I was recently informed that my blog has been named one of the “Top 50 Business Professor Blogs” by MBAExplorer.

At first I was flattered. It was a nice gesture, and it certainly feels great to be recognized as one of the top bloggers in the field.

But after thinking it over, I can’t help but wonder - Are there really 50 business professors who have blogs??

So while I thank the MBAExplorer for recognizing this blog, I must conclude that my blog most likely qualifies for the list by default

But seriously, they have compiled a nice list of blogs by business school academics. I encourage you to take a gander at what some of my colleagues have been writing.

I came across the following article in CFO magazine last night (see Ports in a Storm). The article details how applications have been picking up at business schools over the past year, and how such a stylized fact hints at an economic slowdown.

Anyone wanting further proof that the world economy is in trouble need look no further than the nearest business school. Many schools are hailing a bumper year for their full-time Master of Business Administration (MBA) programmes, which are popular with executives looking to hone their moneymaking skills while sitting out a downturn.

…Preliminary figures from the Graduate Management Admission Council (GMAC), an international organisation of business schools, show that 77% of full-time programmes have reported higher demand for places this year.

Applications to full-time MBA programs generally run counter-cyclically with the economy. In good times, fewer folks want to go back to school because there is ample opportunity to make good money, and leaving money on the table can be difficult. In fact, I remember during the dotcom boom that MBA students were dropping out of school in droves to open e-businesses that promised to make them rich. We all know how that turned out.

In bad times, people go back to school not only because their earning potential is lower, but also because many find themselves out of work, and with few alternatives. Going back to school allows students to wait out the economy.

But it would be wrong to look at a boom in applications and assume that it translates into a boon to the bottom-line. Although full-time applications tend to go up during economic downturns, other B-school offerings suffer - e.g., part-time MBA, executive MBA, and executive education programs.

During recessions, businesses reign in discretionary spending. One easy way for businesses to decrease costs is to eliminate spending on educational benefits for employees. Businesses often sponsor candidates for part-time and executive MBA degrees. And corporations are prime clients for custom executive programming. These lines of business (part-time, executive MBA, and exec ed) are generally more profitable for business schools than full-time MBA programs.

I anticipate corporate funding for these programs will dry up.

And although applications were up for most business schools this past year, it is likely that they will continue to increase in the coming years. As the article explains:

Worryingly for those betting on a swift economic recovery, business schools reckon that next year could yield an even bigger crop of applicants.

This does not bode well for our economy.

A nice article appeared in the Washington Post yesterday detailing the difficulty that graduates from the Class of 2008 have been having finding employment (see Graduates’ Job Hunts: Majorly Frustrating). In that article, Nancy Trejos follows the plight of several recent graduates, all of whom are either unemployed or underemployed.

During robust economic times, college students in undergraduate and graduate school programs would easily get multiple offers. As the economy teeters on the edge of recession, college graduates this year face a tough job market, leaving many without work in their fields or doing jobs that people without college degrees can do…

I do not dispute that recent graduates are having difficulty finding employment. In fact, I wrote about that several months ago (see Job Prospects for B-school Grads). My point back then was that although those who graduated without a job (those who were not fortunate enough to lock-in early in the hiring season) were certain to encounter difficulty; in the aggregate, graduates from the Class of 2008 did not have it all that bad.

Most of the problem for recent graduates will come in the form of underemployment versus unemployment. For example, as the article details:

Paul Harrington, an economist at Northeastern University, also found that about 38 percent of young college graduates are “underemployed,” or doing work for which they are overqualified.

“It’s a loss of resources. It’s a social loss. These are bright people who could be engaged in more productive activities but . . . we haven’t figured out how to move them into productive activities,” he said. “That’s the tragedy of a recession.”

That is a prescient comment, and in my opinion “underemployment” will most likely plague 2008 graduates, …for a few years at least.

But again, all things considered, given what the economy has endured, that isn’t the worst of fates. At the least, employers still seemed to be hiring last year.

Employers were expected to increase hiring 8 percent for the class of 2008, sharply below the 17.4 percent surge for the class of 2007.

So if you think the 2007-2008 academic year was bad, just wait until the 2008-2009 year, when the year-over-year hiring rates will likely decrease. In my opinion then, prospects for the Class of 2009 look particularly grim. And unfortunately, we ain’t seen nothin’ yet…

Last night I read an article about the difficulty students are having borrowing money to fund their education (see No Funds to Lend to 40,000 Students). This is not a new story. Bernanke testified on the topic back in February (see Bernanke on Student Loans). There have even been ongoing conversations on the topic at my institution for the better part of eight months now. But this is the first I’ve heard of the crunch putting students at immediate risk for the upcoming semester (which starts in as little as 5 weeks).

According to the Boston Globe article:

The Massachusetts Educational Financing Authority yesterday said it will not be able to provide student loans this fall for the first time in its 26-year history, leaving more than 40,000 families without an important source of tuition funds just weeks before college classes begin.

“As a result of our problems and the continued dislocation of the capital markets, we have been unable to raise funds for the coming academic year,” said Thomas M. Graf, the authority’s executive director.

Across the country, more than 50 lenders have stopped making federal or private student loans this year, largely because of the turmoil in the nation’s credit markets that began with the subprime mortgage crisis last summer.

This news saddens me. I am saddened that the financial crisis has had such extensive a reach that financial institutions are not able to fund one of our nation’s most valuable investments - education. I am also saddened that otherwise qualified students, who might not be able to afford the substantial costs of tuition on their own, may be forced to accept uncompetitive loans at very high rates, or in the extreme, forced to sit out of school until the economy improves.

I have one proposal.

