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

Fall 2010

Interview: Twitter Co-Founder Biz Stone • Solar Roadways •

Haiti’s Housing Crisis • Introduction to Distressed Investing • College Start-Ups [Fall 2010. Volume II. Issue I]

Editor-In-Chief From the Editor Paul Joo From the Editor In this issue of Business Sphere magazine, our writers address the complexity of business Editorial Directors from a student perspective as it relates to a wide variety of popular news. Business Sphere Jennifer Barrows aims to serve as a platform for increasing awareness of and interest in the far-ranging Monish Shah implications of business in social, economic, legal and political arenas. Managing Editors Amid the uneven recovery from the global economic downturn, it is clear that Evan Beck innovation and entrepreneurship are more important today than ever before. This issue Nabila Chitalwala 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 Administrative Editors Roadways CEO Scott Brusaw, who aspires to transform America’s roads into a source of Brian De renewable energy. In other featured articles, Yale students talk about their experiences in James Zhang fields ranging from college start-ups in New Haven to non-profit work in Haiti. Design Director I would like to extend a warm thank-you to the editorial and design teams for their Aimee Marquez 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 Finance Director collaboration. We hope for continued success and expansion throughout the year! Christopher Lee Paul Joo, Editor-In-Chief Operations Director Shiv Kachru From the Yale Undergraduate Business Society YBS President Shashwata Narain 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. Managing Director Business Sphere has been instrumental in furthering business awareness on campus Adam Bao through internationally pertinent themes and relevant topics.

Conference Director Business Sphere has grown tremendously in reach and scope over the last few semesters Elizabeth Andrekovich 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 On-Campus Affairs the business side of YBS operations. Eric Li The Fall 2010 issue of the Business Sphere would not have been possible without the Faculty Advisor efforts of Paul Joo, BSM Editor-In-Chief, Aimee Marquez, Director of Brand Management Lanier Benkard 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 2 Business Sphere Magazine | Fall 2010 10

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14 CONTENTS

Major Changes Petrodollar Recycling 4 Jennifer Barrows 16 Monish Shah 6 The College Entrepreneur Recession-Era Real Estate Evan Beck 20 Paul Joo Meet Mr. Twitter Internet Piracy 8 Monish Shah 22 Nabila Chitalwala Solar Roadways Return of the Vultures 10 Shiv Kachru 24 Jerry Feng

Destination: Masdar Leftover Women 12 Melissa Hou 27 Joanna Zheng

Go State! The Dania Foundation 14 Dakota Meyers 29 Daniel Kelly

Fall 2010 | Business Sphere Magazine 3 Education Major Changes Uncertain economy convincing some college students to switch majors

By Jennifer Barrows ence, business, and engineering were of success in almost any job. The the most likely to obtain jobs after other edge of the liberal arts sword, Students choose their majors for a graduation, according to the NACE though, is the fear that students will variety of reasons. While the advice survey. lack specialized skills that many is usually “do what you love,” stu- Although a blanket statement jobs require. For students desiring dents often find the choice difficult regarding student preferences can to major in the humanities or social in light of future internship and job not be made, it seems that there is a sciences, the debate often focuses on prospects, particularly in today’s growing trend towards areas of study how they will obtain and demon- recession economy. Although some that lead to secure employment. strate concrete skills employers seek students certainly change majors Degrees given out in health profes- in their applicants. to become more competitive in the sions, engineering and business, for To bridge these goals, many application process, motivations be- example, increased by double digit students at liberal arts universi- hind major changes are varied across percentages between 2007-2008, ac- ties are turning to the economics private, liberal arts colleges and cording to a 2010 report by the U.S. major, seeing it as a middle ground large, state universities. Although Department of Education’s National between a technical knowledge of this issue has been covered widely, Center for Education Statistics. the business world and a holistic perhaps new perspectives can be However, choosing a concentra- theory-based understanding of the gained today, several years into the tion based upon what job you hope field. David Colander and KimMarie aftermath of the global financial to have in the future or what jobs McGoldrick, professors of econom- crisis. Are students across different you predict will be available after ics at Middlebury College and the types of universities considering graduation can be a difficult, if not a University of Richmond respectively, economic conditions when they seemingly impossible, task. Students wrote in 2009 about two constituen- choose their major? In what uni- must weigh the content of the major cies within the broad umbrella of the versity settings are such decisions, against the work load and potential economics major: students who ma- if any, being made? Are they look- internship and job opportunities jor in economics with the desire to ing toward a particular job, or more such a major may offer. Students go to graduate school and students toward a particular major that can must also consider what types of who use the major as “a stepping lend itself to an industry? extracurricular activities they want stone to business and policy.” To place the issue in more con- to engage in to make up for what- Professors lament the gen- crete terms, the National Association ever concrete skills they cannot learn eral trend of undergraduate majors of Colleges and Employers (NACE) in the classroom setting. In today’s becoming more vocational. With surveyed members of the class of recession economy, this choice can respect to economics, they desire 2009 and found that education, gain even greater importance. changes in pedagogy and content foreign languages, English, history The liberal arts majors have tend- such that economics majors hew to and political science – the liberal ed to be characterized as providing the ideal of a liberal arts education arts – had the lowest job offer rates. a more holistic education, crafting – the attainment of an “economic In addition, the U.S. Bureau of Labor students’ abilities to think and write way of thinking” alongside broader Statistics believes that between now critically about a wide variety of in- humanistic lessons. and 2018, technical and hands-on formation. Indeed, proponents of a In fact, thinking like an economist jobs will have the most job openings. liberal arts education argue that the can sometimes be the motivating It is no surprise, then, that majors broader skills of writing, analysis, factor to choose this flexible major. such as accounting, computer sci- and argument are crucial elements Lydia Stepanek, Yale, BR’12, recently

4 Business Sphere Magazine | Fall 2010 switched from the Literature to Eco- row, career-oriented majors and echoed the sentiment that students nomics major. While Ms. Stepanek’s utilize internships and extracur- should major in something in which reasons for switching to this major ricular activities to further their they can invest their passion, al- were not fueled by job prospects – path toward that career. Indeed, though their end career goals differ indeed she notes that economics while the students interviewed for in their concreteness. Other articles has “a reputation for producing... this article represent only a small discussing the issue of the economy heartless I-bankers” – she believes and perhaps skewed sample, their and student majors primarily focus that being an Economics major will sentiments regarding the minor role upon students’ changes that fit their provide her with the appropriate the economy played in their choice predictions about the economy; this tools and modes of thinking to enter of major provides some insights into article has shown some students for the business world. students’ decision-making processes whom a strong love for a particular “Most companies, I imagine, and values today. field has shaped their extracurricular are interested in students who Anthony Parilla, a junior Sports choices and career paths. understand numbers and market Management major at the University Anecdotal evidence such as those trends,” she said. “Literature majors of Florida, knows that his specialized used for this article can hardly be are extremely smart, well-spoken major lends itself to a specialized ca- firm foundation for hypotheses people, but I want to have a better reer path with few job opportunities regarding the relative importance of feel for the reality of the business available. However, with the lessons economic conditions in the choice world: how to make it work, not how he learns in his classroom and his of a major, liberal arts or other- to analyze the psychological motiva- knowledge of the industry’s diffi- wise. What can be gleaned from the tions of a banker in a 19th-century culty, he is arguably in a better posi- general evidence and the interviews German play.” tion to apply to sports management featured here are that students often What Ms. Stepanek laments, how- internships, since “sports manage- shape their employment and ex- ever, is that her lack of more special- ment is more about getting connec- tracurricular choices during their ized skills could pose a hindrance in tions with people who are managers college years in relation to the ease her job application process. of teams,” he stated. He knows what with which their major lends itself “Majoring in something concrete particular internships he should seek to desired job opportunities. Mo- definitely gives students a leg up in in order to obtain the type of job he tivating factors behind majors – at whatever field they’re going into,” wants after college. wealthy Ivy Leagues or large state she said. For Ms. Stepanek, then, she As a senior Human Factors Psy- colleges – don’t always take into ac- believes that most of her actual busi- chology major at the University of count the economy, although recent ness acumen has been developed Central Florida, Melissa Smith has coverage of this issue tends to hype through her club activities. found that her liberal arts major has the situation in such a light. (For an “I know how to talk to business offered her a range of research and example, see “The Death of Liberal owners, get advertisement deals, internship opportunities. Although Arts,” NewsWeek, April 5, 2010). plan events, etc. all because of club certainly her options have not been Ultimately, the success of a activities,” she said. “I often feel that as specialized as Mr. Parilla’s would student’s job application process my classes don’t teach me how to be, she “worked in two research labs will likely reflect more the way that implement the rules they teach...I and partook in a summer intern- education has shaped the student’s know how to theoretically set the ship, all relating to human factors passions rather than what specific price of a product I’m selling, but psychology.” With these internships, skills he or she has learned in the I don’t really know what’s going to Ms. Smith believes she has devel- classroom, as Colander and Mc- work in the real world until I try sell oped a unique set of skills outside Goldrick state in their paper. In the something.” of the classroom that she can bring end, all employees need to learn the Thus, it appears that students to whichever career she chooses; in ropes of their new job, new lessons with broad majors such as eco- fact, her options include military no matter what background they nomics tailor their extracurricular applications, private practice and bring to the table. choices to supplement the theory industry positions, options that are they learn in class. Other interviews arguably more varied than what Mr. Jen is a junior History major in with students, however, shed light Parilla knowingly faces. Davenport College. on another approach: choose nar- Interestingly, both students

