from the world's big
The Mistake of Blaming Dick Fuld
Andrew Ross Sorkin is The New York Times’s chief mergers and acquisitions reporter and a columnist. He is also the author of the 2009 book, "Too Big To Fail." Mr. Sorkin, a leading voice about Wall Street and corporate America, is also the editor of DealBook, an online daily financial report he started in 2001. In addition, Mr. Sorkin is an assistant editor of business and finance news, helping guide and shape the paper’s coverage.Mr. Sorkin, who has appeared on NBC's “Today” show and on “Charlie Rose” on PBS, is a frequent guest host of CNBC’s “Squawk Box.” He won a Gerald Loeb Award, the highest honor in business journalism, in 2004 for breaking news. He also won a Society of American Business Editors and Writers Award for breaking news in 2005 and again in 2006. In 2007, the World Economic Forum named him a Young Global Leader. Mr. Sorkin began writing for The Times in 1995 under unusual circumstances: he hadn’t yet graduated from high school. Mr. Sorkin lives in Manhattan.
Question: How will current financial regulation proposals dealing with systemic risk change the business?
Andrew Ross Sorkin: I think it's very unclear what type of regulatory reform we're really going to see over the next 12 months. There's a couple of things that have to happen that could change the business materially. The first is actually a piece of legislation that will really prevent the next crisis, hopefully, which is this idea of resolution authority, this idea that we can actually unwind in an orderly way an investment banking insurance company, like an AIG or a hedge fund. And we've never had that ability. The bankruptcy process doesn't work very well to make that happen. But the larger reforms that have to happen -- things like bigger capital requirements, the idea of having a bigger safety net, a rainy day fund -- that could change the business materially, because it would mean that the banks would be safer and less risky; there would be less leverage and therefore debt in the system; and it would actually mean that the firms themselves would be less profitable. So to the extent there are profits, and they're being given out as bonuses, those bonuses would come back inside the firm, and you'd put it into the rainy day fund. So all of those things sound very good. The flip side of all that is that if you think banks aren't lending today, if you tell them they need to keep more money in the bank on any given day, they would argue to you that they will be lending even less tomorrow. And what does that mean for the economy? So it's a very complicated picture, and the solutions, while some seem very attractive -- and it's very easy to say increase capital requirements, and long-term that's probably what you need to do -- given the economy, it's unclear whether you want to do that tomorrow.
Question: How has GSE policy changed since the crisis?
Andrew Ross Sorkin: Well, the funny thing about the GSEs now is they're probably not as well capitalized as you'd want them to be, but it almost doesn't matter, because there is this implicit guarantee that the government is now -- it's not even implicit; it's explicit that there's a guarantee behind them. So whether they're capitalized properly or not is probably not the issue. Longer-term we're going to have to deal with that, because you would hope that the government is going to have to extricate itself from that relationship. And that itself is going to be a long-term challenge.
Question: What do you expect the government’s involvement in the housing sector to be in five or ten years?
Andrew Ross Sorkin: I imagine over the next five years it's going to be very difficult for the government to truly extricate itself from being in the business of supporting the mortgage market in some way or another. The goal longer-term has to be to get out. Can that be accomplished in 10 years, given the way the economy is today? I don't know. But I would imagine that the Fannie and Freddies of the world would end up getting broken up and privatized in some way, or at least that would be the goal.
Question: You chronicle several instances of chief executives (Dick Fuld included) willfully ignoring bad news. How did these executives justify such decisions?
Andrew Ross Sorkin: It seems so black and white, and yet it's so complicated. I think that some of the leaders of these firms had a very bad time hearing bad -- or some might have called unattractive -- information. And they had people in some cases who protected them from that information. And when they didn't want to hear the bad news, they effectively said don't tell me the bad news. To explain the psychology of why they did that is a more difficult question. I’d probably argue to you that this goes to this whole level of hubris and greed at some level, but more about power, and a sense of entitlement and a sense of infallibility, really -- that once many of these people got to the top, they thought they were king. And that in many ways -- not in many ways -- it turned out and is a very dangerous way to live.
