The Wall Street Journal Weekly Review & Quiz
Covering front-page articles from Nov 26 – Dec 2, 2005
Professor Guide with Summaries Fall 2005 Issue #14
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
Behind Early Shopping Frenzy: Big Deals, Worries About Season
By ANN ZIMMERMAN, AMY MERRICK and ELLEN BYRON
November 26, 2005; Page A1
http://online.wsj.com/article/SB113292430807906543.html
Consumers turned out in sometimes-frenzied droves yesterday for one of the busiest
shopping days of the year, lured by sharp discounts on everything from electronics to
luxury goods to cold-weather gear. But retailers who have front-loaded discounts and
other incentives in hopes of bolstering holiday sales will have to maintain that
momentum in the face of higher energy bills and steeper interest rates than consumers
have faced in recent years. Traditional retailers face increasing competition from online
retailers, too. Online retailers' share of holiday sales has grown significantly in recent
years. Although the Monday after Thanksgiving normally sees a big jump in online sales
as workers return to their offices, online retailers began posting special discounts on
Thanksgiving to jumpstart sales. E-commerce sales for Thanksgiving on Visa-branded
debit and credit cards was $205 million -- an increase of 41% over Thanksgiving last
year, according to Visa USA. The number of Visa cards issued this year increased by 7%
from last year. How much shoppers buy is a central issue for the consumer-driven U.S.
economy. Consumers, at least so far, seem to have shrugged off recent increases in
interest rates. The Federal Reserve has boosted its key rate to 4% from 2% a year ago; the
increase in that benchmark short-term rate affects many home-equity loans and some
other consumer-borrowing rates. Incentives by auto makers, until this fall, largely offset
the negative impact of higher auto-loan rates on car sales. Mortgage rates, meanwhile,
also have crept up, slowing the pace of refinancing that has been an important fuel for
consumer spending in recent years. Further increases in interest rates, especially if
coupled with high energy prices, are likely to damp the growth of consumer spending
next year. As shoppers hit the road on Friday, they benefited from gasoline prices that
have started to fall -- below $2 a gallon in some places where prices earlier this year had
approached or even topped $3. Declining fuel prices recently led the National Retail
Federation to revise its forecast for holiday sales to a 6% increase, up from its original
5% estimate. That is still moderately lower, however, than last year's 6.7% sales increase
for the November-December period. The retail federation's figures include sales from
most retailers except car dealers, gas stations, restaurants and online stores. There were
no apparent signs yesterday of shopper fatigue. Rather, consumers responded to the big
early discounts on everything from dirt-cheap laptop computers at Best Buy Co. to halfpriced digital cameras at Target Corp. Department store Kohl's Corp. offered coupons for
store credit on purchases over a certain amount. So intensely did consumers covet some
deals that fights broke out and security guards were called in at some malls and stores.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 1 of 30
Some analysts worry that stores are luring customers with discounts so large they will eat
into profit margins for the most important quarter of the year. Trying to overcome last
year's holiday stumble when it offered lackluster bargains at the start of the holiday
shopping burst, the world's biggest retailer, Wal-Mart Stores Inc., promoted many more
deals this year, from a 42-inch plasma screen television for $997 to a Hewlett-Packard
Co. notebook computer for $398, almost $350 below its average retail price. The
Bentonville, Ark.-based retailer also put those items on sale an hour earlier than usual.
The day after Thanksgiving is considered the official start to the holiday season. Known
as Black Friday, for the day retailers hope to turn a profit, it has alternated with the last
Saturday before Christmas as the single busiest shopping day of the year. "Great sales on
Black Friday do not guarantee a good season for a retailer, but it sure is hard to have a
bad day after Thanksgiving and have a good season," says Mark Rein, a senior manager
and retail specialist at Capgemini, a technology and consulting firm. Stores that have
been trying to get customers to do the bulk of their holiday shopping before high heating
bills arrive are running out of time. "I just got my first [heating bill], and it was really
high -- over $100," said Jody Marx, 47 years old, who was hitting the early-bird sales at
the Woodfield Shopping Center in suburban Chicago. So many shoppers clamored for the
discounted laptops at a North Dallas Wal-Mart that police and a security guard rushed to
the electronics section to break up the crowd, angry that there weren't enough to go
around. A female security guard jumped on the counter and yelled to the crowd: "Back
off the register." At 5:05, there were only 15 laptops left and to disperse the crowd the
guard said only people with cash could buy them. Target took advantage of falling
technology prices by offering bigger discounts on higher-quality products. Yesterday and
today, Target is selling a Kodak five-megapixel digital camera for $89.99, down from a
regular price of $159.99. Last year, it advertised a Samsung four-megapixel digital
camera for $97. Similarly, Target has a $139 Kawasaki portable DVD player with a 9inch screen this year, versus $167 for a similar model with only a 7-inch screen last year.
Instead of just a six-hour sale that its competitors run, Target's sale spans two days, which
makes it easier for shoppers to maneuver in its stores. Bouneisha Tolliver, 24, took
advantage of a Wal-Mart policy of matching competitor's prices. Holding a Circuit City
ad at an Arlington, Texas, Wal-Mart, she snapped up Kodak digital camera and printer
for which Wal-Mart was charging $248 at the Circuit City price of $179. Marc Birnbaum,
47, a real-estate salesman in Abington, Pa., bought two Sirius satellite radio portable
boom boxes, marked down to about $50 from $100 each at the Circuit City in Willow
Grove, Pa. He said he would spend between $800 and $1,000 in total this holiday
shopping season, roughly the same as last year, despite rising energy prices. "I'm not
looking forward to seeing what the heating bills are going to be," said Mr. Birnbaum.
"But some of the discounts for the early birds are hard to pass up." Terry Lundgren, CEO
of Federated Department Stores Inc., which owns Macy's and Bloomingdale's, opened the
doors of the flagship Macy's store in Manhattan yesterday morning for more than 1,000
shoppers waiting outside, the biggest crowd he had seen in the 10 years he has been at the
store. Macy's will be "slightly more promotional" than last year, Mr. Lundgren says,
adding that he believes that will be the case for most retailers. "I think energy costs will
be higher this year," he says. "We understand that, and will be giving strong values."
1. The Friday after Thanksgiving is known as _______ because retailers hope to
turn a profit on that day.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 30
a. Black Friday Correct
b. Red Friday
c. Cyber Friday
d. Crazy Shopping Deals Friday
2. The response to huge “early bird” discounts offered at retailers has been
a. ignored by most consumers who are worried about high heating bills
b. huge, rowdy crowds at some stores Correct
c. most people sleeping in after eating way too much pumpkin pie
d. a very small increase in the number of shoppers willing to get up so early
Dallas Revisited Still Struggling After '80s Bust, Downtown Tries to Woo Families
By STEVE LEVINE
November 28, 2005; Page A1
http://online.wsj.com/article/SB113314478887007835.html
DALLAS -- Seventeen-month-old Beau Aveton may hold a little piece of the fate of
downtown Dallas in his tiny hands. Beset with one of the nation's most forlorn
downtowns, Dallas is seeking salvation in a radical cure: a plan to convert most of the
glass-and-steel business district into an upscale residential neighborhood. With his shock
of brown hair, Beau is one of downtown's pioneering first babies -- the occupant, along
with his parents, Noel and Zane Aveton, of the district's sole single-family home. The
Avetons and others like them may be downtown Dallas's last great hope. Lots of cities
are trying to piggyback on the nation's new taste for condominiums and urban living.
Atlanta, Denver, Los Angeles and others have encouraged developers to recycle old
downtown buildings into chic residences while continuing to promote themselves as
prime office locations. These areas mainly draw childless couples, couples with grown
children, gays and wealthy, single professionals. But no city comes close to Dallas in
residential zeal. Dallas, a city of 1.2 million, has given out some $160 million in grants
and tax abatements with the goal of creating a residential haven for those seeking to
escape the hundreds of square miles of sprawl that surround it. The city's goal is to attract
a critical mass of 10,000 downtown residences, which its consultants say will be
sufficient to reel in a stable, tax-paying base of neighborhood boutiques and restaurants,
ultimately launching a self-propelling economy. The plans don't call for swallowing up
downtown's best office towers. But planners hope these buildings, which are still largely
filled with office workers, will become islands in a sea of lofts, condominiums,
apartments and shops. Across the country, Americans are embracing urban living,
particularly in places where they can live, work and shop all within a few city blocks.
Many seek urban excitement in projects that promise clean streets and protection from
urban crime. So-called mixed-use development is all the rage. According to real-estate
research firms Property & Portfolio Research and Reed Construction Data, 21.6% of all
new construction this year will be mixed use, compared with 17.5% in 2002. One of
Dallas's biggest challenges is competition. Just across a freeway from downtown, Ross
Perot Jr., son of the computer entrepreneur and former presidential candidate, is building
Victory, a $1 billion project of upscale condominiums, apartments and hotels. Even 40
miles up the road, developers are expanding Legacy Town Center, a successful urban
project with $300,000 duplexes in the suburb of Plano. Both those rivals are also using
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 30
the same strategy as Dallas -- set themselves apart by attracting unique shops selling
brands and products unavailable almost anywhere else in the region. If Dallas's gambit
fails, its downtown may be consigned to long-term blight, as city residents, already
saddled with debt for the current set of incentives, may be reluctant to take on more taxes
to try anew. Instead, developers, retailers and homebuyers may turn even more
aggressively to Dallas's outlying areas. First settled in the 1840s as a trading post, Dallas
became a hub for hide merchants, cotton sellers, bankers and European immigrants
pouring into the flat, often blazing hot city situated 260 miles from the nearest coast. In
the 1980s, downtown Dallas was a swaggering business district. Fewer than 200 people
lived there, but it buzzed with booming banks, oil companies and real-estate firms.
Restaurants and shops filled the streets. But in 1986 global oil prices plummeted,
followed soon after by the collapse of the savings and loan industry. Office towers
thrown up in the go-go years emptied out, and retailers fled to suburban malls. When the
real-estate market stabilized, a third of the city's office space was vacant. Today, the
streets of Dallas's 1.3-square-mile downtown are largely deserted apart from homeless
people toting backpacks and commuters darting between their cars and their offices.
There are almost no stores, and some 20 vacant high-rises. About 160 acres of surface
parking lots sit across downtown, many of them covering the ground where buildings
once stood. Signs of an apparent reawakening have buoyed downtown advocates. Cranes
carrying out residential conversions dot the skyline. Hard-hatted construction crews
interfere with foot and vehicle traffic on almost every street. Developers lured by grants,
free rent and long tax holidays have already carved some 2,400 mostly upscale
apartments, lofts and condominiums from old downtown offices and hotels, and another
2,040 or so are on the drawing board. Many of the converted buildings are almost full,
and sales and rentals are brisk in many of the unfinished towers.
