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 are a couple of obvious and inconvenient truths. Simon Cowell operates within a carefully scripted simulacrum, not the real world. And nearly all of the graduates of the American Idol simulacrum have so far failed to convert their excellence in Cowell's simulator into significant sales.

Although simulators might work well for student pilots, don't pay go to flying with a pilot in command 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 vast conspiracy of fraud that exposed his investors to the tune of fifty billion USD in fake value.

On the basis of this, he has been arrested and charged with serious crimes. 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.

If you're enrolled in good standing at the Yale School of Management, there's probably nothing I can teach you about the financial markets.

For those who can learn something from this missive though, here's what you need to know.

There is a useful 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 in due diligence, and you suspect someone of insider trading, then your best bet for making money (for a while) is to follow the insider's lead.

You cannot get much more on the inside than Bernard Madoff. And he was a crooked as a three dollar bill. And until he threw in his cards and caused the SEC to fold up his tent, he made oodles of money for himself, and many others who liked the cut of his jib.

If Yale fails to ferret out the lessons in all this, then its students are being defrauded.

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

Tags: BernardMadoff, fraud, NASDAQ