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The Future of Real Estate Investing: Interview With Hines Capital Markets Group CEO

Fall 2010

Interview: Twitter Co-Founder Biz Stone • Solar Roadways • Petrodollar Recycling Haiti’s Housing Crisis • Introduction to Distressed Investing • College Start-Ups

[Fall 2010. Volume II. Issue I]
Editor-In-Chief Paul Joo Editorial Directors Jennifer Barrows Monish Shah Managing Editors Evan Beck Nabila Chitalwala Administrative Editors Brian De James Zhang Design Director Aimee Marquez Finance Director Christopher Lee Operations Director Shiv Kachru YBS President Shashwata Narain Managing Director Adam Bao Conference Director Elizabeth Andrekovich On-Campus Affairs Eric Li Faculty Advisor Lanier Benkard

From the Editor From the Editor
In this issue of Business Sphere magazine, our writers address the complexity of business from a student perspective as it relates to a wide variety of popular news. Business Sphere aims to serve as a platform for increasing awareness of and interest in the far-ranging implications of business in social, economic, legal and political arenas. Amid the uneven recovery from the global economic downturn, it is clear that innovation and entrepreneurship are more important today than ever before. This issue of BSM contains an exclusive interview with Twitter co-founder Biz Stone, whose ideas have revolutionized social networking around the world. You will also hear from Solar Roadways CEO Scott Brusaw, who aspires to transform America’s roads into a source of renewable energy. In other featured articles, Yale students talk about their experiences in fields ranging from college start-ups in New Haven to non-profit work in Haiti. I would like to extend a warm thank-you to the editorial and design teams for their tireless efforts, without which this publication would not have been possible. Special thanks go to the Yale Undergraduate Business Society for its continued support and collaboration. We hope for continued success and expansion throughout the year! Paul Joo, Editor-In-Chief

From the Yale Undergraduate Business Society
The Yale Undergraduate Business Society is a student-run effort to educate Yale’s future business leaders and prepare them for consequential careers in the corporate world. Business Sphere has been instrumental in furthering business awareness on campus through internationally pertinent themes and relevant topics. Business Sphere has grown tremendously in reach and scope over the last few semesters and is now distributed widely through the undergraduate and graduate schools at Yale. BSM has not only built upon the quality and depth of its articles but has also incorporated the business side of YBS operations. The Fall 2010 issue of the Business Sphere would not have been possible without the efforts of Paul Joo, BSM Editor-In-Chief, Aimee Marquez, Director of Brand Management and Christopher Lee, Director of Finance. I also wish to thank the Yale Department of Economics for its generous support this semester. Shashwata Narain, YBS President PO Box 200402 • New Haven, CT 06520-0118 www.BusinessSphere.org

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29 14 CONTENTS

4 6 8 10 12 14

Major Changes
Jennifer Barrows

16 20 22 24 27 29

Petrodollar Recycling
Monish Shah

The College Entrepreneur
Evan Beck

Recession-Era Real Estate
Paul Joo

Meet Mr. Twitter
Monish Shah

Internet Piracy
Nabila Chitalwala Jerry Feng

Solar Roadways
Shiv Kachru

Return of the Vultures Leftover Women
Joanna Zheng

Destination: Masdar
Melissa Hou

Go State!

Dakota Meyers

The Dania Foundation
Daniel Kelly

Fall 2010 | Business Sphere Magazine

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Education

Major Changes
By Jennifer Barrows
Students choose their majors for a variety of reasons. While the advice is usually “do what you love,” students often find the choice difficult in light of future internship and job prospects, particularly in today’s recession economy. Although some students certainly change majors to become more competitive in the application process, motivations behind major changes are varied across private, liberal arts colleges and large, state universities. Although this issue has been covered widely, perhaps new perspectives can be gained today, several years into the aftermath of the global financial crisis. Are students across different types of universities considering economic conditions when they choose their major? In what university settings are such decisions, if any, being made? Are they looking toward a particular job, or more toward a particular major that can lend itself to an industry? To place the issue in more concrete terms, the National Association of Colleges and Employers (NACE) surveyed members of the class of 2009 and found that education, foreign languages, English, history and political science – the liberal arts – had the lowest job offer rates. In addition, the U.S. Bureau of Labor Statistics believes that between now and 2018, technical and hands-on jobs will have the most job openings. It is no surprise, then, that majors such as accounting, computer sci-

Uncertain economy convincing some college students to switch majors
ence, business, and engineering were the most likely to obtain jobs after graduation, according to the NACE survey. Although a blanket statement regarding student preferences can not be made, it seems that there is a growing trend towards areas of study that lead to secure employment. Degrees given out in health professions, engineering and business, for example, increased by double digit percentages between 2007-2008, according to a 2010 report by the U.S. Department of Education’s National Center for Education Statistics. However, choosing a concentration based upon what job you hope to have in the future or what jobs you predict will be available after graduation can be a difficult, if not a seemingly impossible, task. Students must weigh the content of the major against the work load and potential internship and job opportunities such a major may offer. Students must also consider what types of extracurricular activities they want to engage in to make up for whatever concrete skills they cannot learn in the classroom setting. In today’s recession economy, this choice can gain even greater importance. The liberal arts majors have tended to be characterized as providing a more holistic education, crafting students’ abilities to think and write critically about a wide variety of information. Indeed, proponents of a liberal arts education argue that the broader skills of writing, analysis, and argument are crucial elements of success in almost any job. The other edge of the liberal arts sword, though, is the fear that students will lack specialized skills that many jobs require. For students desiring to major in the humanities or social sciences, the debate often focuses on how they will obtain and demonstrate concrete skills employers seek in their applicants. To bridge these goals, many students at liberal arts universities are turning to the economics major, seeing it as a middle ground between a technical knowledge of the business world and a holistic theory-based understanding of the field. David Colander and KimMarie McGoldrick, professors of economics at Middlebury College and the University of Richmond respectively, wrote in 2009 about two constituencies within the broad umbrella of the economics major: students who major in economics with the desire to go to graduate school and students who use the major as “a stepping stone to business and policy.” Professors lament the general trend of undergraduate majors becoming more vocational. With respect to economics, they desire changes in pedagogy and content such that economics majors hew to the ideal of a liberal arts education – the attainment of an “economic way of thinking” alongside broader humanistic lessons. In fact, thinking like an economist can sometimes be the motivating factor to choose this flexible major. Lydia Stepanek, Yale, BR’12, recently

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switched from the Literature to Economics major. While Ms. Stepanek’s reasons for switching to this major were not fueled by job prospects – indeed she notes that economics has “a reputation for producing... heartless I-bankers” – she believes that being an Economics major will provide her with the appropriate tools and modes of thinking to enter the business world. “Most companies, I imagine, are interested in students who understand numbers and market trends,” she said. “Literature majors are extremely smart, well-spoken people, but I want to have a better feel for the reality of the business world: how to make it work, not how to analyze the psychological motivations of a banker in a 19th-century German play.” What Ms. Stepanek laments, however, is that her lack of more specialized skills could pose a hindrance in her job application process. “Majoring in something concrete definitely gives students a leg up in whatever field they’re going into,” she said. For Ms. Stepanek, then, she believes that most of her actual business acumen has been developed through her club activities. “I know how to talk to business owners, get advertisement deals, plan events, etc. all because of club activities,” she said. “I often feel that my classes don’t teach me how to implement the rules they teach...I know how to theoretically set the price of a product I’m selling, but I don’t really know what’s going to work in the real world until I try sell something.” Thus, it appears that students with broad majors such as economics tailor their extracurricular choices to supplement the theory they learn in class. Other interviews with students, however, shed light on another approach: choose nar-

row, career-oriented majors and utilize internships and extracurricular activities to further their path toward that career. Indeed, while the students interviewed for this article represent only a small and perhaps skewed sample, their sentiments regarding the minor role the economy played in their choice of major provides some insights into students’ decision-making processes and values today. Anthony Parilla, a junior Sports Management major at the University of Florida, knows that his specialized major lends itself to a specialized career path with few job opportunities available. However, with the lessons he learns in his classroom and his knowledge of the industry’s difficulty, he is arguably in a better position to apply to sports management internships, since “sports management is more about getting connections with people who are managers of teams,” he stated. He knows what particular internships he should seek in order to obtain the type of job he wants after college. As a senior Human Factors Psychology major at the University of Central Florida, Melissa Smith has found that her liberal arts major has offered her a range of research and internship opportunities. Although certainly her options have not been as specialized as Mr. Parilla’s would be, she “worked in two research labs and partook in a summer internship, all relating to human factors psychology.” With these internships, Ms. Smith believes she has developed a unique set of skills outside of the classroom that she can bring to whichever career she chooses; in fact, her options include military applications, private practice and industry positions, options that are arguably more varied than what Mr. Parilla knowingly faces. Interestingly, both students

echoed the sentiment that students should major in something in which they can invest their passion, although their end career goals differ in their concreteness. Other articles discussing the issue of the economy and student majors primarily focus upon students’ changes that fit their predictions about the economy; this article has shown some students for whom a strong love for a particular field has shaped their extracurricular choices and career paths. Anecdotal evidence such as those used for this article can hardly be firm foundation for hypotheses regarding the relative importance of economic conditions in the choice of a major, liberal arts or otherwise. What can be gleaned from the general evidence and the interviews featured here are that students often shape their employment and extracurricular choices during their college years in relation to the ease with which their major lends itself to desired job opportunities. Motivating factors behind majors – at wealthy Ivy Leagues or large state colleges – don’t always take into account the economy, although recent coverage of this issue tends to hype the situation in such a light. (For an example, see “The Death of Liberal Arts,” NewsWeek, April 5, 2010). Ultimately, the success of a student’s job application process will likely reflect more the way that education has shaped the student’s passions rather than what specific skills he or she has learned in the classroom, as Colander and McGoldrick state in their paper. In the end, all employees need to learn the ropes of their new job, new lessons no matter what background they bring to the table. Jen is a junior History major in Davenport College.

