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

Fall 2010

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

Haiti’s Housing Crisis • Introduction to Distressed Investing • College Start-Ups

 [Fall 2010. Volume II. Issue I]

Editor-In-Chief 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

12

20 29

14
CONTENTS
4 Major Changes
Jennifer Barrows
16 Petrodollar Recycling
Monish Shah

6 The College Entrepreneur

Evan Beck 20 Recession-Era Real Estate
Paul Joo

8 Meet Mr. Twitter

Monish Shah
22 Internet Piracy
Nabila Chitalwala

10 Solar Roadways
Shiv Kachru
24 Return of the Vultures
Jerry Feng

12 Destination: Masdar
Melissa Hou
27 Leftover Women
Joanna Zheng

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

Fall 2010 | Business Sphere Magazine 3


Major Changes
Uncertain economy convincing some college students to switch majors
By Jennifer Barrows
Students choose their majors for a
variety of reasons. While the advice
is usually “do what you love,” stu-
dents often find the choice difficult
in light of future internship and job
prospects, particularly in today’s
recession economy. Although some
students certainly change majors
to become more competitive in the
application process, motivations be-
hind major changes are varied across
private, liberal arts colleges and
large, state universities. Although
this issue has been covered widely,
perhaps new perspectives can be
gained today, several years into the
aftermath of the global financial
crisis. Are students across different
types of universities considering
economic conditions when they
choose their major? In what uni-
versity settings are such decisions,
if any, being made? Are they look-
ing toward a particular job, or more
toward a particular major that can
lend itself to an industry?
To place the issue in more con-
crete terms, the National Association
of Colleges and Employers (NACE)
surveyed members of the class of
2009 and found that education,
foreign languages, English, history
and political science – the liberal
arts – had the lowest job offer rates.
In addition, the U.S. Bureau of Labor
Statistics believes that between now
and 2018, technical and hands-on
jobs will have the most job openings.
It is no surprise, then, that majors
such as accounting, computer sci-
4 Business Sphere Magazine | Fall 2010
ence, business, and engineering were
the most likely to obtain jobs after
graduation, according to the NACE
survey.
Although a blanket statement
regarding student preferences can
not be made, it seems that there is a
growing trend towards areas of study
that lead to secure employment.
Degrees given out in health profes-
sions, engineering and business, for
example, increased by double digit
percentages between 2007-2008, ac-
cording to a 2010 report by the U.S.
Department of Education’s National
Center for Education Statistics.
However, choosing a concentra-
tion based upon what job you hope
to have in the future or what jobs
you predict will be available after
graduation can be a difficult, if not a
seemingly impossible, task. Students
must weigh the content of the major
against the work load and potential
internship and job opportunities
such a major may offer. Students
must also consider what types of
extracurricular activities they want
to engage in to make up for what-
ever concrete skills they cannot learn
in the classroom setting. In today’s
recession economy, this choice can
gain even greater importance.
The liberal arts majors have tend-
ed to be characterized as providing
a more holistic education, crafting
students’ abilities to think and write
critically about a wide variety of in-
formation. Indeed, proponents of a
liberal arts education argue that the
broader skills of writing, analysis,
and argument are crucial elements
Education
of success in almost any job. The
other edge of the liberal arts sword,
though, is the fear that students will
lack specialized skills that many
jobs require. For students desiring
to major in the humanities or social
sciences, the debate often focuses on
how they will obtain and demon-
strate concrete skills employers seek
in their applicants.
To bridge these goals, many
students at liberal arts universi-
ties are turning to the economics
major, seeing it as a middle ground
between a technical knowledge of
the business world and a holistic
theory-based understanding of the
field. David Colander and KimMarie
McGoldrick, professors of econom-
ics at Middlebury College and the
University of Richmond respectively,
wrote in 2009 about two constituen-
cies within the broad umbrella of the
economics major: students who ma-
jor in economics with the desire to
go to graduate school and students
who use the major as “a stepping
stone to business and policy.”
Professors lament the gen-
eral trend of undergraduate majors
becoming more vocational. With
respect to economics, they desire
changes in pedagogy and content
such that economics majors hew to
the ideal of a liberal arts education
– the attainment of an “economic
way of thinking” alongside broader
humanistic lessons.
In fact, thinking like an economist
can sometimes be the motivating
factor to choose this flexible major.
Lydia Stepanek, Yale, BR’12, recently
switched from the Literature to Eco-
nomics major. While Ms. Stepanek’s
reasons for switching to this major
were not fueled by job prospects –
indeed she notes that economics
has “a reputation for producing...
heartless I-bankers” – she believes
that being an Economics major will
provide her with the appropriate
tools and modes of thinking to enter
the business world.
“Most companies, I imagine,
are interested in students who
understand numbers and market
trends,” she said. “Literature majors
are extremely smart, well-spoken
people, but I want to have a better
feel for the reality of the business
world: how to make it work, not how
to analyze the psychological motiva-
tions of a banker in a 19th-century
German play.”
What Ms. Stepanek laments, how-
ever, is that her lack of more special-
ized skills could pose a hindrance in
her job application process.
“Majoring in something concrete
definitely gives students a leg up in
whatever field they’re going into,”
she said. For Ms. Stepanek, then, she
believes that most of her actual busi-
ness acumen has been developed
through her club activities.
“I know how to talk to business
owners, get advertisement deals,
plan events, etc. all because of club
activities,” she said. “I often feel that
my classes don’t teach me how to
implement the rules they teach...I
know how to theoretically set the
price of a product I’m selling, but
I don’t really know what’s going to
work in the real world until I try sell
something.”
Thus, it appears that students
with broad majors such as eco-
nomics tailor their extracurricular
choices to supplement the theory
they learn in class. Other interviews
with students, however, shed light
on another approach: choose nar-
Fall 2010 | Business Sphere Magazine 5
row, career-oriented majors and
utilize internships and extracur-
ricular activities to further their
path toward that career. Indeed,
while the students interviewed for
this article represent only a small
and perhaps skewed sample, their
sentiments regarding the minor role
the economy played in their choice
of major provides some insights into
students’ decision-making processes
and values today.
Anthony Parilla, a junior Sports
Management major at the University
of Florida, knows that his specialized
major lends itself to a specialized ca-
reer path with few job opportunities
available. However, with the lessons
he learns in his classroom and his
knowledge of the industry’s diffi-
culty, he is arguably in a better posi-
tion to apply to sports management
internships, since “sports manage-
ment is more about getting connec-
tions with people who are managers
of teams,” he stated. He knows what
particular internships he should seek
in order to obtain the type of job he
wants after college.
As a senior Human Factors Psy-
chology major at the University of
Central Florida, Melissa Smith has
found that her liberal arts major has
offered her a range of research and
internship opportunities. Although
certainly her options have not been
as specialized as Mr. Parilla’s would
be, she “worked in two research labs
and partook in a summer intern-
ship, all relating to human factors
psychology.” With these internships,
Ms. Smith believes she has devel-
oped a unique set of skills outside
of the classroom that she can bring
to whichever career she chooses; in
fact, her options include military
applications, private practice and
industry positions, options that are
arguably more varied than what Mr.
Parilla knowingly faces.
Interestingly, both students
echoed the sentiment that students
should major in something in which
they can invest their passion, al-
though their end career goals differ
in their concreteness. Other articles
discussing the issue of the economy
and student majors primarily focus
upon students’ changes that fit their
predictions about the economy; this
article has shown some students for
whom a strong love for a particular
field has shaped their extracurricular
choices and career paths.
Anecdotal evidence such as those
used for this article can hardly be
firm foundation for hypotheses
regarding the relative importance of
economic conditions in the choice
of a major, liberal arts or other-
wise. What can be gleaned from the
general evidence and the interviews
featured here are that students often
shape their employment and ex-
tracurricular choices during their
college years in relation to the ease
with which their major lends itself
to desired job opportunities. Mo-
tivating factors behind majors – at
wealthy Ivy Leagues or large state
colleges – don’t always take into ac-
count the economy, although recent
coverage of this issue tends to hype
the situation in such a light. (For an
example, see “The Death of Liberal
Arts,” NewsWeek, April 5, 2010).
Ultimately, the success of a
student’s job application process
will likely reflect more the way that
education has shaped the student’s
passions rather than what specific
skills he or she has learned in the
classroom, as Colander and Mc-
Goldrick state in their paper. In the
end, all employees need to learn the
ropes of their new job, new lessons
no matter what background they
bring to the table.
Jen is a junior History major in
Davenport College.

The College Entrepreneur
Beneath the glamor of successful college startups lies a host of challenges
By Evan Beck
In 2004 Mark Zuckerberg
founded Facebook with fellow
Harvard undergrads. Six years later,
the company is valued at over $25
billion and serves half a billion
individuals from every corner of
the Earth. Zuckerberg is now the
world’s youngest self-made billion-
aire. Just over ten years ago Stanford
students Larry Page and Sergey
Brin started Google, now the worlds
largest and most famous web based
search engine. Each of the cofound-
ers is worth billions and since going
public in 2004 Google has reached a
market cap exceeding $150 billion.
Yet the world’s most famous col-
lege startup story may still belong
to Bill Gates, who was convinced by
childhood friend Paul Allen to drop
out of Harvard in order to co-found
Microsoft.
“
No matter how great an
idea may be the people
who work to propel it are
vital in keeping it alive.
The people at the head
of a successful startup
need to know how to
utilize every individual’s
strength as to comple-
ment the organization.
6 Business Sphere Magazine | Fall 2010
These are the gems of college
ventures, the romantic ideal tens
of thousands of eager students
chase after every year. In hopes
that they are pursuing the next big
thing, many college students are
unaware of the intense amount of
work that comes with building an
organization from scratch. To start
with nothing and build a corporate
structure from the ground up is a
very daunting task, one many do
not realize when they begin the
quest for entrepreneurship. Yet,
around the country, and here at
Yale there are students who are up
for the challenge.
I recently had the privilege of
speaking with Jim Liu, one of the
founders of the non-profit organi-
zation ReadySetLaunch. ReadySet-
Launch helps high school students
who may be financially disadvan-
taged access college application
preparation and mentoring for free
from Ivy League students. After
helping to start the organization
in 2008, Liu, a Yale sophomore is
taking the semester off to continue
work building the organization.
Launch currently has 35 member
students and 15 mentors here at
Yale as well as running operations
at Brown University in Providence,
RI. The organization has also been
awarded multiple grants from
Chase Community Giving to help
further help high school students
from around the country.
I talked to Liu about what he felt
were the most important aspects of
starting up any venture, both of the
Entrepreneurship
for-profit and not-for-profit variety.
The theme that kept coming up was
that of teamwork. No matter how
great an idea may be the people
who work to propel it are vital in
keeping it alive. The people at the
head of a successful startup need to
know how to utilize every indi-
vidual’s strength so as to compli-
ment the organization. According
to Liu, it can be especially hard to
find people to join a non-profit,
as the motives for joining need to
be completely based on passion
for the project and not on possible
monetary incentives. In the case of
non-profits where a steady form of
income isn’t flowing in, grants and
donations are exceedingly impor-
tant in keeping the organization
alive. There are also many aspects
of a non-profit that mimic quali-
ties of a for profit venture though,
including the need for setting up
a budget and financial structure,
something not all people realize is
very important says Liu.
There have been many hurdles
in getting ReadySetLaunch to
where it is today, and most compa-
nies and organizations face grow-
ing pains in their first several years.
One of the larger problems facing
the organization concerns trying
to maximize face-to-face time with
as many students who need it as
possible. Luckily the Internet has
proved a way to expand beyond
high school students in the imme-
diate area. When I asked Liu about
the presence of ReadySetLaunch in
New Haven he said that
it was sometimes hard to get local
schools to accept or encourage
Yale programs to exist. This is due
to the lack of consistency among
some Yale College service groups
in New Haven public schools
over the years. All the same, the
organization has been able to
make ground in being available to
students in the region.
There are many resources at
Yale for students who are inter-
ested in starting their own busi-
ness or non-profit. In fact, Dwight
Hall, the student service organiza-
tion on campus, was instrumental
in helping ReadySetLaunch get
started in its early days. The Yale
Entrepreneurial Institute (YEI) has
also stepped up its role in help-
ing launch student ventures. The
Fall 2010 | Business Sphere Magazine 7
year round services offered can
help students plan out the details
of their businesses. YES offers an
annual venture challenge open
to all members of the Yale com-
munity. Cash prizes and financial
assistance are offered to winning
for-profit business ideas. Last year’s
winning venture went to an early
stage business developing comfort-
able seats for wheel chair frames
called KiSS.
In the wake of the release of
The Social Network, the glamor-
ized rendering of the founding of
Facebook, Newsweek magazine
recently ran a story on businesses
started by college students. The
article included a blurb on Fred
Smith, who while at Yale wrote a
paper that would lead to his even-
tual founding of FedEx, the $66 bil-
lion shipping giant. Though many
graduates of Yale may go on to be
doctors, lawyers, or investment
bankers, there is ample proof that,
with a great idea and sufficient am-
bition, anything is possible. Even
in the modern era there are still
ideas left to uncover and the next
“big thing” is budding somewhere,
maybe even in New Haven.
Evan is a freshman in Branford
College.

