In the wake of the terrorist attacks of Sept. 11, 2001, the American government acted quickly to mobilize what it called "critical homeland defenders" to meet the threat faced by our nation and the world. Not surprisingly, 21 government agencies made the list, ranging from the State Department to the U.S. Border Patrol.

That may be what it takes to address the immediate crisis. But for the long-term preservation and expansion of democratic freedom, the United States must look to public schools--the one institution founded to transmit civic principles and virtues from one generation to the next. Public schools must not only be added to the list, they should be moved up to the top as America's most important homeland defender.

Before 9/11, civic education was taken for granted or treated as an afterthought in many school districts. Renewing the civic mission of public schools wasn't high on America's educational agenda--even as evidence mounted that growing numbers of young Americans were uninformed about democratic principles, disengaged from the political process, distrusting of government and uninterested in working for the common good. But the wake-up call on 9/11 reminded many Americans, including many school leaders, of the vital link between democracy and public education.

Predictably, some of the response has been superficial, even jingoistic, as lawmakers from New York to California rushed to restore patriotic exercises to the classroom. Most educators, however, understand that there is no quick fix. As detailed in a groundbreaking 2002 report entitled "The Civic Mission of Schools," educating for citizenship in our democracy will require that schools provide students with more instruction in history and constitutional principles, more discussions about public policy issues and more opportunities for civic engagement through service learning and school governance.

Practicing Democracy

At the First Amendment Center, we share this vision for public schools as laboratories for democracy and freedom. That's why we joined with the Association for Supervision and Curriculum Development in March 2001 to sponsor a project called "First Amendment Schools: Educating for Freedom and Responsibility," a national reform initiative designed to help schools teach and practice democratic principles throughout the community.

At a First Amendment School, students and all members of the school community are given meaningful opportunities to practice democracy; students learn how to exercise their individual rights with responsibility and experience what it feels like to serve the common good; parents, students and educators work together to help shape the school culture; and civic education is translated into civic engagement through service learning and civic problem solving.

Over the last two years, we've had the chance to work closely with the first 11 First Amendment Project Schools through site visits, telephone interviews, leadership conferences and progress reports. As the schools complete their second year (of a three-year grant cycle), all 11 provide case studies for how public schools can work to become laboratories of democracy by carrying out their civic mission and maintaining a strong commitment to high academic achievement. Here's a brief look at three of those schools.

Reliable loss prediction requires both robust estimation methods and accurate data. This article presents a way to leverage ratings agency data that can provide greater flexibility and stability of results in simulation-based estimates of future portfolio losses.

Based on a simple behavioral model that quantifies the structural relationships in historical default frequencies and transition rates for different ratings, (1) this technique leads analysts to hypothetical transition matrices for portfolio loss simulations that preserve the basic relationships observed in the historical transition and default rates reported by the ratings agencies, allowing for unlimited sampling. The matrices can also be linked to macroeconomic factors to mimic the dynamics of credit cycles and economic shocks, allowing for richer descriptions of plausible future scenarios and what-if scenario analysis that goes beyond the limitations of historical data.

The Basel II capital adequacy framework provides strong incentive for financial institutions to use internal risk management systems to measure risk and determine sufficient regulatory and economic risk capital. While commercial risk measurement tools can be used as part of an overall solution, institutions must tailor them to their own portfolio specifications. Further, some of the development and implementation of the new systems will fall to their own risk management teams

In many cases, whether they use commercial models or internal methodologies, analysts continue to rely on data from the major ratings agencies for default rates, ratings migration rates, and other key statistics. Despite recurring and somewhat troubling issues regarding the meaning and consistency of ratings, regulators tend to be more accepting of methodologies based on agency data because of the agencies' long and well-documented ratings histories. This data may indeed be deeper and may conform better to an accepted standard than banks' own internal ratings histories, yet the depth of agency data generally falls short of what's needed for the Monte Carlo-based economic risk capital estimation techniques in widespread use today.

The Shortcomings

The simplest portfolio loss model assumes that ratings transition probabilities are stable across obligor types and across the business cycle, and that a single set of average historical ratings transition and default rates is all that's needed to characterize potential future losses. However, there is ample evidence that credit migration and the ratings process depend on a number of factors, such as the state of the economy-for example, the probability of downgrades and defaults is greater in a downturn than in an upturn. Moreover, historical data is volatile; thus, the average-rate approach will understate potential tail loss--the very thing we want to measure with precision. A slightly more sophisticated alternative is to use observed annual historical-rating transition rates as a sample from which to draw plausible future credit migration scenarios to simulate the forward loss distribution. The main drawback of this method is the small number of historical-rating scenarios on which to draw. Accurate Monte Carlo simulations for large portfolios usually require tens--or even up to hundreds of thousands--of random draws. However, because historical scenarios number only in the tens, the simulated loss distribution will tend to be lumpy as tail losses bunch up around the worst year from the historical period. Clearly, this problem cannot be overcome by increasing the number of Monte Carlo simulations.

THE 15 largest talent agencies employ more than 850 agents in L.A. County, up 10 percent from the previous year.

Consolidation continued in the industry as the largest talent agencies positioned themselves for growth in order to survive in the similarly consolidating entertainment industry.

No. 3 International Creative Management Inc. acquired the Broder Webb Chervin Silbermann Agency, No. 10 last year, in July. BWCS was a literary agency that represented many actors and producers on primetime serial television shows including "Grey's Anatomy" and "My Name is Earl." With roots tracing back to 1978, BWCS had 27 agents who all joined ICM.

In addition to organic growth, agencies have looked to expand by signing non-traditional clients, including corporations, athletes and new media companies such as Web sites.

The city of Beverly Hills, longtime home to many of the largest talent agencies, will see two firms depart for Century City in 2007. CAA plans to move into an 180,000-square-foot office in the 2000 Avenue of the Stars building, while ICM is moving into a 125,000-square-foot facility in the MGM building.

BEVERLY Hills-based Creative Artists Agency remained the largest talent agency in Los Angeles County for the fifth consecutive year. The agency continues to expand, adding 33 L.A.-based agents over the past 12 months, giving it a total of 223.

CAA last year signed numerous clients, including Jim Carrey, to a list that already included Tom Cruise, Steven Spielberg, Tom Hanks, Nicole Kidman, Brad Pitt, Gwyneth Paltrow, Julia Roberts, George Clooney, Ron Howard and Will Ferrell.

The agency's non-traditional talent areas continued to grow. Its marketing department added Visa, Delta Airlines and Harley Davidson. Its sports division hired agents that represent football, baseball and hockey athletes, including former USC quarterback and Heisman Trophy winner Matt Leinart.