Ahead of the Curve: Harvard Business School Book mixes with our government’s recent history

Are you Ahead of the Curve???

 
As a first aside, President George W. Bush (’75) and Treasury Secretary Henry Paulson graduated from Harvard Business. President-elect Barack Obama received his Juris Doctorate from Harvard. Michael Bloomberg, New York City mayor, amongst other things, is a MBA from Harvard. The always quick-to-be-proud of his business acumen, ex-presidential candidate, Mitt Romney, did his work at the Crimson. And today, on the 45th anniversary of his assassination, it should be noted Kennedy graduated from Harvard (cum laude) in 1940, majoring in government. (Thus the Kennedy School of Government.)

I just finished up Ahead of the Curve: Two Years at Harvard Business School by Philip Delves Broughton, a memoir about his recent experience as a graduate student at Harvard Business School, class of 2006. Considered by most as the pinnacle school to receive that prestigious MBA at, Broughton’s story (and the title aptly reflects) on what we should be considering during these difficult times, and on the people who make these decisions.

So indeed, being a Harvard grad has its potential perks, and peaks of power.

Englishman Broughton wrote for a living before stepping into the hallowed foray that is Harvard. As a neophyte to the world of banking, finance, hedge funds and leverage buyouts, he got a crash course in what is the terminology, psychology and manipulations of business numbers, and where it would lead him even before he got started on his two-year trek. As he soon learned, there are no clear answers; just measurements of risk and reward, possibilities defined better, and the balance of what is important to know in business, and in life.

Relating to current financial malaise, a passage from the Ahead of the Curve:

“…I once asked a hedge fund manager in New York about the reckless way credit
was sold to people who could ill afford it. I said they would be ruined. They
would lose their homes and their possessions. Where were the checks on all of
this? What would happen to all these firms lending like crazy when people
stopped paying back their loans? The hedge fund manager looked at me like I was
a madman and said, ‘It’s just economic.’ He meant that over time these borrowers
would learn their lesson. The bankrupted lenders would be bought cheaply by
other investors and turned around. The economic wheel would keep turning, no
matter how many lives had been crushed against it…” (pgs. 232-233)

As we have seen with the demise of Lehman Brothers, Bear Stearnes, WaMu, IndyMac and others likely in the queue (GM, Chrysler, Lear), the economic wheel is spinning quite well as it has indeed crushed retirement funds, and stocks and put people out of work in droves. (Citigroup announcing 50,000+ in job cuts in one week.)

Our current leader, George W. Bush, seems to have adopted a technique not-as-yet-perfected when he attended Harvard, but discussed in Ahead of the Curve, the levering up through debt. This preferred technique, of financing a buyout mainly through debt, thus recording interest paid as an expense (on that debt), produces more return on equity, to equity stakeholders, thus making them extremely happy. It works if you produce a profit, can generate the cash to pay the interest payments, and can keep other expenses down, preferably through frugality to all other concerns. At some point, you take the enterprise public again with all the miscellaneous expenses cut, but likely only a real benefit to the LBO starters of the once-fat company. The actual company, the workers, are unlikely to have received any benefits.

(2nd aside) How this relates to our current government: During the Bush administration, we have ‘levered up’ the balance sheet of the United States. Taking on more debt, trying (but not succeeding) to trim other programs (those nasty entitlements) while keeping taxes on those multi-millionaires low, even giving a tax holiday to them for a decade. The low-interest rates that spurred out-of-control lending to the non-financially savvy, and the opportunists, that both got caught in the wheels of sub-prime and housing market free falls, has loaded up more debt on the U.S. Treasury balance sheet. We continue to make our interest payments on a $10,000,000,000,000 national debt, of at least $500,000,000,000. But when do we run out of fiat money? (At least if you don’t print and print, devaluing our currency to the point of worthlessness.)

But as we’ve also seen, the entities under the auspices of too much leverage have indeed failed when the cash flows stopped to these many, many banks, insurance companies, manufacturers, retailers, and now, oil entities. The deflation of the value of things is reminiscent of the Great Depression.

We are now Behind the Eight Ball: What Harvard Business School Did Not Teach President Bush.

