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Kogod in the Media/January 2011


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Professor Robin Lumsdaine gives Bloomberg radio interview
Robin Lumsdaine, Crown Prince of Bahrain Professor of International Finance in the Kogod School of Business and a senior fellow at the Center for Financial Stability, was recently interviewed on Bloomberg radio’s The Hays Advantage, following her article commenting on MetLife's recent decision to exit the long-term care insurance business and how it might relate to the debate surrounding bank capital regulations and systemic risk.

Lumsdaine noted that one reason MetLife may have exited the long-term care insurance industry is that MetLife is a bank holding company and therefore faces capital requirements under banking regulations. MetLife is the 7th largest bank holding company.

There is some ambiguity as to whether MetLife is a member of a 'mandatory' group of bank holding companies subject to US Basel II rules (that specify minimum regulatory capital requirements), Lumsdaine said, but noted the company was included in a list of 19 firms that the Federal Reserve subjected to a 'stress test' is May 2009, suggesting its systemic importance.

Lumsdaine also discussed the implications of rising long-term care costs, resulting in long-dated liabilities that are outpacing other forms of inflation. “It is hard to imagine the [long-term care insurance] business being viable without an ability to spread medical inflation risk over a broad range of investors – in particular, shifting the risk…via ongoing premium increases is not sustainable,” she wrote.

Lumsdaine concluded in her article for the Center for Financial Stability that escalating long term care costs mean that insurance providers will face increasing need to employ derivatives to hedge the risk associated with such costs, and for a bank holding company such at MetLife, that means increased capital requirements. "It's no wonder MetLife decided to exit," Lumsdaine wrote.

View Full Article (1/14/11) | Listen to the Interview (1/18/11)

Kogod and other business schools see uptick in hiring
The Wall Street Journal recently reported that business schools are seeing an increase in on-campus recruiting, internship opportunities and job postings, according to a survey from the M.B.A Career Services Council.

At Kogod, employers who previously typically had only two full-time positions available now have six, Arlene Hill, the director of the Kogod Center for Career Development, told the Wall Street Journal.

"Not only are companies rebounding, they are also accelerating their hiring to make up for lost time," said Hill. She said that a year ago at this time, fewer than 10% of the class of 2010 had job offers. However, for the class of 2011, it's up to 25%, with many students finding jobs in government consulting. View Full Article (1/14/11)

Professor Dan Jacobs gives opinion on BP's liability
According to the Financial Times, BP will face criminal charges over the Gulf of Mexico oil spill, say legal experts, after the National Commission concluded that the spill was caused by "a failure of management."

Criminal charges against the company could increase the penalties against BP and may threaten jail time for staff. The commission did not find any clear evidence of "gross negligence," however, which would have resulted in higher civil penalties for the company.

Professor Danial Jacobs, a former Department of Justice official who now teaches business strategies for environmental sustainability and global corporate citizenship in Kogod, told the Financial Times that the commissions conclusion that there were "systemic" failures in the oil industry would not necessarily reduce BP's liability.

Under the Clean Water Act of 1972, BP faces penalties of $1,100 per barrel split, or $4,300 if found to be grossly negligent. Scientists estimate that approximately 4.9m barrels of oil were spilled, although BP says it was much less. View Full Article (1/7/11)

Professor Barbara Bird studies benefits of experiential learning
American University researchers found that entrepreneurs whose education is based in experience and experimentation have an advantage over those who learn primarily by reading or observing, according to a recent Reuters article.

Kogod professor Barbara Bird, whose findings will be published in the Personnel Psychology journal, said "Entrepreneurs, especially during the early stages of their start-ups, have to think on their feet. They have to make the best decisions possible in the least amount of time. They need to act. Practical intelligence empowers them to act quickly and confidently."

Bird and her team focused on the printing and graphics industry for their study because it has both new and established companies. Their findings showed that entrepreneurs who were most likely to have rapidly growing businesses had relevant experience and had learned through hands-on experiences.

Although the study focused on just one field, Bird said that practical intelligence is important for success in any industry.

"Teachers and mentors involved in development should say 'go do it', and tell their students to go practice their craft and make mistakes," she said. View Full Article (1/6/11)