Friday, November 13, 2009

Interesting Economics/Finance Links

Three interesting links for the weekend.

1. A fascinating article in Vanity Fair on the state of Harvard's endowment (Rich Harvard, Poor Harvard). It's hard for me to really feel sorry, although I know it hurts a lot of innocent bystanders. From the article:
Only a year ago, Harvard had a $36.9 billion endowment, the largest in academia. Now that endowment has imploded, and the university faces the worst financial crisis in its 373-year history. Could the same lethal mix of uncurbed expansion, colossal debt, arrogance, and mismanagement that ravaged Wall Street bring down America’s most famous university?

2. This NYT article (free sign up required) recounts how the governor of India's Reserve Bank, Y. V. Reddy, played it tough during the bubble years, and saved the country from a financial crisis. He seems like the anti-thesis of former Fed-chairman Alan Greenspan, both in action and in popularity. From the article:
Unlike Alan Greenspan, who didn’t believe it was his job to even point out bubbles, much less try to deflate them, Mr. Reddy saw his job as making sure Indian banks did not get too caught up in the bubble mentality. About two years ago, he started sensing that real estate, in particular, had entered bubble territory. One of the first moves he made was to ban the use of bank loans for the purchase of raw land, which was skyrocketing. Only when the developer was about to commence building could the bank get involved — and then only to make construction loans. (Guess who wound up financing the land purchases? United States private equity and hedge funds, of course!)
Seeing inflation on the horizon, Mr. Reddy pushed interest rates up to more than 20 percent, which of course dampened the housing frenzy. He increased risk weightings on commercial buildings and shopping mall construction, doubling the amount of capital banks were required to hold in reserve in case things went awry. He made banks put aside extra capital for every loan they made. In effect, Mr. Reddy was creating liquidity even before there was a global liquidity crisis.

3. An interesting email conversation  (pdf) between Buffett and Raikes, regarding Microsoft and Berkshire (via Reflections on Value Investing).

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