How a bad mortgage got high rating when securitised?

I wondered how a pool of bad mortgages when securitised got high rating? There is extensive academic knowledge available on framework and calculations to assess risk. Then where did they fail to assess the risk?

As I sought the answer, I stumbled on the following blog, thanks to my Finance professor.
http://finance.blogs.ie.edu/archives/2009/03/li-a-revolution-after-black-scholes-formula.php

The risk assessment model 'Normal Copula' which failed is not to be blamed though for the crisis. The academic world was aware of its limitations but Bankers still embraced it for its simplicity and potential to devise new trading instruments.

Can Philanthropy be considered as part of Corporate Social Responsibility?

Following are excerpts from an interesting discussion I had on Linkedin.

Ashutosh Agrawal
MBA Student at IE (Instituto de Empresa) Business School, Madrid

Many companies, whose products do not directly benefit society, resort to philanthropy. Telephone companies giving away free telephones, companies giving away money to charities etc. What other means are available to them to highlight their social responsibility? Individuals do charities, so why not companies? Or they should just stick to making their operations (manufacturing, distribution, office buildings etc.) society & environment friendly?

Comments (4)

Liz Maw
Executive Director, Net Impact

I think so. Kellie McElhaney's book (Just Good Business) gives great examples of strategic and aligned Philanthropy, such as Whirlpool supporting Habitat for Humanity, and then donating appliances to the new houses. Kellie also talks about instances when philanthropy is not aligned or strategic, and questions whether that is the best idea. For example, she talks about Ford Motor Company supporting breast cancer, and suggests that they could focus instead on alternative energy / environment. (Note I may be getting this slightly wrong, but hopefully you get the gist of it!)


Ashutosh Agrawal
MBA Student at IE (Instituto de Empresa) Business School, Madrid

Thanks Liz. You brought out a good point that Philanthropy can be related to the area in which company is working. Then it makes sense..... But still Philanthropy in non-related areas (Ford example) can not be bad if the management feels passionate about the cause, or the cause is something important universally ( like AIDS, Cancer etc. ) I dont know... Its just my opinion.....


Josh Cleveland
Program Manager at Net Impact

I think you're right Ashutosh, that philanthropy is never going to be "bad" per se. I do think though, that some forms of it are unsustainable. I couldnt find any up to date stats but it would certainly seem that Ford would cut their breast cancer work in a downturn faster than Whirlpool. Why? because Whirlpool's philanthropy happens to be getting them into markets and building their brand in a way that Ford isn't. (Think of how the "Ford Tough" motto is strengthened by supporting breast cancer - doesnt seem that strategic.) That can be damaging to nonprofits that rely on those funds and then get left out in the cold eventually.


Ashutosh Agrawal
MBA Student at IE (Instituto de Empresa) Business School, Madrid

Thanks Josh for giving a new angle. U linked the sustainability effort with the organisation strategy. Then sustainability becomes a tool for branding and profits. I might be exaggerating but then for some companies, sustainability is a way to boost brand image or even customer base. I dont think that is bad since it is 'Win Win' situation and as u told, they will continue the efforts in downturn. But still it does not sound right..... Its the intention that matters. Maybe this downturn can be a litmus test for companies like Ford and others, as to whether they are really committed to sustainability?

M&A vs Organic Growth

Mergers & Acquisitions(M&A) has become a preferred vehicle to grow and expand in both related and unrelated areas. Cost reduction, economies of scale, acquiring competence, fewer competition, faster growth are some of the benefits of taking M&A route rather than organic growth.
But I was surprised to come to know that on average an M&A fail.

Mckinsey Qrtrly mentions that 40% of mergers fail to capture the identified cost synergies.

This is indeed very surprising. Some say that M&A only happens to increase the pay of top executives whose pay depends on size of the company. Others say that the failure to manage the change and cultural-fit is the main reason.

But it would be wrong to conclude that M&A are bad and one should go for only organic growth (There are many successful companies who have grown organically). The real challenge is to make M&A work and manage the associated change.