Teaching Business Students To Be Skeptics
MICHELE NORRIS, host:
Our colleague Robert Siegel is in New York City this week, where he's been talking to people about the financial crisis. Today, someone who teaches about it and some of the students he teaches.
Professor NOURIEL ROUBINI (Economics and International Business, Stern School of Business, NYU): Let's get started. Welcome back to the class.
ROBERT SIEGEL, host:
Professor Nouriel Roubini starts his class. It's called "International Macroeconomic Policy: Theory and Evidence from Recent Financial Crises." And he begins with news of the crisis that's under way.
Professor ROUBINI: And I want to start talking a little bit more formally today about one thing. It's the link between the value of the currency, the value of the dollar.
SIEGEL: About 50 MBA students at New York University's Stern School fill the augustly named JPMorgan Chase classroom.
Unidentified MBA Student #1: And what is the impact on the economy in terms of production growth and all those factors?
(Soundbite of MBA class)
Professor ROUBINI: Yes, to pick up on that question, it's not just the Brazilian currency has fallen, but a number of other ones. The reason for the fall of some of the emerging market currency...
SIEGEL: Nouriel Roubini used to advise the Clinton administration. Nowadays, he enjoys the reputation of a Cassandra, a doomsayer. He warned of the subprime crisis long before most people did. And he was also issuing early warnings of a financial crisis. He blogs about these things, and he teaches about them. And he answers his students' questions about them.
(Soundbite of MBA class)
Unidentified MBA Student #2: To what extent can the IMF play a constructive role in helping these emerging markets?
Professor ROUBINI: Well, you know, six months ago, everybody said that, you know, the IMF...
Unidentified MBA Student #3: ...China falling 9 percent actually indicates that in the long run can decouple...
Professor ROUBINI: Whether there is decoupling or re-coupling depends on...
SIEGEL: So, what is to be taught in this teachable moment, the crisis unfolding just now on Wall Street, a little farther downtown than NYU? Roubini admits it's difficult to teach about a crisis whose conclusion is still unknown to us.
Professor ROUBINI: Yeah, it's a little more challenging because we don't know yet what's going to happen. But we do relate in the classroom this particular financial crisis to previous ones. And there are many similarities and differences, so there's a basis for comparing what's happening right now with the past.
SIEGEL: Well, if there are any easily described lessons so far from what we've seen and from what you've been teaching, what are they? What's something that you can teach aspiring MBAs about the world of finance based on what's happening every day in the markets right now?
Professor ROUBINI: One thing you can teach them is that you have to look at the forest and not just at the trees. Many of them go back to position in Wall Street. They might want to pick the best firm in the best industry. But if the entire country is going bankrupt, then their investment is going to be wiped out. So having the big picture and the macro view from the top is important for then doing the right job.
SIEGEL: You've cut a good record for seeing doom around the corner when many others didn't, or at least saying that you saw it. How do you teach that?
Professor ROUBINI: Well, something about academia is that, really, it emphasizes critical thinking and lateral thinking, and that's very important. Of course, most of them are going to be in financial institutions with certain constraints, there are going to be consequences. So, it's important to foster that critical thinking approach.
SIEGEL: But do you think that the capacity for being contrarian, do you think that's something that's teachable, or is it a point of character that some people acquire and others just will rarely do so?
Professor ROUBINI: At some degree, you can teach it. Of course, some people are more willing and leaning towards having that kind of a critical thinking. But it's important for themselves, you know. Many of these investors and bankers now are losing jobs and incomes and bonuses because they didn't really approach critically this issue of risk taking. If they'd done so, they could have minimized the risk or taken, actually, a position that had made them money.
SIEGEL: Imagine you're an MBA student in Nouriel Roubini's class. Since you were in high school, it's been self-evident: Wall Street is the one street in America that really is paved with gold. Not anymore. I sat down with four of them, four of Professor Roubini's students at the Stern School: Marcia Alugio(ph), Ray Betita(ph), John Ricardi(ph) and Rohit Reddy(ph). Reddy describes studying business this year as a revelation.
Mr. ROHIT REDDY (MBA Student, Stern School of Business, NYU): It's kind of like pulling away the current and looking at the underpinnings of the world of finance. And it's really, like, an eye-opener. I'm just shocked at the meltdown.
SIEGEL: Ray, have you seen the curtain pulled back to see things that you don't like?
