With the credit crisis spiraling out of control as he was planning his first three courses pertaining to capital markets, corporate finance, and business law and planning, Brown, a visiting professor of the practice of law, wanted his students to learn how to read fluctuations in the equity, interest rate, credit, commodity, and foreign exchange markets. That’s why he arranged for all of them to have access to “Bloomberg Professional,” the software commonly used by brokers and bankers to graphically track these markets.
Beyond that, he wants them to leave his classes fluent in how complex derivatives and structured instruments operate in fixed income and equity markets.
“My goal is that the Duke students who come out of my classes will set themselves apart from any other law school in the country in their fluency on these issues,” says Brown, who was a partner at Sidley Austin in New York before launching an 18-year career in financial services. In leadership positions at Goldman Sachs & Co., AIG International, and Morgan Stanley, he specialized in currency and fixed income markets, most recently serving as global co-head of listed derivatives at Morgan Stanley, and he is eager to share his expertise. “I want to make sure that students can work in law firms, hedge funds, or banks, and actually have a good sense of what their products are.”
More practitioners need these capabilities, he says. Having spent years selling financial services, Brown defends such products as credit default swaps and collateralized debt, mortgage, and loan obligations (CDOs) as “great instruments”, provided they are used properly. “Many want to reject these altogether, rather than focusing on correcting the marketplace in which they operate. Some institutions entered into credit default swap transactions recklessly, and the lack of a central clearing house threatened the market when Lehman toppled and AIG teetered,” he says, adding that marketplace predatory lending practices also caused misuse of CDOs.
“The bottom line: not enough lawyers and businesspeople focused on how these products were being used or misused. But if they had better familiarity they could have served as a check on the system.” Predicting an era “where every practice and product is going to be called into question, regulations will be imposed, and businesses and directors will want to be more thoughtful,” Brown is taking students in his Fixed Income Markets class on a “deep dive” into how all the structured products in the marketplace work.
In Legal, Accounting, and Business Responses to the Subprime Crisis, Brown is challenging students to find ways to fix the credit markets. Working in teams through the spring semester of the yearlong class, students are writing papers on such issues as bailout strategy, market structure, regulatory policy, loan disclosure, solutions for subprime borrowers in trouble, the performance of ratings agencies, ethical obligations of lawyers, and the proper roles and responsibilities of intermediaries like brokers, banks, and independent directors. Each paper will form a chapter of a book to be published by the Duke Global Capital Markets Center. “When it comes out we’ll send it to every policymaker I can find,” says Brown.
“Professor Brown’s classes are among the best I’ve had at Duke,” says Ryan Martin ’09 who is in two of them. “He has done a great job explaining a number of financial products, structures, and transactions, including credit default swaps. And at this time in history, his courses are revolutionary.”
A former member of the Law School’s Board of Visitors, Brown routinely shared his ideas for making legal education more relevant to students by giving them “a practical sense of the world in which they’re operating,” first with former Dean Kate Bartlett and then with Dean David Levi. During the April 2008 reunion weekend, Levi suggested that Brown come back to put his ideas into practice. The offer came at a perfect time for Brown, who had recently left Morgan Stanley to launch two entrepreneurial ventures.
Partnering with a PhD chemist — a friend from his undergraduate days at MIT where he majored in biology and political science — Brown launched 8 Rivers Capital and Palmer Labs last May, enterprises that he describes as a technology developer and a venture capital company bonded together. Seeking out entrepreneurs who have “grown” technology companies and cashed out, Brown and his partner bring them in as equity partners in their companies, to finance and commercialize technologies related to biomedical devices, gene replacement therapy, traditional energy, alternative energy, and the telecom and automotive industries, among others.
Brown says his experience at Morgan Stanley, where he managed more than 500 members of sales, marketing, information technology, and operations teams in nine locations globally, taught him how to “put a whole business together.”
He is clearly having fun building his Washington, D.C.-based businesses — and sees this as the perfect time to do it. “Over the next five years, those who have access to capital are going to have the some of the best investment opportunities imaginable. We are entering a period where ideas and cash flow will be king,” he says.
He is also clearly having fun in class.
“We’re creating a level of excitement about the markets that is truly, truly exciting,” he says, “and I am grateful to have some of the most energetic and enthusiastic students out there.”