Fall 2010 | Business Sphere Magazine 5 Entrepreneurship The College Entrepreneur Beneath the glamor of successful college startups lies a host of challenges

By Evan Beck These are the gems of college for-profit and not-for-profit variety. ventures, the romantic ideal tens The theme that kept coming up was In 2004 Mark Zuckerberg of thousands of eager students that of teamwork. No matter how founded Facebook with fellow chase after every year. In hopes great an idea may be the people Harvard undergrads. Six years later, that they are pursuing the next big who work to propel it are vital in the company is valued at over $25 thing, many college students are keeping it alive. The people at the billion and serves half a billion unaware of the intense amount of head of a successful startup need to individuals from every corner of work that comes with building an know how to utilize every indi- the Earth. Zuckerberg is now the organization from scratch. To start vidual’s strength so as to compli- world’s youngest self-made billion- with nothing and build a corporate ment the organization. According aire. Just over ten years ago Stanford structure from the ground up is a to Liu, it can be especially hard to students Larry Page and Sergey very daunting task, one many do find people to join a non-profit, Brin started Google, now the worlds not realize when they begin the as the motives for joining need to largest and most famous web based quest for entrepreneurship. Yet, be completely based on passion search engine. Each of the cofound- around the country, and here at for the project and not on possible ers is worth billions and since going Yale there are students who are up monetary incentives. In the case of public in 2004 Google has reached a for the challenge. non-profits where a steady form of market cap exceeding $150 billion. I recently had the privilege of income isn’t flowing in, grants and Yet the world’s most famous col- speaking with Jim Liu, one of the donations are exceedingly impor- lege startup story may still belong founders of the non-profit organi- tant in keeping the organization to Bill Gates, who was convinced by zation ReadySetLaunch. ReadySet- alive. There are also many aspects childhood friend Paul Allen to drop Launch helps high school students of a non-profit that mimic quali- out of Harvard in order to co-found who may be financially disadvan- ties of a for profit venture though, Microsoft. taged access college application including the need for setting up preparation and mentoring for free a budget and financial structure, from Ivy League students. After something not all people realize is helping to start the organization very important says Liu. No matter how great an in 2008, Liu, a Yale sophomore is There have been many hurdles idea“ may be the people taking the semester off to continue in getting ReadySetLaunch to work building the organization. where it is today, and most compa- who work to propel it are Launch currently has 35 member nies and organizations face grow- vital in keeping it alive. students and 15 mentors here at ing pains in their first several years. The people at the head Yale as well as running operations One of the larger problems facing at Brown University in Providence, the organization concerns trying of a successful startup RI. The organization has also been to maximize face-to-face time with need to know how to awarded multiple grants from as many students who need it as Chase Community Giving to help possible. Luckily the Internet has utilize every individual’s further help high school students proved a way to expand beyond strength as to comple- from around the country. high school students in the imme- I talked to Liu about what he felt diate area. When I asked Liu about ment the organization. were the most important aspects of the presence of ReadySetLaunch in starting up any venture, both of the New Haven he said that

6 Business Sphere Magazine | Fall 2010 it was sometimes hard to get local year round services offered can tual founding of FedEx, the $66 bil- schools to accept or encourage help students plan out the details lion shipping giant. Though many Yale programs to exist. This is due of their businesses. YES offers an graduates of Yale may go on to be to the lack of consistency among annual venture challenge open doctors, lawyers, or investment some Yale College service groups to all members of the Yale com- bankers, there is ample proof that, in New Haven public schools munity. Cash prizes and financial with a great idea and sufficient am- over the years. All the same, the assistance are offered to winning bition, anything is possible. Even organization has been able to for-profit business ideas. Last year’s in the modern era there are still make ground in being available to winning venture went to an early ideas left to uncover and the next students in the region. stage business developing comfort- “big thing” is budding somewhere, There are many resources at able seats for wheel chair frames maybe even in New Haven. Yale for students who are inter- called KiSS. ested in starting their own busi- In the wake of the release of Evan is a freshman in Branford ness or non-profit. In fact, Dwight The Social Network, the glamor- College. Hall, the student service organiza- ized rendering of the founding of tion on campus, was instrumental Facebook, Newsweek magazine in helping ReadySetLaunch get recently ran a story on businesses started in its early days. The Yale started by college students. The Entrepreneurial Institute (YEI) has article included a blurb on Fred also stepped up its role in help- Smith, who while at Yale wrote a ing launch student ventures. The paper that would lead to his even-

Fall 2010 | Business Sphere Magazine 7 Company Profile One-on-One with Mr. Twitter Twitter co-founder Biz Stone talks about the future of social networking

By Monish Shah wife and I are using the fee offered access to the Twitter information for the endorsement to help fund network is very important because Business Sphere is proud to pres- our charitable non-profit, The Biz that is how most of the world can get ent an interview with Mr. Twitter and Livia Stone Foundation, a phil- connected. himself, Biz Stone. In 2009, Stone anthropic organization supporting was named in Time’s 100 annual art, education, environment, clean Monish @ Biz: list of the world’s most influential water, and healthy food for those in On that note, I understand that people. need. Twitter already enjoys approximately Prior to founding Twitter in 75% of traffic outside twitter.com on 2007, Biz Stone was a former senior Monish @ Biz: mobile applications. How are you specialist at Google and a former Twitter has come a long way in further developing Twitter’s mobile creative director at Xanga, the social recent years. To quote you, Twit- applications? networking and blogging service. ter has moved on from being “ice cream”—fun, if not that all that Biz @ Monish: Monish @ Biz: useful—to being “not a triumph We have built rich experiences I really enjoyed the “Would you for technology, but a triumph for on the iPhone, Android, BlackBerry, have a drink with you” advertise- humanity.” and Windows Phone. Smart phones ment of Stolichnaya Vodka that One of the hottest TwitTrends and other smart mobile computing you featured in. What inspired you recently was the buzz surround- devices like iPad provide a wonder- to feature in it? And what message ing the Nobel Peace Prize awarded ful canvas for developers to create do you hope to send about Twitter to Chinese dissident Liu Xiaobo. beautiful user experiences. However, through this advertisement? Recognizing Twitter’s impact in everything we do must also degrade connecting people towards politi- gracefully down to the most rudi- Biz @ Monish: cal dissent in regimes like and mentary feature phone capable only When Stolichnaya’s creative team Moldova and also in natural disaster of SMS. These are our roots and approached me with a script featur- situations, former National Security we believe that constraint inspires ing two versions of myself arguing adviser Mark Pfeifle has called for creativity. the merits of Twitter I thought it was Twitter to be nominated for the No- funny. It occurred to me that this bel Peace Prize. While you did not Monish @ Biz: would also be a good opportunity to originally foresee this impact, how Speaking about creativity, what is debunk the myth that Twitter is only do you hope to maximize Twitter’s your reaction to (former Twitter en- “a constant stream of meaningless impact in this regard? gineer) Alex Payne’s comment that babble” by mentioning presidential Twitter resembles a “walled garden”? tweets, business applications, and Biz @ Monish: Are there efforts underway to create NASA’s use of the product. We had a hunch early on that a better developer ecosystem to sup- It was a fun project for me. We Twitter could be complemen- port more apps for Twitter? shot on location at a bar in Los tary during disaster situations but Angeles with a bunch of extras and a thought it best to consider it one of Biz @ Monish: bigger crew than you’d imagine just many tools that could be used. We Twitter is one of the most open for a thirty second spot. The com- have created a globally relevant ser- organizations around today. We’ve mercial will run in North America vice and brand but there is so much always had application program- and South America for one year. My more work ahead of us—mobile ming interfaces (APIs) which helped