Since many universities have amassed fantastic endowments (see Wikipedia on Endowments), now might be the time for them to tap those endowments to make loans on a temporary basis (until conditions improve) to their own students. Now there are obviously large disparities across universities in their endowments; however, I suspect that many universities are in a position to support such programs. After all, it would not represent a pure expense for the school (in the form of a non-repayable grant), but rather, an investment with a potentially healthy return.

My wife and I had dinner over the weekend with some close friends who were visiting from Washington DC. One of our friends just so happens to be Chief of Staff for a U.S. Congressman. He was interested in my views of the financial crisis, and the conversation quickly turned to the recent SEC-imposed ban of naked short-selling on a host of financial institutions (see SEC Restricts Shorting 19 Financial Stocks for background).

My friend and I agree on many issues. This was not one.

It is his view (and by extension, that of his boss) that short-sellers (UPDATE FOR CLARITY: He meant short-sellers in general, naked or otherwise) are to blame for much of the ills that have befallen U.S. banking stocks. He believes that by talking their books, hedge fund managers have effectively caused runs on banks. Moreover, he suggested that rumors passed from fund managers to CNBC, then reported on CNBC as fact (even if only as “alleged” fact), exacerbate the problem.

C’mon now, are you kidding me???

As much respect as I have for this friend, who is quite intelligent, I think he’s misguided on this issue. Blaming short-sellers for the failure of banks is as ludicrous as blaming Charles Schumer for the failure of IndyMac.

It is not the short-sellers that have caused the problems, but the banks themselves for lending irresponsibly thereby impairing their own balance sheets. Short-sellers are simply calling it as they see it, making logical deductions from the information at their disposal.

Now this does not mean that there are not instances of fraud, and I agree that fraud and attempts at outright manipulation should be prosecuted to the fullest extent of the law. However, to make a well-reasoned case for why certain banks are not healthy (even if consistent with your underlying trading position) is not fraud. Concerns about the health of banks not only should be raised - they deserve to be raised. The public ought to know what professionals truly believe about a company, for good and for bad. And for whatever it’s worth, the short-sellers often have it right (see Nasty, Brutish and Short).

Short-sellers provide a vital service to the functioning of our capital markets. Restricting their behavior is not only myopic, but also raises questions about the legality of those restrictions, and the “fairness” of the system (see Naked Fear for a nice summary of key issues).

And the point about how information relayed by CNBC can lead to a run - again, who’s joking whom? By the time information is disseminated by CNBC, it’s old news.

If you truly want to know about the health of a bank, there are two places to look - its balance sheet (if you’re so inclined to pore over such minutiae) and/or the credit default swap market (as bond traders are fairly keen at evaluating the health of corporations).

For what it’s worth, the credit default swap market has recently been sounding the alarm over Washington Mutual (see WaMu: Liquidity Options Running Low, Credit Default Swaps on WaMu, Uninsured Depositors at WaMu Begging for Trouble, or Death Spiral Financing at WaMu), among others.

To my knowledge, there has been no run on WaMu yet reported by CNBC. But if WaMu were to fail, I would not be surprised.

And that would have nothing to do with this post.

Mish had an excellent post today on layoffs and the economy (see Job Cuts Increase Economic Stress). In that post he focused on the most recent spate of job cuts and what that means for our economy. I agree with Mish, and many others, who have pointed out that unemployment is a lagging indicator of recession. Therefore, not only can’t we rely on unemployment statistics to predict when we will enter a recession, but we can’t really look to unemployment statistics to gather insight into when we’ll come out of a recession.

However, that’s not what I’d specifically like to write about today. The focus of my post will be on how this recession has affected the job prospects of graduating MBA students, and how current students are likely to be affected moving forward.

Interestingly, few Stern students had difficulty finding jobs or had offers rescinded. In fact, most of them seemed to have weathered the storm just fine (for now at least). Nevertheless, I found the article Tips for College Graduates Seeking Work from yesterday’s Chicago Tribune fascinating. The column began:

It could be a long summer for college graduates looking for work…Although the college labor market could remain positive overall…some companies have rescinded offers. Other employers that delayed hiring may continue to hold off on recruitment through the summer.

I will not argue with the author of this article. I mostly agree. However, some of this information seems at odds with the data as I experienced them here at Stern. Let me explain why.

Earlier, I suggested that Stern students did just fine this year. And that’s true. In fact, none of my 150 or so students had a job offer rescinded, and most of those who were seeking employment found it relatively easily. But to understand why, you must understand the hiring cycles at Business Schools.

For the most part, the recruiting season begins in the Fall. It is usually finished by early Spring. So many of the students I had spoken with were locked in early on - they had accepted job offers in Fall 2007 and Winter 2008. By the time the real turmoil began (after the Bear Stearns collapse in March, 2008), most of my students had already been hired, as were, I suspect, graduates from most business schools.

But it’s true that it will be rough going for those who graduated without jobs, and even some of those who graduated with jobs (i.e., some will show up to start their new jobs only to find out that they don’t exist anymore). But the overall numbers for the graduates of 2008 will largely look ok. Unfortunately, they don’t tell the whole story. They are also a lagging indicator.

The students who will really, truly feel this recession are the graduates of 2009 (and maybe even the graduates of 2010). I expect the job market moving forward to be abysmal, and for the hiring season of 2008-2009 to largely be a bust.

In April, BusinessWeek published a wonderful section on the employment outlook for 2008 business school graduates (see Graduating Into a Recession, and especially the article It’s Looking Grim for New Grads). I’d encourage you to take a look - there are some neat facts in there about the earnings potential of those who graduate during recessionary periods. In the section they claimed that the goings would get tough for 2008 grads. Personally, I think they were slightly off on timing. We ain’t seen nothing yet.

So fear not for the grads of 2008, but for those of 2009, …and beyond.