, an economist at the Massachusetts Institute of Technology.

Click graph for The New York Times' breakdown of RGE Monitor's $3.6 trillion

 

(02/09/2009): Bloomberg - Roubini Expects US to Play Stronger Role in Banks (Click for video or image)

 

 

 

 

 

 

 

Senior Associate Dean and Professor, Robert G. Hansen (Tuck School of Business) his blog on the crisis

Robert Hansen's Blog

Tuck Biography of Robert Hansen

Selection of posts:   

Welcome to the Treasury Amateur Hour, Tuesday, February 10, 2009

So our new Treasury Secretary comes out after having plenty of time to work out some details, and what do we get?

More uncertainty. Just what the markets and the economy need.

There is a beast in the room, and nobody wants to move because they don't know which way the beast will run. The beast of course is the Federal Government, doing their best to avoid the laws of unintended consequences.

A few quotes from the Wall Street Journal's story are very illuminating:

"But critical details of the plan remained unanswered, despite the weeks of planning leading up to Tuesday's announcement."

"Mr. Geithner said the plan to stem foreclosures would be announced in coming weeks."

"He also provided few details of the asset-purchase plan, which is designed to be done in partnership with the private sector."

"The absence of detail speaks to the thorny issues that lie at the heart of the financial crisis: how to value the toxic assets causing banks to report losses and how to shuffle aid to homeowners and stem the rise of foreclosures."

OK, these are not new issues.

The Government has two choices: One, come up with a credible and specific plan to buy toxic assets from financial institutions and support the ones that become insolvent as a result of having to take losses on the sales. Or two, step aside, and let natural market forces restore equilibrium.

Right now, the Government is effectively blocking mutually beneficial trades from taking place. Who wants to argue that financial institutions are the natural holders of these risky mortgage assets right now, instead of private investors? They never should have had such a concentration in the first place, so let's get on with the business of transferring that risk to those who are most willing and able to bear it...

The 2004 Banking Leverage Rule Change, Monday, February 09, 2009

We can expect a lot of revisionist history in the next several months, as policymakers and pundits attempt to spin the historical record to fit their interests.

We had a speaker at Tuck today who mentioned the SEC's 2004 rule change, which eliminated some leverage restrictions on investment banks in favor of capital requirements by type of asset as well as more reliance on self-regulation and reporting to the SEC. A good reference for a similar story is here in the NYT.

I have been meaning to look into this "smoking gun" for some time as it did sound intriguing. Of course, the headline is usually something like the NYT's: "Agency's '04 Rule Let Banks Pile Up New Debt." The subheading is, naturally, that we need more regulation not less and that the Bush administration was at fault.

Now there might be some issues about regulation of the banks, and I myself am very surprised at how poorly market forces seemed to enforce reasonable behavior on the part of the banks. Like Alan Greenspan, I have I guess a nostalgic view of how self-regulation should work (well).

But as to the story on the 2004 deregulation -- it simply does not hold water. I pulled out the Bear Stearns 2003 and 2006 annual reports -- before and after the regulatory change, but before falling asset prices caused an endogenous increase in liquidity.

In 2003, Bear had an overall leverage ratio of 26.4, and a net adjusted leverage ratio of 12.4. In 2006, the respective numbers were 26.5 and 13.6.

Do you think the NYT reporter could have looked that up and told us as well?

TARP: Take Two (Hopefully in Earnest This Time!), January 21, 2009

It appears that the core of the original TARP idea is being resurrected: buying bad assets and securities from banks and putting them into a government-controlled vehicle with the intent of reselling at a later point. From the WSJ over the weekend:

"The U.S. government, recognizing that the banking crisis is far larger than originally thought, is laying the groundwork for a second phase of its rescue attempt, with plans to purge bad assets that are paralyzing the financial system.

EABIS and EFMD launch Gateway to profile corporate responsibility in management development

New website features world’s first directory of CSR in business education and research
The European Academy of Business in Society (EABIS) and the European Foundation for Management Development (EFMD) are pleased to announce the formal launch of their new Business In Society Gateway website (www.businessinsociety.eu).