One-on-One with Mr. Twitter
Twitter co-founder Biz Stone talks about the future of social networking
By Monish Shah
Business Sphere is proud to pres-
ent an interview with Mr. Twitter
himself, Biz Stone. In 2009, Stone
was named in Time’s 100 annual
list of the world’s most influential
people.
Prior to founding Twitter in
2007, Biz Stone was a former senior
specialist at Google and a former
creative director at Xanga, the social
networking and blogging service.
Monish @ Biz:
I really enjoyed the “Would you
have a drink with you” advertise-
ment of Stolichnaya Vodka that
you featured in. What inspired you
to feature in it? And what message
do you hope to send about Twitter
through this advertisement?
Biz @ Monish:
When Stolichnaya’s creative team
approached me with a script featur-
ing two versions of myself arguing
the merits of Twitter I thought it was
funny. It occurred to me that this
would also be a good opportunity to
debunk the myth that Twitter is only
“a constant stream of meaningless
babble” by mentioning presidential
tweets, business applications, and
NASA’s use of the product.
It was a fun project for me. We
shot on location at a bar in Los
Angeles with a bunch of extras and a
bigger crew than you’d imagine just
for a thirty second spot. The com-
mercial will run in North America
and South America for one year. My
8 Business Sphere Magazine | Fall 2010
wife and I are using the fee offered
for the endorsement to help fund
our charitable non-profit, The Biz
and Livia Stone Foundation, a phil-
anthropic organization supporting
art, education, environment, clean
water, and healthy food for those in
need.
Monish @ Biz:
Twitter has come a long way in
recent years. To quote you, Twit-
ter has moved on from being “ice
cream”—fun, if not that all that
useful—to being “not a triumph
for technology, but a triumph for
humanity.”
One of the hottest TwitTrends
recently was the buzz surround-
ing the Nobel Peace Prize awarded
to Chinese dissident Liu Xiaobo.
Recognizing Twitter’s impact in
connecting people towards politi-
cal dissent in regimes like Iran and
Moldova and also in natural disaster
situations, former National Security
adviser Mark Pfeifle has called for
Twitter to be nominated for the No-
bel Peace Prize. While you did not
originally foresee this impact, how
do you hope to maximize Twitter’s
impact in this regard?
Biz @ Monish:
We had a hunch early on that
Twitter could be complemen-
tary during disaster situations but
thought it best to consider it one of
many tools that could be used. We
have created a globally relevant ser-
vice and brand but there is so much
more work ahead of us—mobile
Company Profile
access to the Twitter information
network is very important because
that is how most of the world can get
connected.
Monish @ Biz:
On that note, I understand that
Twitter already enjoys approximately
75% of traffic outside twitter.com on
mobile applications. How are you
further developing Twitter’s mobile
applications?
Biz @ Monish:
We have built rich experiences
on the iPhone, Android, BlackBerry,
and Windows Phone. Smart phones
and other smart mobile computing
devices like iPad provide a wonder-
ful canvas for developers to create
beautiful user experiences. However,
everything we do must also degrade
gracefully down to the most rudi-
mentary feature phone capable only
of SMS. These are our roots and
we believe that constraint inspires
creativity.
Monish @ Biz:
Speaking about creativity, what is
your reaction to (former Twitter en-
gineer) Alex Payne’s comment that
Twitter resembles a “walled garden”?
Are there efforts underway to create
a better developer ecosystem to sup-
port more apps for Twitter?
Biz @ Monish:
Twitter is one of the most open
organizations around today. We’ve
always had application program-
ming interfaces (APIs) which helped
create an ecosystem of innovation
around Twitter. The most important
people in the ecosystem are users
and that is where we need to stay fo-
cused. We will continue to improve
upon our platform offerings so us-
ers, developers, and Twitter alike are
rewarded by the experience.
Monish @ Biz:
Twitter is a business that seeks
to do good as well. On the business
side, you had identified 2010 as the
year when Twitter starts making
money from nontraditional ads.
Could you elaborate on this and
other hopes you have for Twitter as a
business?
Biz @ Monish:
We tell new employees that we
want to have a positive global im-
pact, be a successful business, and
have fun. For many organizations
just two of those things means suc-
cess but for us, all three are required.
Twitter makes money today from
data licensing deals and non-tradi-
tional ads.
Our non-traditional ads are in the
form of Promoted Tweets, Promoted
Trends, and Promoted Accounts.
Tweets, Trends, and Accounts are
all native to Twitter—they are a
natural, organic part of the system.
Advertisers pay us to have their
Tweets, Trends, or Accounts seen
and engaged with more than they
naturally would by being promoted.
These promoted products are clearly
labeled.
Monish @ Biz:
While you have expressed that
Twitter is a great company and you
do not intend to sell it, you have also
previously stated that Twitter may
go public to raise funding for further
expansion. Do you have any com-
ments on this?
Fall 2010 | Business Sphere Magazine 9
Biz @ Monish:
We have no plans for an IPO and
it’s not something we’re engaged in
discussing. Too much other work
takes priority.
Monish @ Biz:
Aren’t Twitter’s efforts at growth
going to harm Twitter’s fun and cool
factor? After all, even your fellow
co-founder Evan Williams described
Twitter as a “six foot tall 6th grader.”
Biz @ Monish:
I’m not sure if we’ve ever been
cool but we certainly wouldn’t worry
about that over serving users, taking
good care of our employees, and in-
novating. Our growth has, from the
beginning been totally organic and
word of mouth. We don’t advertise
or market Twitter—that all happens
on its own.
Monish @ Biz:
I understand that one aspect of
Twitter’s growth is that it has be-
come the world’s fastest growing
search engine, outpacing Bing and
Yahoo combined, with 800 million
searches daily. What are your expec-
tations for Twitter as a search engine
going forward?
Biz @ Monish:
Twitter is not a web search engine
so comparing our growth to that of
Google, Bing, or others is mislead-
ing. The only thing people search for
on Twitter are tweets and even the
way they do that is different—often
searching for the same term multiple
times to find new information on
the subject. Twitter is a real-time
information network that is growing
very quickly because it helps people
discover what is happening in their
world in a way that creates value.
Monish @ Biz:
Given Twitter’s amazing success
in a short span, you have pointed out
how Twitter can serve as a model for
sunrise companies and industries.
Specifically, you expressed potential
for the growth of the solar industry.
However, the solar industry has a
completely different business model
as Twitter, specifically being ham-
pered by high initial costs along the
early stage of the adoption curve.
Given this challenge, will the mes-
sage of doing good be sufficient to
promote large scale solar use?
Biz @ Monish:
Whether it’s the solar industry or
social media, consumers are increas-
ingly making more meaningful
choices because they are generally
getting more educated. Underesti-
mating people’s capacity to make the
right choice is a mistake. However,
that alone won’t do the trick—con-
sumers demand both meaning and
value so the bar for companies is
now set even higher. We’ve got to
rise to that challenge.
Monish @ Biz:
Would you like to offer our read-
ers any final thoughts or comments
on what’s next for Twitter?
Biz @ Monish:
We have 175 million registered
accounts creating more than 95 mil-
lion tweets per day and we’re getting
more than 370,000 new registered
accounts daily. We’re just getting
started. We’d like to serve a billion
accounts and we’d like to grow into a
profitable business with lots of happy
employees. We’re three years in hav-
ing incorporated in 2007 but we’ve
still got a long way to go.
Monish is a junior Economics major
in Morse college.

