The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from Jan 13-19, 2007
Professor Guide with Summaries Spring 2007 Issue #2
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 10 from The First Section, Section A
BTW, if You Need Info About C4ISR, Read This ASAP
By BARRY NEWMAN
January 13, 2007; Page A1
http://online.wsj.com/article/SB116865656948675976.html
ESTES PARK, Colo. -- Do your MP3s get tangled in your BVDs? Have you confused an
ETF (Exchange-Traded Fund) with an ETF (Effluent-Treatment Facility)? Do you ever
order a QPC (Quarter Pounder with Cheese) by mistake at KFC?
If so, you might want to check in with Mike Molloy, USAF, Ret. On the World Wide
Web, he puts out an exponentially expanding dictionary consulted by bureaucrats,
translators, doctors, weapons designers and anyone else who needs help decrypting the
wide world's daily output of acronyms. Its HTTP (Hypertext Transfer Protocol) is
www.AcronymFinder.com1 -- AF for short.
Unlike acronym sites compiled automatically, AF is "human edited" by Mr. Molloy and
his wife, Susan Ebert. Each morning, they settle into the kitchen-office of their home in
this Rocky Mountain town and open their computers to a blizzard of new acronyms -200 a day, on average -- frequently emailed by the creators themselves.
Often blowing in as well are complaints from lawyers trying to register acronyms with
the United States Patent and Trademark Office. Listings on AF have repeatedly
convinced USPTO examiners that some jumbles of letters are already in public use, if not
public comprehension.
Ms. Ebert, 51 years old, and Mr. Molloy, 52, are dedicated to public comprehension.
They have acronyms in their DNA, and Mr. Molloy has a rare gift for recalling what they
stand for.
"How about C4ISR?" she said one morning, testing him.
"Command, Control, Communications, Computers, Intelligence, Surveillance, and
Reconnaissance," Mr. Molloy replied.
"Kinda scary," said Ms. Ebert, as her husband punched C4ISR into AF's search box and
got a confirmation.
"This one's a great illustration of why acronyms are needed," Mr. Molloy said. "The
ability to precisely express complex concepts in a handful of letters is pretty cool."
AF's editors know that many language guardians (though not all dictionaries) say
acronyms must be pronounceable, as in TACO: Texas Anesthesia Conference for
Obstetrics.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 1 of 32
Mr. Molloy has heard it all. "The fussy word people are fighting a losing battle," he said,
scrawling URL -- Uniform Resource Locator -- on his whiteboard. "Some say, 'What's
your You Are El?' Some say, 'What's your Earl?' But most just want to know what the
letters stand for. There's a huge need for people to look this stuff up."
In 1985, at Randolph Air Force Base in Texas, Mr. Molloy was integrating computers for
the departments of Transportation, Energy and Defense when the need hit him. His first
acronym list ran 30 pages. By the time he'd retired and had AF running on the Web in
1997, his list had 43,000 acronyms; at last count, it had 528,000.
The site now pulls in a million visitors a month, attracting advertising from companies
whose products and services are often associated with the acronym being looked up. This
provides a middle-class income good enough for AF's editors to afford a new SAAB (or
Svenska Aeroplan Aktiebolaget.)
AF can barely keep pace with today's overload of "backcronyms" -- which start as sets of
letters and then grope for words to back them up. Congress is a backcronym factory. The
last one considered the FACT Act (Fair Access to Clinical Trials), the PACT Act
(Prevent All Cigarette Trafficking) and the CLASS Act (Community Living Assistance
Services and Supports).
Rep. Bob Filner (D., Calif.), who introduced the PAY UP! (Pay for All Your
Undocumented Procedures) Act, likes acronyms because "people remember them." He
also sponsors the FAIR AIR Act, which stands for "ah, foreign air, ah, reduction
something," he says.
That's where acronyms create headaches: The catchwords may be easy to remember, but
what they mean is easy to forget. It's helpful to know that ACHE is the American Council
for Headache Education, less so that it's also the American Council of Hypnotist
Examiners. AF lists 70 SAFEs, 126 FASTs and 164 CATs. Such overlaps can have legal
implications since naming conflicts draw brand-protecting lawyers like M&Ms draw
kids.
