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Wednesday, December 31, 2008

Theory of Mind I: Feral Children & Language Development

The human mind is quite robust. We can compensate for the loss of any sense and learn to behave normally. People who cannot see or cannot hear from birth can perfectly graduate with advanced academic degrees, provided they are afforded the necessary help. The brain reorganizes. Cortical regions deprived of dominant sensory input may be recruited in the processing of information of other sensory modalities. Detailed reviews of scientific studies examining the neural basis of such reorganization can be found in the book entitled "Blindness and Brain Plasticity in Navigation and Object Perception."

However, if we are deprived of most social contact in early childhood, our development appears irrevocably impaired. The etiology of only few feral children is documented in depth. Kaspar Hauser is one such case. In Werner Herzog's wonderfully detail-oriented movie "The Enigma of Kaspar Hauser," Bruno S. plays the role of Kaspar so astonishingly real that the movie strikes us as a documentary. This may come as no surprise. Herzog is a brilliant cinematic portrait artist, and Bruno Schleinstein seems predestined for this role, when we learn about his life. Michael Kimmelman published a passionate, yet distanced account on this man in The New York Times on Dec. 24.

Bruno S. possesses the great natural gift to act in one role, that is, as the feral child Kaspar Hauser. In Herzog's epic description of bucolic life in a small town in nineteenth century southern Germany, the story of Kaspar teaches us that we may not be able to attain the language skills necessary to grasp the intricacies of human relations when barred extensively from interacting with others in early childhood. As long as we find sufficient access to language, our mind will develop fine. Social relationships play a fundamental role in this process. The inability to express ourselves in language both constitutes and reflects a disability of thought, hindering the ordinary development of self-awareness. Hence, a meaningful Theory of Mind must consider abstract thought expressed in language and detached from senses as one bearing pillar of our psyche.

Two areas on the left cortical hemisphere are known to play fundamental roles in the processing of language. In an oversimplification, Wernicke's area appears instrumental in the comprehension of speech; Broca's area is crucial for speaking. Functional magnetic resonance imaging studies on the cerebral activation of Braille readers that my colleagues and I carried out (Melzer and others, 2001) suggest that, in addition, regions where visual, auditory, and somatic sensory association areas meet may be engaged in the phonetic and semantic processing of symbolic language. In his book "Language and Mind",Noam Chomsky proposes that language originates from innate roots. A vivid discussion of his ideas with Michel Foucault can be found here. Forkhead box P2 genes, FOXP2 genes for short, have been identified to substantially affect the development of language skills. Recent research provides evidence that these genes may have been expressed already in Neanderthals (Krause and others, 2007). Therefore, hereditary boundaries are set for the nerve cell mechanisms that underlie the development of language. These limitations need to be explored in depth and a valid Theory of Mind must take them into consideration.

Addenda

  • A second installment for a Theory of Mind has been posted (02/20/2009).
  • FOXP2 genes encode transcription factors. That is, their protein products control the expression of other genes, influencing cascades of developmental events. In a letter to this week's issue of the journal Nature, Konopka and others (2009) report that the product of chimpanzee FOXP2 differs only in two building blocks (amino acids) from that found in humans. Inserting the chimpanzee gene into the DNA of cultured human nerve cells resulted in distinct modifications of the proteins the cells synthesized. The observed differences may be relevant for the development of a speech apparatus (11/11/09).
  • In his new book with the title "Through the Language Glass: Why the World Looks Different in Other Languages", Guy Deutscher gives great examples for the fashion in which our language shapes our mind and vice versa? An excerpt of his book can be found in this weeks' New York Times Magazine entitled "Does Your Language Shape How You Think?". The author convincingly demonstrates in astounding examples that language distinctly reflects differences in the perception of space and geographic position in cultures that use an absolute system of reference, that cardinal points (East, West, North, South), as opposed to a relative system, that is body-centric reference (left, right, in front, behind). Lera Boroditsky provides more details in her essay for The Wall Street Journal with the title "Lost in Translation" published online  Jul. 23, 2010. Self-conscience seems to differ accordingly. In a culture using absolute reference, the individual is not surrounded by her/his environment, but situated in it (08/28/10).
  • Neanderthals were not that different from us. It is not unreasonable to assume that they were able to speak to each other. The Smithsonian Institution recently unveiled MEanderthal, a face morphing mobile application that may drive this point home (09/03/10)
  • You may wish to listen to this interview with Werner Herzog by Tom Ashbrook with the title "Filmmaker Werner Herzog", originally broadcast on National Public Radio's On Point Dec. 11, 2009 (09/06/10).
  • In this interview by Steve Inskeep on National Public Radio's Morning Edition with the title "From Werner Herzog, Three DVDs Worth A Close Look" aired today, Werner Herzog recommends three movies for us to watch (09/16/10):
  • This comprehensive review by Kuhl (2010) provides detailed insight into recent findings on early language and brain development, using the latest technology (10/10/2011)
References
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Wednesday, December 24, 2008

The Power of Instruction & The Brain


What is wrong with this tiger's face? Humans strife for harmony in their social relationships as well as in their aesthetic appreciation of artistic expression. In our perception, perfect symmetry reflects absolute harmony. For that reason, we perceive a perfect sphere, that is the shape with greatest symmetry, as most aesthetically pleasing.

When we study this picture (courtesy anonymous), we are struck by the exquisite fur markings of the tiger's face. Black stripes boldly transect a background in mild shades of brown and white. On the cheeks, lines of black dots stand out on a very bright white close to the lips, transforming into light brown toward the nose. Our eye is caught by the side-to-side symmetry of the pattern. On each cheek, we notice four rows of black dots, increasing in number from top to bottom. Visible on occasion, a whisker rises from each dot.

The dot pattern seems entirely symmetrical on first glance. But close inspection tells us that this is not true for this tiger's face. On the animal's left we spot a solemn black dot between the first and the second row at the back. There is no dot at this location on the right side. We discovered a supernumerary whisker! To developmental biologists, this find is as significant as the extra finger or toe physicians observe on rare occasion in humans, a condition known as polydactyly.

