Author Archives: MIT Sloan Finance Group

Rethinking How the Housing Crisis Happened

New research casts into doubt the central storyline of 2008—that this was ever a subprime crisis to begin with.

“In 2006, Robert and Julia Tanner borrowed $30,000 to put an enclosed patio on their home that they had somehow managed to live without for 25 years. Why don’t you ask them about that when they’re spitting in your face while you walk them to the curb? Why don’t you ask the bank what the hell they were thinking giving these people an adjustable rate mortgage? And then you can go to the government and ask them why they listed every other regulation … You, Tanners, the banks, Washington, every other homeowner and investor from here to China turned my life into evictions.”

So Florida businessman Rick Carver lectures a young protégé in “99 Homes,” a 2014 film that casts the late-2000s housing collapse as a morality play. Carver, loaded with unforgiving moral certitude by the actor Michael Shannon, orders the Tanners’ eviction while standing in an empty McMansion. He’s living there part time after evicting the tenants when their mortgage went underwater.

“99 Homes” is littered with ruin. Nobody—the poor, the Tanners, the McMansion dwellers—escapes, or escapes blame for, the crisis. Now research from MIT Sloan finance professor Antoinette Schoar finds this picture more true than is commonly accepted. In fact, Schoar argues, it was middle-class borrowers with good credit who drove the largest number of dollars in default.

“A lot of the narrative of the financial crisis has been that this [loan] origination process was broken and therefore a lot of marginal and unsustainable borrowers got access to funding,” Schoar said in September at the MIT Golub Center for Finance and Policy’s annual conference. “In our opinion, the facts don’t line up with this narrative … Calling this crisis a subprime crisis is a misnomer. In fact, it was a prime crisis.”

Read the full article here>>

Reception Held in Honor of Bengt Holmström, co-recipient of the 2016 Nobel Prize in Economics Sciences

On  Tuesday, November 1st the MIT Sloan Office of the Dean, Finance Group and Applied Economics Group co-hosted a reception in honor of Professor Bengt Holmström. Approximately 175 faculty, students and staff members gathered to congratulate Professor Holmström on being selected as the co-recipient of the 2016 Svergies Riksbank Prize in Economics Sciences in Memory of Alfred Nobel.

Speakers included David Schmittlein, John C Head III Dean, Professor Robert Gibbons, Sloan Distinguished Professor of Management, Professor Stephen Ross, Franco Modigliani Professor of Financial Economics, and Professor Antoinette Schoar, Michael M. Koerner (1949) Professor of Entrepreneurship.

Photos from the event can be viewed here>>

MIT Sloan trek shows MBA students opportunities to work in policy — Valerio Riavez

See the original article on the MIT Sloan Experts Page>>

If you’re interested in policy work at an institution like the World Bank, the Federal Reserve, or the IMF, a PhD is required. At least that’s what MBA students have long thought. However, a recent MIT Sloan career trek to Washington, D.C. revealed that this is no longer the case.

As these institutions don’t typically participate in on-campus recruiting, it can be challenging for business school students to learn about policy jobs. That’s why the MIT Sloan Finance and Policy Club organized a trek for 25 students to Washington, D.C. We wanted to learn more about job options for MBA and Master of Finance (MFin) students, make connections, and get a glimpse of what living in D.C. is like.

We began the trek at the World Bank Group. Most MBAs are familiar with the IFC, which is the private sector development arm of the WB and an active recruiter of business students. However, during this visit we learned that the World Bank Group is also increasingly hiring people without PhDs. The World Bank has an elite program called the Young Professionals Program (YPP) through which it hires and forms the next generation of WB leaders. We were particularly surprised to learn that the majority of YPP hires actually do not have a PhD.

In the afternoon, we headed over to the Federal Reserve where we visited the boardroom and participated in a Q&A session with a senior economist. We sat around the very table where Janet Yellen, Ben Bernanke, and Alan Greenspan made some of the most significant monetary decisions in the history of global economics. For a policy fan, I must admit it was pretty cool.

A takeaway at the Fed was that jobs are mostly reserved for U.S. citizens. Foreign students are generally ruled out unless they are transferred from another central bank through an exchange program. There is a fierce screening process for all jobs at the Fed because it is a central bank and its activities are at the core of national interests.

We also learned how after the financial crisis, the Fed began looking more to private-sector practitioners to work on unconventional monetary policy endeavors to get the economy back on track. When central banks had to design and implement their quantitative easing, they had to rethink how to intervene in financial markets. To do that, they brought in people with experience in the private sector and exposure to financial markets. For students interested in finance at a policy institution, that is an untapped recruiting resource.

In addition to that good news, we saw that this trend seems to extend to other central banks and financial policy institutions, which are increasingly interested in people with business acumen – meaning a PhD is not always required. The governors of central banks still have PhDs, but the world is changing and private sector experience and exposure to financial markets today are crucial for these institutions. As a result, departments involved in quantitative easing are increasingly comprised of MBAs.

We ended our trek with visits to many landmarks in Washington, D.C., including the Library of Congress, the Washington Monument, the Lincoln Memorial, and the Kennedy Center. On our final night, we visited the Saudi ambassador’s home where we enjoyed a traditional Saudi reception and a great discussion about the economy in the Middle East with the ambassador and members of the Washington diplomatic community.

As most of us are still exploring opportunities for after graduation, meeting with MIT alumni in D.C. also helped us have a better grasp of what life is like in the city. After seeing all of the great policy opportunities available to MBA graduates and touring the city, it’s definitely a place to keep on the radar.

Valerio Riavez is a native of Italy and dual degree student at MIT Sloan and the Harvard Kennedy School. He holds a Master’s Degree in economics and previously worked in both the public and private sector in finance. He is co-president of the MIT Sloan Finance and Policy Club.