Shareholders should have been more attentive throughout this period. But you know, in a bull market shareholders, for the most part, go along for the ride. They see the stock going up, and they rarely want to say anything. It's only when it goes down do they have a problem. And shareholders are sort of like cats; they get herded around, and they follow the leader. With the exception of a few activist shareholders, there are a very rare number of big, important, influential shareholders that like to step up and say there's a problem here, especially when they’re making money.
Question: How are firms you follow adjusting to improve their risk management processes?
Andrew Ross Sorkin: So the good news is that in the aftermath of the crisis there has been a deleveraging. While many of these firms are now taking on new risk -- and I think there's lots to be worried about with that -- they're doing it with less leverage. So the idea of a massive crisis on the scale that we just saw is probably less. They are all instituting all sorts of new risk policies and hiring all sorts of compliance people. And the SEC and the Federal Reserve are becoming much more active around these things. Having said that, these agencies were around the hoop the first time, and look where that got us. I think that some firms -- Morgan Stanley's a good example -- are taking a lot less risk. But then on the other side, you look at Goldman Sachs, and it appears that they're taking more risk. So it's a complicated picture.
Question: In “Too Big to Fail,” you stress the important of public relations in the Treasury’s considerations of how to deal with Lehman Brothers. Is policy ever separable from politics?
Andrew Ross Sorkin: Unfortunately, I think it's very difficult to separate policy from politics. In a perfect world, in some instances you probably would want to. In other instances you'd probably say that the political element is important because it should, in a perfect world, match what the stakeholders need or want, or what the public is after. In the case of the bailouts, the politics became difficult because you'll remember the public didn't want bailouts. And one of the most remarkable things about this entire experience -- when you look at Lehman -- we now all look at Lehman, the failure of Lehman, as a great mistake. But at the time -- you can go back; there's an editorial in The New York Times two days after Lehman goes bankrupt, heralding the decision by Hank Paulson to let them fail. And so it's a very -- it's very difficult to turn around and say, should policy and politics be separate? They probably should be, in some respects, on certain days; and on other days maybe not.
Question: Who was the fall man of this crisis?
Andrew Ross Sorkin: Well, it's interesting, because Dick Fuld, the former CEO of Lehman Brothers, has obviously been villainized and has become sort of the face of the crisis. And what's difficult about that, and perhaps unfair about that in some respects, is that most of the other CEOs who ran Wall Street firms would have been Dick Fulds had it not been for the government. So you can look at a John Mack, who actually, I think, did a very heroic thing by effectively saving Morgan Stanley. But it could have turned out very, very differently five hours later had Mitsubishi not come to save them, or had the government not made them a bank holding company. The same thing with Lloyd Blankfein. The same thing with the folks at AIG. The same things at Merrill Lynch. And so, you know, everybody wants a poster child, and it's very easy to wag the finger at one individual and one face, and that feels the most satisfying; but I imagine in this context it's probably the most unfair.
Recorded on December 3, 2009
Andrew Ross Sorkin tackles the future of financial regulation, the push-pull of policy and politics, and how John Mack could have easily suffered the same fate as Lehman’s CEO.
Higher education faces challenges that are unlike any other industry. What path will ASU, and universities like ASU, take in a post-COVID world?
- Everywhere you turn, the idea that coronavirus has brought on a "new normal" is present and true. But for higher education, COVID-19 exposes a long list of pernicious old problems more than it presents new problems.
- It was widely known, yet ignored, that digital instruction must be embraced. When combined with traditional, in-person teaching, it can enhance student learning outcomes at scale.
- COVID-19 has forced institutions to understand that far too many higher education outcomes are determined by a student's family income, and in the context of COVID-19 this means that lower-income students, first-generation students and students of color will be disproportionately afflicted.