3. Downtown areas are trying to develop ________to revitalize their cities.
a. residential housing
b. unique shopping and restaurants
c. new office space
d. a & b Correct
4. Downtown Dallas hopes to have about _______ residences in order to build a
self-propelling economy.
a. 5,000
b. 10,000 Correct
c. 100,000
d. 150,000
Paradise Lost A Felon's Wife Picks Up the Pieces Of Her Luxury Life
By JOHN R. EMSHWILLER
November 29, 2005; Page A1
http://online.wsj.com/article/SB113323493751708839.html
ENCINITAS, Calif. -- Mary Faith Elgindy, daughter of a Baptist minister and wife of a
convicted stock felon, sits in the hilltop estate she has to sell and worries about her
family's future. On May 21, 2002, agents from the Federal Bureau of Investigation
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 30
arrested her husband, high-profile stock trader Anthony Elgindy. As she watched in tears,
agents raided their home and hauled away computers, papers and family photographs.
Mrs. Elgindy flew back and forth to New York for the trial. He was convicted, among
other things, of trading on inside information procured from corrupt FBI agents and since
then she has shuttled between coasts to visit him in jail. Now, Mrs. Elgindy, 37 years old,
is grappling with another challenge: holding her family together. She has had to calm her
children, who are in turns furious and frightened, while tackling problems not dealt with
by parenting handbooks, such as which son to leave behind on the family's first jailhouse
visit. She has battled with the government over money and has been forced to turn to
friends to pay utility bills. All the while, she has struggled with her own terrors, which
more than once have woken her up in the night. "It's like being in a dark tunnel and
wondering if you are ever going to get to the light," says Mrs. Elgindy. More than two
million people are in a prison or jail, according to the Department of Justice. For the
families left behind, the impact is often devastating, both financially and emotionally.
Now, the recent spate of high-profile, white-collar crime cases has thrown a new, more
privileged group into this meat grinder: corporate executives, accountants and Wall Street
traders. Mr. Elgindy, who is awaiting sentencing, could receive more than 20 years in
prison. In letters and interviews from prison, he maintains his innocence and laments the
damage to his family. The case has "destroyed any sense of stability the kids ever had"
and put a strain on his marriage "that I'm not sure how to cope with," he recently wrote.
"My kids don't deserve this, neither does my wife." Mrs. Elgindy says she doesn't know
what she will do if her husband receives a lengthy sentence. Some friends have urged her
to file for divorce and get a fresh start. She admits thinking about the option, but also says
that divorce would signify failure, "and I don't want to be a failure." Robert Nardoza, a
spokesman for the U.S. Attorney's office said it wouldn't comment on the Elgindy case.
He says there's no set policy about dealing with the financial welfare of convicted felons'
families. "Each case is different," he says. Current and former prosecutors say they try,
when possible, to leave the family enough to live on. Mrs. Elgindy grew up in
Clarksville, Tenn., one of six children -- three sons and three daughters. "My father
wanted three daughters so he could name us Faith, Hope and Charity," she says. Mrs.
Elgindy's middle name is Faith. The family, true to their Baptist faith, barred the young
Mrs. Elgindy from listening to rock music, wearing pants or going to movies. "It was a
very strict upbringing," she says, adding softly, "a little too strict." In 1988, after
graduating from high school, she moved to San Diego to live with a friend of the family.
There she met Mr. Elgindy and felt an immediate attraction. The dark-featured Cairo
native, who grew up in the Chicago area, "was the first person who gave me the courage
and strength to question what I had been taught," she says. The couple married in 1989.
They say Mrs. Elgindy's parents didn't much like the match but grudgingly accepted it.
As a stockbroker in the early 1990s, Mr. Elgindy peddled penny stocks. "I was a broker
who made people broker," Mr. Elgindy wrote years later on a Web site called Silicon
Investor, where he had become a stock-chat celebrity. By his own admission -- online and
in interviews -- he drank too much, partied too much and cheated on his wife.
In the mid-1990s, a small brokerage firm he partly owned became embroiled in a federal
stock-fraud investigation. While some of his colleagues were convicted, Mr. Elgindy
avoided prosecution. The experience, however, plunged him into despair. He collected
disability payments from an insurance policy on the grounds that he was too depressed to
work, but actually continued working in the brokerage business. That crime eventually
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 30
cost him four months in a federal prison. In 1996, Mrs. Elgindy filed for divorce. "Every
time that things were going well, Tony would find some way to screw it up," she recalls.
"I kept saying, 'what can I do? I love this man, but what can I do?' " Love and fear led to
a reconciliation. "Financially, I was scared to death. I realized how dependent I had
become on him," she says.
Growing Celebrity
Her husband promised to change. He became a short-seller, a trader who aims to profit
when a stock price falls, and began attracting media attention, including from The Wall
Street Journal, as a self-appointed cop helping authorities root out stock frauds. His
growing celebrity allowed him to start his own Web site, AnthonyPacific.com, charging
some 300 members as much as $1,400 a month for access to his trading strategies,
according to a court filing.By mid-2001, the Elgindys were living in a $2.2 million gated
home on more than 3½ hilltop acres in Encinitas, just outside San Diego. They say they
spent hundreds of thousands of dollars on landscaping, including a lagoon-shaped pool
and a tropical fish pond crossed by a bridge that led to the front door. They erected large
front gates guarded by a pair of bronze lions. In May 2002, the couple threw their first
big party for friends and neighbors. A few days later, FBI agents turned up at the house
with a search warrant. For Mrs. Elgindy, much of the four-hour search was a blur. The
agents informed her that her husband had been arrested at his office earlier that day.
An indictment, filed in federal court in Brooklyn, N.Y., charged Mr. Elgindy with
heading a conspiracy involving two FBI agents. According to the indictment, the agents
passed him and others secret information about companies involved in federal criminal
investigations in return for cash and the promise of a job. Mr. Elgindy and others then
illegally used the information to profit on stock trading. At a bail hearing, a prosecutor
said the government early on had suspicions that Mr. Elgindy had advance information
about the Sept. 11, 2001, terrorist attacks. For example, Mr. Elgindy had instructed a
broker to liquidate his children's trust accounts on Sept. 10, although the order wasn't
carried out. Mr. Elgindy vehemently denied the assertion and the government never
followed up this explosive allegation with formal charges. Nonetheless, Mr. Elgindy's
defense team thinks that references to the suspicions voiced by witnesses during the trial
unduly influenced the jury. They're planning an appeal partly on those grounds.
After the arrest, Mrs. Elgindy was suddenly a single parent with three sons -- at the time,
10, 8 and 5 -- who were alternately angry and withdrawn. The situation has been
particularly tough for their youngest son, Samy. On a recent family visit to the New York
jail, Samy sat on his father's lap and told him, "Daddy, if I could stay here with you, I
would," Mrs. Elgindy recalls. She has forbid Samy from watching TV at times. Ads for
medicines have made him think he's getting diseases. Previews for courtroom dramas
have made him anxious. "His brain is filled with all kinds of terrible things that could
happen," says Mrs. Elgindy, who took all three boys to see a therapist. On the family's
first visit to the San Diego jail, where Mr. Elgindy was held before being transferred to
New York, authorities allowed only three visitors, Mrs. Elgindy says. She was left with
the "devastating choice" of which son to leave behind. Her middle son, Gabriel,
volunteered to stay in the car with an adult neighbor. In the present crisis, she says,
Gabriel "has been the glue between the two other boys," mediating arguments and
ensuring homework is done. Now 11, Gabriel "has started to lash out and gets very angry
with me," Mrs. Elgindy says. "He is tired of being strong." When the 10-week trial began
late 2004, Mrs. Elgindy spent as much time as possible in the courtroom. With a sister
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 30
staying in California with the boys, she lived weekdays in a rented apartment near the
Brooklyn courthouse, flying home on weekends. One day, Mr. Elgindy entered the
courtroom with his head wrapped in a bandage. He'd been beaten up the night before by
another prisoner. It's not known why. "I just lost it. I started bawling," Mrs. Elgindy says.
She was prevented by court rules from going over and putting her arms around her
husband. She says the marshal allowed her to hug him in the courtroom once, just before
Thanksgiving.
Tears and Questions
Mrs. Elgindy wasn't in court for the verdict. She had flown home during jury
deliberations to see the boys. As she walked into a supermarket, she received a call from
one of Mr. Elgindy's brothers. The jury had returned unexpectedly early and had
convicted the trader on 11 counts. That he'd been acquitted on 18 other counts hardly
registered. When she broke the news to the kids, there were tears and questions, some
about the verdict and some about their future. Would they have to move out of the house?
Probably, she said. Would they be able to stay in the same schools? She'd do her best, she
promised. As often happens in big criminal cases, the government put liens on the
family's bank accounts and other assets, which, at the time of Mr. Elgindy's arrest, totaled
$3 million, Mrs. Elgindy estimates. Mr. Elgindy's attorneys worked out an agreement
with the government to free up as much as $10,000 a month for the family's living
expenses and an additional $12,000 a month for the mortgage and property taxes on the
house. The account set up by the court, however, ran dry in May and Mrs. Elgindy hasn't
received any money since. The bank has begun foreclosure proceedings on the mortgage.
Mrs. Elgindy has dropped the family's health insurance and therapist visits. She no longer
has a housekeeper or gardener. The paint on the front gate is peeling and the guardian
lions have cobwebs in their jaws. To raise money, she has been doing secretarial work at
a friend's company and has begun selling jewelry and other personal items on eBay. She
recently put the house up for sale, and is now asking for $3 million, down from $3.2
million. When he found out, Samy taped the doors shut, hoping to keep strangers out.
The house sale could provide her with an influx of cash -- if she can keep the proceeds. In
court papers, the government argues that as restitution for his crimes, Mr. Elgindy owes
nearly $12 million in financial penalties. Mr. Elgindy's lawyers say his take from the
activities that led to his conviction totaled only tens of thousands. The judge has yet to
reach a decision on the matter. In addition, a former business associate of Mr. Elgindy is
seeking to collect on a $155,000 judgment against the trader. Mrs. Elgindy says federal
officials, expressing sympathy for her plight, have offered a deal. She and the boys could
keep several hundred thousand dollars. In return, Mr. Elgindy would have to
acknowledge stealing $1 million. But because federal prison sentences are partly
determined by the amount of money stolen, such a deal could result in more prison time
for Mr. Elgindy. So far, the couple has refused the offer. "I don't want to be in a position
that just because I need money I have added years to my husband's sentence," says Mrs.
Elgindy.