Fall 2010 | Business Sphere Magazine

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Entrepreneurship

The College Entrepreneur
By Evan Beck
In 2004 Mark Zuckerberg founded Facebook with fellow Harvard undergrads. Six years later, the company is valued at over $25 billion and serves half a billion individuals from every corner of the Earth. Zuckerberg is now the world’s youngest self-made billionaire. Just over ten years ago Stanford students Larry Page and Sergey Brin started Google, now the worlds largest and most famous web based search engine. Each of the cofounders is worth billions and since going public in 2004 Google has reached a market cap exceeding $150 billion. Yet the world’s most famous college startup story may still belong to Bill Gates, who was convinced by childhood friend Paul Allen to drop out of Harvard in order to co-found Microsoft. These are the gems of college ventures, the romantic ideal tens of thousands of eager students chase after every year. In hopes that they are pursuing the next big thing, many college students are unaware of the intense amount of work that comes with building an organization from scratch. To start with nothing and build a corporate structure from the ground up is a very daunting task, one many do not realize when they begin the quest for entrepreneurship. Yet, around the country, and here at Yale there are students who are up for the challenge. I recently had the privilege of speaking with Jim Liu, one of the founders of the non-profit organization ReadySetLaunch. ReadySetLaunch helps high school students who may be financially disadvantaged access college application preparation and mentoring for free from Ivy League students. After helping to start the organization in 2008, Liu, a Yale sophomore is taking the semester off to continue work building the organization. Launch currently has 35 member students and 15 mentors here at Yale as well as running operations at Brown University in Providence, RI. The organization has also been awarded multiple grants from Chase Community Giving to help further help high school students from around the country. I talked to Liu about what he felt were the most important aspects of starting up any venture, both of the

Beneath the glamor of successful college startups lies a host of challenges
for-profit and not-for-profit variety. The theme that kept coming up was that of teamwork. No matter how great an idea may be the people who work to propel it are vital in keeping it alive. The people at the head of a successful startup need to know how to utilize every individual’s strength so as to compliment the organization. According to Liu, it can be especially hard to find people to join a non-profit, as the motives for joining need to be completely based on passion for the project and not on possible monetary incentives. In the case of non-profits where a steady form of income isn’t flowing in, grants and donations are exceedingly important in keeping the organization alive. There are also many aspects of a non-profit that mimic qualities of a for profit venture though, including the need for setting up a budget and financial structure, something not all people realize is very important says Liu. There have been many hurdles in getting ReadySetLaunch to where it is today, and most companies and organizations face growing pains in their first several years. One of the larger problems facing the organization concerns trying to maximize face-to-face time with as many students who need it as possible. Luckily the Internet has proved a way to expand beyond high school students in the immediate area. When I asked Liu about the presence of ReadySetLaunch in New Haven he said that

No matter how great an idea may be the people who work to propel it are vital in keeping it alive. The people at the head of a successful startup need to know how to utilize every individual’s strength as to complement the organization.
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it was sometimes hard to get local schools to accept or encourage Yale programs to exist. This is due to the lack of consistency among some Yale College service groups in New Haven public schools over the years. All the same, the organization has been able to make ground in being available to students in the region. There are many resources at Yale for students who are interested in starting their own business or non-profit. In fact, Dwight Hall, the student service organization on campus, was instrumental in helping ReadySetLaunch get started in its early days. The Yale Entrepreneurial Institute (YEI) has also stepped up its role in helping launch student ventures. The

year round services offered can help students plan out the details of their businesses. YES offers an annual venture challenge open to all members of the Yale community. Cash prizes and financial assistance are offered to winning for-profit business ideas. Last year’s winning venture went to an early stage business developing comfortable seats for wheel chair frames called KiSS. In the wake of the release of The Social Network, the glamorized rendering of the founding of Facebook, Newsweek magazine recently ran a story on businesses started by college students. The article included a blurb on Fred Smith, who while at Yale wrote a paper that would lead to his even-

tual founding of FedEx, the $66 billion shipping giant. Though many graduates of Yale may go on to be doctors, lawyers, or investment bankers, there is ample proof that, with a great idea and sufficient ambition, anything is possible. Even in the modern era there are still ideas left to uncover and the next “big thing” is budding somewhere, maybe even in New Haven.

Evan is a freshman in Branford College.

Fall 2010 | Business Sphere Magazine

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Company Profile

One-on-One with Mr. Twitter
By Monish Shah
Business Sphere is proud to present an interview with Mr. Twitter himself, Biz Stone. In 2009, Stone was named in Time’s 100 annual list of the world’s most influential people. Prior to founding Twitter in 2007, Biz Stone was a former senior specialist at Google and a former creative director at Xanga, the social networking and blogging service. Monish @ Biz: I really enjoyed the “Would you have a drink with you” advertisement of Stolichnaya Vodka that you featured in. What inspired you to feature in it? And what message do you hope to send about Twitter through this advertisement? Biz @ Monish: When Stolichnaya’s creative team approached me with a script featuring two versions of myself arguing the merits of Twitter I thought it was funny. It occurred to me that this would also be a good opportunity to debunk the myth that Twitter is only “a constant stream of meaningless babble” by mentioning presidential tweets, business applications, and NASA’s use of the product. It was a fun project for me. We shot on location at a bar in Los Angeles with a bunch of extras and a bigger crew than you’d imagine just for a thirty second spot. The commercial will run in North America and South America for one year. My wife and I are using the fee offered for the endorsement to help fund our charitable non-profit, The Biz and Livia Stone Foundation, a philanthropic organization supporting art, education, environment, clean water, and healthy food for those in need. Monish @ Biz: Twitter has come a long way in recent years. To quote you, Twitter has moved on from being “ice cream”—fun, if not that all that useful—to being “not a triumph for technology, but a triumph for humanity.” One of the hottest TwitTrends recently was the buzz surrounding the Nobel Peace Prize awarded to Chinese dissident Liu Xiaobo. Recognizing Twitter’s impact in connecting people towards political dissent in regimes like Iran and Moldova and also in natural disaster situations, former National Security adviser Mark Pfeifle has called for Twitter to be nominated for the Nobel Peace Prize. While you did not originally foresee this impact, how do you hope to maximize Twitter’s impact in this regard? Biz @ Monish: We had a hunch early on that Twitter could be complementary during disaster situations but thought it best to consider it one of many tools that could be used. We have created a globally relevant service and brand but there is so much more work ahead of us—mobile

Twitter co-founder Biz Stone talks about the future of social networking
access to the Twitter information network is very important because that is how most of the world can get connected. Monish @ Biz: On that note, I understand that Twitter already enjoys approximately 75% of traffic outside twitter.com on mobile applications. How are you further developing Twitter’s mobile applications? Biz @ Monish: We have built rich experiences on the iPhone, Android, BlackBerry, and Windows Phone. Smart phones and other smart mobile computing devices like iPad provide a wonderful canvas for developers to create beautiful user experiences. However, everything we do must also degrade gracefully down to the most rudimentary feature phone capable only of SMS. These are our roots and we believe that constraint inspires creativity. Monish @ Biz: Speaking about creativity, what is your reaction to (former Twitter engineer) Alex Payne’s comment that Twitter resembles a “walled garden”? Are there efforts underway to create a better developer ecosystem to support more apps for Twitter? Biz @ Monish: Twitter is one of the most open organizations around today. We’ve always had application programming interfaces (APIs) which helped

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create an ecosystem of innovation around Twitter. The most important people in the ecosystem are users and that is where we need to stay focused. We will continue to improve upon our platform offerings so users, developers, and Twitter alike are rewarded by the experience. Monish @ Biz: Twitter is a business that seeks to do good as well. On the business side, you had identified 2010 as the year when Twitter starts making money from nontraditional ads. Could you elaborate on this and other hopes you have for Twitter as a business? Biz @ Monish: We tell new employees that we want to have a positive global impact, be a successful business, and have fun. For many organizations just two of those things means success but for us, all three are required. Twitter makes money today from data licensing deals and non-traditional ads. Our non-traditional ads are in the form of Promoted Tweets, Promoted Trends, and Promoted Accounts. Tweets, Trends, and Accounts are all native to Twitter—they are a natural, organic part of the system. Advertisers pay us to have their Tweets, Trends, or Accounts seen and engaged with more than they naturally would by being promoted. These promoted products are clearly labeled. Monish @ Biz: While you have expressed that Twitter is a great company and you do not intend to sell it, you have also previously stated that Twitter may go public to raise funding for further expansion. Do you have any comments on this?

Biz @ Monish: We have no plans for an IPO and it’s not something we’re engaged in discussing. Too much other work takes priority. Monish @ Biz: Aren’t Twitter’s efforts at growth going to harm Twitter’s fun and cool factor? After all, even your fellow co-founder Evan Williams described Twitter as a “six foot tall 6th grader.” Biz @ Monish: I’m not sure if we’ve ever been cool but we certainly wouldn’t worry about that over serving users, taking good care of our employees, and innovating. Our growth has, from the beginning been totally organic and word of mouth. We don’t advertise or market Twitter—that all happens on its own. Monish @ Biz: I understand that one aspect of Twitter’s growth is that it has become the world’s fastest growing search engine, outpacing Bing and Yahoo combined, with 800 million searches daily. What are your expectations for Twitter as a search engine going forward? Biz @ Monish: Twitter is not a web search engine so comparing our growth to that of Google, Bing, or others is misleading. The only thing people search for on Twitter are tweets and even the way they do that is different—often searching for the same term multiple times to find new information on the subject. Twitter is a real-time information network that is growing very quickly because it helps people discover what is happening in their world in a way that creates value. Monish @ Biz:

Given Twitter’s amazing success in a short span, you have pointed out how Twitter can serve as a model for sunrise companies and industries. Specifically, you expressed potential for the growth of the solar industry. However, the solar industry has a completely different business model as Twitter, specifically being hampered by high initial costs along the early stage of the adoption curve. Given this challenge, will the message of doing good be sufficient to promote large scale solar use? Biz @ Monish: Whether it’s the solar industry or social media, consumers are increasingly making more meaningful choices because they are generally getting more educated. Underestimating people’s capacity to make the right choice is a mistake. However, that alone won’t do the trick—consumers demand both meaning and value so the bar for companies is now set even higher. We’ve got to rise to that challenge. Monish @ Biz: Would you like to offer our readers any final thoughts or comments on what’s next for Twitter? Biz @ Monish: We have 175 million registered accounts creating more than 95 million tweets per day and we’re getting more than 370,000 new registered accounts daily. We’re just getting started. We’d like to serve a billion accounts and we’d like to grow into a profitable business with lots of happy employees. We’re three years in having incorporated in 2007 but we’ve still got a long way to go. Monish is a junior Economics major in Morse college.

Fall 2010 | Business Sphere Magazine

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Green Business

Solar Roadways
By Shiv Kachru
Changing the world takes big ideas. Though you may initially dismiss Scott Brusaw’s idea of replacing asphalt with solar panels as outlandish and unfeasible, his proposal is turning heads in government and big companies. Brusaw is the co-founder and CEO of Solar Roadways, a start-up in Idaho that aims to reduce fossil fuel consumption by covering roads with solar panels to generate electricity. Though the company is still strapped for cash, Brusaw is already on his way to make solar roadways a reality.

