Optimistic on Students, Ballistic on Bailouts

On one hand, there was a news item in the WSJ that outlined the details behind Citigroup's acquisition of Wachovia. Citigroup gets $312 billion of Wachovia's mortgage portfolio. As part of the arrangement brokered by the government, Citigroup's losses on this 'toxic mortgage portoflio' are limited to a maximum of $42 billion. If the mortgage portfolio losses exceed the limit, then the government (FDIC) picks up the difference. If the portfolio loses half its value, as it likely will, then the government pays up $114 billion to Citi. In return, the government gets $12 billion in warrants on stock and preferred shares. It is important to remember that the $12 billion is the present value of the warrants. If the price of Citi declines below the 'strike price' the warrants are worthless. So, if the Citigroup managers continue to do the stellar job they have done so far, the public is on the hook for a massive bailout, and gets nothing in return.

On the other hand, students in my classes give me room for optimism. They are exhibiting greater awareness and concern for environment. One student suggested avoiding plates when eating cookies and using napkins instead. A sweet idea, and something I do routinely, but it was great to see students suggest it. My students are also looking at going trayless, and are examining other measures that save money and help the environment. My upper level students are also keenly aware of the green movement and are studying firms developing environmentally friendly products and services.

If the politicians leave the financial system alone, it will eventually reach a sustainable floor, and growth will resume. The bailouts, rescue packages, government sponsored acquisitions, and other interventions just distort the correcting mechanisms that are essential for a sustainable foundation. What is vitally important is that our educational systems become competitive with those of other countries. What keeps me awake every night is the knowledge that our students are falling behind relative to students from other countries. The English language writing skills of our students are worse than the English language writing skills of students in other countries. Even students whose native language is not English can write and speak better than some of our students. Technical skills including computational abilities are also being put on the back burner. I, for one, am experimenting with self-directed teams, and am having students learn by fire. I am also trying to make my material more quantitative. Let's hope that our young can learn quickly and adapt to the rapidly evolving competitive landscape.