This only one of many ways they use to get inside information or peddle influence.
Massive windfall for them...at our expense:
Hedge Funds Hire Lobbyists for Inside Tips on U.S. Legislation
By Kristin Jensen, Mike Forsythe and J.D. Salant
March 16 (Bloomberg) -- Former U.S. Senator John Breaux, who retired in January, is still walking the halls of Congress. Instead of brokering deals with lawmakers, he's serving as a pipeline for a New York hedge fund.
Breaux, a Louisiana Democrat, is one of a growing cadre of lobbyists being hired by U.S. hedge funds to provide instant tips on the progress of potentially market-moving legislation, from the settlement of asbestos lawsuits to allowing oil drilling in an Alaskan refuge. It's a legal way of letting investors benefit from information gleaned from private conversations with lawmakers and aides. And it's a new twist in Washington lobbying because it has nothing to do with influencing laws or policy.
``Anything that affects a company's profitability from a legislative standpoint is information that's important,'' says Breaux, 61, who works for both the Clinton Group Inc. hedge fund in Manhattan and Patton Boggs LLP, Washington's top lobbying firm by revenue.
Hedge funds, which often pursue high-risk, high-yield investments for wealthy clients, are taking on lobbyists such as Breaux to provide political intelligence that allows the funds to buy and sell company stock on information before it's widely known.
The practice is taking place under the radar, because federal disclosure rules only require a person to register as a lobbyist and disclose clients when active efforts are made to affect legislation. And hedge funds aren't interested in talking about it: Companies among the 25 biggest funds, including the Clinton Group, which has no connection to former President Bill Clinton, declined to comment for this story.
`Everything Is for Sale'
``It's a burgeoning area of work,'' says Tony Podesta, 61, a Democratic strategist, lobbyist and the brother of John Podesta, a former chief of staff to President Clinton. Tony's firm, PodestaMattoon, has a hedge-fund client he won't name. ``They would have a different view of this if we had to register,'' he says.
Federal rules prohibit Breaux from lobbying former colleagues for at least a year. There's nothing stopping him from a lunch, cocktail, workout or phone call to Capitol Hill that might yield a tradable tip for a hedge fund.
``In Washington, everything is for sale,'' says Gary Ruskin, 40, director of the Portland, Oregon-based Congress Accountability Project, a group founded by consumer and political activist Ralph Nader that monitors congressional ethics. ``That includes investment advice.''
Taking Risks
Banks and mutual funds have hired lobbyists and employed Washington staff for years. What sets hedge funds apart is their ability to act instantly on news and to employ trading options that allow them to make money whether stocks rise or fall. Hedge funds can take risks that mutual funds, entrusted with retirement savings, typically don't. These methods include short sales, which allow them to borrow securities in anticipation of paying for them when the price drops.
Lobbyists such as Breaux and Podesta use the connections they made while working in the government to get information or insight that's not readily available to most investors, such as whether a bill is going to reach the Senate floor or whether lawmakers are far from a compromise.
Podesta, a former counsel to Senator Edward Kennedy, a Massachusetts Democrat, raises money for Democrats. So does his wife, Heather, a Washington lobbyist with Blank Rome Government Relations LLC. That gives them an avenue to power brokers.
Podesta says he talks to his hedge-fund client about every other week, providing tips or responding to requests on what a bill or new government regulation means. Recently, one investor group asked him about legislation that would ban U.S. companies such as Tyson Foods Inc. and Swift & Co. from resuming imports of Canadian cattle because of concern about the spread of ``mad cow'' disease.
Boosting Egos
``My answer was it probably will pass -- and it probably won't ever end up in law,'' he says. He was on track: The Senate passed the bill March 3 even as the White House issued a statement that President George W. Bush would veto it.
Jonathan Slade, 46, a Washington lobbyist whose clients include New York-based investment firm and hedge fund GoldenTree Asset Management LP, takes advantage of Wall Street's prestige on Capitol Hill. Slade says he likes to set up conference calls and meetings between congressional staffers and the hedge fund executives. It helps boost Washington egos, he says.
``They think it's cool talking to someone on Wall Street, especially if it is a big player,'' says Slade, who spent four years as a congressional aide before becoming a lobbyist in 1986 and is now a principal with the Washington-based Cormac Group. ``They ask them, `What's Wall Street saying?' They love that.''
`Nuance'
Lawmakers and congressional aides are free to share details on legislation with people they know, except on such matters as intelligence and homeland security. Stricter rules exist at agencies such as the Bureau of Labor Statistics, which releases U.S. unemployment figures and bars employees from divulging numbers before they become public.
