A Senate investigation into the financial crisis has found that Goldman Sachs, the storied Wall Street investment bank, sought to profit from the historic decline in housing prices by betting against the U.S. mortgage market.
The documents show that Goldman, at times, made big, profitable bets against the housing market -- sometimes betting against mortgage investments that it had sold to investors.
Sen. Carl Levin (D-Mich.), chairman of the Permanent Subcommittee on Investigations, said four internal e-mails released Saturday contradict Goldman's assertion that it didn't seek to profit from the housing downturn. "Goldman made a lot of money by betting against the mortgage market," Levin said.
In a November 2007 e-mail, Goldman chief executive Lloyd Blankfein wrote that the firm "lost money" on the housing market, "then made more than we lost because of shorts."
The release of the documents comes as Goldman Sachs is preparing its most detailed defense yet to allegations that it misled clients in its mortgage securities business, arguing that the firm was unsure whether housing prices would rise or fall and did not take any action at odds with the interests of its clients.
An internal Goldman document, prepared for senior executives and obtained by The Washington Post, describes debates among top executives in 2006 and 2007 over whether the firm should make investment decisions based on the belief that the mortgage market would continue to prosper.
The document details meetings and e-mails that ultimately resulted in a decision to reduce the company's exposure to the mortgage market, especially subprime loans, by making new investments that would pay off if housing prices fell.
Goldman has been widely criticized for investing its own money to bet against the housing market while simultaneously urging clients to invest in securities that would increase in value only if the housing market did.
Those concerns over possible double-dealing spiked a week ago as the Securities and Exchange Commission filed a fraud suit against Goldman, alleging that it misled clients by selling them mortgage-related securities secretly designed to fail.
The Senate panel will hold a hearing on investment banks and the financial crisis Tuesday. Blankfein and other executives are scheduled to testify.
In one of the e-mails obtained by the committee, Goldman chief financial officer David Viniar responded to a report that the firm earned $50 million in one day with bets that the housing market would decline.
"Tells you what might be happening to people who don't have the big short," Viniar wrote to his colleagues.
In another e-mail, Goldman executives discussed how one subprime mortgage lender the company worked with was facing "wipeout" and another's collapse was "imminent." Goldman helped these lenders bundle and sell their loans to investors.
But one executive, Deeb Salem, wrote, the "good news" was that Goldman would profit $5 million from a bet against the very same bundles of loans it had helped create.
In an October 2007 e-mail, Goldman Sachs mortgage trader Michael Swenson was gleeful at news that credit-rating companies downgraded mortgage-related investments, which caused losses for investors.
"Sounds like we will make some serious money," the executive wrote.
"Investment banks such as Goldman Sachs were not simply market-makers, they were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis," Levin said. "They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities, and sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the instruments they sold and profiting at the expense of their clients."
The e-mails released Saturday portray a different narrative than the one Goldman has given about its role in the mortgage market.
According to Goldman's 11-page defense, while the firm moved to significantly reduce its losses when the housing market cratered, the bank was confused, like many other financial firms, over how bad the collapse would be and suffered losses as a result.
The document also reprises Goldman's frequent explanation that it was not investing its own money in financial transactions to make a trading profit but to help investors who wanted to do a deal and could not easily find someone to trade with. That role, commonly played by investment banks, is known as being a market maker.
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In the paper, Goldman argues that it was a relatively small player in the mortgage market, bringing in only $500 million from its residential mortgage business in 2007, less than 1 percent of the firm's overall revenue.
Still, the bank's mortgage investments were large enough that executives began to worry in 2006 that it was betting too heavily on the health of the housing market.
According to the document, the concerns arose in late 2006, when Dan Sparks, the head of the mortgage unit, wrote to top executives that the "subprime market [was] getting hit hard," with the firm losing $20 million in one day.
On Dec. 14, 2006, chief financial officer Viniar called Goldman's mortgage traders and risk managers into a meeting to discuss investing strategy. They concluded that they would reduce the firm's overall exposure to the subprime mortgage market.
But the prevailing view of executives, as described in the paper, was not that the housing market was headed into a prolonged decline. They were not looking to short the market overall. That would have entailed making such large bets against mortgage securities that the firm would turn a profit if the market as a whole collapsed, which in fact it did.
The document acknowledges that Goldman at times shorted the overall market but describes those periods as temporary while the firm was rebalancing its portfolio to limit losses if mortgage securities were to lose more value.
At some moments, executives were actually considering making new bets, buying potentially undervalued securities that could pay off when the mortgage market turned around. A day after Viniar met with traders and risk managers, he wrote to Tom Montan, co-head of the securities division, saying, "There will be very good opportunities as the markets goes into what is likely to be even greater distress and we want to be in position to take advantage of them."
