Black Business Forecast Highlights Liquidity Crisis
Image by Beth Rooney
In 2008 the United States experienced a liquidity crisis, said Shundrawn Thomas, ’99, president and CEO of Northern Trust Securities. “It’s very important that people understand this point, because whether you consider the micro level of individual homes or the macro level of government and business, the liquidity crisis we experienced has led to significant repercussions for the broad economy,” Thomas said.
Thomas was among panelists at the third annual Chicago Black Business and Economic Forecast Luncheon, sponsored by the Chicago Booth Black Alumni Association, at the Union League Club of Chicago in November. He told the audience of about 100 that individuals and companies simply did not have the cash to pay their debts. “Five decades ago, total consumer debt, including mortgages, was covered one-and-a-half times by demand deposits,” he said. “This meant people literally had cash in the bank to cover their debts. If you look at that statistic today, the typical household has closer to 50 cents in demand deposits for every dollar of debt.”
Successfully navigating the future economy will require moving away from typical jobs in traditional industries and exploring such emerging markets as green technology, Thomas said.—P.R.
Study Examines Financial Incentives for Parents
Can parents be paid to become more involved in their child’s education or development? What about teachers? Chicago researchers sharing a $10 million grant with Harvard to study those questions include Steven Levitt, William B. Ogden Distinguished Service Professor of Economics, and John List, professor of economics at the College. List is a faculty member at the Becker Center on Chicago Price Theory at Chicago Booth, where Levitt serves as director.
A donation from the Griffin Foundation will support a preschool program and a K–12 program at public schools in Chicago Heights, an economically challenged suburb south of Chicago. Parents of selected preschoolers will receive funds for such activities as attending monthly meetings that focus on best-parent practices or completing parent-child homework. At the K–12 level, financial incentives for teachers will be tied to student performance. The programs are set to launch in September 2010.—P.H.
Faculty Committee Begins Search for New Dean
Dean Edward A. Snyder announced in December that he will step down from his post on June 30, four years into his second five-year term. “Given the strong state of our school and what we have accomplished, I believe now is the right time for the school to search for its next dean,” he said.
Chicago Booth’s next dean will be named by University of Chicago president Robert Zimmer based on the recommendations of a committee of Chicago Booth faculty. Zimmer may select a dean who can start between July 1 and September 1; however, if he’s unable to do so, he will name an interim dean to serve a one-year term.
Following Snyder’s announcement, Chicago Booth faculty began following well-established procedures to form a search committee — seven tenured faculty who are not on leave during any of the next four quarters or who are not serving in the Deans’ Office. To elect the committee members, tenure-track faculty used the Hare system, a method that allowed each voter to rank his or her votes. After election results were announced January 12 (see sidebar), members of the search committee planned to elect a chair and meet with Zimmer and Thomas Rosenbaum, university provost.
In soliciting opinions and recommendations for candidates, the search committee will meet with such student groups as the Graduate Business Council and will actively seek the views of faculty, alumni, donors, recruiters, and staff, said deputy dean Richard Leftwich, who has served on previous search committees. “You cast the net very widely,” he said. “Anybody is welcome to suggest names of candidates, what qualities the next dean should have, and what they think the dean’s priorities should be.”—P.H.
Dean’s Search Committee
Faculty elected the following tenured faculty members to search for candidates for dean of Chicago Booth:
Douglas Diamond, Merton H. Miller Distinguished Service Professor of Finance and Neubauer Family Faculty Fellow
Reid Hastie, Robert S. Hamada Professor of Behavioral Science
John Huizinga, Walter David “Bud” Fackler Distinguished Service Professor of Economics
Steven Kaplan, Neubauer Family Professor of Entrepreneurship and Finance
Canice Prendergast, W. Allen Wallis Professor of Economics
Raghuram Rajan, Eric J. Gleacher Distinguished Service Professor of Finance
Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance and David G. Booth Faculty Fellow
Dhar to Head Kilts Center
Sanjay Dhar, James H. Lorie Professor of Marketing, was named faculty director of the James M. Kilts Center for Marketing in November. Dhar succeeds Peter Rossi, Joseph T. and Bernice S. Lewis Professor of Marketing and Statistics, who had served as inaugural faculty director of the center since its inception in 1999.
Dean Edward Snyder said Dhar “is an ideal match for the Kilts Center’s mission of sponsoring both new research and innovation in the marketing curriculum as we lead a revolution in the field of marketing.” A faculty member since 1992, Dhar “has expressed a keen interest in continuing our efforts to support path-breaking research, establish the Kilts Center as a nodal point for new thinking, and leverage the resources of the Kilts Center and our alumni to support greater numbers of students who wish to pursue careers in marketing,” Snyder said.
The center was founded by James Kilts, ’74, and the Nabisco Foundation.—P.H.
University to Open Center in China
Underscoring its commitment to Asia, the University of Chicago will open a new academic center in Beijing, China, this year. Dean Edward Snyder called it “a valuable and complementary resource to Chicago Booth’s campus in Singapore that will provide a stepping stone for future global initiatives.”
