Future of the Euro: Threats and Opportunities

Thu, 24 May 2012 07:03:03 GMT

A conversation with Marco Mazzucchelli on the future of the euro. This video was taped on 4/23/2012.

Marco Mazzucchelli is a visiting scholar at the MIT Sloan School and the former Depty CEO-Global Head of Banking at RBS Global Banking & Markets

David Singer is associate professor in the MIT Department of Political Science.

About the Audits: In this series of videos, MIT's Center for International Studies tours the horizon of the conventional wisdoms that affect U.S. foreign policy, and puts them to the test of data and history. By subjecting particularly well-accepted ideas to close scrutiny, we hope to spark discussion and debate, with a result we can all agree on: better foreign policies that lead to a more peaceful and prosperous world.

Legatum Lecture: Redefining Business in Africa with Dr. James Mwangi

Thu, 15 Mar 2012 07:03:19 GMT

Under Dr. James Mwangi, Equity Bank challenged conventional banking wisdom and redefined their business model to focus on microfinance and low-income consumers.

Meet 2011 TR35 Winner Aishwarya Ratan

Tue, 29 Nov 2011 05:00:00 GMT

Ratan describes his work at EmTech 2011: Converting paper records to digital in real time Yale University Beginning in 2009, while working with Microsoft Research India, Aishwarya Ratan spent 15 months figuring out how to help local microcredit co-ops, which often struggle with handwritten entries that are illegible, incorrect, or incomplete. Her solution combines digital technology with the familiar paper notebooks that villagers prefer. Co-op members use an electronic ballpoint pen to write in ledgers placed on a slate equipped with software that recognizes handwritten numbers. The slate provides feedback on whether the records are complete and legible, stores them in a database, and gives real-time balance updates, both on a screen and verbally in the local language. The database can be shared with the nongovernmental organizations and banks that back each co-op. Learn more: http://techre.vu/w0NrfW

The Evolution of Financial Technology

Fri, 28 Jan 2011 05:00:00 GMT

01/28/2011 9:00 AM KresgeAndrew W. Lo, Harris & Harris Group Professor, Director, MIT Laboratory for Financial Engineering; John C. Cox, Nomura Professor of Finance, MIT Sloan School of Management; Robert C. Merton, Ph.D. '70, MIT Sloan School of Management Distinguished Professor of Finance; Stewart C. Myers, Robert C. Merton (1970) Professor of Financial Economics,; MIT Sloan School of Management ; Stephen A. Ross, Franco Modigliani Professor of Financial Economics,; MIT Sloan School of Management; Myron S. Scholes, Frank E. Buck Professor of Finance, Emeritus,; Graduate School of Business, Stanford UniversityDescription: An unmistakable glow of nostalgia rises from this reunion of "five of the founding fathers of modern finance," in the words of Andrew Lo. The speakers reminisce about their start in economics, and their professional lives at MIT, a decades"long era of intense collaboration and creativity that both transformed the academic field and the landscape of real"world finance. This group of scholars believes they owe much to luck in finding their lives in financial economics. A sympathetic Stanford professor directed Stewart C. Myers to the right doctoral program, at precisely the moment when "big ideas were flowering" in the discipline: efficient markets, agency costs, and most important to Myers, new theories about valuation. A call came from MIT to join the faculty, and Myers began his critical work around the principles of corporate finance, which turned out to have great practical applications. Says Myers, "It's really good to go out in the world now and talk to CFOs actually using this stuff." Raised in a Canadian family that traded in gold, Myron Scholes was interested in "how things were valued," but it was a summer job as a computer programmer for university researchers that set his career path. Assisting Franco Modigliani and Merton Miller, Scholes found infectious their "joy of getting results, and asking the next questions." He came to MIT in 1968, and became fascinated with options, insurance and distributions of portfolios. He met Fischer Black his first summer, which led to the first of many intellectually profitable partnerships, some of which continue to this day. Among other twists of fate, a switch in grad school from applied mathematics to economics, and the good sense of MIT to offer him a fellowship (following rejections by eight other schools) brought Robert Merton to Cambridge. After taking Paul Samuelson's mathematical economics course, "the rest was history," says Merton. "I lived in his office from the end of that class on." He was hired at graduation by the Sloan School, and joined a "very small group, with no senior faculty. It was like all these kids and nobody to look after them." They designed courses, did research, "had a blast. The research flowed so fast for us and the students; there was not enough time to do it all. That doesn't happen often." Merton's work was also stimulated by the economic catastrophes of the 1970s, which fed an intense drive to put research around better markets mechanisms into practice. "I can't remember a time when I didn't want to be a professor, and economics seemed special," says John C. Cox. In the mid"1970s, the pathbreaking work of Merton, Black, and Scholes offered "plenty of low"lying plums to be picked in the orchard. It seemed like a golden age for capital market theory, so much to do." The group he joined at MIT has evolved, and the programs expanded, but Cox "has enjoyed every minute" of the past 30 years. Stephen A. Ross discovered he loved a certain kind of math while taking a course in game theory and linear programming to fulfill his Caltech humanities requirement. But it wasn't until he attended a mathematical economics seminar focused on MIT work that he realized he was interested in finance. "It was the most fascinating stuff I'd ever heard." He especially liked the "science" of it, "that theory and data had to relate in some way." Ross defends financial engineering and its applications in the wake of the financial crisis. "Derivatives did what they were supposed to do. They spread the risk. The problem is the people who took on the risk didn't like the fact they lost money." Scholes wonders about rules that "let 1.5 million contracts go due in the derivatives swap market instantaneously for settlement. It sounds nuts to me." Says Myers, "It's true that modern finance is a powerful tool and can be misused, but it's not a reason to discard the tool. It's a reason to use it better." About the Speaker(s): Andrew Lo's research interests include the empirical validation and implementation of financial asset pricing models; the pricing of options and other derivative securities; financial engineering and risk management; trading technology and market microstructure; statistics, econometrics, and stochastic processes; computer algorithms and numerical methods; financial visualization; nonlinear models of stock and bond returns; hedge"fund risk and return dynamics and risk transparency; and, most recently, evolutionary and neurobiological models of individual risk preferences and financial markets. He has published numerous articles in finance and economics journals, and is a co"author of The Econometrics of Financial Markets and A Non"Random Walk Down Wall Street, and author of Hedge Funds: An Analytic Perspective. He is currently an associate editor of the Financial Analysts Journal, the Journal of Portfolio Management, the Journal of Computational Finance, and Statistica Sinica. Lo is a former governor of the Boston Stock Exchange, and currently a research associate of the National Bureau of Economic Research, a member of the NASD's Economic Advisory Board, and founder and chief scientific officer of AlphaSimplex Group, LLC, a quantitative investment management company based in Cambridge, Massachusetts. Lo received his Ph.D. in economics from Harvard University in 1984, and taught at the University of Pennsylvania's Wharton School 1984 to 1988. Host(s): Office of the President, MIT150 Inventional Wisdom

Report Card on President Obama: MIT Experts Assess President Obama on Afghanistan, Climate, and the Economy