The Gateway profiles the latest knowledge and learning on the subject of corporate responsibility within a global community of business schools and universities. It will serve as a multi-stakeholder, multi-media platform to raise awareness and provide access to key resources.

It has been created through the strategic partnership between EABIS and EFMD, two of the world’s foremost management development networks. Both organisations work closely with some of the world’s largest companies and the top business schools to enhance the quality and relevance of training and research.

Its launch comes at a vital time, with the international community attempting to make sense of the financial crisis and the collective failure of corporate leadership and governance systems. EABIS Director General Simon Pickard commented:

“The current crisis makes it clear that future generations of business leaders will require very different skills and attitudes to what has traditionally been taught. Business schools and universities are under pressure to integrate corporate responsibility and sustainability into the heart of their teaching and research. The Gateway highlights the progress that business school pioneers are making towards this vital goal.”

Understanding the ‘State of the Art’ in Corporate Responsibility

At the heart of the Gateway is the unique Directory, an international catalogue of new research, education and training initiatives from business schools and universities in Europe and beyond. It profiles the results of a global survey of 1000 institutions, run by EABIS and EFMD in 2007 and 2008 in partnership with Nottingham University Business School.

The site enables interested stakeholders, including global companies, potential students, and policy-makers, to better understand how academia is responding to profound changes in the role and purpose of business in society.

Aside from the Directory, the Gateway also features a comprehensive Resources Database of multimedia materials and links, an International Events Calendar, and a Spotlight section to profile the latest thought leadership in the corporate responsibility field.

www.buisinessinsociety.eu 

CONTACTS:
Matthew Wood, EFMD Communications Director, +32.2.629.08.10, matthew.wood@efmd.org
Claudia Kipka, Communications Coordinator, +32.2.541.1615, Claudia.kipka@eabis.org

Yash Gupta, Dean Johns Hopkins Carey Business School - Building B-Schools: Dev & Communications Conference

Dean Yash Gupta bio

Has economic uncertainty affected your school’s development and marketing departments? As the financial climate leads to leaner school budgets and the need to get the most out of communications and development efforts, I strongly urge deans to send their teams to the Building B-Schools: Development and Communications Conference—the only conference developed exclusively for professionals responsible for b-school development, communications, and fundraising.

As chair of this event, I can assure you that it delivers a program filled with relevant content for today's b-school advancement professionals. Your team will solidify peer networks, learn cutting-edge tactics from fundraising, branding, and communications experts, and develop strategies that can be immediately applied to your school’s specific challenges. Visit www.aacsb.edu/conference to learn more about this event or register .

AACSB International Building B-Schools: Development and Communications Conference
March 5–7, 2009
Arlington, Virginia, USA (minutes from Washington, D.C.)

Al Pacino in Any Given Sunday('99) - Inches speech- (given Immelts view in previous post)

Da aquí para mirar el video en español

GE chief (Immelt) warns on US depression threat

Click here for the article of the Financial Times, February 5 2009

The US economy is suffering its steepest downturn since at least the 1970s and could descend into a depression, Jeff Immelt, General Electric’s chief executive, warned on Thursday.

He said businesses and consumers alike were struggling to contend with tumultuous markets and a financial-services industry under siege....“Unlike the other downturns that I’ve been a part of, this one is faced with limited liquidity,” Mr Immelt, GE’s chief since 2001 told a conference. “Once you break through ’74-’75, you don’t stop ’til you get to 1929.”

Nobel laureate economist Joseph Stiglitz (Columbia U.) talks with the FT on video about the crisis + video London Summit Feb09,"on resolving the global financial crisis"

Wikipedia entry

In an interview recorded in Paris on January 9, 2009 Columbia University's Nobel laureate economist Joseph Stiglitz tells Lionel Barber, editor of the Financial Times, why tax cuts are not the way to fix the global economy, why China´s contribution to the solution could be "small peanuts" and why banks are to blame for all the major economic shocks of the past 25 years.