The back-and-forth over which way the market would go, and how to invest in it, continued into 2007.
On March 14, Goldman co-president Jon Winkelried e-mailed Sparks and others asking what the bank was doing to protect itself from a decline in prices of not just subprime loans, but also other loans traditionally considered less risky. Sparks replied that the firm was trying to have "smaller" exposure to those loans also.
But managing director Richard Ruzika took issue with that answer a few days later, saying that Goldman might be overestimating the decline in housing. "It does feel to me like the market in general underestimated how bad it could get. And now could be overestimating where we are heading," he wrote in an e-mail. "While undoubtedly there will be some continued spillover, I'm not so convinced this is a total death spiral. In fact, we may have terrific opportunities."
Sparks later endorsed that optimistic view, suggesting as late as August 2007 that Goldman begin buying more mortgage securities.
The bank did not immediately follow that path, and by Nov. 30, 2007, Goldman had largely canceled out its exposure to subprime mortgages by increasing its bets that the market would continue to slide, according to the document.
But by that account, Goldman also continued to have $13.5 billion in exposure to safer, prime mortgages. That cost the bank. In 2008, the firm lost $1.7 billion on investments in residential mortgages.
US military launches top-secret robotic spacecraft
WASHINGTON (AFP) - A US Air Force unmanned spacecraft has blasted off from Florida, amid a veil of secrecy about its military mission.
The robotic space plane, or X-37B, lifted off from Cape Canaveral atop an Atlas V rocket at 7:52 pm local time (2352 GMT) Thursday, according to video released by the military.
"The launch is a go," Air Force spokeswoman Major Angie Blair told AFP.
The lift-off appeared to proceed as planned without major problems, judging by the commentary in the Air Force webcast.
Resembling a miniature space shuttle, the plane is 8.9 meters (29 feet) long and has a wing-span of 4.5 meters.
The reusable space vehicle has been years in the making and the military has offered only vague explanations as to its purpose or role in the American military's arsenal.
The vehicle is designed to "provide an 'on-orbit laboratory' test environment to prove new technology and components before those technologies are committed to operational satellite programs," the Air Force said in a recent release.
Officials said the X-37B would eventually return for a landing at Vandenberg Air Force Base in California, but did not say how long the inaugural mission would last.
"In all honesty, we don't know when it's coming back," Gary Payton, deputy undersecretary for Air Force space programs, told reporters in a conference call this week.
Payton said the plane could stay in space for up to nine months.
Flight controllers plan to monitor the vehicle's guidance, navigation and control systems, but the Air Force has declined to discuss what the plane is carrying in its payload or what experiments are scheduled.
Pentagon officials have sidestepped questions about possible military missions for the spacecraft, as well as the precise budget for its development -- estimated at hundreds of millions of dollars.
The results of the test flight will inform "development programs that will provide capabilities for our warfighters in the future," Payton said.
Industry analysts have speculated the Pentagon must have military capabilities in mind for the unmanned spacecraft or else would not have invested so much time and money in the effort.
The space plane -- manufactured by Boeing -- began as a project of NASA in 1999, and was eventually handed over to the US Air Force Rapid Capabilities Office.
Once in space, the vehicle is powered by solar cells and lithium-ion batteries.
The Air Force has plans for a second X-37B, scheduled to launch in 2011.
The robotic space plane, or X-37B, lifted off from Cape Canaveral atop an Atlas V rocket at 7:52 pm local time (2352 GMT) Thursday, according to video released by the military.
"The launch is a go," Air Force spokeswoman Major Angie Blair told AFP.
The lift-off appeared to proceed as planned without major problems, judging by the commentary in the Air Force webcast.
Resembling a miniature space shuttle, the plane is 8.9 meters (29 feet) long and has a wing-span of 4.5 meters.
The reusable space vehicle has been years in the making and the military has offered only vague explanations as to its purpose or role in the American military's arsenal.
The vehicle is designed to "provide an 'on-orbit laboratory' test environment to prove new technology and components before those technologies are committed to operational satellite programs," the Air Force said in a recent release.
Officials said the X-37B would eventually return for a landing at Vandenberg Air Force Base in California, but did not say how long the inaugural mission would last.
"In all honesty, we don't know when it's coming back," Gary Payton, deputy undersecretary for Air Force space programs, told reporters in a conference call this week.
Payton said the plane could stay in space for up to nine months.
Flight controllers plan to monitor the vehicle's guidance, navigation and control systems, but the Air Force has declined to discuss what the plane is carrying in its payload or what experiments are scheduled.
