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Education The Almighty Buck

Everyone Hates Harvard 348

theodp writes: Hedge fund manager John Paulson personally took home nearly $4 billion in 2007 after convincing banks to create securities of sub-prime mortgages he could bet against. Now Harvard, which originally passed on an opportunity to join alum Paulson in his big bet, is also reaping the rewards of the nation's financial crisis as it renames its engineering school the "Harvard John A. Paulson School of Engineering and Applied Sciences" after receiving a staggering $400 million donation from Paulson, the largest gift in the university's history. Quartz argues that Paulson's $400 million Harvard donation just reinforces inequality. Author Malcolm Gladwell took to Twitter to voice his distaste (sampling: 1. "It came down to helping the poor or giving the world's richest university $400 mil it doesn't need. Wise choice John!" 2. "If billionaires don't step up, Harvard will soon be down to its last $30 billion." 3. "It's going to be named the John Paulson School of Financial Engineering.") And, in Everyone Hates Harvard, Philip Greenspun notes that even WSJ readers reacted with vitriol to the news. "I would have thought that Paulson would be a hero to market-following WSJ readers," remarks Greenspun, "not a villain."
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Everyone Hates Harvard

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  • Why? (Score:4, Insightful)

    by The Evil Atheist ( 2484676 ) on Sunday June 07, 2015 @05:30AM (#49860439)
    Why isn't this guy in jail yet?
    • Re:Why? (Score:5, Informative)

      by JaredOfEuropa ( 526365 ) on Sunday June 07, 2015 @05:53AM (#49860477) Journal
      He wanted to bet against the housing market, the banks took his bet, and he won. Many others who did the same thing mis-timed their move and lost. So why should he be in jail?
      • by mwvdlee ( 775178 )

        The others who mis-times shouldn't be in jail because THEY were lucky enough to fail.

        Somebody who fails to steal something isn't a thief, doesn't mean somebody who is a thief should get to walk too.

        • Despite what the summary says, he didn't create the problem. He recognized it and took a position. He may not be a good guy, but it wasn't stealing.
          • Re: (Score:2, Interesting)

            by Anonymous Coward

            No, it says right in the summary that the banks' decision to bundle sub-prime mortgages into complex derivatives that, on paper, had low probabilities of failing but that, in total, created systemic risk that far outweighed the risk associated with any single mortgage bundle. He knew that presenting it in a certain way would enable him to sell the idea.

            He's nothing more than a common crook, peddling dream scams to the public. Just because his marks were supposedly informed investors does not change the fact

            • by tomhath ( 637240 )

              He knew that presenting it in a certain way would enable him to sell the idea.

              That doesn't make it a crime any more than selling lottery tickets is a crime. Except the chance of losing your money is higher when you play the lottery.

              • by MrNaz ( 730548 )

                Yes, the operative words being "your money".

                As distinctly opposed to losing banks' customers' money and then a giant pile of taxpayers' money.

                • by khallow ( 566160 )
                  Paulson might have lost other peoples' money in other misadventures, but he wasn't the one losing other peoples' money in this case. My view is that Paulson performed a valuable public service. If we had the balls to let these banks and funds fail, then we'd have cut out a lot of parasites and incompetents from our economy.
              • He knew that presenting it in a certain way would enable him to sell the idea.

                That doesn't make it a crime any more than selling lottery tickets is a crime. Except the chance of losing your money is higher when you play the lottery.

                Selling "numbers" is a crime. It's only state sanctioned numbers game called "lottery" is legal.

          • He may not be a good guy, but it wasn't stealing.

            Except he was a good guy. By betting against the overvaluation of the housing market, he was helping to pull it back down to sustainable levels. If more people did what he did, the financial crisis would have been less severe, fewer people would have lost their jobs, and maybe no bailout would have been needed.

            • by Anonymous Coward on Sunday June 07, 2015 @01:35PM (#49862241)
              Posting anonymously b/c of mod points, but it sounds like he wasn't exactly a good guy. (My username is captnjohnny1618.)

              http://www.deepcapture.com/201... [deepcapture.com]

              Yes, he did be against the overvaluation of the market. The shifty thing though is that he utilized resources that nearly 100% of people didn't have access to and ultimately designed a financial object that was certainly going to fail, ensuring a huge return on his investment. Instead of calling attention and trying to fix this major major problem that would have an effect not just on our economy and our people, but economies and people around the world, he decided to take advantage of it and make a huge amount of money at the expense of millions. (If he had done that, while at the same time making a huge amount of noise about the ways he saw the economy about to fail, this would be a different conversation).