CEO Scott Brusaw shares his plans to replace America’s roads with solar panels
solar panels, Brusaw initially dismissed the idea, saying panels were too fragile. But the idea stuck, and the couple began to think about how to make it work. Though solar panels are extremely fragile, he thought about using the material that makes up “black boxes,” which are used to protect airline information in case of a deadly crash, to protect the panels. “I thought that if black boxes could protect airline recordings in the case of a crash, then a similar material could definitely protect the panels,” Brusaw said. Solar roadways work by sticking a solar panel underneath a durable sheet of glass. Embedded in the solar panels lie circular LED lights, which can be used for anything from guiding traffic by lighting up words on the road to providing drivers with alternate routes when traffic is heavy. “Basically, what you have is an intelligent road,” Brusaw said, “The panels are all connected. Under the solar panels are pressure sensors, so if there is a traffic jam it can suggest an alternate route, or if there is a child in the road at night it can let you know that something is there.” Given that car crashes kill about 40,000 people every year and cost $164 billion each year, solar roadways could save lives while driving down the costs associated with accidents. The idea gained traction when the Department of Transportation began soliciting ideas to generate electricity. “The State Departments of Transportation are all broke, and they were looking for a new source of funding,” Brusaw claimed. When they saw his idea for Solar Roadways, he was given $100,000 to build a prototype. Pleased with what they saw, the Federal Highway Administration told Brusaw to apply for an additional $750,000 in which to further develop his technologies. Solar Roadways also entered General Electric’s Ecoimagination Challenge, a competition with the winner receiving up to $200 million dollars. With the contest having recently closed, GE announced that Solar Roadways was the top vote receiver from the public, and was awarded $50,000. GE will announce the final results of the competition sometime during November. “We were very happy to have received the most votes in the Ecoimagination Challenge,” Brusaw said. “GE has its own labs and own engineering groups, so this investment could really accelerate the process of making Solar Roadways a reality.” Though Brusaw’s idea is truly revolutionary, the sticker price might scare some potential investors away; the cost of a 12-foot by 12-foot panel is targeted to be $10,000. This figure will come out to about $4.4 million per mile. With millions of miles of paved road in the United States, this project is clearly outside the government’s budgetary reach. However, Brusaw argues the costs of industries that would be eliminated by clean, solar energy make the costs of implementing this project feasible. “If you add up all the prices of coal plants,

Basically, what you have is an intelligent road. The panels are all connected. Under the solar panels are pressure sensors, so if there is a traffic jam it can suggest an alternate route, or if there is a child in the road at night it can let you know that something is there.
Brusaw’s idea began when he was just six years old. “Growing up, electric cars were my favorite toys to play with. I still have drawings of electric roads from when I was little,” Brusaw said. When his wife one day asked if roads could be made out of

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asphalt, nuclear plants, as well as the cost of the road system and electrical grid, it is about equal,” Brusaw said. Though they only have a 15% efficiency, Brusaw estimates that the panels would break even in about 20 years. Though this may seem like a steep timeframe in which to recover an investment, he notes that once the panels are serviced in about 20 years, the old panels could be replaced with newer ones, with much higher efficiency. “Though we only have about 15% efficiency right now, when we service the panels in 20 years we could switch them out for something with 60% efficiency or better,” Brusaw said. “Not only would this help us keep up with increased demand in electricity, but the second round of costs would be a whole lot less than the first round.” Though many argue that a solar panel farm would harvest just as much energy, while saving the expense of tearing up all the roads in the country, Brusaw’s solar roadways has the distinct advantage of

being able to charge electric cars on the highway while they are parked. Similar to the way that an electric toothbrush is charged in its docking station, electric cars can be charged through mutual induction while the car is in park. “Though you can’t charge batteries to full capacity with mutual induction, you can increase the life of a battery powered car,” Brusaw said. Although a 12-foot by 12-foot protoype has already been created, Brusaw admits that it is far from the final product. One product fault is that the LED lights are hard to see from a distance, since they are far down in the structure. For the next prototype, Brusaw plans to put the LEDs and the solar panels between two pieces of durable glass, much like the design of heating wires in modern car windows. This would not only make the LEDs easier to see, but it would make the solar cells more efficient by placing them closer to the sunlight. As of now, the biggest challenge Brusaw faces is with

the glass. “Glass is the only unanswered question right now,” Brusaw claims. “We don’t want to lose the translucivity of the glass, otherwise the panels won’t work. But we also need something that will provide enough strength and traction so that the panels can be driven on.” But Brusaw knows his idea will take slow implementation to gain traction, and he hopes to start with a big-name company like Wal-Mart or McDonald’s. “If McDonald’s decides to ‘green’ their image and put in Solar Roadway parking lots, people could charge their cars while they eat,” Brusaw said. “I challenge you to find 100 miles of interstate highway without a McDonald’s.” In other words, a person could theoretically drive across the country without stopping for gas at all, just by stopping at McDonald’s to charge the car along the way. “People will start trading in their internal combustion engine vehicles with electric vehicles,” Brusaw said, “so as you do this, you not only get companies putting in solar panels, but you have people ditching their gas engine cars as well. We are killing fossil fuel emissions as we do this, which is the ultimate goal.” Transportation fuel accounts for about 26% of U.S. total energy demand, and solar roadways would be a significant step in reducing the amount of dirty energy used in this country. According to Brusaw, “by covering all our roads with panels with only 15% efficiency, we would produce three times the amount of energy this country uses on an annual basis, and that’s almost enough to power the entire world.” Shiv is a junior Economics major in Berkeley College.

Fall 2010 | Business Sphere Magazine

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Green Business

Destination: Masdar
Oasis of sustainability or desert mirage?
By Melissa Hou
Imagine a futuristic city in which households and businesses are entirely powered by renewable energy sources and motor vehicles are replaced by personal transit “pods” that seemingly drive themselves at the touch of an LCD screen. This setting has not been plucked from a science fiction film; such a city is fast becoming a reality. Situated fewer than fifteen miles southwest of Abu Dhabi in the United Arab Emirates, Masdar was originally conceived by the crown prince of Abu Dhabi and is poised to become one of the most innovative urban developments in the world. The project comprises the sustainable planned city itself, the Masdar Institute of Science and Technology for establishing a foundation of research and innovation, and an extensive energy-technology unit composed of companies such as Masdar Carbon and Masdar Power supporting its zero-carbon, clean power initiatives. The growth of this massive project is supported by the long-term investments of Masdar Venture Capital. In 2006, during the infant stages of its creation, the Masdar City project generated much excitement among developers, energy enthusiasts and international corporations seeking to capitalize on this cutting edge development. Masdar ranks among the most ambitious design undertakings of Foster + Partners, the London-based firm responsible for the Berlin Reichstag renovation and the upcoming Yale School of Management campus expansion. Major investors also jumped on the Masdar bandwagon, including Credit Suisse and Siemens Venture Capital. Other companies, such as German industrial titan Conergy AG, were awarded contracts for the complex desalinization, solar energy and waste reduction apparatuses that will enhance Masdar’s functionality. Masdar’s innovative concept, design, and execution have not gone unnoticed by supranational organizations and interest groups either. Its officials have succeeded in increasing the city’s visibility as an eco-friendly development by securing endorsements from the World Wide Fund for Nature and sustainability group BioRegional, which has deemed Masdar a “One Planet Living Community,” an accomplishment further highlighted by the United Nations. Masdar’s potential has also compelled the International Renewable Energy Agency to establish its headquarters there, further cementing Abu Dhabi’s goals to position itself at the forefront of the renewable energy movement. For its proponents, Masdar is a beacon of hope for the future of sustainable urban living. Its vision is a zero-waste and zero-carbon ecology, with a special diagonal street design to channel and maximize the cooling effect of desert winds. In fact, developers are harnessing the power of the wind by situating the city on high ground, thereby cutting energy costs that would otherwise be devoted to cooling systems. The urban layout is also pedestrianfriendly, facilitated by the installation of city-wide public and personal rapid transit systems, rendering the streets car-free. Instead, conventional vehicles will be relegated to an underground network. Drab, blocky buildings will also be a thing of the past in Masdar, where the architecture will be dominated by latticework, curvature, and an eclectic fusion of modern and traditional Arab elements. Masdar’s ultimate goal is to rank among the most cutting-edge, sustainable, and energy-efficient urban developments in the world, positioning Abu Dhabi as a global leader in efficient energy research and investment. Its uniqueness lies in the fact that Masdar is being built from scratch on a plot of desert land and aims to be completely contained and self-sufficient. For example, after undergoing local desalinization and citizen use, 80% of the water in Masdar will be recycled. But can Masdar live up to all the hype? If the city hopes to lead the industries it seeks to dominate and serve as an exemplar, its concept and development must prove sustainable. A closer look at Masdar yields some sobering truths. Maintaining Masdar’s high commitment to sustainability and energy-efficiency comes at a cost, though this cost is being defrayed by the project’s backers. Masdar’s $22 billion bill is being footed by government entities, and the development also benefits from the Abu Dhabi investment author

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ity’s support. The U.A.E. government alone is contributing over $15 billion dollars, an advantage that few other sustainability initiatives elsewhere in the world can boast. Even similar projects funded by prosperous nations have carried smaller price tags; the Sino-Singaporean Tianjin Eco City rings in at $9.7 billion, while Logroño Montecorvo Eco City in Spain is projected to cost a couple hundred million euros. And while Songdo International Business District in Incheon, South Korea is estimated to cost at least as much as Masdar, if not more, it is a much larger real estate development to be populated by a significantly greater population. In the midst of a global economic crisis, however, even Masdar and the petro-dollars behind its creation have been compelled to sacrifice a slice of its ambition in in order to meet realistic goals. The projected completion of Masdar has been delayed four years, and developers will still have to race to meet the new 2020 deadline. As such, should Masdar succeed, can its model be replicated successfully in other fast-developing nations? On a macro level, the prohibitive cost of constructing and maintaining a planned city like Masdar could easily deter countries that cannot rely on a steady stream of oil money from pursuing similar feats; it is no coincidence that almost all attempts at creating high-tech planned environments have been limited to highly developed countries such as the United States, Japan, and South Korea. And there is no guarantee that Masdar will be widely replicated even within the U.A.E., though the U.A.E. government must be applauded for its prescient ecofriendly investments. Even if governments could finance the creation of Masdar imitations, such urban developments would likely remain

inaccessible for all but the highest echelons of society, residents who can afford to shoulder the financial burdens of such a technology-intensive city with above-average living costs. Indeed, Masdar’s target seems to be the affluent and environmentally savvy, as the local economy will primarily depend on international commerce, technological services, and energy research led by the Masdar Institute of Science and Technology (in partnership with MIT). Less than a third of Masdar will be zoned for housing, and providing low-cost housing is nowhere on the project’s agenda. Some academics and policymakers fear that within a decade of Masdar’s completion, its sustainable qualities and futuristic features will be overshadowed by the presence of an international jet-setting and tourist crowd, and that the serious commitment to clean technology by long-term residents will be forgotten. New York Times architecture critic Nicolai Ouroussoff has condemned the trend of such urban communities evolving into “playgrounds for tourists and the rich” and recently declared Masdar the “culmination of this trend.” The setbacks that Masdar City developers have already faced speak volumes about the exorbitant costs of ensuring that the project meets its lofty goals. Besides the project delay, desert dust particles that obstruct solar panels must be cleaned away at great cost and have thus impeded energy productivity. In addition, city officials announced a year ago that the city may have to import energy after all, a necessity that erodes Masdar’s “self-sufficient” appeal and disappoints those who hoped to hold Masdar to the highest environmental standards. Such realities constitute one of the reasons that Masdar’s long-term impact may be limited to enhancing Abu Dhabi’s forward-

thinking image and fail to catalyze widespread and lasting advances in sustainability. In a nation of manmade archipelagos and underwater hotels that, despite their unparalleled technology and engineering, have proved more beneficial for the U.A.E.’s tourism industry and reputation of luxury than its aims for sustainability, reservations about Masdar’s future are not completely unfounded. But one thing is clear – Masdar’s concept and creation are a step in the right direction. If even oil-exporting countries recognize the importance of establishing alternative energy sources in the advent of a postpetroleum world, perhaps others will follow their lead. Masdar is no Potemkin village or white elephant for Abu Dhabi, host of the annual World Future Energy Summit; it is a resonating statement of the emirate’s intention to establish itself as a longterm leader and knowledge exporter in the clean energy and sustainability movement. While shopping and entertainment complexes cater exclusively to the leisure-seeking crowds who frequent nearby Dubai, Masdar will contribute urban engineering knowledge, as well as an important precedent, whether or not it eventually succeeds. Masdar may very well be a failure of function from which engineers will gain valuable insight; indeed, some of humanity’s greatest innovations are products of persistent trial and error. This remains to be seen, of course, but for now, Masdar will stand in the desert, potentially a mirage of its innovators’ dreams, but a gem for those who believe in its promise. Melissa is a sophomore in Berkeley College.