Pentagon officials have sidestepped questions about possible military missions for the spacecraft, as well as the precise budget for its development -- estimated at hundreds of millions of dollars.
The results of the test flight will inform "development programs that will provide capabilities for our warfighters in the future," Payton said.
Industry analysts have speculated the Pentagon must have military capabilities in mind for the unmanned spacecraft or else would not have invested so much time and money in the effort.
The space plane -- manufactured by Boeing -- began as a project of NASA in 1999, and was eventually handed over to the US Air Force Rapid Capabilities Office.
Once in space, the vehicle is powered by solar cells and lithium-ion batteries.
The Air Force has plans for a second X-37B, scheduled to launch in 2011.
'You Cannot Invest Without Investing Around the World'. By Azi Paybarah
Michael Bloomberg defended the practice of investing money in tax-free offshore accounts, saying we're in a "global" environment and, "You cannot invest without investing around the world."
The question came after an Observer story described how Bloomberg's Family Foundation invested hundreds of millions of dollars in the Cayman Islands and other places.
The investments "are perfectly legally, fully disclosed, and they're appropriate to maximize the assets which I'm giving away to charities," Bloomberg said.
When asked specifically if he supports the investments being made overseas, Bloomberg said, "You cannot invest without investing around the world."
The comments came when Bloomberg spoke to reporters minutes after President Obama's speech about proposed Wall Street regulations. Bloomberg warned that overregulation and taxation could send businesses and jobs to less stringent countries.
The question came after an Observer story described how Bloomberg's Family Foundation invested hundreds of millions of dollars in the Cayman Islands and other places.
The investments "are perfectly legally, fully disclosed, and they're appropriate to maximize the assets which I'm giving away to charities," Bloomberg said.
When asked specifically if he supports the investments being made overseas, Bloomberg said, "You cannot invest without investing around the world."
The comments came when Bloomberg spoke to reporters minutes after President Obama's speech about proposed Wall Street regulations. Bloomberg warned that overregulation and taxation could send businesses and jobs to less stringent countries.
PersonalFinance: Building Your Own Annuity Post a Comment By Linda Stern
WASHINGTON (Reuters) - Need retirement income? You can create your own annuity with a carefully crafted mix of bonds that will "immunize" your income against market change, say experts at Asset Dedication financial consulting company.
Asset Dedication, which uses technical computer modeling to "engineer portfolios" for financial planning clients, has been working with a variety of bonds and stocks with the aim of allowing retirees to get the income they need in the short run while protecting their assets in the long run.
The theory behind their work goes something like this: Retirees need to be able to count on an income stream from their investments, but they also need to be able to grow their investments by more than they withdraw, so that their nest egg will last them a lifetime. Many advisers recommend that retirees split their money into two pots, keeping some of it in stocks that would be expected to grow over time. The other pot is often put into an immediate annuity that will guarantee a monthly payout for life. Some experts suggest foregoing the annuity and instead peeling off three to five years of spending money and keeping it liquid in a bank account or money fund.
The Asset Dedication plan, devised by company president J. Brent Burns and investment strategist Steve Huxley, builds on this theory. But instead of keeping the three-year to five-year funds completely liquid, they build a portfolio of Treasury bonds and CDs from it. The portfolio is stretched out over that time period; some of the bonds are very short term. When those first bonds mature, in six months or a year, the owner can use the proceeds as part of their spending money. That allows the investors to set aside less of their portfolio in bonds and keep more in stocks.
The longest bonds in the portfolio would not mature until the end of the three-year or five-year period. Every year the investor could take one more year's worth of spending money and put it into the longest bonds, grabbing the highest possible safe returns for the longest amount of time.
The plan works similarly to what's called a bond or CD ladder. Using a ladder strategy, investors start with a mix of bonds that have varying maturities. There might be a one-year, two-year, three-year, four-year and a five-year bond in the mix. As the short-term bonds mature in a laddered portfolio, they are rolled over into the long-term bonds. The Burns/Huxley plan is different because they are counting on clients actually using some of their proceeds as spending money. And because they use computer models to optimize the size and maturity of the portfolio needed to accommodate the owner's spending needs, the maturities of the bonds in the plan might never be equally spread out over the life of the plan. It might be more likely for some very short and very long bonds to dominate.
It sounds like it all makes sense, but there are some "buts" and some considerations to this plan.
-- It isn't actually guaranteed, as an actual annuity sold by an insurance company would be. "But the risk is very, very, very, very -- that's four veries -- low," Burns said in a recent interview. The idea that the stocks could ride for 5 years or so does add likelihood that their returns would be great enough to keep buying more bond income for as long as the portfolio's owner would live.