The whiskers of a variety of mammals including cats, rodents, rabbits, pinnipeds and manatees are more than just hair. They rather constitute complex organs of touch. Whiskers are sinus hairs. In contrast to the hair of common fur, the follicles of sinus hairs contain large cavities filled with blood surrounding the hair shaft. While perhaps a dozen sensory nerve fibers innervate the hair follicles of common fur, hundreds of nerve fibers innervate the follicles of sinus hairs, ramifying into thousands of endings.

At least four different types of touch receptors have been identified in cat sinus hair follicles (Gottschaldt and Vahle-Hinz, 1981). Merkel cell receptors constitute one common type. They consist of cells on which sensory nerve endings attach and are distributed around and along the hair shaft. When the whisker is bent, the Merkel cells are compressed and the force is transduced into a rapid succession of electrical spikes in the sensory nerve endings. These signals are conducted along the nerve fibers and transmit the touch response via nerve cells in the brain stem, across the mid line to the thalamus in the diencephalon (interbrain) on the opposite side. From there, the signals are relayed into a region of cerebral cortex called primary somatic sensory area.

We may wonder how the somatic sensory system processes the tactile input from the supernumerary whisker. Are supernumerary whiskers inheritable? Does the genetic modification that precipitates the development of an extra whisker result in complementary change in the brain? Is the touch sensation from this whisker transmitted at all? If so, how is the additional sensory input accommodated?

Research in mice provides some answers. As in cats, the whiskers on the mouse's snout are cast in a remarkably conserved pattern. They are arrayed in five distinct rows that Thomas Woolsey and Hendrik Van der Loos (1970) called A to E from dorsal (top) to ventral (bottom). Four whiskers straddle the rows caudally, that is at the back. Woolsey and Van der Loos proposed to number the whiskers in each row in rising order, beginning caudally with 1. Rows A and B are shortest, consisting of only four whiskers, whereas rows C, D and E contain eight whiskers and more.

The snout of a mouse showing the five rows of whiskers (source: Jackson Lab.).
Furthermore and most intriguingly, the two researchers were able to show that cytoarchitectonic units, they called barrels, represent the whiskers on the snout topographically in primary somatic sensory cortex.

Mouse barrelfield (courtesy of H. Van der Loos)
The above picture shows a micrograph of an 80 micrometer-thick section cut tangentially through the left hemisphere of cerebral cortex of an albino mouse. The animal's left side is up (dorsal). The nose (rostral) is right. The section was stained for cell bodies with a blue dye. The barrels are clearly visible as nerve cell-dense rings surrounding cell-sparse centers.

In subsequent work, Woolsey and Van der Loos could demonstrate that the removal of whisker follicles at birth prevented the corresponding barrels from developing (Van der Loos and Woolsey, 1973). This was the first demonstration that the cerebral cortex was organized in structurally modular units and, most importantly, that the development of these structures was dependent on input from the sensory periphery.

After completion of these ground-breaking experiments, Hendrik Van der Loos moved from Johns Hopkins School of Medicine to Lausanne, Switzerland, where he assumed the directorship of the Institute of Anatomy at the medical school of the University of Lausanne. There, he met Josef Dörfl. Josef was going to be the first to knowingly observe a supernumerary whisker. He worked with Hendrik who continued in Switzerland to examine barrels and the factors that influence their development. One day, while they were reconstructing barrel patterns from histologically-stained sections through somatic sensory cortex, they haphazardly discovered a supernumerary barrel in row A. Josef was urged to check this animal's whiskerpads more closely.

Josef was an accomplished anatomist with a keen eye and well versed in examining whiskers. Unlike cats, mice whisk. They move their whiskers rhythmically to palpate objects. Josef was studying the anatomy of the mouse whiskerpad with micro-dissection, identifying the muscles that move the whiskers as well as the sensory and the motor innervation involved (Dörfl, 1982 and 1985). Examining the whiskerpad in question through a surgical microscope, Josef readily identified a supernumerary whisker near the nose at position A5 on the side opposite the cortical hemisphere with the extra barrel. The whisker was located exactly at the position that the extra barrel indicated! In future breeding, mice with supernumerary whiskers would predictably produce offspring with this trait.

This discovery constituted a decisive event laden with consequences. Josef, Hendrik and their colleagues had found an inheritable genetic modification adding a whisker follicle which then instructed the developing brain to add a whisker representation accordingly. Several thousand mice were bred. The effort eventually produced strains with a variety of supernumerary whisker phenotypes. There were mice with twin follicles, mice with fewer whiskers in rows A and B, mice with an extra row of whiskers between rows B and C, and mice with supernumerary whiskers in multiple locations.

In almost all cases, the barrels in somatic sensory cortex matched the whisker pattern. Hendrik's student Egbert Welker and his late wife Karin Van der Saag would spend years, compiling hereditary charts and comparing whisker follicles and follicular innervation with cortical barrel organization. They were instrumental in publishing the research. The effort led to a comprehensive series of publications in renowned scientific journals beginning with two articles in the Journal of Heredity (Van der Loos and others, 1984 and 1986), paving the way for Dr. Welker's thesis.

In the years that followed, Hendrik Van der Loos would end his life during a bout of deep depression and research on the mice with supernumerary whiskers would cease. Their embryos were frozen away, supplanted by vast numbers of genetically engineered mice strains that populate research universities worldwide at present. Nobody checks for supernumerary whiskers anymore.

We know today that the instruction from the whisker follicles for the development of barrels in somatic sensory cortex is crucially dependent on nerve cell activity mediated by the excitatory neurotransmitter glutamate. Genetic knock-out mice lacking glutamate receptors may not develop barrels and their equivalents in thalamus and brainstem, called barreloids and barrelettes, respectively. The neurotransmitter serotonin appears to play a facilitating role in cortex. High levels of serotonin impede proper barrel development in monoamine oxidase A-deficient knock-out mice. Most recently, the metabotropic glutamate receptor subtype mGluR5 has been identified as one pivotal player in the development of barrels, barreloids and barrelettes, affecting all stations of the somatic sensory system (Lu, 2008; Wijetunge and others, 2008). Other research suggests that mGluR5 receptors modulate the development of psychiatric disorders, and new drugs acting specifically at this type of receptor are being tested. I have written about these issues in my posts dated Apr. 1 and Oct.1, 2008.