5. Convicted of white collar crimes, corporate executives, Wall Street traders and
accountants are now joining the more than _____ people in a U.S. jail or prison.
a. 100,000
b. 500,000
c. 2 million Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 30
d. 5 million
6. The consequences of serving time in prison also have a devastating effect on
a. personal finances
b. marriages
c. children
d. all of the above Correct
Property Boom How Big U.S. Home Builders Plan to Ride Out a Downturn
By JAMES R. HAGERTY and KEMBA J. DUNHAM
November 30, 2005; Page A1
http://online.wsj.com/article/SB113331401522109725.html
FORT WORTH, Texas -- As a young man, Donald J. Tomnitz watched the arrival of
Wal-Mart Stores Inc. doom his aunt's local drugstore in Mexico, Mo. Today, as chief
executive of one of America's biggest home builders, D.R. Horton Inc., Mr. Tomnitz
likes to compare his company to the steamroller that put his aunt out of business. Both
Wal-Mart and Horton were founded by folksy entrepreneurs rooted in Arkansas. Both
cater mainly to moderate-income customers and have relied on high volume and rigorous
cost controls to crush less-efficient competitors. Both have stellar long-term records:
Horton, which sells more new homes than any other company in the U.S., says it has
recorded a rise in earnings for every single quarter since it was founded in 1978. But
while Wal-Mart has long inspired awe on Wall Street, Horton and its biggest rivals are
struggling to win respect from investors, who tend to view the industry as prone to boom
and bust cycles. Fifteen years ago, when housing markets in parts of the country slumped,
some large home builders ended up in bankruptcy court. Now, as interest rates rise, the
boom that has more than doubled house prices in many U.S. cities over the past five years
appears to be nearing an end. Investors have driven down home-builder stocks by nearly
18% since their July 20 peak, as measured by a Banc of America Securities index of the
industry. Though the Commerce Department estimated yesterday that sales of new homes
in October surged to a seasonally adjusted annual rate of 1.4 million, up 13% from
September's pace, the median price of those homes was up just 0.9% from a year earlier
and most analysts say the market will slow in the next few months. Horton and other big
home builders insist they can keep increasing sales and profits rapidly even if the housing
market slumps. They believe any downturn will be short-lived. And as the market
consolidates into fewer hands, the big companies say they can squeeze suppliers for
lower costs, grab the best land available and take market share from smaller rivals. "We
can earn our way through any economic cycle, except one like the Great Depression,"
says Mr. Tomnitz, a former banker and Army captain who has served as D.R. Horton's
CEO since 1998, six years after the company went public. Horton, which dubs itself
"America's Builder," says it will sell 100,000 newly built homes in 2010, nearly double
the 51,172 it sold during its latest fiscal year that ended Sept. 30. The company also
projects that earnings will grow 15% to 20% annually over the next five years. Pulte
Homes Inc., the No. 2 builder behind Horton in terms of unit sales, forecasts that it will
deliver over 10% more homes in 2006 than it will this year. KB Home, the fifth-largest
builder, projects annual earnings growth of 20% to 25% for each of the next three years.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 30
Many investors and analysts are skeptical about these goals. "These are still cyclical
companies in a cyclical industry," says Ivy Zelman, a Cleveland-based analyst at Credit
Suisse First Boston. Others are more worried. When the current house-price boom ends,
says Peter D. Schiff, president of Euro Pacific Capital Inc., a stockbrokerage firm in
Darien, Conn., home-builder stocks "are going to collapse." The U.S. home-building
industry still includes some 80,000 companies, most of them tiny local outfits, but it is
changing dramatically. Five years ago, the top 10 home builders controlled only about
10% of the U.S. market. Now their share is about 25%, and the big builders predict it will
top 50% within a decade. The top 10 had combined revenue of about $73 billion in 2004,
up from $13 billion a decade earlier, according to Builder magazine, a trade publication.
Five home builders are now in the S&P 500-stock index, including D.R. Horton.
7. Investors have driven down home-builder stocks by nearly _____ since their
July peak, as measured by a Bank of America Securities index of the industry.
a. 10%
b. 15%
c. 18% Correct
d. 28%
8. Five years ago, the top 10 home builders controlled only about 10% of the U.S.
market. Now their share is about ________.
a. 12%
b. 15%
c. 25% Correct
d. 30%
Oil-Rich Norway Hires Philosopher As Moral Compass
By ANDREW HIGGINS
December 1, 2005; Page A1
http://online.wsj.com/article/SB113340298608010935.html
OSLO, Norway -- Henrik Syse, a professional philosopher, says he gets ribbed by his
family that "five of my 10 best friends are dead Greeks." But this fall he put aside writing
a book on Plato to ponder a more practical puzzle: what to do with around $190 billion?
Mr. Syse started work in September as the in-house ethicist for the Norwegian
government's Petroleum Fund, one of the world's largest pools of investment capital. "It
has been a steep learning curve," says the 39-year-old academic. "I'm a philosopher. I'm
not a banker." With a new office in the Norwegian Central Bank, he gets paid to ruminate
on how, at a time of surging energy prices, the world's third-biggest oil exporter can best
match profit and principle. Investment, he says, "is teeming with ethical issues." He has
begun trying to figure out how the Petroleum Fund, the custodian of Norway's oil
earnings, can use its investments to get companies to behave more ethically. Mr. Syse's
unorthodox career path reflects Norway's unusual position among major oil-exporting
countries, all of which now wrestle with how to wisely deploy their massive windfall.
Most are either poor, autocratic, corrupt or cursed by an assortment of these and other
ills. Norway, by contrast, is prosperous, democratic and squeaky clean. The money
managers of other petro-states "can run around in the shiniest suits and biggest limos,"
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 30
says Mr. Syse, but this is "not our profile." He takes the tram to work and wears socks
stitched with the cartoon dog Snoopy. Home to the Nobel Peace Prize and a plethora of
human rights and peace groups, this nation of just 4.6 million has long used its reputation
for moral rectitude to wield influence around the globe out of proportion to its size.
The Petroleum Fund was set up to husband Norway's oil wealth for future generations.
This spring, Knut Kjaer, who oversees the fund, and Yngve Slyngstad, its head of
equities, approached Mr. Syse about a job. Mr. Syse figured the offer must be a joke or a
misunderstanding. "Do you know who you are talking to?" he recalls responding. "If I
had a stock and bond before me, I wouldn't know the difference." Mr. Kjaer assured him
the fund had enough financial experts. It needed a moral philosopher, he explained, to
help implement a new set of "ethical guidelines" introduced by the Finance Ministry late
last year. Offered nearly double his academic salary, Mr. Syse decided to take the job.
With degrees in philosophy from the University of Oslo and Boston College, Mr. Syse
knows plenty about ethics. His last book, "Paths to a Good Life -- Philosophical
Reflections on Everyday Ethics," applies the theories of great thinkers to ordinary
problems, such as whether parents should sometimes lie to their children. He's on shakier
ground with high finance. Sometimes stumped by the jargon bandied about by his new
colleagues, he keeps a copy of the Oxford Dictionary of Business near his desk "so I can
run back and look something up if I don't understand." His four-person staff helps guide
him like "a blind man's dog," he says, and he sometimes consults a treatise by the 17thcentury English philosopher Thomas Hobbes, who warned that unrestrained desires such
as greed render life "poor, nasty, brutish and short." Some Norwegians, he says,
misunderstand his role: "They think I'm a moral inquisitor in capitalism's high castle."
The son of a former conservative prime minister, he describes himself as a "goody two
shoes," and says he has no problem with capitalism. His rebellious streak, he jokes, is
confined to work as a Sunday school teacher at an Oslo Lutheran church, a novelty in a
largely secular country. A committee set up by the government spent months last year
drafting a set of rules to try to ensure "moral" investment of petrodollars. Parliament held
heated debates about whether Norway should bar the Petroleum Fund from holding
shares in tobacco companies. It finally decided against such a ban, noting that one-third
of Norwegians smoke. Consistency does not always prevail. Under orders from the
Finance Ministry to purify its portfolio of companies that make weapons Norway frowns
on, the Petroleum Fund this year dumped shares in a raft of U.S. and European arms
manufacturers. Norway's Defense Ministry, however, remains a customer for some of
these same companies. The inconsistency, says Mr. Syse, is a conundrum he's been
pondering, but so far he hasn't found an "easy answer."
9. Norway home to the Nobel Peace Prize and a plethora of human rights and
peace groups, a nation of just _______ has long used its reputation for moral
rectitude to wield influence around the globe out of proportion to its size.
a. 406 thousand
b. 4.6 million Correct
c. 46 million
d. 64 million
10. The ________ Fund was set up to husband Norway's oil wealth for future
generations.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 30
a. Petroleum Correct
b. Tax
c. Future
d. Child
Ford Looks to Close Plants, Shed Jobs in Overhaul
By JEFFREY MCCRACKEN
December 2, 2005; Page A1
http://online.wsj.com/article/SB113348841890312020.html
Weeks after rival General Motors Corp. announced plans to eliminate 30,000 jobs next
year, some details are starting to emerge about job cuts and plant closings at the U.S.'s
other big auto maker, Ford Motor Co. Though Ford's plan, dubbed the "Way Forward," is
still being formulated and is subject to change, the nation's second-largest auto maker is
likely to shutter assembly plants in St. Louis, Atlanta and St. Paul, Minn., according to
two people familiar with its product plans. Also slated for closure are an engine-parts
plant in Windsor, Ontario, and a truck-assembly plant in Cuautitlan, Mexico, said these
people. Together, the plants employ about 7,500 workers, roughly 6% of the company's
total North American work force. A Ford spokesman declined to comment on the plan,
which is expected to be unveiled in January. The closings would be just one part of a
broader rethinking of strategy and products at Ford that is being driven by William Clay
Ford Jr., great-grandson of company founder Henry Ford and its current chairman and
chief executive. Even as he is ordering plant shutdowns and layoffs, Mr. Ford is
reviewing the company's luxury brands and marketing, overseeing a staff shake-up and
exhorting employees to be "innovative."
Like GM, Ford is foundering amid a decline in popularity for sport-utility vehicles, rising
gas prices, increased foreign competition and heavy labor and health-care costs. Its
world-wide automotive operations have lost $1.69 billion through the first nine months of
this year. Yesterday, the company said U.S. sales fell 15% last month -- the worst of any
auto maker -- and cut production targets for both the fourth and first quarters. (See related
article1.) Especially hard hit were sales of trucks and SUVs. Ford Explorer sales have
collapsed this year, falling nearly 52% in November from a year earlier despite an
extensive redesign of the vehicle.
Ford once sold as many as 400,000 Explorers a year and ran two Explorer plants on
overtime. This year, it will do well to sell more than 240,000 -- a single plant's worth.
"Gone are the days when we are going to sell 400,000 Explorers [a year] without
incentives," said Ford sales analyst George Pipas, commenting on November's results.