-- Don't try this with bond funds. Burns and Huxley stress that individual Treasury bonds are the foundation of their strategy. That's because bond prices fall when interest rates rise. If you're holding a bond fund and interest rates rise, the value of your fund shares could fall below the level you'd need to sustain your retirement budget. If you're holding individual bonds and interest rates rise, the value of those individual bonds will fall, too. But you won't have to sell them.
-- You may want to wait. The higher interest rates rise, the cheaper you can buy the bond income you need, says Burns. And many economists are predicting a big increase in interest rates as the economy recovers and the Treasury has to charge more and more to finance deficits. So if you're not already in retirement, or extremely close to it, you may want to put off buying your bond portfolio for a while.
-- Certainty is good, but so is flexibility. Retirees who annuitize too much money find they have lost the ability to easily switch up the amount they spend. And while some retirement expenses, such as electric bills and rent payments, may stay the same month after month, others do not. It's a good idea to keep enough cash on the back burner so that you can buy your next car, take that trip, or pay for long-term care needs down the road. The DIY plan outlined here would allow you more flexibility than a fixed annuity.
-- Immunity only goes so far. Putting aside enough cash (or Treasuries) for the next five years does "immunize" your cash flow as Huxley points out. But not forever. If you don't calculate the right amount to set aside in the first place, you might spend your money down faster than the stock part of the portfolio can keep up with your demand for cash in your later years. Live lean now and you can cruise later.
- Linda Stern is a freelance writer. Any opinions in the column are hers. You can follow Linda Stern's financial notes on Twitter at http://www.twitter.com/lindastern
(Editing by Gunna Dickson)
Copyright 2010 Reuters News Service. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Asset Dedication, which uses technical computer modeling to "engineer portfolios" for financial planning clients, has been working with a variety of bonds and stocks with the aim of allowing retirees to get the income they need in the short run while protecting their assets in the long run.
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| Enlarge |
The Asset Dedication plan, devised by company president J. Brent Burns and investment strategist Steve Huxley, builds on this theory. But instead of keeping the three-year to five-year funds completely liquid, they build a portfolio of Treasury bonds and CDs from it. The portfolio is stretched out over that time period; some of the bonds are very short term. When those first bonds mature, in six months or a year, the owner can use the proceeds as part of their spending money. That allows the investors to set aside less of their portfolio in bonds and keep more in stocks.
The longest bonds in the portfolio would not mature until the end of the three-year or five-year period. Every year the investor could take one more year's worth of spending money and put it into the longest bonds, grabbing the highest possible safe returns for the longest amount of time.
The plan works similarly to what's called a bond or CD ladder. Using a ladder strategy, investors start with a mix of bonds that have varying maturities. There might be a one-year, two-year, three-year, four-year and a five-year bond in the mix. As the short-term bonds mature in a laddered portfolio, they are rolled over into the long-term bonds. The Burns/Huxley plan is different because they are counting on clients actually using some of their proceeds as spending money. And because they use computer models to optimize the size and maturity of the portfolio needed to accommodate the owner's spending needs, the maturities of the bonds in the plan might never be equally spread out over the life of the plan. It might be more likely for some very short and very long bonds to dominate.
It sounds like it all makes sense, but there are some "buts" and some considerations to this plan.
-- It isn't actually guaranteed, as an actual annuity sold by an insurance company would be. "But the risk is very, very, very, very -- that's four veries -- low," Burns said in a recent interview. The idea that the stocks could ride for 5 years or so does add likelihood that their returns would be great enough to keep buying more bond income for as long as the portfolio's owner would live.
-- Don't try this with bond funds. Burns and Huxley stress that individual Treasury bonds are the foundation of their strategy. That's because bond prices fall when interest rates rise. If you're holding a bond fund and interest rates rise, the value of your fund shares could fall below the level you'd need to sustain your retirement budget. If you're holding individual bonds and interest rates rise, the value of those individual bonds will fall, too. But you won't have to sell them.
-- You may want to wait. The higher interest rates rise, the cheaper you can buy the bond income you need, says Burns. And many economists are predicting a big increase in interest rates as the economy recovers and the Treasury has to charge more and more to finance deficits. So if you're not already in retirement, or extremely close to it, you may want to put off buying your bond portfolio for a while.
-- Certainty is good, but so is flexibility. Retirees who annuitize too much money find they have lost the ability to easily switch up the amount they spend. And while some retirement expenses, such as electric bills and rent payments, may stay the same month after month, others do not. It's a good idea to keep enough cash on the back burner so that you can buy your next car, take that trip, or pay for long-term care needs down the road. The DIY plan outlined here would allow you more flexibility than a fixed annuity.