Lobbyists sometimes act as translators for hedge fund managers, guiding them through the ``nuance'' of Washington politics, says Alex Vogel, former chief counsel to Senate Majority Leader Bill Frist and co-founder of Mehlman Vogel Castagnetti Inc., a Washington lobbying firm.
``Hedge fund managers are very good at understanding the way Wall Street reacts to things,'' Vogel says. ``They are not as adept at understanding how Washington reacts.''
One focus for hedge funds is a $140 billion asbestos proposal by Republican Senator Arlen Specter of Pennsylvania. The bill would compensate U.S. victims of disease caused by asbestos exposure and halt as many as 300,000 pending lawsuits that have bankrupted 70 companies, including W.R. Grace & Co., a Columbia, Maryland-based maker of chemicals and building materials.
`Truth Squad'
Slade says he acts as GoldenTree's ``truth squad'' on asbestos, counteracting overly optimistic assessments about the chances of a settlement from companies that are trying to win over investors.
Last June, Slade, using a network of relationships he's built among lawmakers, staff and other lobbyists, told GoldenTree the settlement wouldn't pass Congress in 2004. That was three months before Frist publicly declared the legislation dead.
Specter says he plans to reintroduce the legislation in the current session.
``Wall Street constantly overreacts or under reacts to information,'' Slade says. ``Legislation is a nine-inning game. The bill being introduced is like the second or third inning. Until you see X, Y, and Z, you can't take any of this seriously.''
Gambling on Bonds
GoldenTree, which manages about $6.5 billion, won't comment. ``Sorry, can't help,'' Chairman Leon Wagner said in an e-mail.
Right now, investing in the bonds of one of the bankrupt asbestos-products makers such as Toledo, Ohio-based Owens Corning, the largest U.S. insulation producer, is risky because there's no guarantee the bonds will pay out. A hedge fund might take the gamble, for example, of buying an Owens Corning note, due in 2009, that Friday was selling for 63 cents on the dollar on a bet that a settlement will allow companies to recover and pay their debts.
The hedge funds that have contacted lobbyist Steve Elmendorf, 44, who helped run Senator John Kerry's campaign for president, have told him they don't care which way the settlement goes, as long as they are prepared.
``They want to know whether to buy or sell,'' says Elmendorf, who has a hedge-fund client he won't disclose. He works for Bryan Cave Strategies LLC, a unit of Bryan Cave LLP, a St. Louis-based law firm.
`In the Loop'
Hedge funds using lobbyists for information should be aware that some firms may have ``a dog in the fight'' -- other clients pushing for a particular legislative outcome, says Robert Johnston, managing director for equity research at New York-based Medley Global Advisors, which advises Wall Street clients including hedge funds.
``There's no question that lobbying firms are very much in the loop on the key issues -- they're actually shaping the legislation,'' Johnston says. ``It's probably wise to try to get lobbyists on all sides of the issue.''
Some hedge funds are looking for more than information on the direction of a bill. Among the largest funds, at least 10 have hired firms to lobby to try to influence the outcome of a policy or bill, according to registrations compiled by Washington's PoliticalMoneyLine, an independent group that tracks campaign finance and lobbying.
Chicago-based Navigant Consulting Inc. says it's lobbying for the asbestos settlement for Dallas-based HBK Investments LP and three New York-based firms, D.E. Shaw & Co., Elliott Associates LP and Och-Ziff Capital Management Group.
Navigant reported $400,000 in fees within 12 months working for the funds and six other clients, lobby registration documents filed with the Senate show.
Soros Fund
``We felt we could play a useful role on the legislative front for companies that supported asbestos-reform legislation,'' Navigant lobbyist Rick Farrell says. ``We believe there will be a successful outcome on the legislation this year.'' HBK, Shaw, Elliott and Och-Ziff declined to comment.
Wilmer Cutler Pickering Hale & Dorr LLP, a Washington- and Boston-based law firm with more than 1,000 attorneys worldwide, filed to represent Chicago-based Citadel Investment Group LLC and billionaire George Soros's Soros Fund Management LLC on hedge- fund regulation.
Greenwich, Connecticut-based Tudor Investment Corp. and New York-based Moore Capital Management LLC have their own Washington offices.
For Breaux, Slade and other lobbyists, working with hedge funds is a welcome break. They don't have to push people to move or kill a bill.
``You are not paying me to lobby,'' Slade says. ``You are paying me for information.''
