Walter Hutchens’ Blog

This week my class on the global financial crisis ended. I was fortunate to have worked with a great group of students. We were, obviously, dealing with an important, complex topic with extraordinary relevance. It was, I think, a great class.

Some of the students from class on the global financial crisis.

That sounds immodest, but the class was great for many reasons that were wholly unrelated (or only coincidentally related) to anything I did. I’ll list several of those factors below, but first let me brag a bit about the class and these students.

I am tremendously proud of everything the students learned. I believe any one of them could now give a coherent account of what’s gone awry in the economy, connecting the dots between decades of low interest rates and global development (creating pools of hungry capital), the resulting expansion of subprime lending (and race to the bottom in underwriting standards), mortgaged back securities and derivatives traded in the secondary markets, high leverage, and the resulting liquidity crises that sprang up once housing prices stalled and defaults increased, and the resulting global economic slowdown and negative feedback loops in which we now find ourselves. We had good discussions about whom to blame for what’s happened and also had good debates about what ought to be done now (and the appropriateness of what has been done) to thwart further catastrophe.

They learned a lot of relevant technical terms and concepts, too. They can all I believe explain what an investment bank does and what a hedge fund is, know the difference between a credit default swap and a collateralized debt obligation and can explain the relevance of the TED Spread. They know who Neel Kashkari and other key players are, and they know how the use of TARP funds changed over time. They can tie debates over the stimulus package into long-standing debates between Keynesians and Chicago/Austrian School economists. Whatever their political views (and we had a predictable range), they are informed, not mere bumper sticker platitudes.

Beyond learning a lot of important technical information and putting together a coherent big picture narrative, the students now also know something about the local impact of the current economic turmoil. We heard presentations from the owner of one of the leading local real estate firms. He told us how “months of available inventory” have spiked locally. He also explained how the sluggishness of some local banks in handling pre-foreclosure “short sales” have gummed up the non-foreclosure market, even though housing depreciation in Spokane hasn’t been nearly as severe (and the increase in foreclosures hasn’t been nearly as pronounced) as in some other markets. Our university’s vice president of finance and operations also gave us a very informative, candid talk. He explained how the shirking endowment, problems at the Common Fund (which used Wachovia as its custodian bank), and general economic uncertainty are affecting our own institution’s plans to build a new science building and budget for next year. In the first week of the course the students interviewed their own parents, asking about percentage declines in 401ks, the number of houses for sale on their block and whether layoffs or other retrenchment had affected their parents’ companies yet. All of this made the subject more immediate, not just “out there” abstractions.

Now, what made this class work so well?

Obviously, one key reason for the success of the class was its uncanny synchronicity with important, unfolding events. If I teach another forty years, I doubt I will ever again have an entire class so perfectly aligned with events dominating the news. Congress debated the release of the second half of TARP funds, confirmation of the new treasury secretary and how to structure the nearly trillion dollar stimulus package as we studied these issues. The students were reading the official summary of the stimulus bill the same week as the representatives who needed to vote on it. One day a student gave a presentation on “Who is Ben Bernanke?” The next day, we watched clips from a speech he had just given at the London School of Economics on the Fed’s efforts to respond to the crisis. We just couldn’t have dealt anything more topical or been closer to “real time.”

Most importantly, the students who took the class were an unusually bright and motivated group, and they participated actively. I told them we would have a seminar, not a lecture course, and that I expected them to do more talking than me. It worked out that way. The students’ lively engagement made the class a delight. It helped all of us, including me, learn a lot.

Also, we had a great mix of participants in terms of majors and class seniority. We had economics majors taking literally their last undergraduate class, accounting majors, physics majors, sociology majors and even a few first-year students. This mix was helpful in a number of ways.

Our first-year, non-business school students asked great, fundamental questions like “what is an option?” That helped all of us ground the discussion and build our understanding brick by brick.

Our more senior, specialized students were able to take the lead on topics not as accessible to beginners. Our economics students, for example, helped everyone understand what the Fed is and what it actually means when they “cut” interest rates to nearly zero. An accounting major gave an excellent presentation on mark to market accounting, explaining how that FASB rule seems to have accelerated the crisis when markets for certain derivatives became illiquid. We had a student from the PRC talk about the impact of the crisis on China, and a student from Europe talked about the impact and response there. The class was an almost ideal blend of students (we had no one from Iceland, alas, but did have a good presentation on the impact of the crisis there, too).

Another reason the class worked so well, frankly, is that I got out of the way. I had to, given that before the class I wasn’t myself sure what the TED Spread was and couldn’t have easily explained the difference between an MBS, CDO or CDS. My main role was simply to propose the class (as department chair, I felt it would be gross negligence for our business school not to offer a class on the most important business story in a long, long time), offer some framework questions and then come up with a list of specific subjects that I knew we would need to know more about. I assigned those topics to the students, and they then did research, assigned selected readings to the other students and made presentations on their respective topics. I simply sat in the room as another participant, chiming in from time to time. It is humbling and useful to realize that my greatest pedagogical effectiveness often occurs when I talk the least.

Technology helped, too. For a current-events driven class, it was invaluable to be able to replay clips from C-SPAN, two great episodes of This American Life about the crisis (1, 2), NPR news stories (and content from the fabulous NPR Planet Money Blog). Broadcast content used to be ephemeral (or at least inconvenient to recover); now vast amounts of it are available on demand. This is a powerful shift for educators. We watched Representative Waxman interrogate Alan Greenspan, getting him to admit he had been wrong in thinking that financial institutions would act in their own rational self interest, making it unnecessary to regulate derivatives. After presentations about Henry Paulson and Kashkari, we watched them testify before congressional committees. The students also collaborated in Google Docs, which not all of them had used before (early in the term we spent a few minutes on the very practical 21st century skill of “how to hyperlink.”)

Of course, my ebullience over all the students learned, the success of the class and how fascinating the crisis is as an intellectual matter is overshadowed by grim economic realities. Unemployment grew substantially even during the three weeks the class met (it was a special January term class that met every day for three hours). Poignantly, a student who took this class as his last-ever undergraduate class is among the finest seniors on campus; he has a nearly perfect GPA and is an outstanding, winsome young man . . . and so far he can’t find a job.

So, what’s ahead? The current shrinkage of aggregate global demand may be sufficiently mitigated by current monetary policy and stimulus plans. This whole, painful ordeal may lead to better financial sector regulation. This downturn may prompt households, corporations and ultimately governments (especially in the debt-addicted US) to de-leverage in a healthy way. Or it may be time for all of us to re-learn how to farm. All that is unclear to me. But I am pretty sure that the small group of students that participated in my class understand the causes, consequences and government responses to the ongoing economic turmoil as well as any undergraduates in America, if not the world, and I am extremely, and I hope justifiably, proud of that.

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Besides the course syllabus, this link also lists the readings and some of the multimedia selections the students assigned each other. Many of these choices could be supplemented and upgraded, no doubt, but some of them are spot-on, and the overall course template (the framework questions, list of topics covered, format of having students make presentations/lead discussion on the specific topics) worked very well. This is what I would build from were I to teach the course again.

Oh, and here’s the final exam. It was only 10% of the grade; the two presentations each student gave and participation in daily discussions constituted the bulk of what they were assessed on, and as in many good classes grading and the exam became a sideshow rather than the main event.

Comments welcome.