What’s Wrong With Our Business Schools?
While I have a really good case of the ass about the state of the U.S. economy, let me pose a question: What kind of business schools do we have in this country that when I think of a stock broker or lender I think of a used car salesman with a really nice suit, an ethically impaired individual whose ethical compass was never properly calibrated when they got their MBA?
Just so I don’t appear to be a total naif, I note that economic downturns are cyclical and therefore inevitable. But the ongoing unraveling of the American economy – and the reverberation in world markets — as the U.S. hurtles into recession is substantially the result of greed by the players at major financial institutions that borders on the criminal.
The trigger for the unraveling is, of course, the inevitable collapse of the subprime mortgage market, which preyed on – and reaped obscene profits from — the people with the lousiest credit who could least afford to own a home.
The subprime greed merchants are now paying the piper and further fueling the meltdown. This means that they may miss a payment on their Porsche Turbo, but it leaves your neighbor wondering how the hell he can keep food on the table, his son in college and granny in that managed-care facility.
Did these business school grads forget what they were taught? Were they taught that it’s every Gordon Gekko for himself? Or are business schools blameless?
This is meant to be a discussion stimulator. With the focus on business schools.
Have at it.
18 Responses to “What’s Wrong With Our Business Schools?”
There's nothing wrong with B-schools:If you only care about money, you only care about money.
If the first responsibility of business schools were to inculcate a moral or ethical sense in their students, you might be on to something, Sean. That's the responsibility of parents first, religious institutions second, and elementary and secondary schools thereafter. By the time students enter an institution of higher education or are in a post-graduate program if they don't have a moral or ethical sense they'll be unlikely to develop one there.
Do MBA programs have some responsibility to make their students aware of ethical principles? Sure. For example, breaking the law should never be considered an acceptable risk. I don't think that they learned that in B-school.
I also think that you're overstating the sympathy due to borrowers and understating borrowers' responsibilities for due diligence and simple prudence. Not all borrowers have been injured by the problems in the subprime mortgage market. Specifically, if someone has a home foreclosed upon that they could never have bought other than because of the packaging of subprime mortgages, they have no equity in the home, and they've made mortgage payments at or below what they would have paid in rent for a comparable property, they've suffered no injury and are not due our sympathy nor are they proper subjects for government assistance. Similarly, speculators aren't due our sympathy nor government assistance.
Dave:
Thank you for your nuanced response. You are quite right across the board: Biz schools get students that are pretty much already ethically inculcated, while borrowers do have responsibilities and the subprime crisis certainly has highlighted the reality that some borrowers abrogated theirs because they failed to see or didn't care about the dark side of the American Dream.
Where I somewhat disagree is that business schools, like law schools and medical schools and divinity schools, have a social obligation to hammer a sense of ethical probity into their students. It is my impression that all, most especially business schools, do a lousy job.
Shaun Don't single out just MBA's, doctors are joining the MBA's as used car salesmen. Remember the TMJ fraud that started in the 1980's. Look at how drug companies push drugs on doctors with seminars in exotic locations.
I was thinking that this whole article was off base for a few reasons, which are closely related to what piniella and Dave said. I don't think anyone learned how to jack up the subprime mortgage market in school, that came later in the pressure cooker of the professional world. Out there people look for money making trends and often despite years of education that would seem to lead to caution, investment firms line up like lemmings and pray they aren't the ones left out in the cold when the money train comes to a stop. Not unlike internet stocks trading at 1000-1 ratios and yet never having or likely to turn a profit. Nobody in business school told Ken Lay and his cronies to hide billions of dollars of losses and pretend they weren't there. He figured that out himself and I seriously doubt a morality course would have altered his decision making process.
I think business schools could do a much better job of outlining the negative impact of corruption in both small and large scale economic terms. Wealth generation is not a zero sum game, everyone can come out a winner if its done right. Yet I don't think that is the case in the subprime issue. Basically these institutions took a huge gamble that was generating some good profits. They combined that with frankly some not very smart folks who don't know much about handling money but apparently think they can get a house. If anything I think our secondary education system is at fault for not covering essential financial courses on credit and debt management. I believe it to be one of the reasons so many americans these days are in credit debt up to their ears, and now why so many were shafted by not that complicated yet high risk mortgage opportunities.
I'm willing to bow to Dave Schuler's superior knowledge of the economy. But his argument (sub prime mortgage + no equity earned + comparable property + paid the same as if renting = no damage = no sympathy) would be stronger if there were some numbers indicating how many people being foreclosed met that group of criteria.
Also, I believe people who are foreclosed on have trouble getting a subsequent mortgage, which strikes me as damage done to them.
I think Shaun is complaining about institutionalized unethical behavior, of the type illustrated by this NYT article about Countrywide Financial.
