And now for something scary

onetrilliondollarsAlthough so far it has been the banks who have featured on the forefront of the recent news of the global financial fuckupery, there have been some noises warning that there might be even juicier things in store. I guess it’s official now: an article on Bloomberg states that the American pension system is currently underfunded to the tune one trillion dollars. We have gotten used to hearing some pretty big figures thrown around recently, but this is truly approaching the unreal. This is the kind of money that Dr. Evil holds the humankind in ransom for, not something you’d imagine to be able simply to take from some corner of a state budget, even if we do talk about the richest state in the world. There’s more on Baseline Scenario.

On a somewhat related note – although on a scale that is dwarfed by the news above – it appears that Harvard, the richest university on Earth, has blown about one third of its $36.9 billion endowment. This means, in practice, two things. First, even if the markets were to return to their benign selves today and start providing the generous two-digit returns that money managers at Harvard have grown used to, the annual endowment revenue would be $500 million lower than it has been in the past. And secondly – assuming no massive inflows of outside money (a reasonable thing to assume in the immediate future at least), it would take a 60% return on investment to recover the current loss of $11 billion. And while Harvard has probably been at the riskier end of endowment investment specter, it is extremely unlikely that other US universities would emerge from the same situation unscathed.

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One thought on “And now for something scary

  1. Re: Harvard and wider topic of financing the academia my friend Sarunas sent me the following link that makes several similar points, only better, and takes the argument to its conclusion. And while we’re at it, here is a speech by Dr. Faust of Harvard from the end of February where the news had apparently begun to sink in.

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