Educators call them “teachable moments,” and whether the students are in third grade or grad school the idea is the same—to draw lessons from real-world events. The subprime mortgage meltdown and the ongoing shocks to the global economy have created a multibillion-dollar teachable moment in business schools, where students dissect exactly what happened and the lessons that can be drawn to prevent similar economic earthquakes.
Indeed, the problems that began with the implosion of the subprime market were being flagged by some business school researchers several years before financial institutions started reporting extensive writeoffs of subprime mortgages in 2007. But as the effects of the crisis continue to spread, terms such as CDOs and SIVs have become part of the lexicon in many mainstream business school courses covering such areas as real estate finance, ethics, and fixed-income securities.
For instance, at Washington University in St. Louis, a graduate-level real estate finance course used a case study on how sophisticated debt instruments magnified the effects of the subprime crisis. Meanwhile, MBA students at Miami University’s Farmer School of Business examined Countrywide Financial’s (CFC) fire sale merger with Bank of America (BAC) as part of their enterprise risk management studies.
For the short term, at least, the subprime meltdown and debt crisis are going to be one of the hot topics for discussion in MBA and undergrad business courses, according to business school deans and other academics. But it will take the full unwinding and some historical perspective to see whether the crisis will permanently change the business school curriculum.
“I’m not sure whether or not new courses will be created,” says Paul Portney, dean of the Eller Graduate School of Management at the University of Arizona. “But in the credit risk modeling class there’s no question that the examples would be drawn exactly from what we’ve seen the past couple of years. There won’t be a top-notch business school that won’t find a way to work this in.”