The Del Walmsley Radio Show – Harvard at Risk: Education Does not Guarantee Success

What I wanted to start with today was that even the smartest people or the people you perceive as the smartest people can make stupid and dumb mistakes.
I’m talking about an article that was in Vanity Fair magazine. If I asked you what college/university would be perceived in the United States as the top ones or one of the top ones Harvard would come in there.

Harvard at Risk

Now, Vanity Fair’s Nina Munk finds America’s oldest university suddenly at risk of not being able to keep the lights on. Over the past year Harvard’s endowment has collapsed. It lost $8 billion between last July and October. Its fund-raising has declined and its construction cranes have been idle gripped by the worse economic crisis in its history. Harvard is in trouble and no one can decide who’s to blame.

Blaming Somebody

The problem is they’re all trying to blame somebody. But you know here’s Harvard where some of the top people go to get their education, so you’d think that there are going to be the top people running it and making eight-figure salaries.

And they don’t do budget cuts. They cannot, they do not do budget cuts. They can’t move and fire people because of tenure and stuff, so there’s actually some financial crisis at Harvard.

The Harvard endowment soared from 4.8 billion in 1990 to $36.9 billion dollars as of June 30th, 2008, and then in the last half decade or so the men and women who ran Harvard—listen to this statement—the men and women who run Harvard seem to have convinced themselves that the university’s fund would grow at double-digit rates for, well, eternity. Eternity.

Into the Ground

“Apparently nobody in our financial office has read the story in Genesis about Joseph interpreting Pharaoh’s dream—you know, during the seven good years you save for the seven lean years,” remarked Alan Dershowitz, a professor at Harvard Law School since 1967.

So here are these very, very smart people—or at least perceived smart people—with all this education and these careers, and they could possibly run Harvard into the ground—Harvard University.

The article says, “If Harvard were a serious business facing a liquidity crisis, it would have made drastic changes as its endowment tanked, say acting senior employees, shutting departments and selling real estate. But elite universities don’t like shaking things up. None of these schools have the ability to cut expenses fast enough,” is how a hedge-fund manager who counts Harvard among his investors described the situation.

Over Valued Assets

I’ll go on to the next line and I will change the one word out. The hedge-fund manager’s conclusion is that they are completely screwed. They’re completely screwed. In the fall of 2008 Harvard tried to sell off a $1.5 billion chunk of its private-equity portfolio except nobody was willing to pay anywhere near the asking price for those assets. They basically were saying they were over-valuing their assets. Nobody was buying them.

They have one conversation in here about somebody who might buy it and they say, “Hey, it’s worth ‘X’ amount of money.” And they’re like, “No, it’s not.” “Well, yeah, it is.” And the guy said, “If it’s worth that, well why are you going to sell it if it’s worth so much?” So anyway, it’s pretty clear Harvard was desperate.

In December the university sold $2.5 billion worth of bonds increasing its total debt to just over $6 billion. Servicing that debt alone will cost Harvard an average of $517 million a year through 2038 – a billion-dollar mistake.

Cash Fast

Harvard sold those bonds because it needed cash fast to cover what sources say was an almost unthinkable $1 billion unrealized loss from interest-rate swaps. Those swaps were put in place under former Harvard president Larry Summers in the early 2000s to protect the university against rising interest rates on all the money it had borrowed. Instead interest rates plunged for reasons no one can seem to explain, and the university simply forgot to or chose not to cancel its swaps. The result was a billion-dollar loss.

A Billion Dollar Mistake

Here it is, Harvard University. Del talks about it all the time about how we’re trained go to college, get a degree, get a job, work in corporate world. Here are these people—and Harvard is supposedly some of the best and brightest in this country—and they’re making billion, billion, billion-dollar mistake. And they have actually created a financial crisis at probably one of the best universities in the country.

So let’s get our Texas egos back and let’s say if you’re going to go, let’s stay in Texas ‘cause look what you can do hanging around those people in Harvard. So even all this formal education, all this training, hanging around all these intellectuals, these people can still make big mistakes. So education doesn’t guarantee success. Remember that — education does not guarantee success.

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