Experts Convene at NYU Stern to Discuss Restoring Confidence in the Credit Markets

Last spring, with housing prices plummeting, oil climbing toward $120 a barrel, and the global financial system in shambles, industry, media, and academic leaders convened at an NYU Stern breakfast forum to discuss how to restore confidence in credit markets and the economy. The event was part of Stern's Market Pulse Series, introduced by Dean Thomas F. Cooley to tackle pressing global issues affecting business and society. The event, "Economic Meltdown: Restoring Confidence in Credit Markets," was co-presented by Stern's Alumni Council Finance Committee and the Salomon Center for Research in Financial Institutions and Markets and attended by alumni, students, and the press.

Moderated by David Backus, Stern's Heinz Riehl Professor of International Economics and Finance, the panel included Lionel Barber, editor of the Financial Times; Robert Litterman, chairman of the Quantitative Investment Strategies group of Goldman Sachs Asset Management; Nobel Laureate Robert E. Lucas Jr., an economist at University of Chicago; and Nouriel Roubini, Stern professor of economics and international business.

Litterman noted that financial models are showing a relatively short recession with a strong recovery at the end of 2008 but warned that the current spike in inflation could easily lead to a prolonged inflationary period, as it did in the 1970s.

Barber suggested that the scale of the crisis represents excessive risk-taking, causing a crisis of valuation that warrants a re-examination of the US's regulatory framework. However, he cautioned against adopting the British model of "financial super-regulator," reminding the audience that the British Financial Services Authority failed dismally with its first stress test, Northern Rock. Without a mandate for intervention, he said, the Bank of England wasn't in a position to take the reins.

According to Lucas, the Federal Reserve's dramatic rate cuts mark an overreaction and conflict with Chairman Bernanke's earlier promised inflation-targeting strategy. He felt that one of the most serious issues is that we take for granted that it's the Fed's job to resolve the issues of the financial system. He is concerned about introducing new regulations designed to solve old problems.

Roubini predicted a long, deep U-shaped recession as a result of what he labeled a systemic financial crisis, involving the worst housing recession since the Great Depression, credit losses that could top $1 trillion, record oil prices, a credit crunch, and plummeting consumer confidence. The key lesson, he said, is that non-banks are subject to the same risks as banks and are systemically important, suggesting the need for similar regulatory oversight.

Dean Thomas F. Cooley (left) and William R. Berkley (right) honor John Snow with the 2008 Charles Waldo Haskins Award at a celebratory dinner in April.

NYU Stern Honors John Snow and Celebrates
Donors at the 2008 Haskins Dinner

On April 1, NYU Stern alumni and friends gathered for the 2008 Haskins Award Dinner at New York's Plaza Hotel. The gathering, which included Stern's most dedicated and generous alumni, faculty, and friends, celebrated a record $180 million raised over the last five years during the Campaign for NYU Stern, surpassing its goal by $30 million at the time.

At this event each year, the School bestows the Charles Waldo Haskins Award on an outstanding individual whose career has been characterized by the highest level of achievement in business and public service. This year's recipient was the Honorable John W. Snow, chairman, Cerberus Capital Management LP, and former US Treasury Secretary. In his acceptance speech, Snow provided a lively and optimistic perspective on the current economic situation, which he deemed in a healthy process of readjustment. "America will get out of this," he asserted. "We always do."

William R. Berkley (BS '66), chairman of the NYU Stern Board of Overseers, spoke of the importance of providing stability in uncertain times through education — which he called the great equalizer and builder of dreams. In such times, he urged, it's more important than ever to provide a strong education to future generations.

Ed Barr (BS '57), chairman of Stern's Campaign Steering Committee, noted that while Campaign donors comprised a cadre of long-term supporters, many new donors emerged in the last five years. He also talked about the 40 new research, community-building, and curricular initiatives the School launched through the support of the Campaign.

