Misplaced Pages

#111888

97-452: MIT Sloan School of Management Fischer Sheffey Black (January 11, 1938 – August 30, 1995) was an American economist , best known as one of the authors of the Black–Scholes equation. Fischer Sheffey Black was born on January 11, 1938. He graduated from Harvard College with a major in physics in 1959 and received a PhD in applied mathematics from Harvard University in 1964. He

194-461: A continual equilibrium-is one of his books that still rings true today, given the current economic crisis. Building upon these statements, Black creates models as well as challenges monetary theorists, especially those who subscribe to the ideas of the quantity theory of money and liquidity of money. Banks are the main institutions of monetary transactions in Black's book, to which he also states that money

291-478: A crisis of ideas in mainstream economics and within the economics profession, and call for a reshaping of both the economy, economic theory and the economics profession. They argue that such a reshaping should include new advances within feminist economics and ecological economics that take as their starting point the socially responsible, sensible and accountable subject in creating an economy and economic theories that fully acknowledge care for each other as well as

388-420: A greater emphasis on analytical reasoning and quantitative analysis than most programs. Academic rigor has a strong influence on the school's culture. The first semester, also known as the core, is often considered the most difficult semester by design. Courses are graded using letter grades and on the standard five-point MIT scale. In its graduate programs, anything less than a 4.0 ('B') average will result in

485-741: A market capitalization of over $ 15 billion. In a 2014 article, the school's Dewey Library was rated the best business school library in the country. In 2016, the school's MBA program was ranked #2 worldwide for social and environmental impact by Corporate Knights magazine. MIT Sloan operates two global offices, the MIT Sloan Latin America Office (MSLAO) in Santiago , Chile , and the MIT Sloan Office for Southeast Asian Nations (MSAO) in Bangkok , Thailand . MSLAO opened in 2013, and MSAO

582-490: A minimum, there's a little 'froth' [in the U.S. housing market]...it's hard not to see that there are a lot of local bubbles". The Economist , writing at the same time, went further, saying, "[T]he worldwide rise in house prices is the biggest bubble in history". Real estate bubbles are (by definition of the word "bubble") followed by a price decrease (also known as a housing price crash ) that can result in many owners holding negative equity (a mortgage debt higher than

679-572: A resolution preventing CFTC from regulating derivatives for another six months — when Born's term of office would expire. Ultimately, it was the collapse of a specific kind of derivative, the mortgage-backed security , that triggered the economic crisis of 2008. Paul Krugman wrote in 2009 that the run on the shadow banking system was the fundamental cause of the crisis. "As the shadow banking system expanded to rival or even surpass conventional banking in importance, politicians and government officials should have realised that they were re-creating

776-757: A sharp drop in international trade , rising unemployment and slumping commodity prices. Several economists predicted that recovery might not appear until 2011 and that the recession would be the worst since the Great Depression of the 1930s. Economist Paul Krugman once commented on this as seemingly the beginning of "a second Great Depression". Governments and central banks responded with fiscal policy and monetary policy initiatives to stimulate national economies and reduce financial system risks. The recession renewed interest in Keynesian economic ideas on how to combat recessionary conditions. Economists advise that

873-510: A tool for taking excessive risks. Examples of vulnerabilities in the public sector included: statutory gaps and conflicts between regulators; ineffective use of regulatory authority; and ineffective crisis management capabilities. Bernanke also discussed " Too big to fail " institutions, monetary policy, and trade deficits. There are several "narratives" attempting to place the causes of the recession into context, with overlapping elements. Five such narratives include: Underlying narratives #1–3

970-413: Is a hypothesis that growing income inequality and wage stagnation encouraged families to increase their household debt to maintain their desired living standard, fueling the bubble. Further, this greater share of income flowing to the top increased the political power of business interests, who used that power to deregulate or limit regulation of the shadow banking system. Narrative #5 challenges

1067-403: Is an endogenous resource (contrary to monetarists who believe money to be an exogenous resource), provided by banks due to profit maximization. Controversial statements such as "Monetary and exchange rate policies accomplish almost nothing, and fiscal policies are unimportant in causing or changing business cycles" have made Black enemies with Keynesians and Monetarists alike. In early 1994, Black

SECTION 10

#1732881554112

1164-472: Is expected to open in October 2024. MIT Sloan students and alumni informally call themselves Sloanies . The MIT Sloan culture is similar to, but also distinct from, overall MIT culture , and is influenced most strongly by its MBA program. MBA students come from more than 60 countries every year, with just over half coming from North America , and 60% holding US citizenship. Prior to business school, engineering

