(Harvard) Analyst says she was fired for criticizing controversial investment practices

[kpete]

Source: The Harvard Crimson

HMC Analyst Questions Dismissal

Analyst says she was fired for criticizing controversial investment practices

Published On Tuesday, March 31, 2009 2:11 AM
By PETER F. ZHU
Crimson Staff Writer
After a year-long stint at a European investment bank and another at Enron, Iris M. Mack signed on to be a quantitative analyst for Harvard Management Company in early 2002, hoping, she says, to find job security and distance from the risky trading and accounting practices that forced her last employer into bankruptcy in the company charged with managing Harvard’s endowment.

But only a few months later, Mack says she was fired after she raised concerns to University officials about managers’ qualifications and possibly irresponsible usage of financial instruments that could have contributed to the recent and sudden decline in Harvard’s endowment.

In an e-mail sent May 30, 2002 to Marne Levine, chief of staff for then-Harvard President Lawrence H. Summers, Mack detailed her concerns regarding what she deemed HMC’s “frightening” usage of derivatives and statistical modeling techniques, as well as the Company’s lack of a timely and portfolio-wide risk management system, high employee turnover rate, and low level of productivity in the workplace, specifically among managers.

According to documents and e-mail records, all provided by Mack, Levine had initially assured Mack that their correspondence would remain confidential. But on July 1, HMC chief Jack R. Meyer called Mack into a meeting, in which she was presented with copies of her e-mails, according to a letter sent to Levine and Summers by Mack’s attorney.

Read more: http://www.thecrimson.com/article.aspx?ref=527380

[Tempest]

1. We all know what Summers thought of women

Mack would have been listened to if she was a man.

[DURHAM D]

3. Not by Summers - male or female they would be contradicting his ideas.

For Summers its an ego problem generally.

[JDPriestly]

2. Kicked and recommended. I wonder if Obama has seen this news item.

[natrat]

20. yea and he said heckuva job lawrence

[natrat]

22. serves harvard right for having shitty management and brain dead officials

[MannyGoldstein]

4. The Summers Magic Touch!!!

Job-obliterating almost-free trade with China, world-economy-crushing wholesale financial deregulation... and now obliterating billions from Harvard's endowment.

What's next on Summers' to-do list? I can't wait to find out. (Actually, I think I already know.)

Feh.

[Marie26]

17. Don't forget,

he's the White House's "designated thinker!" Who's now "pleased to be back in power at a historic time." It seems like Summers has more than enough power & influence to run the economy into the ground.

"With a rumpled appearance and a tendency to ramble to the far corners of any debate, the 54-year-old Summers has emerged as Obama's designated thinker. Despite the occasional ribbing, the president is actually quite deferential to the man he mostly calls "Professor Summers." He relies on Summers for advice on a huge portfolio of issues, including the budget, energy policy, healthcare reform, education, and international trade. "Larry coordinates all of the economic activity," says White House Press Secretary Robert Gibbs. "He's the in-house White House economic adviser. And one of his most important roles is he is the keeper of the president's daily economic briefing, where a number of decisions get made and the president gets updates on what's going on."

Larry Summers, Obama's Designated Thinker in a Troubled Economy - http://www.usnews.com/articles/news/obama/2009/03/24/larry-summers-obamas-designated-thinker-in-a-troubled-economy.html

[peacetalksforall]

5. This is very interesting - while the hot topic at this time is about testimony

regarding Cheney and assassinations and those who could provide testimony will or will not come out - we have this person coming out - someone who 'knew' early and was essentially laughed at and gagged. This may 'only' be Harvard, but there is a point where financial risks are equavalent to financial crimes. Financial crimes are as serious as murder and equate to other forms of theft in addition to the legal or supposedly legal ones. Children and the young are horribly affected. None deserve this. Everything - from safety to future is involved, plus the psychological impact of sensing parents are consumed in worry and shame for their predicament or parents who are missing because of working two or three jobs, if they are lucky.

These crimes have been designed for short term benefits without a care for long term stability.

The ripples never stop.

Tell me again why we have Summers in this administration?

[nichomachus]

6. I love it -- she had been at Enron and was shocked by what she saw at Harvard

hat tells you how fucked up Harvard was/is.

[dem mba]

7. smartest guys in the room

wasn't that the documentary on Enron? guess it applies to Harvard too.

[BrklynLiberal]

8. ...but...but...didn't "everyone" say that there was no way for anyone to have known .......?

As it turns out there were so many warnings that the only way they could have been ignored, is IF THEY WERE INTENTIONALLY IGNORED!

I still beleive that there are a lot of people out there in the financial world who should be asked to step down. If they were stupid enough not to see what was going to happen, or greedy enough not to care, they should not be in a position to be investing anyone's money!!!

