Yale Teaches the Real World in Class - NYTimes.com

According to the NY Times, Yale University is trying to give its business school students a real world hedge fund education. The plan involves having the students pitch a fund of their own design to earstwhile Simon Cowells of the financial industry. Yale is probably a fine school, and they have far more experience with pedagogy than do I.
 
But here's an uncomfortable fact. Simon Cowell operates within a carefully scripted simalcrum, not the real world. And nearly all of the graduates of the American Idol simalcrum have so far failed to convert their excellence in Cowell's simulator into significant sales.

The simulator is not the real world, and though simulators might work for pilots, don't go flying with a pilot whose only experience has been in a simulator.

But all is not lost for the Yale set. There is yet a stalwart of the financial market who has lessons they need to hear. This pillar of fiscal knowhow founded the sixth largest investment management business on Wall Street (for 2008). He created an organization and technology that led to the founding of the NASDAQ itself, and he subsequently served as the chairman of the board of directors for that organization. By the 1980s this individual's organization accounted for up to 5% of the total trades made on the NYSE.

With credentials like that, Bernard Madoff is an instructor's dream. He's also an investors nightmare, because he has allegedly admitted to operating a simple fraud that exposed his investors to the tune of fifty billion USD in fake money. On the basis of this, he has been arrested and charged with fraud.

His case has not yet come to trial, but his company webpage is already changed, and a Federal Judge in a United States District Court has appointed a Trustee for the liquadiation of Bernard L Madoff Investments Securities LLC, pursuant to the Securities Investor Protection Act.

Industry insiders cannot be found any closer to the inside than Bernard Madoff. This is something the Yale student should not forget. There is a paradox inherent in the operation of the financial markets. It is illegal to conduct insider trading, but the best way to make money is to conduct insider trading. And if you run your numbers, and you infer insider trading from market performance, then your best bet for making money is to follow the insider trader's lead. And that's what seems to have happened in this case. If Yale fails to teach that, then its students are being defrauded.

As some bright spark once said, don't let the University get in the way of your education.


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