1261-517: Is the most popular undergraduate major among students. 46% of the class is female. A staple of MIT Sloan MBA life is the weekly C-Function , which stands for "cultural function" or "consumption function". The school sponsors food and drink for all members of the MIT Sloan graduate community to enjoy entertainment organized by specific campus cultural groups or clubs as well as parties with non-cultural themes. C-Functions are usually held most Thursdays in

1358-463: Is the timing. Subprime lending increased from around 10% of mortgage origination historically to about 20% only from 2004 to 2006, with housing prices peaking in 2006. Blaming affordable housing regulations established in the 1990s for a sudden spike in subprime origination is problematic at best. A more proximate government action to the sudden rise in subprime lending was the SEC relaxing lending standards for

1455-503: The American Enterprise Institute , which advocates for private enterprise and limited government, have asserted that private lenders were encouraged to relax lending standards by government affordable housing policies. They cite The Housing and Community Development Act of 1992, which initially required that 30 percent or more of Fannie's and Freddie's loan purchases be related to affordable housing. The legislation gave HUD

1552-640: The American Finance Association established the biennially awarded Fischer Black Prize in memory of Fischer Black. The award is given to a young researcher whose body of work "best exemplifies the Fischer Black hallmark of developing original research that is relevant to finance practice". MIT Sloan School of Management MIT Sloan offers bachelor's , master's , and doctoral degree programs, as well as executive education . Many influential ideas in management and finance originated at

1649-565: The Central Bank of Malaysia to establish Asia School of Business in Kuala Lumpur , Malaysia . The curriculum is focused on action learning, which requires that students apply concepts learned in the classroom to real-world business settings. Courses are taught using the case method , lectures, team projects, and hands-on Action Learning Labs. The academic level of coursework is considered extremely demanding by business school standards, with

1746-478: The Commodity Futures Trading Commission , put forth a policy paper asking for feedback from regulators, lobbyists, and legislators on the question of whether derivatives should be reported, sold through a central facility, or whether capital requirements should be required of their buyers. Greenspan, Rubin, and Levitt pressured her to withdraw the paper and Greenspan persuaded Congress to pass

1843-846: The Design Club ; the Finance Club ; the Management Consulting Club ; the Entertainment, Media and Sports Club ; the Venture Capital and Private Equity Club ; the Product Management Club ; and the Technology Club . The Sloan Business Club is the official undergraduate business club for all MIT students. Throughout the school year, a number of professional and academic conferences are organized by, or in partnership with,

1940-518: The Great Recession . Black's works on monetary theory, business cycles and options are parts of his vision of a unified framework. He once stated: I like the beauty and symmetry in Mr. Treynor's equilibrium models so much that I started designing them myself. I worked on models in several areas: Monetary theory, Business cycles, Options and warrants For 20 years, I have been struggling to show people

2037-662: The IMF criteria for being a global recession only in the single calendar year 2009. That IMF definition requires a decline in annual real world GDP per‑capita . Despite the fact that quarterly data are being used as recession definition criteria by all G20 members , representing 85% of the world GDP , the International Monetary Fund (IMF) has decided—in the absence of a complete data set—not to declare/measure global recessions according to quarterly GDP data. The seasonally adjusted PPP ‑weighted real GDP for

SECTION 20

#1732881554112

2134-657: The #3 most innovative sports company, behind only the NFL and MLB Advanced Media . Like the rest of the institute, MIT Sloan students have an extended period between semesters reserved for special activities. During the month of January, there are no formal classes at the school; instead, they are replaced by what is known as the Independent Activities Period (IAP) . During IAP, students engage in activities that would be challenging to participate in alongside regular classes, often including international travel programs. In

2231-648: The 1980s but eventually published. He also co-authored the Black–Litterman model on global asset allocation while at Goldman Sachs. The advisory board of The Journal of Performance Measurement inducted Black into the Performance & Risk Measurement Hall of Fame in 2017. The announcement appears in the Winter 2016/2017 issue of the journal. The Hall of Fame recognizes individuals who have made significant contributions to investment performance and risk measurement. In 2002,

2328-429: The 19th and early 20th centuries, the current banking panic is a wholesale panic, not a retail panic. In the earlier episodes, depositors ran to their banks and demanded cash in exchange for their checking accounts. Unable to meet those demands, the banking system became insolvent. The current panic involved financial firms "running" on other financial firms by not renewing sale and repurchase agreements (repo) or increasing