              A comparable situation in our field would be a computer person ("hacker") with significant inroads to some big chip maker (Intel let's say) identifies a weak point in the chip design exposing some hugely powerful zero day attack. He helps designs a complex "fix" that ultimately looks like it will solve the issue, yet doesn't even come close, and starts selling that to the chip company for a few millions of dollars. The complexity of it helps to obscure (for a spell) the reality that it is actually a worthless patch, and he has maintained enough separation from the issue to deny at least some of the responsibility. Selling this makes a lot of money for a lot of people, but this guys waits a little longer to cash in for himself.

              Where it really gets shifty is that this guy knows that the fix is going to fail and it's only a matter of time, so he starts betting on the fix failing (in reality, he starts "hedging" on it, which is complicated and I don't understand all of its intricacies). Lots of it. So when the fix fails, as he knew it would and maybe even planned it to, he gets to cash in, and look like one of the smart ones who saw it coming.

              In reality he saw it coming because he had a big hand in creating it.

              Now in IT/CS/etc. we call that guy a huge dick for not telling the rest of the world about the problem and letting the free software community try and come up with a fix. If he had even remotely tried to peddle his BS fix, it would've been noticed and obvious, and people would accuse him of attempted fraud. If he tried to somehow pretend like he didn't have a responsibility to tell everyone, politicians and lawyers would be all over him with some trumped up charges that feign social responsibility, when it reality are just trying to recover the money this guy took from them. This guy just doesn't have to put up with that shit because all of those politicians and lawyers are his buddies and probably walked away pretty ok from all of this while the rest of us have to sit around and pick up the pieces.

              TL;DR: You didn't have some great insight into the problem if you win by betting on a fixed fight where you knew the outcome... and helped set up the fight... and helped invent boxing.
          • Despite what the summary says, he didn't create the problem. He recognized it and took a position. He may not be a good guy, but it wasn't stealing.

            Too bad his "position" wasn't one of trying to help avoid/solve the problem rather than getting even more rich from exploiting it - a person with all his education, resources and such - but I guess the Wall Street mantra "I'm getting mine, fuck everyone else" was too strong for him. Maybe he didn't steal money (directly) but this kind of behavior is, let say, socioeconomic theft - unless he took those gains and did some actual good with it, did I miss something?

        • Re:Why? (Score:4, Insightful)

          by JaredOfEuropa ( 526365 ) on Sunday June 07, 2015 @06:53AM (#49860627) Journal
          So winning at poker or doing well at the stock exchange is stealing now? He didn't con an old lady out of her savings; he made a bet with banks and other investors who should have known better. No underhanded tricks, nothing up his sleeves, he just thought he saw were the market was going and acted accordingly. Jail the bankers for making such a mess with their subprime mortgages. Better yet: if you think this sort of thing is undesirable, propose laws against it before your start running your mouth about jailing people.
          • Re: (Score:2, Insightful)

            by Opportunist ( 166417 )

            So it's fine to be part of the problem as long as you don't break a law?

            Great, so everyone abusing social security (within the legal limits, just not within its intended function) is off the hook now and no longer a despicable sponge but actually a shrewd businessman!

            We should bail them out, don't you think? Let's all give them a hand.

            • by msauve ( 701917 )

              Great, so everyone abusing social security (within the legal limits, just not within its intended function)

              Why don't you offer an example of this legal abuse, and a cite for "its intended function"?

            • So it's fine to be part of the problem as long as you don't break a law?

              Whether or not it's "fine," we absolutely should not jail people who don't break the law. Doing so is going down a very, very dangerous road.

            • So it's fine to be part of the problem as long as you don't break a law?

              Yes, if a person acts lawfully, no matter how despicable you think his acts might be, it is still lawful. Change the law to make his acts unlawful and wait for him to violate those laws. That is what it means to be free. To be able to do anything you want lawfully unless a law passed making it unlawful.