Tue, 09 Nov 2010 05:00:00 GMT

11/09/2010 4:30 PM Bartos theaterRichard Samuels, Ph D, '80, Ford International Professor of Political Science, Director, Center for International Studies; Henry D. Jacoby, Professor of Management, MIT Sloan; Barry Posen, Ford International Professor of Political Science at MIT, Director Security Studies Program; Simon Johnson, Ronald A. Kurtz (1954) Professor of Entrepreneurship, Professor of Global Economics and Management, MIT Sloan School of ManagementDescription: President Obama scored abysmally on his mid"terms. A trio of MIT professors renders harsh judgment on the president half"way through his administration, and their assessments may leave listeners "weeping or depressed," in the words of moderator Richard Samuels. National security expert Barry Posen reviews the administration's strategy and implementation of the war in Afghanistan. This conflict was adopted by the president and many Democrats as "the right war" following the wrong"headed invasion of Iraq, says Posen. But after investing tens of thousands more troops, and nearly $100 billion a year in Afghanistan, there remains uncertainty about how to complete the mission: to clear out the Taliban, secure critical regions, and build up a successful Afghan police force and government. While the Pentagon seems to support an "open"ended project aimed at defeating the Taliban," the president appears intent on limiting the venture, with the aim of drawing down troops beginning in July 2011. But Posen is skeptical of the overall project: Afghan politics are corrupt, rife with ethnic rivalries, and the administration is incompetent, so the idea of setting up a government "to compete with the Taliban probably won't work well." Though there are frequent reports of killing Taliban leaders, "many doubt the Taliban can be killed off as fast they regenerate," and there is little chance of serious negotiation with them. The creation of a functioning Afghanistan "looks like a costly, lengthy gamble," but the strategy is driven by politics, says Posen: "Democrats are quite concerned not to appear authors of defeat." The U.S. missed a vital opportunity to take the lead in addressing climate change, says Henry "Jake" Jacoby. Early on, the Obama administration "hurt prospects for progress," putting healthcare reform first when it had a choice between "the health of the people and the planet." And the administration didn't forcefully back either the House or Senate versions of climate legislation, which attempted to produce an "economically rational" approach to pricing greenhouse gas emissions. Then came the recession, which doomed any chance for moving climate legislation forward, since it "made imposing costs very difficult," says Jacoby. What troubles him more is that the Obama administration has essentially "given the pulpit over to people against any action, and deniers." Republicans seem to be winning the war of public opinion, claiming that measures against climate change will strangle the economy, and are now pressing to relieve the EPA of its power to regulate CO2. The "outlook is dark," says Jacoby. "The word carbon is not said in polite company, and won't be said in Washington." While it is a "terrific achievement" that we avoided another Great Depression, Simon Johnson is still "giving out failing grades" to this administration. Although Obama and his economic advisers basically got it right with the stimulus, they shockingly departed from best practices around banking policy, he believes. When major banks flounder, you close some of them down, fire managers, eliminate boards of directors, but "whatever you do, you cannot provide these banks with an unconditional bailout," he says. Rewarding banks for bad behavior is plain shocking and leaves us in "a very awkward and unpleasant position." By making banks too big to fail and sidestepping tough financial reform, he says, recovered banks will fight all the harder against any effort to be reined in. "By building implicit subsidy schemes into the structures in which banks survive," we are stuck with "a few banks with excessive power," and the "administration is responsible for setting us up for serious trouble down the road." About the Speaker(s): Richard J. Samuels is also the Founding Director of the MIT Japan Program. In 2001 he became Chairman of the Japan"US Friendship Commission, an independent Federal grant"making agency that supports Japanese studies and policy"oriented research in the United States. In 2005 he was elected a member of the American Academy of Arts and Sciences. Samuels served as Head of the MIT Department of Political Science between 1992"1997 and as Vice"Chairman of the Committee on Japan of the National Research Council until 1996. Grants from the Fulbright Commission, the Abe Fellowship Fund, the National Science Foundation, and the Smith Richardson Foundation have supported nine years of field research in Japan. Samuels' next book, Securing Japan, will be published in 2007 by Cornell University Press. His previous books include Machiavelli's Children: Leaders and Their Legacies in Italy and Japan, a comparative political and economic history of political leadership in Italy and Japan,and "Rich Nation, Strong Army": National Security and the Technological Transformation of Japan,and The Business of the Japanese State: Energy Markets in Comparative and Historical Perspective. His articles have appeared in International Organization, Foreign Affairs, International Security, The Journal of Modern Italian Studies,and The Journal of Japanese Studies. Samuels received his Ph.D. from MIT in 1980.Host(s): School of Humanities, Arts & Social Sciences, Center for International Studies

The Financial Crisis, the Recession, and the American Political Economy: A Systemic Perspective

Tue, 09 Nov 2010 05:00:00 GMT

11/09/2010 4:00 PM 54"100Charles H. Ferguson, Ph.D. '89, FilmmakerDescription: Charles Ferguson shows how useful a varied background in math, political science and business can be, as he dissects the complexities and recent crisis of the U.S. financial system. In a lecture that distills many of the arguments of his recent film, Inside Job, Ferguson conveys dispassionately yet persuasively the reasons we all should feel profound anxiety not only about the nation's financial institutions, but about our economic and political future as well. Ferguson details the "securitization food chain," a system of investing (and gambling) with debt that U.S. financial institutions enthusiastically adopted around 15 years ago. Encouraged by friendly government policies, a handful of investment behemoths such as JP Morgan and Lehman Brothers began transforming the banking landscape, buying up mortgages and other forms of debt worth countless billions of dollars, and packaging these securities for buyers worldwide. Allied financial institutions became adept at selling cheap mortgages to ordinary people, creating an inflated housing market. Insurance and ratings companies bought in. The speed of growth and scale of this securities chain was unprecedented, recounts Ferguson -- as was its impact on the nation's economy, both at the market's peak, and after its collapse. Ferguson provides a very detailed and pointed sidebar on industry incentives that underlay the wild growth years. These included allowing investment banks to bet on the failure of their own securities; and linking rating agencies' income to their approval of risky securities. Individuals inside big institutions made out like bandits, because they could. Senior executives in places like Bear Stearns took out over $1 billion in cash each in the years prior to the 2008 collapse. The head of Countrywide Mortgage saw the end coming, and cashed out over $100 million in stock. Asks Ferguson, "Why was such extreme behavior permitted? I have to conclude there was a complete abdication on the part of the regulatory system." Ferguson finds galling both government apathy in regulating and in prosecuting high"end white collar crime, but perceives the reason: a financial services industry that "as it rapidly consolidated and concentrated became the dominant source not only of corporate profits but campaign contributions and political funding in the U.S." Evidence for unrestrained financial power lies in the fact that the government response to the crisis has been engineered by Wall Street insiders intent on shoring up firms too big to fail. Ferguson cites as well "corruption of the economics discipline," the rising role of money in politics, and the increasing concentration of wealth in the hands of a few. The dominance of a single industry constitutes a deep change and danger for America, believes Ferguson. The nation "has evolved a political duopoly where two political parties agree on things related to finance and money." Without a political structure immune to such influence, Ferguson sees little likelihood of challenging the interests of the financial giants. About the Speaker(s): Charles Ferguson was a mathematics major at the University of California at Berkeley and earned a doctorate in political science from MIT. During his postdoctoral work, he consulted for the White House, government trade and defense agencies, and American and European technology firms. In 1994, he co"founded Vermeer Technologies, which created the FrontPage website development tool, then sold it to Microsoft two years later. He lectured or pursued research projects at MIT, Berkeley, and the Brookings Institution before becoming a filmmaker. His first film, No End in Sight: The American Occupation of Iraq (2007) won the Special Jury Prize at Sundance, and was nominated for an Academy Award. Ferguson has also written several books, including High Stakes, No Prisoners: A Winners Tale of Greed and Glory in the Internet Wars, and Computer Wars: The Post"IBM World(co"authored with Charles Morris).Host(s): School of Engineering, Engineering Systems Division