2425-416: The 19th century. Yet, over the past 30-plus years, we permitted the growth of a shadow banking system – opaque and laden with short term debt – that rivaled the size of the traditional banking system. Key components of the market – for example, the multitrillion-dollar repo lending market, off-balance-sheet entities, and the use of over-the-counter derivatives – were hidden from view, without

2522-537: The FCIC Republican minority dissenting report also concluded that U.S. housing policies were not a robust explanation for a wider global housing bubble. The hypothesis that a primary cause of the crisis was U.S. government housing policy requiring banks to make risky loans has been widely disputed, with Paul Krugman referring to it as "imaginary history". One of the other challenges with blaming government regulations for essentially forcing banks to make risky loans

2619-521: The Federal Reserve has been widely discussed, the main point of controversy remains the lowering of the Federal funds rate to 1% for more than a year, which, according to Austrian theorists , injected huge amounts of "easy" credit-based money into the financial system and created an unsustainable economic boom. There is an argument that Greenspan's actions in the years 2002–2004 were actually motivated by

2716-416: The Federal Reserve. Further, American International Group (AIG) had insured mortgage-backed and other securities but was not required to maintain sufficient reserves to pay its obligations when debtors defaulted on these securities. AIG was contractually required to post additional collateral with many creditors and counter-parties, touching off controversy when over $ 100 billion of U.S. taxpayer money

2813-675: The G20‑;zone, however, is a good indicator for the world GDP, and it was measured to have suffered a direct quarter on quarter decline during the three quarters from Q3‑2008 until Q1‑2009, which more accurately mark when the recession took place at the global level. According to the U.S. National Bureau of Economic Research (the official arbiter of U.S. recessions) the recession began in December 2007 and ended in June 2009, and thus extended over eighteen months. The years leading up to

2910-990: The International Faculty Fellows Program, and partnerships with IESE Business School in Spain, Sungkyunkwan University in South Korea , Universidade Nova de Lisboa in Portugal , the Skolkovo Moscow School of Management in Russia, and Tsinghua University in China. In 2014, the school launched the MIT Regional Entrepreneurship Acceleration Program (REAP), which brings leaders from developing regions to MIT for two years to improve their economies. In 2015, MIT worked in collaboration with

3007-657: The School of Engineering is the Leaders for Global Operations (LGO) program, where students concurrently complete an MBA and a Master of Science in engineering. Another joint degree program aimed at students with more industry experience (an average of 8 to 10 years) is the System Design and Management (SDM) program, where students complete a Master of Science in Engineering and Management. Creativity and invention are constant themes at

Fischer Black - Misplaced Pages Continue

3104-738: The Summit on Financial Markets and the World Economy," dated November 15, 2008, leaders of the Group of 20 cited the following causes: During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in

3201-402: The U.S. officially in December 2007 and lasted until June 2009, thus extending over 19 months. As with most other recessions, it appears that no known formal theoretical or empirical model was able to accurately predict the advance of this recession, except for minor signals in the sudden rise of forecast probabilities, which were still well under 50%. The recession was not felt equally around

3298-544: The US, from $ 106,591 to $ 68,839 between 2005 and 2011. The US Financial Crisis Inquiry Commission , composed of six Democratic and four Republican appointees, reported its majority findings in January 2011. It concluded that "the crisis was avoidable and was caused by: There were two Republican dissenting FCIC reports. One of them, signed by three Republican appointees, concluded that there were multiple causes. In his separate dissent to

3395-534: The United States, and 21% in Denmark. Household defaults, underwater mortgages (where the loan balance exceeds the house value), foreclosures, and fire sales are now endemic to a number of economies. Household deleveraging by paying off debts or defaulting on them has begun in some countries. It has been most pronounced in the United States, where about two-thirds of the debt reduction reflects defaults." The onset of

3492-631: The Walker Memorial building, which is also used as the venue for many other MIT Sloan community events. MIT Sloan alumni groups around the world also organize C-Functions for their club members, for social and networking activities. Students at MIT Sloan run over 70 active clubs. Some of the most popular clubs are the Sloan Women in Management Club ; the Entrepreneurship & Innovation Club ;

3589-513: The academic definition, the recession ended in the United States in June or July 2009. Journalist Robert Kuttner has argued that 'The Great Recession' is a misnomer. According to Kuttner, "recessions are mild dips in the business cycle that are either self-correcting or soon cured by modest fiscal or monetary stimulus. Because of the continuing deflationary trap, it would be more accurate to call this decade's stagnant economy The Lesser Depression or The Great Deflation." The Great Recession met

