Harvard’s Republic of Suffering May Force a Faustian Bargain
For those of you who love gory details, Bloomberg has a long-ass article about the imperiled state of Harvard’s finances, and it doesn’t look good for the school so recently reduced to peddling its prestige on polos. After pouring millions into the rat-plagued land deal known as Allston, Harvard made bets (under Lawrence Summers’s leadership) that national interest rates would go up. But, per Bloomberg, Harvard was instead stuck with a nearly $1 billion dollar bill, as well as an unfinished construction site across the Charles that seems more and more like a white elephant. Beyond the swaps debacle, the school’s endowment took a 30 percent hit — from $36.9 billion to $26 billion — and its cash account lost nearly $2 billion, Bloomberg reports. We all knew that Harvard’s finances were effed, but it still stings to see the raw numbers.
So how’d all this happen? One possible reason: the Harvard atmosphere of clubbiness and yes-man-ism. Bloomberg notes that other Ivy League schools, which tend to manage their funds through “corporations” that take major risks, have had similar crises recently:
Cornell University in Ithaca, New York, posted $38 million of collateral on $1.5 billion of swaps, according to a Moody’s report on the Ivy League School. Hanover, New Hampshire-based Dartmouth College, also in the Ivy League, didn’t post collateral on their swaps because their investment banks agreed to waive the requirement to win the business, according to a person familiar with the contracts.
That’s just great leadership and decision-making all around! Hilariously, the article sneaks in a description of current Harvard president Drew Gilpin Faust as a “Civil War historian,” seeming to imply that without an economics background she’s in over her head. Given that the worst of this dates to the reign of Summers — former Treasury Secretary, current Obama economic butt-boy – that seems rather rich.
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December 19th, 2009 at 10:18 pm
Listen, I know HYP are, like, totes the only schools that matter according to Gossip Girl, but you guys should at least make an effort to mention those other, less venerable institutions that make up the Ivy League every now and then.
December 19th, 2009 at 11:53 pm
Gee, Daniel, I hope that this isn’t the critical thinking that you apply to your other reading and writing. First, all universities are non-profit “corporations.” The fact that Harvard is run by a club of trustees who aren’t all that accountable to the alumni or the faculty does not make it any less of a corporation, it simply makes it a bizarre one. Second, as for your Bloomberg quote, “New Hampshire-based Dartmouth College, also in the Ivy League, didn’t post collateral on their swaps because their investment banks agreed to waive the requirement to win the business” leads you to snidely remark that that’s “just great leadership and decision-making all around!” — well, yes, actually. Dartmouth got the banks to agree to waive the collateral, a smart move, considering that all the others are posting multi-million dollar wads of cash.
December 20th, 2009 at 1:02 am
umm by “all around” I think he is referencing the banks, as in their decision to waive the collateral. he didn’t mean “all around the ivy league” i assume
December 20th, 2009 at 3:50 pm
The banks didn’t waive the collateral “all around the Ivy League,” hence the crisis, among other reasons.
December 21st, 2009 at 12:33 am
Actually, Blair called Princeton a “trade school,” and nobody even talked about Harvard. It was really more of a Dartmouth-Yale-Columbia affair.
December 22nd, 2009 at 4:25 pm
Pennster, The last time that I checked, Cornell and Dartmouth were not part of HYP. Hey, just be grateful that Penn did not get involved in any money-evaporating interest rate swaps to warrant being mentioned in this article. Penn’s endowment has been conservatively managed for decades even as HYP got into more and more esoteric investments. Last year, the chickens finally came home to roost.
December 22nd, 2009 at 5:33 pm
Wait, Dartmouth is in the Ivy League?