Financial Re-Engineering

Fri, 01 Oct 2010 04:00:00 GMT

10/01/2010 9:00 AM e14"633Bengt Holmstrom, Paul A. Samuelson Professor of Economics; Andrew W. Lo, Harris & Harris Group Professor, Director, MIT Laboratory for Financial Engineering; Robert C. Merton, Ph.D. '70, MIT Sloan School of Management Distinguished Professor of Finance; Jiang Wang, Mizuho Financial Group Professor of Finance; William Wheaton, Director, MIT Center for Real Estate, Professor, MIT Department of Economics Description: Like a contemporary "whodunit" with a global crime scene, the financial meltdown has left behind countless victims, and lots of pointing fingers. The reasons for the collapse are debated by this group of estimable economists, some of whom worry that without really understanding what happened, we are in for a repeat episode. Moderator William Wheaton starts the discussion by suggesting that the interconnected global system of financial markets may be inherently unmanageable and overly risky, due to its complexity. Andrew Lo sees both peril and promise in these markets. Securitization, the bundling and trading of debt assets, "effectively allows ordinary borrowers that typically had to go through banks to tap into the power of global capital markets." But there are "unintended consequences: Technological innovations outstrip our ability to understand them." Financial transactions in a world of 8 billion people can become too complex, leading to uncontrollable systemic risk and disaster, much the way small brushfires swiftly grow and consume millions of acres. Robert Merton does not believe the complexity of trading securities or derivatives is at issue, but rather, human management: "Get those people with antennas out of the financial system, and put in people with some common sense." Financial institution overseers need a "much higher level of skill set and training," says Merton. They don't need to be "quants," but require "intuition as to the risk characteristics of these instruments." This means understanding that risk often changes in a "complex, nonlinear way." The tools required by modern finance are there, and do work, he asserts, "and they're explainable without some off the shelf, weird theory." Bengt Holmstrom describes how most financial systems are structured around trust that adequate collateral exists in a product, even when "you have no clue what assets lie behind it." So "opacity is the very typical characteristic of liquidity and banking has never been, and no doubt will ever be anything but opaque." Yet there must be enough, or good enough collateral "so people don't have to ask questions." Back in 2006, when people began "to feel nervous about the quality" of securitized products, in 2006 and 2007, he says, they clung to faith in the products. With trillions of dollars rolling over every morning, "if you say 'Stop, guys, I just want to see the papers,' it's over. The market stops right there." Holmstrom thinks new science is required "to understand how a collapse like this happened." However the crisis emerged, panelists think more steps should be taken to avert another one. Jiang Wang believes a "critical step" would be gathering information "relevant to systemic risk," because the market does not currently provide sufficient information on that." Holmstrom's "first reaction --a Band"Aid -- is to pull back," raising collateral requirements in the markets. Lo suggests an independent federal agency along the lines of the National Transportation Safety Board to "focus on the science and engineering merits of various financial proposals, and to study and monitor the financial system to measure systemic risk in a convincing, compelling way." Merton believes it may be possible to track systemic risk better, using new methods of economic analysis, but ultimately believes, "We'll always have crises, not because we're stupid, but because we are willing to take risks to get the benefits." About the Speaker(s): William Wheaton holds a joint appointment in the Departments of Economics and Urban Studies and Planning. An authority on regional economics, Wheaton is a principal in a consulting firm that provides market analyses for development companies active in the market for commercial space. A member of the MIT faculty since 1972, Wheaton helped to develop the field of urban economics by pioneering the theory of how land, location, and housing markets jointly operate. He also specializes in the problems of urban infrastructure and local government finance. He has written numerous articles in scholarly journals throughout the world, and is a co"author of Urban Economics and Real Estate Markets, the first text book to cover both real estate applications and economics. Wheaton helped organize the MIT Center for Real Estate, and teaches the program's core course in Real Estate Economics. He was the first economist to apply econometric methods to the forecasting of real estate markets, and is a principal in Torto Wheaton Research, a globally"recognized real estate consulting firm that works with the real estate industry to analyze the fluctuations and trends of the market. Wheaton received a B.A. in Economics from Princeton University, and a Ph.D. from the University of Pennsylvania. Over the years he has worked with many U.S. governmental agencies, as well as the World Bank and the United Nations.Host(s): School of Architecture and Planning, MIT Center for Real Estate

Shaped by Booms and Busts: How the Economy Impacts CEO Management Style

Sat, 05 Jun 2010 04:00:00 GMT

06/05/2010 10:30 AM Wong AuditoriumAntoinette Schoar, Michael Koerner '49 Professor of Entrepreneurial FinanceDescription: Antoinette Schoar analyses how general economic conditions affect the CEO career path. More details about the lecture coming soon. UPDATED 2/23/2011 If you read the press or talk to practitioners, according to Antoinette Schoar, the worst thing for an entrepreneur [is] to be one who grew up in a boom time. These entrepreneurs never learn to manage finances...or build efficient firms because they're so used to having ample availability of capital that they get "spoiled." To understand what is behind the persistent and distinctive (and different) styles of CEOs during boom and bust periods, Schoar discusses how economic trends and changes in the economy affect their careers. Her previous research had already shown that CEOs and CFOs have a significant and remarkable impact on their firms. The debate has always been about how this occurs. How can one person at the top of a huge organization, like Proctor & Gamble or IBM, change an entire firm? Determining those differences is important understand how external forces shape a manager's style. A scarcity of a particular style_low leverage vs. high leverage, for instance_could have an impact beyond the private decision of a board hiring a CEO. It could become a public issue for the economy as well. For example, Schoar reminds the audience that many firms brought back their retired CEOs to run their companies after the tech bust of 2001. Managers, shaped by business during the 1995"2002 era, didn't have enough experience to deal with a recession. After collecting detailed data about the career paths of CEOs from the largest 1500 publicly traded firms between 1990 and 2007, Schoar is able to show more precisely how the boom and bust cycles influenced those managers over time. Using statistical tools, she tests the effect of economic conditions at the start of the CEOs career and regresses career outcomes based on whether a manager's career began during a recession or economic growth. About the Speaker(s): Antoinette Schoar Michael M. Koerner (1949) Professor of Entrepreneurial Finance MIT Sloan School of Management http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=SP000123&co_list=F http://www.mit.edu/~aschoar/ An expert in corporate finance, entrepreneurship, and organizational economics, Antoinette Schoar researches venture capital, entrepreneurial finance, corporate diversification, and governance, and capital budgeting decisions in firms. She has received the Fellowship of the George Stigler Center, '97"'99, and the ERP Doctoral Scholarship of the German Ministry of Trade, '95"'97. Schoar is the Associate Editor of the American Economic Journal in Applied Economics. She holds a degree in Economics from the University of Cologne (1995) and a Ph.D. in Economics from the University of Chicago (2000). Host(s): Sloan School of Management, MIT Sloan School of Management

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

Fri, 02 Apr 2010 04:00:00 GMT

MIT Sloan School of Management Professor Simon Johnson warns in a new book that a "new financial oligarchy" threatens not only the nation's economy, but its political core.