-- Immunity only goes so far. Putting aside enough cash (or Treasuries) for the next five years does "immunize" your cash flow as Huxley points out. But not forever. If you don't calculate the right amount to set aside in the first place, you might spend your money down faster than the stock part of the portfolio can keep up with your demand for cash in your later years. Live lean now and you can cruise later.
- Linda Stern is a freelance writer. Any opinions in the column are hers. You can follow Linda Stern's financial notes on Twitter at http://www.twitter.com/lindastern
(Editing by Gunna Dickson)
Copyright 2010 Reuters News Service. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
5 Reasons to Trust Your Money to an Investment Company
If you are an investor who has trouble trusting your money to an investment company, you are definitely not alone. Many people do not feel comfortable making investments because of the risks involved. Here are a few reasons to trust your money to an investment company.
1. Financial Reward
One of the major advantages of trusting your money to an investment company is the potential reward that you can gain financially. By investing in a mutual fund, you will be able to increase your investment over time. With the power of compound interest, you will be able to create a large portfolio over time. If you do not invest your money and simply leave it in a bank account, you are only counting on yourself to increase your wealth. By getting your money working for you, you can reach your financial goals faster.
2. Regulation
Even though investment accounts are not insured by the FDIC, investment companies do have to deal with federal regulations. The Securities and Exchange Commission (SEC) is the governing body over mutual funds and investment companies. The SEC uses a variety of procedures and regulations to maintain integrity in the industry. For example, mutual funds are subject to surprise visits by SEC officials. This means that they have to be sure to keep everything working according to regulations, or they could face significant fines. The SEC acts as a watchdog for the average investor by enforcing rules for investment companies. Periodically, investment companies have to provide the SEC with financial documentation with all of the information about their accounting practices.
3. Audits
Mutual funds and other investment companies also go through an auditing process. Public accountants will review their account and determine if they are correct. This provides some assurance from a third-party that the accounting is being handled correctly by the investment company.
4. Prospectus
The investment company is also going to send you a prospectus every year. This is a detailed document that provides you with information about their investments. This document will outline the investment strategy and show all of the holdings of the company. The prospectus will also outline all of the individual fees or costs associated with investing with the company. This is a good way to review what you are being charged and make sure that you agree with all of the charges.
5. Independent Directors
An investment company or mutual fund has to have an independent director who sits on the board. The requirement of such an independent director was established by the Investment Company Act of 1940. This provides a way for an independent director to sit on the board and play the role of watchdog. This independent director will review all of the individual investment decisions made by the company and make sure that they are ethical. He or she will review everything that goes on in the investment company and determine if the transactions and decisions are in the best interest of investors.
1. Financial Reward
One of the major advantages of trusting your money to an investment company is the potential reward that you can gain financially. By investing in a mutual fund, you will be able to increase your investment over time. With the power of compound interest, you will be able to create a large portfolio over time. If you do not invest your money and simply leave it in a bank account, you are only counting on yourself to increase your wealth. By getting your money working for you, you can reach your financial goals faster.
2. Regulation
Even though investment accounts are not insured by the FDIC, investment companies do have to deal with federal regulations. The Securities and Exchange Commission (SEC) is the governing body over mutual funds and investment companies. The SEC uses a variety of procedures and regulations to maintain integrity in the industry. For example, mutual funds are subject to surprise visits by SEC officials. This means that they have to be sure to keep everything working according to regulations, or they could face significant fines. The SEC acts as a watchdog for the average investor by enforcing rules for investment companies. Periodically, investment companies have to provide the SEC with financial documentation with all of the information about their accounting practices.
3. Audits
Mutual funds and other investment companies also go through an auditing process. Public accountants will review their account and determine if they are correct. This provides some assurance from a third-party that the accounting is being handled correctly by the investment company.
4. Prospectus
The investment company is also going to send you a prospectus every year. This is a detailed document that provides you with information about their investments. This document will outline the investment strategy and show all of the holdings of the company. The prospectus will also outline all of the individual fees or costs associated with investing with the company. This is a good way to review what you are being charged and make sure that you agree with all of the charges.
5. Independent Directors
An investment company or mutual fund has to have an independent director who sits on the board. The requirement of such an independent director was established by the Investment Company Act of 1940. This provides a way for an independent director to sit on the board and play the role of watchdog. This independent director will review all of the individual investment decisions made by the company and make sure that they are ethical. He or she will review everything that goes on in the investment company and determine if the transactions and decisions are in the best interest of investors.
