Charles Grassley, Republican from Iowa, is not one of my favorite senators, and neither frankly is Max Baucus, Democrat from Montana.  A while back they came up with the idea that some colleges and universities were too rich and that they should in some way share their wealth with less well-endowed institutions.  Now, Grassley and Baucus are not exactly populists. Still, the notion appealed to them and to other legislators. So congressional committees held open hearings and all kinds of cockamamie notions were put forward. Some proposed that the flush educational doweries pay taxes. Others suggested that the richer schools be made to spend a certain (larger) percentage of their inheritances, as if an academic budget with standing obligations were like the expenses of a foundation that has no fixed liabilities.  All, I suppose, to even the playing field, as if any playing field is even and as if legislatively mandated evenness would produce favorable results. 

When the Massachusetts Educational Financing Authority was poised to go bankrupt--a very serious matter, don't get me wrong--Governor Deval Patrick, a very serious man, faced with 40,000 students short on coming tuition, proposed that Harvard, the Massachusetts Institute of Technology and even the sparsely enough state-supported University of Massachusetts put some of their spare cash into the M.E.F.A. as investments.  No later than on the morrow, as I recall, the Boston Globe, with the goofiest editorial page I read, published its support for this go nowhere idea.  (The New York Times, which has financial troubles of its own, is trying to shed the Globe from its burdened back. Jack Welch, the former C.E.O. of General Electric appears to want to buy. Let's see how goofy the other side can be.)  The Massachusetts legislature was considering proposals of various degrees of malevolence and idiocy to tax schools that showed endowments of over $1 billion.  But that was then and now is now.

At this writing neither Harvard not M.I.T. has any spare cash. And neither do Stanford, Yale, Princeton, University of Texas, University of Michigan, Emory, Georgetown, Johns Hopkins, Williams, Amherst, Virginia, Smith, Cornell, Pennsylvania, Columbia. Not quite as pinched as the poor institutions. But squeezed nonetheless. Squeezed very tightly, in fact. Probably with no where to go but sideways unless I am too optimistic, in which case they will be down some more.  And so the quick-fix legislators have retreated, perhaps beaten for the moment but not humbled.

In a way, of course, the super-wealthy institutions, like the super-wealthy individuals, who did inordinately well during the long upswing have been punished inordinately, too.  Say, if the endowment of institution "A " (no, it's not Harvard; it's no particular place) went up by 20% a year through very savvy investments and very successful fundraising its financial holdings had, after five years, a quantitatively and qualitatively different character.  It spent more and put more money into long-term and often non-liquid private investments.  Now, the value of its big old cushion has fallen by 30% in its public equities and God only knows how much it has plummeted in its hard-to-value and now almost impossible to sell...For example, a holding in New Zealand pine forests.  (Yes, this is Harvard.)  Well, you can see how vexed and how troubled very very rich institutions and individuals may be.

Super rich educational institutions, like super rich families and individuals, have also put their money with what are called "hedge funds," although some of these don't hedge at all, that is, they don't borrow.  Many of these funds take in investors that are called "funds of funds," which invest in many such vehicles.  The f-of-fs have rules that they can never have more than, say, 10% in one fund.  What's the upshot of this?

One of these vehicles does very well and others do horridly. The good performer shoots up to well above what the f-of-f permits. So the latter must bring this investment down and may keep, thank you, its holdings in the poor performers, which are usually in no position to repatriate any investments at all. These are the quandaries of money managers, good and bad.

One might ask whether the successful money managers for the colleges and universities who got paid relative to their performance--to many millions of dollars--now, given that many of their investments actually collapsed, owe anything to their employers. It is certainly a legitimate question, not only a legitimate financial question but a legitimate moral question. But I'm not going there.

Still, there are many burdensome consequences of the financial calamity for universities and colleges. To put it simply: many of them can no longer afford last year's budget. And maybe even the budget of the year before. Surely their future plans have to be considered, whether the future is next month or a scheme that was supposed to last a decade and more.

There are different approaches to immediate relief.  Some institutions will simply have to cut expenditures.  There's no way out, and no way out for many.  Even wage freezes may not suffice, so budgets will undergo what may seem like Draconian surgery.  It's a particular shame that this comes at a moment just after the moment when the educational elite had become to ponder, even to act on the reality that middle class, even upper middle class students were being financially barred from the highest quality undergraduate schools. The wealthiest of them basically announced that those who come from families that earn below a certain (relatively high) income would no longer be responsible for tuition costs. I hope these subsidies are not threatened. But they may be, and schools that intended to embark on such programs may now defer.

Cuts across the board for those which simply can't spend what they had been spending is certainly the first reflex in these vexatious times. Leon Botstein writes in Inside Higher Education online, however, that there's something else that might be done, and that is to re-examine what colleges and universities are already doing and, under stress, do something a little different.  But Leon, who is the president of Bard College (of which I am a trustee), is an especially daring chief executive and his college is a small one.  Richard Levin can't undertake a review of what and how Yale does things with recommendations for change in, say, six months. For that matter, I don't know how Yale and Rick are facing the financial crisis, or even if there is much of such a crisis in New Haven.

One element in the predicament is a legislative legacy of Representative Claude Pepper, before that a senator and called for good reasons "red hot pepper."  Colleges and universities are not permitted to have age-related mandatory retirement rules.  So, if you walk around Harvard Yard or any college campus, you are likely to encounter nearly senescent and stumbling professors walking from classrooms to faculty club. I could mention three outrageous instances of such intellectual haughtiness. But I won't, although many university academics who are still teaching understand they shouldn't be.  Then there's the phenomenon of reneging on retirements.  My TIAA is down.  Why don't I teach a few years more on my rich Harvard salary and deepen my pension?  I know a morally haughty professor of law at Harvard who has suddenly jettisoned his emeritus status and gone back to full time at the lectern.  Well, what about younger legal scholars who aspire to HLS? Let them wait. This was already a problem throughout the university system before the financial crisis. It is a much greater one now.