3686-460: The bailout measures started under the Bush administration and continued during his administration as completed and mostly profitable as of December 2014 . As of January 2018 , bailout funds had been fully recovered by the government, when interest on loans is taken into consideration. A total of $ 626B was invested, loaned, or granted due to various bailout measures, while $ 390B had been returned to

3783-517: The bailouts. In 2008, TARP allocated $ 426.4 billion to various major financial institutions. However, the US collected $ 441.7 billion in return from these loans in 2010, recording a profit of $ 15.3 billion. Nonetheless, there was a political shift from the Democratic party. Examples include the rise of the Tea Party and the loss of Democratic majorities in subsequent elections. President Obama declared

3880-399: The beauty in these models to pass on knowledge I received from Mr. Treynor. In monetary theory --- the theory of how money is related to economic activity --- I am still struggling. In business cycle theory --- the theory of fluctuation in the economy --- I am still struggling. In options and warrants, though, people see the beauty. It can be shown that the mathematical techniques developed in

3977-554: The big debate in this field was between Keynesians and monetarists . The Keynesians (under the leadership of Franco Modigliani ) believe there is a natural tendency of the credit markets toward instability, toward boom and bust, and they assign to both monetary and fiscal policy roles in damping down this cycle, working toward the goal of smooth sustainable growth . In the Keynesian view, central bankers have to have discretionary powers to fulfill their role properly. Monetarists, under

Fischer Black - Misplaced Pages Continue

4074-453: The crisis were characterized by an exorbitant rise in asset prices and associated boom in economic demand. Further, the U.S. shadow banking system (i.e., non-depository financial institutions such as investment banks) had grown to rival the depository system yet was not subject to the same regulatory oversight, making it vulnerable to a bank run . US mortgage-backed securities , which had risks that were hard to assess, were marketed around

4171-668: The crisis) and vulnerabilities (i.e., structural weaknesses in the financial system, regulation and supervision) that amplified the shocks. Examples of triggers included: losses on subprime mortgage securities that began in 2007 and a run on the shadow banking system that began in mid-2007, which adversely affected the functioning of money markets. Examples of vulnerabilities in the private sector included: financial institution dependence on unstable sources of short-term funding such as repurchase agreements or Repos; deficiencies in corporate risk management; excessive use of leverage (borrowing to invest); and inappropriate usage of derivatives as

4268-442: The current value of the property). Several sources have noted the failure of the US government to supervise or even require transparency of the financial instruments known as derivatives . Derivatives such as credit default swaps (CDSs) were unregulated or barely regulated. Michael Lewis noted CDSs enabled speculators to stack bets on the same mortgage securities. This is analogous to allowing many persons to buy insurance on

4365-517: The downturn. In advanced economies, during the five years preceding 2007, the ratio of household debt to income rose by an average of 39 percentage points, to 138 percent. In Denmark, Iceland, Ireland, the Netherlands, and Norway, debt peaked at more than 200 percent of household income. A surge in household debt to historic highs also occurred in emerging economies such as Estonia, Hungary, Latvia, and Lithuania. The concurrent boom in both house prices and

4462-608: The economic crisis took most people by surprise. A 2009 paper identifies twelve economists and commentators who, between 2000 and 2006, predicted a recession based on the collapse of the then-booming housing market in the United States: Dean Baker , Wynne Godley , Fred Harrison , Michael Hudson , Eric Janszen , Med Jones Steve Keen , Jakob Brøchner Madsen , Jens Kjaer Sørensen, Kurt Richebächer , Nouriel Roubini , Peter Schiff , and Robert Shiller . By 2007, real estate bubbles were still under way in many parts of

4559-405: The economic headwinds that slowed the recovery: On the political front, widespread anger at banking bailouts and stimulus measures (begun by President George W. Bush and continued or expanded by President Obama ) with few consequences for banking leadership, were a factor in driving the country politically rightward starting in 2010. The Troubled Asset Relief Program (TARP) was the largest of

4656-471: The fall of Lehman Brothers on September 15, 2008, a major panic broke out on the inter-bank loan market. There was the equivalent of a bank run on the shadow banking system , resulting in many large and well established investment banks and commercial banks in the United States and Europe suffering huge losses and even facing bankruptcy, resulting in massive public financial assistance (government bailouts). The global recession that followed resulted in

