From The National Interest (via Richard Florida):
For economists in business schools the answer is straightforward. Business schools see themselves as suppliers of inputs to business. Just as General Motors provides its suppliers with specifications for the cold-rolled sheet it needs for fabricating auto bodies, J. P. Morgan makes clear the kind of financial engineers it requires, and business schools deem to provide. In the wake of the 1987 stock-market crash, Morgan’s chairman, Dennis Weatherstone, started calling for a daily “4:15 Report” summarizing how much his firm would lose if tomorrow turned out to be a bad day. His counterparts at other firms then adopted the practice. Soon after, business schools jumped to supply graduates to write those reports. Value at Risk, as that number and the process for calculating it came to be known, quickly gained a place in the business-school curriculum.
As graduate of an undergraduate business school, this statement brought back some memories. I cannot claim to be the smartest and/or brightest person in my undergraduate class, or my current graduate class for that matter, but I'm not lying when I say I saw something wrong with, similar to the scenario detailed above, the most recent financial fad - structured finance.
At a upper middle-tier (is that a stretch?) school such as James Madison, I-banking recruiters were not banging down the career center doors. JMU grads have to fight, hard to get a job on Wall Street. That being the case, this explosion of newly-created financial instruments offered up an amazing opportunity for schools like Madison. Enter the trauch.
A seminar in structured finance - "this is how you will split up mortgages and create traunches divided by risk that will then be grouped and sold as one mortgage-backed security", virtually mitigating the risk of the low-quality (sub-prime) mortgages.
BAM, enter the financial "crisis". So, yes, Dr. Eichengreen makes a valid point here.
It's not that JMU wasn't turning out excellent graduates, most, I would say, better than many of the "top-tier" schools. In fact, the top-notch graduates that have landed on Wall Street are still achieving great success. But on a whole, this observation is relevant.
Also, it's 1:38am - I've been in my usual seat in the graduate reading room since 4pm. --- this might not make any sense at all, and I'm not proofreading.
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