Mr. RAY BETITA (MBA Student, Stern School of Business, NYU): Yeah, I mean, I had this notion of what it would be like working in finance. And over the summer, I worked for two months on a trading floor. And it really sort of confirmed that even though the credit market had begun to unfold completely and the subprime story was already getting old, but now with everything going on, it sort of made me realize that it's going to be radically different than what I expected, or even what I experienced over the summer.
SIEGEL: Marcia, what do you think?
Ms. MARCIA ALUGIO (MBA Student, Stern School of Business, NYU): Yeah, I think that for sure, this is a completely different world that we're going into once we graduate from Stern. Things are really changing very quickly, and I think people are reassessing a lot of ideas that they had, you know, taken for granted in the past. So, a new experience for all of us.
SIEGEL: Have you had moments during your MBA studies when you said, oh, boy, if I had known that when I was working - I wish I had known that, I might have done something differently? Or no? John Ricardi.
Mr. JOHN RICARDI (MBA Student, NYU's Stern School of Business): Well, so this is especially interesting for me because I finished my undergrad training in computer science at the height of the dotcom boom and went to Silicon Valley and arrived just in time to see everything fall apart.
SIEGEL: So, when you tell us what you're going to do next, everybody should be all ears.
(Soundbite of laughter)
Mr. RICARDI: Well, I guess I sort of have a thing for picking industries that are poised for recovery.
SIEGEL: Rohit, some kind of takeaway bit of wisdom you've come by so far in all of this that you think you're going to try to bear in mind throughout your working life?
Mr. REDDY: I mean, one thing I've taken away, and I think it just reinforces common sense, is that you can't continue to take on debt, continue to take on risk without adequately assessing the ability of people to repay. And, you know, pretty basic bedrock principles.
SIEGEL: Yeah. But that's the great mystery of the season, in a way, Marcia, which is common-sense, bedrock principle. The financial sector was ignoring such things, and people were doing all right for quite a while.
Ms. ALUGIO: Yeah, I think it's - I'm not sure if this is true for everyone - but it seems to be the case that in good times, people don't really have a sense of what's that risky or what's really going on, and they tend to stretch themselves way too far.
SIEGEL: Do you have any friends or classmates who indeed have taken a more drastic lesson from all this and said, time to apply to law school or, you know, let's get out of here in a hurry? I mean, no one? You don't know anyone like that?
Ms. ALUGIO: I can't speak for everyone, of course. But a lot of people I've spoken to have, you know, had this positive attitude that things will eventually return to normal, and that it's worth pursuing this career.
Mr. BETITA: I would say there's probably 20 percent of the people I know who have sort of tried to reverse tack and explore other industries or perhaps other areas in finance that they hadn't even thought about.
SIEGEL: I just have one other question I'd like to hear from all of you about. Your professor, whom we've met you through, Nouriel Roubini, is known as somebody who was seeing bad things lurking around the corner when lots of other observers didn't see them or preferred not to see them. He was to some extent a contrarian. To you, what's the wisdom you learn about being outside of majority opinion, Marcia?
Ms. ALUGIO: I think it's so - it's actually so important to be an independent thinker. I think Professor Roubini has been successful in doing that, to take a step back. If your opinion is different from everyone else, don't necessarily assume it's wrong, because it might well be correct.
SIEGEL: Do you agree, Ray?
Mr. BETITA: Yeah. I mean, I agree. When everything is going up, you know, it's hard to sort of find fault with anything. But I think what Roubini really pointed out was that, you know, you have to look at the fundamentals, and you have to, you know, have a lot of common sense applied to what's going on. Does it make sense? I mean, what was happening didn't make sense.
SIEGEL: Rohit, it's that common sense again that we're hearing recited here.
Mr. REDDY: Yeah. And intellectual integrity.
SIEGEL: And no one in this group is applying to veterinary medical school right now.
(Soundbite of group laughter)
Ms. ALUGIO: Not immediately.
SIEGEL: You're hanging in there for the MBA. Well, thanks to all of you for talking with us.
Mr. BETITA: Thank you.
Mr. REDDY: Thank you.
Mr. RICARDI: Thank you.
Ms. ALUCIO: Thank you so much.
SIEGEL: Marcia Alugio, Ray Betita, John Ricardi, and Rohit Reddy, they're all learning about business, studying for MBAs at NYU's Stern School. And they're following the rollercoaster ride that is the financial sector in this crisis year of 2008. This is Robert Siegel in New York.