Madison Square Garden went to court in 2005, for instance, claiming trademark rights to
MSG as an Internet domain name. The domain's owner, a Minnesota company called
F&A, wouldn't give it up. F&A hired Mr. Molloy, who wrote an expert opinion that
"monosodium glutamate" and "message" were far more common meanings of MSG, and
that MSG also meant 117 other things, including Moe's Southwest Grill. MSG -- a k a
The Garden -- settled out of court last year for an undisclosed sum. Its Web site is now
msg.com.
At the patent office, the Trademark Trial and Appeal Board routinely refuses to
trademark acronyms that are "merely descriptive." TTAB judges have taken to citing AF
listings as evidence of that, annoying some trademark lawyers.
In his "TTABlog" last July, lawyer John Welch tore into the TTAB'S reliance on AF.
"This Acronym Finder thing -- my complaint was it's user-generated," he says. "Anyone
can go on and add acronyms. Why should that be evidence of anything?"
Because, Mr. Molloy shot back on TTABlog, "We do not accept 'made-up' definitions ...
our users do NOT create our content." He and Ms. Ebert confirm the meaning of each
new acronym with established sources.
First out of the inbox on a recent morning was IASM, defined by an anonymous
contributor as "Intelligent Assistant Store Management." Mr. Molloy moved from his
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 32
breakfast-table laptop to his double-screen desktop and Googled IASM and its alleged
meaning with quotation marks around them.
No hits.
Next he removed the quotes and up popped "Intelligent Agent Security Module," a
definition AF didn't have either. Its Web address led to something called DODSBIR.
"Department of Defense Small Business Innovating Research," said Mr. Molloy. "I
happen to know that." Trusting DODSBIR as a reliable acronym source, he added its
IASM definition to his list.
Google hit another meaning -- "Interdisciplinary Aspects of Survey Methods" -- at the
equally credible CDC (Centers for Disease Control). And one more: "I Am Sold Myself"
-- a sales pitch to reluctant customers -- that produced 132 hits. Mr. Molloy added both
definitions. "Irresistible," he said. "How can you walk away from a new acronym?"
But the day's first IASM was nowhere to be Googled. Mr. Molloy tracked the sender's IP
(Internet Protocol) and emailed back, asking for "an authoritative URL reference" to
document the definition. Until then, it won't even rate a spot in his Acronym Attic, a
secondary list built by a robot program that harvests acronyms off the Internet. Mr.
Molloy and Ms. Ebert edit those in their spare time.
IYWTKTT (if you want to know the truth) they have 2.5 million to go.
1. AF's editors know that many language guardians (though not all dictionaries) say
acronyms must _____.
a. be short
b. be five letters or more
c. be pronounceable Correct
d. begin with a consonant
2. Mr. Molloy and his wife, Susan Ebert often get complaints from ___.
a. students
b. lawmakers
c. teachers
d. lawyers Correct
As Card Fees Climb, Merchants Push PINs
By ROBIN SIDEL
January 16, 2007; Page A1
http://online.wsj.com/article/SB116891597127377254.html
Stewart Munson is quietly hurting the nation's banks from the checkout counter of his St.
Louis bike shop.
Every time a Maplewood Bicycle customer pays with a debit card for a purchase of more
than $32, instead of asking for a signature, Mr. Munson hands over a small device and
asks the shopper to enter a four-digit personal identification number, or PIN.
The customer might not see a distinction, but it matters to Mr. Munson: Of all the fees
merchants pay to process plastic, those for purchases made with a PIN are among the
lowest.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 32
"It's the No. 1 thing that we can do on our end to save quite a bit of money," says the 32year-old cycling enthusiast, who estimates that using PINs could cut his card-processing
costs by a fourth. Last year, he paid about $40,000 in fees to banks and middlemen that
handle card processing. His shop rings up annual sales of nearly $2 million.
Fed up with the rising cost of accepting plastic, a growing number of merchants are
taking matters into their own hands. In the industry, the practice is known as "steering" -encouraging customers to pay using methods that carry low transaction fees, in particular
PIN-based debit cards.
Steering may be a boon to merchants, but there's a potential downside for consumers.
Banks rarely offer debit-card rewards if customers use a PIN. That's because banks want
to encourage customers to sign, which earns them a higher fee. In some stores, it can be
hard to figure out how to sign when payment devices are set to ask for a PIN.