What conditions of the new normal were already appreciated widely?<p>First, we understand that higher education is unique among industries. Some industries are governed by markets. Others are run by governments. Most operate under the influence of both markets and governments. And then there's higher education. Higher education as an "industry" involves public, private, and for-profit universities operating at small, medium, large, and now massive scales. Some higher education industry actors are intense specialists; others are adept generalists. Some are fantastically wealthy; others are tragically poor. Some are embedded in large cities; others are carefully situated near farms and frontiers.</p> <p>These differences demonstrate just some of the complexities that shape higher education. Still, we understand that change in the industry is underway, and we must be active in directing it. Yet because of higher education's unique (and sometimes vexing) operational and structural conditions, many of the lessons from change management and the science of industrial transformation are only applicable in limited or highly modified ways. For evidence of this, one can look at various perspectives, including those that we have offered, on such topics as <a href="https://www.insidehighered.com/digital-learning/blogs/rethinking-higher-education/lessons-disruption" target="_blank">disruption</a>, <a href="https://www.nytimes.com/2020/02/20/education/learning/education-technology.html" target="_blank">technology management</a>, and so-called "<a href="https://www.insidehighered.com/sites/default/server_files/media/Excerpt_IHESpecialReport_Growing-Role-of-Mergers-in-Higher-Ed.pdf" target="_blank">mergers and acquisitions</a>" in higher education. In each of these spaces, the "market forces" and "market rules" for higher education are different than they are in business, or even in government. This has always been the case and it is made more obvious by COVID-19.</p> <p>Second, with so much excitement about innovation in higher education, we sometimes lose sight of the fact that students are—and should remain—the core cause for innovation. Higher education's capacity to absorb new ideas is strong. But the ideas that endure are those designed to benefit students, and therefore society. This is important to remember because not all innovations are designed with students in mind. The recent history of innovation in higher education includes several cautionary tales of what can happen when institutional interests—or worse, <a href="https://www.insidehighered.com/news/2016/02/09/apollos-new-owners-seek-fresh-start-beleaguered-company" target="_blank">shareholder</a> interests—are placed above student well-being.</p>
Photo: Getty Images<p>Third, it is abundantly apparent that universities must leverage technology to increase educational quality and access. The rapid shift to delivering an education that complies with social distancing guidelines speaks volumes about the adaptability of higher education institutions, but this transition has also posed unique difficulties for colleges and universities that had been slow to adopt digital education. The last decade has shown that online education, implemented effectively, can meet or even surpass the quality of in-person <a href="https://link-springer-com.ezproxy1.lib.asu.edu/article/10.1007/s10639-019-10027-z" target="_blank">instruction</a>.</p><p>Digital instruction, broadly defined, leverages online capabilities and integrates adaptive learning methodologies, predictive analytics, and innovations in instructional design to enable increased student engagement, personalized learning experiences, and improved learning outcomes. The ability of these technologies to transcend geographic barriers and to shrink the marginal cost of educating additional students makes them essential for delivering education at scale.</p><p>As a bonus, and it is no small thing given that they are the core cause for innovation, students embrace and enjoy digital instruction. It is their preference to learn in a format that leverages technology. This should not be a surprise; it is now how we live in all facets of life.</p><p>Still, we have only barely begun to conceive of the impact digital education will have. For example, emerging virtual and augmented reality technologies that facilitate interactive, hands-on learning will transform the way that learners acquire and apply new knowledge. Technology-enabled learning cannot replace the traditional college experience or ensure the survival of any specific college, but it can enhance student learning outcomes at scale. This has always been the case, and it is made more obvious by COVID-19.</p>
What conditions of the new normal were emerging suspicions?<p>Our collective thinking about the role of institutional or university-to-university collaboration and networking has benefitted from a new clarity in light of COVID-19. We now recognize more than ever that colleges and universities must work together to ensure that the American higher education system is resilient and sufficiently robust to meet the needs of students and their families.</p> <p>In recent weeks, various commentators have suggested that higher education will face a wave of institutional <a href="https://www.businessinsider.com/scott-galloway-predicts-colleges-will-close-due-to-pandemic-2020-5" target="_blank">closures</a> and consolidations and that large institutions with significant online instruction capacity will become dominant.</p> <p>While ASU is the largest public university in the United States by enrollment and among the most well-equipped in online education, we strongly oppose "let them fail" mindsets. The strength of American higher education relies on its institutional diversity, and on the ability of colleges and universities to meet the needs of their local communities and educate local students. The needs of learners are highly individualized, demanding a wide range of options to accommodate the aspirations and learning styles of every kind of student. Education will become less relevant and meaningful to students, and less responsive to local needs, if institutions of higher learning are allowed to fail. </p> <p>Preventing this outcome demands that colleges and universities work together to establish greater capacity for remote, distributed education. This will help institutions with fewer resources adapt to our new normal and continue to fulfill their mission of serving students, their families, and their communities. Many had suspected that collaboration and networking were preferable over letting vulnerable colleges fail. COVID-19's new normal seems to be confirming this.</p>
President Barack Obama delivers the commencement address during the Arizona State University graduation ceremony at Sun Devil Stadium May 13, 2009 in Tempe, Arizona. Over 65,000 people attended the graduation.
