Harvard alum Iris Mack, MBA/PhD communicated with Larry Summers (former Harvard President and current Obama economic advisor) to express her concerns about how her Harvard Management Company (HMC) boss Jeff Larson used derivatives to manage an HMC portfolio. Larson eventually left HMC to start Sowood hedge fund with hundreds of millions of dollars of Harvard alums' donations. Sowood was one of the first hedge funds to blow up during the subprime mortgage derivatives crisis. Dr. Mack communicated with Summers' office regarding such derviatives trades. Perhaps, she could have saved Harvard alums hundreds of millions of dollars if Summers had bothered to continue to hear her out before forcing her resignation. There is a wealth of information describing this derivatives whistleblowing case: correspondence between Dr. Mack and Summer's office (emails, faxes, snail mail, phone records, etc.); legal documents; reports from FBI and DOJ interviews, etc. Given all this, you have to wonder whether Summers was either too (a) corrupt and wanted to coverup up something(s) at HMC. (b) arrogant to think that Dr. Mack had anything of value to tell him about mathematical finance and derivatives. Please recall Summers' comments about women and math. Also, please note that Dr. Mack has a doctorate in Applied Mathematics from Harvard and a Sloan Fellows MBA from London Business School. (c) incompetent to understand what Dr. Mack was trying to warn him about regarding derivatives trades in HMC portfolios. Did Summers try to silence Dr. Mack the way he, Rubin and Greenspan tried to silence Attorney Brooksley Born of the CFTC.

Interestingly enough old Lawrence Summers name pops up again as a member of the Harvard Corporation. This corporation manages the Harvard Endowment. http://www.uni-muenster.de/PeaCon/global-texte/g-b/Harvard/Harvard-Corp.htm Rubin was also a memeber of that Board. As One Blogger put it: "Harvard has had a peculiar recent history that one would expect to destabilize its endowment more than others. I used the term "super-egoed-economist" above to refer to Larry Summers' indisputably huge ego, but that doesn't mean he knows what he's doing as a policy maker or administrator. Summers helped create the bubble in the national economy and came back to Harvard to create bubbles in biomedical research (as though the NIH budget would double indefinitely) and to foist brobdingnagian, unaffordable expansion plans in general. But basic infrastructure, such as House and athletic facilities, were left unrenewed and faculty salaries merely rose with a vague inflation number. Summers has presided over more bubbles than Lawrence Welk, and is a man of a yesterday that never really was. Yale has never had a Summers, and that's a very good thing. But Robert Rubin has been a bigger source of problems for Harvard than Summers has, much better at evading the consequences of his own incompetence and, most important, HE'S STILL THERE. Rubin was a prime mover in elevating Summers to both Secretary of the Treasury and the Harvard presidency. Once in office, Summers elevated Rubin to the Corporation along with others and the Summers-nominated Corporation, in turn, authorized the University policies that Summers attempted to effect. That attempt brought down his presidency, leaving both Harvard and its endowment company the divided, undermanaged messes they are today. Aside from Summers' replacement, the same Corporation is in office today."

This gross greed on the part of the over paid money managers and the Harvard corporation, who should have had some oversight of the situation, will have devastating consequences on the lives of many Harvard employees. Despite the fact that there is still a large endowment, the corporation has tightened the belt and many departments are taking substantial cuts to their budgets. Many of us average Harvard employees will be losing our jobs over the coming months. All because some team of money managers were anxious to fatten their own wallets, and decided to take risks with money that did not belong to them. When did the American people start expecting to make money hand over fist by doing nothing more than having money. What happened to the idea of working hard, having morals and ethics, and making sensible well researched investments and expecting a reasonable return on that. We are bankrupt in more than one way.

While Harvard may have been a bit too aggressive in their bets (or too greedy in not selling assets at the peak), the fact remains that endowments such as Harvard's have a time horizon that is well beyond that of the average investor or instution, allowing them greater flexability and less stress during times of crisis. Harvard is comfortable locking up capital for 10+ years, and as long as they have liquidity to get them over the current hump, they will likely see appreciation on many of the positions they took in the 2000s. While the year to year variation in asset prices for many 'hard assets' such as oil, timber, etc. are extremely volatile, the long term (10+ year) prospects for these investments remains robust. The fact Harvard bought in the early 2000s means they're probably still showing a paper gain, just down from the peak. Investments in volatile emerging markets will also likely to be profitable on a 10-20 year time horizon. HMC has always been a trail blazer with regards to endowment management, and don't be so quick to renounce their managers as incompetent. HMC will live to fight another day.

I hope they have a clawback for the overpayment of their fund managers. As a graduate I was startled by receiving a dunning letter from President Faust then an announcement of retrenchment. The endowment should allow for counter cyclic spending - they can spend down and still operate. Let's see some real leadership here!