Some of the nation's biggest retailers, such as Wal-Mart Stores Inc. and CVS Corp.,
have been steering customers to PIN-debit machines for years. Now, say industry
consultants, analysts and some retailers, the practice is gaining steam, especially among
mom-and-pop retailers that aren't easily counted.
"Lots of merchants we are talking to are installing pin pads to cut costs," says Mallory
Duncan, general counsel for the Washington, D.C., National Retail Federation, a trade
group that represents 1.6 million stores.
The rationale for PIN fees dates back more than a decade when financial institutions cut
fees to encourage merchants to accept plastic for small purchases. Since then, PIN fees
have stayed below the price charged for signature transactions.
For example, according to Visa USA Inc., the country's largest card network, a typical
supermarket pays 24 cents in fees when a customer buys $40 of groceries with a debit
card and a PIN. The fee rises to 35 cents for a signature-debit transaction and can be more
than 50 cents when a customer uses a plain-vanilla credit card.
The fees go mostly to the banks issuing cards and to other companies that process the
transactions. The banks, in turn, pay fees to Visa and MasterCard Inc. The costs borne by
the merchant depend on myriad factors, including size, business and the type of card.
Some fees are flat while others are a percentage of the transaction amount.
The issue has come to the forefront because Americans are pulling out plastic more than
ever. Electronic payments surpassed the use of cash and checks for the first time in 2003;
consumers now use cards to pay for daily purchases at the grocery store and fast-food
restaurants. Debit cards account for the majority of transactions processed by Visa, which
dominates the debit-card business. In the three months ended Sept. 30, nearly two-thirds
of Visa's 6.2 billion transactions came from debit cards.
As the use of plastic has grown, banks and credit-card companies have been pitching new
credit cards loaded with juicy perks and rewards. Merchants typically pay higher fees on
these cards than on other credit cards.
The cost of accepting and processing electronic transactions is a source of growing
tension. Small merchants and big chains like Safeway Inc. and Walgreen Co. have filed
lawsuits accusing payment companies of price fixing, collusion and conspiracy in the
setting of fees. The lawsuits, which have been consolidated, are pending in federal court
in Brooklyn, N.Y.
Targeting Fees
Meanwhile, retailers are targeting fees where they can: at the checkout.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 32
"For years, merchants didn't feel like they could do anything about it and now they have
latched onto PIN steering to lower their transaction-fee costs," says Bruce Cundiff, a
senior analyst at Javelin Strategy & Research, a consulting firm in Pleasanton, Calif.
J.C. Penney Co. plans to soon replace its 20-year-old computer-payment system by
installing new devices that allow the department-store chain to accept PIN-debit
payments for the first time. The system, now being tested in 40 of its more than 1,000
stores, has a prominent PIN pad for debit-card transactions.
"We're not attempting to influence the decision, but we're allowing the customer to make
the choice," says Tom Clerkin, J.C. Penney's senior vice president for finance. The lower
costs associated with PIN-debit were one factor the company considered, he says. Mr.
Clerkin wouldn't say how much J.C. Penney was likely to save in fees.
Sears Holdings Corp. is also installing a new payment system at 926 stores that
automatically prompts debit-card users for a PIN. "Certainly there are efficiencies that we
achieve through the new updated system," says Sears spokesman Chris Brathwaite. "First
and foremost we see this as an opportunity to give customers greater choice on how they
pay for their purchases."
The prospect of lower costs was a factor for drive-in restaurant Sonic Corp., which is
installing PIN pads at its 3,200 locations. "There is a break point [in the transaction
amount] at which it becomes a saving for us," says Stephen Vaughn, chief financial
officer of the Oklahoma City-based chain. He wouldn't provide details of the anticipated
savings, but said the PIN pads are currently in place at about 2,500 locations.
Currently, about two million merchant locations have the technology in place to accept
PIN-debit transactions, compared with about six million for credit cards and debit cards
requiring a signature, according to a recent study by Mercator Advisory Group Inc., an
industry consulting firm. Ken Paterson, a senior analyst at the Waltham, Mass., firm, says
he expects the number to grow as merchants calculate whether the savings from PINdebit transactions will cover the cost of installing the devices.
Mr. Paterson estimates that large retailers can convert 80% to 90% of their debit
purchases to PIN transactions. Assuming that merchants can save 20 cents on each
transaction, a retailer with 100 million annual electronic purchases can save $8.5 million
by steering, he says.