Why Is Your Health Insurer Investing in McDonald’s? By Justin Rohrlich
A new report shows that the insurance industry is widely invested in fast food and tobacco giants, raising questions about conflicts of interest.
A peer-reviewed study by a group of Harvard Medical School researchers published in the American Journal of Public Health found that major health and life insurance companies are “substantial investors in the fast food industry.”
Northwestern Mutual, which offers life, health, and long-term disability insurance, is the largest of the group, with total investments of $422 million -- $318.1 in McDonald’s (MCD) stock, $63.2 million in Kentucky Fried Chicken parent Yum Brands (YUM), and $40.9 million in Jack in the Box (JACK).
MassMutual owns shares of McDonald’s worth $267.2 million, has $58.8 million invested in Burger King (BKC), $23.1 million in Jack in the Box, and has a $17.4 million stake in Yum.
New York Life and MetLife (MET) have the least skin in the game -- New York Life owns $2.4 million of Jack in the Box stock, and MetLife owns $2.2 million of Wendy’s (WEN) shares.
“Basically, the numbers show that the insurance industry cares first and foremost about making a profit and will throw grandma under the bus -- or into a McDonald’s -- if that’s what it takes,” J. Wesley Boyd, MD, PhD, an assistant clinical professor of psychiatry at Harvard Medical School and senior author of the study, tells Minyanville. “The toll fast food takes both in personal health and national health is quite high.”
Boyd explains that insurers can extract higher premiums from people exhibiting health problems that can be brought on by fast food, such as high blood pressure, cardiovascular disease, elevated cholesterol, and obesity.
He also points out that, while “investing in companies whose products undermine health while selling health or life insurance may seem inconsistent, there are several potential explanations.”
One is that the return on investment in fast food companies more than offsets the potential liability associated with their policyholders consuming fast food.
Another is that at insurance companies, which are large organizations, the claims and underwriting divisions may be unaware of the investments the financial divisions are making.
Andrea Austin, the assistant director of corporate relations for Northwestern Mutual, says investing in fast-food stocks doesn't represent a conflict of interest for the company.
"We have to determine what's going to give our policy owners value," she says. "We have to make sure we fulfill our obligations to them, and to do that we invest in a wide variety of industries. It's that diversification that enables us to return value to them."
She also disputes the figures quoted in the study, saying Northwestern Mutual’s total investment in fast food is only about $250 million, or one-fifth of one percent of the company’s portfolio.
Mass Mutual also disputes the numbers.
“The insurance companies always say the numbers are inflated,” Boyd tells Minyanville. “But every one of them has been fact-checked by the American Journal of Public Health.”
Many fast-food chains are making an effort to provide healthier menu options such as salads, and Boyd notes that fast food, when consumed in moderation, is not necessarily deadly, as tobacco is.
Which, interestingly enough, is another investment insurance companies seem to tend toward.
An analysis by Boyd published in the New England Journal of Medicine last June found that seven insurance companies held a total of $4.4 billion in tobacco-company stock.
In case you were wondering, Northwestern Mutual and Mass Mutual were on that list too, with a combined $614.8 million dollars invested in Altria (MO), among others.
The box may be red, but there’s a lot of green in Marlboro Country.
A peer-reviewed study by a group of Harvard Medical School researchers published in the American Journal of Public Health found that major health and life insurance companies are “substantial investors in the fast food industry.”
Northwestern Mutual, which offers life, health, and long-term disability insurance, is the largest of the group, with total investments of $422 million -- $318.1 in McDonald’s (MCD) stock, $63.2 million in Kentucky Fried Chicken parent Yum Brands (YUM), and $40.9 million in Jack in the Box (JACK).
MassMutual owns shares of McDonald’s worth $267.2 million, has $58.8 million invested in Burger King (BKC), $23.1 million in Jack in the Box, and has a $17.4 million stake in Yum.
New York Life and MetLife (MET) have the least skin in the game -- New York Life owns $2.4 million of Jack in the Box stock, and MetLife owns $2.2 million of Wendy’s (WEN) shares.
“Basically, the numbers show that the insurance industry cares first and foremost about making a profit and will throw grandma under the bus -- or into a McDonald’s -- if that’s what it takes,” J. Wesley Boyd, MD, PhD, an assistant clinical professor of psychiatry at Harvard Medical School and senior author of the study, tells Minyanville. “The toll fast food takes both in personal health and national health is quite high.”
Boyd explains that insurers can extract higher premiums from people exhibiting health problems that can be brought on by fast food, such as high blood pressure, cardiovascular disease, elevated cholesterol, and obesity.
