Schumpeter
The pedagogy of the privileged
Business schools have done too little to reform themselves in the light of the credit crunch
THIS has been a year of sackcloth and ashes for the world’s business schools. Critics have accused them of churning out jargon-spewing economic vandals. Many professors have accepted at least some of the blame for the global catastrophe. Deans have drawn up blueprints for reform.
The result? Precious little. Business schools have introduced a few new courses. Students at Harvard Business School (HBS) have introduced a voluntary pledge “to serve the greater good” among other worthy goals, which about half of this year’s graduates embraced. But for the most part it is business schooling as usual. The giants of management education have laboured mightily to bring forth a molehill.
That is too bad. You do not have to accept the idea that the business schools were “agents of the apocalypse” to believe that they need to change their ways, at least a little, in the light of recent events. Most of the people at the heart of the crisis—from Dick Fuld at Lehman Brothers to John Thain at Merrill Lynch to Andy Hornby at HBOS—had MBAs after their name (Mr Hornby graduated top of his class at HBS). In recent years about 40% of the graduates of America’s best business schools ended up on Wall Street, where they assiduously applied the techniques that they had spent a small fortune learning. You cannot both claim that your mission is “to educate leaders who make a difference in the world”, as HBS does, and then wash your hands of your alumni when the difference they make is malign.
The real question is not whether business schools need to change, but how. One of the most common stances—often heard outside and sometimes within the schools themselves—is that management education needs to start again from scratch. On this view, these institutions are little more than con-tricks at the moment, built on the illusion that you can turn management into a science and dedicated to the unedifying goal of teaching greedy people how to satisfy their appetites.
That is not true. A study by two economists, Nick Bloom of Stanford and John Van Reenen of the London School of Economics, concluded that companies that use the most widely accepted management techniques, of the sort that are taught in business schools, outperform their peers in all the measures that matter, such as productivity, sales growth and return on capital. Many companies in the developing world, not least China, are desperate to hire more MBAs in order to improve their traditionally slapdash approach to management.
A second popular argument is that business schools need to put more emphasis on business ethics and corporate social responsibility (CSR). There is a great deal of talk about embracing “principles of responsible management”, such as “sustainability” and “inclusiveness”.
This makes some sense. A 2006 study of cheating among graduate students found that 56% of business students had cheated, compared with 47% in other disciplines. The authors attributed this to “perceived peer behaviour”. Presumably more talk of ethics might change those perceptions. But it would be a mistake to expect too much from CSR. Both business schools and businesses have been talking about it for years without turning business people into angels (one of the loudest advocates was Ken Lay, the chairman of Enron). Moreover, many admirers of CSR confuse the sort of creative destruction that makes us all richer, in the long run, with corporate skulduggery.
So what should business schools do to improve their performance? More history classes would help. Would-be business titans need to learn that economic history is punctuated with crises and disasters, that booms inevitably give way to busts, and that the business cycle, having survived many predictions of extinction, continues to prey on the modern economy. The 2008 debacle might have come as less of a surprise if all those MBAs had been taught that there have been at least 124 bank-centred crises around the world since 1970, most of which were preceded by booms in house prices and stockmarkets, large capital inflows and rising public debt.
History courses aside, business schools need to change their tone more than their syllabuses. In particular, they should foster the twin virtues of scepticism and cynicism. Graduates in recent years, for example, seem to have accepted far too readily the notion that clever financial engineering could somehow abolish risk and uncertainty, when it probably made things worse. It is worth noting that such scepticism is second nature to the giants of financial economics, as opposed to the more junior propellerheads. Andrew Lo, of MIT’s Sloan School of Management, was fond of pointing out that in the physical sciences three laws can explain 99% of behaviour, whereas in finance 99 laws can explain at best 3% of behaviour.
Boosters beware
The original sin of business schools is boosterism. Professors are always inclined to puff the businesses that provide them, at the very least, with their raw materials and, if they are lucky, with lucrative consultancy work. HBS has produced fawning studies of almost every recent corporate villain from Enron (which was stuffed full of HBS alumni) to the Royal Bank of Scotland. A taste for cheerleading has been reinforced by the rise of a multi-million-dollar management-theory industry. Professors with dollar signs in their eyes are always announcing the birth of the latest revolutionary management technique or the discovery of the hottest new “supercorp”.
