The Incredible Shrinking Harvard?

malmo wrote:

CMO "tranches" were the biggest socialistic-fog-machine-Ponzi-scheme ever devised. Their purpose wasn't to mitigate or isolate risk, it was to disguise risk. Even the Sloan graduates couldn't understand what they were creating and buying.

You would think that Ivy League business school graduates with seven-figures in annual pay would understand that the lending banks had no incentive to perform due diligence on borrowers whose debt made up these tranches. The loan originators were happy to feed the insatiable demand from underwriters like Merrill-Lynch for more and more loans to be packaged for sale to institutional investors (typically run by Ivy League business school graduates working in opulent offices). The lending banks had no skin in the game, so even the supposedly low-risk tranches were rotten to the core. It's amazing that institutional investors, like pension funds, couldn't smell a rotten egg.

Well those institutional investors like at Harvard had no skin in the game they took 60m or whatever and then the pyramind collapsed so what they dont give a shit.

run for the money wrote:

Well those institutional investors like at Harvard had no skin in the game they took 60m or whatever and then the pyramind collapsed so what they dont give a shit.

That's an interesting point. How much did Harvard buy in CDO tranches from investment banks where "financial engineering" alumni were working at the time? What does that say about "the Harvard brand"? (Incompetence and cronyism.) Maybe that explains why "W" performed the way he did in the White House.

Living in the Past wrote:

Avocados Number wrote:

I think that Harvard should probably do more, not less, to protect its "brand."

How about shutting down the football program? That would bring more focus to academics, like at M.I.T. and Cal Tech.

Although I was a law student at Harvard, I was an undergraduate at M.I.T., and I agree with your basic sentiment. When I was an undergraduate, I thought it was great that M.I.T., while having more varsity sports than any other school in the country, had cut out the football program many years earlier, precisely because it was thought to interfere too much with academics. (Football was reinstated at M.I.T. for a while; I'm not sure of its status now.) I also thought it was great that M.I.T. never awarded honorary degrees to anyone; you couldn't get a degree from M.I.T. just by giving a commencement speech or something, whereas Harvard handed out honorary degrees to goofballs like Prince Charles, who had probably never worked a day in his life and probably couldn't solve the simplest of differential equations. I didn't enjoy my years at M.I.T., but I respected its hard-nosed approach to academics.

That's not quite Harvard's brand, however. Harvard is not just about academics; it's also about tradition and the perpetuation of an image of some sort of American aristocracy. People actually care about the Harvard-Yale football game, even if it's little more than a chance for alumni to get together to pat each other on the back. When movies are set at Harvard, the leading men are blandly handsome, impeccably polished, and vaguely athletic aristocrats played by guys like Ryan O'Neal; when movies are set at M.I.T., the leading men are socially awkward geniuses who occasionally luck out with women attracted to those kinds of characters. Different brands, each with considerable value.

I think you made the point

M.I.T. (like CalTech) focuses on substances. It is not sexy.

Harvard is sexy, and substance takes a back seat (but most certainly is not absent).

The tide is going out, and Harvard is swimming naked. They think that some rock-star fund manager is a good substitute for due diligence and prudence (but it sounds like this is what the board wanted).

Within the confines of finance, there are all sorts of rock star names from Harvard e.g. Ken Griffin who started Citadel. KG works his ass off, but is not astoundingly bright. He has personally lost +$2bn so far.

If you want to read about a smart guy, David Solo MIT '87. A year at the AI lab, then works for O'Connor in Chicago, partner by 26, then in '97 at 32 he is CFO of UBS. A truly impressive mind - ask any ex O'Connor/SBC/UBS trader.

The point - there are many smart people associated with Harvard, but the temptation to coast on the name alone is so great that slovenliness abounds.

"The loan originators were happy to feed the insatiable demand from underwriters like Merrill-Lynch for more and more loans to be packaged for sale to institutional investors (typically run by Ivy League business school graduates working in opulent offices)."

Someone referred to the repackaging of these mortgages as a Ponzi Scheme and in a way it was. More and more poorly underwritten mortgages fed an insatiable GLOBAL appetite for mortgage backed securities. All based on the premise that the underlying security for these loans, real estate, was super safe.

So are the financial engineers who traded MBS to blame, the lenders originating the mortgages, Congress? All of them. Greed abounds as much on Wall Street as Main Street.

Greed is fine as long as it is properly/fairly priced.

Wall Street meets demand. There was yield chasing demand. They met it. Its bribing rating agencies that crossed the line (IMO).

Have you ever seen a CDO prospectus? Its an amazing document. 700-900 pages. Nobody could have read all of them - not even one person in one legal dept at one bank.

The thinking, "He went to HBS so he must know what he is talking about" has been completely debunked. Now that, and $3 gets u a cup of joe @ Starbucks.