"It's sayonara." In 4 p.m. composite trading on the New York Stock Exchange, Ford
shares were off three cents at $8.10. The Atlanta plant closing would be a surprise and
could have the effect of saving an underused assembly plant in Wixom, Mich., which
would become the manufacturing sites for new products under the Lincoln brand such as
a Lincoln Continental and a full-sized sedan. If Wixom is spared over Atlanta, it will in
part be due to Wixom's proximity to Ford's Michigan-centered supply base, said the
people familiar with Ford's plan. The company likely would face stiff union opposition in
pursuing closings, since such a move would cut down on unionized sites and jobs. Still,
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 30
like GM, Ford has a labor agreement with the United Auto Workers union that commits it
not just to comparatively rich wages and health-care and retirement benefits, but to
keeping plants open. Even if Ford permanently idles a factory, it must continue to pay
wages to UAW workers who don't choose to retire.
Ford also is hamstrung by a 1999 deal with the UAW that earlier this year effectively
forced it to take back 24 money-losing plants from parts supplier Visteon Corp., which
was spun off from the auto maker, at a cost of about $1.15 billion. Ford now must operate
those businesses until it can find buyers or usher the workers into retirement. This
process could take years. Union officials did not return phone calls seeking comment
yesterday. To some extent, the auto maker is paying for strategic decisions made in the
late 1990s. Besides increasing its focus then on more-profitable SUVs and pickups, the
company let cars like the tired Ford Taurus, Ford Focus and Ford Crown Victoria
continue without major upgrades. This contributed to a consumer exodus to rivals like the
Honda Accord and Toyota Camry and Chrysler 300C, which feature more modern
technology and designs. As a result, Ford now has more ground to make up, at higher
cost, said Michael Robinet, vice president of CSM Worldwide, a Novi, Mich., autoresearch firm. "Past plant-level investment decisions made in the mid-to-late 1990s have
caused problems at Ford, causing them to overinvest in recent plant revisions they've had
to make," he said. The "Way Forward" will come less than four years after Ford launched
an earlier cost-cutting effort that promised to trim 20,000 North American jobs, shutter
several plants and get the company "back to basics" after a failed dot-com era
diversification binge. In 2002, Mr. Ford set a goal of earning $7 billion in pre-tax profits
by middecade. But that target was abandoned earlier this year, as Ford's auto profits
evaporated. The company also has fallen short on other targets, such as its 2002 goal of
operating its auto plants at 100% of capacity or better. Besides the latest round of
closings, Ford is conducting an intense review studying the problems of disappointing
brands like Mercury and Jaguar. The company also is re-examining its marketing and
advertising strategy, borrowing concepts from political campaigns in an attempt to target
such groups as red-state soccer moms, who don't buy many Fords today but could be won
over with better targeted messages about values such as safety or fuel economy. Some of
the pending plan's details are likely to be shared next week with Ford's board when it
meets Wednesday and Thursday.
In recent weeks, Mr. Ford also has been overseeing a management overhaul. To lead the
North American overhaul, Mr. Ford in October named Mark Fields, 44 years old, who
formerly ran the company's money-losing luxury brands and its European unit, to be
executive vice president in charge of the Americas unit, which includes Ford's North
American auto business. Last month, Mr. Ford named Anne L. Stevens as chief operating
officer for North America. Mr. Fields and Ms. Stevens have signaled plans to shake up
Ford's North American white-collar work force, cutting an additional 4,000 salaried jobs,
about 10% of the total -- after eliminating 2,700 jobs this year. Several top executives,
meanwhile, have departed recently. "Our most significant challenge going forward is our
cost structure which clearly isn't where it needs to be," said Mr. Ford during the auto
maker's third-quarter conference call in October. "And that is why one of Mark Fields's
principal charges is to align our plants and our people to the market. That plan will
include significant plant closings where facilities don't fit our strategy moving forward."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 30
While GM has been reporting deeper losses and drawing much of the focus of the auto
industry's woes this year, some industry executives and analysts see Ford as more
vulnerable in certain ways. GM has a new lineup of full-size SUVs and pickup trucks on
the way in 2006 -- vehicles that tend to be the most profitable for U.S. auto makers. The
new GM models could cut into sales of Ford's most-important vehicle, the Ford F-series
pickup truck line. Analysts also are concerned that Ford's all-important new midsize
vehicle, the Ford Fusion, has been slow to gain sales momentum, despite generally good
reviews. Meanwhile, the auto maker's longtime money machine, Ford Credit, is starting
to bring in less, and is thus less able to make up for losses at the automotive arm. Ford's
chief financial officer, Don LeClair has been warning Wall Street all year to brace for
lower profits at Ford Credit. Ultimately, turnaround experts say, the far-reaching reevaluation program launched by Mr. Ford could lead to uncomfortable conclusions, such
as asking why certain struggling brands even exist or why Ford bothers with products,
such as the current Ford Freestar minivan, the struggle to compete with rival offerings.
"If you are Ford, and you are a great truck company but not great at something else like
certain cars, or your minivan isn't competitive, will you act on that, will you make the
painful choice to get out of a business, even if hurts shareholders and the bottom line for
awhile?" said Holly Etlin, a New York-based turnaround official, who is president of the
Turnaround Management Association and currently overseeing a restructuring at the
Winn-Dixie grocery-story chain. Mr. Ford has said that he is willing to make such painful
choices if the company decides they are needed. "Anyone who thinks or attempts to
convince you that it's business as usual at Ford is wrong and would best serve us all by
pursuing their interests elsewhere," said Mr. Ford in a voicemail sent to employees earlier
this week. "Our heritage of innovation must be reclaimed and renewed or the greatness of
our company will become part of our past. It's that simple."
11. Even if Ford permanently idles a factory, it must continue to _______ to
UAW workers who don't choose to retire.
a. pay wages Correct
b. provide benefits only
c. provide retraining
d. provide relocation
12. Ford leadership has signaled plans to shake up Ford's North American whitecollar work force, cutting an additional __________ salaried jobs, about 10% of
the total -- after eliminating 2,700 jobs this year.
a. 2,000
b. 4,000 Correct
c. 8,000
d. 12,000
Questions 13 – 17 from Marketplace
New DaimlerChrysler CEO Targets 'Infighting, Intrigues'
By NEAL E. BOUDETTE and STEPHEN POWER
November 28, 2005; Page B1
http://online.wsj.com/article/SB113314391834707830.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 30
Dieter Zetsche doesn't become chief executive of DaimlerChrysler AG until Jan. 1, but
already he has started work on a vital task: softening the caustic corporate culture that
marked the tenure of outgoing CEO Juergen Schrempp. In July, Mr. Schrempp, 61 years
old, unexpectedly announced he would retire after 11 tumultuous years running the
automaker. As his successor he named Mr. Zetsche, an occasional boardroom rival who
engineered the dramatic turnaround of the company's U.S. arm, Chrysler Group. In
September, Mr. Zetsche, 52 years old, moved from Chrysler to the company's Stuttgart
headquarters and took control of the Mercedes division. After only a few days as
Mercedes chief he signaled a big change, telling the unit's entire management staff in a
memo that he "won't tolerate any infighting, intrigues or political games." The missive,
Mr. Zetsche said in an interview during a gathering of Chrysler dealers in Las Vegas, was
"a great chance to set the tone right from the beginning" and to make clear that under his
leadership "what counts is performance," not internal alliances. Such wasn't always the
case under Mr. Schrempp. The prime mover behind the 1998 merger that created the
German-American car maker, Mr. Schrempp epitomized the jet-setting, deal-making
celebrity CEO of the 1990s. But when his strategy floundered and DaimlerChrysler's
market value plunged, he came under sharp criticism from investors. At the company's
April annual meeting, he faced hours of withering attacks on his strategy and leadership.
That spectacle, people familiar with the matter said, contributed to his decision to retire
with more than two years remaining on his contract. Trading big-shot CEOs like Mr.
Schrempp for more down-to-earth team-players is becoming more common in corporate
boardrooms. Earlier this year, Hewlett-Packard Co. ousted the high-profile Carly Fiorina
in favor of Mark Hurd, a low-key CEO from NCR Corp. Walt Disney Co. downshifted
from the domineering Michael Eisner to Robert Iger, who is more of a consensus-builder.
During the go-go 1990s, high-octane, ego-driven CEOs were in vogue, says Judith
Glaser, a management expert who examines executive personalities in a coming book
called "The Leadership DNA." But over time, she says, the "me-centric" approach can
morph into a bullying style and create a vindictive, politicized atmosphere in which
subordinates battle each other to win the boss's favor.
As a result, board members, employees and investors now find CEO hubris less
appealing -- especially if the company's performance falters, Ms. Glaser says. "There's
definitely a trend from the 'I-centric' personalities to the 'we-centric.'" On Jan. 1, all eyes
will be on the consensus-building Mr. Zetsche as he attempts to reverse several problems.
At Mercedes, quality and profitability have both slid. Chrysler is profitable, but still earns
far less than Japanese car makers and faces bitter price competition from General Motors
Corp. and Ford Motor Co. And the company's German and American halves don't work
together as closely as Mr. Zetsche would like. To be sure, DaimlerChrysler's problems
are nothing like the troubles at General Motors and Ford Motor, in part because of Mr.
Zetsche's work at Chrysler over the last five years when he closed plants, slashed
thousands of jobs and revitalized product development. Both GM and Ford are just
tackling these issues now. So far, the CEO-elect has declined to give much detail about
how he plans to proceed in the new job. His five years at Chrysler, however, indicate he
is a hands-on, straight-talking manager willing to suffer a short-term setback for longterm benefit. In contrast to Mr. Schrempp, who distanced himself from operational
matters and rarely mixed with ordinary employees, Mr. Zetsche has spent time in the last
two months with Mercedes designers, offering suggestions to improve the styling of
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 30
several models in development. Earlier this month he spoke at a gathering of Chrysler
dealers -- an audience Mr. Schrempp never addressed -- and vowed to return to speak to
the group as CEO.
13. In a shift from the 1990’s, companies are tending to hire CEOs that are more
a. ‘Me-centric’ bullies
b. ‘We- centric’ and more down to earth Correct
c. Big shot celebrity types
d. High octane egotistical jet-setters
'Cyber Monday' Sales Strong, Web Sites Say
By PUI-WING TAM and MYLENE MANGALINDAN
November 29, 2005; Page B1
http://online.wsj.com/article/SB113322582802808623.html
Late Sunday night, Troy Brown and his team scrambled to put the finishing touches on
Timberland Co.'s Web site. Mr. Brown, a senior director who runs the site, wanted to
highlight a special 25% online discount that the apparel company offered yesterday -- one
of the biggest Internet shopping days of the year. By 3 p.m. Eastern time yesterday, the
last-minute maneuvering was paying off big. Lured by the one-day promotion and a
mention on NBC's "The Today Show," traffic at Timberland's Web site jumped 87%
from the same day a year ago and revenue from the site soared nearly 137% from then.