Business schools need to make more room for people who are willing to bite the hands that feed them: to prick business bubbles, expose management fads and generally rough up the most feted managers. Kings once employed jesters to bring them down to earth. It’s time for business schools to do likewise.
The rally in financial markets
Liquid fuel
Investors are betting on a vibrant recovery. With returns on cash so low, they have little choice
“EXTRAORDINARY how potent cheap music is,” the playwright Noel Coward declared. He could have said the same about cheap money. With cash on deposit yielding not much more than zero in many rich countries, there has been a powerful rally in most financial markets. In America, money-market funds yield around 0.1% after fees, so an investor with $100,000 receives just $100 in annual interest. Unsurprisingly, investors have withdrawn $332 billion from such funds this year, or around 10% of total assets, according to EPFR Global, a data provider.
Investors elsewhere also seem to be putting their cash to work. The MSCI world index of global share prices is up by almost 24% so far this year, having fallen by a similar amount between January 1st and March 6th. In the debt markets, the spread (or excess interest rate over Treasury bonds) on high-yield corporate bonds has fallen from more than 16 percentage points at the start of the year to around seven and a half points now (see chart). Commodities have not missed out—gold has moved back above $1,000 an ounce.
The markets are enjoying a “sweet spot” in which economic and profit forecasts are being revised higher but the outlook for interest rates (and thus borrowing costs) remains on hold, thanks to subdued inflation. On September 23rd the Federal Reserve said that the American economy had “picked up” but that interest rates were set to remain “exceptionally low”. The data indicate that most developed economies have emerged from recession. The second-quarter profits of S&P 500 companies may have dropped by nearly 30% year-on-year but they were still an improvement on the first quarter. Analysts forecast a 28.7% increase in global corporate earnings in 2010.
What is true for the developed world is true in spades for emerging markets. Emerging stockmarkets are up by a remarkable 62% since the start of the year and are 94% above their lows. Mark Mobius, an emerging-markets investor at Franklin Templeton, thinks that analysts are underestimating the potential for recovery and that many markets can surpass 2007 highs.
Indeed, there is already talk that emerging markets could be the next bubble to be inflated by loose monetary policies. Investors perceive developing countries to have much better growth prospects than those in the developed world. Liquidity is fuelling the Chinese market in particular. According to Dylan Grice of Société Générale: “[Chinese] banks which haven’t wanted to lend have lent to borrowers who didn’t want to borrow…the money is now flowing into the stockmarket, into commodity inventories and into property.”
But bubble talk seems a little premature. Markets have rallied very fast, but they fell just as quickly in the six months to March. It is worth remembering that even if the Dow Jones Industrial Average regains the 10,000 level in the near future, it will still be more than 4,000 points below its all-time high, recorded in October 2007. The MSCI world index is around 32% below its peak. Some of this rally is down to sheer relief that the market is out of crisis mode (the cost of borrowing in the money markets is back to near-normal levels, for example).
The more difficult question to answer is whether the surge is the start of a long-term bull market or simply yet another bear-market rally, like those Japan enjoyed in the 1990s. The deleveraging that many have long predicted has not really started; government debt has simply substituted for private-sector debt. So the economy may be very reliant on action by central banks and governments and may slump once that support is taken away.
Some forms of stimulus are already being withdrawn. The American “cash-for-clunkers” subsidy for car sales ended in August. Edmunds.com, a website, predicts that the annualised rate of car sales in September will be 8.8m units, down from more than 14m in August. The fear is of a “Weekend at Bernie’s” recovery, after the 1989 film, in which two office workers pretend their dead boss is alive (putting sunglasses on the corpse and propping it up) so they can enjoy the party lifestyle.
Equity and corporate-bond markets have also been boosted by quantitative easing (QE), the process whereby central banks create money to purchase (mostly government) bonds. That has helped keep the lid on Treasury-bond yields. In June the ten-year bond yielded almost 4%; it is currently around 3.5%, pretty low by historical standards even though governments are issuing record amounts of debt. The fear is that if QE stops, yields may rise sharply, driving up borrowing costs for everyone. “At some point the quantitative easing will come to an end but until it does this bull market is sponsored by [governments] and everyone should enjoy it,” Crispin Odey, a hedge-fund manager based in London, recently urged his clients.