Solar Roadways
CEO Scott Brusaw shares his plans to replace America’s roads with solar panels
By Shiv Kachru
Changing the world takes big
ideas. Though you may initially dis-
miss Scott Brusaw’s idea of replacing
asphalt with solar panels as outland-
ish and unfeasible, his proposal is
turning heads in government and big
companies. Brusaw is the co-found-
er and CEO of Solar Roadways, a
start-up in Idaho that aims to reduce
fossil fuel consumption by covering
roads with solar panels to generate
electricity. Though the company
is still strapped for cash, Brusaw is
already on his way to make solar
roadways a reality.
“
Basically, what you have
is an intelligent road. The
panels are all connected.
Under the solar panels
are pressure sensors, so
if there is a traffic jam it
can suggest an alternate
route, or if there is a child
in the road at night it can
let you know that some-
thing is there.
Brusaw’s idea began when he
was just six years old. “Growing up,
electric cars were my favorite toys
to play with. I still have drawings of
electric roads from when I was little,”
Brusaw said. When his wife one day
asked if roads could be made out of
10
solar panels, Brusaw initially dis-
missed the idea, saying panels were
too fragile. But the idea stuck, and
the couple began to think about how
to make it work. Though solar pan-
els are extremely fragile, he thought
about using the material that makes
up “black boxes,” which are used to
protect airline information in case of
a deadly crash, to protect the panels.
“I thought that if black boxes could
protect airline recordings in the case
of a crash, then a similar material
could definitely protect the panels,”
Brusaw said.
Solar roadways work by sticking
a solar panel underneath a durable
sheet of glass. Embedded in the
solar panels lie circular LED lights,
which can be used for anything
from guiding traffic by lighting up
words on the road to providing
drivers with alternate routes when
traffic is heavy. “Basically, what you
have is an intelligent road,” Brusaw
said, “The panels are all connected.
Under the solar panels are pressure
sensors, so if there is a traffic jam it
can suggest an alternate route, or if
there is a child in the road at night
it can let you know that something
is there.” Given that car crashes kill
about 40,000 people every year and
cost $164 billion each year, solar
roadways could save lives while driv-
ing down the costs associated with
accidents.
The idea gained traction when
the Department of Transportation
began soliciting ideas to generate
electricity. “The State Departments
of Transportation are all broke, and
Business Sphere Magazine | Fall 2010
Green Business
they were looking for a new source
of funding,” Brusaw claimed. When
they saw his idea for Solar Road-
ways, he was given $100,000 to build
a prototype. Pleased with what they
saw, the Federal Highway Admin-
istration told Brusaw to apply for
an additional $750,000 in which to
further develop his technologies.
Solar Roadways also entered
General Electric’s Ecoimagination
Challenge, a competition with the
winner receiving up to $200 million
dollars. With the contest having
recently closed, GE announced that
Solar Roadways was the top vote
receiver from the public, and was
awarded $50,000. GE will announce
the final results of the competition
sometime during November. “We
were very happy to have received the
most votes in the Ecoimagination
Challenge,” Brusaw said. “GE has
its own labs and own engineering
groups, so this investment could re-
ally accelerate the process of making
Solar Roadways a reality.”
Though Brusaw’s idea is truly
revolutionary, the sticker price might
scare some potential investors away;
the cost of a 12-foot by 12-foot panel
is targeted to be $10,000. This figure
will come out to about $4.4 million
per mile. With millions of miles of
paved road in the United States, this
project is clearly outside the govern-
ment’s budgetary reach. However,
Brusaw argues the costs of industries
that would be eliminated by clean,
solar energy make the costs of imple-
menting this project feasible. “If you
add up all the prices of coal plants,
asphalt, nuclear plants, as well as the
cost of the road system and electrical
grid, it is about equal,” Brusaw said.
Though they only have a 15%
efficiency, Brusaw estimates that the
panels would break even in about 20
years. Though this may seem like a
steep timeframe in which to recover
an investment, he notes that once the
panels are serviced in about 20 years,
the old panels could be replaced with
newer ones, with much higher effi-
ciency. “Though we only have about
15% efficiency right now, when we
service the panels in 20 years we
could switch them out for something
with 60% efficiency or better,” Bru-
saw said. “Not only would this help
us keep up with increased demand in
electricity, but the second round of
costs would be a whole lot less than
the first round.”
Though many argue that a so-
lar panel farm would harvest just
as much energy, while saving the
expense of tearing up all the roads in
the country, Brusaw’s solar road-
ways has the distinct advantage of
Fall 2010 | Business Sphere Magazine 11
being able to charge electric cars on
the highway while they are parked.
Similar to the way that an electric
toothbrush is charged in its docking
station, electric cars can be charged
through mutual induction while the
car is in park. “Though you can’t
charge batteries to full capacity with
mutual induction, you can increase
the life of a battery powered car,”
Brusaw said.
Although a 12-foot by 12-foot
protoype has already been created,
Brusaw admits that it is far from the
final product. One product fault is
that the LED lights are hard to see
from a distance, since they are far
down in the structure. For the next
prototype, Brusaw plans to put the
LEDs and the solar panels between
two pieces of durable glass, much
like the design of heating wires in
modern car windows. This would
not only make the LEDs easier to
see, but it would make the solar cells
more efficient by placing them closer
to the sunlight. As of now, the big-
gest challenge Brusaw faces is with
the glass. “Glass is the only unan-
swered question right now,” Brusaw
claims. “We don’t want to lose the
translucivity of the glass, otherwise
the panels won’t work. But we also
need something that will provide
enough strength and traction so that
the panels can be driven on.”
But Brusaw knows his idea will
take slow implementation to gain
traction, and he hopes to start with a
big-name company like Wal-Mart or
McDonald’s. “If McDonald’s decides
to ‘green’ their image and put in
Solar Roadway parking lots, people
could charge their cars while they
eat,” Brusaw said. “I challenge you to
find 100 miles of interstate highway
without a McDonald’s.” In other
words, a person could theoretically
drive across the country without
stopping for gas at all, just by stop-
ping at McDonald’s to charge the
car along the way. “People will start
trading in their internal combustion
engine vehicles with electric vehi-
cles,” Brusaw said, “so as you do this,
you not only get companies putting
in solar panels, but you have people
ditching their gas engine cars as well.
We are killing fossil fuel emissions
as we do this, which is the ultimate
goal.”
Transportation fuel accounts
for about 26% of U.S. total energy
demand, and solar roadways would
be a significant step in reducing the
amount of dirty energy used in this
country. According to Brusaw, “by
covering all our roads with panels
with only 15% efficiency, we would
produce three times the amount of
energy this country uses on an an-
nual basis, and that’s almost enough
to power the entire world.”
Shiv is a junior Economics major in
Berkeley College.

Destination: Masdar
Oasis of sustainability or desert mirage?
By Melissa Hou
Imagine a futuristic city in which
households and businesses are en-
tirely powered by renewable energy
sources and motor vehicles are
replaced by personal transit “pods”
that seemingly drive themselves at
the touch of an LCD screen. This
setting has not been plucked from a
science fiction film; such a city is fast
becoming a reality. Situated fewer
than fifteen miles southwest of Abu
Dhabi in the United Arab Emirates,
Masdar was originally conceived by
the crown prince of Abu Dhabi and
is poised to become one of the most
innovative urban developments in
the world. The project comprises
the sustainable planned city itself,
the Masdar Institute of Science and
Technology for establishing a foun-
dation of research and innovation,
and an extensive energy-technology
unit composed of companies such as
Masdar Carbon and Masdar Power
supporting its zero-carbon, clean
power initiatives. The growth of this
massive project is supported by the
long-term investments of Masdar
Venture Capital.
In 2006, during the infant stages
of its creation, the Masdar City
project generated much excitement
among developers, energy enthusi-
asts and international corporations
seeking to capitalize on this cutting
edge development. Masdar ranks
among the most ambitious design
undertakings of Foster + Partners,
the London-based firm responsible
for the Berlin Reichstag renovation
12
and the upcoming Yale School of
Management campus expansion.
Major investors also jumped on
the Masdar bandwagon, including
Credit Suisse and Siemens Venture
Capital. Other companies, such as
German industrial titan Conergy
AG, were awarded contracts for the
complex desalinization, solar energy
and waste reduction apparatuses that
will enhance Masdar’s functionality.
Masdar’s innovative concept, design,
and execution have not gone un-
noticed by supranational organiza-
tions and interest groups either. Its
officials have succeeded in increasing
the city’s visibility as an eco-friendly
development by securing endorse-
ments from the World Wide Fund
for Nature and sustainability group
BioRegional, which has deemed
Masdar a “One Planet Living Com-
munity,” an accomplishment further
highlighted by the United Nations.
Masdar’s potential has also com-
pelled the International Renewable
Energy Agency to establish its head-
quarters there, further cementing
Abu Dhabi’s goals to position itself at
the forefront of the renewable energy
movement.
For its proponents, Masdar is
a beacon of hope for the future of
sustainable urban living. Its vision is
a zero-waste and zero-carbon ecol-
ogy, with a special diagonal street
design to channel and maximize the
cooling effect of desert winds. In
fact, developers are harnessing the
power of the wind by situating the
city on high ground, thereby cutting
energy costs that would otherwise
Business Sphere Magazine | Fall 2010
Green Business
be devoted to cooling systems. The
urban layout is also pedestrian-
friendly, facilitated by the installa-
tion of city-wide public and personal
rapid transit systems, rendering the
streets car-free. Instead, conven-
tional vehicles will be relegated to an
underground network.
Drab, blocky buildings will also
be a thing of the past in Masdar,
where the architecture will be domi-
nated by latticework, curvature, and
an eclectic fusion of modern and
traditional Arab elements. Masdar’s
ultimate goal is to rank among the
most cutting-edge, sustainable, and
energy-efficient urban developments
in the world, positioning Abu Dhabi
as a global leader in efficient energy
research and investment. Its unique-
ness lies in the fact that Masdar is
being built from scratch on a plot of
desert land and aims to be complete-
ly contained and self-sufficient. For
example, after undergoing local de-
salinization and citizen use, 80% of
the water in Masdar will be recycled.
But can Masdar live up to all the
hype? If the city hopes to lead the
industries it seeks to dominate and
serve as an exemplar, its concept and
development must prove sustain-
able. A closer look at Masdar yields
some sobering truths. Maintain-
ing Masdar’s high commitment to
sustainability and energy-efficiency
comes at a cost, though this cost is
being defrayed by the project’s back-
ers. Masdar’s $22 billion bill is being
footed by government entities, and
the development also benefits from
the Abu Dhabi investment author
ity’s support. The U.A.E. government
alone is contributing over $15 billion
dollars, an advantage that few other
sustainability initiatives elsewhere
in the world can boast. Even simi-
lar projects funded by prosperous
nations have carried smaller price
tags; the Sino-Singaporean Tianjin
Eco City rings in at $9.7 billion,
while Logroño Montecorvo Eco
City in Spain is projected to cost a
couple hundred million euros. And
while Songdo International Business
District in Incheon, South Korea is
estimated to cost at least as much
as Masdar, if not more, it is a much
larger real estate development to be
populated by a significantly greater
population. In the midst of a global
economic crisis, however, even
Masdar and the petro-dollars behind
its creation have been compelled
to sacrifice a slice of its ambition in
in order to meet realistic goals. The
projected completion of Masdar has
been delayed four years, and devel-
opers will still have to race to meet
the new 2020 deadline.
As such, should Masdar succeed,
can its model be replicated suc-
cessfully in other fast-developing
nations? On a macro level, the
prohibitive cost of constructing and
maintaining a planned city like Mas-
dar could easily deter countries that
cannot rely on a steady stream of oil
money from pursuing similar feats;
it is no coincidence that almost
all attempts at creating high-tech
planned environments have been
limited to highly developed coun-
tries such as the United States, Japan,
and South Korea. And there is no
guarantee that Masdar will be widely
replicated even within the U.A.E.,
though the U.A.E. government must
be applauded for its prescient eco-
friendly investments. Even if govern-
ments could finance the creation
of Masdar imitations, such urban
developments would likely remain
Fall 2010 | Business Sphere Magazine 13
inaccessible for all but the highest
echelons of society, residents who
can afford to shoulder the financial
burdens of such a technology-inten-
sive city with above-average living
costs. Indeed, Masdar’s target seems
to be the affluent and environmen-
tally savvy, as the local economy will
primarily depend on international
commerce, technological services,
and energy research led by the Mas-
dar Institute of Science and Technol-
ogy (in partnership with MIT). Less
than a third of Masdar will be zoned
for housing, and providing low-cost
housing is nowhere on the project’s
agenda. Some academics and policy-
makers fear that within a decade of
Masdar’s completion, its sustainable
qualities and futuristic features will
be overshadowed by the presence
of an international jet-setting and
tourist crowd, and that the serious
commitment to clean technology by
long-term residents will be forgotten.
New York Times architecture critic
Nicolai Ouroussoff has condemned
the trend of such urban communi-
ties evolving into “playgrounds for
tourists and the rich” and recently
declared Masdar the “culmination of
this trend.”
The setbacks that Masdar City
developers have already faced speak
volumes about the exorbitant costs
of ensuring that the project meets its
lofty goals. Besides the project delay,
desert dust particles that obstruct
solar panels must be cleaned away
at great cost and have thus impeded
energy productivity. In addition, city
officials announced a year ago that
the city may have to import energy
after all, a necessity that erodes
Masdar’s “self-sufficient” appeal and
disappoints those who hoped to hold
Masdar to the highest environmental
standards. Such realities constitute
one of the reasons that Masdar’s
long-term impact may be limited
to enhancing Abu Dhabi’s forward-
thinking image and fail to catalyze
widespread and lasting advances in
sustainability.
In a nation of manmade archi-
pelagos and underwater hotels that,
despite their unparalleled technology
and engineering, have proved more
beneficial for the U.A.E.’s tourism
industry and reputation of luxury
than its aims for sustainability,
reservations about Masdar’s future
are not completely unfounded. But
one thing is clear – Masdar’s con-
cept and creation are a step in the
right direction. If even oil-exporting
countries recognize the importance
of establishing alternative energy
sources in the advent of a post-
petroleum world, perhaps others
will follow their lead. Masdar is no
Potemkin village or white elephant
for Abu Dhabi, host of the annual
World Future Energy Summit; it is a
resonating statement of the emirate’s
intention to establish itself as a long-
term leader and knowledge exporter
in the clean energy and sustainability
movement. While shopping and en-
tertainment complexes cater exclu-
sively to the leisure-seeking crowds
who frequent nearby Dubai, Masdar
will contribute urban engineering
knowledge, as well as an important
precedent, whether or not it even-
tually succeeds. Masdar may very
well be a failure of function from
which engineers will gain valuable
insight; indeed, some of humanity’s
greatest innovations are products
of persistent trial and error. This
remains to be seen, of course, but for
now, Masdar will stand in the desert,
potentially a mirage of its innovators’
dreams, but a gem for those who
believe in its promise.
Melissa is a sophomore in Berkeley
College.