Despite the advances in elucidating the molecular mechanisms underlying barrel development, the functional significance of these structures is obscure. The sensory inputs from a whisker terminate clustered inside the barrel representing this whisker. In accord, deflection of the whisker evokes the earliest nerve cell responses in the corresponding barrel. The separation of sensory input into discrete domains may, therefore, explain the observed intimate correspondence of functional and morphological whisker representations in somatic sensory cortex of mice. By contrast, cats do not contain barrels in their somatic sensory cortex. Yet, the nerve cells form functional topographic whisker maps as fine-grained as those observed in mice. Hence, barrels seem unnecessary for the separation of sensory input, and their role in the processing of tactile information remains to be elucidated.

On the other end of the whisker-to-barrel pathway, we do not understand to the day what mechanism precisely controls the induction of whisker follicles on the face and which factors determine their number and layout. Would not it be fascinating, if the same set of genes controlled the formation of this pattern in big felines as well as in tiny rodents?

Addenda
  • Hendrik Van der Loos already suggested that two independent mechanisms influence the development of the whisker pad: one mechanism that controls whisker follicle formation and another that limits the area of maxillary skin available to follicle formation. Therefore, at least two separate molecular signaling pathways with their own sets of genes control the development of the whisker pattern. Sonic hedgehog and T-box genes may constitute candidates for follicle formation and number, respectively. Wilson and Conlon (2002) published an in-depth review on the role of the t-box family of genes in development and disease (04/22/09).
  • In her report for National Public Radio's Health Blog Shots with the title "Touring Memory Lane Inside the Brain" posted online today, Amy Standen describes recent advances in the visualization of cortical cell architecture (Micheva and others, 2010). A demonstration of results is presented in the animated journey along a coronal section through the anterior (nose-ward) mouse barrel cortex below. The movie covers a volume approximately 0.5 mm wide, 12 μm thick and 1.4 mm deep, stretching from the cortical surface (top) to the white matter and the striatum, an underlying subcortical structure (bottom). Nerve cell bodies are labeled green; their processes green and blue. Red labels the contacts between nerve cells known as synapses. The barrels are located above the agglomerations of red synapses at mid-depth (11/18/10).

References
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Wednesday, December 17, 2008

Reichsmark, Fiscus & Exuberance

On Dec. 15, 2008, the Nobel Prize-laureate Paul Krugman posted an opinion piece with The New York Times, admonishing the German government's lackluster enthusiasm for the idea of boosting the slouching global economy with fiscal spending of its own. I had just been visiting Germany and contributed a comment that I reprint below:

To date, life seems good in Germany. Unemployment is under 5 percent (p.s: I could not retrace my source. This level may pertain to the Frankfurter region. FOXNews reported 7.1 percent for the nation on Nov. 27). Germans perceive the economic crisis American made, requiring American solutions.

In anticipation of the negative impact of the American crisis on German exports, Professor Merkel's government has committed no more than roughly 25 billion dollars to stimulate the GERMAN economy when trade slows down. The fiscal conservatives prevail in wishing to keep the national credit card paid off.

I cannot blame anyone for shying away from piling up dizzying national debt. How is this country ever going to service the 10 trillion dollars it is going to owe? Is printing money the solution? Hyperinflation and devaluation may loom in the wake.

I just found a billion Reichsmark among family documents and remembered my grandmother telling me that when this currency was in circulation, she used to take her teacher's salary to the store immediately on the morning of payday to buy butter and bread, because she got less for it on that very day's evening. I sincerely hope that we will be spared.

I added two pictures of banknotes to this post in support of the above comment:

In 1920, 10 Reichsmark bills were still in use.
Three years later the German government saw the need to introduce 100 million Reichsmark bills.

Addenda
  • The former British Member of the European Parliament, Special Adviser on European Affairs to the Foreign and Commonwealth Office, writer and journalist Adam Fergusson analyzed in detail the causes of hyperinflation in 1920s Germany in this highly-recommended and highly-valued book entitled "When money dies: The nightmare of the Weimar collapse" (07/12/10).
  • In his New York Times Magazine essay entitled "Can Europe be Saved?" published online Jan. 12, 2011, Paul Krugman suggests 'internal devaluation' as one possible mechanism which the failing economies of the eurozone may have to consider as a remedy for their credit troubles, because the Germans hesitate to crank up the printing press; no Easing is expected. Today, Terry Gross spoke with Paul Krugman spoke on this issue in her interview on National Public Radio's Fresh Air entitled "Paul Krugman: The Economic Failure Of The Euro". The reasons for German reluctance are buried in the history of the Republic of Weimar. Perhaps, the U.S. may have to entertain 'internal devaluation' as well once the printing press reached its limits (01/25/2011).
  • In a history of the German Metal Workers Trade Union published by the union on the occasion of its 65th anniversary in 1966 [Seventy-Five Years Trade Union 1891 - 1966 (Metal Workers Trade Union of the Federal Republic of Germany, ed.), Europäische Verlagsanstalt, Frankfurt a.M.: p. 222], I found the following insights into the causes of hyperinflation in 1920s Germany. Parallels to our day are easily recognizable.
    German emperor Wilhelm II refrained from instituting a war tax to finance the expenditures for World War I, but decided to rely mainly on government bond issues instead. After the Germans surrendered in 1918 and the emperor had abdicated, the amassed sovereign debt and the reparation payments stipulated by the victors constituted an enormous financial burden for the successor of the German Empire, that is the Republic of Weimar. The new government sought to reduce this burden with strong inflationary growth, because it feared that increasing taxes would stifle economic recovery. The central bank printed progressively more money. Whereas notes worth 2.4 billion marks were in circulation at the outbreak of the war in 1914, this amount had increased to 72 billion at the end of 1920, and the backing of the currency with gold reserves had diminished from 54 percent to only 1.5 percent. As a consequence, the exchange rate for one dollar climbed from 4.35 marks to 73 marks. Wealthy taxpayers welcomed this inflation, because it eased their loan and mortgage payments. Enterprises reaped an advantage with paying corporate taxes at last year's value with this year's money. The people who paid the price were earners of salaries and wages whose income lost value faster than it could be spent. People with low and middle income fell on extremely hard times in the process (07/20/2011).
  • In this interview with The Wall Street Journal published Aug. 11, 2011, Nouriel Roubini provides informative insights on economic depression, recession and the current economic situation (08/12/2011):