To contact the reporters on this story: Kristin Jensen in Washington kjensen@Bloomberg.net Mike Forsythe in Washington mforsythe@bloomberg.net Jonathan Salant in Washington jsalant@bloomberg.net
Last Updated: March 16, 2005 00:01 EST
Wednesday, February 17, 2010
How to dramatically increase energy effeciency of cities
- Avego
- Telecommuting
- Bike delivery services like Kozmo.com
- Human powered jitneys
- Delivery services like Peapod (one truck vs. 17 separate cars going to the store, companies like Peapod can plan for efficient routes).
- Encouragement of using bikes in general.
- Mass transit
- Telecommuting
- Bike delivery services like Kozmo.com
- Human powered jitneys
- Delivery services like Peapod (one truck vs. 17 separate cars going to the store, companies like Peapod can plan for efficient routes).
- Encouragement of using bikes in general.
- Mass transit
Tuesday, February 2, 2010
Class warfare Goldman Sachs style
As Woodie Guthrie noted: when the poor steal the police can be counted on to arrest them but when the rich steal the police can be counted on to back them up.
Here's a recent theft Goldman Sachs style.
Goldman (and some others) takes a public company (Dollar General) private with borrowed money. Now Goldman and partners own it and promptly pay themselves a $239 million dividend (this is the theft right here). They also charge various "fees" during the process. More theft.
Then they sell off the company and make it public again. Same company but now saddled with a big debt load (debt incurred to take it private in the first place, debt incurred to pay the "dividend", debt incurred to pay various fees. Debt incurred to "re-organize" the company.) "Re-organizing" the company is the cover often used to justify these kinds of thefts.
A look at what happens at different places in the food chain makes clear what is really driving the process.
Lets start at the top. Goldman and other members of the group who engineered this whole thing come away with the $239 million dividend, plus the fees they charge, plus whatever profit they made on the sale of the company. Big big winners. Next are the banks who lent the money to make this happen. They probably win as well. There is a risk that some of the money they lent will not be repaid, but chances are that a default -if it happens- would happen somewhere down the line. After they have made *some* profit. It the loans are paid in full they are big winners also. Their position is not as good as Goldman (who has the "dividend" up front, free and clear) but it's good enough. Next is the upper management of Dollar General. They are in good shape also. They get either a nice golden parachute or a nice retention bonus. Then come retail investors who bought stock in Dollar General (or sold their stock to Goldman when it was taken private). Their position is not so good. They are probable losers. Not big losers, but probable losers. They have stock in a company that now has a huge dept load. But no one had a gun to their head forcing them to buy or sell stock in Dollar General so you can't feel really sorry for them.
Left over at the bottom are the losers. The 72,500 employees of Dollar General. They are hammered. They are screwed. Bigtime. THEY are the ones who will feel the austerity that will be necessary to make the debt payments (used to give Goldman their "dividend"). They are the ones who will have to take pay cuts or forgo pay increases. They are the ones who will suffer layoffs so money will be available to pay the debt. They are the ones who will have to work harder with fewer employees doing more things. They are the ones who will have their lunch hour cut down. They are the ones who will have their health insurance cut or be forced to contribute more to health insurance premiums.
THIS is late 20'th (and early 21'st) century class warfare. This unremitting class warfare has been waged by the elite since the early 80's and is THE reason for the increased gap between rich and poor and the disintegrating position of the middle class. Lets go back to Dollar General for a second. It's not just the checkout people and the janitors who are going to get hammered. It's also the department managers and store managers.
Jessee James robbed banks because "that's where the money is". For Goldman, the money is in looting thousands of vulnerable employees.
Notice that we haven't talked about unions yet. The only plausible mechanism for defense against this kind of thing would be a union. It's no coincidence that the American power structure has waged a 30 year war on unions.
Another facilitator of this kind of thing is misuse of authority - which will make for another full post sometime. In a nutshell, Goldman and it's ilk will present themselves as authority figures on the subjects of economics and finance and lecture the rest of us that these kinds of deals are "good for the economy", "good for shareholders" and so forth. They will say something like "it looks pretty bad only if you don't understand how this is good/necessary for the economy."
They are lying. It's only good for them.
http://www.fool.com/investing/small-cap/2010/01/29/avoid-these-cash-machines.aspx?source=ihpdspmra0000001&lidx=9
Here's a recent theft Goldman Sachs style.
Goldman (and some others) takes a public company (Dollar General) private with borrowed money. Now Goldman and partners own it and promptly pay themselves a $239 million dividend (this is the theft right here). They also charge various "fees" during the process. More theft.
Then they sell off the company and make it public again. Same company but now saddled with a big debt load (debt incurred to take it private in the first place, debt incurred to pay the "dividend", debt incurred to pay various fees. Debt incurred to "re-organize" the company.) "Re-organizing" the company is the cover often used to justify these kinds of thefts.
