Not So Well Endowed

Read this article, then read below:

Reuters: 9/10/09

In case you did not read the article that I just told you to read, here is a summary:

"Harvard and Yale, America's two richest universities, said on Thursday their endowments lost roughly 30 percent of their value last year, showing how severely the financial crisis battered even the world's best managers."

Does anything seem wrong with this statement? Let me assist. There is no way an endowment fund should lose 30% of its portfolio in any given year. Let me say this again, an endowment fund (think similar thoughts for pension funds, retirement funds, college trusts, or any other fiduciary account) should never lose 30% in any given year. If this does happen, the people managing the fund should be fired and they should be investigated for dereliction of fiduciary duties. What is a fiduciary relationship? According to the legal definition, a fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on ithe fiduciary to exercise his discretion or expertise in acting for the client. In this case the university, and ultimately the students, are the clients. Why should this matter? Because what I am indirectly saying is that they are gambling your money. Sound familiar?

Not convinced that they were gambling college funds?

"In recent years Harvard and Yale invested heavily in hedge funds, private equity funds and timber, relying on these alternative asset classes to add billions to their endowments."

or

"Additionally, Harvard is reducing its exposure to real assets, such as real estate, timber and commodities, and is investing its future commitments in private equity funds and other investment funds. Harvard will also have a bigger cash buffer, keeping roughly 2 percent of the portfolio, instead of having it fully invested."

Think about the fact that none of the endowment fund was being held in cash or ultra short-term securities. Also, consider the sheer size of the investments held in private equities, real estate, and other illiquid assets. These kinds of investments can not be bought and sold on short notice, nor is there a daily market price. Essentially what those "smart people" at Harvard and Yale were doing were acting like they were Wall St. investment bankers rather than professionals hired to safeguard university assets. There is no other way to put it; they were in breach of their fiduciary responsibilities. That is criminal, literally.

What is most disturbing about reading an article like this is that the article is completely missing the point. In fact, the article actually gives some support to the fund managers' behavior by citing how the funds' performance have historically been above market average. These funds should never have above market average returns since that implies that they are riskier than the markets themselves. These funds should be boring in their approach to investments and should focus on preservation of principal.

The role of journalism is to ask why things are the way they are and not to roll over and say, "Those smart guys lost money, so I don't feel so bad about losing mine." Does anyone perhaps think that we as a country should start actually taking a step back from our most basic assumptions and think, "Wait a second, are these people really that smart after all?" Probably, the more pertinent question is how do my incentives align with the incentives of the people managing my money? This is especially relevant here, since in reality these people were criminally negligent, but were rewarded for taking huge risks. The scary thing is that the same can be said about virtually every pension fund in America, government or otherwise.

The bottom line is that the only thing that should be shocking about this article is that nothing is being done to prevent this exact behavior in the future. When this does happen again, please just read this article again.

Texas' Least Favorite Class: Social Studies

Last week most Texas schools decided that they would not allow President Obama's speech to be aired in their schools. Why not? The most predominant answer out of Texas: I don't want my child brainwashed by a Socialist. Of course, there were other excuses. Personally, my favorite was, "I don't want my child wasting class time." Now we all know that the first day of school is a universal waste of time, but a valid point could have been made if these same parents didn't elect to keep their children at home in order to evade the President's speech.

In my opinion this is a new low point in our society, and especially for Texas. Forget that the President of the United States is the President of the United States for a minute. Politics is clouding the bigger issue here. Instead, consider the fact that the lesson being taught here is: If you do not agree with someone's opinion, don't listen to anything that they have to say.

So, let me address the main Texan argument (since I listened to what they said).............Socialism. Of course, we all know that Socialism is the root of all evil and as un-American as South America, or is it? I hate lowering myself to defining things as a way to make an argument, but here it goes.

Socialism: a system or condition of society in which the means of production are owned and controlled by the state.

In other words, the state (i.e. the government) controls the entire show from A to Z. We all know that there is a backlash right now against a national healthcare system. Why? Because allegedly that would be a socialist idea. This is not exactly true since what is being proposed would neither eliminate private health care companies, nor would it centralize medicine in the US. If people think a national healthcare option is a socialist idea, why then is there a national requirement that part of every paycheck in America goes towards Medicare and Medicaid? How has this flown under the radar? These programs already exist, and certainly are closer to the definition of socialism.