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Tuesday, December 16, 2008

Madoff & Mind


The world has been gripped by the demise of Wall Street broker and former Nasdaq Stock Market chairman Bernard Madoff's exclusive multi-billion dollar investment funds. Mr. Madoff apparently ran his business, the Bernard L. Madoff Investment Securities LLC, as possibly the greatest Ponzi scheme in history. Last week the scheme collapsed in face of the current economic crisis. Mr. Madoff was arrested. According to Robert Frank, Peter Lattman, Dionne Searcey, and Aaron Lucchetti's article with the title "Fund Fraud Hits Big Names" posted Dec. 13, 2008, in The Wall Street Journal, large investments of wealthy private as well as institutional investors are in jeopardy. A Reuters article posted Dec. 16, 2008, with the title "Madoff case fuels attacks on SEC", informs us that the U.S. Securities and Exchange Commission stands accused of lax oversight. Yesterday, Ian Urbina's article in The New York Times with the title "A Palm Beach Enclave, Stunned by an Inside Job" grippingly described the impact of Madoff's fraud on the duped investors.

This morning, Chris Arnold tells us about the psychology of investment in his segment on National Public Radio's Morning Edition entitled "Madoff's Alleged Ponzi Scheme Scams Smart Money". In this report, Professor Camelia Kuhnen of the Kellogg School of Management at Northwestern University cites her functional magnetic imaging studies implicating members of our brain's limbic system that may play a crucial role in our investment decisions and risk taking. The limbic system is a phylogenetically old structure of the brain. Its members control our startle and fear reactions and also mediate our responses to reward, pleasure and addiction.

Functional magnetic resonance imaging, or fMRI for short, is a tomographic scanning technique that permits us to visualize small changes in local blood flow in the brain. Since blood flow is tightly linked to brain cell metabolism in the healthy brain, the method can be used to identify brain regions involved in behavior. However, the method cannot provide insights into the nerve cell mechanisms engaged in the process. Even if fMRI studies conclusively demonstrated that limbic structures were activated commensurate with people's willingness to trust in an investment opportunity, the result would not disambiguate whether the observed activation was the cause or the effect of the willingness to risk one's fortune. Why some people entrusted all their assets to Bernard Madoff, why some gave only a fraction, and why some shied away entirely, therefore, remains an open question. Free will may exist!

I list more National Public Radio stories on the Madoff scandal below:


Addenda
  • Yesterday, Maggie Fox reported in her article entitled "No stomach for market turmoil? Thank your genes" on Reuters the findings of a new study by Professor Kuhnen and a colleague that appeared today in the online journal PLoS One ( Kuhnen and Chiao, 2009 ). The researchers asked college students to invest amounts of money of their choosing in an investment game and matched the risk that the virtual investors took against their genetic backgrounds. Notably, the researchers sought out genes regulating the levels of neurotransmitters. Nerve cells of the central nervous system use neurotransmitters to communicate information between each other. The researchers specifically looked for a variant of the serotonin transporter gene 5-HTTLPR known to be prevalent in people who exhibit explicitly anxious behavior compared to people with other variants of the gene. The variant of the other gene tested, dopamine D4 receptor gene DRD4, was shown prevalent in people with a high tolerance for risk. The researchers found that the group with this variant took more risk with their investments. The findings suggest that a genetic predisposition may play a role in risk taking in the financial market place (02/11/2009).
  • According to Michael Rothfeld's report with the title "Madoff Investors Brace for Lawsuits" for The Wall Street Journal today, the investors who profited from Madoff's funds may be asked to help compensate those who lost (10/26/10).
References
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Tuesday, December 9, 2008

The Financial Crisis & Higher Education

The recent unraveling of investment portfolios has profoundly affected endowments at institutions of higher education in the U.S. Clair Cain Miller, Geraldine Fabrikant and Stephanie Strom reported in their article for The New York Times on Nov. 25 entitled "Beyond the Ivied Halls, Endowments Suffer" about the consequences of the current economic crisis on the financial situation of well-endowed colleges and universities. The impact of the stock market collapse was portrayed as serious, but the portfolio managers at the universities were confident that they were able to contain the damage.

Today, Jason Szep reports in his post on Reuters entitled "Harvard freezes salaries as recession bites" that Harvard University projects a 30-percent loss in the value of its endowment in the current fiscal year. As immediate response to the ensuing shortfall in funding, the flagship of the Ivy League will institute a freeze on hiring and salaries. The news are not happy, but the disclosure bears at least a frankness that faculty, students and parents have a right to expect.

It is only hoped that other institutions follow suit in laying their financial situation open with such briskness. In order to build the necessary trust needed in these uncertain times, all parties involved must understand precisely where their schools stand financially. No actual figures and vague promises to live frugally from now on shall be counterproductive!

