Posted on 07/23/2009 4:12:33 AM PDT by FromLori
At Harvard University, they have lowered thermostats during the winter months from 72 degrees to 68 degrees. Hot breakfasts are no longer served on weekdays at undergraduate residential houses. Instead of bacon, poached eggs, and waffles, students have to get by on cold ham, cottage cheese, cereal, and fruit. These are just some steps Harvard is taking to battle serious financial problems. Part of the blame belongs to President Obama's top economic adviser Larry Summers.
In a story for Vanity Fair, Nina Munk details the crisis.
Harvard College, the Graduate School of Arts and Sciences, and the School of Engineering and Applied Sciences is facing a budget deficit of $220 million. Construction is halted on a $1.2 billion science complex.
Over the 20-year period from 1980 to 2000, Harvard University added nearly 3.2 million square feet of new space to its campus. But so far this decade, incredibly, from 2000 through 2008, Harvard has added another 6.2 million square feet of new space.
At it's peak in 2008, Harvard's endowment stood at $36.9 billion. Some estimates now have its value at around $18 billion, much of it in illiquid investments.
According to Forbes magazine, Harvard has $11 billion of unfunded commitments—money promised, but not yet paid, to various private-equity funds, real-estate funds, and hedge funds.
Last December, the university sold $2.5 billion worth of bonds, increasing its total debt to just over $6 billion. Servicing that debt alone will cost Harvard an average of $517 million a year through 2038.
Munk writes:
To be clear, even if you’d tried hard, you could not have picked a worse time to sell bonds than December 2008; that was the precise moment when credit markets seized up. But Harvard, it seems, had no choice. Unwilling to sell its assets at fire-sale prices, it needed immediate cash to cover, among other things, what my sources say was approximately a $1 billion unrealized loss from interest-rate swaps. That’s a staggering figure: $1 billion, roughly a third of the university’s entire operating budget for last year.
What's Summer's role? He had a let the good times roll mentality. An increasingly bloated payroll of the highest paid professors in the country.
Today, on average, a full professor at Harvard earns $192,600, before benefits; that’s more than he or she would make at any other school in the nation. (At Yale, for example, the average salary is $174,700. At the University of California, Berkeley: $143,500.) And a if there is space, put up a building mentality, Here's Munk: Harvard’s soaring endowment was the key to Summers’s blueprint for the future. Instead of promoting fiscal restraint, he argued, Harvard should loosen its purse strings. The endowment should be used for “priorities of transcendent importance,” he proclaimed to The New York Times in 2008, after resigning as Harvard’s 27th president. “There is a temptation to go for what is comfortable,” he added, “but this would be a mistake. The universities have matchless resources that demand that they seize the moment.”
Caught up in the exuberance of the new millennium, and guided by Summers’s transcendent vision for the university, Harvard embarked on a plan of action. In September 2003, Summers cut a crimson ribbon marking the opening of the $260 million New Research Building, at Harvard Medical School: at 525,000 square feet, it was the largest building in Harvard’s history. The previous year, construction had started on the 249,000-square-foot Center for Government and International Studies (cgis). Designed by Henry N. Cobb, architect of Boston’s John Hancock Tower, cgis, with its two identical buildings covered in fragile terra-cotta panels, ended up costing a reported $140 million, more than four times what the planners had first anticipated.
The New College Theatre came next—a beautiful 272-seat space, built on the site of the Hasty Pudding Theatre of 1888 and retaining, at great expense, the Hasty Pudding’s historic façade. A few months later, in November 2007, Harvard’s Laboratory for Integrated Science and Engineering was completed. Its vital stats: 137,000 square feet, an internationally esteemed architect (1996 Pritzker winner Rafael Moneo), and a $155 million price tag, funded almost entirely with debt. Munk's full report is here.
http://www.vanityfair.com/politics/features/2009/08/harvard200908?printable=true¤tPage=all
Obamanomics doesn’t fly in the real world. doesn’t take a Harvard professor to figure that out.
Well, Harvard alumni certainly played a key role in bringing about the financial crisis that cut the value of its endowment from $37 billion to $18 billion, alumni both in Congress and on Wall Street.
Let's all have America do the same [/not].
Yes exactly and that is why I thought everyone should read this.
Maybe Summers let some women do the math behind his decisions.
Dearest Harvard-TOUGH!
lol you are Incorrigible
Isn’t Obama considering Summers for Fed Chair?
Let us hope he does not get the job at the Federal Reserve in January. If he could screw up something that small so bad, then what do you think would happen at the fed!!!
The problem is not lack of students. Harvard, of course, never has a shortage of applicants, but system wide, colleges are usually an inverse economic indicator. When jobs get scarce, people return to college to hide out or retool for a new profession. Students generally don't pay their own way, though. Roughly 80% of college students get some kind of financial aid. This aid comes from alumni, corporations and the government. Many students take out loans. As alumni lose jobs, corporations struggle with bottom lines, government revenues fall, and loan sources dry up, and financial aid becomes more scarce, colleges are getting ready to have another problem. Increasingly, students who want to go to college will have no way to pay for it. I know that sob story ads have been talking about students not being able to afford college have been around for years, but in the US that's mostly been hype. If someone wanted to go to college, they might not go to a big fancy school, but they could go somewhere and make it work. Those days may be drawing to a close.
Tuition at state colleges (not particularly relevant to Harvard) is heavily subsidized by state coffers even for students that do not receive aid. Texas has already taken steps to reign in college funding, and I expect them to become more aggressive.
Colleges have spent lavishly, and are servicing debt and tenured salaries. If they raise tuition to cover actual expenses while financial aid is falling the number of students will drop and revenues will go down.
I don't know how many Freeps remember this, but up until the great society, colleges tended to be quite frugal. In fact, a common theme in 40s, 50s, and early sixties movies was about colleges facing the possibility of closing due to funding problems. That's been extremely rare for the last forty years. It may not be in the future.
Remember that behind almost every large financial debacle stands someone who graduated from the place, folks who have never done an honest day's work in their lives.
Funny that their great economics professor JK Galbraith warned everyone of what was to come, of the folly of their absurd expectations in "The Great Crash." No one reads that anymore.
A yes, the real revolving door - Harvard - GS - Treasury. The real axis of weasels.
Ooh thank you I am trying to connect all the dots and did not know that.
The genius's that invented them.
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