Fletcher Features
Marshall Carter, Chairman NYSE Group, Brings Practice to Theory in Talk About the Financial Crisis
CEO salaries, regulation, rating agencies and risky mortgages were some of the hot topics touched on by Marshall Carter, Chairman of the New York Stock Exchange Group, in his presentation, “Manias, Panics and Crashes: How Today’s Global Financial Crisis Happened and What To Do About It,” on September 24. The presentation was an installment of the International Business Global Speaker Series, sponsored by The International Business Center at The Fletcher School. It was a frank and lighthearted discussion, well attended by students, especially by Master of International Business (MIB) students looking to gain another perspective on the business climate they will soon be entering.
To start his presentation Carter talked about where we are now. He drew a “U” shape on the whiteboard and put a dot at the bottom of the U. Although the dot looked poised to begin moving up the curve, Carter warned that we are not really in the clear yet. He gave three reasons why: we are not creating jobs, consumer spending is restrained and the commercial real estate market is weak.
Carter went on to his explanation of the big question: “What happened?” starting with the mortgage crisis. He defined it as resulting from people obtaining loans beyond their means and also political pressures that forced banks to lend to more high-risk borrowers in low-income neighborhoods. He mentioned the household names of Fannie Mae and Freddie Mac, whose portfolios make up over 50% of the mortgage market. Carter hypothesized these institutions, “will go away and be absorbed by the private sector.”
He also put some blame on the rating agencies, such as Moody’s and Standard & Poor’s who have been in congressional hearings testifying as to why they rated so many bonds with the close to risk-free rating: AAA, when they proved to be so far from that. “Here we see a good example of that old Wall Street adage, ‘putting lipstick on a pig,’” because, as he explained, overtime it became clear that the rating agencies were giving AAA ratings to “junk.”
Carter consistently came back to the controversial issue of CEO salaries and bonuses, showing his obvious disgust for the levels they have reached. “I think corporate salaries have gotten a little out of whack,” he said. “Why should a CEO make 400 times more than his average workers?” He said that CEOs need to get back to balancing the ethical, legal and economic concerns in the management of their firms.
Carter also warned of problems in the stimulus plan. He pointed to the risk of moral hazard, as large financial institutions may see the green light to continue to take large risks based on the fact that they think someone will bail them out.
Lack of leadership in Washington DC and the inability for the political parties to work together in the congress for the common good is another problem he pointed to. “Everything is a zero sum game in Washington,” he said. “Today we see only vicious partisanship.”
Lastly, Carter also painted a picture of what we can expect to see in financial market reform, which he said will be nothing short of, “the largest financial reengineering in US history.” The message for positive change seemed to point directly to more and better regulation, for example, an oversight regulator for the financial system, regulation on hedge funds and also more rating agency oversight.
The presentation was very well received by the students in attendance. Carter took a lot of questions, gave career tips and even gave some suggestions for what he sees to be good thesis topics.
Laurence Nguyen, a first year student expressed her opinion about the presentation saying, “As an MIB student, I think it is great to have such high level officials come talk to us and give us a history of the crisis.”John Whitehead, also a first year MIB student, agreed that is was valuable to have a veteran of the financial industry come speak to students. “The perspective of a practitioner is always much more insightful, especially when talking about financial markets,” he said. Whitehead went on to say presentations like this are an important part of their learning because they help students connect the theory they learn in the classroom, with what is being practiced in the field.
In addition to giving this presentation, Carter’s visit to Fletcher also included attending Professor G. Richard Thoman’s course, “Managing the Global Corporation,” where he engaged the students in a case study.
Jacqueline Deelstra, F11