Addenda

  • Yale University has followed suit. Read more in Geraldine Fabrikant's post for The New York Times entitled "Yale's Endowment Drops 13.4%". Sic transit gloria mundi (12/17/08)!
  • On Jan. 26, Katie Zezima reports in her post for The New York Times entitled "Data Show College Endowments Loss Worst Drop Since '70s" that, according to assessments by the Commonfund Institute and the National Association of College and University Business Officers, the endowments of private not-for-profit colleges and universities lost on average 22 percent in value between July 1 and Nov. 30, 2008, and those of public institutions lost 25 percent; the steepest declines in more than 30 years. Cornell University lost 27 percent in the second half of 2008, and Dartmouth College reports a loss of 18 percent (01/26/09).
  • In another article posted Jan. 26 with the title ''Brandeis Says It Plans to Sell Art Collection to Raise Cash",  The New York Times reports that Brandeis University decided to sell pieces from its prestigious modern art collection to cover its budget shortfall. National Public Radio's All Things Considered dedicated an interview by Robert Siegel entitled "Art Collector Irked by Brandeis Museum Closing" to this decision on Jan. 27 (01/27/09).
  • Jennifer Brooks reports in her article entitled "Economy batters Vanderbilt University's assets" for The Tennessean today that Vanderbilt University lost roughly 29 percent in the value of its investment portfolio in the past six months, almost could not make payroll last September, and instituted a hiring and building freeze (01/29/09)!
  • In stark contrast to financial performance, private research universities paid compensation packages to its top executive officers in excess of 1 million dollars last year. According to Tamar Lewin's report in The New York Times entitled "Many Specialists at Private Universities Earn More than Presidents" on recent findings of The Chronicle of Higher Education, Vanderbilt University leads the list with Vice Chancellor of Health Affairs (~$2.8M), Chancellor (~$1.0M), and Chief Financial Officer (~$1.1M)(02/23/09).
  • According to Kate Zernike's report in the New York Times today entitled "Gifts to Colleges Fall after Record Highs", Yale University announced yesterday that the institution may have to lay off employees (02/25/09).
  • According to a post by Martha Graybow on Reuters yesterday entitled "Pension, college funds mull damage from WG Trading fraud", Carnegie Mellon University and the University of Pittsburgh invested with fraudulent fund managers (02/26/09).
  • Reuters Health and Science Editor Maggie Fox reported in her post today entitled "U.S. hospital profits fall to zero: Thomson Reuters" that according to a recent Thomson Reuters Healthcare survey of more than 400 for-profit and not-for-profit U.S. hospitals the examined institutions were not able to generate surplus revenue for new infrastructure expenditures already in the third quarter of 2008. Because of losses in investment portfolio and slowed medical insurance reimbursements, half of the hospitals were operating at loss. The study was discussed in Janet Babin's segment with the title "Hospitals ailing with financial stress" on National Public Radio's Marketplace on the same day (03/02/09).
  • According to a broadcast on Nashville National Public Radio (WPLN) today entitled "Zeppos Commits to Cut Pay", the Chancellor of Vanderbilt University committed to a voluntary pay cut this year (03/12/09).
  • Today The Tennessean's Getahn Ward reports in his post entitled "Vanderbilt University Medical Center will get new boss in June" that Vanderbilt University's Vice Chancellor of Health Affairs Dr. Harry Jacobson will retire Jun 1. Last year Dr. Jacobson was among the top ten highest paid chief academic officers in the country. He shared this distinction with the new Chancellor of Vanderbilt University, Nikolas Zeppos, and the Chief Financial Officer of Vanderbilt University, Lauren Brisky, who retired earlier this year. The Chancellor is the only top earner of last year left at Vanderbilt University. A small version of G.M.'s demise may perhaps be in the making (03/30/09)!
  • A.G. Sulzberger published a post in The New York Times today entitled "Weill Gives Cornell $170 Million, Well Ahead of Schedule", reporting that Cornell University felt pressed to ask its greatest financial supporter and alumni Sanford I. Weill for the advanced release of a planned donation of 170 million dollars to be able to meet its obligations (04/06/09).
  • The financial crisis affects the portfolios of private philanthropic foundations as much as those of private academic institutions. Stephanie Strom reports in her post for The New York Times today entitled "New Leader Overhauls Ford Foundation", that the second-largest philanthropy in the country, the Ford Foundation, lost a third of its portfolio value and is under new leadership (04/14/09).
  • Abby Goodnough describes the ubiquitous consequences of stalled growth at Harvard University for its community in this illustrative The New York Times post published May 8, 2009, with the title "Slump Revives Town-Gown Divide Across U.S." (05/12/09).
  • Tamar Lewin reported in her post on The New York Times yesterday entitled "Brandeis Halts Retirement Payments" that Brandeis University is joining a growing number of academic institutions that see the need to temporarily suspend their contributions to employee retirement plans in order to meet immediate budget shortfalls (05/22/09).
  • Erin Kutz reported in her post on Reuters yesterday entitled "Harvard cuts 275 jobs, cites drop in endowment" that Harvard University will cut 275 jobs because of budget shortfalls. Another 40 are offered furloughs (06/24/09).
  • I have not written about public universities to date. The financial crisis affects public universities for different reasons than private institutions of higher education. Private colleges and universities spent extravagantly on ambitious expansion in past years of enormous endowment growth. These institutions are having difficulty of meeting their financial obligations now that the value of their portfolios fell by 30 percent. By contrast, many public university systems have been chronically underfunded in the past and are suffering even more now because of the gaping shortfalls in state revenue owing to a faltering tax base. The University of California is a case in point. Tamar Lewin reports in her post on The New York Times today entitled "University of California Makes Cuts After Reduction in State Financing" that the system will be forced to cut 813 million dollars from its budget in the new fiscal year. Layoffs, furloughs and hiring freezes, as well as the elimination of educational programs and services, are planned to meet this goal (07/11/09).
  • CIT Group Inc. is this country's largest lender of short-term loans to small and mid-sized businesses. Pierre Paulden and Caroline Salas report today in their post on Bloomberg entitled "CIT Chapter 11 Filing May Follow August Swap in Plan" that CIT may be forced to file for bankruptcy protection within four weeks. Many private colleges and universities are small and mid-sized enterprises.  The current financial crisis has hit these institutions particularly hard. For example, The COMMERCIAL APPEAL of Memphis, TN, published an AP news release on Apr. 15, 2009, with the title "Lambuth University in Jackson misses payroll", reporting that Lambuth University of Jackson, Tennessee, is unable to meet its financial obligations because of the credit crunch. As a consequence of CIT's troubles, institutions like Lambuth University may find it ever more difficult and expensive to secure short-term financing. Because CIT is also in the business of student loans, students may have to embrace higher fees. CIT's foundering will further aggravate the already dour financial situation of institutions of higher education that are important local employers and are already severely battered by the current economic crises (07/23/09).
  • Examples for the debt colleges and universities have been accumulating are discussed in my post dated Jul. 27, 2009 (08/12/09).