Photo by Joshua Lott/Getty Images<p>A second condition of the new normal that many had suspected to be true in recent years is the limited role that any one university or type of university can play as an exemplar to universities more broadly. For decades, the evolution of higher education has been shaped by the widespread imitation of a small number of elite universities. Most public research universities could benefit from replicating Berkeley or Michigan. Most small private colleges did well by replicating Williams or Swarthmore. And all universities paid close attention to Harvard, Princeton, MIT, Stanford, and Yale. It is not an exaggeration to say that the logic of replication has guided the evolution of higher education for centuries, both in the US and abroad.</p><p>Only recently have we been able to move beyond replication to new strategies of change, and COVID-19 has confirmed the legitimacy of doing so. For example, cases such as <a href="https://www.washingtonpost.com/education/2020/03/10/harvard-moves-classes-online-advises-students-stay-home-after-spring-break-response-covid-19/" target="_blank">Harvard's</a> eviction of students over the course of less than one week or <a href="https://www.nhregister.com/news/coronavirus/article/Mayor-New-Haven-asks-for-coronavirus-help-Yale-15162606.php" target="_blank">Yale's apparent reluctance</a> to work with the city of New Haven, highlight that even higher education's legacy gold standards have limits and weaknesses. We are hopeful that the new normal will include a more active and earnest recognition that we need many types of universities. We think the new normal invites us to rethink the very nature of "gold standards" for higher education.</p>
A graduate student protests MIT's rejection of some evacuation exemption requests.
Photo: Maddie Meyer/Getty Images<p>Finally, and perhaps most importantly, we had started to suspect and now understand that America's colleges and universities are among the many institutions of democracy and civil society that are, by their very design, incapable of being sufficiently responsive to the full spectrum of modern challenges and opportunities they face. Far too many higher education outcomes are determined by a student's family income, and in the context of COVID-19 this means that lower-income students, first-generation students and students of color will be disproportionately afflicted. And without new designs, we can expect postsecondary success for these same students to be as elusive in the new normal, as it was in the <a href="http://pellinstitute.org/indicators/reports_2019.shtml" target="_blank">old normal</a>. This is not just because some universities fail to sufficiently recognize and engage the promise of diversity, this is because few universities have been designed from the outset to effectively serve the unique needs of lower-income students, first-generation students and students of color.</p>
Where can the new normal take us?<p>As colleges and universities face the difficult realities of adapting to COVID-19, they also face an opportunity to rethink their operations and designs in order to respond to social needs with greater agility, adopt technology that enables education to be delivered at scale, and collaborate with each other in order to maintain the dynamism and resilience of the American higher education system.</p> <p>COVID-19 raises questions about the relevance, the quality, and the accessibility of higher education—and these are the same challenges higher education has been grappling with for years. </p> <p>ASU has been able to rapidly adapt to the present circumstances because we have spent nearly two decades not just anticipating but <em>driving</em> innovation in higher education. We have adopted a <a href="https://www.asu.edu/about/charter-mission-and-values" target="_blank">charter</a> that formalizes our definition of success in terms of "who we include and how they succeed" rather than "<a href="https://www.washingtonpost.com/opinions/2019/10/17/forget-varsity-blues-madness-lets-talk-about-students-who-cant-afford-college/" target="_blank">who we exclude</a>." We adopted an entrepreneurial <a href="https://president.asu.edu/read/higher-logic" target="_blank">operating model</a> that moves at the speed of technological and social change. We have launched initiatives such as <a href="https://www.instride.com/how-it-works/" target="_blank">InStride</a>, a platform for delivering continuing education to learners already in the workforce. We developed our own robust technological capabilities in ASU <a href="https://edplus.asu.edu/" target="_blank">EdPlus</a>, a hub for research and development in digital learning that, even before the current crisis, allowed us to serve more than 45,000 fully online students. We have also created partnerships with other forward-thinking institutions in order to mutually strengthen our capabilities for educational accessibility and quality; this includes our role in co-founding the <a href="https://theuia.org/" target="_blank">University Innovation Alliance</a>, a consortium of 11 public research universities that share data and resources to serve students at scale. </p> <p>For ASU, and universities like ASU, the "new normal" of a post-COVID world looks surprisingly like the world we already knew was necessary. Our record breaking summer 2020 <a href="https://asunow.asu.edu/20200519-sun-devil-life-summer-enrollment-sets-asu-record" target="_blank">enrollment</a> speaks to this. What COVID demonstrates is that we were already headed in the right direction and necessitates that we continue forward with new intensity and, we hope, with more partners. In fact, rather than "new normal" we might just say, it's "go time." </p>
The coronavirus pandemic has brought out the selfishness among many.