Yet the stockmarket seems to assume a robust economic recovery. The S&P 500 index is trading on a price-earnings ratio of around 20, based on 2009 forecasts for operating earnings. A more cautious approach, using earnings reported under official accounting standards, puts the multiple at 27. Both numbers are well above the historical average. According to Smithers & Co, the American market is 37% overvalued on the best long-term measure, the cyclically-adjusted price-earnings ratio (which averages profits over ten years).
As a result, the markets look vulnerable to a setback. As strategists at UBS remarked in a recent research note: “Liquidity has been a much bigger driver of this market than fundamentals. Liquidity-driven rallies have a habit of reversing violently without warning.”
ACORN Internal Investigator’s Website Downplays Scandal, Attacks Messengers
by PubliusFrom Center for American Progress:
John Podesta, Obama transition team co-chair and President of Center for American Progress (the group helped launch Media Matters in 2004). Podesta is a member of the ACORN Advisory Council.
…Hysterical Fox News commentators have blown this story up like a hot air balloon, and much of the rest of the media appear to believe that what Fox says goes. Andrew Alexander complains that “traditional news outlets like The Post simply don’t pay enough attention to conservative media or viewpoints.” But writing in the Columbia Journalism Review, Rick Perlstein responds: “Why would a newspaper like the The Post be training its investigative focus on ACORN now? Whether you think ill or well of ACORN, they’re a very marginal group in the grand scheme of things and about as tied to the White House as the PTA.”
This right-wing stunt proved such powerful catnip to mainstream media bigfeet that amazingly, George Stephanopoulos thought it worth discussing with the President of the United States during a rare one-on-one interview opportunity. The president quite understandably explained that that he wasn’t following the story very closely, and that the country was dealing with more serious problems right now. (U.S. grants to ACORN, already suspended, account for literally 52 seconds of annual U.S. government spending, according to one careful estimate.) Stephanopoulos had nothing else to say. As though he were correcting himself, he continued, “Afghanistan is a serious problem facing the country right now.” Oh, yeah, Afghanistan…. (more…)
School Responds to Shocking Video of Kids Taught to Praise Obama
by Publius
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Here’s the school district’s response to the “unauthorized video”: (more…)
ACORN Scandal: Will Harshbarger Intervention Make or Break the ACORN?
by Zena CrenshawACORN’s CEO, Bertha Lewis announced last week that the group will seek an independent review of its operations. ACORN also announced that former Massachusetts Attorney General Scott Harshbarger would oversee the review. Although it seems difficult to imagine that the credentials of an attorney could allay public skepticism about the ethics of ACORN—especially in an era where lawyer-dominated institutions are frequently enmeshed in scandal—the professional background of Harshbarger makes him possibly the right person for the job.
That is, if ACORN—and Bertha Lewis—let him do the job.
Bertha Lewis is among the ACORN senior staff and Executive Committee members who actively concealed an apparently million dollar embezzlement from the organization by Dale Rathke, brother of ACORN founder and Lewis’ predecessor Wade Rathke. So it is hard to believe Scott Harshbarger’s first line of business will be recommending or otherwise arranging for ACORN to fire Bertha Lewis and all her admitted, embezzlement concealing co-conspirators.
Bringing in Harshbarger does not signal the first time ACORN purported to put its proverbial house in order following a major breach of public trust.
Last year ACORN’s national board of directors installed an Interim Management Committee (IMC) upon learning of Dale Rathke’s embezzlement and the related cover up by some senior staff, including Wade Rathke, and certain ACORN Executive Committee members. After firing Wade, the national board appointed its members, Karen Inman, Carol Hemmingway, and Marcel Reid to collectively act in his stead. Inman was to temporarily address legal affairs; Hemmingway considered financial matters; and Reid handled governance as ACORN’s IMC.
ACORN’s national board authorized its IMC to hire independent professionals to investigate and help reorganize ACORN following decades of arguable domination by the Rathke family. The IMC in turn pursued more definitive remedial actions, including a complete accounting of all ACORN assets, a forensic examination of the known embezzlement and an independent audit of ACORN and its related entities.
So what happened? Unfortunately, 38 of 50 national board members were subsequently swayed by ACORN’s Executive Committee and other corporate insiders to remove the IMC and abandon its members’ prudent inquiries. Nevertheless, eight courageous, now former ACORN board members, banded together and formed the ACORN 8, LLC to reform the once venerable ACORN. Marcel Reid is Chair and Karen Inman is Vice Chair of the ACORN 8.