Click here for the FT video

"Wizard of Wharton" - Professor of Finance, Jeremy Siegel on the crisis

Personal website

Wikipedia enty

Video highlights of lectures and television interviews

"Wharton professor analyzes the crisis" Philly.com, October 2008

Inside Look: The Future of Financials, two weeks ago.

The Economy & TARP - Interview with Jeremy Siegel

Knowledge@Wharton, 2009.02.04

Lesson One: What Really Lies Behind the Financial Crisis? 

What was the true cause of the worst financial crisis the world has seen since the Great Depression? Was it excessive greed on Wall Street? Was it mark-to-market accounting? The answer is none of the above, says Jeremy Siegel, a professor of finance at Wharton. While these factors contributed to the crisis, they do not represent its most significant cause.

Here is the real reason, according to Siegel: Financial firms bought, held and insured large quantities of risky, mortgage-related assets on borrowed money. The irony is that these financial giants had little need to hold these securities; they were already making enormous profits simply from creating, bundling and selling them. "During dot-com IPOs of the early 1990s, the firms that underwrote the stock offerings did not hold on to those stocks," Siegel says. "They flipped them. But in the case of mortgage-backed securities, the financial firms decided these were good assets to hold. That was their fatal flaw."

Speaking in Philadelphia on January 20, Siegel, author of Stocks for the Long Run and The Future for Investors, provided a detailed analysis of the factors that fueled the worldwide financial meltdown. His talk was the inaugural lecture of a 15-session course on the financial crisis that Wharton is offering MBA and undergraduate students. Siegel's mission was to detail the factors that sparked the crisis that has caused the U.S. stock market to lose more than a third of its value in a year, while sending unemployment to its highest level since the 1980s. Siegel's lecture was on the same day that millions of Americans expressed optimism over the inauguration of President Barack Obama, even as the Dow plunged another 300 points.

Explaining his theory further, Siegel pointed out that many troubled banks and insurers continued to prosper in almost every other aspect of their businesses right up to the 2008 meltdown. The exception was the billions of dollars in mortgage-backed securities that they bought and held on to or insured even after U.S. home prices went into a free-fall more than two years ago. American International Group (AIG), the insurer that received an $85 billion federal rescue package last September, is a prime example. Some 95% of its business units were profitable when the company collapsed. "AIG has 125,000 employees," Siegel noted. "Basically, 80 of them tanked the firm. It was the New Products Division, which had an office in London and a small branch office in Connecticut. They came up with the idea of insuring mortgage-backed assets, and nobody at the top decided it wasn't a good idea. So they bet the house -- and the company went under."...

Professor Simon Johnson (MIT Sloan) helped setup The Baseline Scenario blog - What happened to the global economy and what we can do about it

The Baseline Scenario

MIT Professor Explains the Crisis to the Masses (How and why the blog was set up)

Business school professor Simon Johnson set out to make sense of the financial mess for students and the rest of us.

MIT Sloan School of Business professor Simon Johnson, speaking at an International Monetary Fund conference last spring. Mr. Johnson was director of research.

Global Crisis Orientation

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First time reader? Start with our current Baseline analysis and proposals.

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Confused? Try our Financial Crisis for Beginners page.

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Professor of economics at Harvard University - Greg Mankiw's Blog - Crisis

Greg Mankiw's Blog

My preferred fiscal stimulus. February 5th, 2009.

Regular readers of this blog have a pretty good sense of my policy preferences. But for those occasional readers who might be stopping by, let me reiterate what I would do right now if I were the fiscal king.

I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.

Any further federal spending projects should be evaluated on the basis of cost-benefit analysis. That analysis would take time, but it would ensure that the projects are not a waste of taxpayer dollars.

Some traditional Keynesians would object that government spending has a larger multiplier than tax cuts. Even though that is the prediction of standard Keynesian models, the evidence is not completely consistent with that conclusion, as I have discussed here in previous posts. In addition, given the lags inherent in large spending projects, and the risks inherent in hasty spending at the federal level, the case for taxes over spending as the fiscal instrument of choice is compelling. To me, at least.