Go State!
How college towns across the country are faring during the recession
By Dakota Meyers
College towns have always en-
joyed certain economic advantages.
Primarily, a continuous stream of
fresh wallets spurs an abundance of
jobs in foodservice and retail. The
universities themselves also add jobs,
attracting professors, administrators,
staff workers and their families. These
cities are obviously well-equipped
economically, but are they recession-
proof? Let’s find out by looking at
statistics, economic analysis, and a
local case study.
“Fight! Fight! Fight!”
The term “college town” is a bit of
an abstraction, and the line is often
blurred between a college town and a
town with a college in it. For simplic-
14
ity’s sake we’ll consider a college town
to be any metropolitan area with a
total population that is less than ten
times the size of the student body of
its college(s). Sorry New Haven, that
excludes you! We’ll look at you spe-
cifically in another section. We’ll also
omit metro areas with populations
above 1 million, thereby minimizing
other unseen factors that could affect
the local economy. For now, college
towns include only cities like: Man-
hattan, KS, Gainesville, FL, Chapel
Hill, NC, Amherst, MA, Ithaca, NY,
and Hanover, NH, to name a few.
“Long may thy colors fly”
Some of the economic advantages
enjoyed by college towns are pretty
straightforward, and some take a bit
more thought. Obviously, the college
itself brings jobs to the community.
It also spurs the local economy by
attracting professors and other teach-
ing staff from outside. This results
in long-term gains for the local
economy because professors tend to
raise thoughtful, well-read children
who, as students, help to improve
local schools and, as adults, become
smart, skilled doctors, lawyers, and
executives, thus improving the overall
quality of the local labor pool.
Students bring similar benefits.
Many of them contribute smart,
socially responsible ideas to com-
munity organizations, live and work
in the community during and after
their four years of school, and go
on to have bright children who also
stay in the town. Students also bring
fat purses full of Pell grants and
daddy’s money to spend on late-night
Business Sphere Magazine | Fall 2010
U. S.
egg sandwiches, booze, and general
debauchery. Of course, this money
also helps to prop-up real estate prices
and create jobs in retail and service.
On top of this students also provide
a general feeling of calmness. Most of
them posses few assets and have yet to
formulate long-term investment goals;
thus, they don’t allow the wealth-effect
generated by a downturn in the stock
market to affect their spending as
much as does the general population.
In other words, during a prolonged
economic boom, most consumers see
the price of their homes, 401Ks, and/
or IRAs rise. This causes them to feel
wealthier and leverage their assets
more riskily in order to consume more
(that’s not to say that this practice
is good for the economy as a whole;
it’s just what happens). The opposite
proves true during a recession. If the
value of a consumer’s assets drops, that
consumer feels less wealthy and con-
sumes less. However, most students
have no real assets; thus, their spend-
ing is generally not as dependent on
the state of the economy as a whole.
The state of the economy may also
have less effect on student consump-
tion now than in previous generations.
According to the California Student
Public Interest Research Group, the
national per-student figure for student
loan debt nearly doubled between
1992 and 2000, and other sources in-
dicate that this figure is still generally
rising. The increasing cost of tuition
has played a role in this trend. Howev-
er, the acceptance of debt by students
also indicates that they, as a group, are
less averse to debt and therefore less
likely to alter their spending habits in
accordance with their employment or
lack thereof.
“A spot that I love full well”
College towns clearly have certain
economic advantages over other parts
of the country. However, this does
not mean that they are recession-
proof. To determine this, we must
separate holistic advantage from
those that melt away as a recession
takes hold. Generally, we can say
that some of the employment boost
brought by the university and some
of the additional spending brought by
students are vulnerable to recession.
In terms of employment, universities
function much like other businesses.
When overall profits fall universities
begin to realize fewer dividends from
their endowments. Thus, budgets
shrink and jobs are cut. Students’ par-
ents also tend to tighten their belts in
the midst of an economic downturn.
Though students themselves may not
feel the full wealth-effects of a dip in
the economy, their parents likely do
and push them to spend less.
However, recessions do not affect
some of the economic advantages
of having a college. Most universi-
ties receive federal funding, which
is not always affected by economic
conditions. In fact, government fund-
ing often varies inversely with the
economy during short-term fluctua-
tions. Additionally, colleges still at-
tract professors and intellectuals, and
this can lead college towns to have a
better-educated workforce.
“Our Team Will Never Fail”
This leaves us at a point of un-
certainty. Recessions certainly affect
college towns, but to what extent? To
answer this let’s look at employment
statistics. Here are the top ten metro-
politan areas (from lowest to highest
unemployment rate) in the U.S. Bu-
reau of Labor Statistic’s August 2010
unemployment rankings:
Fall 2010 | Business Sphere Magazine 15
1. Bismarck, ND*
2. Fargo, ND*
3. Lincoln, NE*
4. Rapid City, SD
5. Grand Forks, ND*
6. Sioux Falls, SD
7. Burlington, VT*
8. Omaha, NE
9. Portsmouth, NH
10. Iowa City, IA*
Notice that six of the top 10 met-
ros (*) approximately fit our defini-
tion of a college town. Three other
college towns – Manhattan, KS, Ames
IA, and Madison, WI – round out the
BLS’ top 15.
What does this tell us? It indicates
that college towns have weathered
the recession far better than the rest
of the United States. The national
unemployment rate for August was
a whopping 9.5%. This compares to
3.1% for Bismarck, ND and 5.1% for
Iowa City, IA. Though none of these
figures are seasonally adjusted, they
should still give us a good idea of
how comparatively well college towns
have weathered the recession.
All of this means that, though col-
lege towns are not completely re-
cession-proof, they do usually enjoy
higher employment and less holistic
decline than other regions of the
country. Thus, being a college town
does not eliminate the impacts of a
recession, but it does minimize them.
“Go Yale!”
If college towns really do enjoy
tremendous economic benefits, why
hasn’t the Elm City fared better dur-
ing the Great Recession? The New
Haven Metropolitan Area ranks 234
on the BLS August unemployment
rankings with a rate of 9.6%, slightly
higher than the national average.
Shouldn’t Yale and Quinnipiac facili-
tate economic growth for New Haven
just like Kansas State does for Man-
hattan or the University of Vermont
does for Burlington?
New Haven’s problem is not its
universities but rather its surround-
ings. The city sits squarely in the
middle of the Boston-Washington
Megalopolis. This means that New
Haven has to share many of the
advantages brought by its colleges
with New York, Washington D.C.,
Philadelphia, and Boston. Instead
of attracting professors only to New
Haven, Yale and Quinnipiac bring
professors to New Haven, New York,
Stamford, Hartford, and any city
within a morning commute of cam-
pus. The Megalopolis has the same ef-
fect on students. Rather than staying
in town, many students spend week-
ends (and money) shopping in New
York, sightseeing in D.C., or watching
a basketball game in Boston. While
this provides more enriching oppor-
tunities, it spreads thin the economic
advantages brought by the colleges.
The one commonality between
the six college towns in the top ten
of the BLS’ unemployment rankings
is their distance from other metros.
New Haven proper is comparable in
size to Lincoln, NE. However, unlike
Lincoln, New Haven rests in a Ber-
muda Triangle of other metropolises.
Thus, the University of Nebraska
affects Lincoln like a pressure washer,
targeting a small area with all of its
might, while Yale and Quinnipiac act
more like a garden sprinkler, affect-
ing a much larger area with much less
force.
Overall, college towns stand a
much better chance of leaving a re-
cession unscathed. However, relative
isolation plays a key role in ensuring
that the college town actually realizes
the economic benefits that its school
brings. In the case of New Haven, its
universities are a bit too small and
its neighbors a bit too big for it to
receive the full economic boost that a
college can bring to a city.
Dakota is a sophomore Economics
major in Branford College.

