Banking

Economics is one of the most popular majors here at Columbia and Barnard, and it makes sense. Doing the major seems like a direct way to a successful career on Wall Street.

My friend Kevin messaged me after the announcement of this semester’s columnist lineup: People in the GS Lounge “thought your column was called short views because you are short [crying laughter emoji].”

So America has finally sobered up. Now what?

The Columbia University community may want to try to influence the choice President Barack Obama and Congress will soon make about whether to promptly implement a deliberate policy to handle problem banks. If the President and Congress promptly implement such a policy, that policy would likely help resolve the credit crisis sooner and minimize costs to taxpayers. However, if the President and Congress choose otherwise, students' ability to find good jobs would likely be further impacted for years, as would the livelihoods of parents, professors, administrators, alumni and others. The situation is increasingly serious. Many banks remain under-capitalized, unable to lend to credit-worthy borrowers, while others who can lend may be focusing their resources instead on managing existing problem assets. In addition, the financial system has yet to recognize an additional trillion dollars plus of estimated losses, according to Goldman Sachs. If that estimate is accurate, provisions for total estimated credit losses are likely to exceed 10 percent of the U.S. Gross Domestic Product. With this level of losses, the smooth functioning of the payment system could be at risk. If the payment system falters, employees in the U.S. would not likely get their monthly pay checks when expected, and other payments could be delayed, dramatically reducing investment and productivity. The government's first priority should be to reduce the likelihood of such a scenario. The Federal Reserve Chairman's view that the U.S. government may have to infuse additional funds into banks and separate "bad" assets from banks is correct. To protect the smooth functioning of the payment system, however, not only are additional equity infusions and the separation of "bad" assets required—on which the administration and regulators are now focused. In addition, the U.S. must promptly implement a deliberate policy to handle problem banks. In this regard, President Obama and Congress should seriously consider creating a separate, independent authority, similar to the Resolution Trust Corporation. The administration and Congress should select a small number of around five professional managers and invest them with the power to make decisions regarding problem banks independent of partisan considerations. The authority's board members would decide whether to rescue a problem bank using the following criterion: would that problem bank's failure have an impact on the smooth functioning of the payment system? A decision would require a majority of all the authority's board members voting in favor. Only if a problem bank's failure could impact the payment system would the authority backstop that bank. Otherwise, the authority would permit that bank to fail. For those banks the authority allows to fail, the Federal Deposit Insurance Corporation's expanded guarantees, now in place, would protect depositors and senior creditors of those failed banks. For those systemically important problem banks that the authority rescues, the authority would remove board members, replace existing top management (generally with managers from the ranks of the bank itself), and fund losses first with existing equity investors' capital and then with taxpayer funds. The authority would also allow new management to continue to lend normally. The authority would identify "bad" assets, place those assets in a separate entity and select outside experts to manage and sell those "bad" assets to maximize value to taxpayers. The authority would use taxpayer funds to buy these non-performing assets at market prices if available or, otherwise, at reasonable prices determined by the authority. Because taxpayers would own substantially all the upside related to the rescued banks and their separated "bad" assets, pricing those "bad" assets would be less controversial. In addition, the authority would set expectations upfront with outside managers of the "bad" assets for liquidation timing and results and give them incentives to exceed expectations. Finally, the authority would infuse sufficient capital into each rescued bank to make the rescued banks solvent. With adequate capitalization and no problem assets to work out, new bank management would focus on lending to credit-worthy borrowers and fully participate in the economy. Equity investors would likely want to invest in these transparently healthy banks. The authority could sell controlling equity stakes in these banks to investors, which would permit taxpayers to recoup part of their investment. Once the outside managers completed the sales of non-performing assets, which would also return capital to taxpayers, the authority itself, having achieved its objectives, would be terminated. The credit crisis confronting the U.S. is complex, its scope enormous and with certain unknowns. However, if the U.S. has the political will to promptly enact a deliberate policy to handle problem banks in the manner described above, the economy will likely be better positioned to achieve its growth potential sooner. On the other hand, if the President and Congress choose, instead, to continue to support and rely on existing top management and boards of problem banks—who have no credibility as they have destroyed enormous shareholder value—and transfer funds from taxpayers' pockets to equity investors—who made poor investment decisions—they will likely prolong and increase the costs of this crisis. Those actions, which do not focus on the government's first priority, could also prompt Americans to lose some confidence in the new administration and Congress. The author is a member of the Columbia College class of 1991. He is the founder and managing partner of C. Schwab LLC.