None of this should be viewed as a substitute for fixing the banking system and trying to come up with a better process for homeowners and banks to work out mortgage loans in default. Housing and finance are the real sources of the macro problem. Any fiscal stimulus, such as the one I propose above, is only an attempt to mitigate the symptoms. Those symptoms are severe, so mitigation is fully appropriate. But fiscal policy is not a panacea for what now ails the economy.

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The GOP Mortgage Plan: Con and Pro February 5, 2009.

Congressional Republicans are proposing that the government offer people 4 percent mortgages, which is below current market rates for mortgages but above the current government bond rate. Harvard economist Ed Glaeser is opposed...

---

Feldstein on Fiscal Stimulus February 4, 2009.

Interview with Marty (Felstein)  December 13, 2008.

J. Bradford DeLong, Department of Economics (U.C. Berkeley), his blog, Grasping Reality with Both Hands

J. Bradford DeLong´s blog (his profile)

Grasping Reality with Both Hands

Publish at Scribd or explore others: literature null

On the Edge - PAUL KRUGMAN

Click here for the Op-ed piece of The New York Times, February 5, 2009

A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts...

...Worst of all is the possibility that the economy will, as it did in the ’30s, end up stuck in a prolonged deflationary trap...

...As the great American economist Irving Fisher pointed out almost 80 years ago, deflation, once started, tends to feed on itself. As dollar incomes fall in the face of a depressed economy, the burden of debt becomes harder to bear, while the expectation of further price declines discourages investment spending. These effects of deflation depress the economy further, which leads to more deflation, and so on...

...It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.

Strategy Professor Freek Vermeulen (LBS) - his blog Random Rantings - Crisis

Freek Vermeulen´s blog Random Rantings

In a crisis, innovate, 9 January 2009
...So, when you’re down: innovate. Don’t just wait for the inevitable to happen; prolonging your decline out of some false hope that you’ll weather the storm. Storms kill; get out of it while you can.

CEOs and their stock options… (oh please…), 23 December 2008
...No I am not so sure. Also because two strategy professors actually measured this stuff: Gerry Sanders from Rice University and Don Hambrick from the Penn State University. They examined 950 American CEOs, their stock options and their risk taking behavior. They found that CEOs with many stock options made much bigger bets; for instance, they would do more and larger acquisitions, bigger capital investments and higher R&D expenditures. That is, where CEOs with few stock options would prefer to invest $50m in a particular project, they would plunge in a $100m.

In a downturn, manage your revenues, not your costs 18 December, 2008

...So why does spreading one’s revenue base in meagre times make more sense? It is, among others, because no job will be big enough to sustain the whole firm. What keeps firms afloat is accessing a variety of smaller pockets of revenues. Hence, rather than focus on job 1, hoping it will be enough to sustain the firm, the company’s effort should be aimed at identifying and creating additional sources of revenue

What really caused the 2008 banking crisis?, 16 November 2008
When you compare the 2008 banking crisis with the Enron debacle, with Ahold’s demise or even with the Union Carbide disaster in Bhopal in 1984 some surprisingly clear parallels emerge. Various explanations have been offered for each of these crises, ranging from top management greed, failing watchdogs to insufficient government regulation and inappropriate accounting and governance structures. Yet, there is one common cause underlying all these symptoms and triggers, and that is the structural failure of management.

Strategy Professor David B. Allen (IE Business School) - some of his crisis-related posts

David B Allen´s blog "Strat Op. Ed."

Bogus Bonuses

January 30, 2009

President Obama called the bonuses paid to banking sector executives, "shameful". He then said,“There will be time for them to make profits, and there will be time for them to get bonuses.”

He was right about "shameful", but he fudged it on bonuses, as if there were good old days we could go back to when a CEO received an "honest day's pay for an honest day's work". In a complex economy, this is close to impossible. It is inevitable earnings of investment bankers, hedge fund managers and CEOs of large companies will depend far more on social norms than long-term economic performance. Don't get me wrong. The elite of big business and finance are talented people; there is, however, scant economic justification for the pay they receive.