Fall 2010 | Business Sphere Magazine

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U. S.

Go State!
By Dakota Meyers

How college towns across the country are faring during the recession
ity’s sake we’ll consider a college town to be any metropolitan area with a total population that is less than ten times the size of the student body of its college(s). Sorry New Haven, that excludes you! We’ll look at you specifically in another section. We’ll also omit metro areas with populations above 1 million, thereby minimizing other unseen factors that could affect the local economy. For now, college towns include only cities like: Manhattan, KS, Gainesville, FL, Chapel Hill, NC, Amherst, MA, Ithaca, NY, and Hanover, NH, to name a few. “Long may thy colors fly” Some of the economic advantages enjoyed by college towns are pretty straightforward, and some take a bit more thought. Obviously, the college itself brings jobs to the community. It also spurs the local economy by attracting professors and other teaching staff from outside. This results in long-term gains for the local economy because professors tend to raise thoughtful, well-read children who, as students, help to improve local schools and, as adults, become smart, skilled doctors, lawyers, and executives, thus improving the overall quality of the local labor pool. Students bring similar benefits. Many of them contribute smart, socially responsible ideas to community organizations, live and work in the community during and after their four years of school, and go on to have bright children who also stay in the town. Students also bring fat purses full of Pell grants and daddy’s money to spend on late-night egg sandwiches, booze, and general debauchery. Of course, this money also helps to prop-up real estate prices and create jobs in retail and service. On top of this students also provide a general feeling of calmness. Most of them posses few assets and have yet to formulate long-term investment goals; thus, they don’t allow the wealth-effect generated by a downturn in the stock market to affect their spending as much as does the general population. In other words, during a prolonged economic boom, most consumers see the price of their homes, 401Ks, and/ or IRAs rise. This causes them to feel wealthier and leverage their assets more riskily in order to consume more (that’s not to say that this practice is good for the economy as a whole; it’s just what happens). The opposite proves true during a recession. If the value of a consumer’s assets drops, that consumer feels less wealthy and consumes less. However, most students have no real assets; thus, their spending is generally not as dependent on the state of the economy as a whole. The state of the economy may also have less effect on student consumption now than in previous generations. According to the California Student Public Interest Research Group, the national per-student figure for student loan debt nearly doubled between 1992 and 2000, and other sources indicate that this figure is still generally rising. The increasing cost of tuition has played a role in this trend. However, the acceptance of debt by students also indicates that they, as a group, are less averse to debt and therefore less likely to alter their spending habits in

College towns have always enjoyed certain economic advantages. Primarily, a continuous stream of fresh wallets spurs an abundance of jobs in foodservice and retail. The universities themselves also add jobs, attracting professors, administrators, staff workers and their families. These cities are obviously well-equipped economically, but are they recessionproof? Let’s find out by looking at statistics, economic analysis, and a local case study. “Fight! Fight! Fight!” The term “college town” is a bit of an abstraction, and the line is often blurred between a college town and a town with a college in it. For simplic-

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accordance with their employment or lack thereof. “A spot that I love full well” College towns clearly have certain economic advantages over other parts of the country. However, this does not mean that they are recessionproof. To determine this, we must separate holistic advantage from those that melt away as a recession takes hold. Generally, we can say that some of the employment boost brought by the university and some of the additional spending brought by students are vulnerable to recession. In terms of employment, universities function much like other businesses. When overall profits fall universities begin to realize fewer dividends from their endowments. Thus, budgets shrink and jobs are cut. Students’ parents also tend to tighten their belts in the midst of an economic downturn. Though students themselves may not feel the full wealth-effects of a dip in the economy, their parents likely do and push them to spend less. However, recessions do not affect some of the economic advantages of having a college. Most universities receive federal funding, which is not always affected by economic conditions. In fact, government funding often varies inversely with the economy during short-term fluctuations. Additionally, colleges still attract professors and intellectuals, and this can lead college towns to have a better-educated workforce. “Our Team Will Never Fail” This leaves us at a point of uncertainty. Recessions certainly affect college towns, but to what extent? To answer this let’s look at employment statistics. Here are the top ten metropolitan areas (from lowest to highest unemployment rate) in the U.S. Bureau of Labor Statistic’s August 2010 unemployment rankings:

1. Bismarck, ND* 2. Fargo, ND* 3. Lincoln, NE* 4. Rapid City, SD 5. Grand Forks, ND* 6. Sioux Falls, SD 7. Burlington, VT* 8. Omaha, NE 9. Portsmouth, NH 10. Iowa City, IA* Notice that six of the top 10 metros (*) approximately fit our definition of a college town. Three other college towns – Manhattan, KS, Ames IA, and Madison, WI – round out the BLS’ top 15. What does this tell us? It indicates that college towns have weathered the recession far better than the rest of the United States. The national unemployment rate for August was a whopping 9.5%. This compares to 3.1% for Bismarck, ND and 5.1% for Iowa City, IA. Though none of these figures are seasonally adjusted, they should still give us a good idea of how comparatively well college towns have weathered the recession. All of this means that, though college towns are not completely recession-proof, they do usually enjoy higher employment and less holistic decline than other regions of the country. Thus, being a college town does not eliminate the impacts of a recession, but it does minimize them. “Go Yale!” If college towns really do enjoy tremendous economic benefits, why hasn’t the Elm City fared better during the Great Recession? The New Haven Metropolitan Area ranks 234 on the BLS August unemployment rankings with a rate of 9.6%, slightly higher than the national average. Shouldn’t Yale and Quinnipiac facilitate economic growth for New Haven just like Kansas State does for Manhattan or the University of Vermont does for Burlington?

New Haven’s problem is not its universities but rather its surroundings. The city sits squarely in the middle of the Boston-Washington Megalopolis. This means that New Haven has to share many of the advantages brought by its colleges with New York, Washington D.C., Philadelphia, and Boston. Instead of attracting professors only to New Haven, Yale and Quinnipiac bring professors to New Haven, New York, Stamford, Hartford, and any city within a morning commute of campus. The Megalopolis has the same effect on students. Rather than staying in town, many students spend weekends (and money) shopping in New York, sightseeing in D.C., or watching a basketball game in Boston. While this provides more enriching opportunities, it spreads thin the economic advantages brought by the colleges. The one commonality between the six college towns in the top ten of the BLS’ unemployment rankings is their distance from other metros. New Haven proper is comparable in size to Lincoln, NE. However, unlike Lincoln, New Haven rests in a Bermuda Triangle of other metropolises. Thus, the University of Nebraska affects Lincoln like a pressure washer, targeting a small area with all of its might, while Yale and Quinnipiac act more like a garden sprinkler, affecting a much larger area with much less force. Overall, college towns stand a much better chance of leaving a recession unscathed. However, relative isolation plays a key role in ensuring that the college town actually realizes the economic benefits that its school brings. In the case of New Haven, its universities are a bit too small and its neighbors a bit too big for it to receive the full economic boost that a college can bring to a city. Dakota is a sophomore Economics major in Branford College.

Fall 2010 | Business Sphere Magazine

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Finance

Petrocurrency Position in Peril?
Will the weakening of the U.S. dollar pose a threat?
By Monish Shah
In the Organization of Petroleum Exporting Countries (OPEC) meeting in November 2007 in Riyadh, Saudi Arabia, Iranian President Mahmoud Ahmadenijad railed, “They [the United States] get our oil and give us a worthless piece of paper; we all know that the U.S. dollar has no economic value.” Venezuelan President Hugo Chavez added to this chorus of disapproval, “The empire of the dollar has to end.” Were Ahmadenijad and Chavez just engaging in anti-American rhetoric, or was there substance underlying their remarks? It is well established that the U.S. dollar has depreciated significantly in recent years. The Federal Reserve’s latest round of quantitative easing to make sure “it [deflation] does not happen here” poses further downward pressure on the U.S. dollar. As such, the current and likely future weakness of the U.S. dollar makes it apt to ask whether there will be fresh challenges to the petrodollar system. It is important to understand the historical context of the petrodollar system to understand the challenges going forward. What is the the petrodollar system? Petrodollars are U.S. dollars earned by oil-exporting countries from the sale of petroleum (priced in U.S. dollars), a system dating back to World War II. The 1970s saw the first period of high oil prices and a resulting boom in petrodollars. In the last decade, especially since 2006, the price for oil has surged due to rapid growth in demand from emerging economies. Finance and Economics Professor at Rutgers Business School Farrokh Langdana has described these two phases of high oil prices and corresponding booms in petrodollars as “Petrodollars I and II.” Currently, the U.S. dollar’s status as the international reserve currency is imperiled by two key structural issues in the American economy. High and continually rising U.S. trade and budget deficits put the valuation of the U.S. dollar under jeopardy. As a result, it is appropriate to ask whether there will be fresh challenges to the petrodollar system, which concerns dollars earned by oil exporters being recycled back to the U.S. and ensuring the strength of the U.S. dollar. The petrodollar system emerged from the cauldron of the gold standard system. The U.S. had played a leading role in creating and upholding the Bretton Woods system in the aftermath of World War II. Until the early 1970s, the U.S. dollar was stabilized by a fixed exchange rate of $35 to an ounce of gold. Other major international currencies were also linked to the U.S. dollar. Hence, reserve banks internationally held dollar reserves which were “good as gold.” The excessive spending of successive administrations, especially the “guns and butter” spending of Lyndon Johnson’s administration, resulted in growing U.S. deficits. This triggered a run on the U.S. dollar, as investors sold U.S. dollars in return for gold. Johnson’s Secretary of the Treasury John Connolly shrugged off the problem of a weakened U.S. dollar. He famously remarked to central bank governors that the dollar is “our currency, but your problem.” However, Connolly was shortly proven wrong. With the value of the U.S. dollar in jeopardy, on August 13, 1971, Britain called for its entire dollar reserves of $3 billion to be paid back in gold. Within two days, on August 15, 1971, President Nixon delinked the US dollar’s peg to gold. The so-called “Nixon Shock” led to the eventual collapse of the Bretton Woods financial system. Oil shocks of the 1970s From its founding in 1961, OPEC was an unwieldy group of countries with varying socioeconomic structures. Hence, OPEC ended up selling its oil cheaply in the 1960s due to a failure to control group production quantities and petroleum prices. OPEC’s founding president Luis Herrera Campina expressed frustration that a decade of cheap oil to Western oil importers had caused oil exporters to “sacrifice their own growth, or halt it, in order to permit or finance the development of the industrialized countries.” Eventually, OPEC members succeeded in cooperating to control the price of oil. This form of cooperation among the oil exporting countries in setting the price of oil has led many