It took me a while, but I've finally figured out who the coolest people at Columbia are: future investment bankers. Before college, it was simple. Years of American media, public school gym class, and unsuccessfully convincing girls to like me had taught me that athletes were the coolest. Hardly anyone ever tried to subvert this fact and, if you did, you probably sucked at dodgeball, so whatever. There was a universal standard of coolness that was easy and familiar for people just to accept. The fundamental social problem at Columbia is that every single clique is under the delusion that theirs is the coolest. This belief has helped make future I-bankers, who deserve to be on top, a widely disparaged population. The belief is also utterly nonsensical. How can a vegetarian who lives in the Potluck House and a frat guy who eats at HamDel every day both be cool? I mean, is eating meat cool or not? Seriously, I need to figure out what I should do with my HamDel gold card. I know what you're thinking. The answer is no. I'm not a future I-banker. (But yes, I am single.) And not many of my friends are trying to become I-bankers either. In fact, not many of my friends exist. This is why "Tony Gong Explains the Universe" is such an objective column. In any case, I-bankers are the coolest because their characteristics remind me nostalgically of those universal standards from our earlier days. For example: - I-bankers wear the best clothes. Based on what I've been noticing lately from the many people on their way to CCE for junior internship interviews, I-bankers wear polished shoes, suit jackets, collared shirts, ties, and unfriendly looks. As someone who got a C in middle school Home Ec (my skateboard pillow turned out to be surprisingly uncomfortable), I have a lot of respect for anyone whose process of getting dressed consists of more than three steps. - I-bankers are socially savvy. A lot of people criticize I-bankers for being douche bags. First of all, I don't even understand what the term "douche bag" means. I just looked it up on Wikipedia and I'm even more confused. I think it has something to do with a vagina. Either way, I-bankers need to pass lots of tough interviews to get their titles. They're confident and proud but basically still really sociable. And maybe you're the real douche bag for calling someone else a douche bag. Think about it. - I-bankers slack off (in cool ways). From the cover article of volume 2 issue 1 of The Eye, a prospective I-banker explains how he allegedly "took Monday and Tuesday off from class to go to Puerto Rico" with a bunch of friends during the third week of his senior year. Come on, that's really badass no matter how you frame it. During my third week of school this year I was eating dinner at Hewitt Hall alone. - I-bankers still work harder than most people. The same article details how grueling the I-banking work style can be for a dude who would "try to make it home by 2:30 a.m., but more often than not around 4 a.m." followed by setting an alarm for 7:40 a.m. - Finally, I-bankers have courage. Especially at Columbia, where an average student's views on I-banking (among a serious list of topics like religion, development economics, and a typo someone made on Bwog) tend to be extremely polarized and hostile, a future I-banker's decision to sell out so shamelessly takes serious guts. Despite all these extremely incisive arguments, the truth is that the Columbian instinct of nonconformity will never really let us accept a clique that's not our own as an ultimate paradigm of coolness. (Even though it works as a great excuse for when I have to explain to my mom why I don't have a girlfriend.) I sincerely believe, however, that it's just as unfortunate when Columbia students are so judgmental and cynical that their own clique turns into the only one that matters, the only one that's legitimate, and the only one that can be cool. As a naturally opinionated student body, we won't agree on everything, but if you're truly open-minded, every individual and every community you've interacted with here can be justified to some degree of coolness. As far as I-bankers go, I do think it can be cool to buy your friends stuff. To work really hard at your job. To achieve entrance into something that's pretty selective. To want to be financially independent. To want to be really, really financially independent. Lots of Columbia students are future I-bankers for these reasons. I've found that some tend to feel embarrassed, or broach the subject hesitantly in discussion out of fear of being judged. There shouldn't be any reason for this. After all, they are the coolest people here. Tony Gong is a junior in the School of Engineering and Applied Sciences majoring in applied math with a minor in philosophy. Bears frighten him. Tony Gong Explains the Universe runs alternate Thursdays.

While many college students have a slowly declining bank balance and read the newspaper's business section only rarely, for some Columbia students the economics and finance they learn in the classroom are more than theoretical.

Erica Mole had just landed in her spring break destination when she received shocking news from her mother over the phone.