The mechanics of steering have become easier and cheaper with advancements in
technology. Merchants who physically take debit cards from customers can enter the
payment as a PIN transaction and hand over a device on which customers enter their
code. The process is even simpler when the customer does the swiping. The retailer
programs the checkout device to automatically prompt for a PIN -- rather than a signature
-- when the debit card is used.
First Option
PIN-based debit "is always the first option that we present to customers," says Mike
D'Angelis, a spokesman for CVS, which operates about 6,200 drugstores in 43 states, and
has been steering customers for about six years.
Customers who want to sign for a debit transaction can find it unwieldy to do so. At
terminals being tested by J.C. Penney, for example, customers who want to sign must hit
a "credit" button to the right of the PIN pad. Mr. Clerkin says customers haven't
expressed confusion about the system.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 32
At Walgreen, the nation's largest drugstore chain by revenue, when shoppers swipe their
card and hit the "debit" key, the machine asks them to punch in a PIN, or hit the "credit"
button. To sign for a debit transaction, a customer has to hit "cancel," then "credit." The
purchase amount is then displayed. Finally, the customer can sign for the transaction. A
spokeswoman for the Deerfield, Ill.-based company declined to comment on the chain's
payment system.
3. According to Visa USA a typical supermarket pays _____ cents in fees when a
customer buys $40 of groceries with a debit card and a PIN. The fee is 35 cents for a
signature-debit transaction and can be more than 50 cents when a customer uses a plainvanilla credit card.
a. 14
b. 24 Correct
c. 34
d. 44
4. In the three months ended Sept 30, nearly ______ of Visa's 6.2 billion transactions
came from debit cards.
a. 33 percent
b. 44 percent
c. 55 percent
d. 66 percent Correct
Cable Firms Woo Business In Fight For Telecom Turf
By PETER GRANT
January 17, 2007; Page A1
http://online.wsj.com/article/SB116900897094478668.html
Cable operators, which have pummeled telephone companies in recent years by luring
away more than eight million residential phone customers, are now going after their
rivals' business subscribers as they seek to shore up their growth prospects.
Cable's move into business services cuts to the heart of one of the biggest questions Wall
Street has for the cable industry: What is its new growth engine after residential voice
service?
Some cable-industry executives predict there are billions of dollars of new revenue to be
made from serving business clients. Indeed, it was a factor that may have influenced a
special committee of Cablevision Systems Corp.'s board which last night rejected an $8.9
billion privatization plan advocated by the company's controlling Dolan family. (See
related story1.)
Backers of the buyout argued their price was fair partly because growth prospects for
cable are dimming, especially for companies such as Cablevision that have completed
their rollout of residential phone service. But some investors argued the Dolans were
trying to grab the Bethpage, N.Y., company at a bargain price. They predicted the
company will sustain high growth rates by selling business services, among other things,
and last night the board's special committee apparently agreed.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 32
Operators such as Cablevision and Time Warner Inc., using networks originally designed
for transmitting television signals, are making major pushes to offer packages of phone,
TV and high-speed Internet service to small and midsize businesses, often undercutting
local phone companies' prices. Comcast Corp., the country's largest cable operator by
number of subscribers, says offering services geared to small and midsize businesses will
be its top new priority of 2007 and 2008.
Telecom companies sell all business customers about $115 billion of services annually,
but most cable operators have their eye on businesses with one to 100 employees,
currently a $25 billion market, cable executives say. Cable operators are hopeful they can
carve out as much as a 20% market share partly by convincing business owners who take
broadband service at home that it will work just as well, and for less money, at their
offices.
They claim they can do this with discount pricing and better service, although phone
company executives have started to improve their own offerings to counter the threat.
For many small-business owners, the cable offer represents the first time they have had
an alternative to the local phone company, analysts say. Various types of new carriers
sprouted after telecom laws were overhauled in the late 1990s, but most of these went
after larger businesses and many of them folded, they add.
"If you're a pizza parlor or a small law firm, you're not going to get special service from
the phone company," Comcast Chief Executive Brian Roberts said in an interview
yesterday. "But they're going to be our most important business customers."