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to describe OPEC as a cartel. The newfound OPEC solidarity, combined with other factors such as the Six Day War caused an astronomical rise in oil prices; from $1.80 in 1970 to $39 in 1980 (nominal prices). While petrodollars were not a new phenomenon, the rise in oil prices caused the volume of petrodollars to surge. The sharp contrast between the surpluses earned by the oil exporters and the deficits incurred by the importers created an international imbalance of payments. The petrodollar recycling system required OPEC countries to “recycle” their petrodollar surpluses in dollardenominated assets to finance the deficits of oil-importing countries. Thus, the development of a petrodollar recycling system alleviated the international imbalance of payments. Petrodollar recycling played a crucial role in preventing a beggarthy-neighbor currency depreciation, which would have plunged the world economy to the depths of the 1930s. George Shultz, who served as U.S. Treasury Secretary under Nixon after Connolly, commented on the effectiveness of the financial markets: “Far from collapsing under the weight of the petrodollar problem, financial markets thus worked to solve that problem.” Through the petrodollar recycling system, the United States led a new international financial system which cemented the position of the U.S. dollar as the international reserve currency. The U.S. dollar’s predominance as the currency for global trade and commerce accrued it a “network externality” effect. Since the U.S. dollar was used internationally to service debts, pay for goods (including oil) and services, and to hold reserves, it became stronger. This in turn compelled more coun-

tries to use the U.S. dollar. This positive feedback loop for the U.S. dollar, where its increasing use reinforced its strength, ensured the reserve currency status of the U.S. dollar. Indeed, the U.S. dollar was effectively backed by oil, or black gold, in the words of journalist William Clark. Former Federal Reserve Bank Chairman Paul Volcker later reflected on the importance of petrodollar recycling. He said, “There was great irony, people were more willing to hold dollars that weren’t backed by gold than they ever were willing to hold dollars that were backed by gold.” Craig Karmin writes in his book that “jettisoning the Bretton Woods system…liberated the dollar…[It was] an opportunity to spread the influence of the dollar even further.” The system of petrodollar recycling promoted an increased circulation of U.S. dollars. While the U.S. has had the exclusive privilege of supplying the currency for recycling capital, such an international financial system is inherently unstable. Former Yale economist Robert Triffin proposed the “Triffin Dilemma” which suggests that an international financial system such as that built by the United States through petrodollar recycling is inherently volatile as “the only way for all other economies to accumulate net assets in the dominant currency is for the dominant economy to perpetually run a current account deficit.” Thus, the U.S. economy was bound to run a current account deficit that would imperil the stability of the international financial system. The “prisoner’s dilemma” facing oil exporters The current slide of the U.S. dollar therefore may raise serious concerns for oil producers who may

feel that the petrodollar system is once again causing them to “sacrifice their own growth.” In fact, the depreciation of the U.S. dollar in a time of high oil prices has prompted calls within OPEC to shift from U.S. dollars to other currencies. Javad Yarjani, the head of OPEC’s Petroleum Market Analysis Department, has remarked that in the long run, many oil exporting countries could shift to selling oil in euros, if the euro emerged as a more widely beneficial system for the OPEC nations. Yarjani failed to convince the OPEC to sell oil in euros, but his country, Iran, did stop accepting U.S. dollars for oil in April 2008. Furthermore, in 2008, Russian President Vladimir Putin expressed the possibility that Russia would start selling oil in euros. With the recent weaknesses in the Eurozone, that possibility seems to be deferred for now. The U.S. dollar may continue benefiting from the “ugly sister” syndrome, which refers to its relative strength vis-à-vis other major currencies, for the short term. However, oil producers could eventually move away from the petrodollar system. Saudi Arabia was among the countries making cries for a switch to the euro. However, in early 2008, Vice Governor of the Saudi Arabian Monetary Authority Muhammad Al-Jasir reassured the United States in a public announcement that Saudi Arabia would continue to sell oil in dollars. However, Al-Jasir now seems to have shifted his position. In March 2010, Al-Jasir, as the newly appointed chairman of the Gulf Cooperation Council Monetary Council, announced that he was spearheading a push for the Gulf oilexporting countries to institute their own currency. While a common Gulf currency is probably years away from fruition, the announcement is

Fall 2010 | Business Sphere Magazine

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a significant development. The Gulf Cooperation Council has among its members an estimated 40% of the world’s reserves. Thus, a common Gulf currency would significantly challenge the U.S. dollar as a currency to invoice oil, and ultimately, as an international reserve currency. While a growing response of oil exporting countries to the problem of petrodollar recycling is built around moving away from the U.S. dollar, most oil exporting countries are currently working within the petrodollar system to maximize the benefits of having petrodollar surpluses. For example, countries like Saudi Arabia, Kuwait and the United Arab Emirates are launching wide-ranging reforms to increase their absorptive capacity and also attempting to maximize investments made through the financial account channel. Nevertheless, the significance of oil exporters like Iraq, Iran, Venezuela, Russia, Kuwait and Saudi Arabia having made or making attempts to move away from selling oil in dollars cannot be understated. These countries hold the largest remaining oil reserves. If any or a few of these countries do successfully turn away from the dollar, such an event could spark an exodus of nations from the petrodollar system. To borrow economic historian Barry Eichengreen’s analytical framework, it is in an oil exporter’s individual interest to switch from charging depreciating dollars earned from oil sales to other more stable currencies. However, it is not in oil exporters’ collective interest to switch from dollars as a mass selloff would bring about the very depreciation of the dollar they fear. Given that most oil exporters hold a majority of their reserves in dollar-denominated assets, deprecia-

tion in the U.S. dollar would put a significant dent to the value of their reserves. This “prisoner’s dilemma” raises the spectre of an individual oil-exporting country switching from petrodollars towards other petrocurrencies and bringing about a collapse of the petrodollar system, triggering a domino depreciation on the U.S. dollar. Will QE2 cause a crash of the U.S. dollar as the petrocurrency? Ironically, the United States may inadvertently bring about the end of the U.S. dollar’s reign as international reserve currency. As Professor Eichengreen points out, the United States may decide to depreciate the U.S. dollar to reduce its ballooning current account deficit. The Federal Reserve’s latest round of quantitative easing (QE2) has put further downward pressure on the U.S. dollar. This depreciation could further push oil exporters towards another currency. Conversely, if the U.S. does not tackle the ballooning deficit, U.S. debt will grow and this will surely lead to speculative attacks on the dollar. Martin Wolf, the chief economics commentator of the Financial Times, gave a grim prognosis to sum up the American predicament: “The Americans no longer have the means to save themselves.” Compared to “Petrodollar I,” the “Petrodollar II” phase symbolizes the shifting of the international economic and financial center of gravity away from the United States. Going forward, this begs the question of whether we will see the emergence of any currencies with sufficient liquidity to take over the U.S. dollar’s position as petrocurrency. Some speculate that the Chinese renminbi is a viable candidate given the increasing prominence of China in the global economy and the Chinese

government’s moves towards internationalizing the renminbi. However, China seems reluctant to make the renminbi the next international reserve currency lest it suffer from the “Triffin’s Dilemma.” In conclusion, petrodollar recycling was originally a means to establish the U.S. dollar as an international reserve currency. The United States has abused that position to run an “empire of debt…[built upon] deficit without tears,” to borrow the words of Italian economist Antonio Mosconi. However, the United States’ fiscal irresponsibility has caught up with it. The continued decline of the U.S. dollar makes its exclusive use as a petrocurrency in the long term unlikely. Paul Kennedy expressed in the New York Times that this growing movement away from the U.S. dollar is part of a larger international movement. “The nastier interpretation of this move toward ending the dollar’s preeminence is, let there be no doubt, an anti-American one,” he said. OPEC recently celebrated its silver anniversary, marking 50 years of support for the petrodollar system. Going forward, OPEC’s choice of whether or not to stick with the status quo is likely to be a key strategic issue for OPEC. As the U.S. dollar continues to depreciate, the economic rationale for a move away from the U.S. dollar grows. Losing its status as a petrocurrency could put the writing on the wall for the U.S. dollar as the international reserve currency. Monish is a junior Economics major in Morse College.

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Environment

Company Profile

The Future of Real Estate Investing
The challenges and opportunities facing private real estate giant Hines
By Paul Joo
Since its inception in 1957, Hines has grown into one of the largest private real estate organizations in the world, with a portfolio of approximately 1,100 projects valued at $22.9 billion. These properties represent 451 million square feet of office, residential, mixed-use, industrial, hotel, medical, retail and sports facilities in more than 270 cities throughout the world. Business Sphere spoke with Hines’ Executive Vice President and Capital Markets Group CEO Charles M. Baughn about the firm’s strategy through the economic downturn and its plans for the future. BSM: Could you tell us a bit about Hines’ model of vertical integration? How unique is this approach in the industry and how does it inform the decisions of the company? Baughn: There are a number of large regional developers that develop and also manage and lease their buildings, but there are very few international firms that do this. So we might compete with a firm in, say, southern California that uses a model very similar to ours. Or we might compete with someone in Chicago that has a comparable approach. But when it comes to competing either across the U.S. or globally, we have very few competitors that are vertically integrated, that are providing both the development or renovation as well as the property management.

A typical investor would go into a market in Russia and find a local developer that they could team up with, whereas with Hines, we have our own people on the ground that are executing the business. It allows us to maintain control over quality as well as alignment of interests: if everybody is working for Hines, we don’t have problems with a local partner that might have different goals. We view this as a real competitive advantage. In Moscow, for example, where the market is not very transparent, we’ve had our own team for 15 years. It’s allowed us to create the largest management and leasing business for Class A international office space in the market. Since its inception, Hines’ central focus has been in the class A office space market. Does this remain the central focus of the company within the context of the global recession?

Yes. Whether we purchase or acquire a building, whether it only needs leasing or also needs renovations, we always want to have buildings that, when they’re finished, will be core buildings. This means a very strong location, as well as efficiency, both in how a tenant uses the space as well as things like energy efficiency. Ultimately, of course, we want to have strong leasing in the building. There are certain things you can fix about a building. If you have a great building that has a lot of lease rollover you can fix that. But if you have a building in a secondary location that tenants only go to in a very strong market, that’s obviously something you can’t fix. So our focus is always on premium locations and high-quality buildings. How has the economic slowdown has affected Hines’ operations? Have any major projects been canceled due to challenges in raising capital?