"The traffic spikes and revenue spikes are unlike anything we've ever seen before," said
Mr. Brown. "It's crazy." He declined to give the underlying figures. Timberland's
experience is just one snapshot in what appears to be the start of a robust online shopping
season. The Monday after Thanksgiving, nicknamed "Cyber Monday," is the unofficial
kickoff of the Internet holiday shopping period. It has become a huge online shopping
day in part because after a long Thanksgiving weekend of comparing prices and
exchanging gift ideas, many shoppers return to the high-speed Internet connections in
their offices ready to buy electronically. Online Christmas sales already had jumped over
the four-day Thanksgiving weekend. Americans spent $305 million online Friday, up
22% from the same day a year ago, according to research firm comScore Networks.
Research firm Nielsen/NetRatings said its Holiday eShopping Index, which tracks traffic
to 100 Web sites, jumped 29% Friday from a year earlier. While complete data on Cyber
Monday sales won't be available until later this week, the experience of Timberland and
of other online retailers suggests that yesterday was a very strong Internet shopping day.
Indeed, yesterday was "the biggest day in our history," said Patrick Byrne, president of
Overstock.com Inc., an outlet-shopping site that sells everything from jewelry to clothing
to cameras at clearance prices. Lured by a flat-rate shipping fee of $1, buyers scooped up
accessories such as leather handbags, luggage and shoes, as well as boxed DVD sets of
popular television shows. The average size of orders was $109, Overstock said.
14. The unofficial kick-off to the Internet shopping season is known as:
a. Black Friday
b. Cyber Monday Correct
c. Web-site Wednesday
d. Net Tuesday
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 30
Health Insurers Show Employees Graphic Surgery Videos
By SARAH RUBENSTEIN
November 30, 2005; Page B1
http://online.wsj.com/article/SB113331375390909723.html
Consumers clicking through a health insurance Web site, past the doctor directories,
claim forms and benefits summaries may happen upon something a little more
compelling: live-action surgery videos. There is the diabetic foot-ulcer procedure, in
which forceps peel away dead tissue as blood drips down the foot. There is the skincancer footage, in which a scalpel cuts into the fine, wrinkled skin on the hand of an
elderly woman. And there's the cataract video, which shows a needle piercing an eye,
while a narrator explains that the needle is used to "fragment the lens into thousands of
little pieces and suction it'' away. The videos are designed to educate patients about their
health and help them go into surgery with realistic expectations, according to the
companies that create the videos and the insurers and employers making them available
to workers. They are also designed to save money, the companies say. Health-care
administrators believe that the videos may persuade people to take better care of
themselves so they don't need complicated, expensive procedures -- or at least to ask
doctors more questions before agreeing to head into the operating room. Videos of
surgery, some of which are live action, some animated simulations, can tell employees,
"this is your future'' if you keep up unhealthy habits, says Robert Meehan, director of
compensation and benefits for Tempe, Ariz.-based ASML US Inc., a unit of ASML
Holding NV, a Dutch company, which makes machines for computer-chip
manufacturing. About 1,000 of the subsidiary's 1,600 employees have access to the foot
ulcer, skin cancer and cataract videos, among others, as part of an online medical library
provided through ASML's insurance administrator. "Sometimes you have to shock people
a little bit just to get their attention,'' says Mr. Meehan, adding that while he doesn't
consider these videos shocking, they do "grab your attention.'' ASML has used the videos
for a few years, but hasn't measured their effect on employee surgery rates. Videos of
surgical procedures are among the latest tools, from preventive-care guides to online drug
cost software, that insurers and health-plan administrators are using to educate patients. It
is part of the push toward so-called consumer-driven health care, a movement that
encourages patients to be more discriminating shoppers, in part by requiring them to
spend more of their own money. Employers that use the videos say they don't yet know
whether they make a tangible difference. But the companies think the videos will raise
awareness. "You want to make sure that folks are truly getting surgery because they need
it ... instead of just letting it happen,'' says Doug Kronenberg, chief strategy officer at
Lumenos Inc., an Alexandria, Va., health plan that posted animated simulations of 27
procedures on its Web site in August. While those simulations show no blood, Mr.
Kronenberg, watching them, reports, "I'm a little queasy.'' Still, they are mild fare
compared with live-action material like the foot-surgery and cataract videos, which were
created by WorldDoc Inc., a business started in Las Vegas in 1999 by a group of 14
doctors. WorldDoc's online medical library also includes still photos. Some healthindustry professionals like the one-two punch that a photo and video together can deliver.
Graphic photographs are a "quick, down and dirty'' way for employees to do a first
diagnosis of their own health problems, says Phil Pasley, vice president of marketing for
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 30
Insurance Management Administrators of Louisiana Inc., a unit of UHY Advisors Inc.
that encourages employers to use WorldDoc products. "Then, if there's any video of the
surgical outcome, you can watch that, and get a concept of what's going to happen to you
-- if you can stand to watch it,'' says Mr. Pasley. A patient given a choice between surgery
for a foot problem, and a corrective device, he says, might watch the video, then opt for
the device. "I think it can absolutely work from a cost-saving perpective and an
educational perspective.'' Though most national insurers haven't rushed to the surgical
videotape, the services have reached some prominent employers such as Fujitsu America
Inc. and the city of Las Vegas, clients of Lumenos, a unit of health-insurance giant
WellPoint Inc. Jeanette McBride, a customer service manager for Banta Corp., based in
Menasha, Wis., has a Lumenos health plan and recently looked at a video simulation and
written material to understand why her mother has been limping since her hipreplacement surgery last year. "Some of [the images] kind of creep me out a little bit,"
Ms. McBride says. But, she adds, the videos can help "you make decisions.'' Such
queasiness is the kind of reaction that can work in employers' and insurers' favor. Graphic
Surgery LLC, a St. Louis company that licenses its video simulations to Lumenos, also
provides a Web calculator that projects an employer's annual costs from common
surgeries. The calculator also estimates savings that can result from educating employees
about surgeries, says Graphic. A specific list of surgeries -- including spine fusions,
hysterectomies and knee arthroscopies -- could cost a company about $2.4 million a year
for a company with 10,000 workers, Graphic says. But if the company educates
employees, according to Graphic's calculator, it could cut that by $217,305.
15. Health Insurance Web sites are using medical surgery videos for
a. educational awareness
b. potential cost savings by encouraging preventive care
c. sheer gross-out entertainment
d. a & b Correct
Why the Chinese Hate to Use Voice Mail
By REBECCA BUCKMAN
December 1, 2005; Page B1
http://online.wsj.com/article/SB113340447836310979.html
HONG KONG -- When Chinese-born entrepreneur Edward Tian moved his Internetsystems company from Texas to Beijing about a decade ago, he tried to teach U.S.-style
business practices to his new Chinese work force. Plan in advance, he advised. Keep
detailed records. And use voice mail. "People from [China] didn't get used to it," recalled
Mr. Tian, now chief executive of Beijing-based telecom giant China Netcom Group
Corp. (Hong Kong) Ltd. Employees simply weren't in the habit of leaving phone
messages for customers or colleagues, a practice that initially dragged out some decisionmaking, Mr. Tian says. Not much has changed. Despite a decade of blistering economic
growth and capitalistic evolution, the Chinese have an old-fashioned aversion to voice
mail -- whether it's on home or office telephones or cellphones. Chinese people "hate"
voice mail, says Danny Wang, a software executive in China who studied and worked for
several years in the U.S. In China's go-go climate, "who has time to check it?" he says.
It's a big point of frustration for businesspeople trying to navigate China's already© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 30
labyrinthine marketplace. The cultural voice-mail quirk is also a problem for companies
like China Netcom, which are trying to sell messaging systems in China. "It's not a very
successful business for us at all," Mr. Tian says. The reasons for China's national distaste
for voice mail are both technological and cultural. As in many developing nations,
China's mobile-phone networks progressed faster than its fixed-line infrastructure. That
means most people are hooked on mobile phones and never turn them off -- even during
critical business meetings, at the movies and during funerals. "That's normal," says Mr.
Wang, the China country manager for Framingham, Mass.-based Red Bend Software Inc.
Many Chinese who have worked for inefficient, state-owned companies may not
comprehend the idea of being obligated to return phone calls or to respond to customers.
Plus, Chinese workers are away from their desks most of the day, conducting meetings in
the traditional, face-to-face Asian style, Mr. Wang says. They don't expect anyone to be
around to answer their office phone and check messages. That is one reason cell phonebased text messaging, which is cheaper than installing a complex office voice-mail
system, is popular. Nor do many Chinese expect to leave messages. Duncan Clark, a
telecommunications consultant in Beijing, has voice mail in his office but says many
people seem mystified when they call and hear his recorded message. Callers often say,
"Wei? Wei?" -- the traditional Chinese phone greeting roughly meaning, "Hello? Hello?"
-- over and over, believing they are speaking to a real person. Others consider it a loss of
"face," or dignity, to leave a message with someone of lower corporate rank. "It's
basically a cultural gap," says Mr. Clark, a Westerner who speaks fluent Mandarin.
16. Chinese people "________" voice mail, says Danny Wang, a software
executive in China who studied and worked for several years in the U.S.
a. live for
b. want more
c. love
d. hate Correct
Even Old Brains Seem Flexible Enough To Enjoy a Workout
By SHARON BEGLEY
December 2, 2005; Page B1
http://online.wsj.com/article/SB113348337049711901.html
If "truth in labeling" laws applied to the three pounds of tofu-soft tissue inside your skull,
the brain would be in big trouble. Open any lavishly illustrated brain book to the diagram
showing which region of the brain handles which tasks. There are strips that process
touch, areas that handle sounds, even clusters of neurons that do math, get jokes and
match verbs to nouns. But a growing chorus of researchers is saying, not so fast.