Other government programs could also be compared to the definition of socialism. Social security is an obvious one. After all, the program has "social" in the name. Here are some others:

Oil Subsidies
Energy Pricing Controls
Farm Subsidies
INS / Border Patrol
Military
Public Schools

Since this whole article started with schools in mind, let's come full circle on this whole socialism thing. Do any of us remember the crown jewel of domestic programs by our former Texan Republican President? No Child Left Behind. Under this program public schools have their federal funding cut if they fail to meet state mandated standards. Just to review our handy definition of socialism:

A system or condition of society (No Child Left Behind) in which the means of production (federal funding) are owned and controlled by the state (state test standards).

This program is socialist in concept at its very core. Therefore, if it was logical to keep your child home from school in order to avoid the President's socialist brainwashing speech, why would you ever send them back to socialist boot camp for the next 12 years? I guess we can all look forward to a generation of non-socialist dropouts. What a relief! Take that France. What are you looking at Canada? Any questions Britain?

I think it would be naive of me to think that I will be spared from more inaccurate and inflammatory rhetoric in the coming weeks and months. What I do sincerely hope is that people will take the fingers out of their ears and listen. If they don't you can count on a new national program: All People Left Behind.

Alcohol Charged with 2,437,017 Counts of Abuse

Alcohol may finally need to sober up. A judge in New York's federal superior court held a formal arraignment hearing for Ethanol (alcohol's real name) during a special court proceeding on Labor Day. Ethanol has been accused of physically abusing millions of people worldwide, and the sheer size of the indictment that has been handed down is an indication of just how extensive the alleged abuse was. Witnesses are still being vetted, but over 400,000 testimonials have been collected so far, and that number is bound to increase. No one really knows just how much abuse may have happened. Additional indictments may be handed down if more people continue to come forward.

For some, the abuse has lasted for years. Court documents indicate that police believe that Ethanol managed to hide the alleged abuse by convincing its victims to consume itself. Once inside the helpless target Ethanol would use its unique chemical properties to torment its host. Due to the fact that Ethanol was hidden within an individual, there were virtually no external signs of abuse. Any slurred speech or random acts of stupidly were generally considered to be the fault of the individual. Typically, to avoid detection after the abuse took place, Ethanol would convince the abused to help it escape through their mouth while hiding itself in piles of late night burritos or onion rings. Ethanol has also been accused of sneaking out of its victims' urethras while the victims were distracted in the bathroom or while they were sleeping.

How did this kind of abuse go on for so long? "The problem is that we always blamed the people, and not the ethanol itself," says medical expert Joseph Snider. "Ethanol's real social coup was that it convinced us to think that it was being abused and not the other way around." If these allegations prove to be true, Ethanol could be looking at over 20,000,000 million years in prison.

The federal prosecution team has a difficult job even though it literally has tens of thousands of witnesses. The main problem is that Ethanol is technically a chemical compound, and its defense attorney Ima Blitzed will inevitably argue that hier client lacks the cognitive powers to be responsible for any abuse that may have happened. Disputing these claims could prove difficult. Ethanol does lack a brain, and clearly is incapable of operating any kind of machinery. Therefore, some of the more serious claims of vehicular misconduct will be especially hard to prove.

Federal officials are also concerned that if convicted, the current prison system will be incapable of effectively containing Ethanol. Federal penal code 237.44.r21 explicitly states that federal inmates must be allowed a minimum of 25 square feet of space while incarcerated. As a result, it would be illegal to restrain Ethanol using a bottle or other container while in prison. This could prove to be a very unwelcome distraction for the government as the defense will no doubt try to have the case dismissed on the grounds of inhumanity. That in itself is ironic since Ethanol is not human.

This case has certainly been groundbreaking on several different levels. Undoubtably more questions will surface over the next few weeks as federal prosecutors lay out their case against Ethanol. To be certain, the thousands, if not millions, of victims around the world will be following this case. For them, the scars of abuse will remain forever. A small golden lining is that most of them can not remember much about it.