A Policy on Leadership

Wed, 31 Mar 2010 04:00:00 GMT

03/31/2010 12:00 PM Wong AuditoriumEdmund (Ted) F. Kelly, PhD '70, Chairman, President & CEO; Liberty Mutual Description: Ted Kelly walks a Sloan audience through the process of turning around a failing company. His formula? Develop two key things: a fact based analytical organization, and great management teams that value people. It's the dynamic combination of the two that have put Liberty Mutual in position it is today, a $31 billion company with 46,000 employees-- that lives by its advertising slogan, "responsibility, what's your policy". On the people side he recounts how very successful managers who may have been effective in the technical aspects of their jobs, but treated people badly, were simply let go. He insists that the people side of management is what builds a great company. "Find what is good and build that," is a key component of his strategy. On the data site, IT has to inform the strategy, not just support a strategy. How does IT make a business model better? In thinking about a younger generation of buyers, IT must inform the strategy to ensure the customer experience is shaped to foster customer loyalty. He discusses pricing, identity, mission, core values, and a global company that has a strong culture of "doing the right thing". He masterfully connects all of the dots of the responsibility strategy throughout all sectors of the company. In offering advice to new MBAs he says everybody has to have "an intellectual calling" card, defined as technical skills that they are "really, really good at," but at the same time have the ability to grasp the big picture. He frowns upon general managers, and says there's no room at Liberty Mutual for imperial mangers, those who love the position more than the job. About the Speaker(s): Ted Kelly was elected Chairman of Liberty Mutual in April of 2000. Mr. Kelly joined Liberty Mutual in 1992 as President and Chief Operating Officer, and was elected Chief Executive Officer in 1998. Mr. Kelly has been a member of the Board of Directors of the Liberty Mutual Group since 1992. He is also a member of the Board of Governors of the Property Casualty Insurers Association of America; a member of the boards of The Bank of New York Mellon Corporation, the EMC Corporation, the American Ireland Fund, the Insurance Information Institute; and he serves on various other community and education boards. In addition, Mr. Kelly is a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries. Born in Ireland, Mr. Kelly graduated from Queen's University in Belfast and obtained his Ph.D. in mathematics MIT in 1970Host(s): Sloan School of Management, MIT Sloan School of Management

The ECB Perspective of the Financial Crisis

Thu, 25 Mar 2010 16:25:48 GMT

Evangelos is currently deputy head of the Risk Management Division in the European Central Bank (ECB). Since January 1, 1999, the ECB has been responsible for conducting monetary policy for the Euro area--the world's largest economy after the United States. The ECB's primary objective is to maintain the euros' purchasing power and thus price stability in the Euro area. The Risk Management Division in the ECB is responsible for managing the financial risks of the full range of the ECB's market operations. These tasks include market, credit, and liquidity risk management for the asset management activities of the ECB's investment portfolios, consisting of about of EUR50 billion in foreign reserves and gold holdings and about EUR10 billion in Euro-denominated assets under active management. In addition, the Division manages the risks of the Eurosystem's credit operations, the operations providing liquidity to the banking system in the Euro area, which amounted to EUR830 billion at the end of 2008. This task includes the monitoring of the credit assessment and valuation of over EUR11 trillion of assets eligible to collateralise these operations. This presentation was given on October 10, 2009. View the keynote speech from this event, which was given by Jon Moynihan SM '77.

An Entrepreneur's Perspective of the Financial Crisis

Thu, 25 Mar 2010 16:21:33 GMT

Manuel Sosna is one of the three founders of ubitexx GmbH and was responsible for finance, key account management and marketing from 2002 to April 2009. Now he supports ubitexx, among other companies, as a management consultant. Manuel talks here about how the financial crisis has affected his company. This presentation was given on October 10, 2009. View the keynote speech from this event, which was given by Jon Moynihan SM '77.

A Banker's perspective of the financial crisis

Mon, 22 Mar 2010 14:38:51 GMT

Jürgen Schlangenotto joined BNP PARIBAS in September 2008 as managing director, corporate and investment banking taking care of the portfolios of a number of major German DAX-Companies. BNP Paribas is the largest bank in the Euro Zone by total assets and second largest by market capitalization. It ranks 5th in the banking industry worldwide. It employs 205,000 people, of whom 165,000 work in Europe, and maintains a presence in 87 countries. The bank is active in the finance, investment, and asset management markets. Jürgen talks here about the causes and effects of the financial crisis from a banking perspective.

This presentation was given on October 10, 2009. View the keynote speech from this event, which was given by Jon Moynihan SM '77.

A Middle East perspective of the financial crisis

Fri, 19 Mar 2010 20:11:27 GMT

Abdullatif A. Al-Othman is Saudi Aramco's senior vice president of finance business line, which covers the controllers, treasurers, and the general auditing functions. Abdullatif talks here about how the financial crisis has affected his business and the Middle East. This presentation was given on October 10, 2009. View the keynote speech from this event, which was given by Jon Moynihan SM '77.

The Economic Meltdown: What Have We Learned, if Anything?

Fri, 05 Feb 2010 05:00:00 GMT

02/05/2010 4:15 PM 32"123Paul Krugman, PhD'77, Professor of Economics and International Affairs; Woodrow Wilson School of Public and International Affairs, Princeton UniversityDescription: The U.S. has had more than 70 years to come to terms with the Great Depression, and we really thought we knew how to avoid another one, says Paul Krugman. "It wasn't supposed to be possible. Then came the current crisis." So how to explain the Great Recession of 2008? Krugman suggests a combination of factors: First, he thinks we "mislearned" some of the lessons of the Crash. We developed an "unwarranted belief that it was easy for the Federal Reserve to prevent the crisis." We forgot how difficult it is to get "policy traction" when financial markets are really unstable, and conveniently overlooked how things had "gone awry in the past" when we deregulated the banks in more recent years. We grew too literal"minded in our notion of banks, imagining "a big marble building with a row of counters, with Jimmy Stewart," when in fact, we'd created new institutions that used deposits to make innovative but sometimes disastrous investments. We didn't immediately recognize the 21st"century version of bank runs, which didn't involve mobs in the street but "investors refusing to roll over their repos." Not only did we get a replay of the collapse, but we're witnessing a replay of the response as well, including "obvious failures to understand the depth of the problem." Big government is again under attack, even though it has "protected the system from total meltdown." Just like the '30s, some say we've passed the worst -- when, says Krugman, "this thing ain't over." Many economists project years of higher unemployment, "years of huge suffering." And instead of acknowledging these continuing impacts with appropriate moves to support the economy, "we're withdrawing policies from the economy quite soon," he says, repeating another mistake from the past. Politics plays a large part in this sorry rerun. Officials feel they can only pass partial remedies through Congress. But in this case, "half a loaf may be not much better than none," because "if the economy still looks lousy when you do half"hearted policy, the conclusion of the political process is not that you need to do more of it, butthat the policy failed, so we can't do more." That's what happened with the stimulus. Krugman is deeply worried about what comes next, seeing us stuck with massive unemployment; people behaving as though we've avoided disaster, and returning to "the same rhetoric about private sector dynamism and the evils of big government;" and no political will to "change either the economy or the intellectual climate." About the Speaker(s): Paul Krugman received the Nobel Prize in Economics in 2008, for "his analysis of trade patterns and location of economic activity." He became a regular columnist for The New York Times Op"Ed Page in 1999. Krugman is the author or editor of 20 books and more than 200 journal articles and edited volumes, specializing in "new trade theory," which concerns international trade. Krugman's more recent scholarship involves economic and currency crises. He received the John Bates Clark medal in 1991 from the American Economic Association, which is awarded to "that economist under forty who is adjudged to have made a significant contribution to economic knowledge." Krugman received his B.A. from Yale University in 1974, and his Ph.D. from MIT in 1977. He taught at Yale, Stanford, and MIT, where he was Ford International Professor of Economics. Host(s): School of Humanities, Arts & Social Sciences, Economics Department

