First, Kill All the MBAs - The role business schools played in the economic crisis

[BridgeTheGap]

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.”

http://www.utne.com/Politics/Reform-MBAs-Business-Schools-Economic-Crisis.aspx?utm_medium=email&utm_source=iPost

[The Magistrate]

1. Hear Hear, Sir!

[Hello_Kitty]

2. I got my B.S. in business fairly recently

I didn't go to some topnotch business school but my macroeconomics prof was a total neo-con who loved war and was utterly incapable of seeing where outsourcing could go wrong.

[sinkingfeeling]

3. I been saying that since I first met the business school faculty here.

[On the Road]

4. Excuse Me?

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.

What business schools teach such things? MBA programs are generally two-year lockstep program that cover the basics of accouting, finance, economics, marketing, statistics, and a few related subjecs. Very little of the material is in-depth. Everything beyond that is learned on the job.

[izzybeans]

8. Kelley, Kellogg and Booth programs offer very specialized

MBA programs alongside the generic MBA. Booth offers "analytic finance" as a concentration, where you can join their hedge fund group. :)

http://www.chicagobooth.edu/fulltime/academics/curriculum/concentrations/analytic-finance.aspx

[On the Road]

15. OK, I Take it Back

you may be right about the specialized programs. Hadn't thought to that. But it's very much outside the mainstream of MBA programs. Most of the mathematical and financial stuff is really basic.

MBA students are bascially blank slates. Finance companies are hiring people with a certain intellgence and education level that they can train to do things their way. Attributing the financial excesses to "the MBAs" seems to me like blaming Harvard Law School for corrupting Bendini, Lambert, and Locke.

[izzybeans]

23. Absolutely agree.

I think however that business schools have become ideological incubators like no other department.

[AntiFascist]

9. Even in accelerated 2-year programs at top-notch schools...

they seem to teach that it is more important to put together "a convincing story" supporting a particular agenda (for example, when examining the various case studies that come out of the Wharton School) rather than examining the facts to actually learn the truth. This is precisely what is wrong with the process of finance and luring investors to particular companies. In the 90s (at least) it was all about getting in early on the upswing rather than focusing on management and business plans that would be good for the long-term.

[On the Road]

14. I Can't Imagine any School Actually Teaching That

It is true that in preparing a business case, how the solution is presented as very important. But it's important to show your reasoning and how your assumptions lead to your plan.

For similar reasons, a lot of people mistake philosophy for a license to bullshit. It is not. There is reasoning involve, even though it is not mathematical reasoning and people can come to very difficult conclusions.

Presentation and argument are important because there's no value in getting it right by accident. The goal in case studies is to be able to interpret a variety of information that results in a real-world decision. Doesn't matter how well you present it if you don't get the analysis right. And unlike many other fields, case studies are based on real companies in which the company actually made a decision, so there is a real-world test.

[AntiFascist]

16. The whole point is to be able to make a very convincing case for your decision...

more often than not, that decision is part of a larger agenda or plan. Framing is key. How many times have we seen corrupt businesspeople idolized and featured prominently on the covers of financial magazines, before their corruption ever came to light? I recall Enron executives being praised for their novel method of finance.

[On the Road]

20. I Don't Deny That Corrupt Executives

put the end ahead of the means and create deceptive cases. It just wasn't my experience in business school and frankly I doubt whether any business school teaches that.

Most MBA students are nerds in accounting or IT looking for a decent job. Unlike the early graduating classes of Harvard Business Schools, most MBAs never get that high up the corporate ladder. Managers in ruthless corporations that DO manage to climb the ladder are the ones responsible for the Jeffrey-Skilling-like practices.

Take a look at the Wired article: The Equation that Killed Wall Street. What happened was that an equation that everyone who looked at it should have known was not the correct one for the mortage industry was pushed by the managers who didn't bother to understand it but had a vested interest.

[TreasonousBastard]

5. It's not what the B-schools are teaching, it the...

arrogance of the graduates that hurts. Sometimes, it's not even their fault they act like such bigshots-- they're told they're smarter than anyone else in the world and are left alone by managers who prefer not to manage.

Notwithstanding the BBA in economics from an undergraduate B-school, a newly-minted MBA was once hired by a former employer to supervise my department. Also nothwithstanding that I was hired for the job for my experience and expertise in a small and fairly exotic area of insurance, it appears any MBA automatically knows more than the most experienced cube rat or manager.

This one at once had the sense to ask me about something I did before he wrote his report-- he blanched when I explained what he wanted to do was highly illegal, and had been since the mid 30's. After I left, he had no one to ask any more, and I heard he soon disappeared himself.