4753-450: The following recovery weaker. Robert Reich claims the amount of debt in the US economy can be traced to economic inequality , assuming that middle-class wages remained stagnant while wealth concentrated at the top, and households "pull equity from their homes and overload on debt to maintain living standards". The IMF reported in April 2012: "Household debt soared in the years leading up to

4850-470: The future and about what the economy will be able to produce in the future. If future tastes and technology were known, profits and wages would grow smoothly and surely over time." A boom is a period when technology matches well with demand. A bust is a period of mismatch. This view made Black an early contributor to real business cycle theory . Economist Tyler Cowen has argued that Black's work on monetary economics and business cycles can be used to explain

4947-469: The harm monetarists feared it would do. Black said in a letter to Friedman, in January 1972: In the U.S. economy, much of the public debt is in the form of Treasury bills. Each week, some of these bills mature, and new bills are sold. If the Federal Reserve System tries to inject money into the private sector, the private sector will simply turn around and exchange its money for Treasury bills at

SECTION 50

#1732881554112

5044-536: The honor for their landmark work on option pricing along with Robert C. Merton , another pioneer in the development of valuation of stock options. However, when announcing the award that year, the Nobel committee did prominently mention Black's key role. Black has also received recognition as the co-author of the Black–Derman–Toy interest rate derivatives model, which was developed for in-house use by Goldman Sachs in

5141-467: The inflow of investment dollars required to fund the U.S. trade deficit was a major cause of the housing bubble and financial crisis: "The trade deficit, less than 1% of GDP in the early 1990s, hit 6% in 2006. That deficit was financed by inflows of foreign savings, in particular from East Asia and the Middle East. Much of that money went into dodgy mortgages to buy overvalued houses, and the financial crisis

5238-533: The kind of financial vulnerability that made the Great Depression possible – and they should have responded by extending regulations and the financial safety net to cover these new institutions. Influential figures should have proclaimed a simple rule: anything that does what a bank does, anything that has to be rescued in crises the way banks are, should be regulated like a bank." He referred to this lack of controls as "malign neglect". During 2008, three of

5335-568: The largest U.S. investment banks either went bankrupt ( Lehman Brothers ) or were sold at fire sale prices to other banks ( Bear Stearns and Merrill Lynch ). The investment banks were not subject to the more stringent regulations applied to depository banks. These failures exacerbated the instability in the global financial system. The remaining two investment banks, Morgan Stanley and Goldman Sachs , potentially facing failure, opted to become commercial banks, thereby subjecting themselves to more stringent regulation but receiving access to credit via

5432-547: The leadership of Milton Friedman , believe that discretionary central banking is the problem, not the solution. Friedman believed that the growth of the money supply could and should be set at a constant rate, say 3% a year, to accommodate predictable growth in real GDP. On the basis of the capital asset pricing model , Black concluded that discretionary monetary policy could not do the good that Keynesians wanted it to do. He concluded that monetary policy should be passive within an economy. But he also concluded that it could not do

5529-581: The main headline is that all sorts of poor countries became kind of rich, making things like TVs and selling us oil. China, India, Abu Dhabi, Saudi Arabia made a lot of money and banked it." Describing the crisis in Europe, Paul Krugman wrote in February 2012 that: "What we're basically looking at, then, is a balance of payments problem, in which capital flooded south after the creation of the euro, leading to overvaluation in southern Europe." Another narrative about

5626-462: The majority and minority opinions of the FCIC, Commissioner Peter J. Wallison of the American Enterprise Institute (AEI) primarily blamed U.S. housing policy, including the actions of Fannie and Freddie , for the crisis. He wrote: "When the bubble began to deflate in mid-2007, the low quality and high risk loans engendered by government policies failed in unprecedented numbers." In its "Declaration of

5723-804: The middle of semesters, the MBA program has an additional, shorter gap, called the Sloan Innovation Period (SIP), focusing on intensive experiential leadership activities outside of the classroom. After commencement, MIT Sloan graduates wear the MIT class ring , known as the Brass Rat . Top recruiters of new MBA graduates of the school include Apple , Google , Goldman Sachs , McKinsey & Company , Nike and Amazon . The school has over 20,000 alumni globally in 90 countries, with more than 20% who are presidents or CEOs. More than 650 companies have been founded by alumni of

5820-596: The modern corporation. An Alfred P. Sloan Foundation grant established the MIT School of Industrial Management in 1952 with the charge of educating the "ideal manager". In 1964, the school was renamed in Sloan's honor as the Alfred P. Sloan School of Management. In the following decades, the school grew to the point that in 2000, management became the second-largest undergraduate major at MIT. In 2005, an undergraduate minor in management