I understand that people who take loans have the duty to repay them. But the people who make loans also have the duty not to lend too much to unreliable customers. If the price of failure were equally shared between borrower and lender, the market's rough justice would serve as an object lesson for the rest of us.
But the price of failure is not equally shared.
For example, Angelo Mozilo is the former CEO of Countrywide Financial. He is walking away from this failure with compensation in excess of $100,000,000.
Where'd the moral hazard go?
I hope all that HTML works.
The borrowers don't deserve sympathy and aren't getting any from the intelligent.
“Also, I believe people who are foreclosed on have trouble getting a subsequent mortgage, which strikes me as damage done to them.”
There is nothing tortious here, if that was what you were trying to argue.
They shouldn't have tried to get something they couldn't afford.
I wasn't asserting any kind of tort. And I'm pretty sure the intelligent understood that.
In my opinion, the real scandal here is what's legal.
“In my opinion, the real scandal here is what's legal.”
I would agree; I simply do not accept nonsensical demonizing of the lenders when borrowers (and was properly noted, speculators) chose to be irresponsible. None of my tax dollars have any business being redirected toward those people, and silliness such as interest rate freezes has no legitimate place here. Also, any interest rate freeze (breaking existing contracts) without compensation to the lenders is low-life theft, no matter how politically popular it may be with the wrong crowd.
Do you think the lenders were responsible?
Responsible for their own losses, yes. Responsible for the borrowers' predicaments, no. Nobody forced the borrowers to borrow. The only exception is if the lenders engaged in fraud (said in writing that interest rates would never rise when it was known they would rise, for example). Bashing the lenders is, sadly, too predictable, though.
We know what some would like to do with the lenders, even when the facts don't support it.
http://www.dra.de/online/dokument/1998/bilder/m…
Jim Cramer was on Hardball the other day and he isn't very optimistic about this mess. All these loans are also guaranteed by insurance/hedge funds for the lenders. And people thought the Neil Bush S&L bailout was big, just wait till the sh## hits the fan on this one. Here's a couple good links:
http://www.nytimes.com/2007/12/19/business/19sw…
http://www.thestreet.com/pf/markets/activetrade…
When will Bush give Greenspan his PMF like Tenent and Bremer?
The truly intelligent realize that some lenders might as well be con men. They realize the kinds of assurances they made to the borrowers. They know that the small print and massive amounts of jargon in modern mortgage agreements make it likely that it is the verbal assurances of the lenders that sway the borrowers, no matter what might be in print.
The people writing up the loans had a simple calculation. They know that they would receive fees up front and then sell the debt to someone else, making their money then no matter what happened to the loan in the long run. There is their motivation for deceptive reassurances to borrowers and verbal misreprestations that they knew they could easily deny later. Then the loan is packaged, bundled and repackaged and sold again in complex instruments that (Though they would never admit it.) the buyers didn't really understand. Cook for a few years and watch the disaster unfold.
What kind of responsibilities for their losses do you think the lenders should face?
They should eat the costs themselves, not request a bailout of any kind from us.
Yes lets lay the blame on the borrowers….off with their heads!
They are to blame for actually believing the lenders BS rates, yes. But the lenders are back at the D.C. trough for another bailout (SL scandal anyone?) by the taxpayer.
I say bull, this time some of the lenders should collapse for this debacle of their own creations. They have accountants that most likely told them not to do what they were doing. So no, no corporate welfare for horrendously stupid business ideas, time they bite the bullet for this crap.
In the absence of widespread fraud, this isn't the fault of b-schools. Anyone who has been through a program recently or has familiarity with them know that ethics play a fundamental part in coursework — not just as standalone throwaway courses, but integrated throughout the curriculum as components of the core subjects.
Guys, it's a little more complicated than simply subprime default. The risk involved was repackaged (“securitized” in financial lingo) as investments du jour that were making a lot of people very rich very quickly. With the bottom falling out, these investments are trashed and thus the bloodbath that's taking place across financial services and other industries… The people who lost their homes are but a small piece of the problems here. Unfortunately structured finance is extremely esoteric and isn't likely to make big headlines… The people who do it (did it?) for a living barely seem to be able to explain it coherently…
That said, people who couldn't pay back loans were lent money and surprise, surprise, they didn't pay them back…. Lenders are paying the price, as are those who invested in mortgage-backed securities thinking they were anything but the risky position they always were. Lenders, rating agencies and spinmeisters all have culpability here, as do govt regulators who may have been asleep at the wheel. But investors and consumers (borrowers) are also front-and-center in this debacle — and they weren't all bamboozled. When you live above your means by revolving debt, there's a risk that the bottom will fall out. For some people, it unfortunately did.