Rebecca Cohl, a second-year MBA student and recipient of the Harvey Becker Scholarship with a Moral Contract, announced that 125 new scholarships were made possible by the generous support of donors over the last five years. Adam Brandenberger, J.P. Valles Professor of Business Economics and Strategy, underlined the importance of creating the right environment for ideas to flourish and told donors they had funded 23 professorships and 10 faculty fellowships. Sally Blount-Lyon, vice dean and dean of the Undergraduate College, thanked donors for the more than 40 generous gifts that will help transform Stern's physical environment. Finally, Carl Greene (MBA '60) announced a 150 percent increase in Stern Fund dollars, describing these as the School's lifeblood. The Campaign closed in August with a total of $185 million, but there remain new opportunities to give back to Stern as the need for gifts continues.

Chief Economist of the Asian Development Bank Speaks at Japan-US Center

Dr. Ifzal Ali, chief economist for the Asian Development Bank, presented the Bank's 2007 annual report on the economic health of Asian nations to Stern students and faculty at an NYU Stern Japan-US Center event held in early April.

Introduced by Edward Lincoln, director, Center for Japan-US Business and Economic Studies, Ali discussed the surging growth of several Asian economies. China led the group with the highest growth in 13 years, at 11.4 percent. The Philippines grew at 7.3 percent, a 30-year high, while India grew at 8.7 percent, marginally lower than the previous year. Ali predicted that the current economic slowdown in the US, Europe, and Japan, rising energy and food prices, and the credit crisis in the global markets would slow but not stop growth in 2008. He also predicted that inflation will reach decade-long highs in Asia this year.

New Directions in a Credit Crisis Environment: The Fifth Annual Credit Risk Conference

(Above, from left to right) Matthew Richardson, Stephen Figlewski, Edward Altman, and Raymond McDaniel (right) discussed the current credit crisis and recent advances in risk managment at the annual Credit Risk Conference held at NYU Stern in May.

NYU Stern's Salomon Center and Moody's Corporation convened leading academics and industry practitioners in May to discuss recent advances in risk management within the context of lessons learned from the credit crisis.

Matthew Richardson, Charles Simon Professor of Applied Financial Economics and Sidney Homer Director of the Salomon Center at Stern, introduced Moody's Chairman and CEO Raymond McDaniel, who cited the multiple factors that contributed to the credit crisis, including rising leverage, the overextension of housing credit, the deterioration of underlying assets and due diligence, and the complexity and opacity of products, which, combined, led to a loss of confidence in the markets. McDaniel acknowledged that, in the absence of asset transparency, the role of the ratings agencies had shifted from that of an information intermediary between lenders and borrowers to an incentive intermediary that markets relied on too much for recommendations. With this in mind, McDaniel argued for more availability of information in the public domain so that the opportunity for greater independent analysis is widely available.

Stern Professor of Finance Stephen Figlewski presented new research that explained the effect on credit risk of macroeconomic conditions such as inflation and real GDP, as well as economic growth and financial market conditions. He based his conclusions, in part, on an analysis of defaults and ratings change data in Moody's Corporate Bond Default Database between 1981 and 2002.

Edward Altman, Max L. Heine Professor of Finance at Stern, discussed his research on the impact of credit markets on the overall economy, noting that when default is high, recovery rates — which he defined as the average price of bonds following a default — are low. He predicted that recovery rates will fall dramatically from the past few years.

(From left to right) Joseph S. Tracey; William T. Allen; Doug Conant, president and CEO of Campbell's Soup Co.;
Richard J. Kogan, retired president and CEO of Schering-Plough Co.; and Reuben Mark

Sixth Annual NYU Directors' Institute Focuses on Boards during Uncertain Times

The NYU Pollack Center for Law & Business, a joint initiative between NYU Stern and NYU School of Law, in May hosted its sixth annual Directors' Institute, "Service in the Boardroom during Uncertain Times." Panelists represented the US Securities and Exchange Commission, the Delaware Court of Chancery, and the NYU Pollack Center for Law and Business, as well as directors of Goldman Sachs Group Inc., Campbell Soup Co., and Schering-Plough Co.

