http://www.utne.com/Politics/Reform-MBAs-Business-Schools-Economic-Crisis.aspx First, Kill All the MBAs by Bradford Plumer, from the New Republic Back in October, not long after Lehman Brothers collapsed and triggered a meltdown on Wall Street, the usually prim Financial Times mocked the alumni at Harvard Business School’s 100-year anniversary gala as they “sipped champagne and chatted fondly about old times.” (“We will leave the talk of fixing the blame to others,” Harvard’s dean assured the gathering.) BusinessWeek piled on, hosting an online debate: “Business schools are largely responsible for the U.S. financial crisis. Pro or con?” These and other critics wondered: What had they been teaching our nation’s best and brightest in these MBA programs, anyway? “In a way, finance professors caused this problem—I’m not bragging about this,” says Charles Trzcinka, who chairs the finance department at Indiana University–Bloomington’s Kelley School of Business. He points out that many of the financial tools that played a starring role in the current crisis, from the countless ways to divvy up and sell mortgage-backed securities to the explosion of credit default swaps, were taught in business schools without, often, a full appreciation for how they could go sour—if, say, housing prices cratered or large counterparties went bust. Business schools aren’t, of course, primarily responsible for the implosion of global finance. But, across the country, business-school faculties are grappling with the possibility that they’ve been instilling generations of students with a naive faith in free markets, teaching them to focus solely on short-term profits, and justifying some of the more outrageous executive-compensation schemes that have become Exhibit A in the case against corporate America. In recent decades, the swelling of the U.S. financial sector has meant boom times for B-schools. By 2007 some elite business schools were shipping out roughly 40 percent of their graduates to large investment banks, hedge funds, and private equity firms, while students were elbowing their way into electives like “Corporate Financial Engineering.” Trouble was, students often weren’t learning as much as they should have. “There were so many people who just wanted to learn enough to get a job in this field,” says Trzcinka. Out in the corporate world, many managers failed to grasp the subtleties and limitations of the mind-boggling mathematical models that were helping them earn outsized returns. “Look at Lehman Brothers in 2005: If you were one of the chief risk officers, what could you have done to convince senior management that you were heading for disaster?” asks Andrew Lo, who teaches financial engineering at MIT. “I’d argue virtually nothing. Unless senior management understood these models to the extent that [their quantitative analysts] did, there’s no way you could convince them to pull back—business was too profitable.” Nor were faculty members sounding as many warnings about Wall Street as they could have. “Our tendency was just to get excited by the novelty—and by our belief that markets could do no wrong,” says Jay Lorsch, a professor of human relations at Harvard Business School. Lorsch points out that most MBA programs have to maintain friendly ties with the corporate world. Professors often consult on the side and work closely with companies to develop case studies, while business schools depend on big firms to send students to their executive programs. “This all created a tendency to go along with the business community, to not be too critical,” Lorsch says. These days, there is a genuine sense that something’s gone badly awry. At Wharton this spring, a new class on the financial crisis filled its 300 spots in less than 48 hours. Economic theories that would have been heretical 20 years ago—the idea, say, that people and markets don’t always behave rationally—are being greeted with fresh interest. At Harvard, informal debates are said to be breaking out in faculty lounges about whether professors should focus more on teaching students how to run businesses that are sustainable in the long term, rather than just pawning off the latest hedging techniques. Still, the changes amount to something less than an outright revolution. When I asked current MBA students what sorts of things they weren’t hearing discussed in class, the list of still-too-delicate topics included whether executive pay schemes might have led people to take excessive risks, whether investment banks are really “value creating,” and, of course, what role MBAs might have played in the current crisis. Rakesh Khurana, a professor at Harvard Business School, told me that business schools still need to have a perhaps-uncomfortable discussion about their broader purpose in the world—a question that involves pondering “the fundamental relationship between the economy and society.” Not the sort of thing, alas, that’s easy to stick in a textbook. Bradford Plumer is an assistant editor at the New Republic, a magazine that rigorously examines U.S. politics, foreign policy, and culture. This article was excerpted from the April 1, 2009, issue; www.tnr.com.
Great post, Quant. I enjoyed reading this article.
My take is MBAs are not as much to blame as the MSFs/PhDs. They were the one’s creating said statistical models using such measures as VaR to justify their positions. Taleb got it right and explained his position in this interesting piece. http://paul.kedrosky.com/archives/2009/07/guest_post_nass.html
But then again, PhD’s were never calling the shots.
MBA people, useless.
“Masters of Butt All”
MBAs are NOT useless!!!