Telephone companies deny they don't serve small businesses well. They have responded
to the competition by improving service, offerings and -- in some cases -- prices for
smaller customers. AT&T Inc. recently began offering small businesses that subscribed
to multiple services a discount of as much as 20% on wireless. The San Antonio company
also has started offering small firms features that had been reserved for larger business
customers, such as a remote backup service for computers.
Cable and phone companies once operated in distinctly different markets, and for decades
didn't compete. The current war began in the late 1990s as they wrestled over the
fledgling high-speed Internet business. More recently, they invaded each other's home
turf, with cable companies rolling out voice services and phone companies entering the
TV business.
In going after the business market, cable companies are clearly pressing their early lead
in the fight, which is now over who can offer the most attractive packages of telecom
services. In the residential market, cable companies are adding hundreds of thousands of
phone subscribers each quarter while companies such as AT&T and New York's Verizon
Communications Inc. are in the early stages of launching TV service.
5. Comcast the country's largest cable operator by number of subscribers, says offering
services geared to _______ will be its top new priority of 2007 and 2008.
a. college students
b. small and midsize businesses Correct
c. large businesses
d. rural businesses
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 32
6. Cable operators are hopeful they can carve out as much as a ____ market share partly
by convincing business owners who take broadband service at home that it will work just
as well, and for less money, at their offices.
a. 10%
b. 20% Correct
c. 30%
d. 40%
Democrats Push Climate Change To Front Burner
By JOHN J. FIALKA and DAVID ROGERS
January 18, 2007; Page A1
http://online.wsj.com/article/SB116909101062879854.html
WASHINGTON -- The new Democratic-led Congress is trying to put its mark on one of
the most contentious environmental and economic problems within reach: climate
change.
The initiative is one of the starkest signs of the transformation of Washington's agenda as
a result of November's election. While the Senate has debated climate-change moves for
several years, the House of Representatives, under Republican control for the past 12
years, has done relatively little.
Now House Speaker Nancy Pelosi is moving to ramp up debates on energy and how to
curb so-called greenhouse gases, which most scientists believe are accelerating global
warming by trapping the sun's heat in the atmosphere. But the Californian already is
discovering how controversial any effort will be -- even within her own party. Ms. Pelosi
is expected to announce today that she is creating a select committee on climate change
and energy independence that will be empowered to hold hearings.
Her strategy is to raise the profile of the issue and press for action by early summer. In an
interview last evening, Ms. Pelosi said she saw energy independence and climate-change
legislation as part of the next phase of the Democratic agenda after passing bills on issues
such as the minimum wage and student loans.
"Tomorrow, we finish our 100 hours, and I will talk about what comes next, and included
in that is energy independence. Climate change is part of energy independence," she said.
"We're asking our chairmen to have their hearings and submit their legislation...in time
for us to introduce an energy independence package no later than the Fourth of July."
By raising the issues' profile, Democrats say Ms. Pelosi will be better able to put pressure
on the White House to come to the bargaining table. But her effort is angering committee
chairmen less eager to move quickly, particularly powerful Michigan Rep. John Dingell.
The Michigan lawmaker has expressed his ire at what he considers an intrusion into his
House Energy and Commerce Committee's jurisdiction over energy and climate-change
legislation.
Bills already circulating in the Senate have in common a mandatory cap on emissions, a
step that, according to the White House, President Bush isn't prepared to advocate in next
week's State of the Union address. However, industry and environmental groups see Mr.
Bush as a potential broker who could help shape a consensus, particularly in the Senate,
where 60 votes would be needed to overcome a filibuster promised by Oklahoma
Republican Sen. James Inhofe.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 32
The effort has enormous
implications for American
businesses and manufacturers,
which are split on the best course.
The coal-mining, oil-production
and utility sectors are likely to be
hardest hit, since they sell fossil
fuels containing carbon dioxide -the most common greenhouse gas - or derive their energy from it.
Among the forces urging action are
industries worried that states are
producing a patchwork of
regulations. California has a new
law to reduce greenhouse gas
emissions, while New Mexico, Minnesota, South Carolina and Florida are working on
their own plans. Dozens of U.S. cities have imposed emissions restrictions. A federal law
could preempt further local and state efforts.