A look at what happens at different places in the food chain makes clear what is really driving the process.
Lets start at the top. Goldman and other members of the group who engineered this whole thing come away with the $239 million dividend, plus the fees they charge, plus whatever profit they made on the sale of the company. Big big winners. Next are the banks who lent the money to make this happen. They probably win as well. There is a risk that some of the money they lent will not be repaid, but chances are that a default -if it happens- would happen somewhere down the line. After they have made *some* profit. It the loans are paid in full they are big winners also. Their position is not as good as Goldman (who has the "dividend" up front, free and clear) but it's good enough. Next is the upper management of Dollar General. They are in good shape also. They get either a nice golden parachute or a nice retention bonus. Then come retail investors who bought stock in Dollar General (or sold their stock to Goldman when it was taken private). Their position is not so good. They are probable losers. Not big losers, but probable losers. They have stock in a company that now has a huge dept load. But no one had a gun to their head forcing them to buy or sell stock in Dollar General so you can't feel really sorry for them.
Left over at the bottom are the losers. The 72,500 employees of Dollar General. They are hammered. They are screwed. Bigtime. THEY are the ones who will feel the austerity that will be necessary to make the debt payments (used to give Goldman their "dividend"). They are the ones who will have to take pay cuts or forgo pay increases. They are the ones who will suffer layoffs so money will be available to pay the debt. They are the ones who will have to work harder with fewer employees doing more things. They are the ones who will have their lunch hour cut down. They are the ones who will have their health insurance cut or be forced to contribute more to health insurance premiums.
THIS is late 20'th (and early 21'st) century class warfare. This unremitting class warfare has been waged by the elite since the early 80's and is THE reason for the increased gap between rich and poor and the disintegrating position of the middle class. Lets go back to Dollar General for a second. It's not just the checkout people and the janitors who are going to get hammered. It's also the department managers and store managers.
Jessee James robbed banks because "that's where the money is". For Goldman, the money is in looting thousands of vulnerable employees.
Notice that we haven't talked about unions yet. The only plausible mechanism for defense against this kind of thing would be a union. It's no coincidence that the American power structure has waged a 30 year war on unions.
Another facilitator of this kind of thing is misuse of authority - which will make for another full post sometime. In a nutshell, Goldman and it's ilk will present themselves as authority figures on the subjects of economics and finance and lecture the rest of us that these kinds of deals are "good for the economy", "good for shareholders" and so forth. They will say something like "it looks pretty bad only if you don't understand how this is good/necessary for the economy."
They are lying. It's only good for them.
http://www.fool.com/investing/small-cap/2010/01/29/avoid-these-cash-machines.aspx?source=ihpdspmra0000001&lidx=9
Friday, January 29, 2010
How to solve the health care mess in America
Preface: The Dem plan was a disaster waiting to happen, thank goodness it looks like most provisions in it will not see the light of day.
Problem is health insurance. In order to solve the health care crisis in America we need to remove health insurance from all but catastrophic care. Insurance should be for major injuries or things like cancer only. All routine care should be paid via individuals directly.
The correct health care system of a nation must take basic cultural norms and attitudes into account. The right system for Europe is not the right system for America. America has free wheeling, dynamic, hyper individualist culture that has little time for sacrifice for the common good and negligible respect for restraint. Health insurance for routine care in this kind of culture is asking for disaster - and that's what we have got. In this kind of culture the thinking will be "I already had to pay, so how can I maximize what I get". The only escape valves we have from bankruptcy now are a) 45 million Americans have no health insurance and get little or no medical and b) people can be denied coverage or dropped if they get really sick. I do not mean to imply this is a good thing (it's not!) but it is what prevents national bankruptcy.
The biggest reason that cost of medecine is so high in America because of the notion that "someone else has to pay". In a hyper-individualistic culture rife with competition this is asking for trouble. If you are sick or injured in America and you have health insurance you want the best doctor, you want the best care and cost is not a factor. You want the newest tests with the most expensive machines. Europe and Japan have a kind of restraint that is lacking in the U.S. and more of a communal oriented mindset. There would be some guilt feelings about using to much medical care. In America we don't even know what the bill is so how could we even start to feel guilty.
We should change our system to reflect our values and pay routine costs out of pocket and have insurance only for catastrophic health problems.
Problem is health insurance. In order to solve the health care crisis in America we need to remove health insurance from all but catastrophic care. Insurance should be for major injuries or things like cancer only. All routine care should be paid via individuals directly.
