Cornell University Johnson at Cornell University


Financial insight in times of crisis

Professor Maureen O'Hara lent her expertise to business media during the market crisis this fall. She was quoted in a USA Today article, "Clarification of accounting rule sparks debate" (10/1/08), saying that the SEC's guidance is sound because it doesn't force companies' books to reflect prices set by distressed markets that aren't necessarily accurate. She was also in Financial Week's "Bailout offers fair-value out" (10/5/08), where she commented on pricing assets based on theoretical models, an approach known as level three, and how the models have been shown to be inaccurate.

In his New York Times Economic View column, "Pursuit of an Edge, in Steroids or Stocks" (10/4/08), Professor Robert H. Frank compares the behavior of fund managers, tempted by ever-riskier, high-yield investments, to that of athletes tempted by anabolic steroids to increase performance, in spite of inherent risks. "The new mortgage-backed securities were catnip for investors, much as steroids are for athletes," he wrote. "Many money managers knew that these securities were risky. As long as housing prices kept rising, however, they also knew that portfolios with high concentrations of the riskier assets would post higher returns, enabling them to attract additional investors. More important, they assumed that if things went wrong, there would be safety in numbers."

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