These days, the brain's zoning map -- with different neighborhoods assigned different
functions -- is looking as malleable as putty. Evidence of this "plasticity" has been piling
up for more than a decade, but now neuroscientists are seeing that it is more radical than
they thought, and that it lasts well into adulthood. Yes, you can teach an old brain new
tricks. Take the visual cortex, which turns out to be quite a job hopper. In 1996, scientists
using fMRI to peer inside the brains of blind people reading Braille found that the visual
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 30
cortex processes the sense of touch. This big hunk of neural space (visual regions take up
35% of the brain, and 35% of a brain is a terrible thing to waste) noticed that no signals
were arriving from the eyes, and looked around for other employment possibilities. With
streams of input arriving from the fingertips, the opportunity was obvious. People who
became blind later in life didn't show this "cross modal" plasticity, suggesting that old
brains can't change jobs. But many of those late-blind people lost their sight slowly, to
diabetes, for instance. This may be too slow for the visual cortex to notice. When
blindness comes on suddenly, the brain is remarkably nimble even in adulthood. A few
years ago Alvaro Pascual-Leone of Harvard Medical School and colleagues blindfolded
healthy, sighted adults for a week. Every day, the recruits studied Braille. After mere
days, their visual cortex was processing touch. This job switch happened too quickly to
reflect new neuronal connections from, say, the fingers. Instead, those connections must
have always been there, Dr. Pascual-Leone suspects, and become "unmasked" only when
needed. That suggests that the visual cortex is misnamed. It doesn't see, necessarily, but
makes spatial discriminations. "It's easier to do this with vision, but if there is no visual
input it can rope in the next-best things, like feeling or hearing," he says. Indeed, in
congenitally blind people the visual cortex also localizes sounds, figuring out where a
noise came from. The visual cortex can also become a linguist. Harvard's Amir Amedi
and colleagues recently found that people blind from birth seem to use their visual cortex
to, of all things, generate verbs when an experimenter says a noun. "Apple" elicits "eat,"
and "piano" brings "play." But if researchers temporarily knock out the visual cortex with
a magnetic pulse, the blind come up with semantic nonsense, such as "sit" for "apple."
The malleability of the brain well into adulthood can be a cause of both concern and
optimism. The down side is that artificial vision, using tiny cameras to capture images
and send them to the visual cortex, may be a pipe dream. Unless it's done soon after birth,
which may not be practical, those images will be landing in a visual cortex that has
moved on to other jobs, and the signals will not produce sight. The up side is that old
brains are continuing to learn. At last month's annual meeting of the Society for
Neuroscience, researchers presented the results of a study in which elderly volunteers, 61
to 94 years old, underwent eight weeks of computer-based training to improve the brain's
ability to discriminate the sounds of speech. "In the elderly, there is good evidence that
the brain's representation of speech becomes noisier and degraded, which is why some
have trouble understanding muffled speech or the speech of young kids," says Michael
Merzenich, University of California, San Francisco. "If you have trouble processing fast
phonemes, the information fed into memory is crummy." Many dyslexic children have
the same speech-processing deficit. Prof. Merzenich and colleagues have shown that
retraining the kids' auditory cortex through specially constructed language input improves
their reading ability. With similar retraining, the older brains, too, processed speech and
remembered things better. "The majority improved 10 or more years in neurocognitive
status, so 80-year-olds had the memories of 70-year olds," says Prof. Merzenich. "With
more training, I expect we could get it to 25 years." He foresees a day when the
discoveries of neuroplasticity will usher in "a new brain-fitness culture," reflecting "an
understanding that you need to exercise your brain as you exercise your body."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 30
17. A growing chorus of researchers is saying, that you ___ teach an old brain
new tricks.
a. can not
b. can Correct
c. may be able to
d. can never
Questions 18 – 23 from Money & Investing
Finding Extra Discounts Online
November 26, 2005; Page B1
By RON LIEBER
http://online.wsj.com/article/SB113295374852406783.html
As holiday shopping season begins in earnest, some of the best deals will be on the Web - on a little-known crop of specialized sites. These savings sites aren't retailers
themselves. Rather, they link you to online merchants and collect commissions when you
buy things. Then, they pass a portion of those commissions along to you. The rebates
range from 1% or 2% at sites like Travelocity and Dell that sell high-priced items, to the
high single digits at digital-photo processors and online florists. To get the refunds, start
your shopping at sites like Upromise, BabyMint, Ebates and FatWallet. The latest entrant,
LittleGrad, launched last month. LittleGrad, Upromise and BabyMint fall into a subset of
rebate services that pitch themselves as a way to save for college. They make it easy to
put refunds into a tax-advantaged 529 college-savings plan. But you can still use these
services if you don't want to sock away college savings. Instead, request a check or have
the money put into your bank account. That's how Ebates and FatWallet work: They send
checks or use PayPal (the online payment system) to distribute refunds for customers to
use as they wish.
These services often offer different rebate percentages for the same online stores. Which
is most generous? In an unscientific test, I picked 49 big merchants, then looked at the
five major rebate sites to see how their discounts compared for those specific retailers.
LittleGrad and BabyMint each had the best rebates in six instances. Ebates beat the field
five times, and FatWallet won four. Upromise didn't top the list once, but it does offer
refunds at six retailers where the other four don't, including J. Crew and Pottery Barn.
Upromise Chief Executive Thomas Anderson says rebate sizes change often and
Upromise offers many deals offline, too. Upromise's network includes more than 18,000
grocery stores and drugstores, which reward purchases of specific brands. Customers
register credit and store cards to track purchases. BabyMint has a handful of offline
partnerships as well. Ebates and FatWallet work only with online retailers, as does
LittleGrad so far. Upromise and BabyMint also offer credit cards that earn 1% back on all
purchases, on top of any other refunds. More lucrative rewards are available with other
plastic, though. You don't have to use the Upromise or BabyMint cards to earn refunds
from their retailer networks -- and earning those rebates won't cancel out your normal
credit-card rewards. So how much can you earn? One LittleGrad scenario puts it at just
under $15,000 in 18 years. That assumes rebates from $4,800 in annual spending through
a single account by four participants (a pretty rosy assumption), plus 6% annual interest
(fairly conservative) and commissions from signing up friends (presumes a certain
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 30
shamelessness on your part). Even if you end up with a fraction of that, this is still easy
money. You don't have to clip coupons -- just start every online shopping trip at one of
these sites. Or join them all, then shop through the one with the best deal for a particular
store.
18. LittleGrad, Upromise and BabyMint fall into a subset of rebate services that
pitch themselves as a way to save for _________.
a. baby supplies
b. family travel
c. automobiles
d. college Correct
The Cost of Holiday Price Wars
By SCOTT PATTERSON
November 28, 2005; Page C1
http://online.wsj.com/article/SB113313285123007640.html
Economists have been wringing their hands over inflation this year. But one important
sector is feeling heat from falling prices: retailing. As anyone who braved a trip to a
shopping mall this weekend knows, retailers are slashing prices and offering low-cost
financing on goods from jewelry to laptops. Those deals surely will juice up sales, but
retailers' earnings are likely to get squeezed as price wars eat into margins already under
siege from high energy costs. So investors betting that a jolly holiday-sales season will
turn into lofty share-price gains for retailers may wind up with a lump of coal. After a
post-hurricane scare that surging gasoline prices and heating bills would spook
consumers during the holiday, optimism has risen, helped by a roughly 20% decline in oil
prices. Since mid-October, when crude was above $60 a barrel, the Dow Jones Retail
Index has climbed about 10%. Last week, the National Retail Federation nudged up its
expectations for November and December year-over-year sales growth to 6% from 5%,
the first time the trade group has raised its forecast in the middle of the season. But that
would still fall short of last year's 6.7% gain. Holiday sales "are going to come in pretty
well," says Jeff Macke, president of Macke Asset Management, a California firm that
focuses on retailers. "But when they turn around and report earnings, they aren't going to
be that great." It's no surprise that retailers are rolling out discounts this time of year.
Many have been hard at work looking for ways to cut expenses, trim inventories and get
better deals from distributors. But analysts say holiday price wars this season could be the
fiercest in years, catching less-nimble retailers flat-footed. At the eye of the storm: WalMart Stores, the world's largest retailer. A year ago, the company suffered a rare stumble
in November after it failed to entice enough shoppers into its stores during the crucial
Thanksgiving holiday weekend. This year, Wal-Mart launched its holiday-sale campaign
on Nov. 1, its earliest ever, and opened stores an hour earlier than it normally does on the
day after Thanksgiving, the so-called Black Friday when retailers' earnings often move
into the profit column for the year. Bottom-line pressures already have popped up at WalMart this year. For the third quarter, the retailer posted annual earnings growth of 3.8%,
its smallest increase since 2001, even though it posted sales growth of 10%. Wal-Mart
may be reacting to a sea change in consumer sentiment, analysts say. Strapped by painful
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 30
energy bills and higher credit-card interest rates, consumers are fussier shoppers and are
becoming more adept at searching for deals on the Internet.
19. The day after Thanksgiving, is called ___________ since retailers' earnings
often move into the profit column for the year.
a. Red Friday
b. Green Friday
c. Blue Friday
d. Black Friday Correct
Cracks in the Foundation
November 29, 2005; Page C1
By JUSTIN LAHART
http://online.wsj.com/article/SB113322839849608674.html
The question is no longer whether housing is slowing, but how severe the slowdown is
going to be. Virtually every major report on the U.S. housing market that has come out in
the past month, including yesterday's tally of October existing-home sales from the
National Association of Realtors, has come in below economists' expectations. Even if
the dismal scientists get today's report on new-home sales from the Commerce
Department right, it will hardly be cheering. Economists polled by Dow Jones Newswires
and CNBC reckon that sales came in at an annual rate of 1,218,000 last month, down
from 1,222,000 in September and a far cry from July's 1,354,000. The details of the
report will be most revealing. In September, the number of new homes on the market was
20% higher than the year before. If the supply of new homes continues to climb, and
sales continue to cool, what had been a sellers' market could turn into a buyers' one. One
mark of a buyers' market is price reductions. In September, the median price of a new
home came to $215,700 -- just $4,100 higher than the year-earlier figure. New-home
prices last month may come in below the October 2004 mark. Still, a steep price decline
is unlikely. Home builders, like sellers in general, will be slow to lower prices, opting
instead to hold on to inventory in hopes of an eventual buyer. Lehman Brothers
economists point out that, even when overheated regional real-estate markets run cold,
like Los Angeles did in the early 1990s, the price declines play out over years rather than
months. Given that dynamic, 2006 is likely to be a year full of tedious debate over
whether housing will have a soft landing or a hard one. Consider yourself warned. The
other subject of (tedious) debate will center on how dependent U.S. consumers are on the
housing market. Homeowners have extracted a massive amount of equity from their
homes in recent years, and the usual rule of thumb is that half this money eventually will
get spent on consumer goods and residential investment. The key word is "eventually."