The correct health care system of a nation must take basic cultural norms and attitudes into account. The right system for Europe is not the right system for America. America has free wheeling, dynamic, hyper individualist culture that has little time for sacrifice for the common good and negligible respect for restraint. Health insurance for routine care in this kind of culture is asking for disaster - and that's what we have got. In this kind of culture the thinking will be "I already had to pay, so how can I maximize what I get". The only escape valves we have from bankruptcy now are a) 45 million Americans have no health insurance and get little or no medical and b) people can be denied coverage or dropped if they get really sick. I do not mean to imply this is a good thing (it's not!) but it is what prevents national bankruptcy.
The biggest reason that cost of medecine is so high in America because of the notion that "someone else has to pay". In a hyper-individualistic culture rife with competition this is asking for trouble. If you are sick or injured in America and you have health insurance you want the best doctor, you want the best care and cost is not a factor. You want the newest tests with the most expensive machines. Europe and Japan have a kind of restraint that is lacking in the U.S. and more of a communal oriented mindset. There would be some guilt feelings about using to much medical care. In America we don't even know what the bill is so how could we even start to feel guilty.
We should change our system to reflect our values and pay routine costs out of pocket and have insurance only for catastrophic health problems.
Monday, January 25, 2010
The big boys don't worry about walking away from their mortgage
http://finance.yahoo.com/tech-ticker/no-worries-about-%22morality%22-in-biggest-real-estate-default-in-history-411839.html?tickers=dia,spy,xlf,len,kbh,blk
Monday, January 11, 2010
Choosing winners and paying for failure
"A Flush G.M. to Lavish Cash on New Vehicles"
http://www.nytimes.com/2009/12/08/business/08auto.html?_r=1&hpw
Key points:
- GM has more cash now than at any other time in it's entire history.
- Virtually all of the cash came from the government (you and me).
- The last time GM had much of a cash cushion was during the height of the SUV era - which set the stage for it's current problems.
- GM invested in the Hummer, Toyota hybrid cars.
- Many of its products were not recommended to consumers in a recent survey by Consumer Reports magazine.
- GM now has more cash than Ford which did not need any help from the government.
At the top levels of Corporate America the following lessons must be pretty obvious:
1) If you are big enough, it does not much matter how well you run your business.
2) The most important relationship is not even with your customers, it's with Washington DC.
The apologists for this bailout might say that it was necessary to avoid a depression, so it's simply what we had to do. What about all those auto workers, what about all the GM middle managers, suppliers who sell to GM etc. etc.
That answer is that in a dynamic economy that is functioning as it should, most of what was good and valuable in GM would have been absorbed into other companies. Government money meant to help the auto industry could have gone to companies like Carbon Motors (www.carbonmotors.com and www.foxnews.com/story/0,2933,465329,00.html), Frisker Automotive (karma.fiskerautomotive.com/), and Tesla www.teslamotors.com. Why did GM get billions for the Volt when they have shown over the years that they really don't care about electric cars. Remember what they did about 10 years ago? They killed the whole market to clear the way for another wave of SUV's and Hummers!
They are engaged in making electric cars now because they have to.
Electric cars are at the core of Tesla and Friskers businesses.
But GM is much more powerful in Washington DC (and the state houses that matter).
http://www.nytimes.com/2009/12/08/business/08auto.html?_r=1&hpw
Key points:
- GM has more cash now than at any other time in it's entire history.
- Virtually all of the cash came from the government (you and me).
- The last time GM had much of a cash cushion was during the height of the SUV era - which set the stage for it's current problems.
- GM invested in the Hummer, Toyota hybrid cars.
- Many of its products were not recommended to consumers in a recent survey by Consumer Reports magazine.
- GM now has more cash than Ford which did not need any help from the government.
At the top levels of Corporate America the following lessons must be pretty obvious:
1) If you are big enough, it does not much matter how well you run your business.
2) The most important relationship is not even with your customers, it's with Washington DC.
The apologists for this bailout might say that it was necessary to avoid a depression, so it's simply what we had to do. What about all those auto workers, what about all the GM middle managers, suppliers who sell to GM etc. etc.
That answer is that in a dynamic economy that is functioning as it should, most of what was good and valuable in GM would have been absorbed into other companies. Government money meant to help the auto industry could have gone to companies like Carbon Motors (www.carbonmotors.com and www.foxnews.com/story/0,2933,465329,00.html), Frisker Automotive (karma.fiskerautomotive.com/), and Tesla www.teslamotors.com. Why did GM get billions for the Volt when they have shown over the years that they really don't care about electric cars. Remember what they did about 10 years ago? They killed the whole market to clear the way for another wave of SUV's and Hummers!