With a new President, Obama will have to get well ahead of the curve in order to stave off the impending doomsday scenario discuss on more than one occasion here, and now, at many other media outlets.

 

As Broughton also learned, business is not solely the most important entity – as ex-CEO of GE Jack Welch had surmised, quite smugly – as the government too, has its place. For one, without a government in operation, a business cannot protect its interest via laws or the enforcement of contracts. (A business would have to act as a thug to accomplish contract enforcement. Essentially, become a government entity with enforcers and judges of people’s misdeeds.)

The argument made by Welch, that government generates no revenues, and business generates all the money, so we can ignore governance, leaves aside that a symbiotic relationship has always existed. Businesses can exist without government, but only for so long as people ascribe to obeying business edicts. Otherwise, chaos and revolt and failure soon comes. Governments can exist only if people are willing, and led to accept its rules, and abide under its control. And provides some benefit, else why have it. Neither operates in a vacuum.

The book presents Broughton engrossed in the whys of how he decided on Harvard B-School, only to not go immediately from there to a big corporate job, either as an marketing/product manager at Google, a hedge fund operator at Bain, an overworked, type-A financier on The Street, or a start-up city controller as he envisioned in one entrepreneurial leap-of-faith posited. Mr. Broughton’s book maybe a business school companion volume of One L by Scott Turow, the exploration of what it is to become a legal mind and those ramifications, but it truly reflects, that writers, are what they are: able to mirror, emote, characterize, judge and divine truth when at their best.

That somewhere on the curve, there is a path to another road, with another curve to come out ahead on.

January 20, 2009: 2009 Faux Inaugural Address

 About 3 months ago I promised to write this little post. I had decided to forego it in light of the fact I was deciding to quit blogging for a spell. With my new energy [maybe a slightly manic spell] I put forth some effort to write like the old, dusty men who ran this country years ago. My apologies to them and their words of wisdom. Hopefully you can stand the preachiness and understand the subtle ways I dismiss certain ideas that have operated during the past few years. The [Block Text] in bold is not to be read.

[History of our Country’s Patriotism]
The time was mid-summer, 1776. A powerful nation stood as an insurmountable barrier to the prosperity and operation of a 170-year old colony of thirteen, then divided. The previous decade had seen tumultuous and dangerous circumstances rule the day. No one felt free; and the far away King did not listen. Crisis was assured.

The wisest course of action would have been to accept the situation as is: to not infuriate and throw off the mighty government that held sway; to give up in the darkest hours of a fledgling Nation under haphazard leadership; to deny the Dream of Peace, Prosperity and Freedom. But our Forefathers determined that it was a time to break those bonds and strike a new accord. To declare it could do better and should be free to design its future.

In our 232 years as a Nation hence, we the people have forged an everlasting union to the ideals set forth in the Declaration of Independence. That we shall evince an equitable design for all Man to see; to make Freedom our truest value; that a single Proclamation can change the Course of human events; and that all Men shall be Equal under God Almighty.

In those same 232 years, we have past through trying times and evolved through the world events and the ingenuity of Man, of America. That even in conflict, we reached for the same founding ideals, the same credos, the same hope to guide us to a better day and build upon the unshakeable foundation we shall never succumb, and never allow to be compromised.

We are the generation of settlers born out of Plymouth Rock. We are the Puritans and Lutherans. We are the merchants, the farmers, the toilers in the trades. We are the writers and founders of American Independence. We are the Natives of this land. We are the downtrodden and the dreamers. The Immigrants of Europe, Asia and Africa. We are the Gilded Age, the voices of tired laborers, wounded soldiers, Western prairie settlers and the caregivers in times of war, and of peace. We are survivors of Two World Wars. The people of the hardest times, The Great Depression. The Boomers who came after them. We also bore witness to a hidden war; we bare witness now to a nation still divided by color, creed and disproportionate prosperity since Vietnam. And we continue to forge ahead; through crises, and the completion of our inspired mission.

We have also found fellowship in our mutual belief in humanity. The cause of designing a new Nation. The dreams of our fathers and mothers. And the sacrifices of our sons and daughters made time and time again. This hearty experiment in Democracy, which has spread to the far reaches of the Earth, has been buttressed on the unfettered and unquenchable fire of liberty burning in the bellies of the American people. We are all responsible for its existence.

