Harvard on TheAtlantic.com
Posted on May 29th, 2009 in Uncategorized | 22 Comments »
That magazine’s website has a nice write-up, “How Harvard University Almost Destroyed Itself,” of my article in Boston mag.
Boston Magazine has a long, shocking piece about how the people running the world’s greatest university almost bankrupted the school through a series of very dumb financial decisions after a decade of unbelievable growth in the endowment. Reading the litany of horror — making bad decisions in the stock market, paying for buildings they couldn’t afford, learning to hate Goldman Sachs — it occurred to me that Harvard has never seemed more like average Americans.
Blogger Derek Thompson writes optimistically:
Harvard’s expansion might slow, but even if the endowment simply stopped growing, the school could continue spending at its current levels for another 20 years.
It’s an odd argument: So far as I can tell, he means that it would take that long to spend the endowment to zero, so Harvard’s good for 20 years anyway. I’m not sure anyone should find that reassuring.
22 Responses
5/29/2009 7:53 am
Harvard is in this mess because the people who have been running it enjoyed spending money on themselves. Two weeks ago we heard that Faust earned over $700,000 and still the university paid $81,000 to move her from one Brattle St mansion to another, but only after spending $5 million redecorating, just a few years after spending a few million redecorating it for Summers. It seems every time a Harvard dean has moved recently the university spent a few million dollars redecorating. And people are surprised the university didn’t manage its money? Those of us who work here at the bottom of the ladder have had to learn how to manage our money.
5/29/2009 8:12 am
Just like average America is a very apt way to describe this institution.
5/29/2009 8:19 am
Let’s hope that the average behavior includes only redecorating mansions and moving expenses and not kickbacks for any sort or other improprieties for decisions involving the resources of the University. Say something like speaking fees out of range for a University President from investment firms that dealt with the HMC. In fact, speaking fees for University Presidents in excess of their Harvard salary should raise the question of conflict of interest as well as conflict of commitment.
But we should be reassured that this is why the University has a Corporation who is vigilant of those sensitive and important matters.
“Further squeezing Harvard was a transaction Summers had pushed it into in 2004, when he successfully argued that the university should engage in a multibillion-dollar interest rate swap with Goldman Sachs and other large banks. Under the terms of the deal, Harvard would pay Goldman a long-term fixed rate while Goldman paid Harvard the Federal Reserve rate. The main goal was to lock in a low rate for future debt, and if the Fed had raised rates, Harvard would have made hundreds of millions. But when the Fed slashed rates to historic lows to try to goose stalled credit markets, the deal turned equally sour for Harvard: By last November, the value of the swaps had fallen to negative $570 million”
5/29/2009 8:31 am
In retrospect, Derek Bok’s decision to serve the University as President for no compensation begins to look truly extraordinary amidst the recent stories of depravity which have ben reported in this blog and other publications.
It is because of leaders like Bok, for whom service was not about filling their pockets, that there is hope that most professors in the school can still remember what universities stand for.
5/29/2009 8:38 am
Are you suggesting there have been deliberate attempts to trap Harvard Presidents in a Golden Cage of unattainable goals and expectations-a golden cage of privilege to create the feeling that they did not belong and could not survive? A way to render them sterile? or anorexic?
5/29/2009 8:56 am
Gee, I hadn’t thought that the reason LHS is working out of a basement in the White House and not as Secretary of the Treasury is because Obama’s advisors concluded that his tax records and conflicts of interest would not pass Congressional scrutiny.
5/29/2009 9:10 am
How the Corporation and Harvard Management chooses to spend their money, on redecoration, bonuses, salaries or moving expenses, is a private matter or that private university.
What is of public interest is the tax-exempt status of that enterprise. It is increasingly apparent that the way in which Harvard manages its resources does not meet the criteria for tax-exempt institutions.
Will the many Harvard graduates now in power in Washington and in Massachusetts have the ability to keep the public interest at heart in deciding how to tax Harvard’s endowment?
5/29/2009 9:20 am
Harvard’s endowment is greater than the annual budget of the State where it is located and to which it pays no taxes.
A 2.5% tax on Harvard’s endowment would generate about 600 mill for the State, or two thirds of the revenue shortfall this year.
All public knowledge about how Harvard is managing its resources indicates that, for all intents and purposes, Harvard looks like a for-profit corporation.
It is within the power of the State legislature to change this state of affairs.