The ACORN 8 were the first to identify the nebulous Citizen’s Consulting Inc. (CCI) and attempted to “follow the money” at ACORN; the first to seek a forensic examination and independent audit of ACORN and its related organizations; the first to seek injunctions against ACORN, the Rathkes and CCI; the first to call for a national boycott of all charitable donations, federal funding and member dues otherwise payable to ACORN; and the first to formally allege civil and constitutional rights violations as well as RICO offenses against ACORN’s upper management. Consequently, Louisiana Attorney General James “Buddy” Caldwell issued subpoenas and is investigating ACORN and Wade Rathke.
According to the New York Times, Maude Hurd, chair of ACORN’s board of directors, announced Scott Harshbarger’s appointment. How noble of her, considering that the first meaningful step Harshbarger could take would be to recommend her removal from ACORN. Acting on behalf of ACORN’s Executive Committee, Maude Hurde ejected the ACORN 8 from ACORN in contravention of their First Amendment right to speak out, litigate, and petition government. Title 18, section 241 of the United States Code makes it a federal crime to conspire to injure, oppress, threaten, and/or intimidate people in the free exercise or enjoyment of their rights or privileges secured by the U.S. Constitution.
In any event, don’t be fooled – a “review” is not a forensic examination, independent audit, or comprehensive criminal investigation. But we do hold some ray of hope; Harshbarger is sure to recognize an ole’ fashioned Smoke Screen / White Wash. He is a former Massachusetts attorney general and gubernatorial candidate; current chief executive of the advocacy group Common Cause; and lawyer with Proskauer Rose, focusing on corporate investigations and defense as well as nonprofit governance and ethics cases.
Surely Harshbarger will promptly know if his scope of authority in overseeing ACORN’s internal review process is enough for him to “right the ship”. And even if Harshbarger’s role in ACORN’s proclaimed self-reform is too superficial and/or brief, he is sure to immediately conclude ACORN should oust Bertha Lewis and her embezzlement concealing co-conspirators, not to mention ACORN’s criminal-conspiring, constitutional rights violators.
As Chair of the Legal Affairs Committee for the ACORN 8, I say that ACORN’s selection of Scott Harshbarger is a good first step towards positive, meaningful reform of ACORN. Well, actually the organization’s IMC was its first good step towards that reform. Hopefully, Harshbarger will avert additional ACORN missteps
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A generation ago, banks took deposits, made loans and collected payments.
Back then, bankers quickly felt the consequences of money lent to folks unlikely to repay.
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During the 1980s, deregulation pushed up interest rates on deposits. Banks got caught with old mortgages on their books yielding less than they paid for deposits. The U.S. Savings and Loan Crisis resulted, motivating banks to sell new loans to investors instead of holding those in their portfolios.
Banks wrote mortgages and sold those to Wall Street financial institutions, who bundled loans into bonds and sold those to investors such as insurance companies and foreign governments.
Often, separate mortgage service companies were established to collect payments — and foreclose on delinquent loans.
From loan officers to the Wall Street bond salesmen, opportunities to exaggerate the quality of loans emerged. If local banks or Wall Street financial houses could pawn off high-risk, high-fee loans as reasonably safe, they enjoyed big paydays.
Wall Street bankers wrote bogus insurance policies called SWAPS that were supposed to limit losses for investors when mortgages defaulted. One of the modern world’s biggest culprits, AIG, wrote many SWAPS without capital to back them up, and banks even wrote SWAPS on each other’s mortgages.
It was as if two homeowners on a North Carolina beach promised to pay one another in the event of a hurricane.
Well, the storm came, and AIG and several big banks became insolvent. In a flash, Washington decided they were too big to fail and bailed them out.
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And wouldn’t you know it, the key point of writing SWAPS and selling bad bonds to unwitting investors was to permit bankers to earn huge profits and bonuses. When too many mortgages failed, investors and bank shareholders took enormous losses — and U.S. taxpayers had to bail out the banks.
Apart from the TARP, the U.S. Federal Reserve and FDIC permitted banks to borrow at rock bottom interest rates and enjoy big profits to rebuild their capital. Consequently, widows relying on Certificates of Deposit for income now receive much-reduced interest rates. That’s right — Ben Bernanke is taxing grandma to bail out Goldman Sachs.
Flush with profits, the banks are up to their old tricks. Once again, they are creating highly engineered financial products, selling swaps, setting aside massive profits for bonuses — and manufacturing conditions for another crisis.