  • According to a report Associated Press published today entitled "Stanford Planning More Layoffs", Stanford University plans to lay off 60 employees in addition to the 484 already sent home in the past year, since the institution anticipates a 30 percent decline in the value of its 12 billion-dollar endowment. Stanford has also eliminated unfilled positions and froze hiring, salaries, and construction (09/03/09).
  • According to Svea Herbst-Bayliss' post on Reuters yesterday entitled "Harvard and Yale endowments suffer heavy losses", Harvard University and Yale University announced that their endowments diminished 27.3 and 30.0 percent, respectively, within the past fiscal year. As mentioned in my initial post above, Harvard had anticipated a loss of this magnitude (09/12/09).
  • According to Craig Karmin and Peter Lattman's post on the Wall Street Journal today entitled "Stanford Puts $1 Billion in Assets on Block", Stanford University sees the need to sell 1 billion dollars worth of investments, that is between 10 and 20 percent of its endowment portfolio, to stem its current cash crunch (10/02/09).
  • According to Abby Goodnough's report in The New York Times today entitled "Leaner Times at Harvard: No Cookies", Harvard University completed the layoffs of 250 staff members during the summer. Harvard Arts and Science has trimmed 75 million dollars from its current budget and anticipates a 130 million dollar deficit in the next two years (10/08/09).
  • According to David Lawsky's report on Reuters yesterday entitled "Stanford puts $1 billion of portfolio on market", Stanford University has set its billion dollar asset sale in motion and is cutting 500 jobs (10/10/09).
  • According to John Lauerman and Michael McDonald's post on Bloomberg News today entitled "Harvard Paid $500 Million to Exit Backfired Swaps", Harvard University disclosed in its annual report for the last fiscal year that it paid about 500 million dollars to shed investment contracts of losing value known as interest-rate swaps. Interest-rate swaps resemble home owner mortgages with adjustable rates. The cost was covered by bond issues.  Georgetown University (annual report), Rockefeller University, Vanderbilt University (faculty meeting minutes), and Yale University (annual report) also report losses with similar investment instruments (10/16/09).
  • In his article entitled "Armageddon in Alabama Proves Parable for Local U.S. Governments", published on Bloomberg News Oct. 19, 2009, Ken Wells reports that Birmingham, Alabama, home to roughly 230,000 inhabitants, using the same investment tool as the private universities cited above, that is interest-rate swaps, to finance a sewage system overhaul, ended up as one of the most indebted municipalities in U.S. history, owing more than half a billion dollars for interest payments in default and more than three billion dollars on the sewage project in total (10/22/09).
  • According to Tamar Lewin's report for The New York Times on Dec. 2, 2009, entitled "Harvard Law School Suspends Program Giving Students Free Tuition", Harvard University had to cut back on post-graduate scholarships and is offering faculty voluntary retirement plans. It takes courage and insight to accept such offer, leaving the helm when the time is right. The thieve in Kurosawa's Kagemusha can attest to that (12/05/09).
  • According to Abby Goodnough's report for The New York Times today entitled "Slowing Expansion, Harvard Suspends Work on Tower", Harvard University will indefinitely halt construction on its new one billion-dollar life science campus in the Allston neighborhood. The scientists will have to stay in their old quarters (12/10/09).
  • Collegiate fund raising saw a historic decline during the fiscal year ending in June, 2009. According to Tamar Lewin's report with the title "Sharp Drop Is Seen in Gifts to Colleges and Universities" published in The New York Times yesterday, donations dropped by on average 12 percent. Stanford University ($640 million), Harvard University ($602 million) and Cornell University ($447 million) were the greatest fundraisers among private academic institutions. According to the Council for Aid to Education which compiled the data, donations to Vanderbilt University increased by 20.3 percent from $133 million in fiscal year 2008 to $160 million in fiscal year 2009 (document released by The Tennessean in Jennifer Brook's article with the title "TN universities see plunge in donations" published on Feb. 14, 2010). Among the public academic institutions, the University of California at Los Angeles ($352 million), the University of Wisconsin-Madison ($342 million) and the University of California at San Francisco ($300 million) ranked at the top (02/03/10).
  • Private research universities continue to cut cost through layoffs, early retirement offers, elimination of positions, pay cuts and the trimming of support for educational programs and services. According to Lisa Foderaro's report with the title "Yale, With $150 Million Deficit, Plans Staff and Research Cuts" posted Feb. 3, 2010, this institution is in the process of cutting several hundred positions to close its budget gap. In the past year, Cornell University eliminated 448 posts and Princeton University trimmed 188 positions. Tenure-track candidates should be concerned. Professors with only one federal government research grant will be in peril and those without will become transitory (02/05/10).
  • Some private research universities preserved their endowment during the financial crisis with apparent success. The University of Pennsylvania suffered smaller losses in endowment than other members of the Ivy League. According to Gillian Wee's post for Bloomberg News with the title "University of Pennsylvania Endowment Beats Harvard With Stocks" dated Aug. 13, 2009, the university's endowment fell only 16.0 percent and its stock portfolio has continued to produce higher yields than that of other Ivy League schools (03/31/10).
  • Similar, but less severe than in the Birmingham sewage crisis, interest rate swap contracts for municipal bonds have recently generated losses for not-for-profit hospitals across the U.S. According to Ianthe Jeanne Dugan's post yesterday for The Wall Street Journal with the title "Hospitals' Wall Street Wounds", Municipal Market Advisors estimate that more than 1 in 6 not-for-profits may be affected (07/08/10).
  • According to Jeff Lockridge's report in today's Tennessean entitled ''Vandy coach says it was time to retire", Vanderbilt Commodores' highly-commended Head Football Coach Bobby Johnson stepped down abruptly from his post yesterday, three weeks before the new season begins. He is replaced by Assistant Head Coach Robbie Caldwell, emblematic for a common trend in U.S. higher education. Everywhere these days, long-standing leaders with expensive pay packages are being replaced with less costly in-house promotions (07/15/10).
  • According to Lingling Wei and Dinny McMahon's post entitled "CIC Seeks Harvard's U.S. Real-Estate Portfolio" on The Wall Street Journal published online today, Harvard University's 5.4 billion-dollar investment in commercial real estate lost more than half of its value during the fiscal year ending June 2009. Now 500 million dollars-worth may be sold to the Chinese sovereign-wealth fund CIC to raise more cash (08/03/10).
  • As a consequence of the financial crisis, the tenure system of higher education will change. Two recent books discuss possible options (09/06/10):
  • According Geraldine Fabrikant's post for The New York Times published online today with the title "Increase in Harvard Endowment", Harvard University reported a 11-percent growth of its endowment portfolio value during the past fiscal year. Analysts anticipate endowment increases reported by academic institutions this fall to range between 9 and 14 percent. Recovery happens in small steps (09/09/10).
  • Columbia Unversity's investment portfolio gained 17.3 percent in the last fiscal year, Geraldine Fabrikant reports in her sequel entitled "Columbia’s Endowment Posts 17% Return" for The New York Times today. The university had incurred a 16.1-percent loss in the financial crisis, roughly half of what other Ivy League schools lost (09/15/10).