Even as housing prices decline, homeowners will still have cash left over from
refinancing and such to spend. It will be a long time before we know whether consumer
spending has dodged the real-estate bullet.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 30
20. Virtually every major report on the U.S. housing market that has come out in
the past month has come in _______ economists' expectations.
a. above
b. below Correct
c. equal
d. double
Consumers May Be Starting to Bend, Judging by Those Subprime Mortgages
November 30, 2005; Page C1
By JESSE EISINGER
http://online.wsj.com/article/SB113332030682609867.html
Gloom aficionados -- and I count myself among them -- have worried about the health of
the American consumer for years and years. And we have always been wrong. Will this
time be different? With new-home sales data strong and consumer confidence soaring
this week, with gasoline prices down and Christmas off to a fairly good start, investors
might just be tempted yet again to dismiss the perennial doomsday scenario about the
debt-encrusted consumer crackup. But there are some early warning signals about
problems. Despite high debt levels, consumers have been making good on their loans for
the past several years. Defaults and late payments at credit-card and mortgage companies
remain low. But what seems clear is that credit indicators have bottomed and started to
worsen. A rush to file for bankruptcy ahead of a new law, effective in October, that
makes it harder to wipe certain debts clean will mean artificially depressed bankruptcy
numbers in the coming months. It behooves investors not to be lulled into a false sense of
security. Bill Ryan, an analyst for the independent financial research firm Portales
Partners, has been on the lookout. Since the home has replaced the credit card as the
consumer's ATM of choice in recent years, the proper place to look for early warnings
signs is from delinquent mortgages, he reasons. And the likely area for those would be
the subprime sector, which caters to high-risk folks.
Mr. Ryan looked at data on delinquencies for adjustable-rate mortgages for subprime
borrowers, shown in the nearby chart. The 2005 data through September reveal that these
mortgages are faring worse than in comparable periods in each of the three previous
years. This year, 6.23% of the loans are delinquent, on average, in their first nine months,
a rate not surpassed until the 20th month for 2004 mortgages. By September 2004, that
year's mortgages had a delinquency rate of only 3.72%. The conclusion seems obvious:
These folks were among the last to get mortgages during a great boom, and laggards tend
to be worse credit risks. They flocked to short-term, floating-rate mortgages, interest-only
loans and loans that require little documentation.
21. Defaults and late payments at credit-card and mortgage companies remain __.
a. high
b. double the typical average
c. above average
d. low Correct
Familiar Ring: Landlines Tie Down Some Bells
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 30
By DIONNE SEARCEY
December 1, 2005; Page C1
http://online.wsj.com/article/SB113340621586811016.html
Trying to expand their businesses, telephone companies were making multibillion-dollar
acquisitions last winter. Verizon Communications Inc., for instance, picked up a big longdistance company. AT&T Inc., then called SBC Communications Inc., did the same.
Sprint Corp. bought Nextel Communications Inc. and became Sprint Nextel Corp. Alltel
Corp. acquired Western Wireless. The moves, though, haven't always been a ringing-offthe-hook success for shareholders in the Bell companies. Since the beginning of the year,
Verizon has seen its stock price sink about 21%, to almost $32 a share, and shares of
AT&T (the former SBC) have been pretty much flat. By contrast, Alltel has seen its share
price rise nearly 14%, to almost $67 from roughly $58. Sprint shares had a strong run
since its deal with Nextel but have since been dogged by investor concerns over
acquisition issues with its affiliates. Verizon's shares are fetching relatively little for each
dollar of earnings the company produces, with a price/earnings ratio of 13.9. AT&T's is
14, according to UBS Securities. Alltel's is 19 and Sprint's is 17.1. How to explain the
disparity between companies that are so similar? Verizon and AT&T are spending
billions of dollars to upgrade their old-fashioned copper networks with fiber and so far
haven't rid themselves of significant portions of their landlines. Alltel and Sprint, on the
other hand, bought wireless companies and are pursuing the spinoffs of their local
telephone divisions. "Obviously, the analysts are concerned about the spending the Bells
are doing on fiber and the investors are listening," said David Ahl, who owns shares of
MCI Inc., which Verizon is acquiring. "The wireless business has a higher growth rate,
and that's why people like it," added Mr. Ahl, who advises major investors but doesn't
rate the shares. The Bells, of course, aren't oblivious to that logic. Just a year ago,
investors thought their hopes for going increasingly wireless were becoming a reality.
Verizon executives talked about shedding 15 million landlines, about 30% of the
company's total. And AT&T -- which today begins trading under its former ticker
symbol, "T," instead of "SBC" -- also was seeking to shed part of its local-phone
business. But Verizon's plans stopped once it sold its Hawaii operations to Carlyle Group
for about $1.3 billion. The company backed away from trying to sell lines in upstate New
York after it couldn't get the price it wanted. AT&T had plans to shed about 650,000
lines in Michigan's Upper Peninsula and in East Texas and similarly pulled back.
Keeping the lines does have an upside for Verizon and AT&T. Even though the
traditional phone business is shrinking, lines that are equipped to deliver broadband could
be valuable as the companies turn to the Internet to deliver phone and television. Those
existing lines protect their direct access to customers -- and throw off huge amounts of
cash. Shedding significant numbers of lines seems inevitable as companies continue the
trend of losing traditional phone customers. Verizon ended the third quarter with 49.7
million landlines, a decline of 6.2% over the same period a year ago. AT&T finished the
quarter with 50.2 million landlines, a decline of 5.1%. Verizon's chief financial officer,
Doreen Toben, recently told analysts the company may consider putting lines on the
market once its $8.4 billion acquisition of MCI is complete, which the company estimates
could happen around the end of the year. Rural lines that are expensive to maintain would
be the most likely candidates.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 30
22. Trying to expand their businesses, telephone companies were making
multibillion-dollar ____________________ last winter.
a. golf sponsorship media packages
b. digital systems
c. copper systems
d. acquisitions Correct
Bonds to Economy: Drop Dead?
By JUSTIN LAHART
December 2, 2005; Page C1
http://online.wsj.com/article/SB113348668594611982.html
The way bond investors see it, the stronger today's jobs report is, the more reason it will
give to despair over the economy. Keeping up with their tendency to play Dr. Doom to
the stock market's Dr. Pangloss, bond-market participants reckon a slowdown is in the
offing. Fed-funds futures, which trade off of rate expectations, show that traders are
betting the Federal Reserve will keep raising its overnight target rate through the first part
of next year and then ease off as the economy cools. Traders worry that the housing
market is losing steam. Their concern: that consumer spending has been far more
dependent on soaring real-estate values than the Fed believes, and the Fed will raise rates
longer than it should as a result. The strong jobs report that economists expect to see this
morning may not be enough to stop the bond market from fretting that the Fed will go too
far. Economists polled by Dow Jones Newswires and CNBC estimate that the U.S. added
220,000 jobs in November after gaining just 56,000 in October and losing 8,000 in
September in the wake of Hurricane Katrina. Anecdotal evidence of heavy job demand in
the hurricane-hit Gulf as business resumes and reconstruction amps up suggests an even
stronger report -- although there is a difference between having a job to fill and finding
somebody to fill it.But rather than considering a big jobs number as an indication that the
economy can absorb a slowdown in housing, the bond traders may see it as garbled by
Katrina's aftermath and unreflective of what's really happening in the labor market -while at the same time giving the Fed cause to keep raising rates. Such concerns could
prevent them from pushing the yield on the 10-year Treasury much higher than
yesterday's 4.52%. By the same token, a weaker-than-expected report wouldn't push the
10-year yield down by much, since traders would anticipate the Fed shying from raising
rates. A muted reaction by the 10-year Treasury to today's report would be in keeping
with the recent trend. An analysis by Banc of America Securities shows that over the past
year trading in futures on the 10-year Treasury note has become less sensitive to the
monthly jobs report.
23. Economists polled by Dow Jones Newswires and CNBC estimate that the
U.S. added ______ jobs in November after gaining just 56,000 in October and
losing 8,000 in September in the wake of Hurricane Katrina..
a. 2200
b. 22,000
c. 220,000 Correct
d. 2,200,000
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 30
Questions 24 – 26 from Personal Journal, Section D
A Trendy Mortgage Falls From Favor
By RUTH SIMON
November 29, 2005; Page D1
http://online.wsj.com/article/SB113322966554708702.html
The cheap mortgage that helped pump up the housing boom is finally in retreat. Demand
for so-called option adjustable-rate mortgages has dropped 25% in recent months,
according to estimates by UBS AG. Just this summer, these loans accounted for more
than 30% of jumbo mortgages, UBS says. Option ARMs carry teaser rates of as low as
1% and give borrowers multiple payment choices, but can lead to a rising loan balance.
At Washington Mutual Inc., option ARMs accounted for 29% of mortgage volume in the
third quarter, down from as much as 40% a year earlier. IndyMac Bancorp says option
ARMs fell to 31% of its loan volume in the third quarter from 39% the previous
quarter.The declining popularity of option ARMs comes as short-term interest rates have
risen and some lenders have raised prices on these loans for new borrowers. As a result,
fixed-rate mortgages are regaining popularity and some borrowers are becoming
disenchanted with their option ARMs. Regulators have raised concerns about the risks of
these complex loans and whether borrowers truly understand them. At least one lawsuit
has been filed against a lender alleging that it misled consumers when it sold them option
ARMs and more lawsuits could be coming. The recent decline in option-ARM demand
could mark the end of an era in which new mortgage products have made it easier for
borrowers to afford ever-more expensive homes. Option ARMs have been especially
popular in high-cost markets, such as California. They also allowed many homeowners to
refinance existing mortgages in order to tap the equity in their homes while keeping their
monthly payments low. By helping borrowers stretch, these loans helped boost demand
for housing in the hottest markets. "The fact the loans are no longer available on such
attractive terms ... could mean that the boom is ending in some of those markets," says
Arthur Frank, director of mortgage research at Nomura Securities International in New
York. Existing-home sales fell 2.7% in October from September as inventories of unsold
homes continued to creep higher. An option ARM is an adjustable-rate mortgage that
carries an introductory rate of as low as 1% and gives borrowers multiple payment
choices. These choices typically include a minimum payment, which is set at the start of
each year, an interest-only payment and the standard payment on a 15-year or 30-year
mortgage. Many borrowers have been attracted to option ARMs by the low introductory
rate, which is used to set the minimum payment for the first year. But that teaser rate is in
effect for only a short period, typically one to three months. After that, the rate on the
loan can jump above 5% or 6% and continue to rise as short-term interest rates move
higher. Option ARMs are considered particularly risky because borrowers who elect to
make the minimum payment can see their loan balance grow, also known as negative
amortization. Some borrowers say they weren't clearly informed of these features. Susan
Andrews, a registered nurse, and her husband, Bryan, a carpenter, refinanced their
$191,000 mortgage into an option ARM last year after receiving a promotional mailing
offering a mortgage with a 1.95% rate. "We have four children, three who are college
age," Ms. Andrews says. "We thought this would decrease our monthly debt." Ms.
Andrews says she thought the 1.95% rate on the loan was fixed for five years. But two
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 26 of 30
months after obtaining the mortgage, the couple received a statement showing that their
interest rate had jumped to 4.375%. Since then, the rate has climbed above 7% and the
couple's loan balance has grown by about $2,000, even though they've made extra
payments toward the principal. In a lawsuit seeking class-action status filed in U.S.