              Great, so everyone abusing social security (within the legal limits, just not within its intended function) is off the hook now and no l

          • Partial Truth (Score:3, Insightful)

            He didn't con an old lady out of her savings; he made a bet with banks and other investors who should have known better.

            Not entirely correct. If he is the architect behind the subprime mortgages then he did not directly con an old lady out of her savings but his actions indirectly wiped half the value off those savings. He deliberately designed an extremely risky investment vehicle to look to the banks like a low risk, high return investment and they did not spot the trick. It might have been entirely legal but it bears all the hall marks of a con and in such a case, while the mark takes some blame for letting their greed o

            • Re:Partial Truth (Score:5, Insightful)

              by ColdWetDog ( 752185 ) on Sunday June 07, 2015 @12:18PM (#49861823) Homepage

              He IS NOT the 'architect behind the subprime mortgages'. He saw that the banks were creating an unholy, likely illegal (but the SEC didn't appear to care EVEN THOUGH HE WENT TO THEM SEVERAL TIMES TO DISCUSS WHAT WAS GOING ON) and then basically decided to short them. He took enormous risks doing so. The only con were the big banks who blissfully didn't care what the hell they were packaging up as long as they could sell it.

              There are a number of books on the subject. The big banks carefully held the wool over their eyes. They reaped billions and got their wrists slapped.

              Paulson isn't exactly a 'nice' guy. They don't make them on Wall Street, but he worked legally within the system. The banks, arguably not so much.

            • Re:Partial Truth (Score:4, Informative)

              by phantomfive ( 622387 ) on Sunday June 07, 2015 @02:03PM (#49862369) Journal
              If he is the architect behind the subprime mortgages

              He isn't. He told everyone that the subprime mortgages were worthless, then put his money where his mouth was. He shorted the market and got rich.

          • The stock exchange isn't supposed to be a casino. It's supposed to be a place where you can buy and sell equity in other companies. Not a place to bet on outcomes of companies which you don't actually own.

        • How is betting against someone and winning theft?

          There's a lot to be angry about in the GFC, but one person being smart enough to predict it and bet against it is not it.

      • Re:Why? (Score:5, Insightful)

        by Jiro ( 131519 ) on Sunday June 07, 2015 @06:54AM (#49860631)

        As others have pointed out, betting against the housing market is a good thing. It was betting for, not against, the housing market that caused the problem. By betting against it, he incrementally raised the cost to the banks of making bad decisions. This is beneficial to society.

        • Re:Why? (Score:5, Insightful)

          by Carewolf ( 581105 ) on Sunday June 07, 2015 @07:49AM (#49860761) Homepage

          As others have pointed out, betting against the housing market is a good thing. It was betting for, not against, the housing market that caused the problem. By betting against it, he incrementally raised the cost to the banks of making bad decisions. This is beneficial to society.

          The question is what is implied with that "he convinced the banks to create the securities that could bet against". That might be fraud or at least morally questionable.

          • The question is what is implied with that "he convinced the banks to create the securities that could bet against". That might be fraud or at least morally questionable.

            No, it is neither fraud nor morally questionable. To the contrary, if more people had done what he did, the housing bubble wouldn't have grown as big and the crash wouldn't have been as bad.

            • Re:Why? (Score:4, Insightful)

              by radarskiy ( 2874255 ) on Sunday June 07, 2015 @10:49AM (#49861427)

              The "fraud nor morally questionable" part comes from the fact that they were actively advising people to invest one way so that they could invest the other.

              • It may be "morally questionable", but that's not the issue. It's not fraud to advise people to do things against their own interest. And it doesn't change the fact that if more people had done what he did, the real estate bubble would have been less severe.

          • C'mon, don't be childish. It is not a morale question. Do you question the morale of the banks in this case?
          • by Thomas Miconi ( 85282 ) on Sunday June 07, 2015 @12:40PM (#49861915)

            He did not do any of that. The summary is inflammatory flamebait. If you click on the link, you get a WSJ article [wsj.com] that actually contradicts the summary (welcome to New Slashdot).

            The WSJ story is very clear about what Paulson did: he noticed that subprime lending was out of control, and that the standard "insurance" against bad bets (CDS) was absurdly under-priced. Note: this basically means that the Big Banks (*not* Paulson) were throwing money left and right to the subprime lenders, blind to the risks.