[Challenges of the past eight years]
As we take stock of our most recent events, the designs and desires of various masters, it is best to separate ourselves from that, and those, that have done us greatest harm by understanding our needs for Justice must not be at the price of our Principles. As President Kennedy intoned: “When power leads man toward arrogance, poetry reminds him of his limitations. When power narrows the areas of man’s concern, poetry reminds him of the richness and diversity of existence. When power corrupts, poetry cleanses. For art establishes the basic human truth which must serve as the touchstone of our judgment.” [Amherst College, Oct. 26, 1963.]

Our nation’s power comes from an abiding strength in it, and the wise frugality of its use; but also the knowledge that the repository of our power is vast, and can be unleashed with rapidity. To garner Justice we will do whatever it takes without hesitation. In the use of such power we will employ that which will protect us, and keep us Free as our Forefathers rightfully designed. But the Poetry of America is to decree Our Rights are sacrosanct; untouchable by foreign and alien ideologies. We shall prevail over all enemies with our adamant poetry and our indomitable spirit. Our Security will be eyed clearly; under a will, resolute; and our Nation shall carry forth a strong message to all that would seek to do us harm. But our everlasting American spirit is promote Justice in our relationships; cultivate peace and harmony; and to seek out prosperous alliances iron bound in fairness.

[The present & future agenda]
Within the boundaries of this great Nation, lie incalculable resources and an innovative spirit yet untapped. America’s necessity always breeds American innovation. It runs in the blood of all of us. That is why in our present environmental and energy confinements there are opportunities to grow beyond the dogmas of the past, which lack the ability to confront the stormy present. That is why we will beat back our future’s most perilous foe, that of economic instability from scant energy sources, before the year 2020. Hindsight will see this day, this moment, as the point where America decided on the best course to free ourselves from a five-score dependence on fossil fuels. But it is that greatest resource of all, our ingenuity in the face of greatest peril, which will win the day.

We will also forge a new path to make it possible for all Americans to survive in the worst of unforeseen circumstances: that of ill health and debilitating hospital stays. Our government has often succeeded in giving a hand to those less fortunate in the worst of times. To create jobs; to revitalize the markets; to make a New Deal for Americans. It is time to do the same for the sick and unable to pay their medical bills. As we are all too aware, our personal health is at the foundation of our economic vitality. Nearly 20% of our economy is tied to deterioration of health. But with this enormous price, one-fifth of America cannot continue to achieve greater prosperity. It is vital that we address this shortcoming before my first term is out. Achieve a balanced solution that gives the best care at the lowest possible cost. And utilize again the best minds and opportunities to achieve universal healthcare in America.

More measures will be taken to secure our Nation’s future. We will not lock out those who desire access to the promise and prosperity of America, but we will not allow foreign passage to make a mockery of our laws. We will forcefully hold our sovereignty by the standards laid in the Constitution of the United States of America. We will hold clear and open discussions about the legitimate right to seek legal asylum in this great nation and remedy those that are here all ready under inauspicious terms.

We will reinvest in our educational systems; build better, and up-to-date transit systems; and make fair the tax laws and legal precedents of America, for all Americans. Yes we can reach for the stars and fill our breadbaskets. We can reconstitute an age of volunteerism, building infrastructure and homes and levies so they will not break. We shall make a promise to assist those in need and ask only they put their best foot forward. We can and shall help our Veterans who toiled bravely thousands of miles from their homes so that our streets and towns can remain prosperous and free.

[The greatness of America harnessed again]
We can do this all with the humble sacrifice and the forceful temerity that bore our Forefathers so well in their most trying times. It is the nature and depth of their sacrifice that brought us to this auspicious moment as the greatest Nation on the face of this Earth. A Nation that shall not perish with the undoubted sacrifices made by those that properly ask what they can do for this country in continuing to make it a Nation for the People, by the People and of the People.

God Bless America!

Ideas from Kennedy, FDR, Lincoln and Washington are included in the passages. Apologies for my butchering of them…

I took a Saturday Night and spent 4 hours composing this during TNT/TBS movies.