8 Business Sphere Magazine | Fall 2010 create an ecosystem of innovation Biz @ Monish: Given Twitter’s amazing success around Twitter. The most important We have no plans for an IPO and in a short span, you have pointed out people in the ecosystem are users it’s not something we’re engaged in how Twitter can serve as a model for and that is where we need to stay fo- discussing. Too much other work sunrise companies and industries. cused. We will continue to improve takes priority. Specifically, you expressed potential upon our platform offerings so us- for the growth of the solar industry. ers, developers, and Twitter alike are Monish @ Biz: However, the solar industry has a rewarded by the experience. Aren’t Twitter’s efforts at growth completely different business model going to harm Twitter’s fun and cool as Twitter, specifically being ham- Monish @ Biz: factor? After all, even your fellow pered by high initial costs along the Twitter is a business that seeks co-founder Evan Williams described early stage of the adoption curve. to do good as well. On the business Twitter as a “six foot tall 6th grader.” Given this challenge, will the mes- side, you had identified 2010 as the sage of doing good be sufficient to year when Twitter starts making Biz @ Monish: promote large scale solar use? money from nontraditional ads. I’m not sure if we’ve ever been Could you elaborate on this and cool but we certainly wouldn’t worry Biz @ Monish: other hopes you have for Twitter as a about that over serving users, taking Whether it’s the solar industry or business? good care of our employees, and in- social media, consumers are increas- novating. Our growth has, from the ingly making more meaningful Biz @ Monish: beginning been totally organic and choices because they are generally We tell new employees that we word of mouth. We don’t advertise getting more educated. Underesti- want to have a positive global im- or market Twitter—that all happens mating people’s capacity to make the pact, be a successful business, and on its own. right choice is a mistake. However, have fun. For many organizations that alone won’t do the trick—con- just two of those things means suc- Monish @ Biz: sumers demand both meaning and cess but for us, all three are required. I understand that one aspect of value so the bar for companies is Twitter makes money today from Twitter’s growth is that it has be- now set even higher. We’ve got to data licensing deals and non-tradi- come the world’s fastest growing rise to that challenge. tional ads. search engine, outpacing Bing and Our non-traditional ads are in the Yahoo combined, with 800 million Monish @ Biz: form of Promoted Tweets, Promoted searches daily. What are your expec- Would you like to offer our read- Trends, and Promoted Accounts. tations for Twitter as a search engine ers any final thoughts or comments Tweets, Trends, and Accounts are going forward? on what’s next for Twitter? all native to Twitter—they are a natural, organic part of the system. Biz @ Monish: Biz @ Monish: Advertisers pay us to have their Twitter is not a web search engine We have 175 million registered Tweets, Trends, or Accounts seen so comparing our growth to that of accounts creating more than 95 mil- and engaged with more than they Google, Bing, or others is mislead- lion tweets per day and we’re getting naturally would by being promoted. ing. The only thing people search for more than 370,000 new registered These promoted products are clearly on Twitter are tweets and even the accounts daily. We’re just getting labeled. way they do that is different—often started. We’d like to serve a billion searching for the same term multiple accounts and we’d like to grow into a Monish @ Biz: times to find new information on profitable business with lots of happy While you have expressed that the subject. Twitter is a real-time employees. We’re three years in hav- Twitter is a great company and you information network that is growing ing incorporated in 2007 but we’ve do not intend to sell it, you have also very quickly because it helps people still got a long way to go. previously stated that Twitter may discover what is happening in their go public to raise funding for further world in a way that creates value. Monish is a junior Economics major expansion. Do you have any com- in Morse college. ments on this? Monish @ Biz:

Fall 2010 | Business Sphere Magazine 9 Green Business Solar Roadways CEO Scott Brusaw shares his plans to replace America’s roads with solar panels

By Shiv Kachru solar panels, Brusaw initially dis- they were looking for a new source missed the idea, saying panels were of funding,” Brusaw claimed. When Changing the world takes big too fragile. But the idea stuck, and they saw his idea for Solar Road- ideas. Though you may initially dis- the couple began to think about how ways, he was given $100,000 to build miss Scott Brusaw’s idea of replacing to make it work. Though solar pan- a prototype. Pleased with what they asphalt with solar panels as outland- els are extremely fragile, he thought saw, the Federal Highway Admin- ish and unfeasible, his proposal is about using the material that makes istration told Brusaw to apply for turning heads in government and big up “black boxes,” which are used to an additional $750,000 in which to companies. Brusaw is the co-found- protect airline information in case of further develop his technologies. er and CEO of Solar Roadways, a a deadly crash, to protect the panels. Solar Roadways also entered start-up in Idaho that aims to reduce “I thought that if black boxes could General Electric’s Ecoimagination fossil fuel consumption by covering protect airline recordings in the case Challenge, a competition with the roads with solar panels to generate of a crash, then a similar material winner receiving up to $200 million electricity. Though the company could definitely protect the panels,” dollars. With the contest having is still strapped for cash, Brusaw is Brusaw said. recently closed, GE announced that already on his way to make solar Solar roadways work by sticking Solar Roadways was the top vote roadways a reality. a solar panel underneath a durable receiver from the public, and was sheet of glass. Embedded in the awarded $50,000. GE will announce solar panels lie circular LED lights, the final results of the competition Basically, what you have which can be used for anything sometime during November. “We is an intelligent road. The from guiding traffic by lighting up were very happy to have received the “ words on the road to providing most votes in the Ecoimagination panels are all connected. drivers with alternate routes when Challenge,” Brusaw said. “GE has Under the solar panels traffic is heavy. “Basically, what you its own labs and own engineering have is an intelligent road,” Brusaw groups, so this investment could re- are pressure sensors, so said, “The panels are all connected. ally accelerate the process of making if there is a traffic jam it Under the solar panels are pressure Solar Roadways a reality.” sensors, so if there is a traffic jam it Though Brusaw’s idea is truly can suggest an alternate can suggest an alternate route, or if revolutionary, the sticker price might route, or if there is a child there is a child in the road at night scare some potential investors away; in the road at night it can it can let you know that something the cost of a 12-foot by 12-foot panel is there.” Given that car crashes kill is targeted to be $10,000. This figure let you know that some- about 40,000 people every year and will come out to about $4.4 million thing is there. cost $164 billion each year, solar per mile. With millions of miles of roadways could save lives while driv- paved road in the United States, this Brusaw’s idea began when he ing down the costs associated with project is clearly outside the govern- was just six years old. “Growing up, accidents. ment’s budgetary reach. However, electric cars were my favorite toys The idea gained traction when Brusaw argues the costs of industries to play with. I still have drawings of the Department of Transportation that would be eliminated by clean, electric roads from when I was little,” began soliciting ideas to generate solar energy make the costs of imple- Brusaw said. When his wife one day electricity. “The State Departments menting this project feasible. “If you asked if roads could be made out of of Transportation are all broke, and add up all the prices of coal plants,

10 Business Sphere Magazine | Fall 2010 asphalt, nuclear plants, as well as the being able to charge electric cars on the glass. “Glass is the only unan- cost of the road system and electrical the highway while they are parked. swered question right now,” Brusaw grid, it is about equal,” Brusaw said. Similar to the way that an electric claims. “We don’t want to lose the Though they only have a 15% toothbrush is charged in its docking translucivity of the glass, otherwise efficiency, Brusaw estimates that the station, electric cars can be charged the panels won’t work. But we also panels would break even in about 20 through mutual induction while the need something that will provide years. Though this may seem like a car is in park. “Though you can’t enough strength and traction so that steep timeframe in which to recover charge batteries to full capacity with the panels can be driven on.” an investment, he notes that once the mutual induction, you can increase But Brusaw knows his idea will panels are serviced in about 20 years, the life of a battery powered car,” take slow implementation to gain the old panels could be replaced with Brusaw said. traction, and he hopes to start with a newer ones, with much higher effi- Although a 12-foot by 12-foot big-name company like Wal-Mart or ciency. “Though we only have about protoype has already been created, McDonald’s. “If McDonald’s decides 15% efficiency right now, when we Brusaw admits that it is far from the to ‘green’ their image and put in service the panels in 20 years we final product. One product fault is Solar Roadway parking lots, people could switch them out for something that the LED lights are hard to see could charge their cars while they with 60% efficiency or better,” Bru- from a distance, since they are far eat,” Brusaw said. “I challenge you to saw said. “Not only would this help down in the structure. For the next find 100 miles of interstate highway us keep up with increased demand in prototype, Brusaw plans to put the without a McDonald’s.” In other electricity, but the second round of LEDs and the solar panels between words, a person could theoretically costs would be a whole lot less than two pieces of durable glass, much drive across the country without the first round.” like the design of heating wires in stopping for gas at all, just by stop- Though many argue that a so- modern car windows. This would ping at McDonald’s to charge the lar panel farm would harvest just not only make the LEDs easier to car along the way. “People will start as much energy, while saving the see, but it would make the solar cells trading in their internal combustion expense of tearing up all the roads in more efficient by placing them closer engine vehicles with electric vehi- the country, Brusaw’s solar road- to the sunlight. As of now, the big- cles,” Brusaw said, “so as you do this, ways has the distinct advantage of gest challenge Brusaw faces is with 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 an- nual 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 11 Green Business Destination: Masdar Oasis of sustainability or desert mirage?