Petrocurrency Position in Peril?
Will the weakening of the U.S. dollar pose a threat?
By Monish Shah
In the Organization of Petroleum
Exporting Countries (OPEC) meet-
ing in November 2007 in Riyadh,
Saudi Arabia, Iranian President
Mahmoud Ahmadenijad railed,
“They [the United States] get our
oil and give us a worthless piece of
paper; we all know that the U.S. dol-
lar has no economic value.” Venezu-
elan President Hugo Chavez added
to this chorus of disapproval, “The
empire of the dollar has to end.”
Were Ahmadenijad and Chavez just
engaging in anti-American rhetoric,
or was there substance underlying
their remarks?
It is well established that the U.S.
dollar has depreciated significantly
in recent years. The Federal Reserve’s
latest round of quantitative easing
to make sure “it [deflation] does not
happen here” poses further down-
ward pressure on the U.S. dollar. As
such, the current and likely future
weakness of the U.S. dollar makes it
apt to ask whether there will be fresh
challenges to the petrodollar system.
It is important to understand the
historical context of the petrodollar
system to understand the challenges
going forward.
What is the the petrodollar system?
Petrodollars are U.S. dollars
earned by oil-exporting countries
from the sale of petroleum (priced
in U.S. dollars), a system dating back
to World War II. The 1970s saw the
first period of high oil prices and
a resulting boom in petrodollars.
16
In the last decade, especially since
2006, the price for oil has surged
due to rapid growth in demand from
emerging economies. Finance and
Economics Professor at Rutgers
Business School Farrokh Langdana
has described these two phases of
high oil prices and corresponding
booms in petrodollars as “Petrodol-
lars I and II.”
Currently, the U.S. dollar’s status
as the international reserve currency
is imperiled by two key structural
issues in the American economy.
High and continually rising U.S.
trade and budget deficits put the
valuation of the U.S. dollar under
jeopardy. As a result, it is appropri-
ate to ask whether there will be fresh
challenges to the petrodollar system,
which concerns dollars earned by oil
exporters being recycled back to the
U.S. and ensuring the strength of the
U.S. dollar.
The petrodollar system emerged
from the cauldron of the gold stan-
dard system. The U.S. had played a
leading role in creating and uphold-
ing the Bretton Woods system in
the aftermath of World War II. Until
the early 1970s, the U.S. dollar was
stabilized by a fixed exchange rate
of $35 to an ounce of gold. Other
major international currencies were
also linked to the U.S. dollar. Hence,
reserve banks internationally held
dollar reserves which were “good as
gold.”
The excessive spending of succes-
sive administrations, especially the
“guns and butter” spending of Lyn-
don Johnson’s administration, re-
Business Sphere Magazine | Fall 2010
Finance
sulted in growing U.S. deficits. This
triggered a run on the U.S. dollar, as
investors sold U.S. dollars in return
for gold. Johnson’s Secretary of the
Treasury John Connolly shrugged
off the problem of a weakened U.S.
dollar. He famously remarked to
central bank governors that the
dollar is “our currency, but your
problem.” However, Connolly was
shortly proven wrong. With the val-
ue of the U.S. dollar in jeopardy, on
August 13, 1971, Britain called for
its entire dollar reserves of $3 billion
to be paid back in gold. Within two
days, on August 15, 1971, President
Nixon delinked the US dollar’s peg
to gold. The so-called “Nixon Shock”
led to the eventual collapse of the
Bretton Woods financial system.
Oil shocks of the 1970s
From its founding in 1961, OPEC
was an unwieldy group of countries
with varying socioeconomic struc-
tures. Hence, OPEC ended up selling
its oil cheaply in the 1960s due to a
failure to control group production
quantities and petroleum prices.
OPEC’s founding president Luis
Herrera Campina expressed frustra-
tion that a decade of cheap oil to
Western oil importers had caused
oil exporters to “sacrifice their own
growth, or halt it, in order to permit
or finance the development of the
industrialized countries.”
Eventually, OPEC members suc-
ceeded in cooperating to control the
price of oil. This form of cooperation
among the oil exporting countries in
setting the price of oil has led many
to describe OPEC as a cartel. The
newfound OPEC solidarity, com-
bined with other factors such as the
Six Day War caused an astronomical
rise in oil prices; from $1.80 in 1970
to $39 in 1980 (nominal prices).
While petrodollars were not a new
phenomenon, the rise in oil prices
caused the volume of petrodollars to
surge.
The sharp contrast between the
surpluses earned by the oil export-
ers and the deficits incurred by the
importers created an international
imbalance of payments. The pet-
rodollar recycling system required
OPEC countries to “recycle” their
petrodollar surpluses in dollar-
denominated assets to finance the
deficits of oil-importing countries.
Thus, the development of a petro-
dollar recycling system alleviated
the international imbalance of pay-
ments. Petrodollar recycling played
a crucial role in preventing a beggar-
thy-neighbor currency depreciation,
which would have plunged the world
economy to the depths of the 1930s.
George Shultz, who served as U.S.
Treasury Secretary under Nixon
after Connolly, commented on the
effectiveness of the financial mar-
kets: “Far from collapsing under the
weight of the petrodollar problem,
financial markets thus worked to
solve that problem.”
Through the petrodollar recycling
system, the United States led a new
international financial system which
cemented the position of the U.S.
dollar as the international reserve
currency. The U.S. dollar’s predomi-
nance as the currency for global
trade and commerce accrued it a
“network externality” effect. Since
the U.S. dollar was used internation-
ally to service debts, pay for goods
(including oil) and services, and to
hold reserves, it became stronger.
This in turn compelled more coun-
Fall 2010 | Business Sphere Magazine 17
tries to use the U.S. dollar. This posi-
tive feedback loop for the U.S. dollar,
where its increasing use reinforced
its strength, ensured the reserve cur-
rency status of the U.S. dollar.
Indeed, the U.S. dollar was ef-
fectively backed by oil, or black gold,
in the words of journalist William
Clark. Former Federal Reserve Bank
Chairman Paul Volcker later re-
flected on the importance of pet-
rodollar recycling. He said, “There
was great irony, people were more
willing to hold dollars that weren’t
backed by gold than they ever were
willing to hold dollars that were
backed by gold.” Craig Karmin
writes in his book that “jettisoning
the Bretton Woods system…liber-
ated the dollar…[It was] an oppor-
tunity to spread the influence of the
dollar even further.” The system of
petrodollar recycling promoted an
increased circulation of U.S. dollars.
While the U.S. has had the
exclusive privilege of supplying the
currency for recycling capital, such
an international financial system
is inherently unstable. Former Yale
economist Robert Triffin proposed
the “Triffin Dilemma” which sug-
gests that an international financial
system such as that built by the
United States through petrodollar
recycling is inherently volatile as
“the only way for all other econo-
mies to accumulate net assets in the
dominant currency is for the domi-
nant economy to perpetually run a
current account deficit.” Thus, the
U.S. economy was bound to run a
current account deficit that would
imperil the stability of the interna-
tional financial system.
The “prisoner’s dilemma” facing oil
exporters
The current slide of the U.S.
dollar therefore may raise serious
concerns for oil producers who may
feel that the petrodollar system is
once again causing them to “sacrifice
their own growth.”
In fact, the depreciation of the
U.S. dollar in a time of high oil
prices has prompted calls within
OPEC to shift from U.S. dollars to
other currencies. Javad Yarjani, the
head of OPEC’s Petroleum Market
Analysis Department, has remarked
that in the long run, many oil ex-
porting countries could shift to sell-
ing oil in euros, if the euro emerged
as a more widely beneficial system
for the OPEC nations. Yarjani failed
to convince the OPEC to sell oil in
euros, but his country, Iran, did stop
accepting U.S. dollars for oil in April
2008. Furthermore, in 2008, Russian
President Vladimir Putin expressed
the possibility that Russia would
start selling oil in euros. With the
recent weaknesses in the Eurozone,
that possibility seems to be deferred
for now. The U.S. dollar may contin-
ue benefiting from the “ugly sister”
syndrome, which refers to its relative
strength vis-à-vis other major cur-
rencies, for the short term. However,
oil producers could eventually move
away from the petrodollar system.
Saudi Arabia was among the
countries making cries for a switch
to the euro. However, in early 2008,
Vice Governor of the Saudi Arabian
Monetary Authority Muhammad
Al-Jasir reassured the United States
in a public announcement that Saudi
Arabia would continue to sell oil
in dollars. However, Al-Jasir now
seems to have shifted his position.
In March 2010, Al-Jasir, as the newly
appointed chairman of the Gulf
Cooperation Council Monetary
Council, announced that he was
spearheading a push for the Gulf oil-
exporting countries to institute their
own currency. While a common
Gulf currency is probably years away
from fruition, the announcement is
a significant development. The Gulf
Cooperation Council has among its
members an estimated 40% of the
world’s reserves. Thus, a common
Gulf currency would significantly
challenge the U.S. dollar as a cur-
rency to invoice oil, and ultimately,
as an international reserve currency.
While a growing response of oil
exporting countries to the prob-
lem of petrodollar recycling is built
around moving away from the U.S.
dollar, most oil exporting countries
are currently working within the
petrodollar system to maximize
the benefits of having petrodollar
surpluses. For example, countries
like Saudi Arabia, Kuwait and the
United Arab Emirates are launching
wide-ranging reforms to increase
their absorptive capacity and also
attempting to maximize investments
made through the financial account
channel.
Nevertheless, the significance of
oil exporters like Iraq, Iran, Venezu-
ela, Russia, Kuwait and Saudi Arabia
having made or making attempts to
move away from selling oil in dol-
lars cannot be understated. These
countries hold the largest remaining
oil reserves. If any or a few of these
countries do successfully turn away
from the dollar, such an event could
spark an exodus of nations from the
petrodollar system.
To borrow economic histo-
rian Barry Eichengreen’s analytical
framework, it is in an oil exporter’s
individual interest to switch from
charging depreciating dollars earned
from oil sales to other more stable
currencies. However, it is not in
oil exporters’ collective interest
to switch from dollars as a mass
selloff would bring about the very
depreciation of the dollar they
fear. Given that most oil exporters
hold a majority of their reserves in
dollar-denominated assets, deprecia-
18
tion in the U.S. dollar would put a
significant dent to the value of their
reserves. This “prisoner’s dilemma”
raises the spectre of an individual
oil-exporting country switching
from petrodollars towards other
petrocurrencies and bringing about
a collapse of the petrodollar system,
triggering a domino depreciation on
the U.S. dollar.
Will QE2 cause a crash of the U.S.
dollar as the petrocurrency?
Ironically, the United States may
inadvertently bring about the end
of the U.S. dollar’s reign as interna-
tional reserve currency. As Professor
Eichengreen points out, the United
States may decide to depreciate the
U.S. dollar to reduce its ballooning
current account deficit. The Federal
Reserve’s latest round of quantita-
tive easing (QE2) has put further
downward pressure on the U.S. dol-
lar. This depreciation could further
push oil exporters towards another
currency. Conversely, if the U.S. does
not tackle the ballooning deficit, U.S.
debt will grow and this will surely
lead to speculative attacks on the
dollar. Martin Wolf, the chief eco-
nomics commentator of the Finan-
cial Times, gave a grim prognosis to
sum up the American predicament:
“The Americans no longer have the
means to save themselves.”
Compared to “Petrodollar I,” the
“Petrodollar II” phase symbolizes
the shifting of the international eco-
nomic and financial center of gravity
away from the United States. Going
forward, this begs the question of
whether we will see the emergence
of any currencies with sufficient
liquidity to take over the U.S. dollar’s
position as petrocurrency. Some
speculate that the Chinese ren-
minbi is a viable candidate given the
increasing prominence of China in
the global economy and the Chinese
Business Sphere Magazine | Fall 2010
government’s moves towards inter-
nationalizing the renminbi. How-
ever, China seems reluctant to make
the renminbi the next international
reserve currency lest it suffer from
the “Triffin’s Dilemma.”
In conclusion, petrodollar recy-
cling was originally a means to es-
tablish the U.S. dollar as an interna-
tional reserve currency. The United
States has abused that position
to run an “empire of debt…[built
upon] deficit without tears,” to bor-
row the words of Italian economist
Antonio Mosconi. However, the
United States’ fiscal irresponsibility
has caught up with it. The continued
decline of the U.S. dollar makes its
exclusive use as a petrocurrency in
the long term unlikely.
Paul Kennedy expressed in the
New York Times that this growing
movement away from the U.S. dol-
lar is part of a larger international
movement. “The nastier interpreta-
tion of this move toward ending the
dollar’s preeminence is, let there be
no doubt, an anti-American one,” he
said.
OPEC recently celebrated its
silver anniversary, marking 50
years of support for the petrodol-
lar system. Going forward, OPEC’s
choice of whether or not to stick
with the status quo is likely to be a
key strategic issue for OPEC. As the
U.S. dollar continues to depreciate,
the economic rationale for a move
away from the U.S. dollar grows.
Losing its status as a petrocurrency
could put the writing on the wall for
the U.S. dollar as the international
reserve currency.
Monish is a junior Economics major
in Morse College.
Environment