They are engaged in making electric cars now because they have to.
Electric cars are at the core of Tesla and Friskers businesses.
But GM is much more powerful in Washington DC (and the state houses that matter).
Sunday, January 10, 2010
The college admissions scam
Neal Gabler
The Boston Globe
The college admissions scam
By Neal Gabler
January 10, 2010
NEAL GABLER
The college admissions scam
By Neal Gabler | January 10, 2010
NOW IS the winter of high school seniors’ discontent. But then every winter is one of discontent as seniors file their college applications with a mix of dread and hope - mainly dread. Those applying to the most selective schools have the odds stacked against them no matter how sterling their high school records, though college admissions officers typically offer the cold comfort that rejection is not equivalent to failure and that, as one Yale admissions officer put it, “It matters far less which strong college admits you than it matters what you do with your opportunities once you are there.’’ To which most high school seniors would say, “Hogwash.’’
They know that it does matter where you go to college, if not educationally then in terms of social recognition and opportunity. They know that America, for all its professions of meritocracy, is a virtual oligarchy where the graduates of the Ivies and the other best schools enjoy tremendous advantages in the job market. They know that Harvard or Stanford or MIT is a label in our “designer education’’ not unlike Chanel or Prada in clothes.
So here is another, more realistic comfort to those anxious seniors who will soon be flagellating themselves as unworthy: The admissions system of the so-called “best’’ schools is rigged against you. If you are a middle-class youth or minority from poor circumstances, you have little chance of getting in to one of those schools. Indeed, the system exists not to provide social mobility but to prevent it and to perpetuate the prevailing social order.
Of course, colleges loudly deny this since it undermines their exceptionality. Instead, universities will protest that the system is meritocratic; that they consider every applicant objectively; that the admissions process is “need blind,’’ which means that financial support plays no role in whether an applicant is admitted or not.
Most of these assertions, however, are nonsense. Of course the odds are stacked against every applicant since the best schools admit only a fraction of them (less than 10 percent for most of the Ivies and just above 25 percent for selective schools like Northwestern and Emory), but as Daniel Golden demonstrated in a Pulitzer Prize-winning series for the Wall Street Journal and then in his book, “The Price of Admission,’’ the so-called “best’’ schools give heavy preferences to the wealthy; as many as one-third of admissions, he writes, are flagged for special treatment at the elite universities, one-half at the elite liberal arts colleges, and the number of open spaces for the non-privileged is reduced accordingly. As Golden puts it, the privileged take so many spots that the “admissions odds against middle-class and working-class students with outstanding records are even longer than the colleges acknowledge.’’
Golden’s focus was on legacy admissions, which are essentially affirmative action for the rich and which provide huge advantages for applicants; on what are called special “development’’ applicants - thosewho do not qualify for admission under the ordinary criteria but whose parents have pledged large contributions to the school; and athletes who are, contrary to popular belief, not all poor ghetto kids adept at football and basketball, but are primarily wealthy white kids who are adept at lacrosse, rugby, crew and polo.
But while these are overt ways to provide advantages for the wealthy, there are far more insidious and subtle methods of skewing the admissions process. Take early admissions. Early admissions account for 35 percent of the incoming class at Duke this year, 20 percent at Brown, 50 percent at Yale and 40 percent at Stanford. Under most programs, early admittees are obligated to attend that school should they be granted admission. But early admissions favor the wealthy - in part because they are able to forgo weighing options for financial aid.
Then there is the “well-rounded student body’’ argument, which any parent accompanying his child on the college tour rounds has heard ad nauseam. According to this approach, colleges are not looking for the well-rounded individual student. They are aiming instead for a diverse student body: an exceptional athlete, an exceptional musician, an exceptional scientist, an exceptional poet. Except that exceptionality, as most parents can attest, doesn’t come cheap. Athletes require coaching and often traveling teams; musicians require lessons and instruments; scientists require labs and internships; poets require classes and opportunities for publication. None of these things is readily available to the average middle-class family, to say nothing of the high school student who must work at McDonald’s to earn spending money (even though colleges say they take this into account).
Nor does diversity extend to racial composition. Of course every college boasts about its efforts to enroll a more racially diverse student body. But here are the facts: A New York Times article in 2004 revealed that Harvard’s incoming freshman class was 9 percent black, but between one-half and two-thirds of those black students were actually West Indian or African immigrants or the children of immigrants, and many others were biracial. In short, they weren’t African-American. Another 2004 study, conducted by Princeton and the University of Pennsylvania, also found that 41 percent of blacks at 28 selective colleges and universities identified themselves as immigrants, underscoring the West Indian and African component.
