From an article in the Boston Globe:
[Jack] Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment’s risky mix of stocks, bonds, hedge funds, and private equity. Meyer’s successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members.
… But the warnings fell on deaf ears, under Summers’s regime and beyond. And when the market crashed in the fall of 2008, Harvard would pay dearly, as $1.8 billion in cash simply vanished. Indeed, it is still paying, in the form of tighter budgets, deferred expansion plans, and big interest payments on bonds issued to cover the losses.
… Summers pushed to invest 100 percent of Harvard’s cash with the endowment and had to be argued down to 80 percent, financial executives say.
… Harry Lewis, a Harvard professor and a former dean of the college, attributes the failure to address the university’s financial risks to the ancient structure of the Harvard corporation, which functions as its board. “With only the six fellows plus the president, there is inevitably going be a lot of deference to the people who seem to have the most authority, especially if the president is strong-willed,’’ Lewis said. “Whether or not anyone in particular made a mistake in this situation, it shows a fundamental structural problem. The power is just in the hands of too few people with too little accountability.’’
… Amid plunging global markets, Harvard would lose not only 27 percent of its $37 billion endowment in 2008, but $1.8 billion of the general operating cash – or 27 percent of some $6 billion invested. Harvard also would pay $500 million to get out of the interest-rate swaps Summers had entered into, which imploded when rates fell instead of rising. The university would have to issue $1.5 billion in bonds to shore up its cash position, on top of another $1 billion debt sale. And there were layoffs, pay freezes, and deep, university-wide budget cuts.
… No one wants to repeat the black day when university officials had to swallow hard and reveal a $1.8 billion loss…
November 29th, 2009 at 8:46AM
What does SOS think about all of this pretentious "would" bullshit, especially in the second-to-last paragraph?
November 29th, 2009 at 9:35AM
Hm. I didn’t flag it as a problem, tp… I guess it doesn’t read pretentious to me so much as portentous — A bit over-dramatic… “Only a few years later, this fetching lad in lederhosen would burn down the Reichstag…”
November 29th, 2009 at 11:22AM
Oh well, look at the bright side: at least this idiot didn’t go on to become one of the president’s key economic advisers.
Oh wait…AAARRRRGGHHHHH!
November 29th, 2009 at 11:56AM
Well, so much for blaming Meyer and his $30 million pay package for Harvard’s problems. Worth every penny. This is what you get for letting a faculty member handle the money.
November 29th, 2009 at 1:46PM
TAFKAU: LOL.