[pjt7]

9. I love the fact that Harvard's giant endowment fund

was trading oil futures.

"Let them eat cake"

[KharmaTrain]

33. The Money Was Too Good

These ponzi schemes went on for so long many of those "Smartest guys in the room" thought it could go on forever. Investors were pitched with big pies in the sky...why get 5% when you could get 15 or 20...and then they were showed a prospectus that showed a decade or more of such returns. It was low hanging fruit that was too tempting. It not only made a portfolio manager look great to the customer with higher returns, but also fatten their wallets...a win/win. Sure it was built on phantom money...sure many who had a modicum of sense could see a lot of this was coming out of thin air, but while the money flowed no one rocked the boat.

[Triana]

10. Well Well Well, lookie there. The Misogynist Summers struck more than once..

....Brooksley Born and now, also, Ms. Mack.

Hardly a surprise there. Pfft! What a PIG. And we ALL have paid for this man's ignorant hatred of women!

[truedelphi]

11. When people here say that we have to Have Geithner, Summers, and Rubin on board,

As who else understands this stuff, I often think of those who understood so well that they were fired.

Every company that risked so big, had watchdogs that tried to make it apparent that the economy of the 90's (and on) was one big, mad casino without any risk assessment.

[defendandprotect]

40. Yes, more truth that is buried ... Geithner, Summers, Rubin . . . "toxic" . . .!!!

[Lucky Luciano]

12. Politics on the job

I hate to say it, but these things have to be handled very delicately - especially when you first join a firm. Only being at the firm three months, you have to make sure you have the political capital to spend on pounding your superiors. She did not have it.

I know the feeling. I worked on a proprietary equities trading desk for a large European investment bank. I saw a couple of the senior guys there punting (means pure gamble without any real edge - I do not believe any trader is a gambler if (s)he has an edge - much like the House in Vegas is not gambling) stocks around without a whole lot of thought - they would claim to have a thought behind it and had the bullshitting skills to back their trading up, but it was still punting nonetheless. Could I have gone to their superiors (the head of global equities - very highly ranked) to report them? NO FUCKING WAY! I was low ranked and relatively new to the business. The superiors could easily argue that my experience level could not possibly understand what they were doing and that I was therefore incompetent to report on them - and if I had reported them, then I would be immediately canned for this very reason. There was nothing malicious in their trading or illegal, so it would be a hard sell for me to report them unless I made a very comprehensive and LONG document showing all of their trades and why such trading was not optimal.

I, along with the half of the desk with the least political capital did get canned anyway after the bosses tore up over $100MM. The bosses stayed on - the idea being that only they had the expertise to dig out of the hole. Well, one of the bosses who lost the most money left the firm to join a hedge fund in Israel. The rest are still employed, but incredibly miserable no doubt - they got no bonus and their unvested stock (A LOT OF IT!) is down 85% from March 2007 when they had their biggest paydays under a different and far more competent boss.


Anyway...back on topic....If you are going to whistleblow, understand your political strength, understand exactly what you will report and have all of your evidence fully documented. She, as a quant, might easily be dismissed by portfolio managers and traders as not being competent enough as a trader and risk taker to have a proper view - quants often do not have proper views on trading. Quants are often good at building models, but don't have that trading oomph...the best traders have both those quant skills and the "oomph."

[DURHAM D]

19. Did you skip this part - she was promised confidentiality from immediate boss? n/t

[Lucky Luciano]

24. I would not trust that at all...In finance, you really cannot trust

anyone...and it is optimal to be a bit paranoid...unfortunately.

[JDPriestly]

42. If you see something really, really wrong, speak up. What do you have to lose?

It's better to lose a job 3 months in than several years in. And once you wait until you build up political power, it's too late, you are part of the problem or at least will be viewed as part of the problem.

[Enrique]

43. I totally disagree

it's a great thing for the country that this woman wrote this memo. Yes she paid a price for it but look at the record we have because of her. It's called courage.

[McCamy Taylor]

13. Speaking of Endowments....

The Rice University endowment is down 20%, so this is not isolated. They have increased their tuition and will increase it again next year. Note that the annual cost for a student with room and board is over $40,000!!! In the mid 1970s it was closer to $4,000. Higher education is way too expensive.

http://www.media.rice.edu/media/NewsBot.asp?MODE=VIEW&ID=12273

[Lucky Luciano]

14. well at least down 20% outperformed the S&P 500's down 38%!

[acmavm]

15. No matter how much you post, how much you try to tell people how

toxic there guys are, all you end up with is a bunch of crybabies telling you how much you want the frigging country or Obama to fail. Which is ignorant just in itself.