5917-662: The need to take the U.S. economy out of the early 2000s recession caused by the bursting of the dot-com bubble : although by doing so he did not avert the crisis, but only postponed it. Another narrative focuses on high levels of private debt in the US economy. USA household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990. Faced with increasing mortgage payments as their adjustable rate mortgage payments increased, households began to default in record numbers, rendering mortgage-backed securities worthless. High private debt levels also impact growth by making recessions deeper and

SECTION 60

#1732881554112

6014-560: The next auction. If the Federal Reserve withdraws money, the private sector will allow some of its Treasury bills to mature without replacing them. In 1973, Black, along with Myron Scholes , published the paper 'The Pricing of Options and Corporate Liabilities' in 'The Journal of Political Economy' . This was his most famous work and included the Black–Scholes equation . In March 1976, Black proposed that human capital and business have "ups and downs that are largely unpredictable [...] because of basic uncertainty about what people will want in

6111-535: The obligation and defaulted; U.S. taxpayers paid over $ 100 billion to global financial institutions to honor AIG obligations, generating considerable outrage. A 2008 investigative article in The Washington Post found leading government officials at the time (Federal Reserve Board Chairman Alan Greenspan , Treasury Secretary Robert Rubin , and SEC Chairman Arthur Levitt ) vehemently opposed any regulation of derivatives. In 1998, Brooksley E. Born , head of

6208-402: The option theory can be extended to provide a mathematical analysis of monetary theory and business cycles as well. Fischer Black has published many academic articles, including his best-known book, Business Cycles and Equilibrium . In this book, Black proposes at the beginning of the book to imagine a world where money does not exist. With its theory that economic and financial markets are in

6305-484: The origin has been focused on the respective parts played by public monetary policy (notably in the US) and by the practices of private financial institutions. In the U.S., mortgage funding was unusually decentralised, opaque, and competitive, and it is believed that competition between lenders for revenue and market share contributed to declining underwriting standards and risky lending. While Alan Greenspan's role as Chairman of

6402-588: The planet. Though no one knew they were in it at the time, the Great Recession had a significant economic and political impact on the United States. While the recession technically lasted from December 2007 – June 2009 (the nominal GDP trough), many important economic variables did not regain pre-recession (November or Q4 2007) levels until 2011–2016. For example, real GDP fell $ 650 billion (4.3%) and did not recover its $ 15 trillion pre-recession level until Q3 2011. Household net worth, which reflects

6499-518: The popular claim (narrative #4) that subprime borrowers with shoddy credit caused the crisis by buying homes they couldn't afford. This narrative is supported by new research showing that the biggest growth of mortgage debt during the U.S. housing boom came from those with good credit scores in the middle and top of the credit score distribution—and that these borrowers accounted for a disproportionate share of defaults. The Economist wrote in July 2012 that

6596-512: The power to set future requirements. These rose to 42 percent in 1995 and 50 percent in 2000, and by 2008 a 56 percent minimum was established. However, the Financial Crisis Inquiry Commission (FCIC) Democratic majority report concluded that Fannie & Freddie "were not a primary cause" of the crisis and that CRA was not a factor in the crisis. Further, since housing bubbles appeared in multiple countries in Europe as well,

6693-410: The protections we had constructed to prevent financial meltdowns. We had a 21st-century financial system with 19th-century safeguards. The Gramm–Leach–Bliley Act (1999), which reduced the regulation of banks by allowing commercial and investment banks to merge, has also been blamed for the crisis, by Nobel Prize –winning economist Joseph Stiglitz among others. Peter Wallison and Edward Pinto of

6790-402: The recession have been described as a symptom of another, deeper crisis by a number of economists. For example, Ravi Batra argues that growing inequality of financial capitalism produces speculative bubbles that burst and result in depression and major political changes . Feminist economists Ailsa McKay and Margunn Bjørnholt argue that the financial crisis and the response to it revealed

6887-488: The recovery was that both individuals and businesses paid down debts for several years, as opposed to borrowing and spending or investing as had historically been the case. This shift to a private sector surplus drove a sizable government deficit. However, the federal government held spending at about $ 3.5 trillion from fiscal years 2009–2014 (thereby decreasing it as a percent of GDP), a form of austerity . Then-Fed Chair Ben Bernanke explained during November 2012 several of

6984-461: The repo margin ("haircut"), forcing massive deleveraging, and resulting in the banking system being insolvent. The Financial Crisis Inquiry Commission reported in January 2011: In the early part of the 20th century, we erected a series of protections – the Federal Reserve as a lender of last resort , federal deposit insurance, ample regulations – to provide a bulwark against the panics that had regularly plagued America's banking system in

