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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already seen the turmoil firsthand: scary headlines, layoffs all around, bonuses gone dry, job posts deleted, offers rescinded, and increased competition for the scraps of work that are left.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.
Meanwhile, the crisis is starting to affect "Money and Power" on the other side of the lectern. Wright says he's seen fewer students making it to his three-hour, three-credit MBA elective course in recent weeks. Others are obviously burning the candle at both ends. One student who works for Goldman Sachs, he reports, has been called into the office to work late hours and weekends. While she still makes it to campus on Saturday, during one recent class she used the break in the middle of class to take a nap. For the most part, though, Wright says the biggest reaction to the current crisis from his students has been, "You know, 'I'm sorry, professor, but I can't turn in my homework because I work on a trading desk in an investment bank trading mortgage-backed securities and I just don't have the time.' Or 'I'm sorry I missed class, but I was called into an emergency meeting.'"
Many students, says Seth Berkowitz, who's enrolled in both Wright and Roubini's courses, feel down because they've already racked up so much debt. "There's a lot of concern that you put so much money into school and you're not going to come out with the job you want—or any job," he says.
Berkowitz already has a job, working 15 hours a week at a private equity fund, also known as an opportunity fund or "vulture" fund. His company, he explains, buys up bad loans at "garage sale" prices and either works to restructure them or waits until after the foreclosure process to scoop up property it can redevelop and/or resell. (The company doesn't buy home loans, Berkowitz quickly adds, because they don't want to be in the business of throwing people out of their homes. Commercial real estate, though, is fair game.)
Berkowitz, who's in an NYU program to earn both a law degree and an MBA, understands why many feel now is not a great time to be looking for a job. It wasn't that great last year either, he recalls, but at least then students felt they could still end up with the summer internship or job of their choice, as he ultimately did. "But when we came back in October and especially when Lehman [Bros.] went down, that was when people got scared."
At a recent career fair at NYU, he says, attendance was way up from last year. But there are fewer jobs to be had, and even if one's offered a job, one is never sure how long the firm may be around. "There's a feeling that to get a job this year, you're going to have to pull off a miracle," Berkowitz says. Another student sitting in on Wright's class, who asked not to be identified, feels recruiters are only making token visits to campus this year. "There are not going to be any jobs," he asserts. "Recruiters are coming, but coming more to save face." But, according to Stern, 59 companies attended an MBA career fair earlier this month—31 percent more than last year and a record draw. A school spokeswoman says Stern continues to "receive a consistent flow of opportunities through job postings similar to past years."
And the job market might not be the only thing getting more competitive. It may get harder for people looking to break into the business world to weather the storm at business school. According to Andrew Yang, CEO of test-prep firm ManhattanGMAT, business is up 50 percent this year over last year. "Everything is coming up roses for us," he says.
Started in 2000 by educational iconoclast Zeke Vanderhoek (best known for the charter school he's starting in Washington Heights that will offer teachers six-figure salaries), ManhattanGMAT pays $100 an hour to attract top-level instructors—each of whom must have scored in the 99th percentile on their own Graduate Management Admission Test.
Yang says that not only has he not seen a drop-off in the number of employees taking their courses, but he's seen a surge in people looking to equip themselves with an MBA to do battle in what Yang called an "educational arms race." Potential business students are willing to spend the money—or take on the debt—to earn a degree now so that hopefully, once the market picks back up, they'll be in a stronger position to rise above the competition and land a good job.
"The real question is how the economy looks in summer 2011," says Yang, referring to those applying now to start two-year programs in fall 2009. "And so the bet is that in the next three years the economic picture will brighten considerably. So over that time, you'll be able to network successfully." (Roubini, the man who saw all this coming, does predict that things will start to right themselves after two years.)
Until then, students are left to weigh how to make the most out of an uncertain future. The anonymous student in Wright's class is speculating on when it would be best to pounce on the depressed market. Berkowitz figures a law degree would offer a level of job stability until he could cross over full-time to the business side. Because, after all, in the long run, the market always trends upward.
Then again, Wright recalls, there's the oft-repeated quote from famed economist John Maynard Keynes:
"In the long run, we're all dead."