The complexity of simplicity
Both his parents have PhDs in medical sciences. His grandfather was head of a major hospital in Moscow during the Soviet era. You would have thought that Vladimir Mukharlyamov’s career path had ‘medical doctor’ stamped all over it. His brother, currently pursuing a medical degree, has towed the family line. But showing an independence of thought and an intellectual curiosity that has marked him out as something quite exceptional, Vladimir decided to break the mould and pursue a career in economics. He is, as he says, unique in his family.
So where exactly did this love of economics come from? “That’s a very interesting question. In my pre-final year of High School I was studying chemistry, mathematics and physics at Moscow Chemical Lyceum #1303 at university level – no economics subjects at all. But in my final year I thought that economics might be a very interesting area because it combined both quantitative skills and my natural curiosity towards the world around us. Physics speaks about the properties of a body which falls to the ground, but economics speculates about interaction between people, businesses, countries – something more global. I knew that after a BSc in Economics it would be easier to do a Masters degree. When I was a first year student some friends told me that if you get exceptionally good marks and perform really well, you’ll be given a scholarship to study at LSE or another university – and I actually did that.”
Vladimir was particularly attracted to the unique approach of the International College of Economics and Finance (ICEF) of the Higher School of Economics in Moscow, one of several independent teaching institutions worldwide which offer tuition for programmes offered through the University of London International Programmes. For one, ICEF was the only place in Russia where you could get a fully recognised double degree – students could study in a Russian university and get a degree from the University of London. Secondly, he also wanted to study in English, figuring that it would improve his language abilities substantially and open up opportunities for the future.
Each year of his degree, Vladimir received study guides, exam papers and access to online resources, which proved useful when he was writing research papers. LSE as well as ICEF provided access to research websites such as JSTOR. He also benefited from personal contact with LSE professors. “In the second year of studies, one of the toughest courses was ‘Principles of sociology’. Rosemary Gosling [former Director, University of London International Programmes at LSE] came and gave lectures on this subject which was really useful. Other professors also came each year.”
In terms of his learning approach, Vladimir ensured that he never focused on anything too narrow simply to pass exams. “I always tried to go beyond that, to get a general understanding of the area. Moreover, when I’m thinking about which problem to solve, I don’t normally choose the problem which I know how to solve, because this would not add value. You only get better, you only get more knowledge, if you solve a problem which you didn’t know how to solve before.”
Given the amount of new information and reading material that students have to assimilate during the course of their studies, how, I wondered, did he set about absorbing new concepts?
“There are several tips I can give. I always tried to understand the subject so well that I could explain it to others, because explaining it to others is more difficult than understanding it yourself. If there is a concept which is explained in a book and you think you understand it, you always need to be able to follow the logical steps which lead you to the axioms – to the basic notions. Intuition is also really important, because the examiners always require three types of answers: a rigorous mathematical explanation; a graphical explanation, to show how you visualise the problem; and an intuitive explanation, how you would explain it to your grandma or your daughter, so that anyone without knowledge of these particular subjects can understand them. The best professors are those who explain complex things in simple terms.”
"With the global financial crisis continuing to bite, LSE’s motto, rerum cognoscere causas (‘to understand the causes of things’) has never seemed so relevant"
LSE is, of course, an institution renowned for focusing on ‘real world’ issues. With the global financial crisis continuing to bite, LSE’s motto, rerum cognoscere causas (‘to understand the causes of things’) has never seemed so relevant. Having taken option pricing as the final paper of his undergraduate degree, Vladimir seems exceptionally well placed to comment on the current crisis.
“The current global financial crisis shows that there is a demand for new asset pricing techniques. Asset pricing is how you value something you have. The fact that the price of assets went down by over 50% within a couple of months shows that something was really wrong and that new models need to be introduced.”
“In the beginning, it was a crisis related to subprime mortgages. Banks combined mortgages into pools and sold these assets to external investors, securing additional financing within a process known as securitization. But they underestimated the probability that people who took mortgages would not be able to pay them back – and lots of people were not able to continue their mortgage payments. Coupled with falling real estate prices, this led to the cease of cash-flows to banks. Banks and other financial institutions could no longer attract cheap financing and liquidity problems commenced. Under such conditions mark-to-market accounting requires revaluation of assets with respect to market prices. Once you realise that your assets are worth less in the market, you need to revalue your assets. Once you adjust the value of your assets downwards, you need to recognise losses. As a result, your attractiveness to investors falls, which leads to a drop in share prices and decrease in ability to raise funds in the future.”
“Another issue is lack of trust” he adds. “For instance, you don’t know what assets I have in my wallet. Are they credible? Not credible? It’s the same for banks. There were many off-balance sheet items. Bank A doesn’t know the position of Bank B. If Bank A loans money to Bank B, it doesn’t know if the bank will still exist in several months. Because of this lack of trust, economic activity falls and less money is generated.”
Economics and Finance remain a work in progress. The financial models which exist now were demanded by the financial markets in the past. However, dramatic changes to the structure of financial markets will inevitably require different models.
Being able to think creatively, to develop a deep understanding of how and why modern economic systems function in the way they do, and to determine what these new models should be is absolutely critical work. Given his track record so far, perhaps Vladimir Mukharlyamov will be the person who rewrites the economic rule book.
BSc Economics graduate Vladimir Mukharlyamov studied in Moscow at ICEF, Higher School of Economics. He was awarded two scholarships to study an MSc in Finance and Economics at LSE. Vladimir was jointly awarded the Gerstenberg Memorial Prize in Political Economy. He is currently pursuing graduate studies at Harvard University.