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

12 Business Sphere Magazine | Fall 2010 ity’s support. The U.A.E. government inaccessible for all but the highest thinking image and fail to catalyze alone is contributing over $15 billion echelons of society, residents who widespread and lasting advances in dollars, an advantage that few other can afford to shoulder the financial sustainability. sustainability initiatives elsewhere burdens of such a technology-inten- In a nation of manmade archi- in the world can boast. Even simi- sive city with above-average living pelagos and underwater hotels that, lar projects funded by prosperous costs. Indeed, Masdar’s target seems despite their unparalleled technology nations have carried smaller price to be the affluent and environmen- and engineering, have proved more tags; the Sino-Singaporean Tianjin tally savvy, as the local economy will beneficial for the U.A.E.’s tourism Eco City rings in at $9.7 billion, primarily depend on international industry and reputation of luxury while Logroño Montecorvo Eco commerce, technological services, than its aims for sustainability, City in Spain is projected to cost a and energy research led by the Mas- reservations about Masdar’s future couple hundred million . And dar Institute of Science and Technol- are not completely unfounded. But while Songdo International Business ogy (in partnership with MIT). Less one thing is clear – Masdar’s con- District in Incheon, South Korea is than a third of Masdar will be zoned cept and creation are a step in the estimated to cost at least as much for housing, and providing low-cost right direction. If even oil-exporting as Masdar, if not more, it is a much housing is nowhere on the project’s countries recognize the importance larger real estate development to be agenda. Some academics and policy- of establishing alternative energy populated by a significantly greater makers fear that within a decade of sources in the advent of a post- population. In the midst of a global Masdar’s completion, its sustainable world, perhaps others economic crisis, however, even qualities and futuristic features will will follow their lead. Masdar is no Masdar and the -dollars behind be overshadowed by the presence Potemkin village or white elephant its creation have been compelled of an international jet-setting and for Abu Dhabi, host of the annual to sacrifice a slice of its ambition in tourist crowd, and that the serious World Future Energy Summit; it is a in order to meet realistic goals. The commitment to clean technology by resonating statement of the emirate’s projected completion of Masdar has long-term residents will be forgotten. intention to establish itself as a long- been delayed four years, and devel- New York Times architecture critic term leader and knowledge exporter opers will still have to race to meet Nicolai Ouroussoff has condemned in the clean energy and sustainability the new 2020 deadline. the trend of such urban communi- movement. While shopping and en- As such, should Masdar succeed, ties evolving into “playgrounds for tertainment complexes cater exclu- can its model be replicated suc- tourists and the rich” and recently sively to the leisure-seeking crowds cessfully in other fast-developing declared Masdar the “culmination of who frequent nearby Dubai, Masdar nations? On a macro level, the this trend.” will contribute urban engineering prohibitive cost of constructing and The setbacks that Masdar City knowledge, as well as an important maintaining a planned city like Mas- developers have already faced speak precedent, whether or not it even- dar could easily deter countries that volumes about the exorbitant costs tually succeeds. Masdar may very cannot rely on a steady stream of oil of ensuring that the project meets its well be a failure of function from money from pursuing similar feats; lofty goals. Besides the project delay, which engineers will gain valuable it is no coincidence that almost desert dust particles that obstruct insight; indeed, some of humanity’s all attempts at creating high-tech solar panels must be cleaned away greatest innovations are products planned environments have been at great cost and have thus impeded of persistent trial and error. This limited to highly developed coun- energy productivity. In addition, city remains to be seen, of course, but for tries such as the United States, Japan, officials announced a year ago that now, Masdar will stand in the desert, and South Korea. And there is no the city may have to import energy potentially a mirage of its innovators’ guarantee that Masdar will be widely after all, a necessity that erodes dreams, but a gem for those who replicated even within the U.A.E., Masdar’s “self-sufficient” appeal and believe in its promise. though the U.A.E. government must disappoints those who hoped to hold be applauded for its prescient eco- Masdar to the highest environmental Melissa is a sophomore in Berkeley friendly investments. Even if govern- standards. Such realities constitute College. ments could finance the creation one of the reasons that Masdar’s of Masdar imitations, such urban long-term impact may be limited developments would likely remain to enhancing Abu Dhabi’s forward-

Fall 2010 | Business Sphere Magazine 13 U. S. Go State! How college towns across the country are faring during the recession

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

14 Business Sphere Magazine | Fall 2010 accordance with their employment or 1. Bismarck, ND* New Haven’s problem is not its lack thereof. 2. Fargo, ND* universities but rather its surround- 3. Lincoln, NE* ings. The city sits squarely in the “A spot that I love full well” 4. Rapid City, SD middle of the Boston-Washington College towns clearly have certain 5. Grand Forks, ND* Megalopolis. This means that New economic advantages over other parts 6. Sioux Falls, SD Haven has to share many of the of the country. However, this does 7. Burlington, VT* advantages brought by its colleges not mean that they are recession- 8. Omaha, NE with New York, Washington D.C., proof. To determine this, we must 9. Portsmouth, NH Philadelphia, and Boston. Instead separate holistic advantage from 10. Iowa City, IA* of attracting professors only to New those that melt away as a recession Haven, Yale and Quinnipiac bring takes hold. Generally, we can say Notice that six of the top 10 met- professors to New Haven, New York, that some of the employment boost ros (*) approximately fit our defini- Stamford, Hartford, and any city brought by the university and some tion of a college town. Three other within a morning commute of cam- of the additional spending brought by college towns – Manhattan, KS, Ames pus. The Megalopolis has the same ef- students are vulnerable to recession. IA, and Madison, WI – round out the fect on students. Rather than staying In terms of employment, universities BLS’ top 15. in town, many students spend week- function much like other businesses. What does this tell us? It indicates ends (and money) shopping in New When overall profits fall universities that college towns have weathered York, sightseeing in D.C., or watching begin to realize fewer dividends from the recession far better than the rest a basketball game in Boston. While their endowments. Thus, budgets of the United States. The national this provides more enriching oppor- shrink and jobs are cut. Students’ par- unemployment rate for August was tunities, it spreads thin the economic ents also tend to tighten their belts in a whopping 9.5%. This compares to advantages brought by the colleges. the midst of an economic downturn. 3.1% for Bismarck, ND and 5.1% for The one commonality between Though students themselves may not Iowa City, IA. Though none of these the six college towns in the top ten feel the full wealth-effects of a dip in figures are seasonally adjusted, they of the BLS’ unemployment rankings the economy, their parents likely do should still give us a good idea of is their distance from other metros. and push them to spend less. how comparatively well college towns New Haven proper is comparable in However, recessions do not affect have weathered the recession. size to Lincoln, NE. However, unlike some of the economic advantages All of this means that, though col- Lincoln, New Haven rests in a Ber- of having a college. Most universi- lege towns are not completely re- muda Triangle of other metropolises. ties receive federal funding, which cession-proof, they do usually enjoy Thus, the University of Nebraska is not always affected by economic higher employment and less holistic affects Lincoln like a pressure washer, conditions. In fact, government fund- decline than other regions of the targeting a small area with all of its ing often varies inversely with the country. Thus, being a college town might, while Yale and Quinnipiac act economy during short-term fluctua- does not eliminate the impacts of a more like a garden sprinkler, affect- tions. Additionally, colleges still at- recession, but it does minimize them. ing a much larger area with much less tract professors and intellectuals, and force. this can lead college towns to have a “Go Yale!” Overall, college towns stand a better-educated workforce. If college towns really do enjoy much better chance of leaving a re- tremendous economic benefits, why cession unscathed. However, relative “Our Team Will Never Fail” hasn’t the Elm City fared better dur- isolation plays a key role in ensuring This leaves us at a point of un- ing the Great Recession? The New that the college town actually realizes certainty. Recessions certainly affect Haven Metropolitan Area ranks 234 the economic benefits that its school college towns, but to what extent? To on the BLS August unemployment brings. In the case of New Haven, its answer this let’s look at employment rankings with a rate of 9.6%, slightly universities are a bit too small and statistics. Here are the top ten metro- higher than the national average. its neighbors a bit too big for it to politan areas (from lowest to highest Shouldn’t Yale and Quinnipiac facili- receive the full economic boost that a unemployment rate) in the U.S. Bu- tate economic growth for New Haven college can bring to a city. reau of Labor Statistic’s August 2010 just like Kansas State does for Man- unemployment rankings: hattan or the University of Vermont Dakota is a sophomore Economics does for Burlington? major in Branford College.

Fall 2010 | Business Sphere Magazine 15 Finance Petrocurrency Position in Peril? Will the weakening of the U.S. dollar pose a threat?

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

16 Business Sphere Magazine | Fall 2010 to describe OPEC as a cartel. The tries to use the U.S. dollar. This posi- feel that the petrodollar system is newfound OPEC solidarity, com- tive feedback loop for the U.S. dollar, once again causing them to “sacrifice bined with other factors such as the where its increasing use reinforced their own growth.” Six Day War caused an astronomical its strength, ensured the reserve cur- In fact, the depreciation of the rise in oil prices; from $1.80 in 1970 rency status of the U.S. dollar. U.S. dollar in a time of high oil to $39 in 1980 (nominal prices). Indeed, the U.S. dollar was ef- prices has prompted calls within While petrodollars were not a new fectively backed by oil, or black gold, OPEC to shift from U.S. dollars to phenomenon, the rise in oil prices in the words of journalist William other currencies. Javad Yarjani, the caused the volume of petrodollars to Clark. Former Federal Reserve Bank head of OPEC’s Petroleum Market surge. Chairman Paul Volcker later re- Analysis Department, has remarked The sharp contrast between the flected on the importance of pet- that in the long run, many oil ex- surpluses earned by the oil export- rodollar recycling. He said, “There porting countries could shift to sell- ers and the deficits incurred by the was great irony, people were more ing oil in euros, if the emerged importers created an international willing to hold dollars that weren’t as a more widely beneficial system imbalance of payments. The pet- backed by gold than they ever were for the OPEC nations. Yarjani failed rodollar recycling system required willing to hold dollars that were to convince the OPEC to sell oil in OPEC countries to “recycle” their backed by gold.” Craig Karmin euros, but his country, Iran, did stop petrodollar surpluses in dollar- writes in his book that “jettisoning accepting U.S. dollars for oil in April denominated assets to finance the the Bretton Woods system…liber- 2008. Furthermore, in 2008, Russian deficits of oil-importing countries. ated the dollar…[It was] an oppor- President Vladimir Putin expressed Thus, the development of a petro- tunity to spread the influence of the the possibility that would dollar recycling system alleviated dollar even further.” The system of start selling oil in euros. With the the international imbalance of pay- petrodollar recycling promoted an recent weaknesses in the , ments. Petrodollar recycling played increased circulation of U.S. dollars. that possibility seems to be deferred a crucial role in preventing a beggar- While the U.S. has had the for now. The U.S. dollar may contin- thy-neighbor currency depreciation, exclusive privilege of supplying the ue benefiting from the “ugly sister” which would have plunged the for recycling capital, such syndrome, which refers to its relative economy to the depths of the 1930s. an international financial system strength vis-à-vis other major cur- George Shultz, who served as U.S. is inherently unstable. Former Yale rencies, for the short term. However, Treasury Secretary under Nixon economist Robert Triffin proposed oil producers could eventually move after Connolly, commented on the the “Triffin Dilemma” which sug- away from the petrodollar system. effectiveness of the financial mar- gests that an international financial Saudi Arabia was among the kets: “Far from collapsing under the system such as that built by the countries making cries for a switch weight of the petrodollar problem, United States through petrodollar to the euro. However, in early 2008, financial markets thus worked to recycling is inherently volatile as Vice Governor of the Saudi Arabian solve that problem.” “the only way for all other econo- Monetary Authority Muhammad Through the petrodollar recycling mies to accumulate net assets in the Al-Jasir reassured the United States system, the United States led a new dominant currency is for the domi- in a public announcement that Saudi international financial system which nant economy to perpetually run a Arabia would continue to sell oil cemented the position of the U.S. current account deficit.” Thus, the in dollars. However, Al-Jasir now dollar as the international reserve U.S. economy was bound to run a seems to have shifted his position. currency. The U.S. dollar’s predomi- current account deficit that would In March 2010, Al-Jasir, as the newly nance as the currency for global imperil the stability of the interna- appointed chairman of the Gulf trade and commerce accrued it a tional financial system. Cooperation Council Monetary “network externality” effect. Since Council, announced that he was the U.S. dollar was used internation- The “prisoner’s dilemma” facing oil spearheading a push for the - ally to service debts, pay for goods exporters exporting countries to institute their (including oil) and services, and to The current slide of the U.S. own currency. While a common hold reserves, it became stronger. dollar therefore may raise serious Gulf currency is probably years away This in turn compelled more coun- concerns for oil producers who may from fruition, the announcement is

