Yale SOM Course Explores Washington and Wall Street

There has been a lot of talk recently about tension between Wall Street and Washington. Leaders in finance and policymakers in the nation's capital have sparred over just how much regulation is necessary in the wake of the 2008 financial crisis. It would be easy for a person to see mistrust between the two as springing solely from recent events. But, as one Yale SOM course explains, to really understand what is going on now, you need a firm grasp not just on the most recent crisis, but crises going back to the Great Depression.

The course is Washington and Wall Street: Markets, Policy, and Politics, a semester-long exploration of what drives the relationship between finance and government, and how it can be expected to evolve in coming years. Team taught by Jeffrey Garten, the Juan Trippe Professor in the Practice of International Trade, Finance, and Business, and Stephen Roach, senior fellow at the Jackson Institute and the non-executive chairman of Morgan Stanley Asia, the course combines intensive classroom experience—lectures, discussions, and student presentations—with three trips to see more than 30 top leaders in finance and government. This spring was the second time the pair taught the course. They plan to teach it in the next school year too.

Garten, a former managing director at Lehman Brothers, former undersecretary of commerce in the Clinton administration, and former Yale SOM dean, says that the recent financial crisis has only made the government-finance relationship more important, as policymakers push to increase regulations on Wall Street and bankers push back. "The interaction between government and business is an increasing feature for the environment of managing anything," he says. "We're using Wall Street and Washington to illustrate something you could do if you were looking at energy or healthcare or any number of industries. Meeting all these sincere, hard-working people forces students to ask why things go wrong when you have such good people working on them. At the end of the course, we don't expect that the students can figure it all out, but we hope they now know what the right questions are they need to ask."

The financial crisis acts as the focal point of the course, although sessions also explore the history of the relationship between Wall Street and Washington in the 20th century, the emerging global regulatory structure, and the role of government and finance in China. Students begin by diving deep into the causes of the panic that swept the world in September 2008. They then move into the financial reform movement that culminated in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Roach laid-out the themes for the course in his first lecture, where he explained three crisis points that helped set U.S. monetary policy for the last 80 years and into the future: the Great Depression, the runaway inflation of the late 1970s, and the 2008-2009 financial crisis. He stressed the importance of understanding the crucial events that comprise U.S. financial history and how they prompted the federal government to react to them. "There's a long history of policy directives that are determined by crisis," he said. "These decisions made in Washington have had enormous consequences for Wall Street. Understanding this history is key to gaining insight into the relationship between Washington and Wall Street."

While Garten and Roach each have significant experience in Washington and on Wall Street, their areas of expertise allowed them to complement each other in the classroom. Garten not only served under Clinton, but also under Presidents Nixon, Ford, and Carter, giving him a unique perspective on how the federal government operates, particularly in regards to business and finance. Roach served as Morgan Stanley's chief economist for 25 years, and brought firsthand knowledge of the major events of the last three decades to the course. "They were able to form a true partnership in the classroom," says Ben Healey SOM/FES '12. "They would each lay out a thesis on a subject and then challenge each other on it. This reinforced how complicated the issues we were addressing really are. Through its rigor and intellectual seriousness, the course truly demonstrated that there are no easy answers when it comes to politics and finance."

After a period of this intense study, the group made its first trip to New York, where students met with Lazard CEO Kenneth Jacobs and former Federal Reserve chair Paul Volker, as well as Heidi Miller, the president of JP Morgan International, and Robert Rubin, the treasury secretary in the Clinton administration and former CEO of Goldman Sachs. Jason Kearns '11 says that visiting with these leaders would have made for an amazing course in itself. "But this was just one day," he adds. "Because Professors Garten and Roach have had such amazing careers, the people they know intimately are unparalleled. Through their contacts and experience they're able to create this environment I doubt you'll find in any other course anywhere. We're talking—across a small table—with the people who did it, will do it, or are doing it."

Each student could identify a moment when what made the course special really came into focus. That moment might have been the meeting with Janet Yellen, the vice chair of the Federal Reserve, where she laid out her personal philosophy toward inflation and monetary policy; the lively debate between students from Wall Street and those who worked in government over the origins of the financial crisis; or the moment in the boardroom of Lazard, when Volker surprised Jacobs for an impromptu discussion on the future of finance "Here we are meeting with some of the biggest names in finance and government," says Michael Barjum '11. "Rather than be on guard or totally scripted, they were so open and honest. I remember thinking that this is why I came to business school."

A second trip to New York had students meeting with another list of Wall Street leaders including Roger Altman, chairman of Evercore Partners and deputy treasury secretary in the Clinton administration; Duncan Niederauer, chairman and CEO of NYSE; and Stephen Miller, chairman of AIG. This was followed by a week in Washington, where students met with nearly two dozen politicians, staffers, lobbyists, journalists, and policymakers, including, as in New York, some of the most important leaders in the arena: two top officials at the Federal Reserve, the head of the World Bank, the current acting managing director of the IMF, a U.S. senator, three assistant secretaries of the treasury, and an SEC commissioner.

For Vivien Wang '11 the biggest takeaway from these meetings wasn't so much the high level of the leaders, but the fact that despite their accomplishments, they freely admitted to not knowing all the answers. This demystified them, something Wang came to see as incredibly important for future leaders to learn. "I used to think that the smartest people understand what's going on—even when the rest of us are in the dark," she says. "But these are the smartest people and they're often as confused by events as we are. The difference is that they make decisions even when they don't know the right answer for sure. They face the uncertainty, make the best decision they can based on the available information, and survive. They understand that the toughest questions don't have clean answers. This is what separates them from the crowd."

Wang says that the conversation with Yellen was a highlight for her. The reason, she says, is that she'll be working in currency trading for UBS in Hong Kong after graduation. To hear directly from the number two person at the Fed how she thinks about inflation could have a direct impact on her job, where understanding the decisions of central banks is crucial to making the right calls. This is a side of the course that can be easy to miss among all the impressive individuals students get to meet: Garten and Roach designed the course to have practical implications for future managers. "It's pretty unique for newly minted MBAs to show up to work privy to first-hand discussions with true leaders in regulatory, financial, policy, and government worlds," Roach says. "The conversations we had were very candid and direct. When you can bring 24 students to talk with someone like Paul Volker, and get his views as a central banker and the chair of Obama's Economic Advisory Council, you're getting people with a lifetime of dealing with crisis. Particularly when you combine it with what students learned in the classroom, it's an invaluable experience."

Larry Yang '11 calls the course the high point of his time at Yale SOM, saying that the perspective it provided really complemented the skills he built over the last two years. "In the core we learn finance, strategy, the interaction between state and society—but it's mostly on a company level, where most young managers work," he says. "Wall Street and Washington pulls back to give us a more macro view. It connects the dots between all these different parts of the system we've been studying. It helps us to understand the system and how it works. And while I may not be in a position for a while to make use of some of the lessons from the course, I have no doubt all of us have gained an edge in our new companies. To say it was worthwhile would be a huge understatement."