Joseph S. Tracy, executive vice president and director of research at the Federal Reserve Bank of New York, discussing the economy, predicted a relatively short and shallow downturn due to aggressive policy response. Reuben Mark, chairman of Colgate-Palmolive Co., the keynote speaker, described the strong relationship between corporate culture and governance at Colgate-Palmolive. William T. Allen, director of the NYU Pollack Center and Nusbaum Professor of Law and Business, endorsed the legitimacy and importance of the poison pill strategy in defending against hostile takeovers and suggested that boards not preclude it from their arsenal, despite objections from institutional shareholders. Martin Lipton, senior partner at Wachtell, Lipton, Rosen & Katz and chairman of the NYU Board of Trustees, discussed corporate governance, and Krishna G. Palepu, Ross Graham Walker Professor of Business Administration at Harvard Business School, emphasized that strategy was a useful framework for all board responsibilities.

Nathan Myhrvold highlighted the emergence and influence of long-term exponential industries during his keynote address at the NET Institute Conference in April.

NYU Stern's NET Institute Conference Explores the "Exponential Economy"

In April, the Networks, Electronic Commerce, and Telecommunications (NET) Institute and Stern's Entertainment, Media, and Technology Program co-sponsored the NET Institute Conference at NYU Stern. The conference featured new research on theoretical models of competition in network markets, Internet search, and issues in network industries presented by thought leaders from New York University, Harvard University, London School of Economics and Political Science, Stanford University, University of Pennsylvania, and Yale University, among others. Dean Thomas F. Cooley kicked off the day-long event with opening remarks.

Nathan Myhrvold, founder and CEO of Intellectual Ventures, a company focused on the funding, development, manufacturing, and marketing of inventions, delivered the keynote speech, "The Exponential Economy." He grouped technologies into three categories according to their rate of growth — exponential, ordinary/logistic, and mature — and highlighted the emergence of long-term exponential industries, such as personal computing and communications, emphasizing their influence in shaping the 21st-century global economy and guiding future research and development policies.

Nicholas Economides, executive director of the NET Institute and Stern professor of economics, commented that the conference "demonstrates how Stern and the NET Institute encourage thought leadership and remain on the forefront of research that influences business development in network industries and informs today's public policy."

Philly Fed Chief Plosser Addresses Inaugural SoFiE Conference

Academics, business practitioners, and government officials convened for the inaugural Society for Financial Econometrics (SoFiE) Conference at NYU Stern in June to explore the ballooning field of financial econometrics.

Sponsored by Stern's Salomon Center and Beyondbond, Inc., the three-day event featured keynote speaker Charles I. Plosser, president and CEO of the Federal Reserve Bank of Philadelphia, as well as leading researchers from more than 15 universities, including NYU Stern, MIT, Princeton University, Stanford University, University of Oxford, and University of Pennsylvania.

"Having Philly Fed President Plosser and a number of distinguished scholars on campus demonstrates how the Stern School and SoFiE are leading the dialogue on financial econometrics," said Nobel Laureate Robert Engle, SoFiE's co-president and founder and Michael Armellino Professor of Finance at Stern. "The cutting-edge research discussed at SoFiE's conference will inform future public policies and influence financial markets around the world."

The World of Global Professional Services Takes the Stage at CeDER Conference

Leading information systems academics, doctoral students, and IBM researchers gathered at NYU Stern for the Global Delivery of Professional Services Conference in May. Hosted by Stern's Center for Digital Economy Research (CeDER) and sponsored by IBM, the conference featured keynote speaker Joe Dzaluk, vice president of global infrastructure and resource management at IBM, and seven panel discussions with experts from more than 30 academic institutions from around the world, including NYU Stern, HEC Montréal, MIT, and University of Texas at Austin.

Panelists discussed risks and payoffs in outsourcing, sourcing models, enabling agility in sourcing, sharing knowledge for innovation, and the IT workforce. They compared the performance of globally distributed teams to collocated teams, discussed the impact a large number of vendors might have on innovation in knowledge-intensive activities, and described when to open a wholly owned subsidiary offshore. IBM's Dzaluk focused on the computer giant's operations in India, which, with an integrated workforce of 73,000, is its second largest hub worldwide, and the opportunities and challenges awaiting the company in China.

One session focused on MBA courses on global sourcing — an area where NYU Stern leads. Said Stern Professor Natalia Levina, conference organizer and global sourcing expert: "We have been offering this course since 2004. Given how new and critical this area is for businesses worldwide, it is important to develop and share good teaching resources such as cases, projects, and in-class exercises, and the conference provided us with that opportunity."