7081-496: The same house. Speculators that bought CDS protection were betting significant mortgage security defaults would occur, while the sellers (such as AIG ) bet they would not. An unlimited amount could be wagered on the same housing-related securities, provided buyers and sellers of the CDS could be found. When massive defaults occurred on underlying mortgage securities, companies like AIG that were selling CDS were unable to perform their side of

7178-423: The school, including Akamai , E*Trade , Gartner , Genentech , HubSpot , Lotus Software , Teradyne , Zipcar , and Okta . Deans Notable current and former faculty Great Recession The Great Recession was a period of market decline in economies around the world that occurred from late 2007 to mid-2009. The scale and timing of the recession varied from country to country (see map). At

7275-560: The school, including the Black–Scholes model , the random walk hypothesis , the binomial options pricing model , and the field of system dynamics . The faculty has included numerous Nobel laureates in economics and John Bates Clark Medal winners. The MIT Sloan School of Management began in 1914 as the engineering administration curriculum ("Course 15") in the MIT Department of Economics and Statistics. The scope and depth of this educational focus grew steadily in response to advances in

7372-857: The school. Annual highlights include the MIT $ 100K Entrepreneurship Competition , the MIT Venture Capital & Innovation Conference, the Sloan Women in Management Breaking the Mold Conference, the MIT Sloan CIO Symposium, and the MIT Sloan CFO Summit. The most visible conference—and the largest student-run conference in the world—is the MIT Sloan Sports Analytics Conference , which Fast Company ranked

7469-453: The school. The MBA track in Entrepreneurship & Innovation features action learning labs which pair students with companies to learn how to solve complex problems relating to emerging technologies. These action learning labs include Entrepreneurship Lab , Innovation Teams , and Leading Sustainable Systems Lab . Global Entrepreneurship Lab and Global Health Delivery Lab send MBA students to work onsite with startups in different parts of

7566-518: The stimulus measures such as quantitative easing (pumping money into the system) and holding down central bank wholesale lending interest rate should be withdrawn as soon as economies recover enough to "chart a path to sustainable growth ". The distribution of household incomes in the United States became more unequal during the post-2008 economic recovery . Income inequality in the United States grew from 2005 to 2012 in more than two thirds of metropolitan areas. Median household wealth fell 35% in

7663-601: The stock market meant that household debt relative to assets held broadly stable, which masked households' growing exposure to a sharp fall in asset prices. When house prices declined, ushering in the global financial crisis, many households saw their wealth shrink relative to their debt, and, with less income and more unemployment, found it harder to meet mortgage payments. By the end of 2011, real house prices had fallen from their peak by about 41% in Ireland, 29% in Iceland, 23% in Spain and

7760-558: The student not being allowed to graduate. Unlike most business schools, MIT Sloan does not offer any academic honors at graduation, consistent with the practice throughout all of MIT. The philosophy behind this is that the 'honor' is in being an MIT graduate. MIT Sloan closely collaborates with other parts of MIT, in particular the School of Engineering , the School of Science , and the Department of Economics . A special joint degree program with

7857-542: The system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions. Federal Reserve Chair Ben Bernanke testified in September 2010 before the FCIC regarding the causes of the crisis. He wrote that there were shocks or triggers (i.e., particular events that touched off

7954-456: The theory and practice of management. A program offering a master's degree in management was established in 1925. The world's first university-based mid-career education program—the Sloan Fellows program—was created in 1931 under the sponsorship of Alfred P. Sloan , himself an 1895 MIT graduate, who was the chief executive officer of General Motors and has since been credited with creating

8051-533: The time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression . The causes of the Great Recession include a combination of vulnerabilities that developed in the financial system, along with a series of triggering events that began with the bursting of the United States housing bubble in 2005–2012. When housing prices fell and homeowners began to abandon their mortgages,

8148-492: The top investment banks during an April 2004 meeting with bank leaders. These banks increased their risk-taking shortly thereafter, significantly increasing their purchases and securitization of lower-quality mortgages, thus encouraging additional subprime and Alt-A lending by mortgage companies. This action by its investment bank competitors also resulted in Fannie Mae and Freddie Mac taking on more risk. The financial crisis and

8245-404: The value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September 2008. This 2007–2008 phase was called the subprime mortgage crisis . The combination of banks being unable to provide funds to businesses, and homeowners paying down debt rather than borrowing and spending, resulted in the Great Recession that began in