Financial Services: Prospects for Your Future

Thu, 24 Sep 2009 04:00:00 GMT

09/24/2009 12:00 PM Wong AuditoriumLawrence K. Fish, Former Chairman and CEO, Citizens Financial Group; Member, MIT Corporation; ; Simon Johnson, Ronald A. Kurtz (1954) Professor of Entrepreneurship, Professor of Global Economics and Management, MIT Sloan School of ManagementDescription: In a lively discussion with Simon Johnson, Lawrence Fish deconstructs the near collapse of the banking system and points out the multiple factors that have contributed to the financial crisis. Topics in the discussion include the banks that did not fail, how Canadian and other countries' banking systems also did not fail, the political landscape of banking regulation, ethics, bonuses in the banking industry and the ethics oath signed by 50% of the students at the Harvard Business School. About the Speaker(s): Host(s): Sloan School of Management, MIT Sloan School of Management

Damon Rich: Artist Talk

Tue, 14 Jul 2009 17:42:03 GMT

Damon Rich (Center for Urban Pedagogy) will present a progress report on CUP's new project about the world of real estate finance. Where does the money to build and repair buildings come from? How is it controlled? What flights happen about it? In preparation for an exhibition and DVD commissioned by the CAVS, Rich has spend the semester learning about mortgage markets, banking regulation, and financial literacy in an attempt to answer these questions. In this presentation, he'll do his best to make sense of it. Damon Rich is an artist and designer. His exhibitions use video, sculpture, graphics, and photography to investigate the political economy of the built environment. His work has been exhibited internationally at venues including the Storefront for Art and Architecture and SculptureCenter (New York City), the Haus der Kulturen der Welt (Berlin), Galerie für Zeitgenössische Kunst (Liepzig), the Venice Architecture Biennale, and Netherlands Architecture Institute (Rotterdam). In 1997, he founded the Center for Urban Pedagogy (CUP), a nonprofit organization dedicated to helping people understand and change the places they live. In 2007, Rich was selected as a Loeb Fellow in Advanced Environmental Studies by the Harvard Graduate School of Design. + The Center for Urban Pedagogy (CUP) is a Brooklyn-based nonprofit organization that works to improve the quality of public participation in urban planning and community design. Visit www.anothercupdevelopment.org to learn more.

Critical Issues and Grand Challenges

Mon, 15 Jun 2009 04:00:00 GMT

06/15/2009 10:15 AM Wong AuditoriumJames A. Champy, '63, SM '65, Chairman of Consulting Perot Systems Corporation; Life Member, MIT Corporation; John Reed, Retired, Chairman, Citigroup, Inc.; Denis Cortese, CEO, Mayo Clinic; Steven E. Koonin, PhD '75, Undersecretary for Science, U.S. Department of Energy; Irving Wladawsky"Berger, Chairman Emeritus, IBM Academy of Technology, and Visiting Lecturer, MIT Sloan School of Management and Engineering Systems DivisionDescription: These panelists use the lens of systems engineering to focus sharply on some signature global challenges in finance, healthcare, energy and IT. The system failure that undid the small but influential financial services industry was a few decades in the making, says John Reed. In the '80s, a sea change swept over firms trading hundreds of billions of dollars each day. The new mantra was "shareholder value." Firms ditched time"honored rules of capitalizing trades and guaranteeing risk in order to build investor profits. The crystallization of this philosophy was the mortgage"backed security. Trillions of dollars went into "off"balance"sheet investment vehicles." When the nation's mortgage portfolio deteriorated, not just one node in the system collapsed, but all of them. To fix the financial sector, says Reed, "A systems view will be essential, including behavioral considerations, not just economics." There's no point in saying U.S.healthcare is broken unless you can offer a vision. For Denis Cortese, this means designing a "learning organization." Cortese maps out this organization's goals: simple value, with "better outcomes, better safety, and better service at a lower cost over time." His proposed system would focus on the patient's needs in order to "raise the health of the entire population." Cortese doesn't see a role for the government in his ideal organization. But there must be better metrics for determining value, coordination among large and small healthcare organizations, and "common principles in the payer domain." Ultimately, we'll need to define quality healthcare and set outcomes: "It won't be perfect, but it will be better than where we are today." Nine billion people will inhabit the planet by 2100, and many of them will either be acquiring energy for the first time, or wanting more. This has "unpleasant if not catastrophic" implications for greenhouse gas emissions, says Steven Koonin. Powering up while securing affordable energy and minimizing emissions involves better modeling of the physical and biological climate system; overcoming the inertia of our current transportation and building industries; and improving the "patchwork" of our current energy grid. Koonin sees immediate opportunities to cut energy use in half in cities, but we "must bring policy up to speed" to make this happen. Tackling global problems won't be possible without an improvement in complex organizational systems, says Irving Wladawsky"Berger, which in contrast to physically engineered systems, haven't progressed in the past century or so. Change is creeping in, though, as organizations manage increasing amounts of data with more integrated instrumentation and swelling computer capacity. Wladawsky"Berger sees new tools emerging such as cloud computing and networked data centers, leading to the standardization and customization of services for producers and consumers. He believes that the "merging of the digital infrastructure with the physical infrastructure" will lead to new ways of life, including smarter cities with smart traffic systems that reduce congestion and pollution. About the Speaker(s): James A. Champy is an authority on the management issues surrounding business reengineering and organizational change. Prior to joining Perot Systems, Champy was chairman and CEO of CSC Index, the management consulting arm of Computer Science Corporation. He was one of the original founders of Index, a $200"million consulting practice that was acquired by CSC in 1988. Champy has also authored such well"received books as Reengineering the Corporation: A Manifesto for Business Revolution, which sold more than 2,500,000 copies and spent more than a year on The New York Times bestseller list. His articles appear in major newspapers and magazines throughout the world. Champy earned his B.S. and his M.S. in civil engineering from MIT, and his J.D. from Boston College Law School. Champy serves on the board of Analog Devices, Inc., on MIT's Board of Trustees, and on the Board of Overseers of the Boston College Law School. Host(s): School of Engineering, Engineering Systems Division