He also points out that, while “investing in companies whose products undermine health while selling health or life insurance may seem inconsistent, there are several potential explanations.”
One is that the return on investment in fast food companies more than offsets the potential liability associated with their policyholders consuming fast food.
Another is that at insurance companies, which are large organizations, the claims and underwriting divisions may be unaware of the investments the financial divisions are making.
Andrea Austin, the assistant director of corporate relations for Northwestern Mutual, says investing in fast-food stocks doesn't represent a conflict of interest for the company.
"We have to determine what's going to give our policy owners value," she says. "We have to make sure we fulfill our obligations to them, and to do that we invest in a wide variety of industries. It's that diversification that enables us to return value to them."
She also disputes the figures quoted in the study, saying Northwestern Mutual’s total investment in fast food is only about $250 million, or one-fifth of one percent of the company’s portfolio.
Mass Mutual also disputes the numbers.
“The insurance companies always say the numbers are inflated,” Boyd tells Minyanville. “But every one of them has been fact-checked by the American Journal of Public Health.”
Many fast-food chains are making an effort to provide healthier menu options such as salads, and Boyd notes that fast food, when consumed in moderation, is not necessarily deadly, as tobacco is.
Which, interestingly enough, is another investment insurance companies seem to tend toward.
An analysis by Boyd published in the New England Journal of Medicine last June found that seven insurance companies held a total of $4.4 billion in tobacco-company stock.
In case you were wondering, Northwestern Mutual and Mass Mutual were on that list too, with a combined $614.8 million dollars invested in Altria (MO), among others.
The box may be red, but there’s a lot of green in Marlboro Country.
Are Business Schools Failing? By PAUL M. BARRETT
The aftermath of a historic financial crisis seems an appropriate time to take stock of graduate business education. What are we teaching these people before they head off to the executive suite?
Three Harvard Business School scholars, Srikant M. Datar, David A. Garvin and Patrick G. Cullen, address this question in “Rethinking the M.B.A.: Business Education at a Crossroads,” a thought-provoking examination of the curriculums that shape many top investment bankers, consultants and chief executives. After studying the nation’s most prestigious business schools, the authors conclude that an excessive emphasis on quantitative and theoretical analysis has contributed to the making of too many wonky wizards. M.B.A. recipients, according to this book, haven’t learned the importance of social responsibility, common-sense skepticism and respect for the dangers of taking risks with other people’s money.
Put even more bluntly: Business schools played a contributing role in creating the geniuses who brought us the economic meltdown of 2008.
“Postcrisis, executives and deans identified a number of gaps in M.B.A. teaching, largely in applied areas,” the authors note. These include risk management, internal governance, behavior of complex systems, regulation and business/government relations and socially responsible leadership. The authors lend credence to critics who “question whether business schools do a good job of alerting students to the imperfections and incompleteness of the models and frameworks they teach.”
Further diminishing the chances that M.B.A. programs will produce wise stewards of capitalism, students are both strikingly disengaged from classes and overly confident about their capabilities, the authors observe. Introspection is rare; avarice, rampant. Several deans reported to the Harvard researchers that the time students spend in, or preparing for, class has declined significantly — at one institution, to 30 hours a week in 2003-4 from about 50 in 1975. The authors add: “Rather than devoting themselves to academics, students were spending increasing amounts of time networking, attending recruiting events, planning club activities and pursuing the best possible job.” One unnamed dean is quoted as mourning: “The focus has shifted from learning to earning.”
Based on my interaction with business school students, graduates and professors since the 1980s, when I attended college and law school at Harvard, I question whether the tilt toward money over scholarship is all that new. Be that as it may, the stark landscape portrayed in “Rethinking the M.B.A.” ought to prompt Harvard, Stanford, Wharton and all the rest to start doing just that.
The authors describe themselves as optimistic that business schools will rise to the challenge. “We have already seen a number of schools experimenting and reinvigorating their programs” since 2008, they write.
Their evidence, unfortunately, seems scant. At the University of Chicago Booth School of Business, the dean told the authors that “the most important change needed was not new curricular materials or courses but faculty and student behaviors that encouraged deep questioning and professional communication without trading substance for deference.” You don’t need an M.B.A. to interpret that mumbo-jumbo as a prescription for inaction.
Harvard Business School, meanwhile, is “considering” some new courses; task forces are “reviewing options.” Not exactly the degree of urgency one might expect coming out of what very nearly was a repeat of the Great Depression. It’s worth noting, as well, that in 2002, in the wake of the Enron scandal, many business schools vowed to examine eroded values and balance-sheet shenanigans. Apparently those reforms didn’t take.