The Future of Real Estate Investing
The challenges and opportunities facing private real estate giant Hines
By Paul Joo
Since its inception in 1957, Hines
has grown into one of the largest
private real estate organizations in
the world, with a portfolio of
approximately 1,100 projects valued
at $22.9 billion. These properties
represent 451 million square feet of
office, residential, mixed-use,
industrial, hotel, medical, retail and
sports facilities in more than 270
cities throughout the world.
Business Sphere spoke with Hines’
Executive Vice President and Capital
Markets Group CEO Charles M.
Baughn about the firm’s strategy
through the economic downturn
and its plans for the future.
BSM: Could you tell us a bit about
Hines’ model of vertical integration?
How unique is this approach in the
industry and how does it inform the
decisions of the company?
Baughn: There are a number of large
regional developers that develop and
also manage and lease their build-
ings, but there are very few inter-
national firms that do this. So we
might compete with a firm in, say,
southern California that uses a mod-
el very similar to ours. Or we might
compete with someone in Chicago
that has a comparable approach. But
when it comes to competing either
across the U.S. or globally, we have
very few competitors that are verti-
cally integrated, that are providing
both the development or renovation
as well as the property management.
20
A typical investor would go into
a market in Russia and find a local
developer that they could team up
with, whereas with Hines, we have
our own people on the ground that
are executing the business. It allows
us to maintain control over qual-
ity as well as alignment of interests:
if everybody is working for Hines,
we don’t have problems with a local
partner that might have different
goals.
We view this as a real competitive
advantage. In Moscow, for example,
where the market is not very trans-
parent, we’ve had our own team for
15 years. It’s allowed us to create
the largest management and leasing
business for Class A international
office space in the market.
Since its inception, Hines’ central
focus has been in the class A office
space market. Does this remain the
central focus of the company within
the context of the global recession?
Business Sphere Magazine | Fall 2010
Company Profile
Yes. Whether we purchase or
acquire a building, whether it only
needs leasing or also needs renova-
tions, we always want to have build-
ings that, when they’re finished, will
be core buildings. This means a very
strong location, as well as efficiency,
both in how a tenant uses the space
as well as things like energy efficien-
cy. Ultimately, of course, we want to
have strong leasing in the building.
There are certain things you can
fix about a building. If you have a
great building that has a lot of lease
rollover you can fix that. But if
you have a building in a secondary
location that tenants only go to in a
very strong market, that’s obviously
something you can’t fix. So our focus
is always on premium locations and
high-quality buildings.
How has the economic slowdown has
affected Hines’ operations? Have any
major projects been canceled due to
challenges in raising capital?
 We had our capital in place for
everything we were doing; certainly
we use leverage and debt, but unlike
some of our competitors, we were
not overleveraged. So we did not
get into a position where we did not
have the capital to fund a project.
It has been challenging, though, to
raise capital for new projects.
A unique aspect of the company is
that it remains privately owned. How
does this affect Hines’ operations? Has
the ownership structure been a fac-
tor in raising capital during the past
couple years?
If you look at the public com-
panies in real estate, they have an
advantage right now in terms of
raising capital, whereas, a few years
ago, they were at a disadvantage. So
it swings both ways.
It’s important to note that being
private ultimately makes sense for
real estate investment. We do what
we think is the best long-term strat-
egy, as opposed to being dictated by
Wall Street analysts and quarterly
reports. But yes, there are certainly
times in a market cycle when you
look across the fence and wish you
could be doing what other firms are
doing.
Are there any bright spots in this
economic slowdown? How would you
describe the state of recovery in the
real estate market?
One, I think the debt markets for
high-quality office buildings have
come back a lot stronger than any of
us would have thought a year ago.
I mean, today, if you’ve got a fully
leased office building, you can bor-
row money at somewhere between
4-5%, which is much lower than
expected. That’s a huge positive.
The other thing is, because re-
Fall 2010 | Business Sphere Magazine 21
turns across the market are so low,
not just in real estate, if you have
a fully leased high-quality office
building in a major market, it will be
trading at cap rates that are remi-
niscent of the peak of the market.
So again, the rebound of values in
high-quality core real estate has been
much stronger than we expected a
year ago.
That said, even if we don’t go
into a double-dip recession, there
are very few major economists who
think we are going to have a lot of
growth in the next year or two. 2011
is going to be a challenging year in
terms of filling up office space, and
probably 2012 as well. Hopefully
by that point the recovery kicks in
and we start to see a more complete
turnaround.
Have distressed assets presented
acquisition opportunities for Hines?
There are certainly some dis-
tressed opportunities, particularly
in Western markets, but we’re not
seeing the flood of large-scale op-
portunities in the real estate market
that many predicted.
Why do you think that is?
It’s different for the class A office
market because the regulators are
not forcing banks to sell off their bad
loans. Unlike the early 90s and RTC
days, when the regulators basically
came in and forced the banks to
write down and sell their assets, the
banks this time are being allowed
to strengthen their balance sheets
slowly and have not been told that
they need to sell assets.
And with interest rates so low, if
you extend a loan, most mortgages
will cover their debt service. The
loan to value may be too high, but
from a bank’s point of view, if they
can extend it for a few years and stay
current on the interest, that may be
more attractive to them than taking
back the building. As a result, there
has not been a lot on the market in
terms of distressed assets.
Looking ahead, what’s exciting on the
horizon for Hines?
Emerging market countries
are doing quite well. We have, for
instance, a strong business in Brazil,
where we’ve had a team for a num-
ber of years. The Brazilian economy
is not as linked to the U.S. and Eu-
rope as many other economies are,
and it has continued to perform well
through the recession. The same can
be said of our operations in China
and Russia. Being in those parts of
the world, we’re seeing traditional
development opportunities today.
As a final question, what makes
Hines different? Why is Hines special
for you personally?
The Hines family has done a
great job of setting the right tone,
the right culture. You have a lot of
people at Hines who come out of
business school and are here 20, 25
years later. I think it’s a combination
of having the right ethics, as well as
being a platform for entrepreneurs.
You can create your own opportuni-
ties, and you have behind you the
support of a global company.
Paul is a junior Cognitive Science
and International Studies major in
Berkeley College.

Internet Piracy
As online content expands, so do high-stakes legal battles
By Nabila Chitalwala
Legal rights are the foundation
on which any democratic society
stands, and protecting copyrights
is essential for the development of
new works in the artistic, scientific
and economic spheres. On the one
hand, upholding copyrights pro-
vides incentive to artists, scientists
and entrepreneurs to invest in their
creations. But on the other hand,
stringent copyright laws can create
obstacles for the spread of knowl-
edge, harming the interests of the
public. A recent lawsuit that high-
lights this dilemma in the nature
of copyright laws is the Google-
YouTube vs. Viacom lawsuit.
Google won a huge victory when
Judge Stanton, district judge of New
York, dismissed Viacom’s $1 bil-
lion copyright infringement lawsuit
against YouTube, which is owned
by Google. The basis of the ruling
was the ‘safe harbor’ provision of the
Digital Millennium Copyright Act
(DMCA). The ruling validated You-
Tube’s practices for handling copy-
right material, thereby encouraging
other sites handling user-generated
content, like Facebook, to follow
similar practices.
Viacom’s expectation that Google
police every video uploaded on
YouTube, the world’s largest video-
sharing website, seemed unfeasible
due to the heavy amount of traffic
received by the site. At the same
time, had Google sat complacently,
other media companies would have
22
been angered. As a result, YouTube
spent significant amounts of money
developing its content ID system,
an automated filtering system that
detects and blocks infringing videos.
Google also signed revenue-sharing
agreements with over a thousand
media companies. Notably, these
moves were voluntarily undertaken
by Google to placate other compa-
nies and were not legally mandatory.
According to the law, all YouTube
was required to do was to take down
material when copyright holders
complained about specific content.
And as Judge Stanton noted, “The
present case shows that the DMCA
notification regime works efficiently:
when Viacom over a period of
months accumulated some 100,000
videos and then sent a mass take-
down notice on February 2, 2007, by
the next business day YouTube had
removed virtually all of them.”
“
Fricklas, Viacom’s general
counsel, reiterated the
fundamental purpose of
copyright, explaining that
“copyright protection is
essential to the survival
of creative industry” and
claimed that this ruling
would serve as a disin-
centive to creation and
invention in society.
Business Sphere Magazine | Fall 2010
Law
Viacom sued Google in 2007,
claiming that Google deliberately
overlooked piracy that was ram-
pant on YouTube in order to profit
from that piracy. Google did take
down material when notified, but
until then, it profited hugely from
the heavy traffic on its site, some of
which was attracted by copyrighted
materials, many of them time-sensi-
tive. According to Viacom, Google
robbed copyright owners of their
revenue and paid no price for it.
Evidence that this was done deliber-
ately was shown via internal emails
among YouTube’s founders. These
e-mails between Chad Hurley, Steve
Chan and Jawed Karim revealed that
YouTube was willing to overlook the
pirated material on its site, knowing
that if they gave in to heavy filtering,
they could lose a high percentage of
their profitable traffic. Arguably, the
hosting of such illegal and highly
profitable pirated material contrib-
uted to YouTube’s growth into a
$1.65 billion company. Thus, many
believe that this ruling is a blow to
American inventors and creators
who are fighting piracy around the
globe.
On the other hand, it may be
unreasonable to hold companies
that market products or services
that merely make copyright viola-
tions easier fully responsible for
such violations by their customers.
For instance, a photocopy machine
maker would bear no liability for the
copyright of protected works by its
customer, even if this were done
using the company’s photocopier. If
“
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
materials uploaded by their custom-
ers, a huge money-making
scheme would be created by which
companies could sue sites for
pirated materials that they them-
selves uploaded. For instance, in
the Google vs. Viacom case, Google
provided e-mail messages showing
Viacom employees uploading copy-
righted clips to YouTube even as the
company was complaining about
copyright infringement.
Nevertheless, Viacom and many
others believe that companies
should take more direct measures to
ensure that they are not facilitating
copyright infringements. The law
should make provisions for com-
panies to monitor their own sites
to check for such violations. The
feasibility of such a scheme, how-
ever, is in doubt. For example a site
like YouTube receives up to 24 hours
of video every minute; monitoring
such a site would be nearly impos-
sible.
However, without such a monitoring
system in place, the rights of many
individual copyright holders, who
lack Viacom’s resources to search
the Internet for infringing material,
would be violated. Thus, the argu-
ment is that site operators, rather
than looking the other way, should
Fall 2010 | Business Sphere Magazine 23
take action to prevent violations
when they have reason to believe, as
Google does, that such violations are
occurring.
Despite heavy opposition from
Viacom and many other media
companies, Judge Stanton sided
with Google, which claimed that,
although they knew that some mate-
rial uploaded on their site was in
violation of copyright law, they did
not know which clips had been up-
loaded with permission and which
had not. Thus, they could not dis-
criminate among and remove these
clips unless copyright violations
were reported by a third party.
The court’s ruling was hailed as
reasonable and fair by many com-
panies, especially sites that rely on
users to upload their own con-
tent. Kent Walter, Google’s general
counsel, rejoiced, “This is a victory
for the Internet and the people who
use it.” However, the ruling was
criticized by others. Viacom decided
to appeal, condemning the ruling
as “fundamentally flawed.” Michael
Fricklas, Viacom’s general counsel,
reiterated the fundamental purpose
of copyright, explaining that “copy-
right protection is essential to the
survival of creative industry” and
claimed that this ruling would serve
as a disincentive to creation and
invention in society.
Copyrights are integral to the
progress of business, especially as
ideas and content circulate around
the world at an unprecedented
rate. However, in a digitalized age,
the measures needed to ensure
the protection of such copyrights
are becoming elusive, as technolo-
gies that promote the widespread
dissemination of information such
as file-sharing sites on the Internet
become increasingly popular. It is
extremely important to protect the
interests of inventors and to ensure
that their work is rewarded, so that
they are motivated to continue to
create and invent. At the same time,
it is equally important to ensure that
large companies do not monopolize
information or content. The public
should be granted the right of access
to materials after either a certain
period of time or by paying for
that material at prices that are not
kept artificially high by such com-
panies. The limited establishment
and upholding of copyright laws are
beneficial to society as a whole.
Nabila is a freshman in Davenport
College.

