Kass: More Casualties of Wealth Destruction

This blog post originally appeared on RealMoney Silver on Nov. 25 at 7:59 a.m. EST.

"While we can hope that markets will improve, we need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constraint."

-- Drew Faust, Harvard University President

In "Welcome to Dystopia," I outlined how severely our economic and investment futures had been rocked. I concluded that there would be broad-based social, political, credit, economic and stock market ramifications from the economic and market jolts of the past 18 months. The emerging trends could produce an uncertainty of outcomes that make it difficult to glibly conclude that the market's dramatic decline has been fully discounted and almost certainly questions the market's intermediate-term upside.

In that column, I also raised a concern that the negative impact would be seen in some unlikely places, such as in our educational system.

"Our educational system faces upheaval. Expensive private institutions will face a sharp falloff in admissions, while state institutions will flourish and admissions will grow more competitive. Losses in university endowments will result in larger classrooms and layoffs in personnel."

-- Doug Kass, Nov. 3, 2008

Indeed, even Harvard is not immune. As the value of its endowment continues to shrink, the university now looks to tighten its belt, and the local economic impact looms large.

Harvard's nearly $37 billion endowment, the largest of any academic institution, funds more than one-third of the university's annual $3.5 billion operating budget. Based on the carnage in the capital markets, Harvard is at risk of facing losses and is currently reassessing its sweeping 20-year expansion, which includes the development of 4 million to 5 million square feet, covering over 200 acres across the Charles River in Allston, Mass.

In the Ivy League, in Boston and elsewhere, Harvard is not alone. In October, Boston University instituted a hiring freeze and a moratorium on all construction projects that are not already under way, and last week, Dartmouth College said that it was trimming its budget after its endowment lost $220 million during the investment crisis. Brown and Cornell also imposed hiring freezes recently.

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