One of my favorite quotes is from Wm Buclkey: "I'd rather pick the first 2000 names from the greater Boston phonebook to run the US government than have the roughly 2000 faculty members from Harvard do so".

How true.

this thread is funny, and jealousy of Harvard is amusing too.

So let me get this straight (posters on this thread): HARVARD is to blame for the world economic collapse and recession???

Ok, whatever you guys say.

Then clean house at all the "top schools".

16,000 dipshits that won't leave academia because it's a cush job. Maybe these "academics" need to get a real job and see how the rest of us live for a while.

blah blah blah wrote:

this thread is funny, and jealousy of Harvard is amusing too.

So let me get this straight (posters on this thread): HARVARD is to blame for the world economic collapse and recession???

Ok, whatever you guys say.

No...just that their own hubris is to blame for their current state of affairs, and that in the end there is nothing "magical" about a person who went there.

Any school that would fire a president for nothing other than expressing an opinion based in fact, deserves every bad thing that could happen.

Close...but you are off on many of your facts. 1) The banks did not securitize 100% of the loans. In fact, they are generally required to hold subordinate positions of either the loans themselves or the securitization. 2) The loans were not packaged into CDOs. CDOs are securitizations of securitizations or, in other words, the second derivative. 3) AIG never acted as an underwriter. They were only acting as an insurance provider on the most senior tranche of the bond in a transaction called a negative basis trade. 4) Financial Engineers weren't underwriting the loans themselves. If the proper controls were in place to begin with, the securitizations wouldn't have been full of shit.

If you really want to talk about whose fault this all is, lets trace this back to Mr. Barney Frank demanding that underwriting standards be loosened in the late 1990s because it was the right of every American to own a house. Funny how he doesnt mention any of that in his rants against banks today.

while that probably contributed some to this situation, it was mostly insatiable international desire for a place to invest money "safely" after the US government lowered yields. That demand meant there was a huge incentive to sell the repackaged mortgages, which in turn led to banks and mortgage-writing institutions to significantly lower their standards (and in many cases, trick their customers into believing the mortgage was better than it really was).

It was high demand for mortgage-based securities, not government interference, that caused banks to lower their standards.

The idea that you can get something for nothing is at the center of this mess. Much as we might want to believe, there is no such thing as a safe and profitable investment. You can get one or the other, not both. Hopefully everyone has realized by this point that real estate is not a magical investment opportunity.

Bingo!!! Social engineering was as much a part of this debacle as financial "engineering." Fannie Mae, a retirement home for many "on the hill," was the WORST kind of hedge fund, facilitating this crap with 50-1 leverage and a de facto backing of the US government! Remember their multiple earnings restatements from roughly 10 years ago, long before the dominos started to fall? Raines lost his job over them (but somehow was retained as a presidential "economic advisor"). And let's not forget the government's chartering of the ratings agencies, creating a ratings oligopoly. The old ratings model worked to created transparency. The government's new cartel effectively made rating debt more nebulous and allowed for this nefarious behavior. This all under the guise of the SEC. A lack of regulation was not the issue here. Too much stupid regulation and not enough smart regulation was the standard of the day.

And let's not forget a Fed, which, despite continually admonishing the government to rein in Fannie and Freddie and address its off-balance sheet liabilities in medicare and social security, aided and abetted this entire distortion of credit availability and pricing. The financial engineers and the AIGs of the world magnified this problem massively and globally, but they couldn't have done it alone. Culpability stretches far and wide on this one. No one would have levered up on this crap without complicity on almost every level. Any other view merely reveals one's political ideology. The tentacles for this one are everywhere, across every political stripe. The seeds were sewn long before this shit was spliced and diced into risk tranches. And your neighbor's greed to stretch for more home and his mortgage broker's greed to print money provide plenty of fertilizer.

malmo wrote:

CMO "tranches" were the biggest socialistic-fog-machine-Ponzi-scheme ever devised. Their purpose wasn't to mitigate or isolate risk, it was to disguise risk. Even the Sloan graduates couldn't understand what they were creating and buying.

Socialistic? CMO tranches are the very definition of an extreme form of capitalism.

huhuhuhuh??? wrote:

Socialistic? CMO tranches are the very definition of an extreme form of capitalism.

Typo: that should have read "sciolistic." Spell-check must have overridden my initial spelling. MBS tranches were designed to be undecipherable.

In the seminal days of financial "innovations," these tranches were actually quite effective tools for both diluting and mitigating risk. The game of Alice-in-Wonderland came much later and was enabled by players far and wide, most notably Uncle Sam. Fannie Mae itself may have been a useful instrument until it got far, far away from its initial charter.

It's called the American "Dream" for a reason. There is and never was such a thing as a guarantee, especially with no money down and a major league baseball average credit score. Life, liberty, and the "pursuit" of happiness, though I fear it will be rewritten in the not-too-distant future.

*There ISN'T...