The prognosis is equally poor for economically disadvantaged students, whether black or white. According to Golden, economic diversity counts the least in admission considerations, and only 3-to-11 percent of admittees come from the lowest economic quartile. In fairness, some universities, including Harvard, are offering full scholarships to financially strapped families, but this does not necessarily affect the admission of those students.
A counselor told me when my daughters were applying for college admission that the first thing I had to do was withdraw my application for financial aid. When I said that colleges professed to be “need blind,’’ she laughed. Any admissions officer, she said, could tell from your zip code whether you were likely to need aid or not, and students needing aid were much less desirable than those who didn’t need it.
But perhaps the most pernicious means of maintaining the status quo was devised, ironically, in the name of making the system more meritocratic. No one disputes that once upon a time elite schools were the preserve of wealth and influence. When the SAT was instituted in the 1920s it was done precisely in the name of changing the admissions process to a more egalitarian one. By providing an allegedly objective measure of a student’s intellect, the best schools could no longer be castigated as impregnable. Do well, get in. At least that’s what middle-class Americans dreaming of their children’s social advancement have been told.
In truth, the SAT, which is thankfully being phased out at many schools, has had the opposite effect. Far from opening the doors of elite schoools to outstanding students from ordinary backgrounds, it has wound up giving an objective patina to an unjust process. In some ways it is the great subterfuge. That’s because SAT scores correlate highly to family income - an average of 12 point increments for every $20,000 of income, which this year amounted to a 130 difference on critical reasoning, 80 points on math and 70 on writing between the lowest income and highest income groups. While correlation isn’t always causality, economics professor Jesse Rothstein of Berkeley has called it a proxy for other demographic components and for high school resources. And, not surprisingly, Professor George Kuh of Indiana University, has found that the US News list of best colleges has an almost 100 percent correlation to SAT scores, which means that the so-called best schools could just as easily be ranked by family income.
So here’s the bottom line for all those exceptional middle-class and lower-class high school seniors who will doubt their own worth when the near-inevitable rejection letters arrive: The fault, dear Brutus, lies not in you. The fault lies in the system, and the system isn’t going to change, because it benefits the people it is designed to benefit - people who understand how much a real meritocracy would threaten their power.
Neal Gabler is the author, most recently, of “Walt Disney: The Triumph of the American Imagination.’’
The Boston Globe
The college admissions scam
By Neal Gabler
January 10, 2010
NEAL GABLER
The college admissions scam
By Neal Gabler | January 10, 2010
NOW IS the winter of high school seniors’ discontent. But then every winter is one of discontent as seniors file their college applications with a mix of dread and hope - mainly dread. Those applying to the most selective schools have the odds stacked against them no matter how sterling their high school records, though college admissions officers typically offer the cold comfort that rejection is not equivalent to failure and that, as one Yale admissions officer put it, “It matters far less which strong college admits you than it matters what you do with your opportunities once you are there.’’ To which most high school seniors would say, “Hogwash.’’
They know that it does matter where you go to college, if not educationally then in terms of social recognition and opportunity. They know that America, for all its professions of meritocracy, is a virtual oligarchy where the graduates of the Ivies and the other best schools enjoy tremendous advantages in the job market. They know that Harvard or Stanford or MIT is a label in our “designer education’’ not unlike Chanel or Prada in clothes.
So here is another, more realistic comfort to those anxious seniors who will soon be flagellating themselves as unworthy: The admissions system of the so-called “best’’ schools is rigged against you. If you are a middle-class youth or minority from poor circumstances, you have little chance of getting in to one of those schools. Indeed, the system exists not to provide social mobility but to prevent it and to perpetuate the prevailing social order.
Of course, colleges loudly deny this since it undermines their exceptionality. Instead, universities will protest that the system is meritocratic; that they consider every applicant objectively; that the admissions process is “need blind,’’ which means that financial support plays no role in whether an applicant is admitted or not.
Most of these assertions, however, are nonsense. Of course the odds are stacked against every applicant since the best schools admit only a fraction of them (less than 10 percent for most of the Ivies and just above 25 percent for selective schools like Northwestern and Emory), but as Daniel Golden demonstrated in a Pulitzer Prize-winning series for the Wall Street Journal and then in his book, “The Price of Admission,’’ the so-called “best’’ schools give heavy preferences to the wealthy; as many as one-third of admissions, he writes, are flagged for special treatment at the elite universities, one-half at the elite liberal arts colleges, and the number of open spaces for the non-privileged is reduced accordingly. As Golden puts it, the privileged take so many spots that the “admissions odds against middle-class and working-class students with outstanding records are even longer than the colleges acknowledge.’’
