LINDA WERTHEIMER, host:
Many of the nation's top universities are in the dumps because of the financial meltdown - even Harvard University, which has by far the largest endowment of all universities. Nina Munk writes for Vanity Fair Magazine. She's been reporting on Harvard's financial crisis. And she joins us in our studios to talk about it. Welcome to the program.
Ms. NINA MUNK (Journalist, Contributing Editor, Vanity Fair Magazine): Thanks for having me.
WERTHEIMER: How bad is it at Harvard? Their endowment was somewhere in the vicinity of $37 billion dollars. How bad is it now?
Ms. MUNK: Well, the final numbers aren't in yet. But it's looking like their numbers have dropped from, as you say, around $37 billion a year ago to about $26 billion today. That's a drop of $11 billion. It's rather like someone who has taken on a mortgage - bought a house that far exceeds what it can afford. And they're now facing really what is the worst, most dangerous financial crisis in their 373-year history.
WERTHEIMER: What did they do? I mean what was the mortgage? What was the thing that got them into this kind of trouble?
Ms. MUNK: Well, they really did what so many Americans did - which is they overspent. Their budgets are hugely overstretched. One of the most interesting figures, to my mind, is that just this decade alone, between 2000 and 2008, they have added another 6.2 million square feet. To understand what that number means it's roughly equal to the total number of square feet occupied by the Pentagon.
And that, just that building spree alone, has cost them more than four billion dollars. So there's just these enormous expenses that have been built up even while the number of students that they've has remained constant. And in a university, unlike a corporation, in a corporation, if your expenses go haywire and you start having cash problems, you close down plants. You fire a lot of employees. You can make these very tough and also unpleasant choices.
A university is a very, very different kind of an organization. You can't lay-off tenured faculty of course. You can't shutter buildings. It's almost impossible to close down departments once they are up and running. So, Harvard has found itself with so many very high fixed costs, very little room to maneuver here. And that's really the problem.
WERTHEIMER: At one point, Harvard was totally the envy of, not only the academy, but all sorts of businesses because the people who were handling Harvard's endowment, the people who were investing it were very aggressive and very smart and they were making tons of money. Now should there have been some sort of warning light go off somewhere that said this is very, very good and very, very exciting but this can't last?
Ms. MUNK: It's an interesting question. Jack Meyer led the Harvard endowment for 15 years - from 1990 to 2005. And he was as, you know, revered certainly in the arena of investing. He was incredibly pioneering, daring. On the other hand a lot of people out there would say that he was reckless. The question is how much of the sorts of investing, the sorts of positions that Jack Meyer and his team made led to the enormous decline in the endowment in the last 12 months or so.
You know, under Jack Meyer and his team they moved into all sorts of stuff that we know consider rather reckless. A very complicated private equity, real estate holdings, timberland in New Zealand, hedge funds, junk bonds on and on and on. And a lot of those investments have really, really been hurt in the last year. The university has an extraordinary student aid program, even though the college itself is very, very expensive. Not very many people actually pay full price.
WERTHEIMER: Is the student aid program going to be in trouble here?
Ms. MUNK: My senses and my sources tell me that Harvard will cut just about anything before they will cut their financial aid program. That financial aid program has to their great credit - first under Larry Summers, and then later under Drew Faust, the current president - they really led the way when it came to rich private universities offering financial aid, not just to poor students but really to the middle class. And even in the case of Harvard, to the upper middle class.
But it has cost Harvard an enormous amount of money as you point out. However, I think they will cut just about anything before they will cut that financial aid packet.
WERTHEIMER: Well, thank you much for this.
Ms. MUNK: Okay, you're welcome. Thank you.
WERTHEIMER: Nina Munk is a contributing editor at Vanity Fair.