Finish the story: parallels between the financial crash and higher education after Covid-19

A short, possibly under-theorised journey through the recent past and what it tells us about what might happen next.

Mark is founder and Editor in Chief of Wonkhe

And while you’re here, welcome to Wonk Corner. This is a new space on for the editorial team to post little thoughts and ideas, hot takes, quick responses and anything else that might occur.

So where were we? Right, yes, the booming noughties.

  1. The growth of debt in banks in the 2000s and of overseas and home HE student numbers in universities in 2010s was driven by willing buyers (who were also voters) who wanted the middle-class dream of a house (in the case of banks) and a higher education (in the case of universities).
  2. The dream was financed by debt advanced long term on international money markets by banks, pension funds, sovereign wealth funds and other lenders.
  3. The debt was scheduled to be financed (banks) and repaid (universities) by short term instruments CDOs and CDSs (banks) and tuition fees (universities). As has been pointed out numerous times over the past few years, this sort of debt/finance temporal asymmetry rarely leads to good outcomes.
  4. The terms of mortgages and the value of banks’ balance sheets was determined by the big three credit rating agencies (Moody’s, Standard & Poor’s and Fitch). The price of degrees and the prestige of universities in the UK was determined by the big three international league tables (QS, THE and ARWU).
  5. The credit rating agencies assumed normal distributions of risk in the financial instruments and banks they rated when it turns out the real risk follows a power-law distribution. The university league tables assumed academic prestige was determined by research citation or reputation and made no reference to underlying financial health or sources of finance in rated institutions. US institutions are financed by endowment and variable fees, UK institutions by debt based on assumptions about future fee income.
  6. The leaders of banks pursued aggressive growth strategies during the early 2000s because their pay and tenure were linked to metrics of growth in share price and market capitalisation. University leaders pursued aggressive growth, build and research reputation-enhancing strategies in the 2000s and 2010s because their pay and tenure depended on these strategies. The leaders of banks and universities mixed socially with other leaders in their respective industries and therefore over time, everything appeared normal to those in each of those sectors.
  7. In 2007 (banks) and 2019 (universities) insiders began to realise that demand and prices would not keep rising, that many of the institutions were over-leveraged and that something bad was going to happen.
  8. The government and regulators were largely absent from the field in 2000s banks and post-2017 universities. Performance was monitored at a distance, but there was little direct steering, engagement or intervention.
  9. Salaries in the banks and universities were high in comparison with the regulators, media and ratings agencies and there was a lot of mutual interdependence and overlapping career paths. And so there was arguably little direct challenge to the culture and performance.
  10. Faced with the decline of business and possible institutional failures, governments said they were prepared to let institutions fail. In banking that went reasonably well at first with Bear Stearns and Northern Rock, but then Lehman Brothers collapsed and following that, countless banks and lenders failed. Governments stepped in to nationalise them and to impose major restructuring plans. The costs were hidden in treasury and central bank accounts. In universities, things went reasonably well at first with Heythrop College, GSM and Richmond, the American International University in London. And then…..

One response to “Finish the story: parallels between the financial crash and higher education after Covid-19

  1. Dear Mark,
    I hate to spoil the finish to your story, but your readers should know that Richmond is alive and well and we are busily planning for our 50th anniversary in 2022. It’s been a tough six months, but thanks to high academic standards and a unique offer we are still in the game.


    Phil Deans
    President and Vice Chancellor
    Richmond, The American International University in London

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