Golden’s focus was on legacy admissions, which are essentially affirmative action for the rich and which provide huge advantages for applicants; on what are called special “development’’ applicants - thosewho do not qualify for admission under the ordinary criteria but whose parents have pledged large contributions to the school; and athletes who are, contrary to popular belief, not all poor ghetto kids adept at football and basketball, but are primarily wealthy white kids who are adept at lacrosse, rugby, crew and polo.
But while these are overt ways to provide advantages for the wealthy, there are far more insidious and subtle methods of skewing the admissions process. Take early admissions. Early admissions account for 35 percent of the incoming class at Duke this year, 20 percent at Brown, 50 percent at Yale and 40 percent at Stanford. Under most programs, early admittees are obligated to attend that school should they be granted admission. But early admissions favor the wealthy - in part because they are able to forgo weighing options for financial aid.
Then there is the “well-rounded student body’’ argument, which any parent accompanying his child on the college tour rounds has heard ad nauseam. According to this approach, colleges are not looking for the well-rounded individual student. They are aiming instead for a diverse student body: an exceptional athlete, an exceptional musician, an exceptional scientist, an exceptional poet. Except that exceptionality, as most parents can attest, doesn’t come cheap. Athletes require coaching and often traveling teams; musicians require lessons and instruments; scientists require labs and internships; poets require classes and opportunities for publication. None of these things is readily available to the average middle-class family, to say nothing of the high school student who must work at McDonald’s to earn spending money (even though colleges say they take this into account).
Nor does diversity extend to racial composition. Of course every college boasts about its efforts to enroll a more racially diverse student body. But here are the facts: A New York Times article in 2004 revealed that Harvard’s incoming freshman class was 9 percent black, but between one-half and two-thirds of those black students were actually West Indian or African immigrants or the children of immigrants, and many others were biracial. In short, they weren’t African-American. Another 2004 study, conducted by Princeton and the University of Pennsylvania, also found that 41 percent of blacks at 28 selective colleges and universities identified themselves as immigrants, underscoring the West Indian and African component.
The prognosis is equally poor for economically disadvantaged students, whether black or white. According to Golden, economic diversity counts the least in admission considerations, and only 3-to-11 percent of admittees come from the lowest economic quartile. In fairness, some universities, including Harvard, are offering full scholarships to financially strapped families, but this does not necessarily affect the admission of those students.
A counselor told me when my daughters were applying for college admission that the first thing I had to do was withdraw my application for financial aid. When I said that colleges professed to be “need blind,’’ she laughed. Any admissions officer, she said, could tell from your zip code whether you were likely to need aid or not, and students needing aid were much less desirable than those who didn’t need it.
But perhaps the most pernicious means of maintaining the status quo was devised, ironically, in the name of making the system more meritocratic. No one disputes that once upon a time elite schools were the preserve of wealth and influence. When the SAT was instituted in the 1920s it was done precisely in the name of changing the admissions process to a more egalitarian one. By providing an allegedly objective measure of a student’s intellect, the best schools could no longer be castigated as impregnable. Do well, get in. At least that’s what middle-class Americans dreaming of their children’s social advancement have been told.
In truth, the SAT, which is thankfully being phased out at many schools, has had the opposite effect. Far from opening the doors of elite schoools to outstanding students from ordinary backgrounds, it has wound up giving an objective patina to an unjust process. In some ways it is the great subterfuge. That’s because SAT scores correlate highly to family income - an average of 12 point increments for every $20,000 of income, which this year amounted to a 130 difference on critical reasoning, 80 points on math and 70 on writing between the lowest income and highest income groups. While correlation isn’t always causality, economics professor Jesse Rothstein of Berkeley has called it a proxy for other demographic components and for high school resources. And, not surprisingly, Professor George Kuh of Indiana University, has found that the US News list of best colleges has an almost 100 percent correlation to SAT scores, which means that the so-called best schools could just as easily be ranked by family income.
So here’s the bottom line for all those exceptional middle-class and lower-class high school seniors who will doubt their own worth when the near-inevitable rejection letters arrive: The fault, dear Brutus, lies not in you. The fault lies in the system, and the system isn’t going to change, because it benefits the people it is designed to benefit - people who understand how much a real meritocracy would threaten their power.
Neal Gabler is the author, most recently, of “Walt Disney: The Triumph of the American Imagination.’’
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