Fall 2010 | Business Sphere Magazine 17 a significant development. The Gulf tion in the U.S. dollar would put a government’s moves towards inter- Cooperation Council has among its significant dent to the value of their nationalizing the renminbi. How- members an estimated 40% of the reserves. This “prisoner’s dilemma” ever, China seems reluctant to make world’s reserves. Thus, a common raises the spectre of an individual the renminbi the next international Gulf currency would significantly oil-exporting country switching reserve currency lest it suffer from challenge the U.S. dollar as a cur- from petrodollars towards other the “Triffin’s Dilemma.” rency to invoice oil, and ultimately, petrocurrencies and bringing about as an international reserve currency. a collapse of the petrodollar system, In conclusion, petrodollar recy- While a growing response of oil triggering a domino depreciation on cling was originally a means to es- exporting countries to the prob- the U.S. dollar. tablish the U.S. dollar as an interna- lem of petrodollar recycling is built tional reserve currency. The United around moving away from the U.S. Will QE2 cause a crash of the U.S. States has abused that position dollar, most oil exporting countries dollar as the petrocurrency? to run an “empire of debt…[built are currently working within the Ironically, the United States may upon] deficit without tears,” to bor- petrodollar system to maximize inadvertently bring about the end row the words of Italian economist the benefits of having petrodollar of the U.S. dollar’s reign as interna- Antonio Mosconi. However, the surpluses. For example, countries tional reserve currency. As Professor United States’ fiscal irresponsibility like Saudi Arabia, Kuwait and the Eichengreen points out, the United has caught up with it. The continued United Arab Emirates are launching States may decide to depreciate the decline of the U.S. dollar makes its wide-ranging reforms to increase U.S. dollar to reduce its ballooning exclusive use as a petrocurrency in their absorptive capacity and also current account deficit. The Federal the long term unlikely. attempting to maximize investments Reserve’s latest round of quantita- Paul Kennedy expressed in the made through the financial account tive easing (QE2) has put further New York Times that this growing channel. downward pressure on the U.S. dol- movement away from the U.S. dol- Nevertheless, the significance of lar. This depreciation could further lar is part of a larger international oil exporters like Iraq, Iran, Venezu- push oil exporters towards another movement. “The nastier interpreta- ela, Russia, Kuwait and Saudi Arabia currency. Conversely, if the U.S. does tion of this move toward ending the having made or making attempts to not tackle the ballooning deficit, U.S. dollar’s preeminence is, let there be move away from selling oil in dol- debt will grow and this will surely no doubt, an anti-American one,” he lars cannot be understated. These lead to speculative attacks on the said. countries hold the largest remaining dollar. Martin Wolf, the chief eco- OPEC recently celebrated its oil reserves. If any or a few of these nomics commentator of the Finan- silver anniversary, marking 50 countries do successfully turn away cial Times, gave a grim prognosis to years of support for the petrodol- from the dollar, such an event could sum up the American predicament: lar system. Going forward, OPEC’s spark an exodus of nations from the “The Americans no longer have the choice of whether or not to stick petrodollar system. means to save themselves.” with the status quo is likely to be a To borrow economic histo- Compared to “Petrodollar I,” the key strategic issue for OPEC. As the rian Barry Eichengreen’s analytical “Petrodollar II” phase symbolizes U.S. dollar continues to depreciate, framework, it is in an oil exporter’s the shifting of the international eco- the economic rationale for a move individual interest to switch from nomic and financial center of gravity away from the U.S. dollar grows. charging depreciating dollars earned away from the United States. Going Losing its status as a petrocurrency from oil sales to other more stable forward, this begs the question of could put the writing on the wall for currencies. However, it is not in whether we will see the emergence the U.S. dollar as the international oil exporters’ collective interest of any currencies with sufficient reserve currency. to switch from dollars as a mass liquidity to take over the U.S. dollar’s selloff would bring about the very position as petrocurrency. Some Monish is a junior Economics major depreciation of the dollar they speculate that the Chinese ren- in Morse College. fear. Given that most oil exporters minbi is a viable candidate given the hold a majority of their reserves in increasing prominence of China in dollar-denominated assets, deprecia- the global economy and the Chinese

18 Business Sphere Magazine | Fall 2010 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 A typical investor would go into Yes. Whether we purchase or through the economic downturn a market in Russia and find a local acquire a building, whether it only and its plans for the future. developer that they could team up needs leasing or also needs renova- with, whereas with Hines, we have tions, we always want to have build- BSM: Could you tell us a bit about our own people on the ground that ings that, when they’re finished, will Hines’ model of vertical integration? are executing the business. It allows be core buildings. This means a very How unique is this approach in the us to maintain control over qual- strong location, as well as efficiency, industry and how does it inform the ity as well as alignment of interests: both in how a tenant uses the space decisions of the company? if everybody is working for Hines, as well as things like energy efficien- we don’t have problems with a local cy. Ultimately, of course, we want to Baughn: There are a number of large partner that might have different have strong leasing in the building. regional developers that develop and goals. There are certain things you can also manage and lease their build- We view this as a real competitive fix about a building. If you have a ings, but there are very few inter- advantage. In Moscow, for example, great building that has a lot of lease national firms that do this. So we where the market is not very trans- rollover you can fix that. But if might compete with a firm in, say, parent, we’ve had our own team for you have a building in a secondary southern California that uses a mod- 15 years. It’s allowed us to create location that tenants only go to in a el very similar to ours. Or we might the largest management and leasing very strong market, that’s obviously compete with someone in Chicago business for Class A international something you can’t fix. So our focus that has a comparable approach. But office space in the market. is always on premium locations and when it comes to competing either high-quality buildings. across the U.S. or globally, we have Since its inception, Hines’ central very few competitors that are verti- focus has been in the class A office How has the economic slowdown has cally integrated, that are providing space market. Does this remain the affected Hines’ operations? Have any both the development or renovation central focus of the company within major projects been canceled due to as well as the property management. the context of the global recession? challenges in raising capital?

