Confidence and capital may be in limited supply on Wall Street, but if you are looking for irony, there's plenty — so much, in fact, that it could be packaged up, securitised and sold on in unfathomable derivatives. It is not lost on the Dean of Harvard Business School.

“We originated at a time that was very similar to now, to the circumstances we are currently facing,” Jay Light, the Dean, said.

Indeed: the world's most eminent finance college was set up to address a failure of financial leadership in the United States. In 1908 America fretted that its bankers and businessmen lacked the skills and wherewithal to drive what would become the world's biggest economy — a dearth of talent exposed by the banking crisis of 1907 and the economic depression that followed.

Today, as it celebrates its 100th anniversary in a world overwhelmed by another perfect storm of banking collapses and economic misery, one wonders whether the legions of Harvard Business School graduates who run the world's biggest banks, private equity firms and global corporations have addressed that failure of leadership - or have simply made it worse.

Of the 30 bankers summoned to the New York Federal Reserve's headquarters a month ago to devise a rescue plan for Lehman Brothers, about half were Harvard Business School graduates. Henry Paulson, the US Treasury Secretary and, according to Professor Light, a close friend, graduated from the school in 1970, the same year as the Dean. Christoper Cox, the chairman of the Securities and Exchange Commission, also sat at the Lehman operating table, having graduated in 1977.

Also in the Fed office were John Thain, chief executive of Merrill Lynch (graduated in 1979), Jamie Dimon, chief executive of JPMorgan Chase (1982) and Bob Diamond, head of Barclays Capital. Admittedly, none of these has presided over a bank that has gone bust, yet. The pariah of Wall Street, Dick Fuld, the former chief executive of Lehman Brothers, went to New York's Stern School of Business.

The joke is not lost on Professor Light, an affable, unpretentious expert on capital markets: “The challenge now is to work out how to develop leaders who are better this time — well, that's my story and I'm sticking to it.”

Jay Light is an unlikely dean of the world's most famous business school. Among the corporate academics who are experts at building and marketing their own brands, Professor Light is low-key and self-effacing. Having trained as an engineer at Cornell, the Ivy League university, in the 1960s, Professor Light became an expert in satellite guidance, working in California. After completing his MBA, he specialised in writing papers on capital markets and asset management and teaching students how to do a deal - the core skills of a corporate financier. Those skills helped him to secure the school's financial footing by raising $600 million (£350 million) for its coffers.

So, having taught capital markets since the 1970s, what does Professor Light make of today's banking catastrophe? “There is no such thing as a capital markets expert, especially in these markets,” he said. “We are going to be living with the effects of this for some time. I don't think we are in chapter one of the crisis, but we are not in the last chapter, either. We are only in the middle of the game.

“My reasoning for this are current real estate values. Historically, if you plot house prices against household incomes, you will see that real estate is still overvalued in the US. The housing market needs to come down halfway again, another 50 per cent. House prices are still too high by historical standards.”

He explained: “The losses will be very severe, but what we just don't know is what the economic effects will be, the effect of the loss of confidence at the heart of the credit system. This is going to go on for a while.”

Could Professor Light not have pointed this out earlier? Had no one in the academic community spotted the threat of global financial meltdown? “I suppose one could accuse us of that,” he said, “but academics did pick up on the individual pieces. It was widely known, for example, that there was a housing bubble. There was also a lot of talk about the sub-prime issue. There was a good deal of talk on the fact that Fannie Mae and Freddie Mac were too big — I have been teaching that since the late Seventies.

“But nobody had put all the pieces together. We just didn't understand how interwoven the different elements were and how we would get this conflagration. None of us really realised that this course of events would expose such a fragile structure.”

At the very least, the bailout of Fannie Mae and Freddie Mac (the mortgage giants), the ollapse of Lehman Brothers, the nationalisation of American International Group (the insurer), the $700 billion rescue plan and co-ordinated strategies among central banks will provide much of the school's curriculum for years to come. The school is already devising a course on the collapse of Bear Stearns, to be taught to first-year students in April next year. Given that during recessions, Harvard Business School applicants rise about a fifth as Wall Street stops hiring, it may well be that some of the students examining this year's banking collapse may have worked earlier in the same financial institutions themselves.

They may also find themselves being taught by their old bosses. The school already boasts as professors past Wall Street titans such as Clayton Rose, the fomer vice-chairman of JPMorgan Chase.

Are there any plans for Harvard Business School to have a Henry Paulson chair of catastrophe management and sleep deprivation, once the Treasury Secretary steps down in January? “There are no specific plans for Henry Paulson to join us,” Professor Light said. “He is a terrific guy and we would sure be interested, but there are no discussions.”

Q&A

If you could change one thing in the financial and commercial environment, what would it be?

I’d like to restore the system of trust we once had

Who, or what, is your mentor?

I’ve been fortunate to be mentored by many people throughout my career. Today, I get advice from a broad range of people — faculty colleagues, my wife, Harvard’s president — but I’m more focused on the mentoring I can provide

Does money motivate you?

No, it doesn’t motivate me, though I’ve spent a good deal of my career studying it in the context of the global financial system

What gadget must you have?

I’m not much of a gadget person, so there isn’t one I couldn’t live without. I always have my cellphone/PDA with me but it’s usually turned off

What does leadership mean to you?

Judgment that leads to sound decision-making in complex, uncertain, often ambiguous conditions. An entrepreneurial point of view that can see longstanding problems through fresh eyes. The ability to communicate with — and listen for — meaning in the words of others. A deep sense of one’s values. And the courage to act, based on those values

How do you relax?

I grew up near Lake Erie, so sailing is a long-time love. I collect maps, particularly early maps of New England. And I’m an avid reader of biographies

CV

— Formal title: The George F. Baker Professor of Administration and Dean of the Faculty, Harvard Business School

— Graduated from Cornell University in 1963 in Engineering Physics, then worked in satellite guidance at the Jet Propulsion Laboratory in Pasadena, California. He attended the joint FAS-Business School doctoral programme at Harvard, graduating in 1970, when he joined Harvard Business School as an academic

— Took a leave of absence in 1977-79 to become director of investment and financial policies for the Ford Foundation

— In addition to teaching the first-year course in finance, he specialises in lecturing on investment management, capital markets, entrepreneurial finance and negotiating ventures

— Named interim Dean of Harvard Business School in 2005 and appointed Dean in April 2006

— Married to Judy, lives in Belmont, Massachusetts, with two children

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