The Bond Vigilantes Come for Harvard

The demand for its debt turns out to be not so ‘insatiable,’ after all.

AP/Steven Senne
The campus of Harvard University. AP/Steven Senne

Back in March, when Harvard sold $750 million in taxable bonds, a Bloomberg Intelligence analyst described the university as “too big to fail.” The story quoted one bond dealer, Chris Brigati of SWBC, talking about how for the bonds there was “insatiable demand.” The news of the day today, which our columnist Ira Stoll brought in a dispatch for TheEditors.com, is that the demand for Harvard’s bonds turns out to be more satiable than had been thought.

After announcing a tax-exempt bond sale of up to $900 million and winning approval from the Massachusetts Development Finance Agency for selling up to $2 billion, Harvard’s own website disclosed that the amount sold was $734,995,000. Even factoring in the $120 million “premium,” it adds up to less than expected. Harvard has already paid a substantial price in prestige for its mishandling of the antisemitism on its campus. 

President Gay was forced to resign. Applications to the college were down even as competing institutions saw numbers rise. Several prominent donors have reportedly paused their giving, and many less prominent donors are directing their funds instead to alternate causes. Harvard’s endowment, while vast, has underperformed its peers. Much of it is in illiquid, high-fee private-equity funds where Harvard’s own management concedes valuations may be overstated.

Harvard may face future capital-call obligations and might not have the market-timing luck of Yale’s erstwhile chief investment officer, David Swensen. The university is also facing new costs. Police overtime to babysit the anti-Israel encampment in Harvard Yard is costing hundreds of thousands of dollars, the Crimson reports. Harvard is using eight big-firm outside lawyers to fight against a federal civil rights lawsuit being levied by Jewish students.

The students complain about what they describe as “particularly severe and pervasive” antisemitism on the campus. Perhaps there are cost savings to be achieved by firing some of the faculty who are hostile to Jews and also by dismissing some of the apparatchiks of Diversity, Equity, and Inclusion. Pressures on a variety of fronts have been brought to bear against Harvard and other similar institutions on the issue of antisemitism.

Israeli cabinet ministers, diplomats, and university presidents have spoken out. Congress has had hearings. The Department of Education’s Office of Civil Rights is investigating. Religious leaders, politicians, alumni, and faculty members have weighed in. Harvard’s endowment, though, has, along with federal research and student loan funding and foreign students willing to pay full tuition, insulated the university’s administrators from the pressure. 

Even some of those close to the situation wonder whether the leadership has any sense of urgency or seriousness about addressing the fundamental problems. Instead, the school blames the press for an obsession with Harvard, or conceives of the whole thing as primarily an issue of academic freedom or free speech. The thing to remember as all this storm gathers over Harvard is that the market imposes its own discipline.

Back in the 1990s, after President Clinton and his advisers were pushed away from their spending plans by fears that they might damage the federal government’s borrowing capacity, James Carville quipped, “I used to think that if there was reincarnation, I wanted to come back as the president or the Pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

Intimidation isn’t necessarily the best motive for change. It’d be better if Harvard acted out of a devotion to its teaching, learning, and research calling, or out of a deeply felt abhorrence in respect of  discrimination against Jews. Yet if the bond market vigilantes can provide a reality check that will push Harvard into doing better, it could be a healthy outcome for Harvard, for its Jewish community, and for American higher education.  

Harvard’s economics department is housed in a building named for Lucius Littauer. He was a Jew who made a fortune in glove manufacturing and was a member of the class of 1878. One of the projects for which Harvard was seeking tax-exempt funds, Mr. Stoll pointed out in his testimony to the Massachusetts Development Finance Agency, is a new economics building, funded in part by Penny Pritzker, another Jewish Harvard graduate and donor.

The same Harvard economics department is where antisemitism contributed to pushing a future Nobel laureate, Paul Samuelson, to the Massachusetts Institute of Technology. If that new building is constructed eventually with private funds, it would be nice to think that one day students will study there how market forces — more effectively than all the politicians and lawyers — were able to push Harvard to improve.


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