Observations on the Science of Finance in the Practice of Finance

Thu, 05 Mar 2009 05:00:00 GMT

03/05/2009 5:00 PM Wong AuditoriumRobert C. Merton, Ph.D. '70, MIT Sloan School of Management Distinguished Professor of FinanceDescription: There willbe a time "beyond crisis," asserts Robert C. Merton, who delves into the dense science of derivatives -- a field he has fundamentally shaped -- to explain how the vast global economic collapse has come about, and how financial innovations at the heart of the collapse could also be tools for reconstruction. Merton uses deceptively simple graphs to show how risk propagated rapidly across financial networks, bringing down financial institutions. While he admits the crisis "is very big and complicated," Merton boils a piece of it down to the use of put options, a derivative contract that's been around since the 17th century. This asset"value insurance contract, a guarantee of debt, is the basis for the credit default swaps widely adopted by financial giants in the last few years -- now widely regarded as a primary cause of the meltdown. It turns out, says Merton, that the put "makes risky debt very complicated, and treacherous" In these puts, if the value of assets goes down, the guarantee value goes up, so the value of the written insurance is worth more. The value of this guarantee is very sensitive to the movement of the underlying asset. When dealing with puts on the local level, this movement can be tracked and managed more easily. But when financial institutions manipulate bundles of assets (for instance, mortgage"backed securities), the increase in risk proves non"linear. Add some volatility, like the jolts posed by widespread drops in housing prices, and the difference between the decline in asset value and the value of the guarantee becomes enormous -- leading to mountains of debt and felling behemoths like AIG (insurer to lenders). Yet, Merton counsels not to blame the current crisis on put options, or too much complexity, but rather on incomplete understanding of the models of risk involved. It's not "bad and incompetent people" who have brought this about (although he admits there are plenty of those) but "a structural issue between financial innovation and crisis." We've essentially built a high speed train for which there's not yet an appropriate track. We've created instruments for manipulating financial risk without a thorough understanding of the underlying engineering. Derivatives are not going away, says Merton. We need regulators who understand these instruments, and perhaps a sovereign wealth fund intended to "maximize the expected return for risk for people of the U.S." Merton concludes with "something positive" -- a model of how to "weaken the tradeoff between pursuing comparative advantage vs. efficient risk," applied to the nation of Taiwan. About the Speaker(s): Robert C. Merton earned a bachelor's degree in engineering mathematics from Columbia University, a master's degree in engineering mathematics from the California Institute of Technology, and a doctorate in economics from the Massachusetts Institute of Technology. He then served on the finance faculty of the MIT Sloan School of Management until 1988, when he moved to Harvard Business School. Merton is a fellow of the American Association of Arts and Sciences, and a member of the National Academy of Sciences. He is also past president of the American Finance Association. He serves as co-editor of the Annual Review of Financial Economics and is a member of MIT Sloan Finance Group Advisory Board, among many other appointments. Merton was a founding principal of Long Term Capital Management, and is currently the developer of SmartNest, a pension management system that addresses deficiencies associated with traditional defined"benefit and defined"contribution plans.Host(s): School of Humanities, Arts & Social Sciences, School of Humanities, Arts & Social Sciences

Paint it Black: Avoiding the Financial Beast of Burden in 2009 and Beyond

Wed, 25 Feb 2009 05:00:00 GMT

02/25/2009 7:00 PM Wong AuditoriumJames Poterba, MIT Mitsui Professor of Economics; David Tabak, '90, Senior VP, National Economic Research Associates; Alan Cohen, '82, Senior Managing Director, York Capital ManagementDescription: "Paint it Black" is all about red -- the mountain of debt challenging the viability of all the nation's institutions. James Poterba takes a scholarly approach to moderating this detailed discussion of the unfolding economic collapse, its ramifications on business and the possible impact of governmental remedies. "From the standpoint of economic analysis," says Poterba, "this appears to be a once"in"a "generation or perhaps longer global storm." He expands on this statement throughout, with forays into macroeconomics, credit and equity markets, the tools historically and currently wielded by government to interfere with economic crises, and an occasional joke (at the expense of economists). He engages his speakers in their areas of expertise. Alan Cohen discusses how the practice of "shadow banking" helped trigger the subprime mortgage crisis. Non"financial institutions invented ways to package mortgages, slicing and dicing them into securities that could be traded without oversight. These credit derivative instruments existed without adequate capital backing, and so were exceedingly risky. Cohen also blames rating agencies for becoming complicit in the game, talking to investment bankers "about what was necessary to get AAA." There were warning signs, says Cohen, as early as 2006 of "deteriorating housing numbers, but the rating agencies didn't downgrade." Suddenly, in 2007, these packaged, unregulated securities lost their value, and banks, faced with debt, ended up selling assets under pressure. Cohen says that TARP funds won't necessarily free up credit for small business or the mortgage market, since banks and other institutions are still trying to pay off vast debt. In this over"leveraged environment, no financial institution trusts another, and companies seeking loans must demonstrate they represent extremely low risk. Some lenders worried about "getting hurt by entrepreneurial activity" may ask for rights, or participation, in the venture. "To attract the more disciplined lender, you must provide more bang for the buck," says Cohen. David Tabak reckons that volatility poses the premiere challenge for small business. At a time of great flux for all markets, firms must attempt to calculate what their patents and investments will be worth months and years down the road. He remains guarded about whether government intervention will calm the waters. For one thing, bank stress tests must decide how much value actually exists in different tiers of assets held by banks -- including loans to small business. Some banks may be partly nationalized if they fail to meet capital reserve requirements. This won't fuel stability and growth in the private sector. Also, Tabak sees some businesses holding out for a second round of government funding, or for investment tax credits. Tabak's advice for the government: "Put in an option clearing corporation, and ban credit default swaps for speculators." To businesses, Tabak says, "Get your financial statements right," and "ask, 'What do I need in the short and long run, what are the differences between the two, and plan out.'" There are strong opportunities for those who survive. About the Speaker(s): James Poterba is also the President of the National Bureau of Economic Research and a Fellow of the American Academy of Arts and Sciences and the Econometric Society. He is the President of the National Tax Association, a Vice President of the American Economic Association, and has served as a Director of the American Finance Association. Poterba's research focuses on how taxation affects the economic decisions of households and firms. His recent work has emphasized the effect of taxation on the financial behavior of households, particularly their saving and portfolio decisions. He has been especially interested in the analysis of tax"deferred retirement saving programs such as 401(k) plans and in the role of annuities in financing retirement consumption. Poterba served as a member of the President's Advisory Panel on Federal Tax Reform in 2005. He is a trustee of the College Retirement Equity Fund (CREF), and a former member of the MIT 401(k) Plan Oversight Committee. He edited the Journal of Public Economics, the leading international journal for research on taxation and government spending, between 1997 and 2006. He is a member of the advisory board of the Journal of Wealth Management. He is a co"author of The Role of Annuity Markets in Financing Retirement (2001), and an editor or co"editor of Global Warming: Economic Policy Responses (1991), among other publications. Poterba studied Economics as an undergraduate at Harvard, and received the Doctor of Philosophy degree in Economics from Oxford University, where he was a Marshall Scholar. He has been an Alfred P. Sloan Foundation Fellow, a Batterymarch Fellow, a Fellow at the Center for Advanced Study in Behavioral Sciences, and a Distinguished Visiting Fellow at the Hoover Institution at Stanford University. David Tabak is a member of NERA's Securities and Finance Practice. In the area of securities class actions, Tabak has performed analyses involving issues of class certification, liability, materiality, affected trading volume, and damage calculations in cases with allegations ranging from product issues to the value of an issuer of subprime mortgages. He has appeared as an expert in state, federal, and bankruptcy court, and before arbitration panels, including the National Association of Securities Dealers, the American Arbitration Association, and the International Chamber of Commerce International Court of Arbitration. His publications in journals and books cover such topics as the use of event studies to measure damages in commercial disputes, economic analysis of market efficiency, valuation discounts for lack of marketability, and the application of statistics in litigation analyses. Tabak earned his Ph.D. and M.A. degrees in Economics from Harvard University and his B.S. in Economics and B.S. in Physics from MIT. Alan Cohen joined York Capital in March 1998 and is a partner of the Firm. He is also the Portfolio Manager of the York Credit Opportunities funds. From 1996 to 1998, he worked as a Vice President and Analyst for Franklin Mutual Advisers Inc. For the two years prior, Cohen was a Director in the High Yield Trading Group at Smith Barney Holdings Inc. From 1991 to 1994, he was a Vice President at Donaldson, Lufkin & Jenrette, Inc., where he traded high yield and distressed bonds. For the five years prior, Cohen was a Vice President at Goldman, Sachs & Co., where he analyzed and traded high yield bonds. Cohen currently is a member of the Board of Directors, in his capacity as a York employee, of the Hundred Acre Group, LLC. Cohen received a B.S. in Economics from MIT and an M.B.A. from the Harvard Business School. Host(s): Alumni Association, MIT Enterprise Forum