People make decisions - not their credentials or degrees. What the article is missing is the behavioral aspect of the problem. One of the causes is the inability for people to think independently and question authority. Case in point: an ex-gf of mine once told me that I was foolish to question a professor since it was his job and he dedicated his life’s work to academia. I am not expecting anyone to extrapolate a solid conclusion based upon my past dating habits - I am merely using it as an example to explain my point. Now this sheep-like behavior within educational institutions resulted in a generation (or more) of professionals that lacked the skills to grasp all of these new-fangled instruments and underlying theories. You can’t just blame the faculty.
I am getting mine. After we get pass this mess (and we certainly will, sooner or later ) top MBA graduates will still be on top in the corporate world.
$tarving_Banker Wrote: ------------------------------------------------------- > I am getting mine. After we get pass this mess > (and we certainly will, sooner or later ) top MBA > graduates will still be on top in the corporate > world. Until they sink it again j/k
in my opinion MBA in itself is not what lands you a job at God (GS). getting an MBA from a top 5 means that you have the lineage, the family background, resources, good smelling ****, connections etc to get in. so its a pre-requisite to an exclusive club of the rich and mighty.
i jsut hope i can participate in the next scam.
Ppl already forgot about the financial crisis. Pay Wallstreeters big $$$ and start the bubble again.
well, boom and bust. What can you do? But I do think that graduating from a well-respected program will pay nice dividends in the long run. After all, you will be developing contacts and gaining knowledge for the rest of your career. Education, like all other investments, is risky and you may not get a return. But no balls no babies.
storko Wrote: ------------------------------------------------------- > i jsut hope i can participate in the next scam. +1 i kick myself for missing out on tech and then housing bubbles.
ValueAddict Wrote: ------------------------------------------------------- > People make decisions - not their credentials or > degrees. What the article is missing is the > behavioral aspect of the problem. > > One of the causes is the inability for people to > think independently and question authority. You are 100% on the money. Your last sentence above also perfectly decribes fresh MBAers.
I’ll will just never understand why anybody would put faith or money in a model based on the fundemental belief that people behave rationally or in their own best interest or that we can objectivly determine what is rational or what one’s best interest is. And while I believe education is invaluable people fresh out of any scholling have some of the tools but really have limited ability to use them properly. That requires experience. Oh by the way I wouldn’t have believed this when I first came out of school. I always looked at these models as a tool for an interesting acedamic discussion which you are required to make certain assumptions for in order to further the discussion. But I never beleived the held much weight in the real world.
MBAs in Finance seem to be far too generalist to really prepare someone well for a specific post graduation career track into a narrow area.
Thats the problem most MBA’s have the opinion when they finish that they are an expert when in fact they have a little bit of knowledge about a few things. Many of the current MBA’s have even less specific trainning in finance and it is really more of a management program. The programs need to instill less confidence and more knowledge in their programs
“Many of the current MBA’s have even less specific trainning in finance and it is really more of a management program.” the treatment of MBAs is done with too broad of a brush. Having recently gone through the application process, in my research on schools I encountered massive differences in the approach schools take to education (from the a la carte super elective free form MBA to the centralized, group MBA where a “class” of students takes everything together), the focus of those schools (some schools do in fact focus on management while others focus on actual concentrations), and finally, in the depth and quality of the concentrations. Simply put, after looking into it deeply, there are genuinely good finance MBA programs - and then there are crappy ones. And the marquee of the brand is not the deciding line (I was wowed by Columbia’s finance program, I was underwhelmed by Harvard’s concept of a finance conc). I think a big part of the problem is that an MBA is nowhere near as standardized as even an undergraduate finance program. For this, I think the CFA is awesome; hopefully more firms start valuing it. It is by no means perfect but it does ensure a baseline knowledge of finance that employers can count on, especially when stacked with the exp reqs. “I am getting mine. After we get pass this mess (and we certainly will, sooner or later ) top MBA graduates will still be on top in the corporate world.” I agree wholeheartedly with this; more so, I believe we will do a rerun of 2005. In the early 200s no one hired at the major finance firms - and ended up with a super weak labor pool as a result. Everyone who survived through the 2002 era did quite well (excl LEH and BSC employees) until just recently and even now many are in senior roles. History is repeating again - everyone in the Northeast who survives in a decent finance role and furthers themself with education/certs will be the prime talent for the next wave. “Until they sink it again j/k” “i jsut hope i can participate in the next scam.” “i kick myself for missing out on tech and then housing bubbles.” "well, boom and bust. What can you do? " Agreed!