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We had our capital in place for everything we were doing; certainly we use leverage and debt, but unlike some of our competitors, we were not overleveraged. So we did not get into a position where we did not have the capital to fund a project. It has been challenging, though, to raise capital for new projects. A unique aspect of the company is that it remains privately owned. How does this affect Hines’ operations? Has the ownership structure been a factor in raising capital during the past couple years? If you look at the public companies in real estate, they have an advantage right now in terms of raising capital, whereas, a few years ago, they were at a disadvantage. So it swings both ways. It’s important to note that being private ultimately makes sense for real estate investment. We do what we think is the best long-term strategy, as opposed to being dictated by Wall Street analysts and quarterly reports. But yes, there are certainly times in a market cycle when you look across the fence and wish you could be doing what other firms are doing. Are there any bright spots in this economic slowdown? How would you describe the state of recovery in the real estate market? One, I think the debt markets for high-quality office buildings have come back a lot stronger than any of us would have thought a year ago. I mean, today, if you’ve got a fully leased office building, you can borrow money at somewhere between 4-5%, which is much lower than expected. That’s a huge positive. The other thing is, because re-

turns across the market are so low, not just in real estate, if you have a fully leased high-quality office building in a major market, it will be trading at cap rates that are reminiscent of the peak of the market. So again, the rebound of values in high-quality core real estate has been much stronger than we expected a year ago. That said, even if we don’t go into a double-dip recession, there are very few major economists who think we are going to have a lot of growth in the next year or two. 2011 is going to be a challenging year in terms of filling up office space, and probably 2012 as well. Hopefully by that point the recovery kicks in and we start to see a more complete turnaround. Have distressed assets presented acquisition opportunities for Hines? There are certainly some distressed opportunities, particularly in Western markets, but we’re not seeing the flood of large-scale opportunities in the real estate market that many predicted. Why do you think that is? It’s different for the class A office market because the regulators are not forcing banks to sell off their bad loans. Unlike the early 90s and RTC days, when the regulators basically came in and forced the banks to write down and sell their assets, the banks this time are being allowed to strengthen their balance sheets slowly and have not been told that they need to sell assets. And with interest rates so low, if you extend a loan, most mortgages will cover their debt service. The loan to value may be too high, but from a bank’s point of view, if they

can extend it for a few years and stay current on the interest, that may be more attractive to them than taking back the building. As a result, there has not been a lot on the market in terms of distressed assets. Looking ahead, what’s exciting on the horizon for Hines? Emerging market countries are doing quite well. We have, for instance, a strong business in Brazil, where we’ve had a team for a number of years. The Brazilian economy is not as linked to the U.S. and Europe as many other economies are, and it has continued to perform well through the recession. The same can be said of our operations in China and Russia. Being in those parts of the world, we’re seeing traditional development opportunities today. As a final question, what makes Hines different? Why is Hines special for you personally? The Hines family has done a great job of setting the right tone, the right culture. You have a lot of people at Hines who come out of business school and are here 20, 25 years later. I think it’s a combination of having the right ethics, as well as being a platform for entrepreneurs. You can create your own opportunities, and you have behind you the support of a global company. Paul is a junior Cognitive Science and International Studies major in Berkeley College.

Fall 2010 | Business Sphere Magazine

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Law

Internet Piracy
By Nabila Chitalwala
Legal rights are the foundation on which any democratic society stands, and protecting copyrights is essential for the development of new works in the artistic, scientific and economic spheres. On the one hand, upholding copyrights provides incentive to artists, scientists and entrepreneurs to invest in their creations. But on the other hand, stringent copyright laws can create obstacles for the spread of knowledge, harming the interests of the public. A recent lawsuit that highlights this dilemma in the nature of copyright laws is the GoogleYouTube vs. Viacom lawsuit. Google won a huge victory when Judge Stanton, district judge of New York, dismissed Viacom’s $1 billion copyright infringement lawsuit against YouTube, which is owned by Google. The basis of the ruling was the ‘safe harbor’ provision of the Digital Millennium Copyright Act (DMCA). The ruling validated YouTube’s practices for handling copyright material, thereby encouraging other sites handling user-generated content, like Facebook, to follow similar practices. Viacom’s expectation that Google police every video uploaded on YouTube, the world’s largest videosharing website, seemed unfeasible due to the heavy amount of traffic received by the site. At the same time, had Google sat complacently, other media companies would have

As online content expands, so do high-stakes legal battles
been angered. As a result, YouTube spent significant amounts of money developing its content ID system, an automated filtering system that detects and blocks infringing videos. Google also signed revenue-sharing agreements with over a thousand media companies. Notably, these moves were voluntarily undertaken by Google to placate other companies and were not legally mandatory. According to the law, all YouTube was required to do was to take down material when copyright holders complained about specific content. And as Judge Stanton noted, “The present case shows that the DMCA notification regime works efficiently: when Viacom over a period of months accumulated some 100,000 videos and then sent a mass takedown notice on February 2, 2007, by the next business day YouTube had removed virtually all of them.” Viacom sued Google in 2007, claiming that Google deliberately overlooked piracy that was rampant on YouTube in order to profit from that piracy. Google did take down material when notified, but until then, it profited hugely from the heavy traffic on its site, some of which was attracted by copyrighted materials, many of them time-sensitive. According to Viacom, Google robbed copyright owners of their revenue and paid no price for it. Evidence that this was done deliberately was shown via internal emails among YouTube’s founders. These e-mails between Chad Hurley, Steve Chan and Jawed Karim revealed that YouTube was willing to overlook the pirated material on its site, knowing that if they gave in to heavy filtering, they could lose a high percentage of their profitable traffic. Arguably, the hosting of such illegal and highly profitable pirated material contributed to YouTube’s growth into a $1.65 billion company. Thus, many believe that this ruling is a blow to American inventors and creators who are fighting piracy around the globe. On the other hand, it may be unreasonable to hold companies that market products or services that merely make copyright violations easier fully responsible for such violations by their customers. For instance, a photocopy machine maker would bear no liability for the copyright of protected works by its customer, even if this were done using the company’s photocopier. If

Fricklas, Viacom’s general counsel, reiterated the fundamental purpose of copyright, explaining that “copyright protection is essential to the survival of creative industry” and claimed that this ruling would serve as a disincentive to creation and invention in society.

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Google provided e-mail messages showing Viacom employees uploading copyrighted clips to YouTube even as the company was complaining about copyright infringement.
companies could be sued for pirated materials uploaded by their customers, a huge money-making scheme would be created by which companies could sue sites for pirated materials that they themselves uploaded. For instance, in the Google vs. Viacom case, Google provided e-mail messages showing Viacom employees uploading copyrighted clips to YouTube even as the company was complaining about copyright infringement. Nevertheless, Viacom and many others believe that companies should take more direct measures to ensure that they are not facilitating copyright infringements. The law should make provisions for companies to monitor their own sites to check for such violations. The feasibility of such a scheme, however, is in doubt. For example a site like YouTube receives up to 24 hours of video every minute; monitoring such a site would be nearly impossible. However, without such a monitoring system in place, the rights of many individual copyright holders, who lack Viacom’s resources to search the Internet for infringing material, would be violated. Thus, the argument is that site operators, rather than looking the other way, should take action to prevent violations when they have reason to believe, as Google does, that such violations are occurring. Despite heavy opposition from Viacom and many other media companies, Judge Stanton sided with Google, which claimed that, although they knew that some material uploaded on their site was in violation of copyright law, they did not know which clips had been uploaded with permission and which had not. Thus, they could not discriminate among and remove these clips unless copyright violations were reported by a third party. The court’s ruling was hailed as reasonable and fair by many companies, especially sites that rely on users to upload their own content. Kent Walter, Google’s general counsel, rejoiced, “This is a victory for the Internet and the people who use it.” However, the ruling was criticized by others. Viacom decided to appeal, condemning the ruling as “fundamentally flawed.” Michael Fricklas, Viacom’s general counsel, reiterated the fundamental purpose of copyright, explaining that “copyright protection is essential to the survival of creative industry” and claimed that this ruling would serve as a disincentive to creation and invention in society. Copyrights are integral to the progress of business, especially as ideas and content circulate around the world at an unprecedented rate. However, in a digitalized age, the measures needed to ensure the protection of such copyrights are becoming elusive, as technologies that promote the widespread dissemination of information such as file-sharing sites on the Internet become increasingly popular. It is extremely important to protect the interests of inventors and to ensure that their work is rewarded, so that they are motivated to continue to create and invent. At the same time, it is equally important to ensure that large companies do not monopolize information or content. The public should be granted the right of access to materials after either a certain period of time or by paying for that material at prices that are not kept artificially high by such companies. The limited establishment and upholding of copyright laws are beneficial to society as a whole. Nabila is a freshman in Davenport College.

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Finance

Return of the Vultures
An introduction to distressed investing
By Jerry Feng
It may be difficult to imagine how anyone, besides corporate lawyers, can make good money from corporate bankruptcies, but there is one asset class of investors who represent the vultures of the financial world. They desire nothing more than to feast on the rotten carcasses of fallen companies enveloped in nasty legal quagmires that make most analysts squirm. They are, of course, the distressed investors, specialists who utilize their legal and financial acumen to excavate any remaining value from fallen companies. These companies are avoided by regular investors who are taught ad nauseum to only pick blue chip stocks with strong earnings growth and a durable, lasting franchise value. For most regular investors, distressed investing represents an esoteric world far, far away from the universe of healthy stocks value and growth investors are told to remain restricted to. Distressed investing is nothing more than investing in the securities of corporations that are in grave danger of not earning enough money to pay off their lenders and suppliers. In the aftermath of the Great Recession of 2007-08, the ranks of companies with a “distressed” status have surged. Besides an unfavorable shift in the overall economy, a detrimental business move by unwise management is another major reason why companies become insolvent, unable to satisfy payments to its creditors and suppliers. Most healthy corporations derive a majority of their funding from a combination of bank loans, bonds, and stocks. When companies are profitable, they generate enough cash to be able to pay off the interest and principal obligations to their creditors. However, when companies experience a shock in sales revenue, or an unfavorable surge in expenses, they are unable to satisfy interest and principal payments. This insolvency amounts to a violation of the legal contract between creditor and borrower and sparks an entire onslaught of legal and financial sanctions that prevent the company from employing any expansive strategies until the debt has been paid off. Most people are quite familiar with stocks – ticker values flash across the bottom of the TV screens every evening during prime-time news. But what few outside of the financial world know is that the bank loans and bonds are also actively traded in global, over-the-counter markets that are outside the reach of organized stock exchanges like the NYSE. But in fact, the market value for all tradable bonds and loans far exceeds the value of all traded stocks in the world. Bonds represent a form of financing where the borrower receives a specific amount of money from a lender, and returns that money at a set date with additional interim payments commensurate with the borrower’s own risk level. Bonds have remained invisible to most retail investors simply because they are more mathematical and less suitable for conversation starters at a cocktail party. The distressed bond market is a subset of the overall bond market, which includes an almost infinite variety of securities, including government Treasuries, emerging-market bonds, corporateissued bonds, mortgage bonds, and specially structured notes. Distressed bonds and loans, however, represent only a modest share of total bonds. Currently, the estimated size of the distressed bond market in the United States is about $320 billion.