20 Business Sphere Magazine | Fall 2010 We had our capital in place for turns across the market are so low, can extend it for a few years and stay everything we were doing; certainly not just in real estate, if you have current on the interest, that may be we use leverage and debt, but unlike a fully leased high-quality office more attractive to them than taking some of our competitors, we were building in a major market, it will be back the building. As a result, there not overleveraged. So we did not trading at cap rates that are remi- has not been a lot on the market in get into a position where we did not niscent of the peak of the market. terms of distressed assets. have the capital to fund a project. So again, the rebound of values in It has been challenging, though, to high-quality core real estate has been Looking ahead, what’s exciting on the raise capital for new projects. much stronger than we expected a horizon for Hines? year ago. A unique aspect of the company is That said, even if we don’t go Emerging market countries that it remains privately owned. How into a double-dip recession, there are doing quite well. We have, for does this affect Hines’ operations? Has are very few major economists who instance, a strong business in Brazil, the ownership structure been a fac- think we are going to have a lot of where we’ve had a team for a num- tor in raising capital during the past growth in the next year or two. 2011 ber of years. The Brazilian economy couple years? is going to be a challenging year in is not as linked to the U.S. and Eu- terms of filling up office space, and rope as many other economies are, If you look at the public com- probably 2012 as well. Hopefully and it has continued to perform well panies in real estate, they have an by that point the recovery kicks in through the recession. The same can advantage right now in terms of and we start to see a more complete be said of our operations in China raising capital, whereas, a few years turnaround. and Russia. Being in those parts of ago, they were at a disadvantage. So the world, we’re seeing traditional it swings both ways. Have distressed assets presented development opportunities today. It’s important to note that being acquisition opportunities for Hines? private ultimately makes sense for As a final question, what makes real estate investment. We do what There are certainly some dis- Hines different? Why is Hines special we think is the best long-term strat- tressed opportunities, particularly for you personally? egy, as opposed to being dictated by in Western markets, but we’re not Wall Street analysts and quarterly seeing the flood of large-scale op- The Hines family has done a reports. But yes, there are certainly portunities in the real estate market great job of setting the right tone, times in a market cycle when you that many predicted. the right culture. You have a lot of look across the fence and wish you people at Hines who come out of could be doing what other firms are Why do you think that is? business school and are here 20, 25 doing. years later. I think it’s a combination It’s different for the class A office of having the right ethics, as well as Are there any bright spots in this market because the regulators are being a platform for entrepreneurs. economic slowdown? How would you not forcing banks to sell off their bad You can create your own opportuni- describe the state of recovery in the loans. Unlike the early 90s and RTC ties, and you have behind you the real estate market? days, when the regulators basically support of a global company. came in and forced the banks to One, I think the debt markets for write down and sell their assets, the Paul is a junior Cognitive Science high-quality office buildings have banks this time are being allowed and International Studies major in come back a lot stronger than any of to strengthen their balance sheets Berkeley College. us would have thought a year ago. slowly and have not been told that I mean, today, if you’ve got a fully they need to sell assets. leased office building, you can bor- And with interest rates so low, if row money at somewhere between you extend a loan, most mortgages 4-5%, which is much lower than will cover their debt service. The expected. That’s a huge positive. loan to value may be too high, but The other thing is, because re- from a bank’s point of view, if they

Fall 2010 | Business Sphere Magazine 21 Law Internet Piracy As online content expands, so do high-stakes legal battles been angered. As a result, YouTube Viacom sued Google in 2007, By Nabila Chitalwala spent significant amounts of money claiming that Google deliberately developing its content ID system, overlooked piracy that was ram- Legal rights are the foundation an automated filtering system that pant on YouTube in order to profit on which any democratic society detects and blocks infringing videos. from that piracy. Google did take stands, and protecting copyrights Google also signed revenue-sharing down material when notified, but is essential for the development of agreements with over a thousand until then, it profited hugely from new works in the artistic, scientific media companies. Notably, these the heavy traffic on its site, some of and economic spheres. On the one moves were voluntarily undertaken which was attracted by copyrighted hand, upholding copyrights pro- by Google to placate other compa- materials, many of them time-sensi- vides incentive to artists, scientists nies and were not legally mandatory. tive. According to Viacom, Google and entrepreneurs to invest in their According to the law, all YouTube robbed copyright owners of their creations. But on the other hand, was required to do was to take down revenue and paid no price for it. stringent copyright laws can create material when copyright holders Evidence that this was done deliber- obstacles for the spread of knowl- complained about specific content. ately was shown via internal emails edge, harming the interests of the And as Judge Stanton noted, “The among YouTube’s founders. These public. A recent lawsuit that high- present case shows that the DMCA e-mails between Chad Hurley, Steve lights this dilemma in the nature notification regime works efficiently: Chan and Jawed Karim revealed that of copyright laws is the Google- when Viacom over a period of YouTube was willing to overlook the YouTube vs. Viacom lawsuit. months accumulated some 100,000 pirated material on its site, knowing Google won a huge victory when videos and then sent a mass take- that if they gave in to heavy filtering, Judge Stanton, district judge of New down notice on February 2, 2007, by they could lose a high percentage of York, dismissed Viacom’s $1 bil- the next business day YouTube had their profitable traffic. Arguably, the lion copyright infringement lawsuit removed virtually all of them.” hosting of such illegal and highly against YouTube, which is owned profitable pirated material contrib- by Google. The basis of the ruling uted to YouTube’s growth into a was the ‘safe harbor’ provision of the Fricklas, Viacom’s general $1.65 billion company. Thus, many Digital Millennium Copyright Act believe that this ruling is a blow to (DMCA). The ruling validated You- “counsel, reiterated the American inventors and creators Tube’s practices for handling copy- fundamental purpose of who are fighting piracy around the right material, thereby encouraging globe. other sites handling user-generated copyright, explaining that On the other hand, it may be content, like Facebook, to follow “copyright protection is unreasonable to hold companies similar practices. essential to the survival that market products or services Viacom’s expectation that Google that merely make copyright viola- police every video uploaded on of creative industry” and tions easier fully responsible for YouTube, the world’s largest video- claimed that this ruling such violations by their customers. sharing website, seemed unfeasible For instance, a photocopy machine due to the heavy amount of traffic would serve as a disin- maker would bear no liability for the received by the site. At the same centive to creation and copyright of protected works by its time, had Google sat complacently, invention in society. customer, even if this were done other media companies would have using the company’s photocopier. If

22 Business Sphere Magazine | Fall 2010 Google provided e-mail “messages showing Viacom employees uploading copyrighted clips to YouTube even as the company was com- plaining about copyright infringement. companies could be sued for pirated take action to prevent violations invention in society. materials uploaded by their custom- when they have reason to believe, as Copyrights are integral to the ers, a huge money-making Google does, that such violations are progress of business, especially as scheme would be created by which occurring. ideas and content circulate around companies could sue sites for Despite heavy opposition from the world at an unprecedented pirated materials that they them- Viacom and many other media rate. However, in a digitalized age, selves uploaded. For instance, in companies, Judge Stanton sided the measures needed to ensure the Google vs. Viacom case, Google with Google, which claimed that, the protection of such copyrights provided e-mail messages showing although they knew that some mate- are becoming elusive, as technolo- Viacom employees uploading copy- rial uploaded on their site was in gies that promote the widespread righted clips to YouTube even as the violation of copyright law, they did dissemination of information such company was complaining about not know which clips had been up- as file-sharing sites on the Internet copyright infringement. loaded with permission and which become increasingly popular. It is Nevertheless, Viacom and many had not. Thus, they could not dis- extremely important to protect the others believe that companies criminate among and remove these interests of inventors and to ensure should take more direct measures to clips unless copyright violations that their work is rewarded, so that ensure that they are not facilitating were reported by a third party. they are motivated to continue to copyright infringements. The law The court’s ruling was hailed as create and invent. At the same time, should make provisions for com- reasonable and fair by many com- it is equally important to ensure that panies to monitor their own sites panies, especially sites that rely on large companies do not monopolize to check for such violations. The users to upload their own con- information or content. The public feasibility of such a scheme, how- tent. Kent Walter, Google’s general should be granted the right of access ever, is in doubt. For example a site counsel, rejoiced, “This is a victory to materials after either a certain like YouTube receives up to 24 hours for the Internet and the people who period of time or by paying for of video every minute; monitoring use it.” However, the ruling was that material at prices that are not such a site would be nearly impos- criticized by others. Viacom decided kept artificially high by such com- sible. to appeal, condemning the ruling panies. The limited establishment However, without such a monitoring as “fundamentally flawed.” Michael and upholding of copyright laws are system in place, the rights of many Fricklas, Viacom’s general counsel, beneficial to society as a whole. individual copyright holders, who reiterated the fundamental purpose lack Viacom’s resources to search of copyright, explaining that “copy- Nabila is a freshman in Davenport the Internet for infringing material, right protection is essential to the College. would be violated. Thus, the argu- survival of creative industry” and ment is that site operators, rather claimed that this ruling would serve than looking the other way, should as a disincentive to creation and

Fall 2010 | Business Sphere Magazine 23 Finance Return of the Vultures An introduction to distressed investing

