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On Saturday, October 4, roughly 24 hours after President Bush signed the $700 billion Wall Street bailout package into law, Professor Robert E. Wright of New York University's Leonard N. Stern School of Business clicked to slide 15 of his PowerPoint presentation. The word "uncertainty" was projected onto a large white wall.
"What is the uncertainty right now?" Wright asked his students.
It was week three of Wright's "Money and Power" course, and the topic of the lecture was "Public Goods and Other Market Failures." "Uncertainty" was No. 5 on a list of eight reasons why markets fail. The slide included three bullet points that covered diversifying risks, under-spending and under-investing by cautious consumers, and government bailouts as a tool of last resort. The 19 students gathered in the windowless, robin's-egg-blue classroom of NYU's Kaufman Management Center considered Wright's question.
"How much are assets such as mortgage-backed securities worth now?" one offered. Another: "How will banks determine lending risks?"
The bailout itself, Wright added, is an uncertainty. Its passage, and in what form it
would pass, had been unknown to investors and Wall Street watchers for much of the previous week. Now, whether the plan would work, and how, was anyone's guess.
The big "Who knows?" is very much on the minds of, well, just about everyone these days. Wall Street jitters, and outright fears, have trickled down from Manhattan's financial district to main streets across the nation, and the world.
The academic world is by no means immune. Business students face an uncertain future, with a shaky economy and a shrinking job market likely as they hunt for summer internships and post-graduation employment. They've already seen the turmoil firsthand: scary headlines, layoffs all around, bonuses gone dry, job posts deleted, offers rescinded, and increased competition for the scraps of work that are left. What are students at ground zero of an economic meltdown to do?
Business schools in New York City are mounting serious efforts to educate their students—along with the general public—about the underpinnings of the current crisis. Columbia Business School recently held the third in a series of forums about the financial crisis featuring several Columbia professors, including the school's dean, economist Glenn Hubbard. NYU's Stern school has held town-hall meetings with Dean Thomas Cooley and his colleagues and has also made its faculty available to the press—the school's website features a ticker of who's been quoted saying what to which media outlets.
Taking part in one panel on the economic crisis at Stern this month is Nouriel Roubini, who teaches economics and international business at NYU. Two years ago, Roubini delivered a talk in Singapore to the International Monetary Fund in which he predicted that the U.S. would soon see a housing bust, an oil shock, declining consumer confidence, and finally a deep recession; the country, he said, was overleveraged and due for a crash. At the time, The New York Times later reported, Roubini's audience "seemed skeptical, even dismissive." Today, Roubini's prescience has made him a much-quoted presence in print and on TV.
Roubini believes the economy still hasn't hit bottom. And it isn't likely to right itself anytime soon. In a post earlier this month on his website, the Roubini Global EconoMonitor (rgemonitor.com), he wrote: "The delusion that the U.S. and advanced economies' contraction would be short and shallow—a V-shaped six-month recession—has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world."
That level of crisis has led Roubini to revamp his lesson plans for the early weeks of his international macroeconomic policy course. Recently, with a new major economic story seemingly every day, Roubini began setting aside his curriculum—ostensibly for the first few minutes of class—to discuss current events with his students. The conversations generally end up lasting most of the period.
Other professors haven't altered their syllabi that much. But, notes Wright, the wheels of academia grind slowly. In "Money and Power," he's begun weaving discussion of the current crisis into class lectures. The opening slide sets the tension for the course. It's an image from an early edition of Leviathan, by Thomas Hobbes, the 17th-century English philosopher whose work influenced our founding fathers. Hobbes held that without the intervention of a government—the "Leviathan"—to check the competing interests of men, existence would be "solitary, poor, nasty, brutish, and short."
Similarly, many believe (particularly now) that government regulation is what keeps the market from tearing itself apart. Those who don't are having a tough election year. Wright falls somewhere in the middle.
What's to be sought is a "sweet spot," Wright explains. "If you're too rigid, then you get no entrepreneurs or innovation. And if you're too much toward the market and not enough rules and regulation," you end up with Bear Stearns and Lehman Brothers. Finding the sweet spot is not easy: Political interests come into play, and uncertainty can cause governments to lurch in one direction or another to overcorrect when a measured approach would be more effective.