Fixing America: Obama's To Do list 

January 14, 2009

The TO DO list for Barack Obama put together by our best and brightest is clear. When he gets the Oval Office on Day 1 on desk all he will be asked to fix ... everything.

We all know why there is so much to be done. The foundations of society are off kilter. Education and work, the two things that take up most our lives, need to be retooled -- from pre-school imagination building to post-doc innovating. We need to rethink what is worth doing and worth learning how to do...

1. Get out of Iraq and Afghanistan now.

2. Provide all American children with the world's best health care and education.

3. End U.S. dependence of foreign oil.

Bailing out on the bailouts

December 27, 2008

Nice, nice, very nice;

Nice, Nice, very nice;

Nice, nice, very nice --

So many different people

In the same device.

 

-- Kurt Vonnegut

 

 

BACKGROUND

 

There are lots of smart people describing the mess we are in. I read The New York Times and The New Yorker mostly, where professional journalists have incomparable access to the world’s most important decision-makers and our best minds. These journalists, the media elite, work hard to do their job monitoring the elites of the other estates.

 

Thomas Friedman, of the flat world, is fixated on our collapsing infrastructure, fractured educational system, and inane business culture. His articles detail failure upon failure made palatable by a dash of optimism and a catchy title like "Time to Reboot America".

 

He and his colleagues, in an attempt to veil despair, regularly finish up their missives with a plea to the Office of the President-Elect to save our skins. Paul Krugman is a pro at it (see "Barack be good"). Though as a Nobel-prize winner he is smart enough to have figured out that Obama ain’t off to such a great start, vacationing in a luxury beach home, taking the Clintons and most of their team on board in this winter of discontent, and signing Rick Warren for a dose insipid truth for our inaugural prayer.

 

We, the people, would like, and deserve, something better from our elites.

Please do NOT Save: Why GM, Ford and Chrysler should not get our money

For years I believed that managerial incompetence in the U.S. automobile industry had no limits. I was right. But that was only part of the story. Now these giants of industry and their million lobbyistreplicant march on Washington is on the cusp of a monster bailout that promises to suck $15 - $25 billipn out of the American taxpayer in the first tranche. (This is peanuts, of course, compared to what was wasted on AIG, but I have already exhaled sufficient spleen on that topic.)

The three big automakers are singly and collectively underserving of a red cent, but the most undeserving of all is Cerberus, the savior of Chrysler. Cerberus is run by Stephen Feinberg, who by all accounts is smart and, by the standards of superrich hedge fund moguls, modest in his impudent arrogance.

Nice, nice, very nice;

Nice, Nice, very nice;

Nice, nice, very nice --

So many different people

In the same device.

 

-- Kurt Vonnegut

 

 

BACKGROUND

 

There are lots of smart people describing the mess we are in. I read The New York Times and The New Yorker mostly, where professional journalists have incomparable access to the world’s most important decision-makers and our best minds. These journalists, the media elite, work hard to do their job monitoring the elites of the other estates.

 

Thomas Friedman, of the flat world, is fixated on our collapsing infrastructure, fractured educational system, and inane business culture. His articles detail failure upon failure made palatable by a dash of optimism and a catchy title like "Time to Reboot America".

 

He and his colleagues, in an attempt to veil despair, regularly finish up their missives with a plea to the Office of the President-Elect to save our skins. Paul Krugman is a pro at it (see "Barack be good"). Though as a Nobel-prize winner he is smart enough to have figured out that Obama ain’t off to such a great start, vacationing in a luxury beach home, taking the Clintons and most of their team on board in this winter of discontent, and signing Rick Warren for a dose insipid truth for our inaugural prayer.

 

We, the people, would like, and deserve, something better from our elites.

For years I believed that managerial incompetence in the U.S. automobile industry had no limits. I was right. But that was only part of the story. Now these giants of industry and their million lobbyistreplicant march on Washington is on the cusp of a monster bailout that promises to suck $15 - $25 billipn out of the American taxpayer in the first tranche. (This is peanuts, of course, compared to what was wasted on AIG, but I have already exhaled sufficient spleen on that topic.)