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

24 Business Sphere Magazine | Fall 2010 vestor, are presented with the chance a $12,000 return, pocketing a handy to buy a dollar bill for, say, five cents. profit of $5,000, or 71% of his in- The concept is simple. Assume vested money. Mr. X is a happy man. The investor must that I just borrowed $10,000 from Now consider the unfortunate “harness the delicacy of a you and promise to pay you back case. I run off with the rest of money surgeon, the intuition of $12,000 in two years, with the extra to the Cayman Islands, outside the $2,000 from the fact that I need to discretion of United States law. Mr. a mathematician, and the compensate you for the extra money X, after one year, is unable to find chutzpah of a seasoned your $10,000 would have earned in me. He has lost his entire $7,000 a bank account had you just depos- initial investment and has not re- poker player in order to ited it for two years. However, after couped a single dime. A more likely calculate how much value the first year, I have indulged in scenario is that I somehow manage too profligate of a life, bought some to get a part-time job, enough to accrues to a distressed spiffy gifts, and lost my job. After the earn $4,000, all of which I pay to Mr. security, and when to first year, it doesn’t look like I will X by the end of the second year. Yet, buy it. have that $12,000 to pay you next he still suffers a loss, because he put year. What would be the rational in $7,000, only to wait a year and get thing for you to do to recoup your $4,000 back, a 43% decline in his ini- course that what you bought is truly loan? For one, you could discipline tial investment. Indeed, Mr. X could a dollar, backed by the full faith and my life, restrict me from buying any- have done better by depositing his credit of the powerful U.S. Federal thing else, and force me to find a job, original $7,000 in a bank account or Reserve. By placing their faith in so that I can have enough money to a hedge fund (assuming it’s not run distressed companies, this class of pay you back, giving me more time by Madoff). investors arguably plays a vital role to repay (debt refinancing). Alterna- While real life cases are inevitably in resuscitating many moribund tively, you could “sell” to someone more complicated, this simple ex- companies. The spectacular returns else the $12,000 claim you have ample illustrates the essential prin- are a corollary of the outsized risk against me. A buyer will pay you a ciples of distressed investing. When distressed investors bear. Thus, the certain price for the right to receive executed correctly with adequate popular conception of distressed the potential $12,000 (remember, research and sophisticated financial investors as vultures fails to take into I may still not be able to pay that understanding, distressed investing account the crucial role they play as back). But what price should you get epitomizes the sacred tenets of “val- well as the risk they bear. for selling the claim? Given my tenu- ue investing” and “margin of safety” According to the Combined ous situation, a rational buyer would (two terms widely espoused by loyal Altman-NYU Salomon Center pay much less than $12,000 for the followers of the Benjamin Graham Defaulted Public Bond and Bank claim, to account for the possibility circle of investors, including the leg- Loan index, the average return of my defaulting. Let’s assume the endary Warren Buffett). Distressed on distressed assets in 2009 was a buyer pays you $7,000 for this claim. investing is fundamentally about spectacular 56%. Of course, making You walk away with $7,000 in your buying the bonds and bank loans double or even triple digit returns wallet and can finally sleep soundly. of companies, often at a significant on distressed securities is easier In this case, the buyer is the dis- discount, with the anticipation that said than done. Indeed, the road tressed investor, and I represent the in due time one will recover much to success in distressed arbitrage distressed company. The buyer, say more than the amount of money is paved with financial and legal Mr. X, is down $7,000 and prays that that one had put in. That philosophy potholes for the unwary investor. In I pay back the $12,000 I now owe to of buying a dollar for fifty cents is of real life, distressed investing requires him, not you. course the basic principal of value a sophisticated understanding of One year passes, and several investing – taking advantage of dis- business models and relationships scenarios are possible. In the rosy crepancies between price and value. between securities. The spectrum of case, I somehow win the lottery, and How about “margin of safety”? Well, distressed securities from which one pay back the $12,000 to Mr. X. He is just buy the very cheapest dollar you can buy is vast, ranging from senior elated that he put in only $7,000 for can find on the market, assuming of secured bonds to junior unsecured

Fall 2010 | Business Sphere Magazine 25 of inefficiency is precisely because caused a disillusioned populace to For budding investors none but the bravest souls dare to be more inclined to save rather than venture into this perilous unknown spend their disposable income. This “and veterans alike, there where uncertainty and confusion lie has forced many businesses such as is really no better place to at every corner. newspapers publishers, booksell- Despite these dangers, distressed ers, and real estate trusts to clamor undergo the proper rite of investing has blossomed into a to the protective arms of Chapter passage into the kingdom thriving industry in the past five 11 bankruptcy, allowing the com- of financial wizardry than years, with the industry populated pany to remain in business. Indeed, mainly by hedge funds and propri- distressed investing can be a sad, in the dense jungle of etary trading firms at some of the vicious industry where only the very distressed securities. largest Wall Street banks such as top have a chance to survive, while Goldman Sachs, Morgan Stanley, the bottom quartile of fund manag- debentures or even warrants (call and J.P. Morgan. David Tepper, ers meet the same fate as the compa- options on the underlying company) perhaps the most prominent dis- nies they originally sought to study. that are detached from issued bonds tressed debt investor today, bought Yet, for those driven and moti- and are traded actively in over-the- billions of dollars of distressed debt vated by the intellectual quest to counter markets. The investor must in troubled financial institutions, explore the byzantine, the distressed harness the delicacy of a surgeon, convinced that they were ‘too big to asset class offers a most delectable the intuition of a mathematician, fail.’ His gamble earned his hedge challenge. In the light of Basel III and the chutzpah of a seasoned fund, Appaloosa Management, penalties cracking down on risky poker player in order to calculate over $7.5 billion in 2009. Careful lending by banks to distressed how much value accrues to a dis- dissections of companies facing companies, investors have a greater tressed security, and when to buy it. bankruptcy are now conducted by scope to delve in distressed compa- The analytical work can be messy leagues of extraordinary security nies. Investors will inevitably hone and nasty, requiring the investor analysts, often armed with fresh JDs their skills in the disciplines of se- to untangle webs of arcane legal from some of the nation’s top law curity valuation, market timing, and phrases that govern the order the schools. No wonder the distressed most importantly, risk-management. bonds and loans are paid off when a market is getting ever more efficient. It is a market sufficiently mispriced company falls under distress. Roger For many investment professionals, for hard work and due diligence to Lowenstein’s colorfully analogy in distressed investing offers return separate the men from the boys, the New York Times would serve to profiles highly uncorrelated with yet it is also responsive and liquid illustrate the importance of the order equities, fixed-income, and currency enough for prices to adjust quickly of debt payments: “Imagine a seaside market performances; distressed to proper value within a few months condo beset by flooding: just as the reflects an arena where a majority of to a maximum of about two years. penthouse will not get wet until the a portfolio’s alpha (value) is created For budding investors and veterans lower floors are thoroughly soaked, by the raw analytical making skills alike, there is really no better place so the triple-A bonds would not lose of the investor. to undergo the proper rite of pas- a dime unless the lower credits were Distressed investing is of par- sage into the kingdom of financial wiped out.” ticular relevance in today’s dour wizardry than in the dense jungle of One must not only understand economic climate, as in prior post- distressed securities. the key sources of the company’s recessionary periods. The United revenues and its major risks, but also States and the global economy are Jerry is a senior Economics major in be well-versed in bankruptcy pro- recovering slowly and unsurely Calhoun College and has previous ceedings to understand the jargon of from the financial meltdown that summer experience working with the courts, such as voidable prefer- swept the world three years ago. distressed debt instruments. ence, pari passu, unencumbered The credit crunch in the wake of the assets, and priming. Indeed, the subprime mortgage crisis affected reason that the distressed investing financing options for many compa- market exhibits such a high degree nies. The weakened economy has

26 Business Sphere Magazine | Fall 2010 Labor Economics Leftover Women The term ‘shengnu’ points to serious gender imbalances in China

By Joanna Zheng pressure to forego employment for the workplace. For example, Hera motherhood. Siu, the Nokia China general man- If you ask a female student at For those who are intrepid ager and vice president of corporate Fudan University in Shanghai, enough to venture into the business wage gap is another separating fac- one of the top universities in the world, challenges and prejudices tor that discourages women from country, what her greatest fear is, hinder them from attaining influen- affairs, noted that she had routinely odds are high that it will not in- tial roles. The culture of gender dis- experienced a 25 percent wage gap volve her studies, her salary, or crimination, particularly prevalent compared to her male counterparts even her employment. According in upper management and entrepre- during past jobs. These inequali- to a nationwide survey conducted neurship, results in a “glass ceiling” ties do not reflect differences in by the Fudan School of Journal- phenomenon similar to that in the education or experience, a fact that ism, more than 70 percent of urban Western world. This reflects the frustrates many female workers. women surveyed admit that what dominant attitude that business is a Although progress is visible, the they fear most is being “left behind” man’s sphere and that women lack playing field is still far from level. as a shengnu, an older unmarried the traits necessary for successful Many businesswomen agree that woman. Despite the fact that many business operations. Li Jing, manag- one of the most important tools for of these shengnu have top-tier ing director of J.P. Morgan Chase, building confidence and encourag- education and successful careers, has voiced his concern that “[wom- ing more women to enter business they suffer a cultural stigma against en] might lack a bit of courage when is networking. Having a support their status: they have passed the making decisions.” Statements like system of other women, especially ideal childbearing age and are now these contribute to the perceptions mentors who have gone through “leftovers.” many Chinese people hold about similar experiences themselves, is This social barrier is just one of female business acumen. vital for younger workers who may the many reasons why the Chinese As in many other places in the be daunted by the social obstacles business environment is a diffi- world, the issue of the male-female they face as they begin their careers cult and, at times, hostile place for wage gap is another separating fac- Even at the higher levels of corpo- aspiring businesswomen. A major tor that discourages women from rate ladders, women can still take cultural barrier is the traditional comfort in knowing that they can view that dictates that a woman’s rely on a network of peers. Yu Jian, primary place is in the home. Many Despite the fact that deputy secretary of the party com- Chinese still hold this view, despite many of these shengnu mittee of Shenzhen Gas Group Co. the fact that many families today “ Ltd., notes that “female leaders often rely on women’s wages as an im- have top-tier education feel lonely” and that “heavy pres- portant source of income. Having and successful careers, sures are unavoidable.” With this in to fulfill the time-honored role of they suffer a stigma mind, she has sponsored Shenzen’s wife and mother while carving a Women Entrepreneurs’ Associa- role in the workplace puts many against their status: they tion for six consecutive years and Chinese women, particularly those have passed the ideal frequently hosts parties and social from urban areas, in a bind and activities for other female business- can force a difficult decision. As the childbearing age and are women. Fudan survey shows, many feel the now “leftovers.” Despite these glaring problems