If Wall Street banks are too big to fail, then they are too big to be allowed to continue this irresponsible behavior.
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French and German regulators advocate limits on bank compensation, and the Federal Reserve is considering prohibitions on compensation practices that encourage excessive risk taking. The latter is too complex to be realistic — the banks would run circles around such rules, much like lawyers creating tax shelters.
Better to limit bonuses and salaries of bankers to a fixed percentage of net income that aligns financial sector salaries with those of other industries.
Harsh for sure, but so is the pain bankers’ recklessness has imposed.
Bankers should not be allowed to pay themselves royally — and put the United States or any other nation, for that matter, at risk again.
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Fiscal policy — public spending, taxes and debt management — has thus returned, rather abruptly, to the heart of the public policy debate.
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If fiscal policy has been policymakers' tool of choice for responding to the crisis (many believed they, in fact, had no choice), it can also be used effectively in the longer-term fight to reduce poverty and excessive inequality.
The Obama Administration apparently aims to do precisely that — implement today’s necessary fiscal policy in ways that are more attuned to reducing long-term inequality in the United States. But how much reduction in inequality can, or should, the United States expect to achieve through fiscal policy?
We can get some idea of the potential impact of fiscal policy on inequality in the United States by looking at how taxes and government spending affect income distribution in Europe and Latin America.
European countries generally have lower inequality than the United States. But in Latin America, as U.S. Secretary of State Hillary Clinton observed recently, the inequality between rich and poor is "the greatest gap of any region in the world." What is the role of fiscal policy in these differences?
We can evaluate the impact of fiscal policy on income inequality by looking at inequality of household income before taxes and government transfer payments, and then see how much this inequality is changed through the combined effects of taxation and public spending.
Progressive taxation — taxes that take a bigger share of the income of rich families than poor families — tends to reduce income inequality, as does universal child support, pensions for lower-income workers, food stamps and other spending programs that are more important to the poor than to the rich.
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On the other hand, regressive taxes (such as sales taxes) and government spending that directly or indirectly favors the better-off often fails to reduce income inequality, and can even raise it.
Inequality can be gauged by an index called the "Gini coefficient." This index varies from zero (every household has the same income) to 100 (all the income in the land is concentrated in a single household). Typically, the effects of labor and capital markets combined are to generate before-tax-and-transfer Gini coefficients of 40 to 50, although in Latin America (and Africa) several countries have Gini indexes above 50.
For example, in Western Europe, only Portugal has a pre-tax-and-transfer Gini slightly above 50, and only the Netherlands’ is (slightly) below 40. The United States’ pre-tax-and-transfer Gini index is 46, fairly typical of advanced industrial countries.
These similarities dissolve when we look at inequality after taxes and public spending. In Europe, the effect of taxes and transfer spending is dramatic. Fiscal policy reduces the average Gini coefficient from 48 to 28.
In the United States, fiscal policy also reduces inequality, but much less than in Europe. Fiscal policy in the United States reduces the Gini coefficient from 46 to 38.
In Latin America, fiscal policy has a negligible effect on income distribution in most countries.
The high before-tax-and-transfer-payment inequality — Latin American countries have an average Gini of 52 before fiscal policy — remains stratospheric compared to Europe and even to the United States after taxes and public spending. After fiscal policy, income inequality in Latin America still tips the Gini scale at 50.
So fiscal policy — the combined impact of taxes and public spending — reduces income inequality in Europe by about 40% (i.e., by almost 20 Gini points), in the United States by about 17% (8 Gini points) and in Latin America by a mere 4% (2 Gini points).
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Source: "Latin American Economic Outlook 2009," OECD Development Centre (2008), and "Growing Unequal?" OECD (2008).
Why is taxation and public spending so ineffective in ameliorating income inequality in Latin America? Three facts, listed in order of decreasing importance, go far to explain this ineffectiveness:
First, in Latin America, only a privileged minority qualifies for public pensions and other "poverty alleviation" spending. Most of the population is outside the social security system. Even education and other "universal" programs are often of poor quality, and tend to be avoided by those who can afford private alternatives.
Put simply, the main problem in Latin America is that governments generate far too few benefits for most of their populations from the money they spend in terms of the quality of the public goods provided with that money — be it spent on education, health care, public safety or whatever.