District Court in Milwaukee earlier this year, the Andrews allege that their lender, Chevy
Chase Bank, violated the federal Truth-In-Lending Act by misleading borrowers into
thinking they were getting rates lower than those actually charged. There are "deceptive
disclosures," says Kevin Demet, an attorney representing the Andrews. In a written
response to questions about the lawsuit, Robert D. Broeksmit, president and chief
executive of Chevy Chase Bank's mortgage lending unit, says the company offers option
ARMs "only to affluent borrowers who use its various payment features to manage their
cash flow intelligently." He says the bank makes "every effort to ensure that all of our
customers understand the loan product they choose." This includes providing a "one
page, large print, plain English flyer, which the borrower signs, which clearly states that
the loan has a monthly adjustable interest rate," he says.
24. The term ARM means
a. adjustable rate mortgage Correct
b. affluent rate mortgage
c. additional rent money
d. advertised rate mortgage
When Eating Your Vegetables Makes You Sick
By JANE ZHANG
November 30, 2005; Page D1
http://online.wsj.com/article/SB113332082056009884.html
More Americans are eating their vegetables. But the healthy trend comes with a risk:
Illnesses traced to fresh produce are on the rise. Fruits and vegetables are now
responsible for more large-scale outbreaks of food-borne illnesses than meat, poultry or
eggs. Overall, produce accounts for 12% of food-borne illnesses and 6% of the outbreaks,
up from 1% of the illnesses and 0.7% of outbreaks in the 1970s, according to data from
the Centers for Disease Control and Prevention. Meanwhile, meat-related E. coli
infections have been on the decline. Several factors are responsible: the centralization of
produce distribution, a rise in produce imports, as well as the growing popularity of prechopped fruits and vegetables. Both the government and the industry have identified five
products that are particularly problematic: tomatoes, melons (especially cantaloupes),
lettuce, sprouts and green onions. Last month, Dole Food Co. recalled 250,000 bags of
pre-cut salads after Minnesota buyers were infected with E. coli bacteria, some severe
enough to be hospitalized. Two years ago, green onions imported from Mexico caused
what is believed to be the largest hepatitis A outbreak in U.S. history. Three people died
and more than 500 were sickened. In response, the federal government is stepping up
efforts to get everyone along the produce chain -- growers, processors, supermarkets and
restaurants -- to clean up their acts. Earlier this month, the Food and Drug Administration
issued a strongly worded letter -- its second in 20 months -- to the California leafy-greens
industry, expressing concern over lettuce-related E. coli outbreaks and a lack of
collaborative effort to combat the trend. While it acknowledged that the source of lettuce
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 27 of 30
outbreaks is rarely discovered, it added that "claims that 'we cannot take action until we
know the cause' are unacceptable." A group within the FDA is pushing to expand certain
food-safety practices beyond food processors to cover those who harvest, store and
distribute raw agricultural products. The produce industry, too, is developing detailed
guidelines covering each step of the journey to market. The first publication, a 32-page
farm-to-fork report on melons, was submitted to the FDA early this month and was
released to the industry Monday, says James R. Gorny, a vice president of United Fresh
Fruit & Vegetable Association, a trade group. Among the recommendations: delaying
harvest or extra washing after heavy rains, which increase the likelihood of
contamination from the soil. Scientists often have trouble tracing how fresh fruits and
vegetables become contaminated. Even washed vegetables can be subject to
contamination. Last July, salmonella-tainted tomatoes sickened 561 people in 18 states
and in Canada. While washing fresh tomatoes gets rid of bacteria on the skin, salmonella
can enter the tissue through the stem or cracks in the skin, says Michael Doyle, director
of Center for Food Safety at the University of Georgia. In the case of cantaloupes,
bacteria from irrigation water, manure or wildlife like birds can sit on the skin or enter
through cracks and crevices in the rind, he says. But scientists do know that fruits and
vegetables with protective skins, such as melons and tomatoes, are more easily penetrated
by bacteria when the skin is broken. American consumers and restaurants increasingly
are purchasing melons, tomatoes and other produce that are pre-cut and packaged. Sales
of fresh-cut produce -- mainly sold in clear bags -- reached $12.5 billion in 2004, almost
four times their sales in 1994, says Roberta L. Cook, an agricultural economist at
University of California at Davis. Vicki Nibecker of Arlington, Va., eats pre-cut salads at
least twice a week. "It's very convenient," she says. "It's healthy, especially in a world
where everybody is multitasking." Food processors say that they go to great lengths to
reduce the risk of contamination. But government food-safety experts say the greater the
number of steps between farm and table, the greater the opportunity to introduce foodborne illnesses. And, because packages advise that washing precut produce isn't
necessary, consumers often don't wash it. Regulators say that the supply chain has grown
longer and more complicated, covering growers, harvesters, packers, shippers and sellers.
That increases the opportunities for contamination. For instance, shippers might use the
same container for lettuce and meat or might not maintain low enough temperatures for
the storage of fresh produce. Centralized distribution of produce also enables any
contamination to spread to a wider area and makes it harder to trace the source of a
disease outbreak. The FDA, which regulates fruits and vegetables, doesn't conduct
inspections of them unless there are particular safety concerns or research needs. The
Agriculture Department conducts daily inspections on the meat, poultry and egg plants it
oversees. At the same time, more produce is grown overseas. Robert E. Brackett, director
of the FDA's Center for Food Safety and Applied Nutrition, says the agency is stepping
up scrutiny of imported fruits and vegetables; more imports need to come with
production dates and farm information. For some trial lawyers, problems with produce
have been a gold mine. Bill Marler, a lawyer in Seattle, Wash., who handled a 1993 Jack
in the Box Inc. case involving E. coli in hamburgers, has since turned to suing suppliers
and restaurants on behalf of hundreds of people who became sick after eating lettuce,
cantaloupe, sprouts, spinach and green onions. In August, one of his 100 clients won
$6.25 million after contracting hepatitis A from eating green onions from Mexico at a
Chi-Chi's restaurant near Pittsburgh. "We thought we were litigating ourselves out of
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 28 of 30
business, but the lettuce industry has prevented us from doing that," says Mr. Marler,
who calls himself "The Lettuce Guy." Restaurants, often the first ones hit by lawsuits
after an outbreak, have stepped up monitoring their suppliers' safety programs, says
Donna Garren, a vice president at the National Restaurant Association. "Lawsuits and
liability go down the chain," she says. An analysis of government data by the Center for
Science in the Public Interest shows there were 554 produce-related outbreaks infecting
28,315 people from 1990 to 2003. Vegetables caused 205 of them, sickening 10,358,
while fruits caused 93 outbreaks with 7,799 cases. The remaining outbreaks were traced
to dishes that included produce. Produce was associated with the most large outbreaks -those involving more than 200 people -- though seafood caused more outbreaks overall.
The outbreaks have put government officials "in a quandary" as they try to find a balance
between touting the benefits of fresh produce and alerting consumers of potential
hazards, says Dr. Brackett. They don't want to muddy the message that eating veggies is
healthy, especially now that Americans are eating more fruits and vegetables. Per-capita
consumption of fresh produce rose to 332 pounds in 2004 from 287 in 1990, according to
the Produce Marketing Association, a trade group. One thing officials stress is the
importance of washing. A survey published in the Journal of Food Protection in 2002
found that 6% of consumers seldom or never wash fresh produce, more than 35% don't
bother to wash melons, and nearly half don't wash their hands before handling fresh
produce. The study estimated that each year 65 million to 81 million Americans become
sick from eating food prepared at home.
25. Which factors have increased the amount of food-born illness associated with
fruits and vegetables?
a. the increased use of pre-cut, pre-packaged produce
b. centralized distribution
c. a rise in produce imports
d. all of the above Correct
Gray Is Good: Employers Make Efforts To Retain Older, Experienced Workers
By SUE SHELLENBARGER
December 1, 2005; Page D1
http://online.wsj.com/article/SB113339569082710746.html
At age 69, John Sayles retired as principal planner for Stanley Consultants, a civilengineering firm. Or he thought he did. A few months later, his employer tracked him
down on a family vacation in Colorado and told him his skills were needed in Iraq. "I was
dumfounded" but pleased to be asked, says Mr. Sayles. He spent the next two months
working in the presidential palace in Baghdad, as part of a team of government
contractors rebuilding the infrastructure. Mr. Sayles, who lives in the company's
hometown of Muscatine, Iowa, is now 71, and still works part-time. Traditionally, many
employers have viewed older workers as inflexible, less productive than their younger
colleagues, and more expensive because of higher salaries and health-care costs. When
hard times force layoffs, older workers are often the first to get the ax. But now, many
employers are at least giving lip service to retaining older workers. And a few are taking
concrete steps to actually do so -- seeking out older workers and retirees with needed
skills, rooting out age bias, and setting up complex flexible work arrangements tailored to
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 29 of 30
their needs. For employers, the writing on the wall is hard to miss. Workers 55 and over
are growing four times faster than the work force as a whole. By 2012, this age group
will account for more than 19% of the labor force, up from less than 16% now, Bureau of
Labor Statistics data show. In the same period, people in the prime working years, ages
25 to 44, will shrink to 43% of the work force from 46% now. Some companies are
recognizing that older workers are repositories of hard-to-replace knowledge critical to
their businesses, says Eric Lesser, an associate partner in Cambridge, Mass., with IBM
Business Consulting Services. As workers retire, companies worry about losing
relationships with suppliers and distributors, as well as the ability to maintain aging
equipment, such as plants, machinery or other gear built to past standards, he says.In
addition, as the work force ages, so do the customers, who often prefer to deal with older
workers. At Home Depot, older employees serve as a powerful draw to baby-boomer
shoppers by mirroring their knowledge and perspective, says Dennis Donovan, executive
vice president, human resources, for the 2,000-store retailer. Similarly, Westpac Banking
Corp., a big Australian financial-services concern, recruited 950 over-45 workers as
financial planners, among other roles. Older clients, a spokeswoman says, prefer advisers
with experience. The new attitudes come as age-discrimination complaints are falling.
Although some serious cases do remain, preliminary Equal Employment Opportunity
Commission data show age-discrimination complaints to the commission decreased 7.1%
in the year ended Sept. 30, to 16,577. That would constitute a 13% drop in the two-year
period since 2003, likely reflecting, at least in part, a tightening of the labor market.
26. US workers 55 and over are growing four times faster than the work force as a
whole. By 2012, this age group will account for more than _______ of the labor
force, up from less than 16% now, Bureau of Labor Statistics data show.
a. 18%
b. 18.5 %
c. 19% Correct
d. 35%
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WSJ Professor Guide: Page 30 of 30