            So he bought a lot of CDS, and when the bubble crashed, he profited massively. The End.

        • Re: (Score:2, Insightful)

          by Anonymous Coward

          There is no benefit to the society. Not only did the banks make bad decisions, it even gave banks the opportunity to create money out of nothing, by accepting the bet that the housing market would not collapse.

          This system accelerated the housing bubble because banks kept on seeing double digit percentages by winning bets until they lost one bet and saw their system collapse. We wouldn't have heard of John Paulson if he would have made the bet a few weeks/months earlier because he would have lost his stake.

        • Finally a short insightful comment that summarizes it all. He deserved the reward he got trying to counter balancing this crazy housing market on steroids.
      • by Livius ( 318358 )

        So why should he be in jail?

        He was in an inherent conflict of interest. That's the illegal part.

    • He has money. We don't lock up our royalty!

  • Link summary wrong (Score:5, Insightful)

    by amorsen ( 7485 ) <benny+slashdot@amorsen.dk> on Sunday June 07, 2015 @06:06AM (#49860509)

    convincing banks to create securities of sub-prime mortgages he could bet against

    The article does not say that he did that. Instead, the article says that the banks bought insurance against mortgage defaults (credit default swaps), and that prices of such insurance was very low. John Paulson decided the price was too low compared to the risk, so he bought a lot of the same insurance. When the mortgages started defaulting and prices for insurance went up, he sold the insurance on to the banks at a profit.

    If there had been a hundred John Paulsons out there, credit default swaps would have gone up in price much earlier, forcing the mortgage lenders to rein-in their subprime lending, thereby either defusing the crisis entirely or at least making it much less bad. Alas, there was only one, and he was good at not getting the word out, so not many copycats. John Paulson did everyone a service and should be rewarded, not punished. The people who lend out money to people who had no chance of paying back should be punished, not rewarded.

    Anyway, I have not read other articles about him, so maybe he does deserve his apparently terrible reputation.

    I am somewhat surprised that it has fallen to me to defend a 1%'er. This is not exactly my usual modus operandi.

    • by swb ( 14022 )

      Anyway, I have not read other articles about him, so maybe he does deserve his apparently terrible reputation.

      I am somewhat surprised that it has fallen to me to defend a 1%'er. This is not exactly my usual modus operandi.

      My usual gut instinct is to think that many Wall St. guys are just greedy assholes, rigging the system for more profit. But quite often once you think about the economics of what some of them have done, it's not always quite that simple. Many of them actually see the broken basic economics on an institutional level and actually end up exploiting nothing other than the institutional greed and myopia of Wall Street.

      • Many of them actually see the broken basic economics on an institutional level and actually end up exploiting nothing other than the institutional greed and myopia of Wall Street.

        What? No. It doesn't work that way. When the Wall Streeters exploit someone and make money, other people have to suffer. It's a negative-sum game when we let them play at all.

        • by khallow ( 566160 )

          What? No. It doesn't work that way. When the Wall Streeters exploit someone and make money, other people have to suffer. It's a negative-sum game when we let them play at all.

          Except, of course, for the many situations when that isn't true. Wall Street businesses are like used car salesmen. You have to do your homework. But if you do so, then they can be worth the trouble.

          • Except, of course, for the many situations when that isn't true. Wall Street businesses are like used car salesmen.

            What, even if they don't fuck you over, they'll still try to fuck over the next guy?

      • My usual gut instinct is to think that many Wall St. guys are just greedy assholes

        They are greedy assholes. Even Adam Smith recognized that. The insight Smith had that greedy assholes actually produce beneficial outcomes for society.

        rigging the system for more profit

        "The system" is the set of laws, rules, and regulations that govern Wall Street. Greedy Wall Street assholes can try to rig these in their favor, but whether they succeed is ultimately only up to our elected officials. And that kind of "rigging"

        • by epine ( 68316 )

          The insight Smith had that greedy assholes actually produce beneficial outcomes for society.

          Not if they can help it. When they can get away with it, they produce terrible outcomes for society. Ironically, it was a lot harder for them to get away with it before everyone started parroting Adam Smith for Dummies as tautological.