Fall 2010 | Business Sphere Magazine 27 with gender equality, the Chinese in the face of setbacks and difficul- business world is a much friendlier ties.” Their levelheaded thinking and environment for women than it was ability to remain calm in stressful Many businesswomen even ten years ago. situations are traits which, some “agree that one of the most Deng Xiaoping adopted his “open businesswomen believe, give them market” economic approach in the an edge over male peers. Christine important tools for build- 1980s, famously declaring that “it Chen, founder of a raw textile sup- ing confidence and en- doesn’t matter whether a cat is black ply company, explains her belief in couraging more women to or white, as long as it catches mice.” the importance of communication The advent of capitalism quickly in business: “In Chinese, the way enter business is network- established a burgeoning middle you say business is ‘shen yi’, which ing. Having a support and upper class demographic, but translates to ‘helping each other cre- this demographic was overwhelm- ate a meaningful living’...It includes system of other women, ingly male. In recent years, however, communicating your authenticity, especially mentors who more companies have begun to hire your care and your emotions— women, with statistics showing a everything.” have gone through similar higher number of female workers Indeed, there is no doubt that experiences themselves, is and executives than in the past, ac- women have cultivated strong vital for younger workers cording to Qianqian Du, assistant presences in China’s businesses, professor of finance at Shanghai with names such as Dong Mingzhu who may be daunted by Advanced Institute of Finance. (president of Gree Electric Appli- the social obstacles they ances) and Wang Xiaoyan (chief in- formation officer of Lenovo) dotting face as they begin their Deng Xiaoping adopted his financial headlines. These women careers. “open market” economic have made the arduous climb up the “ corporate ladder through persever- the role models aspiring female ex- approach in the 1980s, ance and tenacity. Dong Mingzhu, ecutives look to for inspiration. famously declaring that for example, was born as the young- Perhaps in the future, Chinese est of seven in an ordinary family of women might be able to pursue “it doesn’t matter whether laborers in Nanjing. She worked her both a career and a family without a cat is black or white, as way to the top with such determina- judgment on either side. Maybe long as it catches mice.” tion that she has not taken a vaca- single thirty-something year-old tion in twenty years. women, confident and successful in The advent of capitalism Zhan Huizhen, recently named their careers, will one day be praised quickly established a bur- China’s Outstanding Woman for their willingness to postpone Entrepreneur in June 2010 by the familial life to pursue their own geoning middle and upper All-China Women’s Federation and ambitions in business. This vision class demographic, but this China Association of Women En- seems plausible given the fast pace demographic was over- trepreneurs, began her career with of change in China today. As history a ten-square meter workshop and has shown in the United States, the whelmingly male. minimal sewing supplies. After years incorporation of women into the of hard work, she eventually ex- business place is a fruitful and lucra- Women are also being recog- panded her business into a lucrative tive exercise. There is no doubt that nized for their unique talents and enterprise and used a percentage of the role females will eventually play perspectives in traditionally male- her profits to establish a vocational in the Chinese business world will dominated careers and social struc- school for other women in her na- be economically influential as well. tures. At the 2010 Global Summit of tive Jiangxi Province. There seems to Women, Wang Xiaoyan mentioned be a very strong sense of community Joanna is a freshman in Trumbull her belief that women have “good among females in the workforce, College. communication skills and resilience and women like Zhan Huizhen are

28 Business Sphere Magazine | Fall 2010 Non-Profit The Dania Foundation The ambitions of an international non-profit group for Haiti’s housing market

By Daniel Kelly Last Thanksgiving, Murphy de- cinderblock homes are supported cided he “needed to get away” from by reinforcement bars every several Tackling Haiti’s housing crisis is Yale, and took a vocation-searching feet, the grid of steel wires on Dania’s no easy feat. With an estimated one trip to Mexico City. There, his cousin panels provides this support every million citizens left homeless after introduced him to the owner of a two inches. This support structure last January’s earthquake, the nation panel factory. Murphy instantly rec- makes the panels lighter, cheaper, faces staggering demand for hous- ognized the potential of the struc- and stronger than ordinary cinder- ing but lacks adequate infrastructure turally insulated panel technology blocks. In a nation where security is and building materials. To date, to create permanent homes at a low a primary concern, this provides an the majority of relief efforts in the cost. “That was definitely the ‘light extra level of reassurance at low cost. country have focused on distributing bulb’ moment,” he says. Murphy re- Unlike temporary shelters, Dania’s temporary aid. Too few organiza- turned to Yale with a determination panels could provide the long-term tions have recognized the impor- to put the panels in action and began security Haitians need to safely raise tance and urgency of permanent to formulate his senior thesis on the families and start life anew. housing in creating a functional, panel technology. self-sufficient Haiti. When the Haiti earthquake Personal Construction Upset by the short-sightedness struck, he reached out to aid or- On top of a concrete foundation, of the international aid community, ganizations, looking to apply the panels are connected to form walls Danish lawyer J.P. Folsgaard Bak set panels in the rebuilding process. and a roof. Next, doors and windows out on a mission to help Haitians Murphy came into contact with are cut from the walls according build a better future. In early 2010, Bak, who invited him to join the to the owner’s specifications. Once he created the Dania Foundation, Dania Foundation on a trip to Haiti. finalized, the panels are trowelled which aims to provide Haitians with Murphy connected Bak with the with concrete, forming permanent access to “safe, affordable, and per- factory owner in Mexico City and walls. The simplicity of the panels manent homes.” Using a combina- arranged several panel shipments allows the foundation to employ and tion of versatile building technology, to Haiti. Soon enough, Murphy was oversee low-skilled local labor when local labor, and innovative financing, named the foundation’s chief techni- constructing homes. the foundation hopes to empower cal advisor. He hopes that the panels’ The panels are easily cut and and expand Haiti’s middle class groundbreaking design can revolu- customized with basic tools, allow- through homeownership. Rather tionize the Haitian housing market ing for versatility in design. With than giving away temporary shelters, by making houses stronger, afford- this versatility comes autonomy Dania aspires to create the supply able, and customizable. for Haitian homeowners, who can side of a self-sustaining housing personally design their own homes. market. Strength from Within Before the concrete is spread on the Four feet wide, eight feet long, panels, homeowners essentially have New Haven to Port-au-Prince and about three inches thick, each free reign to add doors, windows, Sitting in the Morse College com- panel consists of a rectangular block and archways. Unlike cookie-cutter mon room, Yale senior James Mur- of Styrofoam wrapped in a steel cage. shelters or cinderblock houses, the phy details his first encounter with The panel design maximizes the panels make home customization the innovative construction panels efficiency of both the compressive as easy as snipping a few steel wires. that would become the lynchpin of abilities of concrete and the tensile Putting control of Haiti’s future in the Dania Foundation’s operations. strength of steel. Whereas traditional the hands of Haitians is a central

Fall 2010 | Business Sphere Magazine 29 goal of the Dania Foundation, and Building Credit can significantly lower the mortgage it is this autonomy in design that The idea of Haitians paying for interest rate. “5 or 6 percent with really gets Murphy excited. His eyes their own homes may seem far- minimal risk?” asks Murphy, “It light up as he pantomimes a Haitian fetched, and most creditors see should be a no-brainer for investors.” designing his own home. “You want Haitian credit as toxic, but Murphy Dania’s ultimate goal is a 3% interest a window there?,” he asks. “Just cut claims this judgment is unfair. He rate on mortgages. If successful, this one out! A back door? No problem. insists that housing demand in financing model could be applied After all, you’re paying for it.” Haiti is strong, but construction is across entire communities, making Murphy emphasizes the impor- stifled by a lack of willing creditors the dream of homeownership an af- tance of pride as a motivating factor for mortgages. Due to high unem- fordable reality. toward homeownership. “It’s easy ployment and default rates, current The Dania Foundation will also to forget that the American dream mortgages in Haiti have interest provide the Adopt-a-Mortgage pro- is also the Haitian dream,” he says. rates around 20%. Making mat- gram, which would allow relatives or “We all want our own houses, made ters worse, Haiti’s Hall of Records philanthropists to pay a portion of a to our own specifications.” He tells was destroyed in the quake, leaving family’s mortgage. In keeping with a story of a taxi driver who has lenders with no system to track their the tenet of self-sufficiency, Murphy ordered a home on a highly visible mortgage holders. The success of the insists that the foundation would hilltop. The man had seen one of Dania Foundation will hinge on its cap the sponsorship of each mort- Murphy’s design mock-ups, which ability to overcome these odds and gage at a certain percentage. Still, the featured a decorative blue roof. Mur- expectations through innovative program would give Haitians with phy had added the coloring just for financing programs. families in the U.S. an extra level show, but roofs in Haiti are uniform- The foundation is currently devel- of financial security while allowing ly white to reflect the beating sun. oping a pilot program with the Hai- them to maintain their autonomy as Regardless, the man demanded a tian Taxi Drivers’ Association to put homeowners. blue roof on his home to set himself this plan into action. All 7,000 driv- apart from his neighbors. “We’re not ers in the association have agreed Building Markets giving away cookie-cutter houses, to back the defaults on loans given The Dania Foundation’s model is but rather, letting Haitians draft to 200 of their own members. With unarguably ambitious. Expanding their own homes, their own futures.” this security against default, Dania homeownership in any develop- ing 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 reason- able 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 [email protected]

30 Business Sphere Magazine | Fall 2010 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.

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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.

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