Lessons From Crash and Resurrection
Why would I open an e-pitch from Harvard Business Publishing?
Because four days earlier it was reported that, in the fiscal year that ended June 30, Harvard University's endowment had earned an 8.6% return that took the value of the foundation from $34.9 billion to $36.9 billion. On Friday, it was announced that Yale did a paltry 4.5%.
Management of the Harvard endowment fund was overseen by Robert S. Kaplan, former VP of Goldman Sachs and a management practice professor at the Harvard Business School.
Given the outrageous shenanigans that went on in the markets over the past year, professor Kaplan appears to be the only sane, responsible and honest person devoted to making money for his clients (in this case one client, Harvard) and actually succeeding.
I am berserk. After reading this, you might also be berserk.
The Culprits--A Perfect Storm Created
How many times has this cranky e-zine mentioned the eight key copy drivers--the emotional hot buttons that make people act--fear, greed, guilt, anger, exclusivity, salvation, flattery and patriotism?
The first two--fear and greed--have fueled the boom-'n'-bust hysteria that overheated the markets, then dumped ice water all over everybody. My brother-in-law--former CFO of a major conglomerate and a savvy investor--called what has happened "Armageddon." What happened? Who and what are the culprits?
1. Derivatives: Financial instruments where the value is based on an underlying security or asset. An example of how a derivative comes into being: A consumer takes out a mortgage loan to buy a home. The lender assembles a batch of these mortgage loans, creates a fund and sells pieces of the fund to investors. When the homebuyers default, everybody loses--the mortgage holder, the fund's investors and the homeowner who loses the house. Other derivatives: options, swaps, forward contracts and futures. The definitions of these words are gibberish--houses of cards. The only people who have a lesser understanding of derivatives than the rapacious sales sharks in financial institutions are those they've conned into buying them and the politicians who are supposed to regulate them.