5/29/2009 9:29 am
By refusing to tax Harvard’s endowment, the State legislators are giving more value to preserving the lifestile of Harvard’s managers than to allowing many residents in the state to keep their homes…
http://www.mass.gov/?pageID=gov3terminal&L=3&L0=Home&L1=Key+Priorities&L2=Civic+Engagement+%26+Strong+Communities&sid=Agov3&b=terminalcontent&f=forums&csid=Agov3
5/29/2009 10:09 am
If Harvard were reclassified as a for-profit institution, wouldn’t it then be taxed on its profits? What for-profits are taxed on their wealth (the endowment) rather than their income? I don’t get any of this, calling Harvard a for-profit institution would not create a legal justification for taxing the endowment itself. Get a grip.
5/29/2009 10:21 am
The intent of donors is that net present value of the returns on investments should be spent on the charitable purposes of the non-profit institutions that receive them. This is the reason non-profits must spend at least 5% of the value of their endowments.
The growth in the value of the endowment at Harvard was the result of not spending these returns over time. This is how it failed to meet the criteria of a non-profit organization.
Taxing the endowment at 2.5% would be a way to tax some of the wealth that was generated over time because taxes were not paid.
There are many in the ways and means committee in the State looking into this issue, and also in other States
http://findarticles.com/p/articles/mi_m1093/is_4_45/ai_89871071/pg_2/
5/29/2009 10:44 am
10:21
I think you’re confusing foundations with non- profits in general and university (and other school) endowments in particular.
5/29/2009 10:48 am
Suppose we found that members of the corporation had taken care of themselves at Harvard’s expense… would this be surprising?
Five months ago a group of Citigroup investors filed a lawsuit contending that Citigroup executives sold shares at inflated prices while lying about the risks of the group.
http://www.marketwatch.com/story/the-10-most-unethical-people-in-business?siteid=rss
5/29/2009 10:51 am
http://www.alternet.org/workplace/140327/is_larry_summers_taking_kickbacks_from_the_banks_he's_bailing_out/
5/29/2009 10:55 am
Until recently Summers was a Consultant to Goldman Sachs and managing director of the D.E. Shaw Group, a hedge fund. As a Hedge Fund manager, his contacts at the Treasury and on Wall Street provided him with valuable inside information on the movement of financial markets. Under the helm of Larry Summers and as a direct result of the financial meltdown, the D. E. Shaw Group made record profits. At the end of October 2008, at the height of the financial crisis, the D. E. Shaw Group announced $7 billion in revenue, a 22 percent increase over the previous year, “with nearly three times more cash on hand than a year ago” (2theadvocate.com, 31 October 2024).
5/29/2009 11:04 am
Glenn Greenwald’s article on conflicts of interest is of same
http://www.salon.com/opinion/greenwald/2009/04/04/summers/index.html
5/29/2009 11:32 am
it’s puzzling indeed. How could LHS make he D.E. Shaw group so much richer, and Harvard so much poorer?
5/29/2009 2:34 pm
Per the previous thread on Chanequa Campbell, this has just started making the rounds of campus listservs: http://www.petitiononline.com/campbhvd/petition.html
5/29/2009 2:59 pm
Some would obviously prefer that the topic of conversation next week focused on ‘Murder she wrote’.
Questions about the management of the University endowment and the ethics of those governing it are of a much more sensitive nature.
To the future health of the institution the latter are essential.
5/29/2009 3:06 pm
a number of meetings are been arranged this weekend among some of the luminaries on the faculty and very important donors to discuss the moral climate of the institution.
Keep your faith in Harvard’s future. It will come stronger out of the present predicaments.
5/30/2009 9:28 am
We need a different thread for “Murder, She Wrote,” which is indeed a red herring here. But do read this in today’s Crimson:
http://www.thecrimson.com/article.aspx?ref=528283
Also see comments on the Crimson’s earlier article (still online today) that suggest that Chanequa was herself a supplier of drugs on campus.
Now let’s get back to Harvard’s financial management.
6/7/2024 10:05 pm
Getting back to the issue of taxing the endowment, it should be noted that the Commonwealth of Massachusetts contributed to Harvard’s financial well-being for over one hundred and fifty years. Maybe it’s time for a little pay back?
And, given that some of the endowment was derived (via cheap Southern slave produced cotton, child labor, and sweat shop environments) from the fortunes of the Lowells and Lawrences, maybe it’s time for a little compensation.