[Birthmark]

6. During the last thirty years...

...capitalism has transmogrified from a useful economic theory with wide applicability into a religion which is infallible and must be worshiped. Making the slightest assertion that the Free Market isn't godly and all-powerful elicits screams of "Heretic!!" --or the political equivalent.

[The Wizard]

17. Any system left unregulated and to its own devices

without checks and balances becomes totalitarian, and will destroy itself. Like sharks on a feeding frenzy eating one another, predator capitalists destroy the system that makes them wealthy. Bush's tax cuts for the wealthy and deregulated markets caused the economic disaster we all will have to make sacrifices to repair.
It's time to seize assets, starting with the Bush cartel.
The MBA is a useless degree founded on expanding the tuition base at business schools.

[Birthmark]

19. Looking...

Nope. Can't find a damned thing in your last post that I disagree with.

[freethought]

7. Everyone on this thread has it just about right

Just some more needs to be filled in.
First, as one poster said, the students in these programs are conditioned to think they are the elite thinkers. They are smarter than everyone else, they even believe that they are smarter than everyone else in there class. The professors do a fine job of holding themselves in this regard as well.

Something else comes into play. The personalities of many, not all, of the people who go to elite MBA programs are of a certain personality type, I guess some might call it an extreme version of the "Type A" personallity. Highly competitive, to a point to where it's almost a pathology. These individuals find it very easy to make the moral compromises that would keep most of us from getting any sleep at night. Combine this sort of personality with your MBA professors hammering the message that your the smartest of the smart and you've got a recipe for disaster. If anyone read the book, "The Predator State" by J.K. Galbraith, you could kind of get the idea, these people become a sort of "predator" and the companies they run are run in a 'predatory' way.

There is also issue of who gets promoted and how. A layman may think that, to run a large company, one would be smart, educated, experienced, and have reasoned judgement and foresight. Smart? Yeah, but not 'genius', true genius often lives on society's fringes. Educated? Okay, we'll give them that one. Experienced? Uuuhm, well.....not always. Reasoned Judgemnt and foresight? HA! There is this concept floating out there in the world of high-finance and business known as 6-Sigma. It started as a quality control concept in manufacturing but has since morphed into finance in that a company does not promote the most, experienced, knowledgable people. The practice involves promoting the most aggressive people over those with more knowledge/experience, and do it as fast as possible. Anyone remember Jeff Skilling? His policies at Enron absolutely reeked of this, people who were not even in there forties in charge of large groups of people and in charge of large amounts of money. We now know what happened to Enron don't we. And we also know where Jeff Skilling is right now as well.

Another poster put right as well, capitalism has morphed from an economic theory to an almost fundamentalist religion. Free markets are the new gods.

It's not just one thing that put us where we are, it's more like a convergence of a number of factors. At least that's how I see it.

There is also the incentives that are put into play. People, like it or not, respond to incentives. Factor a compensation or bonus incentive based on stock performance, and once again, you've got a potential Enron. Combine all the above with "naive faith in free markets" and you have our current situation, one that brings everyone else down with them.

It's almost like the old addage "Damned if you do, damned if you don't."

[truedelphi]

18. Very good points all.

Another way to look at the MBA from elite schools type of persona is this one:

Whereas a normal person views a documentary like "The Smartest Guys in the Room" with quite a bit of horror, these types look at what happened at Enron, and think "Now what part of the Enron business plan can I apply to the industry that I deal with?"

[elehhhhna]

10. The University of Chicago boyz devised the theory responsible for our economic disaster.

Hate to say so.

I'm very casually acquainted with a well-thought-of economist. She's brilliant! But for some reason, pure theory doesn't accomodate - let alone acknowledge - the reality that people are GREEDY LIARS.

[yurbud]

12. and the greedy liars spout pure theory as a smoke screen for theft--nothing more

[elehhhhna]

13. YEP! an enigma wrapped in a riddle wrapped in dogpop!

[starroute]

11. "Time for change" posted here about the predator class a few months ago

See http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x5269920

It focuses more on the parasitical and exploitative nature of the financial sector than its arrogance, but it's a good complement to your post.

[Vidar]

21. K&R.

[mule_train]

22. .

[Karenina]

24. 35 years ago or so I was hanging out in a vodka bar

with some dissidents, Russian students from NYU. Over our artfully flavoured libations one declared, "You Americans focus on the wrong things. The Soviet Union cannot destroy America, HARVARD BUSINESS SCHOOL will destroy America."