<p>When did GMAC sell a 50% to a private equity firm? Datek has problems.</p>
<p>Most of the mortgage debt was securitized. So the investment banks and the commercial banks bear most of the responsibility. FNM and FRE ... a little. They were late to the game. Mortgage companies like Countrywide Credit and IndyMac were heavily involved.
The ratings agencies and their incorrect ratings helped cause the problems.</p>
<p>And of course we have all the buyers of the mortgage debt and they didn't know what they were buying.</p>
<p>The tv show "House of Cards", on CNBC occassionally, does a very good job of showing who is involved in the crisis.</p>
<p>Private equity played a small role.
And I guess you see developments funded by private equity. Maybe PE firms played a larger roll is larger than I think. </p>
<p>PE played a huge roll in buying up crappy companies and leveraging them to death. The companies, as Interesteddad said, are blowing up all over the place.</p>
<p>I believe the losses are going to be well over $100 billion.</p>
<p>
[quote]
So, you are saying that Dartmouth is heavily unionized -- from bottom to top?!.
[/quote]
</p>
<p>I don't know if they are or not. I know that they tried to get where they need to be with early retirements. They got more than halfway to their goal that way, but still needed more.</p>
<p>I'm not judging them one way or another. I'm just saying that, when all is said and done, every college and university in America is going to make cuts that people think are unfair. The size of the required cuts and the large proportion of budgets that go to salary and benefits leave few options.</p>
<p>"...make cuts that people think are unfair."</p>
<p>Think are unfair?! They ARE unfair.</p>
<p>What makes cutting pay across the board sacrosanct? It's easy and cost nothing to talk about people making sacrifices in hard times when one does not have to participate in it...</p>
<p>Is Penn faring better than the other Ivies? Here is a quote from an article in today's Daily Pennsylvanian:</p>
<p>Gutmann affirmed that Penn will demonstrate conviction and passion and increase access even in the hardest times. The University is in good shape to emerge from the crisis stronger than it went into it, she added, thanks to the backing of its alumni, faculty and students.</p>
<p>"'A crisis is a terrible opportunity to waste,'" she quipped.</p>
<p>Sorry, you did answer that, assuming that unions are pervasive there -- which , you admitted, you didn't know.</p>
<p>"I'm not judging them one way or another." I can see that you would rather withold judgement (or perhaps never judge at all), but given your impressive grasp and analysis of the situation, is there anything in it that would lead you to pass judgement at all? To praise, to condemn, to whatever?</p>
<p>What would you do if you had the power? Just curious, because based on your astute insights on the matter one would conclude that you might have some equally laudable solution to offer...</p>
<p>One intersting thing in this NYTimes article from last April (ah, the flowers of last Spring!) is that two thirds of Princeton's endowment is restricted:
<a href="http://www.nytimes.com/2008/04/20/education/edlife/princeton.html%5B/url%5D">http://www.nytimes.com/2008/04/20/education/edlife/princeton.html</a>
this means that there are proably thousands of little trust funds for things ranging from library book purchases to the landscaping of certain quadrangles that can't be touched --not even during times of emergency. And, it may explain why they are continually at the low end of their spending range -- they simply don't have the flexibility to shift spending from one priority to another quickly; instead, they have to engage in fund raising for every new initiative. Interestingly, this very lack of flexibility may have spared them from making too many risky investments in private equities, but, I'd have to dig more to be sure.</p>
<p>As I said, it looks to me like Dartmouth is doing what they (and every other school) has to do. Reduce the operating expenditures. To do that, they have to make real cuts in the total salary and benefits of faculty and staff. There are several ways of doing that including salary freezes, salary cuts, furloughs, unfilled positions from attrition, early retirements, benefits cuts, layoffs. Those are all valid steps. I'm not in any position to judge what combination of steps will work for a given institution. </p>
<p>alumother:</p>
<p>I believe that Princeton has the highest per student endowment of any college or university in the country. They will be fine. I'll try to look, but I would be shocked if they aren't wrestling with the private equity cash call issues to some degree. Everybody is in the same boat.</p>
<p>Princeton's endowment spending rate has been low. 4% of the starting endowment for the FY ending June 2008. Their spending targets were 4% to 5% until they increased the targets for Sen. Grassley's benefit in 2006 (but don't appear to have increased the spending). So, they have some cushion.</p>