These companies are avoided by regular investors who are taught ad nauseum to only pick blue chip stocks with strong earnings growth and a durable, lasting franchise value.
So how do distressed investors feed on the securities of a company that is experiencing problems paying its creditors? It turns out that the bonds of a company, which can be traded thanks to the historical discovery of formulas to properly price them, will be extremely cheap, often selling for several “cents on the dollar,” in financial jargon. What this essentially means is that you, the in

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vestor, are presented with the chance to buy a dollar bill for, say, five cents. The concept is simple. Assume that I just borrowed $10,000 from you and promise to pay you back $12,000 in two years, with the extra $2,000 from the fact that I need to compensate you for the extra money your $10,000 would have earned in a bank account had you just deposited it for two years. However, after the first year, I have indulged in too profligate of a life, bought some spiffy gifts, and lost my job. After the first year, it doesn’t look like I will have that $12,000 to pay you next year. What would be the rational thing for you to do to recoup your loan? For one, you could discipline my life, restrict me from buying anything else, and force me to find a job, so that I can have enough money to pay you back, giving me more time to repay (debt refinancing). Alternatively, you could “sell” to someone else the $12,000 claim you have against me. A buyer will pay you a certain price for the right to receive the potential $12,000 (remember, I may still not be able to pay that back). But what price should you get for selling the claim? Given my tenuous situation, a rational buyer would pay much less than $12,000 for the claim, to account for the possibility of my defaulting. Let’s assume the buyer pays you $7,000 for this claim. You walk away with $7,000 in your wallet and can finally sleep soundly. In this case, the buyer is the distressed investor, and I represent the distressed company. The buyer, say Mr. X, is down $7,000 and prays that I pay back the $12,000 I now owe to him, not you. One year passes, and several scenarios are possible. In the rosy case, I somehow win the lottery, and pay back the $12,000 to Mr. X. He is elated that he put in only $7,000 for

a $12,000 return, pocketing a handy profit of $5,000, or 71% of his invested money. Mr. X is a happy man. Now consider the unfortunate case. I run off with the rest of money to the Cayman Islands, outside the discretion of United States law. Mr. X, after one year, is unable to find me. He has lost his entire $7,000 initial investment and has not recouped a single dime. A more likely scenario is that I somehow manage to get a part-time job, enough to earn $4,000, all of which I pay to Mr. X by the end of the second year. Yet, he still suffers a loss, because he put in $7,000, only to wait a year and get $4,000 back, a 43% decline in his initial investment. Indeed, Mr. X could have done better by depositing his original $7,000 in a bank account or a hedge fund (assuming it’s not run by Madoff). While real life cases are inevitably more complicated, this simple example illustrates the essential principles of distressed investing. When executed correctly with adequate research and sophisticated financial understanding, distressed investing epitomizes the sacred tenets of “value investing” and “margin of safety” (two terms widely espoused by loyal followers of the Benjamin Graham circle of investors, including the legendary Warren Buffett). Distressed investing is fundamentally about buying the bonds and bank loans of companies, often at a significant discount, with the anticipation that in due time one will recover much more than the amount of money that one had put in. That philosophy of buying a dollar for fifty cents is of course the basic principal of value investing – taking advantage of discrepancies between price and value. How about “margin of safety”? Well, just buy the very cheapest dollar you can find on the market, assuming of

The investor must harness the delicacy of a surgeon, the intuition of a mathematician, and the chutzpah of a seasoned poker player in order to calculate how much value accrues to a distressed security, and when to buy it.
course that what you bought is truly a dollar, backed by the full faith and credit of the powerful U.S. Federal Reserve. By placing their faith in distressed companies, this class of investors arguably plays a vital role in resuscitating many moribund companies. The spectacular returns are a corollary of the outsized risk distressed investors bear. Thus, the popular conception of distressed investors as vultures fails to take into account the crucial role they play as well as the risk they bear. According to the Combined Altman-NYU Salomon Center Defaulted Public Bond and Bank Loan index, the average return on distressed assets in 2009 was a spectacular 56%. Of course, making double or even triple digit returns on distressed securities is easier said than done. Indeed, the road to success in distressed arbitrage is paved with financial and legal potholes for the unwary investor. In real life, distressed investing requires a sophisticated understanding of business models and relationships between securities. The spectrum of distressed securities from which one can buy is vast, ranging from senior secured bonds to junior unsecured

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For budding investors and veterans alike, there is really no better place to undergo the proper rite of passage into the kingdom of financial wizardry than in the dense jungle of distressed securities.

debentures or even warrants (call options on the underlying company) that are detached from issued bonds and are traded actively in over-thecounter markets. The investor must harness the delicacy of a surgeon, the intuition of a mathematician, and the chutzpah of a seasoned poker player in order to calculate how much value accrues to a distressed security, and when to buy it. The analytical work can be messy and nasty, requiring the investor to untangle webs of arcane legal phrases that govern the order the bonds and loans are paid off when a company falls under distress. Roger Lowenstein’s colorfully analogy in the New York Times would serve to illustrate the importance of the order of debt payments: “Imagine a seaside condo beset by flooding: just as the penthouse will not get wet until the lower floors are thoroughly soaked, so the triple-A bonds would not lose a dime unless the lower credits were wiped out.” One must not only understand the key sources of the company’s revenues and its major risks, but also be well-versed in bankruptcy proceedings to understand the jargon of the courts, such as voidable preference, pari passu, unencumbered assets, and priming. Indeed, the reason that the distressed investing market exhibits such a high degree

of inefficiency is precisely because none but the bravest souls dare to venture into this perilous unknown where uncertainty and confusion lie at every corner. Despite these dangers, distressed investing has blossomed into a thriving industry in the past five years, with the industry populated mainly by hedge funds and proprietary trading firms at some of the largest Wall Street banks such as Goldman Sachs, Morgan Stanley, and J.P. Morgan. David Tepper, perhaps the most prominent distressed debt investor today, bought billions of dollars of distressed debt in troubled financial institutions, convinced that they were ‘too big to fail.’ His gamble earned his hedge fund, Appaloosa Management, over $7.5 billion in 2009. Careful dissections of companies facing bankruptcy are now conducted by leagues of extraordinary security analysts, often armed with fresh JDs from some of the nation’s top law schools. No wonder the distressed market is getting ever more efficient. For many investment professionals, distressed investing offers return profiles highly uncorrelated with equities, fixed-income, and currency market performances; distressed reflects an arena where a majority of a portfolio’s alpha (value) is created by the raw analytical making skills of the investor. Distressed investing is of particular relevance in today’s dour economic climate, as in prior postrecessionary periods. The United States and the global economy are recovering slowly and unsurely from the financial meltdown that swept the world three years ago. The credit crunch in the wake of the subprime mortgage crisis affected financing options for many companies. The weakened economy has

caused a disillusioned populace to be more inclined to save rather than spend their disposable income. This has forced many businesses such as newspapers publishers, booksellers, and real estate trusts to clamor to the protective arms of Chapter 11 bankruptcy, allowing the company to remain in business. Indeed, distressed investing can be a sad, vicious industry where only the very top have a chance to survive, while the bottom quartile of fund managers meet the same fate as the companies they originally sought to study. Yet, for those driven and motivated by the intellectual quest to explore the byzantine, the distressed asset class offers a most delectable challenge. In the light of Basel III penalties cracking down on risky lending by banks to distressed companies, investors have a greater scope to delve in distressed companies. Investors will inevitably hone their skills in the disciplines of security valuation, market timing, and most importantly, risk-management. It is a market sufficiently mispriced for hard work and due diligence to separate the men from the boys, yet it is also responsive and liquid enough for prices to adjust quickly to proper value within a few months to a maximum of about two years. For budding investors and veterans alike, there is really no better place to undergo the proper rite of passage into the kingdom of financial wizardry than in the dense jungle of distressed securities. Jerry is a senior Economics major in Calhoun College and has previous summer experience working with distressed debt instruments.

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Labor Economics

Leftover Women
By Joanna Zheng
If you ask a female student at Fudan University in Shanghai, one of the top universities in the country, what her greatest fear is, odds are high that it will not involve her studies, her salary, or even her employment. According to a nationwide survey conducted by the Fudan School of Journalism, more than 70 percent of urban women surveyed admit that what they fear most is being “left behind” as a shengnu, an older unmarried woman. Despite the fact that many of these shengnu have top-tier education and successful careers, they suffer a cultural stigma against their status: they have passed the ideal childbearing age and are now “leftovers.” This social barrier is just one of the many reasons why the Chinese business environment is a difficult and, at times, hostile place for aspiring businesswomen. A major cultural barrier is the traditional view that dictates that a woman’s primary place is in the home. Many Chinese still hold this view, despite the fact that many families today rely on women’s wages as an important source of income. Having to fulfill the time-honored role of wife and mother while carving a role in the workplace puts many Chinese women, particularly those from urban areas, in a bind and can force a difficult decision. As the Fudan survey shows, many feel the

The term ‘shengnu’ points to serious gender imbalances in China
pressure to forego employment for motherhood. For those who are intrepid enough to venture into the business world, challenges and prejudices hinder them from attaining influential roles. The culture of gender discrimination, particularly prevalent in upper management and entrepreneurship, results in a “glass ceiling” phenomenon similar to that in the Western world. This reflects the dominant attitude that business is a man’s sphere and that women lack the traits necessary for successful business operations. Li Jing, managing director of J.P. Morgan Chase, has voiced his concern that “[women] might lack a bit of courage when making decisions.” Statements like these contribute to the perceptions many Chinese people hold about female business acumen. As in many other places in the world, the issue of the male-female wage gap is another separating factor that discourages women from the workplace. For example, Hera Siu, the Nokia China general manager and vice president of corporate wage gap is another separating factor that discourages women from affairs, noted that she had routinely experienced a 25 percent wage gap compared to her male counterparts during past jobs. These inequalities do not reflect differences in education or experience, a fact that frustrates many female workers. Although progress is visible, the playing field is still far from level. Many businesswomen agree that one of the most important tools for building confidence and encouraging more women to enter business is networking. Having a support system of other women, especially mentors who have gone through similar experiences themselves, is vital for younger workers who may be daunted by the social obstacles they face as they begin their careers Even at the higher levels of corporate ladders, women can still take comfort in knowing that they can rely on a network of peers. Yu Jian, deputy secretary of the party committee of Shenzhen Gas Group Co. Ltd., notes that “female leaders often feel lonely” and that “heavy pressures are unavoidable.” With this in mind, she has sponsored Shenzen’s Women Entrepreneurs’ Association for six consecutive years and frequently hosts parties and social activities for other female businesswomen. Despite these glaring problems

Despite the fact that many of these shengnu have top-tier education and successful careers, they suffer a stigma against their status: they have passed the ideal childbearing age and are now “leftovers.”