          Turns out Adam Smith's insight lacked an intriguing quality of meta-robustness. When you feed it back into the system as an assumption, as we started to do beginning with the Reagan

          • by khallow ( 566160 )

            Turns out Adam Smith's insight lacked an intriguing quality of meta-robustness. When you feed it back into the system as an assumption, as we started to do beginning with the Reaganâ"Thatcherâ"Greenspanâ"Rand cult, it ceases to remain valid.

            Or we could say that the above didn't happen. It's worth noting here that the "cult" resulted in the US picking up after the stagflation of the 70s to the point that Japan suddenly ceased to be a problem (you might recall the Japanese scare of the 80s when everyone was afraid that Japan would end up controlling the US or whatnot. When Japan had a recession and tepid recovery while the US grew substantially in the mid 90s (on top of good growth throughout the 80s), suddenly those fears went away.

          • Turns out Adam Smith's insight lacked an intriguing quality of meta-robustness. When you feed it back into the system as an assumption, as we started to do beginning with the Reagan–Thatcher–Greenspan–Rand cult, it ceases to remain valid.

            Really? Can you construct a logical argument why it should lack "meta robustness"?

            When you allow greedy assholes to have the run of a giant black box, pretty soon you find yourself underwriting a trillion dollars.

            No, you find yourself underwriting a trilli

        • by sjbe ( 173966 ) on Sunday June 07, 2015 @10:50AM (#49861437)

          They are greedy assholes. Even Adam Smith recognized that. The insight Smith had that greedy assholes actually produce beneficial outcomes for society.

          Think of capitalism a bit like nuclear power. Capitalism is all about harnessing greed to the benefit of society. Unmanaged or poorly managed it results in a catastrophic meltdown to the detriment of all. With the right controls in place and good oversight (but not too much) it can be a hugely powerful force for good. This requires sensible rules fairly enforced. Too few rules and the meltdown occurs (see 2008 financial crisis). Too many rules and you don't get much benefit because nothing happens (the reaction shuts down). If things get too hot or a problem occurs you institute rules (like control rods) to throttle down the reaction before it blows.

    • by Anonymous Coward on Sunday June 07, 2015 @07:10AM (#49860669)

      The article does not say that he did that.

      Paulson did in fact do that. The Abacus deal [reuters.com] was considered fairly controversial.

    • convincing banks to create securities of sub-prime mortgages he could bet against

      The article does not say that he did that. Instead, the article says that the banks bought insurance against mortgage defaults (credit default swaps), and that prices of such insurance was very low. John Paulson decided the price was too low compared to the risk, so he bought a lot of the same insurance.

      Good summary of what happened. he bet against stupidity, and won. Now he gets to do what he wants with his money.

  • Big endowment (Score:4, Interesting)

    by Etherwalk ( 681268 ) on Sunday June 07, 2015 @06:11AM (#49860513)

    Big endowment schools are simply not the most effective place to donate. If you have a lot of money and it's really where you want to give--or more likely if you're trying to buy someone's way in--sure, nothing's stopping you from donating. But if your goal is improvement of almost anything, it's just dumb.

    Donate $1/year to keep up your alumni participation numbers, which influences the ratings of your school and the value of your degree. Aside from that, give someplace where the dollars are more effective.

    If you are going to give to a school, give to a school that does a lot of public interest work but has a low endowment-per-capita. (Georgetown Law comes to mind, for example--a law school with a strong public interest program and a small endowment per capita).

    If you are going to give to to another non-for-profit, look for direct aid dollars. Better yet, look at the Gates foundation or the like--the people who are spending billions and their life's fortune on this hire pretty good people to run it, aiming at maximizing long-term benefit. That is kind of awesome. Leverage their investment to direct your own. Picking a charity on your own is *hard*--too many are scams or mismanaged.

    • Better yet, look at the Gates foundation or the like

      Yes, just look at the Gates foundation. [latimes.com] Everything about it is wonderful [nytimes.com]. How quickly they forget that Bill Gates stole that money. Microsoft was convicted of abusing its monopoly position and general anticompetitive behavior. Then Bush's dog Ashcroft, in control of the DoJ, let them off with a warning. Not even a handslap. Microsoft is part of the evil that is buying and selling this country, and Bill Gates was chief presiding evil bastard. You really think he's changed? Guess what, the Gates Foundation i

  • by hey! ( 33014 ) on Sunday June 07, 2015 @06:21AM (#49860541) Homepage Journal

    And if you take that bait, you're a sap.