Designed to expand the university’s interdisciplinary approach, the center will offer a wide range of programs and activities that may include conferences and seminars, nondegree educational programs, alumni events, study abroad opportunities, and facilities for faculty and graduate student research.
Beth Bader, ’90, has been named executive director of the center. She was previously managing director of Chicago Booth’s Singapore campus.—P.H.
U.S. Can Lead Revolution In Clean Technology
Clean energy technologies may become the highest-growth economic engines over the next two decades, and the United States can become an ongoing leader in inventing and manufacturing it, said Matt Rogers, senior advisor to U.S. secretary of energy Steven Chu.
To be successful, the country must be able “to drive the kind of innovation, productivity improvements, and capital formation that marked the last industrial revolution,” said Rogers, keynote speaker at the Midwest Alternative Energy Venture Forum held at Gleacher Center in November.
“We have an opportunity to lead the globe and achieve our goals on energy and the environment much faster and at a much lower cost than anybody believes today,” he added. “We have an opportunity to drive an industrial revolution around clean technology.”
Rogers aims to eliminate barriers to change dramatically the way the Department of Energy (DOE) operates, he said. “Through the Recovery Act, we’re trying to create the opportunities for collaboration across an innovation chain,” Rogers said. “For example, we want to use the type of advanced computational modeling characteristics and instrumentation used in successfully insuring the U.S. nuclear weapons arsenal without testing to radically accelerate the rate of innovation in clean energy.”
He called the DOE’s recent pledge of $100 billion to support projects developing clean energy a “down payment” that should be judged in 10 years. “Our ability to innovate and be ahead of the curve, whether it’s in manufacturing or development, is essential to our success,” he said.
Sponsored by the Polsky Center for Entrepreneurship, the talk was one of several events in Chicago, London, and Singapore that marked Global Entrepreneurship Week for Chicago Booth students and alumni and members of the business community.—P.R.
Read complete coverage of his presentation >
Booth Partners with World Business Chicago to Boost Economic Development
Chicago Booth is among top business schools asked to lend its expertise to World Business Chicago (WBC), a not-for-profit economic development corporation focused on raising the city’s profile with the international business community and appealing to the growing number of companies that are considering the U.S. for their operations.
Others partnering with WBC include Kellogg School of Management at Northwestern University, DePaul University, Loyola University, and University of Illinois at Chicago.
Dean Edward Snyder said, “This partnership allows Chicago Booth to support the city in its efforts to connect with all sectors throughout the world and helps our school further develop our global approach to management education. We are proud to be part of this worthwhile initiative to help Chicago achieve its aspirations.”
Additionally, deans from the five business schools have participated in WBC events, and the deans and their key staff members have agreed to spread the word about WBC when they travel domestically and internationally.—P.H.
Kashyap Outlines Needed Banking Reform to Chicago Fed
Reform of banking industry regulations should aim to reduce the likelihood or costs of deleveraging and of bank failures, said Anil Kashyap, Edward Eagle Brown Professor of Economics and Finance, during the 12th International Banking
Conference at the Federal Reserve Bank of Chicago in September.
In addition to amending the bankruptcy code to better serve major financial institutions, Kashyap proposed four specific ideas to begin tackling the primary issues directly:
- Vary capital standards based on proportion of short-term debt, illiquidity of assets, and bank size. “The regulatory capital requirements during good times would have to be higher than the market requirements during bad times,” he said.
- Issue “capital forbearance certificates” that count as regulatory capital, are traded among banks, and are limited as substitutes for actual equity. “The price of these certificates would reveal to regulators that the shadow value of capital is rising.”
- Require plans to convert some debt into equity in certain cases. Researchers have proposed that this occur during single bank distress, when the aggregate system is in danger, or during an industry-wide capital shortage combined with a bank in distress.
- Force banks to create “living wills” to consider how bankruptcy could proceed, fully describing ownership and organizational structure, liabilities, contractual obligations, and jurisdictions covering them. They also would cover cross-guarantees to securities, a list of major counterparties, and how to determine where collateral is pledged.
“The ‘living will’ would include an estimate of how long it would take to gain control of the institution and begin the process of closing it,” Kashyap said. These reforms are necessary because of the failure of three assumptions required for the Modigliani-Miller Capital Structure Irrelevance Proposition to prevail: investors and firms can trade the same set of securities at competitive market prices equal to the present value of their current cash flows; there are no taxes, transactions costs, or issuance costs associated with security trading; and a firm’s financing decisions do not change the cash flows generated by its investments, nor do they reveal new information about them.
“Many of the unexpected and confusing aspects of the crisis came from underestimating the transaction costs associated with bankruptcy and from not appreciating how financing decisions do change cash flows,” Kashyap said. “The failure to understand the forces that contributed to a buildup of leverage in the financial system, and the costs of unwinding the leverage, was probably the biggest mistake we — academics, policy makers, practitioners, and the media — made.”—P.R.