Challenges to the Global Economy

Wed, 11 Feb 2009 05:00:00 GMT

02/11/2009 5:30 PM Wong AuditoriumMartin Feldstein, George F. Baker Professor of Economics, Harvard University; Simon Johnson, PhD '89, Ronald A. Kurtz Professor of Entrepreneurship, MIT Sloan School of ManagementDescription: If economic analyses earned ratings like movies, this event would receive an X for extremely disturbing. Two of the field's most prominent voices spare any sugar coating in their unsettling accounts of the world's unfolding economic crisis. Martin Feldstein had a hard time choosing which of the innumerable problems to focus on, he admits, but ultimately settles on near"term challenges faced by the U.S. First off, this downturn is atypical; past recessions generally resulted from the Federal Reserve responding to inflation by nudging up interest rates and slowing the economy. This one involves two disparate but interacting problems: "the weakness of aggregate demand and the dysfunctional character of the financial markets." In laymen's terms, consumers are declining to spend money, the housing market's hit the skids; and banks big and small have no clue the value of their balance sheets, so they won't lend money to any but the best bets. There are some impressive numbers involved: The U.S. GDP is less than $15 trillion. A $12 trillion fall in household wealth (a combination of stock market and housing losses) has entailed a $750 billion decline in GDP. The government's attempts to pick up slack in the credit market haven't to date brought private markets back to life, says Feldstein. "We're in a very awkward situation, where the Fed is moving well beyond anything a central bank has ever done before to act as a credit provider." The stimulus package doesn't come close to addressing the $750 billion hole in our economy: it's "a poorly designed program that delivers so little bang for the buck." Turning from "the bleak picture of the U.S. to the rest of the world," Feldstein sees a chain of events pulling all major financial centers down, leading to "a mutually reinforcing global recession." The nations most likely to avoid "being dragged down" by this crisis: China and India. Astonishingly, Simon Johnson promises "to be quite a bit more negative." The U.S. banking situation "is much worse than what Marty said." The system needs a complete recapitalization -- a simple solution -- but practically impossible due to "the power of the banking lobby." Europe's banking system is even worse off (poster child: Iceland). European bank losses are dragging down not just banks, but entire nations. Their governments can't pull together fiscal stimulus packages, either. While "Europe is in denial," emerging markets like Russia have seen their reserves plunge, and are making stark decisions about "which of their people get bailed out." And don't think the IMF can come to the rescue; it has a meager $250 billion to loan, and is trolling for additional money from Western pockets, which just now have very big holes in them. Johnson's grim conclusion: Economists are reaching a consensus about the possibility of a very long period of slow or no growth: "There's a danger we could lose a decade." About the Speaker(s): Martin Feldstein is also President Emeritus of the National Bureau of Economic Research. He served as President and CEO of the NBER from 1977"82 and 1984"2008, and continues there as a Research Associate. From 1982 through 1984, Feldstein was Chairman of the Council of Economic Advisers and President Reagan's chief economic adviser. He served as President of the American Economic Association in 2004. In 2006, President Bush appointed him to be a member of the President's Foreign Intelligence Advisory Board. In 2009, President Obama appointed him to be a memer of the President's Economic Recovery Advisory Board. Feldstein is a member of the American Philosophical Society, a Corresponding Fellow of the British Academy, a Fellow of the Econometric Society and a Fellow of the National Association of Business Economics. He is also a member of the Trilateral Commission, the Council on Foreign Relations, the Group of 30, the American Academy of Arts and Sciences, and the Council of Academic Advisors of the American Enterprise Institute. Feldstein has received honorary doctorates from several universities and is an Honorary Fellow of Nuffield College, Oxford. In 1977, he received the John Bates Clark Medal of the American Economic Association, a prize awarded every two years to the economist under the age of 40 who is judged to have made the greatest contribution to economic science. He is the author of more than 300 research articles in economics. Feldstein is a director of two corporations (American International Group and Eli Lilly), and an economic adviser to several businesses and government organizations in the United States and abroad. He is a regular contributor to The Wall Street Journal and other publications. Feldstein is a graduate of Harvard College and Oxford University. Simon Johnson is also a senior fellow at the Peterson Institute for International Economics in Washington, D.C., and co"founder of a website on the global economic and financial crisis, BaselineScenario.com. He is co"director of the National Bureau of Economic Research project on Africa and President of the Association for Comparative Economic Studies (term of office 2008"09). From March 2007 through the end of August 2008, Professor Johnson was the International Monetary Fund's Economic Counsellor (chief economist) and Director of its Research Department. In 2000"2001 Professor Johnson was a member of the US Securities and Exchange Commissions Advisory Committee on Market Information. Johnson is an expert on financial and economic crises. As an academic, in policy roles, and with the private sector, over the past 20 years he has worked on crisis prevention, amelioration, and recovery around the world, in both relatively rich and relatively poor countries. He is on the editorial board of the Journal of Financial Economics, the Review of Economics and Statistics, the Journal of Comparative Economics, and Cliometrica (a new Journal of Historical Economics and Econometric History). Johnson earned his B.A. from the University of Oxford, his M.A. from the University of Manchester, and his Ph.D. in Economics from MIT.Host(s): School of Humanities, Arts & Social Sciences, Center for International Studies

The New Paradigm for Financial Markets

Tue, 28 Oct 2008 04:00:00 GMT

10/28/2008 3:30 PM KresgeGeorge Soros, Chairman, Soros Fund Management; Ricardo Caballero, PhD '88, Ford Professor of Economics and Department Head, MITDescription: George Soros extends his "theory of reflexivity" from abstraction to application in the realm of investing. His book, The New Paradigm for Financial Markets, offers a timely look at the credit crisis that reached crescendo in 2008. His views fall between prescience and vindication. Nevertheless, he concedes fallibility: "With all my great, deep understanding, I don't always get the markets right." In conversation with Ricardo Caballero, Soros recounts the formative experience of his life -- surviving the German occupation of Hungary -- "a far from equilibrium situation." He credits his father for recognizing that "the normal rules don't apply" and falsifying documents permitting the family's escape from fascism. Soros attributes his intellectual development during college to the philosophy of Karl Popper. This led him eventually to question the economic postulate of "perfect knowledge and perfect competition." He concluded that markets do not exist in a vacuum nor spontaneously self"correct. Thinking participants introduce friction, inevitably influencing outcomes for better or worse. Soros characterizes this phenomenon as the cognitive function interfering with the manipulative function and vice versa, thus the reflexivity of his theory. "Path dependence is very much due to imperfect understanding," he states and "actions have unintended consequences." Time and again Soros has anticipated financial bubbles and capitalized on opportunities he foresaw. Caballero elicits his ideas on bubble formation and collapse. Soros's metaphor is "people go on dancing even though they realize that the music is about to stop." He says the most common bubble is real estate where the misconception is that value "is independent of the willingness to lend." Soros asserts that a "superbubble has been growing for at least 25 years," periodically manifested by the international banking crisis and Latin debt in the early '80s; 1997's emerging market crisis; the Internet technology explosion; overleveraging that created the housing bubble; and escalating oil and commodity prices. He also faults financial innovation and securitization of debt. "People became very loose in their lending habits" and increased risk "by separating agent from principal." Soros's prescription for a sounder financial system begins with reducing troubled mortgages to 80% of current value, thereby minimizing foreclosures and preventing further decline of housing prices. He also recommends recapitalizing banks to encourage lending, and lowering the reserve requirement to 6%. His ultimate suggestion sounds simple enough: "Stabilize the global economy." Soros admits markets will always tend toward bubbles. He places responsibility on regulators to rein this in, adding "that would require the use of judgment and they're bound to get it wrong because they're human." About the Speaker(s): In addition to launching Soros Fund Management, George Soros also established the Open Society Institute, a foundation making grants to foster democracy, human rights, and socioeconomic reform. Born in Hungary in 1930, he survived the Nazi occupation and escaped the ensuing communist regime to England. He was educated at the London School of Economics and was a disciple of philosopher Karl Popper. After relocating to the United States in 1956, he undertook a career in investing, the success of which has enabled his worldwide philanthropic efforts. Soros developed a "theory of reflexivity," which has shaped his approach to investing by anticipating financial bubbles. He is a frequent essayist, and the author of nine books on finance, investment, global capitalism, and political philosophy. His most recent book is The New Paradigm for Financial Markets _ The Credit Crisis of 2008 and What it Means. Ricardo J. Caballero is Ford International Professor of Economics and head of the Department of Economics at MIT, and a National Bureau of Economic Research (NBER) research associate in economic fluctuations and growth. A native of Chile, he received his B.S. and M.A. in economics from the Pontificia Universidad Catlica de Chile and his Ph.D. from MIT. His academic interests are macroeconomics, international economics, and finance. His current research focuses on global capital markets, speculative episodes and financial bubbles, systemic crises prevention mechanisms, and dynamic restructuring. He has been a visiting scholar at the European Central Bank, the Federal Reserve Board, the Inter"American Development Bank, the International Monetary Fund, and the World Bank, among other institutions. His work has been published in prominent economics journals. Host(s): School of Humanities, Arts & Social Sciences, Economics Department