Return of the Vultures
An introduction to distressed investing
By Jerry Feng
It may be difficult to imagine how
anyone, besides corporate lawyers,
can make good money from corpo-
rate bankruptcies, but there is one
asset class of investors who represent
the vultures of the financial world.
They desire nothing more than to
feast on the rotten carcasses of fallen
companies enveloped in nasty legal
quagmires that make most ana-
lysts squirm. They are, of course,
the distressed investors, specialists
who utilize their legal and financial
acumen to excavate any remaining
value from fallen companies. These
companies are avoided by regular
investors who are taught ad nau-
seum to only pick blue chip stocks
with strong earnings growth and a
durable, lasting franchise value. For
most regular investors, distressed
investing represents an esoteric
world far, far away from the universe
of healthy stocks value and growth
investors are told to remain restrict-
ed to.
Distressed investing is nothing
more than investing in the securi-
ties of corporations that are in grave
danger of not earning enough mon-
ey to pay off their lenders and sup-
pliers. In the aftermath of the Great
Recession of 2007-08, the ranks of
companies with a “distressed” status
have surged. Besides an unfavor-
able shift in the overall economy,
a detrimental business move by
unwise management is another ma-
jor reason why companies become
insolvent, unable to satisfy payments
24
to its creditors and suppliers.
Most healthy corporations derive
a majority of their funding from a
combination of bank loans, bonds,
and stocks. When companies are
profitable, they generate enough
cash to be able to pay off the inter-
est and principal obligations to their
creditors. However, when companies
experience a shock in sales revenue,
or an unfavorable surge in expenses,
they are unable to satisfy inter-
est and principal payments. This
insolvency amounts to a violation of
the legal contract between creditor
and borrower and sparks an entire
onslaught of legal and financial sanc-
tions that prevent the company from
employing any expansive strategies
until the debt has been paid off.
Most people are quite familiar
with stocks – ticker values flash
across the bottom of the TV screens
every evening during prime-time
news. But what few outside of the fi-
nancial world know is that the bank
loans and bonds are also actively
traded in global, over-the-counter
markets that are outside the reach of
organized stock exchanges like the
NYSE. But in fact, the market value
for all tradable bonds and loans far
exceeds the value of all traded stocks
in the world. Bonds represent a form
of financing where the borrower
receives a specific amount of money
from a lender, and returns that
money at a set date with additional
interim payments commensurate
with the borrower’s own risk level.
Bonds have remained invisible to
most retail investors simply because
Business Sphere Magazine | Fall 2010
Finance
they are more mathematical and less
suitable for conversation starters at
a cocktail party. The distressed bond
market is a subset of the overall
bond market, which includes an
almost infinite variety of securities,
including government Treasuries,
emerging-market bonds, corporate-
issued bonds, mortgage bonds, and
specially structured notes. Dis-
tressed bonds and loans, however,
represent only a modest share of
total bonds. Currently, the estimated
size of the distressed bond market
in the United States is about $320
billion.
“
These companies are
avoided by regular
investors who are taught
ad nauseum to only pick
blue chip stocks with
strong earnings growth
and a durable, lasting
franchise value.
So how do distressed investors
feed on the securities of a company
that is experiencing problems pay-
ing its creditors? It turns out that
the bonds of a company, which can
be traded thanks to the historical
discovery of formulas to properly
price them, will be extremely cheap,
often selling for several “cents on the
dollar,” in financial jargon. What this
essentially means is that you, the in

vestor, are presented with the chance
to buy a dollar bill for, say, five cents.
The concept is simple. Assume
that I just borrowed $10,000 from
you and promise to pay you back
$12,000 in two years, with the extra
$2,000 from the fact that I need to
compensate you for the extra money
your $10,000 would have earned in
a bank account had you just depos-
ited it for two years. However, after
the first year, I have indulged in
too profligate of a life, bought some
spiffy gifts, and lost my job. After the
first year, it doesn’t look like I will
have that $12,000 to pay you next
year. What would be the rational
thing for you to do to recoup your
loan? For one, you could discipline
my life, restrict me from buying any-
thing else, and force me to find a job,
so that I can have enough money to
pay you back, giving me more time
to repay (debt refinancing). Alterna-
tively, you could “sell” to someone
else the $12,000 claim you have
against me. A buyer will pay you a
certain price for the right to receive
the potential $12,000 (remember,
I may still not be able to pay that
back). But what price should you get
for selling the claim? Given my tenu-
ous situation, a rational buyer would
pay much less than $12,000 for the
claim, to account for the possibility
of my defaulting. Let’s assume the
buyer pays you $7,000 for this claim.
You walk away with $7,000 in your
wallet and can finally sleep soundly.
In this case, the buyer is the dis-
tressed investor, and I represent the
distressed company. The buyer, say
Mr. X, is down $7,000 and prays that
I pay back the $12,000 I now owe to
him, not you.
One year passes, and several
scenarios are possible. In the rosy
case, I somehow win the lottery, and
pay back the $12,000 to Mr. X. He is
elated that he put in only $7,000 for
Fall 2010 | Business Sphere Magazine 25
a $12,000 return, pocketing a handy
profit of $5,000, or 71% of his in-
vested money. Mr. X is a happy man.
Now consider the unfortunate
case. I run off with the rest of money
to the Cayman Islands, outside the
discretion of United States law. Mr.
X, after one year, is unable to find
me. He has lost his entire $7,000
initial investment and has not re-
couped a single dime. A more likely
scenario is that I somehow manage
to get a part-time job, enough to
earn $4,000, all of which I pay to Mr.
X by the end of the second year. Yet,
he still suffers a loss, because he put
in $7,000, only to wait a year and get
$4,000 back, a 43% decline in his ini-
tial investment. Indeed, Mr. X could
have done better by depositing his
original $7,000 in a bank account or
a hedge fund (assuming it’s not run
by Madoff).
While real life cases are inevitably
more complicated, this simple ex-
ample illustrates the essential prin-
ciples of distressed investing. When
executed correctly with adequate
research and sophisticated financial
understanding, distressed investing
epitomizes the sacred tenets of “val-
ue investing” and “margin of safety”
(two terms widely espoused by loyal
followers of the Benjamin Graham
circle of investors, including the leg-
endary Warren Buffett). Distressed
investing is fundamentally about
buying the bonds and bank loans
of companies, often at a significant
discount, with the anticipation that
in due time one will recover much
more than the amount of money
that one had put in. That philosophy
of buying a dollar for fifty cents is of
course the basic principal of value
investing – taking advantage of dis-
crepancies between price and value.
How about “margin of safety”? Well,
just buy the very cheapest dollar you
can find on the market, assuming of
“
The investor must
harness the delicacy of a
surgeon, the intuition of
a mathematician, and the
chutzpah of a seasoned
poker player in order to
calculate how much value
accrues to a distressed
security, and when to
buy it.
course that what you bought is truly
a dollar, backed by the full faith and
credit of the powerful U.S. Federal
Reserve. By placing their faith in
distressed companies, this class of
investors arguably plays a vital role
in resuscitating many moribund
companies. The spectacular returns
are a corollary of the outsized risk
distressed investors bear. Thus, the
popular conception of distressed
investors as vultures fails to take into
account the crucial role they play as
well as the risk they bear.
According to the Combined
Altman-NYU Salomon Center
Defaulted Public Bond and Bank
Loan index, the average return
on distressed assets in 2009 was a
spectacular 56%. Of course, making
double or even triple digit returns
on distressed securities is easier
said than done. Indeed, the road
to success in distressed arbitrage
is paved with financial and legal
potholes for the unwary investor. In
real life, distressed investing requires
a sophisticated understanding of
business models and relationships
between securities. The spectrum of
distressed securities from which one
can buy is vast, ranging from senior
secured bonds to junior unsecured
“
For budding investors
and veterans alike, there
is really no better place to
undergo the proper rite of
passage into the kingdom
of financial wizardry than
in the dense jungle of
distressed securities.
debentures or even warrants (call
options on the underlying company)
that are detached from issued bonds
and are traded actively in over-the-
counter markets. The investor must
harness the delicacy of a surgeon,
the intuition of a mathematician,
and the chutzpah of a seasoned
poker player in order to calculate
how much value accrues to a dis-
tressed security, and when to buy it.
The analytical work can be messy
and nasty, requiring the investor
to untangle webs of arcane legal
phrases that govern the order the
bonds and loans are paid off when a
company falls under distress. Roger
Lowenstein’s colorfully analogy in
the New York Times would serve to
illustrate the importance of the order
of debt payments: “Imagine a seaside
condo beset by flooding: just as the
penthouse will not get wet until the
lower floors are thoroughly soaked,
so the triple-A bonds would not lose
a dime unless the lower credits were
wiped out.”
One must not only understand
the key sources of the company’s
revenues and its major risks, but also
be well-versed in bankruptcy pro-
ceedings to understand the jargon of
the courts, such as voidable prefer-
ence, pari passu, unencumbered
assets, and priming. Indeed, the
reason that the distressed investing
market exhibits such a high degree
26
of inefficiency is precisely because
none but the bravest souls dare to
venture into this perilous unknown
where uncertainty and confusion lie
at every corner.
Despite these dangers, distressed
investing has blossomed into a
thriving industry in the past five
years, with the industry populated
mainly by hedge funds and propri-
etary trading firms at some of the
largest Wall Street banks such as
Goldman Sachs, Morgan Stanley,
and J.P. Morgan. David Tepper,
perhaps the most prominent dis-
tressed debt investor today, bought
billions of dollars of distressed debt
in troubled financial institutions,
convinced that they were ‘too big to
fail.’ His gamble earned his hedge
fund, Appaloosa Management,
over $7.5 billion in 2009. Careful
dissections of companies facing
bankruptcy are now conducted by
leagues of extraordinary security
analysts, often armed with fresh JDs
from some of the nation’s top law
schools. No wonder the distressed
market is getting ever more efficient.
For many investment professionals,
distressed investing offers return
profiles highly uncorrelated with
equities, fixed-income, and currency
market performances; distressed
reflects an arena where a majority of
a portfolio’s alpha (value) is created
by the raw analytical making skills
of the investor.
Distressed investing is of par-
ticular relevance in today’s dour
economic climate, as in prior post-
recessionary periods. The United
States and the global economy are
recovering slowly and unsurely
from the financial meltdown that
swept the world three years ago.
The credit crunch in the wake of the
subprime mortgage crisis affected
financing options for many compa-
nies. The weakened economy has
Business Sphere Magazine | Fall 2010
caused a disillusioned populace to
be more inclined to save rather than
spend their disposable income. This
has forced many businesses such as
newspapers publishers, booksell-
ers, and real estate trusts to clamor
to the protective arms of Chapter
11 bankruptcy, allowing the com-
pany to remain in business. Indeed,
distressed investing can be a sad,
vicious industry where only the very
top have a chance to survive, while
the bottom quartile of fund manag-
ers meet the same fate as the compa-
nies they originally sought to study.
Yet, for those driven and moti-
vated by the intellectual quest to
explore the byzantine, the distressed
asset class offers a most delectable
challenge. In the light of Basel III
penalties cracking down on risky
lending by banks to distressed
companies, investors have a greater
scope to delve in distressed compa-
nies. Investors will inevitably hone
their skills in the disciplines of se-
curity valuation, market timing, and
most importantly, risk-management.
It is a market sufficiently mispriced
for hard work and due diligence to
separate the men from the boys,
yet it is also responsive and liquid
enough for prices to adjust quickly
to proper value within a few months
to a maximum of about two years.
For budding investors and veterans
alike, there is really no better place
to undergo the proper rite of pas-
sage into the kingdom of financial
wizardry than in the dense jungle of
distressed securities.
Jerry is a senior Economics major in
Calhoun College and has previous
summer experience working with
distressed debt instruments.

