Not Smart

Harvard University has announced that it paid hundreds of millions of dollars to get out of interest rate swaps.  The school also said that its General Operating Account, which is the principal account that funds the schools’ operations, lost close to half its value in the last fiscal year, falling from $6.6 billion to $3.7 billion.  The value of the school’s endowment fund, on the other hand, dropped from $36.9 billion to $26 billion during the fiscal year.

What’s interesting about this story is not that Harvard’s investment accounts lost value — virtually all investment portfolios, except those invested exclusively in gold, have declined in value since the economy and the credit markets hit the wall last fall — but how much Harvard has lost and the nature of its investments.  Any kind of swap investment is risky; you really have to know what you are doing and what the potential downside risks are to make a properly informed investment decision.  It is curious that Harvard would invest hundreds of millions in interest rate swaps.  You have to wonder if its investment advisors really described the risks to the university body that oversees investments and, if so, whether that body really understood those risks.  As for Harvard’s endowment, losing more than $10 billion in one year is extraordinary.

Many colleges and universities have been aggressively raising money to up their endowments, and it appears that they have been investing those funds with, perhaps, even more aggressiveness.  That seems to defeat the traditional purpose of an endowment fund, which is to provide a financial cushion and regular investment income for the institution.  Given that purpose, you would expect endowment funds to be invested more conservatively, and not in a way in which the endowment fund could conceivably lose more than 25 percent of its value in one year.

If you have been a contributor to a university’s endowment fund, only to see the value of your contribution go poof in the past year, what do you say when the college comes back to you this year to ask for help?

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Timing Is Everything

I had work obligations today, and therefore I was unable to watch today’s Ohio State-Purdue game. Given the result, I have never been so grateful to have to work on an autumn Saturday.

Congratulations to the Boilermakers. As for the Buckeyes . . . .

Parturient montes, nascetur ridiculus mus

Recently the federal ‘government issued the first “report card” on jobs creation by the $787 billion stimulus package passed by Congress and signed into law by President Obama in February. The data that was released is limited to contracts, and more comprehensive information that includes grants and loans is supposed to be released at the end of this month. Other facets of the stimulus package include “safety net” spending, tax cuts, and fiscal aid to the states.

What does the data on federal contracts that was provided indicate? According to the Recovery.gov website, 30,383 jobs were “saved or created” by the federal contract actions that have been reported to date. I am pleased to report that, in Ohio, according to the government website, 699.08 jobs have been saved or created. I’m not sure what the fractional numbers indicate, other than that partial jobs — presumably ones in which the stimulus money has produced an increase in hours, or perhaps represents a portion of the work being performed — are being counted somehow. One possible explanation may be found elsewhere on the website, where it reports that, as of October 10, 112,219 stimulus-related reports had been filed with Federalreport.gov. It is a fair guess that at least some of the jobs that are reported as having been created or saved, in whole or in part, are either governmental or private sector jobs related to completing the government paperwork and forms related to receiving contract awards and stimulus payments.

I’m sure that the 699.08 people in Ohio whose jobs have been created or saved in whole or in part by the federal contracts are happy to have those jobs and partial jobs, but I still can’t escape the conclusion that the stimulus package has not delivered much bang for the buck. Indeed, the Recovery.gov website indicates that most of the contract stimulus spending has not even occurred yet. A pie chart in the middle of the home page indicates that, of the more than 5,000 contracts being addressed, less than 20 percent have been completed, and much more than half are less than 50 percent completed or have not even begun. Such statistics just indicate that the stimulus package really failed of its essential purpose, no matter what spin the politicos try to put on it. The stated purpose of the stimulus package was to provide an immediate infusion of cash and jobs to try to moderate the recession. We are now eight months after the enactment of the package, and a significant portion of the purportedly stimulative spending has not even occurred yet.

The Latin heading for this post, by the way, refers to “laboring mightily and delivering a ridiculous mouse.”