The coming crash of the economy was apparently not a very well kept secret. Everyday there's a story (with documentation) about someone who warned someone about the oncoming big Wall Street KABOOM! And yet, here we are trillions poorer and nothing to show for it but the same old schemers and scammers with their hands out for more.

But the solution for Detroit is to force it into bankruptcy.

Really fucked up.

[defendandprotect]

37. There's no denying that Summers is TOXIC . . and shouldn't be in Obama's administration -- !!!

In fact, the DLC should be purged from his administration ---

and all those who have had connections with criminal capitalism!!

[Marie26]

16. She's just a woman, though.

How could she understand finance? And the whistleblower gets fired & the misogynistic, deregulating, derivatives-cheerleader gets promoted to White House economic advisor. There's no justice, is there?

[DURHAM D]

21. Are you saying -

its takes a penis to be able to do take-aways and goes-in-tos?

[BrklynLiberal]

26. LOL

:rofl: :rofl:

Guess if the number is > 20 LOLOLOLOLOLOL

[CAcyclist]

36. Does she REALLY have to add the sarcasm emoticon? nt

[defendandprotect]

38. Very often I note that women are our "whistleblowers" . . .

and a big "thanks" to all of them -- male or female!!!

It does seem to be a long, long time since we've seen anything that looks like justice!

:)

[Jefferson23]

18. Summers, this is so very bad and adds no faith to anyone already

concerned about him. Mack deems how "frightening" the usage of derivatives and statistical modeling techniques, and we don't have her working for us, we get him.

[ozone_man]

23. Meet the new boss

same as the old boss. It's change we can believe in, because it's not change at all.

[Lucky Luciano]

25. Statistical modeling techniques work very well

if done properly...in fact that was her job probably given that she was a quant! However, stats has a lot of nuances and fine tuning that a lazy analyst can really fuck up big time. Just ask the CDO traders that completely underestimated the correlation of defaults for mortgages. She was probably not one of the lazy stat modelers and she saw big trading being done based on the models of lazy people - and she blew the whistle...unfortunately her warnings were not heeded...though maybe they did very well from 2002-2007 - that part is not clear...Harvard only lost big money in the last year is what I must presume.

[BrklynLiberal]

27. Except when they don't.

http://bits.blogs.nytimes.com/2008/09/18/how-wall-streets-quants-lied-to-their-computers/

http://www.themoneyblogs.com/stock-investing/finance-professor/greenspan-bad-data-hurt-wall-street-computer-models-nytimescom.htm

[Lucky Luciano]

28. The first article is essentially talking about

what I said with underestimating the correlation of defaults. The huge problem with their model was that as credit gets easier and easier, underwriting standards get looser and looser...well, the looser the underwriting standards, the higher the correlation of defaults...and the higher the correlation of defaults, the more likely that seemingly supersafe CDO securities would severely underperform. Bottom line: Underwriting standards were not considered in the model. They should be considered and likely to be cyclical. In booms, they are loose and in busts, they are tight.

[Skwmom]

35. You're just missing the logic behind the economic team they've put together.

You surround yourself with idiots and it enhances your (Obama's) ability to make correct decisions. I just don't understand why people can't see the obvious....

:rofl:

[HCE SuiGeneris]

29. This happened in more than one circle.

I can name two CEO/General Managers axed by the lecherous smokey back room crowd. Play for profit crushed any sense of business propriety...

[No Elephants]

30. Sexism runs deep in Harvard. It was not only Summers.

[SoCalDem]

31. There was a woman on Book-TV a while back who has written about the endowment system

I wish I could remember her name.,, Anyway, her research uncovered a LOT of mis-handling of HUGE sums of endowment money, being used for everything BUT what it was given for,.

A LARGE portion of endowment money is given SPECIFICALLY to be used to educate poor/financially-strapped kids, and yet the lion's share goes for everything BUT that.

The endowment programs are like good-ole-boy-network slush funds, and are not being used..(of course many of them are probably smaller now, due to the market crash)..

[HamdenRice]

32. Harvard lost at least $10 billion or about 1/4 of its endowment

There are some estimates out there though that they lost much, much more. Some analysts think they never had the $40 billion or so to begin with because it was all paper profits in risky investments and illiquid investments.

Apparently in 2008 they went in big for hard commodities and real estate and it's not clear they can sell a lot of it.

[Skwmom]

34. How much evidence do you need to convince you that Summers is an idiot?

Oh, I forgot, he must have learned from his mistakes. Hmmm... so maybe they should bring back Bush as a special adviser b/c surely that idiot has also learned from his mistakes. :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl:

[defendandprotect]

39. Recommend your comments--!!!

[BonnieJW]

41. I gotta say

I'm not happy about Mr. Obama's selections for his finance team. What is he thinking? Does he think that people who are smart enough to creat this kind of devestation are the one smart enough to stop it?