Leftover Women
The term ‘shengnu’ points to serious gender imbalances in China
By Joanna Zheng
If you ask a female student at
Fudan University in Shanghai,
one of the top universities in the
country, what her greatest fear is,
odds are high that it will not in-
volve her studies, her salary, or
even her employment. According
to a nationwide survey conducted
by the Fudan School of Journal-
ism, more than 70 percent of urban
women surveyed admit that what
they fear most is being “left behind”
as a shengnu, an older unmarried
woman. Despite the fact that many
of these shengnu have top-tier
education and successful careers,
they suffer a cultural stigma against
their status: they have passed the
ideal childbearing age and are now
“leftovers.”
This social barrier is just one of
the many reasons why the Chinese
business environment is a diffi-
cult and, at times, hostile place for
aspiring businesswomen. A major
cultural barrier is the traditional
view that dictates that a woman’s
primary place is in the home. Many
Chinese still hold this view, despite
the fact that many families today
rely on women’s wages as an im-
portant source of income. Having
to fulfill the time-honored role of
wife and mother while carving a
role in the workplace puts many
Chinese women, particularly those
from urban areas, in a bind and
can force a difficult decision. As the
Fudan survey shows, many feel the
Fall 2010 | Business Sphere Magazine 27
pressure to forego employment for
motherhood.
For those who are intrepid
enough to venture into the business
world, challenges and prejudices
hinder them from attaining influen-
tial roles. The culture of gender dis-
crimination, particularly prevalent
in upper management and entrepre-
neurship, results in a “glass ceiling”
phenomenon similar to that in the
Western world. This reflects the
dominant attitude that business is a
man’s sphere and that women lack
the traits necessary for successful
business operations. Li Jing, manag-
ing director of J.P. Morgan Chase,
has voiced his concern that “[wom-
en] might lack a bit of courage when
making decisions.” Statements like
these contribute to the perceptions
many Chinese people hold about
female business acumen.
As in many other places in the
world, the issue of the male-female
wage gap is another separating fac-
tor that discourages women from
“
Despite the fact that
many of these shengnu
have top-tier education
and successful careers,
they suffer a stigma
against their status: they
have passed the ideal
childbearing age and are
now “leftovers.”
Labor Economics
the workplace. For example, Hera
Siu, the Nokia China general man-
ager and vice president of corporate
wage gap is another separating fac-
tor that discourages women from
affairs, noted that she had routinely
experienced a 25 percent wage gap
compared to her male counterparts
during past jobs. These inequali-
ties do not reflect differences in
education or experience, a fact that
frustrates many female workers.
Although progress is visible, the
playing field is still far from level.
Many businesswomen agree that
one of the most important tools for
building confidence and encourag-
ing more women to enter business
is networking. Having a support
system of other women, especially
mentors who have gone through
similar experiences themselves, is
vital for younger workers who may
be daunted by the social obstacles
they face as they begin their careers
Even at the higher levels of corpo-
rate ladders, women can still take
comfort in knowing that they can
rely on a network of peers. Yu Jian,
deputy secretary of the party com-
mittee of Shenzhen Gas Group Co.
Ltd., notes that “female leaders often
feel lonely” and that “heavy pres-
sures are unavoidable.” With this in
mind, she has sponsored Shenzen’s
Women Entrepreneurs’ Associa-
tion for six consecutive years and
frequently hosts parties and social
activities for other female business-
women.
Despite these glaring problems

with gender equality, the Chinese
business world is a much friendlier
environment for women than it was
even ten years ago.
Deng Xiaoping adopted his “open
market” economic approach in the
1980s, famously declaring that “it
doesn’t matter whether a cat is black
or white, as long as it catches mice.”
The advent of capitalism quickly
established a burgeoning middle
and upper class demographic, but
this demographic was overwhelm-
ingly male. In recent years, however,
more companies have begun to hire
women, with statistics showing a
higher number of female workers
and executives than in the past, ac-
cording to Qianqian Du, assistant
professor of finance at Shanghai
Advanced Institute of Finance.
“
Deng Xiaoping adopted his
“open market” economic
approach in the 1980s,
famously declaring that
“it doesn’t matter whether
a cat is black or white, as
long as it catches mice.”
The advent of capitalism
quickly established a bur-
geoning middle and upper
class demographic, but this
demographic was over-
whelmingly male.
Women are also being recog-
nized for their unique talents and
perspectives in traditionally male-
dominated careers and social struc-
tures. At the 2010 Global Summit of
Women, Wang Xiaoyan mentioned
her belief that women have “good
communication skills and resilience
28
in the face of setbacks and difficul-
ties.” Their levelheaded thinking and
ability to remain calm in stressful
situations are traits which, some
businesswomen believe, give them
an edge over male peers. Christine
Chen, founder of a raw textile sup-
ply company, explains her belief in
the importance of communication
in business: “In Chinese, the way
you say business is ‘shen yi’, which
translates to ‘helping each other cre-
ate a meaningful living’...It includes
communicating your authenticity,
your care and your emotions—
everything.”
Indeed, there is no doubt that
women have cultivated strong
presences in China’s businesses,
with names such as Dong Mingzhu
(president of Gree Electric Appli-
ances) and Wang Xiaoyan (chief in-
formation officer of Lenovo) dotting
financial headlines. These women
have made the arduous climb up the
corporate ladder through persever-
ance and tenacity. Dong Mingzhu,
for example, was born as the young-
est of seven in an ordinary family of
laborers in Nanjing. She worked her
way to the top with such determina-
tion that she has not taken a vaca-
tion in twenty years.
Zhan Huizhen, recently named
China’s Outstanding Woman
Entrepreneur in June 2010 by the
All-China Women’s Federation and
China Association of Women En-
trepreneurs, began her career with
a ten-square meter workshop and
minimal sewing supplies. After years
of hard work, she eventually ex-
panded her business into a lucrative
enterprise and used a percentage of
her profits to establish a vocational
school for other women in her na-
tive Jiangxi Province. There seems to
be a very strong sense of community
among females in the workforce,
and women like Zhan Huizhen are
Business Sphere Magazine | Fall 2010
“
Many businesswomen
agree that one of the most
important tools for build-
ing confidence and en-
couraging more women to
enter business is network-
ing. Having a support
system of other women,
especially mentors who
have gone through similar
experiences themselves, is
vital for younger workers
who may be daunted by
the social obstacles they
face as they begin their
careers.
the role models aspiring female ex-
ecutives look to for inspiration.
Perhaps in the future, Chinese
women might be able to pursue
both a career and a family without
judgment on either side. Maybe
single thirty-something year-old
women, confident and successful in
their careers, will one day be praised
for their willingness to postpone
familial life to pursue their own
ambitions in business. This vision
seems plausible given the fast pace
of change in China today. As history
has shown in the United States, the
incorporation of women into the
business place is a fruitful and lucra-
tive exercise. There is no doubt that
the role females will eventually play
in the Chinese business world will
be economically influential as well.
Joanna is a freshman in Trumbull
College.
 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
it is this autonomy in design that
really gets Murphy excited. His eyes
light up as he pantomimes a Haitian
designing his own home. “You want
a window there?,” he asks. “Just cut
one out! A back door? No problem.
After all, you’re paying for it.”
Murphy emphasizes the impor-
tance of pride as a motivating factor
toward homeownership. “It’s easy
to forget that the American dream
is also the Haitian dream,” he says.
“We all want our own houses, made
to our own specifications.” He tells
a story of a taxi driver who has
ordered a home on a highly visible
hilltop. The man had seen one of
Murphy’s design mock-ups, which
featured a decorative blue roof. Mur-
phy had added the coloring just for
show, but roofs in Haiti are uniform-
ly white to reflect the beating sun.
Regardless, the man demanded a
blue roof on his home to set himself
apart from his neighbors. “We’re not
giving away cookie-cutter houses,
but rather, letting Haitians draft
their own homes, their own futures.”
For information on how to get involved, contact James at JM@daniafoundation.org
30
Building Credit
The idea of Haitians paying for
their own homes may seem far-
fetched, and most creditors see
Haitian credit as toxic, but Murphy
claims this judgment is unfair. He
insists that housing demand in
Haiti is strong, but construction is
stifled by a lack of willing creditors
for mortgages. Due to high unem-
ployment and default rates, current
mortgages in Haiti have interest
rates around 20%. Making mat-
ters worse, Haiti’s Hall of Records
was destroyed in the quake, leaving
lenders with no system to track their
mortgage holders. The success of the
Dania Foundation will hinge on its
ability to overcome these odds and
expectations through innovative
financing programs.
The foundation is currently devel-
oping a pilot program with the Hai-
tian Taxi Drivers’ Association to put
this plan into action. All 7,000 driv-
ers in the association have agreed
to back the defaults on loans given
to 200 of their own members. With
this security against default, Dania
Business Sphere Magazine | Fall 2010
can significantly lower the mortgage
interest rate. “5 or 6 percent with
minimal risk?” asks Murphy, “It
should be a no-brainer for investors.”
Dania’s ultimate goal is a 3% interest
rate on mortgages. If successful, this
financing model could be applied
across entire communities, making
the dream of homeownership an af-
fordable reality.
The Dania Foundation will also
provide the Adopt-a-Mortgage pro-
gram, which would allow relatives or
philanthropists to pay a portion of a
family’s mortgage. In keeping with
the tenet of self-sufficiency, Murphy
insists that the foundation would
cap the sponsorship of each mort-
gage at a certain percentage. Still, the
program would give Haitians with
families in the U.S. an extra level
of financial security while allowing
them to maintain their autonomy as
homeowners.
Building Markets
The Dania Foundation’s model is
unarguably ambitious. Expanding
homeownership in any 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.
 Business Sphere magazine and the Yale Undergraduate
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 Business as usual is
no longer an option.

As globalization continues to redefine the

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instrument for systematic change, the Yale
Undergraduate Business Society (YBS) aims
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