The three big automakers are singly and collectively underserving of a red cent, but the most undeserving of all is Cerberus, the savior of Chrysler. Cerberus is run by Stephen Feinberg, who by all accounts is smart and, by the standards of superrich hedge fund moguls, modest in his impudent arrogance.

Economics Professor Nouriel Roubini (NYU)- "Is the U.S. a Japan 2? The Return of Japan’s “Free Fallin” Stag-Deflation and the Risks of a U.S. "

Is the U.S. a Japan 2? The Return of Japan’s “Free Fallin” Stag-Deflation and the Risks of a U.S.

Nouriel Roubini´s blog | Feb 3, 2009

William Pesek, the savvy Asia columnist for Bloomberg, reports - in his latest column (see below) - my views about the structural crisis faced by Japan that I outlined in a 1996 paper titled “Japan’s Economic Crisis”. Thirteen years later Japan is entering another severe slump that looks like even worse than that of other advanced economies: while in US, Europe and some other advanced economies and China the second derivative of growth and of other economic indicators is turning closer to becoming eventually positive rather than negative (i.e. growth is still negative but GDP may be falling at a decelerating – rather than accelerating - rate) in Japan is still highly negative (i.e. the fall is accelerating and looking like a free fall, a severe case of stag-deflation).

The sad case of Japan free fall is a cautionary tale of what happens when a high flying economy has a real estate and equity bubble that goes bust and avoids for too long doing the painful structural reforms and clean-up of the financial system that is necessary to avoid a long-term L-shaped near depression. Japan had over a decade of stagnation and deflation, then a mild sub-par growth recovery that lasted only three years and is now spinning into another severe stag-deflation. Keep alive zombie banks and zombie corporations whose balance sheets and debts are not restructured as in Japan (zombie banks and zombie insolvent households in the US today) and you end up in a L-shaped near depression.

Let me explain next in this note why the US and the global economy face the risk of an L-shaped near depression if appropriate policy actions are not undertaken…

Read more

Doing one´s duty

“In practice it is seldom very hard to do one’s duty when one knows what it is, but it is sometimes exceedingly hard to find this out.” Samuel Butler (Note Books, 1912)

Della Bradshaw (FT) interview: "People need to be more relaxed about rankings"

Download EFMD´s Global Focus Interview with Della Bradshaw  PDF(230KB)

The Financial Times´ Della Bradshaw tells George Bickerstaffe that people need to be more relaxed about business school rankings.

She has been called the most important woman in management education - and occasionally other, much less flattering, things. Della Bradshaw, Business Education Editor of the Financial Times in London and for the past ten years overseer of the newspaper´s business school ranking system, is unimpressed by either approach.

"The idea behind the FT rankings is to produce a listing of business schools around the world that are producing global managers for the 21st century"

Click here for the EFMD´s Global Focus Volume 3, Issue 1 2009

BizEd magazine of AACSB - interview with Ericsson CEO Carl-Henric Svanberg

Making Connections
Ericsson CEO Carl-Henric Svanberg
believes that connectivity may be the answer to many of the world's biggest problems. Business students must be prepared, he says, to make essential global connections happen.

» Click here to download AACSB's BizEd ...(PDF) 756KB

"big problems are reasons to be excited, not intimidated"

"These MBA students have been raised during the excitement and explosion of an all-communitation mobile and Internet-enabled world".

What would you most like to see from business schools?
Business schools should take note that China is now...

US business schools go green - Businessweek

Click here for the article of Business Week, January 19, 2009.

To fill jobs in clean tech and help tomorrow's business leaders solve our environmental problems, schools are ramping up sustainability programs—inside the classroom and out.

At one time, business schools "greened" their MBA curriculums in response to a new wave of students for whom sustainability was more than just a catchphrase. It was a core value.

That time, however, has passed. Today, business schools are continuing to ramp up their efforts for green curricula, but for a much different reason. In a world beset by economic woes as well as environmental problems— from the scarcity of natural resources to climate change—sustainability represents one of the few potential bright spots in an otherwise dismal recruiting environment.