U.S. Secretary of the Treasury Lawrence H. Summers outlined some of the critical issues facing today's global economy in a talk held as part of the dedication of the new International Center for Finance (ICF) on Sept. 22.
Noting that the work of scholars at the ICF will germinate some of the ideas that will drive future policymaking on economic, national and global issues, Summers emphasized the need for reform on an international scale to prevent serious financial crises similar to those experienced in recent years in Asia, Mexico, Russia, Brazil and other nations.
It should be an international imperative to support reforms to reduce the risks of such crises in the future, the Treasury Secretary stated during his speech in the Yale School of Management's (Yale SOM) Caulkins Courtyard. Yale students, faculty and alumni were among the members of the large audience that came to hear Summers speak at the dedication ceremony.
All of the recent financial crises shared one common element -- a loss of confidence that resulted in a "large-scale withdrawal of capital by domestic and foreign investors," Summers said. Driving many of the investors was a "concern not to be the last out."
The international community, he stressed, must develop strategies to reduce countries' "vulnerability to sudden turnarounds in confidence, whatever their origin."
Summers said that beginning this month, a permanent group of nations, called the "G20," will meet to discuss global financial issues and ways to reform the "international financial architecture." The group, he noted, is made up of nations comprising more than 80 percent of the global Gross National Product (GNP).
In addition to safeguarding economies from shake-ups in investors' confidence levels, Summers said other essential strategies for reducing risk in the global financial system include "enhancing the capacity of emerging market economies to absorb capital safely" and "developing the most effective international tools for responding to these new kinds of crisis."
Furthermore, he said, the recent financial crises serve as a reminder that nations need to have more "prudent management" of their own economies.
In their quest for short-term capital, the nations that experienced financial crises were not mindful of potential risks, Summers said.
"In response to these crises, governments need to think long and hard about the strength of their own balance sheets -- and the tax and regulatory incentives that are shaping the activities of private borrowers. The end goal should be debt structures -- at the sovereign and private level -- that help to cushion unexpected shocks, and that do not turn a slight dip in confidence into a rush for the door."
The International Center for Finance
Finding ways to better protect nations from financial crisis or collapse is among the range of topics that scholars will pursue at Yale's new International Center for Finance.
"The new International Center for Finance will foster interdisciplinary research and help to propel Yale's School of Management to the top tier of the world's business schools," said President Richard C. Levin. "We're honored to have Secretary Summers with us to mark its
dedication."
The ICF builds on the distinguished reputation of Yale SOM faculty members already teaching courses in finance, and will also draw on scholars in the University's departments of economics, mathematics and statistics, as well as faculty affiliated with the Law School and the Yale Center for International and Area Studies. These members of the Yale faculty will hold the title of ICF Fellows.
In addition, the center will bring to Yale scholars and practitioners from around the globe as visiting fellows, thus forging links between Yale SOM and other academic institutions, and between the University and the "real world" of finance, according to Yale SOM Dean Jeffrey E. Garten.
"While we are not the only academic institution in the United States to have a finance research center, we are the only one that will bring a range of top scholars in the humanities, as well as the sciences, to focus on topics such as the development of capital markets, the functioning of the business corporation, how investment decisions are made and how security prices evolve," said Garten. "We believe this broader perspective has enormous potential for development of the field of financial economics, and reflects the best traditions of Yale."
Housed in a recently renovated historic mansion at 46 Hillhouse Ave., across from the President's House, the 14,000-square-foot center includes faculty offices, a seminar room for conferences, a finance library, and state-of-the-art computer facilities with extensive financial databases for research, as well as meeting rooms for faculty and students.
William N. Goetzmann, the Edwin J. Beinecke Professor of Management and Finance Studies at Yale SOM, is director of the new center. Goetzmann, a graduate of Yale College and Yale SOM, is considered one of the leading finance experts in the country. His current research is on the distant past of the world's stock markets. He researches the long-term performance of global investments to understand what returns and risks global investors might expect in the future.
Serving as deputy director of the ICF is K. Geert Rouwenhorst, who specializes in international finance. His recent research examines integration of international equity markets, international portfolio strategies, and the trade-off between risk and return in international developed and emerging equity markets. Rouwenhorst is a recipient of a Frederick Frank '54 grant for research with an international focus and won the 1997 Award for Outstanding Research from the International Investment Forum.
The new center is one of a number of Yale SOM initiatives attracting global leaders, faculty with international business experience and students from around the world. Less than five months ago, Garten announced seven new faculty appointments spanning finance, accounting, economics and business strategy. These appointments reflect the University's commitment to increasing Yale SOM's senior faculty by 60 percent while maintaining a student body of 431 M.B.A. candidates.
The ICF advisory board includes Herbert M. Allison Jr., former president and chief operating officer of Merrill Lynch and Co., Inc.; Martìn J. Blaquier, vice chair and chief operating officer of SIDECO AMERICANA; William H. Donaldson, cofounder and senior adviser of Donaldson, Lufkin & Jenrette; Frederick Frank, vice chair of Lehman Brothers, Inc.; Richard A. Grasso, chair and chief executive officer of New York Stock Exchange, Inc.; John D. Howard, senior managing director of Bear Stearns & Co., Inc.; Thomas C. Israel, chair, A.C. Israel Enterprises, Inc.; William J. McDonough, president and chief executive officer of the Federal Reserve Bank of New York; Edward J. McKinley, president of E.M. Warburg, Pincus & Co. International, Ltd.; Joseph McNay, chair and principal, Essex Investment Management Company, Inc.; Robert C. Pozen, Esq., president and chief executive officer of Fidelity Management and Research Company; Frank Savage, chair of Alliance Capital Management International; John L. Thornton, president and co-chief operating officer of Goldman Sachs Group, L.P.; and Taketo Yamakawa, president and chief executive officer of G.E. Capital Finance Corp./Japan
For further information on the ICF or to access the full roster of ICF Fellows and their faculty profiles, visit the ICF website at http://viking.som.yale.edu.
-- By Susan Gonzalez
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