  • According to Getahn Ward's report with the title "Children's Hospital Chief is leaving" posted online in The Tennessean today, the CEO of Vanderbilt University's Monroe Carell Jr. Children's Hospital, Kevin B. Churchwell, is leaving. This is the second senior academic medical officer departing from Vanderbilt University in a bit more than a year. In June of last year, Vice Chancellor of Health Affairs Harry Jacobson stepped down  (09/21/10).
  • Geraldine Fabrikant reports in her post yesterday entitled "Yale Endowment Gained 8.9% Last Year" for The New York Times that Yale University's endowment investments returned 8.9 percent, i.e. at the low end of expectations, in the past fiscal year. By contrast, University of Pennsylvania gained 13 percent (09/25/10).
  • Geraldine Fabrikant reports in her article with the title "Princeton Endowment Posts a 14.7% Return" published online in The New York Times today that Princeton University gained 14.7 percent on investments of its endowment in the last fiscal year. The return constitutes the second highest result among Ivy League schools to date and raised the endowment's value to 14.4 billion dollars. The 1.85 billion-dollar increase is, however, offset by bond issues worth 1 billion dollars earlier this year to raise much needed liquidity. Half of Princeton University's operating budget used to be paid from endowment proceeds (10/15/10).
  • Other private research universities did not fare as well as Princeton University last year. According to Jennifer Brooks' report in The Tennessean with the title "Gifts to Vanderbilt endowment soar as other charities struggle" published online today, Vanderbilt University's endowment lost 300 million dollars or 8.6 percent in the past fiscal year. However, the university succeeded in raising 84 million dollars in donations, that is a 20.7 percent increase over the year before (10/21/10).
  • According to Tamar Lewin's briefing with the title "Smallest College Endowments Perform Best, Study Finds" posted online today with The New York Times, the endowment investments of institutions of higher learning returned on average 12.6 percent in the last fiscal year, that is roughly the median of the anticipated spread mentioned earlier. The institutions used on average 4.3 percent of their endowments for operations; donations contributed 6.2 percent (11/04/10).
  • According to Kelly Nolan's report entitled "Harvard Bonds Have to Adjust" published online in The Wall Street Journal today, Harvard University recently raised $600 million with the passage of costly long term bond issues, $200 million short of expectation (11/09/10).
  • According to Ben Levisohn and Eleanor Laise's assessment with the title "How to Play the New Muni Market" published online in The Wall Street Journal today, it has become more difficult and expensive to raise money with tax-exempt bond issues, because investors sense more volatile risk in this market. According to Michael McDonald's report for Bloomberg with the title "Amherst-to-Yale Funding Need Follows Harvard's Crisis Over Cash" published online Sep. 23, 2010, 15 of the wealthiest institutions of higher education had to pass bond issues totaling $7.3 billion to improve liquidity in the past fiscal year. Three private Southeastern universities contributed $1 billion to the total: Vanderbilt University's and Emory University's share was $250 million each and Duke University's was $500 million (11/20/10).
  • According to Brian Reisinger's post with the title "Vanderbilt University caught by interest rate swap" published online on NashvilleBusinessJournal Nov. 18, 2010, Bloomberg Businessweek reports in a recent survey that Vanderbilt University needed to spend $87.2 million on backing out of costly interest rate swaps in the last fiscal year (11/22/10).
  • Today, the NACUBO-Commonfund Study of Endowments was released. The study reports the percent net change in endowment value of 865 academic institutions in fiscal year 2010. The tabulated results can be downloaded here. On average, university and college endowments gained 7.4 percent. Among the 62 institutions listed with current endowments greater than 1 billion dollars, Yale University gained at 2.0 percent the least and University of Nebraska at 18.5 percent the most. Most endowments still appear roughly 10 percent lower than two years earlier before the financial crisis unfolded (01/27/11).
  • In dire times, some private research universities seek liquidity by resorting to peculiar measures for stirring interest in their bond issues. According to Nicole Hong's report with the title "Check back in 100 Years" published online in The Wall Street Journal today, the University of Southern California joined Mexico in offering bonds that will mature in a century. The university hopes to raise 300 million dollars with this bond issue (08/10/2011).
  • Today Melinda Dickinson reports in her post with the title "Alabama county files biggest municipal bankruptcy" published online on reuters that Jefferson County, AL, which includes the city of Birmingham, filed for bankruptcy protection over a three billion dollar sewer improvement project financed with municipal bonds proved toxic. This represents the most expensive bankruptcy of its kind. I discussed this case earlier as an example for non-for-profit institution financing gone awry because of the financial crisis of 2008. While Jefferson County will survive, this calamity would mean the end for any private institution of higher learning. No bank would lend a dime (11/10/2011).
  • Tamar Lewin reports in her article with the title "Private-College Presidents Getting Higher Salaries" published online Dec. 4, 2011, in The New York Times that according to The Chronicle of Higher Education 36 leaders of private institutions of higher learning in the U.S. earned more than one million dollars in 2009, that is the year after the financial crisis. Vanderbilt University's Chancellor Nick Zeppos garnered $1,843,746.-. As mentioned above, he had promised to accept a pay cut after the sudden, painful loss in endowment investment value of roughly 30 percent (12/05/2011).
  • The most recent NACUBO-Commonfund Study of Endowments (NCSE) about to be released reports that the endowment investments of academic institutions of higher education returned roughly 20 percent in fiscal year 2011 in accord with Ken Redd's preliminary report with the title "Preliminary data show endowments returned 19.8 percent in FY 2011", published online Nov. 7, 2011. It is important to note, however, that the endowments of half of the 850 institutions surveyed have not recovered to pre-financial crisis levels (01/31/2012).
  • According to Krishnadev Calamur's post with the title "Wealthy Colleges See Spike In Fundraising" published online by National Public Radio's News Blog today, the Council for Aid to Education (CAE) reports that U.S. institutions of higher education achieved to raise 30.3 billion dollars last year, an eight-percent increase compared to the year before. The list was topped by Stanford University ($709 million), Harvard University ($639 million), and Yale University ($580 million). Plenty institutions discussed above that rewarded their leaders with more than a million dollars last year, Vanderbilt University in the lead, did not make the top twenty on CAE's list (02/15/2012).
  • According to Norimitsu Onishi's article with the title "Californians Back Taxes to Avoid Education Cuts" published online in the New York Times Nov. 7, 2012, 54 percent of Californians approved Proposition 30 that will provide six billion dollars per year for the state's public education system. The money will be raised with a seven-year increase in income tax on incomes greater than $250,000.- per year and a four-year increase in sales taxes. In response the California State University system will not increase tuition this year, Mary Slosson reports in her post with the title "California universities roll back tuition after tax hike passes" published online by Reuters Nov. 7, 2012 (11/19/2012).
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Thursday, December 4, 2008