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This leaves the poor no better off after the government intervenes than before. And it means that an increase in public spending without fundamental changes in the way the money is spent will not even begin to solve the problem.
Second, Europe and North America rely much more on income taxes than Latin America, where sales taxes and value-added tax (VAT) are more important. Personal income taxes are 27% of government revenues in Europe and the United States, but only 4% in Latin America.
Third, the public sector is smaller in Latin America than in Europe or North America. Taxes in Europe average 38% of GDP. In the U.S. they are 27% and in Latin America they are 20%.
Trends in the United States suggest that the Latin American model of fiscal ineffectiveness is dangerously relevant. Again and again in the past few decades, U.S. voters have favored tax cuts over tax increases to support improved public services.
The erosion of popular support for public spending on education illustrates this trend, as the small proportion of U.S. children who are schooled in private academies and at home has gradually risen.
More strikingly, California voters in a May 19, 2009, referendum chose to close down public services — rather than make adjustments for the economic crisis.
Also symptomatic is the current upheaval, and apparent Democratic backpedaling, over a possible surtax on the wealthiest Americans to finance badly needed health care reform.
Looking to the future, because President Obama’s stimulus package necessarily adds to the nation’s already large fiscal imbalance, the United States will need to further adjust taxes and spending as the economy recovers.
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The strength of pressures to avoid solutions that burden the wealthy, such as the surtax for health care reform, and the appeal of adjustments that are painless for the wealthy — privatization of Social Security, withdrawal of support to public schools, the elimination of income support programs for the indigent — constantly threaten the modest income redistribution effects of the U.S. fiscal system.
They also have perverse macroeconomic effects, and help preserve an economic system that allows some Wall Street executives to make huge under-taxed incomes through irresponsible risk taking. Too much of the burden of that risk is shifted to the public in times of major failure. And both growth and resource allocation tend to be driven, somewhat artificially, more by financial than real innovation.
President Obama's plans to create a public health care safety net for all — and to extend public education to those aged 2-5 — may well clash with the perceived individual economic interests of older, wealthier, established voters who can easily turn against him if they feel their narrow economic interests are threatened.
Was the election of President Obama and Democratic majorities in the U.S. House and Senate truly a choice for stronger social safety nets and a stronger economy, together with more effective support for those whom the market tends to leave behind?
Or will the United States move more toward a Latin American pattern, where fiscal policy is so constrained by powerful interest groups that critical opportunities to strengthen the economy and reduce excessive inequality are lost?
The broader fiscal-policy challenge for all governments is to create a progressive tax system — and to use public spending in ways that simultaneously encourage the use of demonstrated best practices and secure the social support needed to leverage that spending for a stronger economy.
Reaping higher returns from public investment in the formation of both physical and human capital requires governments to ensure that public spending is efficient and well targeted. To do so is as important today for the United States as for Latin America.
Slip in Home Sales Hurts Stocks
Stocks fell Thursday, led by the materials sector, after a weak reading of home sales deepened investors' worries about the broader U.S. economy.
The Dow Jones Industrial Average fell by 41.11 points, or 0.4%, to 9707.44. Alcoa sank by 4.5%, while Bank of America, Caterpillar, Dupont and General Electric declined by more than 2%.
![[Markets Data]](http://s.wsj.net/public/resources/images/MDGpromo_D01222009151210.jpg)
The market had received an early boost from better-than-expected data on first-time unemployment claims, but the gains quickly evaporated after the National Association of Realtors said that sales of existing homes fell 2.7% last month, snapping a four-month streak of rising sales.
The big-picture fears that roiled the market Thursday came in the wake of the latest policy announcement by the Federal Reserve's rate committee. The panel kept its key rate target steady and said it would phase out its purchases of $1.25 trillion in agency mortgage-backed securities and up to $200 billion in agency debt by the first quarter of 2010, rather than by the end of this year.
Stephen Wood, chief market strategist at Russell Investments, said that some market watchers had been expecting the Fed to more clearly articulate an exit strategy from its emergency supports for the financial system.
"That would have been a sign that the economy was a little bit stronger," which is what investors were hoping for, he said.
The S&P 500 fell 10.09 points, or 1%, to 1050.78, led by a 2.2% decline in its materials sector. Its energy category fell 1.4% as crude oil dropped 4.5% to the lowest leven in nine weeks. The technology-focused Nasdaq Composite Index sank 23.81 points, or 1.1%, to 2107.61, and the small-stock Russell 2000 fell 11.62 points, or 1.6% to 601.75.