- Selfish behavior has been analyzed by philosophers and psychologists for centuries.
- New research shows people may be wired for altruistic behavior and get more benefits from it.
- Crisis times tend to increase self-centered acts.
Paul Krugman on the Virtues of Selfishness<div class="rm-shortcode" data-media_id="7ZtAkm6C" data-player_id="FvQKszTI" data-rm-shortcode-id="828936bf6953080e9018307354c0c02b"> <div id="botr_7ZtAkm6C_FvQKszTI_div" class="jwplayer-media" data-jwplayer-video-src="https://content.jwplatform.com/players/7ZtAkm6C-FvQKszTI.js"> <img src="https://cdn.jwplayer.com/thumbs/7ZtAkm6C-1920.jpg" class="jwplayer-media-preview" /> </div> <script src="https://content.jwplatform.com/players/7ZtAkm6C-FvQKszTI.js"></script> </div> The Nobel Prize-winning economist on the virtues of selfishness.
Evolution Is Moving Us Away from Selfishness. But Where Is It Taking ...<div class="rm-shortcode" data-media_id="cyeqmYCb" data-player_id="FvQKszTI" data-rm-shortcode-id="6c5efecb56456e9acc25cf36935b1826"> <div id="botr_cyeqmYCb_FvQKszTI_div" class="jwplayer-media" data-jwplayer-video-src="https://content.jwplatform.com/players/cyeqmYCb-FvQKszTI.js"> <img src="https://cdn.jwplayer.com/thumbs/cyeqmYCb-1920.jpg" class="jwplayer-media-preview" /> </div> <script src="https://content.jwplatform.com/players/cyeqmYCb-FvQKszTI.js"></script> </div>
Exploring Morality and Selfishness in Modern Times<div class="rm-shortcode" data-media_id="02eX1Cag" data-player_id="FvQKszTI" data-rm-shortcode-id="45cc6180db791f32683988fb52faff26"> <div id="botr_02eX1Cag_FvQKszTI_div" class="jwplayer-media" data-jwplayer-video-src="https://content.jwplatform.com/players/02eX1Cag-FvQKszTI.js"> <img src="https://cdn.jwplayer.com/thumbs/02eX1Cag-1920.jpg" class="jwplayer-media-preview" /> </div> <script src="https://content.jwplatform.com/players/02eX1Cag-FvQKszTI.js"></script> </div> Philosopher Peter Singer discusses the state of global ethics.
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Hollywood has created an idea of aliens that doesn't match the science.
- Ask someone what they think aliens look like and you'll probably get a description heavily informed by films and pop culture. The existence of life beyond our planet has yet to be confirmed, but there are clues as to the biology of extraterrestrials in science.
- "Don't give them claws," says biologist E.O. Wilson. "Claws are for carnivores and you've got to be an omnivore to be an E.T. There just isn't enough energy available in the next trophic level down to maintain big populations and stable populations that can evolve civilization."
- In this compilation, Wilson, theoretical physicist Michio Kaku, Bill Nye, and evolutionary biologist Jonathan B. Losos explain why aliens don't look like us and why Hollywood depictions are mostly inaccurate.