StamoCap

The AfE tower in 2012.
One day last week, I was cruising along an avenue of my birthplace heading west. A gray high-rise building caught my eye. You can see nice views of it above and here. I remembered that this building used to house the Departments of Education, Social and Political Sciences of my alma mater when I was student some 30 years ago.

The AfE tower elevators, still temporarily out of order after 35 years.
At the time, the elevators were too few, too small, and too slow to cope with the rush hour traffic and used to be notoriously overcrowded. You had to arrive way before the lectures and seminars began, if you wanted to reach your floor in time and garner a seat inside the room.

Some of the classes dealt with system comparisons. Germany was a split country then. The German Democratic Republic was following the socialist principles of a planned economy. The Federal Republic of Germany embraced the principles of free market economy. One culture and two diametrically opposed systems lent themselves perfectly to examination, keeping armies of faculty occupied.

Commonly, the academic debate ended in the exchange of trivia, like capitalism provided plenty of luxury goods that nobody could afford whereas socialism was not capable of delivering the wares the citizens could afford, or we in the West had the freedom of movement and choice whereas our brothers and sisters in the East were bought over with affordable comprehensive daycare and cheap rents for everyone instead. The nuclear reactor accident at Three-Mile-Island had just happened. The debate over the safety of nuclear power was raging. Crowning the ideological nonsense was the argument that nuclear power plants in the East were safe because they were run by responsible socialists unbesodden with capitalist greed. Seven years later, the disaster at Chernobyl proved this delusion about the Sovietmensch's benevolent domination of the forces of nature catastrophically wrong. It took another three years for the German Democratic Republic to unravel. I felt that this East-West debate was a total waste of time and turned the gray tower my back.

However, one tidbit percolated up in my memory when I saw that tower again the other day. There was a group of faculty who were proposing a third path between planned and free economies.  They called it state-monopolized capitalism or StamoCap for short. According to this idea, the economy was allowed to function in a free market. However, the State, i.e. the leadership of government, was supposed to hold all entrepreneurial stakes. It struck me that what these proponents meant we essentially witness happening in the People's Republic of China today, as if the leaders of that country had been listening in on these seminars and lectures, as if this gray tower could be the cradle of Chinese economic success.

Recent Chinese history shows that such mixture of governance and entrepreneurial spirit may extol a hefty price from the populace at large. Today, the US is about to embark on a fateful path that will give government unprecedented control over instrumental aspects of banking and manufacturing in order to save the economy. I trust that the empowered will use their newly gained influence wisely.

Addenda
  • Alan Wheatley describes China's present woes in depth in his report for Reuters on Jan. 5, 2009, entitled  "China's brand of capitalism faces monumental odds " (01/05/09).
  • Niall Ferguson provides an informative outlook on the future growth of the Chinese economy compared to the rest of the world in his essay with the title "In China's Orbit" published online in The Wall Street Journal yesterday. The author has written extensively on the history of economy and finance. I recall his fascinating book on the rise and perils of hedge fund management with the title "Inside the House of Money, Revised and Updated: Top Hedge Fund Traders on Profiting in the Global Markets" co-authored with Steve Drobny and am looking for forward to his new book "Civilization: The West and the Rest" on matters outlined in his Wall Street Journal essay to be published next March (11/21/10).
  • David Leonardt published an exhaustive report with the title "In China, Cultivating the Urge to Splurge" published online in The New York Times Nov. 24, 2010, describing the economic and social challenges China faces in the years ahead. It is an interesting read (12/02/10).
  • Take a peek at National Geographic photographer Gerd Ludwig's documentary project with the title "The Long Shadow of Chernobyl", commemorating the 25th anniversary of the nuclear reactor disaster (02/02/11).
  • A controlled explosion demolished the AFE tower this morning 9:30 am local time, two days into the Year of Horse (02/02/2014).