>...it currently operates at a $12 million annual deficit. The number reflects several factors ... most significantly, $10 million a year in payments on a $175 million loan the school took out a few years ago, in part so that it could invest money in the stock market.
In case you were wondering what is the real cause of this event, 85% of the problem is due to an ill advised stock market gamble.
Which brings me to my hobby horse; why are stockbrokers, financial advisors and investment bankers able to collect such huge pay? Y'all should stop feeding these leeches.
According to this[1], $160 million of that was for a new building.
> And what of the huge new $160 million (ish) academic building? The trustees still say that it has nothing to do with the fiscal crisis, despite the fact that it’s responsible for some $10 million a year in interest payments
I'm not sure what precedent there would be for either of those actions.
All of the major universities "gamble" with their endowments in the various markets. There's the corny adage that Harvard is a hedge fund with a university attached.
It's one thing to gamble with an endowment, that can be couched as investment, and another to borrow money to gamble with and endanger the operational budget of the non-profit you are overseeing.
That may well violate the fiduciary duty of prudence under the New York Prudent Management of Institutional Funds Act.
I'm sure most endowments use some margin, but there are different leverage ratios. The Harvard endowment has since eliminated net levage, but before the crisis they were levered to 105%. The borrowing that Cooper Union did amounted to 30% leverage.
Further each the duty of prudence has to be measured against each sitution individually, according to the eight factors listed in the law:
(1) general economic conditions;
(2) the possible effect of inflation or deflation;
(3) the expected tax consequences, if any, of investment decisions or strategies;
(4) the role that each investment or course of action plays within the overall investment portfolio of the fund;
(5) the expected total return from income and the appreciation of investments;
(6) other resources of the institution;
(7) the needs of the institution and the fund to make distributions and to preserve capital; and
(8) an asset’s special relationship or special value, if any, to the purposes of the institution.
Which is not to say that other boards aren't also violating their duties of prudence, but an egregious case is a good place to start.
The funny thing is, if it were to have paid off it may have been incorporated into business lore in much the same way as the story of FedEx's founder's Vegas trip has. People would have called Cooper Union's gamble a good thing, and while acknowledging it as reckless (or, more charitably, risky) would have also argued that you can't argue with success!
Then again, where is the line between reckless and calculated risk? A lot of non-entrepreneurial people would call the business of startups a reckless gamble.
FedEx (alledgedly) was otherwise bankrupt; Cooper Union was just fine. It's administrators and board members were just having a severe case of building envy. Go on any university campus in the US and you will find them building something. I've never heard of a building educating anyone.
In case you were wondering what is the real cause of this event, 85% of the problem is due to an ill advised stock market gamble.
Which brings me to my hobby horse; why are stockbrokers, financial advisors and investment bankers able to collect such huge pay? Y'all should stop feeding these leeches.