Leading with Information Technology

Tue, 01 Apr 2008 04:00:00 GMT

04/01/2008 2:00 PM 8"404Marshall Carter, Chairman, New York Stock ExchangeDescription: Marshall Carter leads an MIT class through a case study on corporate transformation, highlighting tips he believes are as salient for engineering students as for those focused on business services. Don't turn to the best"seller lists for advice on change, advises Carter, since most books pick up the story after a business has made the strategic decision to remake itself. Carter's decade (1991"2001) with Boston's venerable State Street Bank helps illuminate the thinking that comes before the decision, and the steps necessary to fulfill it. State Street, Carter recounts, had focused primarily on processing transactions, such as the purchase or sale of stocks and bonds, only to watch its key products age, and revenues drop. At the same time, "customers were asking us for more and more information," such as the IBM pension manager's request for the geographic distribution of his plan's mutual funds. State Street did not then have a sophisticated enough network to provide such data. So the bank came to realize it needed "a new vision and operating model." Carter and top managers figured out that "each security purchase or sales threw off about 25 pieces of information we could actually sell." So they set about determining what new services State Street could feasibly offer, and how to package these into a new business model for the bank, one where the revenue potential was much higher. Managers produced a large egg"shaped chart, a graphical depiction dividing the future State Street empire into revenue"producing activities. This was accompanied by a "food chain analysis," an attempt to determine where the competition lay in different services, and where the greatest opportunities were for a higher margin. Central to the plan's success, Carter notes, was the integration of IT strategy into the business and financial model. Staff had to support the new activities, including developing and managing migration to new information technology on a global basis. Carter warns that whenever a company shifts to a new operating model, "it must protect traditional revenue sources, as the new strategic revenue generators may be delayed." He advises as well that "early wins are essential to convince people that resist change, that change is irresistible." This might mean attacking more easily won targets first, to prove that the model works and to banish employee skepticism. And a company might need to defend its performance (long"term aims) against Wall Street critics seeking higher short"term earnings. About the Speaker(s): Marshall Carter was previously a lecturer in leadership and management at Sloan MIT and at Harvard's Kennedy School of Government, where from 2001 to 2005 he was a Fellow at the Center for Public Leadership and the Center for Business and Government. From 1992"2001 Carter was chairman and CEO of the State Street Bank and Trust Co., and its holding company, State Street Corporation. Prior to joining State Street, Carter was with the Chase Manhattan Bank for 15 years, in positions related to finance, operations and global securities businesses. A former Marine Corps officer who was awarded the Navy Cross and Purple Heart during two years' service as an infantry officer in Vietnam, Carter served from 1975"76 as a White House Fellow at the State Department and Agency for International Development. Carter holds a B.S. in Civil Engineering from the U.S. Military Academy at West Point ; an M.S. in operations research and systems analysis from the U.S. Naval Postgraduate School, Monterey , California; and an M.A. in science, technology and public policy from George Washington University. Carter is Chairman of the Board of Trustees of the Boston Medical Center. He was a member of the Board of Directors of Honeywell International from 1997"2005. Carter also chaired the Massachusetts Governor's Special Advisory Task Force on Massport following the events of September 11, 2001. In 2006, Carter was inducted into the American Academy of Arts and Sciences.Host(s): School of Engineering, Materials Processing Center

TV's New Economics

Wed, 08 Mar 2006 05:00:00 GMT

03/08/2006 5:00 PM BartosHenry Jenkins, Provost's Professor of Communication, Journalism, and Cinematic Arts at the University of Southern California; ; David F. Poltrack, Executive Vice President, Research and Planning, CBS Television ; Jorge Reina Schement, Distinguished Professor of Communications; Professor of Information Sciences and Technologies and Co-Director of the Institute for Information Policy, College of Communications, The Pennsylvania State UniversityDescription: From his aerie at CBS, David Poltrack tracks patterns in Americans' viewing habits. A decade ago, he says, broadcasters were bracing for the worst as digital television threatened to supplant ordinary commercial TV. He's happy to report, after much research, no earth-shattering change, yet. Indeed, there's much to gladden this programmer's heart. Digital video recorders (DVRs), which have only managed to penetrate around 8% of American homes, have actually created a small increase in the total numbers viewing the top primetime broadcast shows like CSI, Desperate Housewives and Las Vegas, ultimately "enhancing networks and increasing the size of their respective audiences." Poltrack sees DVRs gradually giving way to video on demand, where, his research implies, people will pay to see the same top network shows. He predicts that new portable viewing devices such as the video iPod, along with full motion video cell phones, will become a preferred method for watching TV. His network intends to take full advantage of these distribution options, placing content on the Internet as well. Jorge Schement offers ample evidence that most homes in America no longer resemble (if they ever did) the mythic "Father Knows Best" household. He offers glimpses of "glacial population movements transforming cities, who lives where, transforming the economy, popular culture and language." Within 10 years, the entire state of New York will have a minority white population. More surprisingly, Iowa, Michigan and Kentucky are headed that way as well. How do Americans of all stripes consume new technologies? Those that require people to make a purchase every month "have a slower diffusion than things for which people save up money and make a purchase." During the Depression, he notes, when "25% of American households have no one working, they're buying radios hand over fist." Television was a similar luxury in the 1950s, but was irresistible to the baby boomer generation who "could no longer afford to go out to movies or out dancing two to three times per week." The 1980s was "a turning-point decade for making the American home a node on the network," with the arrival of video games, cable, home satellite receivers, modems, answering machines and PCs. With the video game industry overtaking the movie industry in profits, and the penetration of the Internet and of portable entertainment, the American home looks like a "multiplex theater with Host(s): School of Humanities, Arts & Social Sciences, Communications ForumTape #: T21027

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