8342-465: The value of both stock markets and housing prices, fell $ 11.5 trillion (17.3%) and did not regain its pre-recession level of $ 66.4 trillion until Q3 2012. The number of persons with jobs (total non-farm payrolls) fell 8.6 million (6.2%) and did not regain the pre-recession level of 138.3 million until May 2014. The unemployment rate peaked at 10.0% in October 2009 and did not return to its pre-recession level of 4.7% until May 2016. A key dynamic slowing

8439-453: The word "recession" exist: one sense referring definitively to "a period of reduced economic activity" and ongoing hardship; and the more allegoric interpretation used in economics , which is defined operationally , referring specifically to the contraction phase of a business cycle , with two or more consecutive quarters of GDP contraction (negative GDP growth rate) and typically used to influence abrupt changes in monetary policy. Under

8536-660: The world, especially in the United States , France, the United Kingdom , Spain , the Netherlands, Australia, the United Arab Emirates, New Zealand , Ireland , Poland , South Africa , Greece , Bulgaria , Croatia , Norway , Singapore , South Korea , Sweden , Finland , Argentina , the Baltic states , India , Romania , Ukraine and China . U.S. Federal Reserve Chairman Alan Greenspan said in mid-2005 that "at

8633-454: The world, as they offered higher yields than U.S. government bonds. Many of these securities were backed by subprime mortgages, which collapsed in value when the U.S. housing bubble burst during 2006 and homeowners began to default on their mortgage payments in large numbers starting in 2007. The emergence of subprime loan losses in 2007 began the crisis and exposed other risky loans and over-inflated asset prices. With loan losses mounting and

8730-454: The world. The Martin Trust Center for MIT Entrepreneurship , one of the few business school entrepreneurship centers in the world focused on high tech , offers many other entrepreneurial activities and mentorship throughout the year. The annual MIT $ 100K Entrepreneurship Competition is one of the largest business plan competitions in the world, helping to launch more than 130 companies with

8827-507: The world; whereas most of the world's developed economies , particularly in North America, South America and Europe, fell into a severe, sustained recession, many more recently developing economies suffered far less impact, particularly China , India and Indonesia , whose economies grew substantially during this period. Similarly, Oceania suffered minimal impact , in part due to its proximity to Asian markets. Two interpretations of

8924-619: Was diagnosed with throat cancer . Surgery at first appeared successful, and Black was well enough to attend the annual meeting of the International Association of Financial Engineers that October, where he received their award as Financial Engineer of the Year. However, the cancer returned, and Black died in August 1995. The Nobel Prize is not given posthumously, so it was not awarded to Black in 1997 when his co-author Myron Scholes received

9021-559: Was initially expelled from the PhD program due to his inability to settle on a thesis topic, having switched from physics to mathematics, then to computers and artificial intelligence . Black joined the consultancy Bolt, Beranek and Newman , working on a system for artificial intelligence. He spent a summer developing his ideas at the RAND corporation . He became a student of MIT professor Marvin Minsky , and

9118-765: Was later able to submit his research for completion of the Harvard PhD. Black joined Arthur D. Little , where he was first exposed to economic and financial consulting and where he met his future collaborator Jack Treynor . In 1971, he began to work at the University of Chicago . He later left the University of Chicago in 1975 to work at the MIT Sloan School of Management . In 1984, he joined Goldman Sachs where he worked until death. Black began thinking seriously about monetary policy around 1970 and found, at this time, that

9215-522: Was opened to 100 students each year. In 2014, the school celebrated 100 years of management education at MIT. Since its founding, the school has initiated many international efforts to improve regional economies and positively shape the future of global business. In the 1960s, the school played a leading role in founding the first Indian Institute of Management . Other initiatives include the MIT-China Management Education Project,

9312-453: Was paid out to major global financial institutions on behalf of AIG. While this money was legally owed to the banks by AIG (under agreements made via credit default swaps purchased from AIG by the institutions), a number of Congressmen and media members expressed outrage that taxpayer money was used to bail out banks. Economist Gary Gorton wrote in May 2009 Unlike the historical banking panics of

9409-402: Was the result." In May 2008, NPR explained in their Peabody Award winning program " The Giant Pool of Money " that a vast inflow of savings from developing nations flowed into the mortgage market, driving the U.S. housing bubble. This pool of fixed income savings increased from around $ 35 trillion in 2000 to about $ 70 trillion by 2008. NPR explained this money came from various sources, "[b]ut

#111888