Rich Harvard, Poor Harvard

That's the title of this article in the August edition of Vanity Fair.  From Nina Munk’s lead-in:

Only a year ago, Harvard had a $36.9 billion endowment, the largest in academia. Now that endowment has imploded, and the university faces the worst financial crisis in its 373-year history. Could the same lethal mix of uncurbed expansion, colossal debt, arrogance, and mismanagement that ravaged Wall Street bring down America’s most famous university? And how much of the turmoil is the fault of former Harvard president Larry Summers, now a top economic adviser to President Obama? As students demonstrate, administrators impose Draconian cuts, and construction is halted on an over-ambitious $1.2 billion science complex, the author follows the finger-pointing. (HT: Paul Kedrosky)

The financial situation at Harvard and other universities has been much talked about recently. For example, on Monday, Al discussed the news that Harvard University Press has closed its display room.  And yesterday, Dan and I noted the brewing University of California civil war in light of the state’s budget problems.  On Sunday, Becker and Posner discussed the drop in university endowments and what to do about it more generally.  Says Posner:

College and university endowments have taken a big hit from the drop in the stock market and other asset markets. A drop of 20 to 30 percent is common, and there is suspicion that endowments that contain a significant proportion of assets that are not traded on organized markets, such as real estate, have dropped even more, but without "marking to market" their nonfinancial assets.

Becker argues that:

Universities reacted to this severe shock with panic, and they often reduced their spending by too much.

I say "by too much" not because of any confidence that stock markets and real estate will return any time soon to their peak values. This is highly unlikely for real estate, and dubious for stock markets. My reason for objecting to large cuts in university spending is that they have usually under spent relative to their endowments.

We’ll no doubt see more news of universities in financial distress in the coming year.  Of course, most of us don’t need a blawg site to tell us that our institutions are broke . . . 

Comments

[Al]

Here's an alternative view -- one I don't agree with -- but important voices, nevertheless:
http://www.insidehighered.com/views/2009/07/31/munson

[Kim Krawiec]

Hey -- thanks for posting this link, Al. Interesting story. I've been meaning to do a follow-up on this post, but just never seem to get to it. So much blogging, so little time . . .