One reason for the crisis: MBAs

MBAs are haunted by the thought that the tag really stands for Mediocre But Arrogant, Mighty Big Attitude, Me Before Anyone and Management By Accident. For today’s purposes, perhaps it should be Masters of the Business Apocalypse.

Harvard Business School alumni include Stan O’Neal and John Thain, the last two heads of Merrill Lynch, plus Andy Hornby, former chief executive of HBOS, who graduated top of his class. And then of course, there’s George W Bush, Hank Paulson, the former US Treasury secretary, and Christopher Cox, the former chairman of the Securities and Exchange Commission (SEC), a remarkable trinity who more than fulfilled the mission of their alma mater: “To educate leaders who make a difference in the world.”....

Given the present chaos, shouldn’t we be asking if business education is not just a waste of time, but actually damaging to our economic health?

If doctors or lawyers wreaked such havoc in their own professions, we would certainly reconsider what is being taught at medical and law schools.

Amen!
Read the entire piece in the Times (London). BTW, the author of that commentary, Philip Delves Broughton, is a class of 2006 Harvard MBA, and the author of What They Teach You at Harvard Business School, published by Viking

Thanks to my favorite site: A&L Daily

Enron was the canary in the coal mine

Hey, the more commentaries I read, the more Ralph Nader comes across as one we ought to have listened to; maybe I simply should vote for Nader, eh! Here is Bethany McLean, who is a contributing editor at Vanity Fair, and co-author of The Smartest Guys in the Room:

After Enron's implosion, everyone talked about how important it was to be able to understand how a company makes money. Now raise your hand if you understand how a modern financial services firm makes money. No hands? The truth is, there is no way to understand. These companies are as opaque as Enron. Just as Enron had off balance-sheet vehicles - SIVs - that allowed it to book earnings and hide debt, Citigroup and other financial institutions had structured investment vehicles that did the same. Indeed, Citigroup had to take almost $50bn of SIVs back on to its balance sheet after they ran into trouble. It would be nice if the accounting rule-makers would grasp this basic tenet: if they want to hide it, we want to know about it.
Of course, SIVs are only a small manifestation of the deeper problem, which is the evolution of financial engineering into a dark art. Enron now seems like the canary in the coal mine. After its bankruptcy, Steve Cooper, who was in charge of restructuring it, told the Wall Street Journal his task might leave him "in a wheelchair and drooling" due to the complexity of its financial structures and the "unbelievable amount of debt accumulated around the company". Doesn't that sound like our entire financial system?
Just as Enron packaged bad investments into a private equity fund run by its chief financial officer, Wall Street packaged mortgages given to people who couldn't afford the payments into sleek new instruments called RMBS and CDOs.

Ralph Nader warned about derivatives

It was way back in the mid-1990s, I think, that I went to listen to Ralph Nader. This was in California--in LA. I had expected him to talk in the language of us mortals about corporations, environment, labor, .... Instead, he went all technical and it felt like I was in a graduate-level economics course. His focus was on derivatives and how they were being abused by Wall Street financial experts. The audience, not too large to begin with, almost fell asleep. But, it turns out that, as always, Nader was on target.
Unfortunately for him and for us, nobody paid any attention to Nader.
Then Enron happened. And even then nobody paid attention to the complexities in derivatives that these MBAs were concocting. The traders, on the other hand, started coming up with even more crazy schemes to essentially gamble with other people's money.
When Bear Sterns tanked last March--six months ago--that apparently still didn't wake up those who were supposed to safeguard the "public interest."
Oh well .... I guess I should feel better that if Congress passes a 700-billion dollar bailout, I will literally own a share of America's real estate--more than my own home that we pay for with blood, sweat, and tears!

9/26 update: Nader has a terrific commentary at Cockburn's Counterpunch. His postscript there is something that the "investor nation" should pay attention to:

Shareholders also have some work to do. They should have listened when Warren Buffett called securities derivatives a "time bomb" and "financial weapons of mass destruction.” The Wall Street crooks and unscrupulous speculators use and draining of “other people’s money” out of pension funds and mutual funds should motivate painfully passive shareholders to organize to gain greater authority to control the companies they own. Where is the shareholder uprising?