Outrageous fortunes tend to elicit suspicions of how they were amassed. In American history, this phenomenon is crystallized by the so-called "robber barons" prominent at the turn of the 20th century. Their names should be familiar to people the world over: John D. Rockefeller, Andre Carnegie, J.P. Morgan, Leland Stanford, and so on. Something these folks and their kin have done to take the sting from public scrutiny of how they amassed their wealth is to create foundations and sometimes institutions of higher education. Even today we have the Rockefeller Foundation, the Carnegie Foundation, and the JP Morgan Foundation, Meanwhile, Rockefeller also founded the University of Chicago, while Stanford did the same with his eponymous education institution.
The intersection of money and academia is of great interest to me personally for obvious reasons. Contrary to popular beliefs that academics are more interested in prestige or knowledge than wealth, I am often surprised how those in academia are among the worst money grubbers you'll find. There are certainly odd examples to be found. For instance, so many years after Enron became the very symbol of American corporate malfeasance, the University of Houston still awards--get this--the Enron Teaching Excellence award. Instructors also very much welcome chaired professorships. If you thought winning an Enron prize for excellence in anything was bad enough, the University of Missouri has a Kenneth Lay Chair in Economics. Malodorous dead company or malodorous dead guy--pick your poison, but it's still money either way. (A former American colleague tells me of someone offered the Playboy Enterprises Chair [!] who turned the offer down since he was a family man, but I sometimes doubt the veracity of this story even if it does make for great dinnertime conversation for academics,)
Anyway, just as episodes of corporate malfeasance symbolized by Enron were symptomatic of the excesses of the dot-com bust, so do we have our superstar hedge fund managers of today who are in serious need of...image rehabilitation. Like the robber barons of yore, John Paulson has made an outrageous fortune--in his case by taking out credit default swaps against issuers of subprime mortgages. The $15 billion he netted has been called The Greatest Trade Ever. The lustre of this move has dimmed somewhat with the revelation that Goldman Sachs offered a package of securities that Paulson shorted unknowingly to its buyers, but hey, read John Chandler's caveat above. Certainly, Paulson has his share of defenders in much the same way vultures have their defenders in the fauna food pyramid:
It’s widely accepted that while short sellers of stock are despised by corporate America, they serve a useful purpose. They enable people who don’t believe CEOs’ happy talk to put their money where their scepticism is. You may not believe the stock (or house prices) are a bubble, but those who think they are serve to restrain valuations by betting against them. In the process, they actually mitigate bubbles. One of the structural shortcomings of the housing market is that it is quite hard to short; houses are illiquid and heterogenous. This, all else equal, makes housing more inefficient and prone to bubbles. Arguably, devices that addressed this market flaw made the market more efficient. (Like Mr Sorkin, I am ignoring for the moment the legal question of whether Goldman made the right disclosures in marketing its synthetic CDO.)Moralizing aside, I was reading my copy of the LSE employee newsletter when, lo and behold, I discovered that John Paulson was trying to cover his name in glory (or so he may think) by associating himself with our school. To remove the possible tarnish of dirty trading tactics, his pre-emptive strike is to fund a unit investigating Europe's role in combating financial crisis. It's interesting timing, of course, given that other hedge fund managers are using lower key tactics in taking advantage of EU turmoil. Maybe it's his way of washing his hands of the matter. Having had run-ins with US authorities already during the subprime fiasco, what better way to wash his hands of the matter as troubles head to Europe and its even more busybody lawmakers and civil servants...for the paltry sum of £2.5 million?
Paulson & Co. founder, John A. Paulson has donated more than £2.5 million to fund new research and teaching on Europe's unique role in the post-crisis financial world at the London School of Economics and Political Science. The gift will establish the John Paulson Chair in European Political Economy, a position which will be occupied by a leading scholar who combines expertise in finance, policy and the European Union with the reputation to speak to a global audience.Question their methods but robber barons of a century ago left behind buildings, railroads, universities, and so forth. What will the current generation of budding industrialists (de-industrialists?) leave behind? I'll bet John Paulson is giving it some thought as evidenced by his donation to the LSE. Fair enough. And I certainly wouldn't mind being the John Paulson Chair in International Political Economy one day [just kidding--but only just ;-)].
The chair will be located in LSE's European Institute which applies a broad range of academic disciplines to understand Europe's complex and developing role in the world. This comes at a time when the euro crisis has focused attention not only on the currency's future but also on how EU governments can restructure their politics, economies and social affairs in response. It is hoped the holder of the chair will be able to take up the appointment in September. The donation also includes funding for an associated five-year research programme.