    The problem is that the banking system has been rigged in order to socialize risk. This guy exploited that fact, realized he made more money than an individual human being could possibly amuse himself with and decided to dispose of a big chunk of that were it might do a little good.

    People are shouting "Harvard! Harvard! Harvard!" because they don't want you to think about the rigged banking system. They'd rather focus any anti-elitist backlash on intellectuals.

    • by Anonymous Coward

      Many folks saw the meltdown coming. The Economist got into a famous argument with Freddie and Fannie when in the mid-00's, they published articles about how the their lending was unsustainable, fraught with risk, and headed towards economic disaster.

      I would have loved to have done what Paulson did but I just do not know that people who have the capital to invest. Paulson did. And how did he meet those people and get the hedge fund job? By going to Harvard. Hedge Funds and others actively recruit from that

      • by Vitriol+Angst ( 458300 ) on Sunday June 07, 2015 @09:31AM (#49861089)

        Thank you for saying what should be said. People don't JUST go to Harvard for an education and saying criticizing them is "intellectual bashing" is a backhanded compliment.

        The big reason to go to Harvard is because it's a fraternity of CEOs and you are connected. While a lot of people are convinced that's where the great minds come from -- well, the successful have heard that that's where the great minds come from because that's where they came from and obviously luck and the fact that their friends are billionaires had nothing to do with it, so they recruit from Harvard. And who can knock the positive attitude from people who just can't fail?

        It's a vicious circle of self-reinforcing success.

  • by Opportunist ( 166417 ) on Sunday June 07, 2015 @07:13AM (#49860679)

    I hate the useless spongers it creates.

  • by goodmanj ( 234846 ) on Sunday June 07, 2015 @07:23AM (#49860707)

    If you went to a Harvard, a Stanford, an MIT or a Texas A&M, and you happen to end up with more money than you know what to do with, you might be inclined to give a big pile of it to the university that got you started. And while that's a noble sentiment, you shouldn't. These places will continue turning out talented graduates no matter how much money you give them: you should give your money to a less-well-endowed institution, so that a larger number of students can get the same educational opportunity you had. Maybe your spouse went to a small liberal arts college. Maybe there's a place right down the road from your mansion that could use your help. But MIT and Stanford don't need your money, and they won't do much good with it.

    A bit of data: Harvard's endowment amounts to $1.7 million per student. With a reasonable return on endowment investment, hey could quite literally abolish tuition forever if they wanted to. Just across the river is Boston University, a really excellent institution with a strong research focus and really great graduates, ranked #42 by US News. Its endowment per student is 1/25th of Harvard's.

    Donating money toward improving education is a worthy goal, but don't get sentimental. Put the money where it'll do the most good for the most people.

    (Full disclosure: I'm a professor at a liberal arts college whose endowment per student is mediocre at best.)

    • Try your local community college to get the most educational bang for the buck.

    • by Alomex ( 148003 )

      they could quite literally abolish tuition forever if they wanted to.

      You know that essentially they have, right? You pay a much as you can reasonably afford.

  • by DrVxD ( 184537 ) on Sunday June 07, 2015 @07:34AM (#49860745) Homepage Journal

    Somebody who isn't giving $400 million to the poor is criticising somebody else who isn't giving $400 million to the poor for not giving $400 million to the poor?

    Ok - got it.

  • WAGE GAP (Score:2, Insightful)

    Now I know where the wage gap comes from. It's growing from the excrement that Harvard shat out.
    Its time for quality education to go to kids that deserve it.
  • and their ruling class. Harvard is just where their kids go to school.
  • I take a lot of notes in my own personal wiki. For general knowledge subjects, I often copy a few paragraphs from the Wikipedia lead, and then trim it down to just the bits I care to remember.

    There's a few things that I almost always redact from articles concerning people: Day and month of birth. Nobility and rank. (Even FRS.) These blatantly elitist and self-promotional Seminal J. J. Tractatus or Timothy Erasamus Highbrow or Jagadish Q. Deepocket professorships. (I even trim mention of the Lucasian C

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