Several elite universities in the United States are now on the verge of bankruptcy. Their expense structure is unsustainable. You cannot run a business of any kind where your top people work only five hours a week, or work even ten hours a week. Do it and you are going to go bankrupt, especially operating within the constraints of a system like tenure, where it is not possible to fire anyone, not even those who, by virtue of the system, do not work very hard in the first place. Add to that the fact that Ivy League universities are traditionally overgenerous with labor, because they do not want to appear to be filthy capitalists, and bankruptcy presents itself as a blessing. We saw it with the automobile industry. The unions would come around when the contracts were up, and the auto companies would cave in. They just kept giving away the store. Eventually it bankrupted the industry.
Part of the problem is that these institutions are run by academics; they are not run by entrepreneurs. The universities are badly managed, and their endowments can no longer save them. Much of what makes up their endowments is phony. A lot of what these schools have invested in over the past twenty years has been things that are illiquid, assets for which there is no public market, whether timber or real estate or the main one, and most crippling: private equity.
In the bubble, many financial institutions carried what are known as Tier 3 assets. These are assets whose value was no more than hypothetical--mortgages, for example. Their market value was "marked to a model." If your computer program said a particular piece of paper was worth 96, you wrote down 96. Moody's and Standard & Poor's said the paper was AAA and therefore worth 96. But we know now that most of that stuff was garbage. And it is that kind of stuff that makes up a very large share of the endowments in question.