Strategist Carmine Grigoli of Mizuho Securities USA is optimistic that stocks can resume their recent rally, which pushed indexes up nearly 50% from their March lows. He doesn't necessarily believe the latest bout of weakness will turn into a 10% decline that traditionally defines a market correction.
Moody's shares fell 4.4% after the House oversight panel postponed a hearing on credit-ratings agencies after the committee's chairman said new information about Moody's. McGraw-Hill, which owns Moody's rival Standard & Poor's, tumbled 6.5%. Both stocks have fallen nearly 30% this month.
Treasury prices gained after a strong auction of seven-year notes. Ten-year Treasurys rose 11/32 to yield 3.374%. Two-year Treasurys rose 1/32, yielding 0.941%. Yields move inversely to prices.
Gold prices also fell. Comex gold for September delivery sank by $15.50 a troy ounce, or 1.53% to $997.50, the largest one-day dollar and percentage slide for the yellow metal since July 8 and the lowest settlement since Sept. 10.
Netanyahu Blasts Ahmadinejad at U.N.
CHRISTOPHER RHOADS
![[Benjamin Netanyahu]](http://s.wsj.net/public/resources/images/OB-EN460_0924ne_F_20090924133609.jpg)
Associated Press Israel's Benjamin Netanyahu holds up Nazi documents during his speech to the U.N. General Assembly on Thursday.
Israeli Prime Minister Benjamin Netanyahu issued a blistering attack on the floor of the United Nations Thursday on Mahmoud Ahmadinejad, saying the hearing granted the Iranian president the night before amounted to a "disgrace of the U.N. charter."
Mr. Netanyahu dramatically held up copies of minutes of the meeting of Nazi officials in 1942 where plans were made for the extermination of the Jews, as well as constructions plans of Nazi concentration camps.
Netanyahu Blasts Comments on Holocaust
0:49Israeli Prime Minister Benjamin Netanyahu attacks Iranian leader Mahmoud Ahmadinejad's comments about the Holocaust, calling them a "disgrace" and a "mockery."
"Are these protocols lies?" he asked, waving them in his hand. "Are the successive German governments that have kept these documents for posterity all liars?"
He opened his remarks by saying that the greatest threat to the U.N. effort to prevent a repetition of the carnage of the World War II is the "assault on truth."
"Yesterday the president of Iran stood at this very podium and spewed his anti-Semitic rants," he said. "Just a few days earlier he claimed that the Holocaust was a lie." He then described how he had obtained the documents he held up before the assembly.
"Nearly one-third of all Jews at the time perished in the Holocaust," he said. "Nearly every family was affected, including my own."
Mr. Netanyahu continued about Mr. Ahmadinejad, "Perhaps some of you think this man and his odious regime only threaten the Jews. Well, if you think that you are wrong, dead wrong.
"What starts as attacks on Jews always ends up engulfing others … this regime embodies the extremes of Islamic fundamentalism."
He concluded by quoting Winston Churchill, and his warnings about mounting threats in the run-up to World War II.
Down to Business
![[SB125381619451938363]](http://s.wsj.net/public/resources/images/OB-EN480_0924un_D_20090924141939.jpg)
President Barack Obama and British Prime Minister Gordon Brown left the Security Council meeting together.
Say Who?
![[ahmadinejad]](http://s.wsj.net/public/resources/images/OB-EN187_UNname_D_20090923131520.jpg)
Emmanuel Dunand/AFP/Getty Images Click for a guide for hard-to-pronounce heads of state.
"The question facing the international community is whether it is prepared to confront these forces or just accommodate them," he said.
Mr. Netanyahu also denounced a U.N. report accusing Israel of war crimes in its winter war against Palestinian militants in the Gaza Strip. He said the report turned the victims into the aggressors and encouraged terrorism.
Meanwhile, Palestinian President Mahmoud Abbas said that Palestinians cannot return to peace talks at this time because of "fundamental disagreements" with Israel on what should be on the agenda, the Associated Press reported.
Mr. Abbas rebuffed an appeal by President Barack Obama that both sides get back to the table promptly.
The Palestinian leader said he wanted to avoid a crisis with the Obama administration at any cost and emphasized that dialogue was the only way to close the gaps and resume negotiations. But he said that for now "there is no common ground" with Mr. Netanyahu.
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