<p>I don't believe for one second their estimate of a 25% decline in endowment. They have 22% invested in real assets (gas, oil, timber, real estate) that have just gotten clobbered. I don't know what to say anymore about these estimates. Everyone is hiding behind the lack of current valuations of the private partnerships. I'm going to quit commenting on this. I don't understand the PR shell game that's being played. There isn't an investment pro in the country who isn't snickering at these estimates. Anyway....</p>
<p>Let's say that a 25% decline is accurate. That would put the current endowment right around $12 billion. They've got private partnership cash call commitments of $6.1 billion as of the June 2008 year end financial statement. Over half of their endowment in additional cash call commitments. That's a big cash number considering that less than 25% of their endowment was in liquid investments and only 4% in cash and bonds on June 2008.</p>
<p>Princeton isn't going anywhere. They've be fine. But, like Harvard and Amherst, they have to be sweating bullets over their cash flows right now. They just sold their first taxable bonds since 1994, a $1 billion bond offering with 4.95 to 5.7% interest rates. Those interest costs simply add to the cuts in operating costs that have to be made.</p>
<p>I have no idea what any of these guys were thinking. With a thirty billion or a 15 billion or a 1 billion dollar endowment, how do you run yourself out of cash?</p>
<p>"They've got private partnership cash call commitments of $6.1 billion as of the June 2008 year end financial statement. Over half of their endowment in additional cash call commitments."</p>
<p>
[quote]
Also, the University is obligated under certain limited partnership agreements to advance additional funding periodically up to specified levels. At June 30, 2008, the University had unfunded commitments of $6.1 billion. Such commitments are generally called over periods of up to 10 years and contain fixed
expiration dates or other termination clauses.
[/quote]
</p>
<p>You are tellin' me it makes no sense. I don't know what to say. This was the wealthiest university in the world. They had no need to gamble like a Texas Hold Em Player. How do you start from a position of incredible financial strength and put yourself in a position where you are on the hook for half of your entire endowment value in cash? With less than a quarter of your assets liquid? With only $238 million cash on hand at the beginning of the fiscal year? With only 4% of the endowment in cash and bonds, barely enough to cover the universities own endowment spending targets?</p>
<p>It's like these colleges were playing a game of who has the biggest johnson with their investment offices. I seriously don't understand.</p>
<p>It's all part and parcel of the same insanity that ran the worlds biggest banks into insolvency.</p>
<p>Cash flows from investing activities:
Purchases of property, plant, and equipment (290,755) (236,640)
Proceeds from disposal of property, plant, and equipment 9,972 4,738
Purchases of investments (9,367,012) (6,985,097)
Proceeds from maturities/sales of investments 9,327,055 6,695,515
Net cash used by investing activities (320,740) (521,484)</p>
<p>It looks like to me that they were just churning $9 billion in the portfolio. Remember, this was before the crash. The hedge funds and swaps and futures contracts currency futures and timber deals and leveraged buyouts were all still producing returns. A lot of these derivatives require timing the market hour by hour. They could have half a billion set up for short term currency hedge transactions that completely churn every month. That would be $6 billion reported sales and investments even though it's the same dollars being churned over and over.</p>
<p>Read that ten year note more closely. I believe it says that these commitments are "generally" called over periods of "up to" ten years. I've seen some other schools break out what's on the hook for the coming year -- about a third of the total outstanding. As I understand it, these cash calls have been coming hot and heavy to keep the partnerships afloat. </p>
<p>BTW, this document has Princeton's asset allocation on page 2:</p>
<p>I just checked Swarthmore's cash flows from investing. On a $1.4 billion endowment in 2007, they had $1 billion cash going out and $1 billion going in. These have to be book-keeping entries as fund managers roll over their positions, i.e. a commitment for chunks of endowment expire and roll over into a new commitment with that manager. T-Bills expire and get replaced with new purchases. And, so on and so forth.</p>
<p>Swarthmore's churning rate dropped in 2008 to about $680 million in and out.</p>
<p>I can't believe Princeton is only down 25%.</p>
<p>I can't believe their capital commitments either.</p>
<p>This is the second worst stock market in the last 80 years. So I guess Princeton wasn't prepared for that either. In Princeton's defense, I don't think too many people or institutions were prepared.</p>
<p>At least Princeton was doing better than their benchmarks for many years.</p>
<p>But yes, I don't understand the lack of liquidity in their endowment.</p>