Steve Forbes, editor in chief of Forbes magazine and former presidential candidate, gave Wardlaw-Hartridge High School students a crash course in economics on Dec. 1 at the north Edison school.
He discussed the current sagging economy, the presidential election, the Federal Reserve, monetary policy, the Internet and the job market of the future, and he did it with enough jokes to hold the students’ attention and keep them laughing.
Forbes, who was born in Morristown and graduated from Princeton University with a bachelor’s degree in history, talked about the publishing empire created by his Scottish immigrant grandfather, B.C. Forbes, who started Forbes magazine in 1917. Nine years later, William Randolph Hearst offered to buy the company, but B.C. Forbes turned the media mogul down.
“Then during the Depression, the company [Forbes Inc.] went broke,” Steve Forbes told the crowd of 200 students, faculty and board members. “Today’s success does not mean tomorrow’s success. In the 1960s, GM [General Motors] held back on sales because it feared an antitrust suit. Now it’s going to the government with a tin cup.”
The economy has upswings and downturns, he said, and he predicted the demise of yet more “big names” in media and other industries. The key to surviving the tough times is “to fall back on discipline … and be prepared. Nothing is going to stay the same.”
Change is necessary, which is why Forbes has pushed his company into webzines and launched new publications to tap into different markets. It’s a matter of providing a unique brand or source of information.
Forbes laid most of the blame for the country’s current poor economy on markto market and explained the term to students. Mark-to-market accounting is when companies value the assets on their books at the price they would currently sell at. When the credit crisis began, mortgagebacked securities plummeted in value as the underlying mortgages failed. The housing market was booming, the government had printed too much money, and investors poured money into housing, creating “a classic bubble.”
“Nobody cares about mark-to-market except accountants,” Forbes said.”People thought you couldn’t lose” when it came to real estate, he said. Then banks, Freddie Mac and Fannie Mae started writing “crazy mortgages.” To make matters worse, Wall Street turned a blind eye to the situation and the federal government made more mistakes.
Forbes explained, “Most of the losses you read about are not a shortage of cash … . A company can be making money and it still goes broke — only in America.
To make matters worse, the Securities and Exchange Commission (SEC) eliminated some stock market rules, allowing “naked short selling,” he said.
“Short selling allows you to pound stocks into oblivion,” Forbes said. “It allows you to sell what you don’t own.”
Forbes said the answer is to eliminate mark-to-market, regulate Fannie Mae and Freddie Mac (nicknames for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation) and for the federal government to help people remortgage their homes to get lower rates.
He continued, “We’ll get out of it … . This thing will turn around, but the stimulus package doesn’t help. It won’t be government spending that pulls us out of it.”
Students asked him questions about how to survive a market downturn, how to succeed in a tough job market, and which market sectors he’d watch for growth.
He told them to ask themselves, “How can I do something no one else has thought of? If people say ‘It’s a dumb idea,’you may be on to something.”
After his speech, he told the Sentinel that he hopes the students learn “to take risks, because a lot of good things are happening, and if they have versatile minds they’ll do well.”
“I know this stuff is boring, but it’s affecting your parents and it’ll affect you when you go out in the world,” Forbes told the students as he explained monetary policy.
They weren’t bored.
“It was interesting when he said you can’t trust your emotions and about the stock market,” Abigail Rogers, a freshman from Plainfield, said after Forbes left the school. “My dad’s talked to me about it, but I never really understood it until now.”
Contact Enid Weiss at [email protected]