The authors urge their colleagues to move quickly to “rebalance their programs to take a more managerial perspective.” This advice brushes uncomfortably close to parody. In their next book, will they suggest that law schools take a more legal perspective? New courses, the scholars write, should stress “risk management, the design of incentive systems, regulatory oversight, the degree of interconnectedness of the global economy and the limitations of mathematical models.”
One might reasonably ask why these issues haven’t played a prominent role in graduate business education. Better late than never, I suppose. Now the vital question is whether schools will, in fact, adopt such courses. They had better, if they plan on surviving. On many campuses, the full-time business school enrollment has fallen off as students shift to less expensive part-time programs. Employers are expressing increased doubt about the value of a traditional M.B.A.
If the universities do not respond, this book indicates, they may see their graduate business programs eventually go out of business.
Paul M. Barrett is an assistant managing editor of Bloomberg BusinessWeek.
Three Harvard Business School scholars, Srikant M. Datar, David A. Garvin and Patrick G. Cullen, address this question in “Rethinking the M.B.A.: Business Education at a Crossroads,” a thought-provoking examination of the curriculums that shape many top investment bankers, consultants and chief executives. After studying the nation’s most prestigious business schools, the authors conclude that an excessive emphasis on quantitative and theoretical analysis has contributed to the making of too many wonky wizards. M.B.A. recipients, according to this book, haven’t learned the importance of social responsibility, common-sense skepticism and respect for the dangers of taking risks with other people’s money.
Put even more bluntly: Business schools played a contributing role in creating the geniuses who brought us the economic meltdown of 2008.
“Postcrisis, executives and deans identified a number of gaps in M.B.A. teaching, largely in applied areas,” the authors note. These include risk management, internal governance, behavior of complex systems, regulation and business/government relations and socially responsible leadership. The authors lend credence to critics who “question whether business schools do a good job of alerting students to the imperfections and incompleteness of the models and frameworks they teach.”
Further diminishing the chances that M.B.A. programs will produce wise stewards of capitalism, students are both strikingly disengaged from classes and overly confident about their capabilities, the authors observe. Introspection is rare; avarice, rampant. Several deans reported to the Harvard researchers that the time students spend in, or preparing for, class has declined significantly — at one institution, to 30 hours a week in 2003-4 from about 50 in 1975. The authors add: “Rather than devoting themselves to academics, students were spending increasing amounts of time networking, attending recruiting events, planning club activities and pursuing the best possible job.” One unnamed dean is quoted as mourning: “The focus has shifted from learning to earning.”
Based on my interaction with business school students, graduates and professors since the 1980s, when I attended college and law school at Harvard, I question whether the tilt toward money over scholarship is all that new. Be that as it may, the stark landscape portrayed in “Rethinking the M.B.A.” ought to prompt Harvard, Stanford, Wharton and all the rest to start doing just that.
The authors describe themselves as optimistic that business schools will rise to the challenge. “We have already seen a number of schools experimenting and reinvigorating their programs” since 2008, they write.
Their evidence, unfortunately, seems scant. At the University of Chicago Booth School of Business, the dean told the authors that “the most important change needed was not new curricular materials or courses but faculty and student behaviors that encouraged deep questioning and professional communication without trading substance for deference.” You don’t need an M.B.A. to interpret that mumbo-jumbo as a prescription for inaction.
Harvard Business School, meanwhile, is “considering” some new courses; task forces are “reviewing options.” Not exactly the degree of urgency one might expect coming out of what very nearly was a repeat of the Great Depression. It’s worth noting, as well, that in 2002, in the wake of the Enron scandal, many business schools vowed to examine eroded values and balance-sheet shenanigans. Apparently those reforms didn’t take.
The authors urge their colleagues to move quickly to “rebalance their programs to take a more managerial perspective.” This advice brushes uncomfortably close to parody. In their next book, will they suggest that law schools take a more legal perspective? New courses, the scholars write, should stress “risk management, the design of incentive systems, regulatory oversight, the degree of interconnectedness of the global economy and the limitations of mathematical models.”
One might reasonably ask why these issues haven’t played a prominent role in graduate business education. Better late than never, I suppose. Now the vital question is whether schools will, in fact, adopt such courses. They had better, if they plan on surviving. On many campuses, the full-time business school enrollment has fallen off as students shift to less expensive part-time programs. Employers are expressing increased doubt about the value of a traditional M.B.A.
If the universities do not respond, this book indicates, they may see their graduate business programs eventually go out of business.
Paul M. Barrett is an assistant managing editor of Bloomberg BusinessWeek.
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