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Deng Xiaoping adopted his “open market” economic approach in the 1980s, famously declaring that “it doesn’t matter whether a cat is black or white, as long as it catches mice.” The advent of capitalism quickly established a burgeoning middle and upper class demographic, but this demographic was overwhelmingly male.
Women are also being recognized for their unique talents and perspectives in traditionally maledominated careers and social structures. At the 2010 Global Summit of Women, Wang Xiaoyan mentioned her belief that women have “good communication skills and resilience

with gender equality, the Chinese business world is a much friendlier environment for women than it was even ten years ago. Deng Xiaoping adopted his “open market” economic approach in the 1980s, famously declaring that “it doesn’t matter whether a cat is black or white, as long as it catches mice.” The advent of capitalism quickly established a burgeoning middle and upper class demographic, but this demographic was overwhelmingly male. In recent years, however, more companies have begun to hire women, with statistics showing a higher number of female workers and executives than in the past, according to Qianqian Du, assistant professor of finance at Shanghai Advanced Institute of Finance.

in the face of setbacks and difficulties.” Their levelheaded thinking and ability to remain calm in stressful situations are traits which, some businesswomen believe, give them an edge over male peers. Christine Chen, founder of a raw textile supply company, explains her belief in the importance of communication in business: “In Chinese, the way you say business is ‘shen yi’, which translates to ‘helping each other create a meaningful living’...It includes communicating your authenticity, your care and your emotions— everything.” Indeed, there is no doubt that women have cultivated strong presences in China’s businesses, with names such as Dong Mingzhu (president of Gree Electric Appliances) and Wang Xiaoyan (chief information officer of Lenovo) dotting financial headlines. These women have made the arduous climb up the corporate ladder through perseverance and tenacity. Dong Mingzhu, for example, was born as the youngest of seven in an ordinary family of laborers in Nanjing. She worked her way to the top with such determination that she has not taken a vacation in twenty years. Zhan Huizhen, recently named China’s Outstanding Woman Entrepreneur in June 2010 by the All-China Women’s Federation and China Association of Women Entrepreneurs, began her career with a ten-square meter workshop and minimal sewing supplies. After years of hard work, she eventually expanded her business into a lucrative enterprise and used a percentage of her profits to establish a vocational school for other women in her native Jiangxi Province. There seems to be a very strong sense of community among females in the workforce, and women like Zhan Huizhen are

Many businesswomen agree that one of the most important tools for building confidence and encouraging more women to enter business is networking. Having a support system of other women, especially mentors who have gone through similar experiences themselves, is vital for younger workers who may be daunted by the social obstacles they face as they begin their careers.
the role models aspiring female executives look to for inspiration. Perhaps in the future, Chinese women might be able to pursue both a career and a family without judgment on either side. Maybe single thirty-something year-old women, confident and successful in their careers, will one day be praised for their willingness to postpone familial life to pursue their own ambitions in business. This vision seems plausible given the fast pace of change in China today. As history has shown in the United States, the incorporation of women into the business place is a fruitful and lucrative exercise. There is no doubt that the role females will eventually play in the Chinese business world will be economically influential as well. Joanna is a freshman in Trumbull College.

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Non-Profit

The Dania Foundation
By Daniel Kelly
Tackling Haiti’s housing crisis is no easy feat. With an estimated one million citizens left homeless after last January’s earthquake, the nation faces staggering demand for housing but lacks adequate infrastructure and building materials. To date, the majority of relief efforts in the country have focused on distributing temporary aid. Too few organizations have recognized the importance and urgency of permanent housing in creating a functional, self-sufficient Haiti. Upset by the short-sightedness of the international aid community, Danish lawyer J.P. Folsgaard Bak set out on a mission to help Haitians build a better future. In early 2010, he created the Dania Foundation, which aims to provide Haitians with access to “safe, affordable, and permanent homes.” Using a combination of versatile building technology, local labor, and innovative financing, the foundation hopes to empower and expand Haiti’s middle class through homeownership. Rather than giving away temporary shelters, Dania aspires to create the supply side of a self-sustaining housing market. New Haven to Port-au-Prince Sitting in the Morse College common room, Yale senior James Murphy details his first encounter with the innovative construction panels that would become the lynchpin of the Dania Foundation’s operations.

The ambitions of an international non-profit group for Haiti’s housing market
Last Thanksgiving, Murphy decided he “needed to get away” from Yale, and took a vocation-searching trip to Mexico City. There, his cousin introduced him to the owner of a panel factory. Murphy instantly recognized the potential of the structurally insulated panel technology to create permanent homes at a low cost. “That was definitely the ‘light bulb’ moment,” he says. Murphy returned to Yale with a determination to put the panels in action and began to formulate his senior thesis on the panel technology. When the Haiti earthquake struck, he reached out to aid organizations, looking to apply the panels in the rebuilding process. Murphy came into contact with Bak, who invited him to join the Dania Foundation on a trip to Haiti. Murphy connected Bak with the factory owner in Mexico City and arranged several panel shipments to Haiti. Soon enough, Murphy was named the foundation’s chief technical advisor. He hopes that the panels’ groundbreaking design can revolutionize the Haitian housing market by making houses stronger, affordable, and customizable. Strength from Within Four feet wide, eight feet long, and about three inches thick, each panel consists of a rectangular block of Styrofoam wrapped in a steel cage. The panel design maximizes the efficiency of both the compressive abilities of concrete and the tensile strength of steel. Whereas traditional cinderblock homes are supported by reinforcement bars every several feet, the grid of steel wires on Dania’s panels provides this support every two inches. This support structure makes the panels lighter, cheaper, and stronger than ordinary cinderblocks. In a nation where security is a primary concern, this provides an extra level of reassurance at low cost. Unlike temporary shelters, Dania’s panels could provide the long-term security Haitians need to safely raise families and start life anew. Personal Construction On top of a concrete foundation, panels are connected to form walls and a roof. Next, doors and windows are cut from the walls according to the owner’s specifications. Once finalized, the panels are trowelled with concrete, forming permanent walls. The simplicity of the panels allows the foundation to employ and oversee low-skilled local labor when constructing homes. The panels are easily cut and customized with basic tools, allowing for versatility in design. With this versatility comes autonomy for Haitian homeowners, who can personally design their own homes. Before the concrete is spread on the panels, homeowners essentially have free reign to add doors, windows, and archways. Unlike cookie-cutter shelters or cinderblock houses, the panels make home customization as easy as snipping a few steel wires. Putting control of Haiti’s future in the hands of Haitians is a central

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goal of the Dania Foundation, and it is this autonomy in design that really gets Murphy excited. His eyes light up as he pantomimes a Haitian designing his own home. “You want a window there?,” he asks. “Just cut one out! A back door? No problem. After all, you’re paying for it.” Murphy emphasizes the importance of pride as a motivating factor toward homeownership. “It’s easy to forget that the American dream is also the Haitian dream,” he says. “We all want our own houses, made to our own specifications.” He tells a story of a taxi driver who has ordered a home on a highly visible hilltop. The man had seen one of Murphy’s design mock-ups, which featured a decorative blue roof. Murphy had added the coloring just for show, but roofs in Haiti are uniformly white to reflect the beating sun. Regardless, the man demanded a blue roof on his home to set himself apart from his neighbors. “We’re not giving away cookie-cutter houses, but rather, letting Haitians draft their own homes, their own futures.”

Building Credit The idea of Haitians paying for their own homes may seem farfetched, and most creditors see Haitian credit as toxic, but Murphy claims this judgment is unfair. He insists that housing demand in Haiti is strong, but construction is stifled by a lack of willing creditors for mortgages. Due to high unemployment and default rates, current mortgages in Haiti have interest rates around 20%. Making matters worse, Haiti’s Hall of Records was destroyed in the quake, leaving lenders with no system to track their mortgage holders. The success of the Dania Foundation will hinge on its ability to overcome these odds and expectations through innovative financing programs. The foundation is currently developing a pilot program with the Haitian Taxi Drivers’ Association to put this plan into action. All 7,000 drivers in the association have agreed to back the defaults on loans given to 200 of their own members. With this security against default, Dania

can significantly lower the mortgage interest rate. “5 or 6 percent with minimal risk?” asks Murphy, “It should be a no-brainer for investors.” Dania’s ultimate goal is a 3% interest rate on mortgages. If successful, this financing model could be applied across entire communities, making the dream of homeownership an affordable reality. The Dania Foundation will also provide the Adopt-a-Mortgage program, which would allow relatives or philanthropists to pay a portion of a family’s mortgage. In keeping with the tenet of self-sufficiency, Murphy insists that the foundation would cap the sponsorship of each mortgage at a certain percentage. Still, the program would give Haitians with families in the U.S. an extra level of financial security while allowing them to maintain their autonomy as homeowners. Building Markets The Dania Foundation’s model is unarguably ambitious. Expanding homeownership in any developing nation, let alone one ravaged by natural disaster, is no simple task. Dania recognizes homelessness as a complex problem, and seeks to address it with a comprehensive plan of action. By lowering the price of building materials, allowing for home personalization, employing local labor and providing reasonable credit, the foundation hopes to help Haitians build a self-sustaining housing market. Facing the odds head on, Bak remains optimistic, hoping that “the future of Haiti will find its roots within the walls of our homes.” Daniel is a sophomore Political Science major in Branford College.

For information on how to get involved, contact James at JM@daniafoundation.org

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Business Sphere magazine and the Yale Undergraduate Business Society would like to thank Yale University and our corporate sponsors for their contributions. Our initiatives and growth would not be possible without their backing and continued support.

Special thanks go out to the

Yale Department of Economics

in recognition of its generous support for BSM and YBS.

The Yale Undergraduate Business Society offers a variety of opportunities for businesses to develop their own human capital while inspiring future generations of entrepreneurial leaders. These opportunities include: Information sessions - Maximize your impact on campus by allowing YBS to act as a conduit to the undergraduate student body. Speaker events - Educate Yale students about your company, relevant business trends and employment potential in the industry during a networking opportunity between representatives from your firm and business-minded students at Yale. Panel sponsorship - Host or sponsor a panel at our annual Asia Tomorrow conference, Yale’s student-organized symposium on the business future of Asia’s emerging markets. For details on last year’s Asia Tomorrow conference, visit us online at www.businesssphere.org, and check out our Spring 2010 issue The Future of Sustainable Enterprise. Advertisements - Our magazine is widely distributed among the undergraduate and graduate student body at Yale. For advertisement rates, please contact us at the email address listed below. For information about sponsorship options, email yalebusinesssociety@gmail.com If you are interested in writing for Business Sphere magazine, please contact us at info@businesssphere.org
Fall 2010 | Business Sphere Magazine 31

Business as usual is no longer an option.

As globalization continues to redefine the world economy, businesses today must engage an ever-changing international market. Recognizing business as a powerful instrument for systematic change, the Yale Undergraduate Business Society (YBS) aims to prepare members for successful and consequential careers in enterprise. YBS hopes to ignite a passion for global business among undergraduate students through a platform of lively discourse and broadened horizons.

For more information, visit us at www.yale.edu/business.