The most striking example of U.S. industry's evolution toward engaging the issue is oil
giant Exxon Mobil Corp., which has long been a leading opponent of emissions rules but
has begun talking about how to structure them. The oil industry also faces other
pressures; today the House is set to vote on whether to cut subsidies for U.S. oil
production.
"We now believe the legislative dance has formally begun," says Steve Cochran, a
legislative analyst for Environmental Defense, a New York-based group which has been
leading the charge for a cap-and-trade approach that would encourage trading in
emissions credits that could soften the impact on industries. Companies that reduce their
emissions below assigned caps could earn credits to sell to other companies that want to
avoid penalties for exceeding their caps.
The flagship among the cap-and-trade bills was unveiled last week by Republican Sen.
John McCain of Arizona and Democratic Sens. Joseph Lieberman of Connecticut and
Barack Obama of Illinois. The legislation would require industries to reduce their
emissions to 2004 levels by 2012 and then further decrease emissions by about 2% a year
through 2020. The measure calls for the nation's emissions to be reduced by two-thirds by
2050. Less-demanding versions of the bill were rejected by the Senate twice before.
A more modest approach, being prepared by Democratic Sen. Jeff Bingaman of New
Mexico, calls for industries to stabilize their emissions by 2020 at levels registered in
2013. After that, the Bingaman bill would impose reductions below 2013 levels. The bill,
expected to attract some industry and Republican support, is regarded as a fallback
measure if the McCain-Lieberman-Obama approach fails. "We want to occupy the center
ground," a Bingaman spokesman says.
A third approach, sponsored by Independent Sen. Bernie Sanders of Vermont, calls on
the nation to reduce emissions to 1990 levels by 2020 and to make an 80% reduction by
2050. Democratic Sen. Barbara Boxer of California, chairman of the Senate Environment
and Public Works Committee, calls this bill, with its steep cuts, the "gold standard." Her
panel will play a major role on the issue.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 32
While these bills would require utilities, coal mines, oil companies and other businesses
across the economy to make the cuts, a fourth measure, submitted yesterday by
Democratic Sen. Dianne Feinstein of California, focuses only on utilities that make
electricity. They would be required to reduce their emissions by 25% by 2020. The bill is
supported by six major utilities, including California's PG&E Corp. and Florida Power &
Light, companies that have long experience with emissions trading required by the Clean
Air Act.
In the House, the climate-change issue is already stoking tensions. Democratic Rep.
Edward Markey of Massachusetts is the leading candidate to head the new select
committee, which is designed to be largely a communications vehicle able to cut across
the traditional lines of the tax-writing, energy, science and environment panels.
But Mr. Dingell, who is the most upset about the Pelosi approach, is expected to host a
meeting today of his committee's Democrats who, by chance, also include chairmen of
other relevant panels such as the Science and Oversight and Government Reform
committees.
Ms. Pelosi said the proposed select committee would "absolutely not" intrude on
jurisdiction of existing panels, but serve to collect information and raise the profile of the
issue. Her office said the new panel won't be empowered to initiate legislation. But
committee heads expressed concern it would distract from their work and permit changes
to be imposed on their bills through the House Rules Committee, which the speaker
controls.
There is also a potential disconnect between the goals of Ms. Pelosi's agenda: The
increase in domestic oil, gas and coal production likely needed to achieve energy
independence would entail heightened output of greenhouse gases.
A significant part of the debate on climate change will focus on the bills' impact on the
economy. However, some people who have designed the computer software used to
calculate the projections say the bills contain many imponderables -- including
assumptions about the potential emergence of cleaner technologies -- that can't be
modeled.
So far, only the cost of Mr. Bingaman's bill has been estimated: The Energy Department's
Energy Information Administration projects it would reduce the nation's gross domestic
economy by 0.1%, or $232 billion, between 2009 and 2030.
But the Energy Department study assumes the emergence of a new generation of nuclearpower plants and other emission-reduction technologies that haven't appeared yet, says
Alan Beamon, who helped prepare the study. "There's an awful lot of uncertainty on how
markets will evolve to meet those needs," he says.
Computer models have diverged before. A study on the 2003 version of the McCainLieberman bill by the Massachusetts Institute of Technology predicted the measure
would increase consumer costs by 0.02% over a couple of decades, while CRA
International, a Boston-based consulting group, put the cost at 10 times higher.
"Models all assume that technological change happens smoothly," says Anne Smith, a
vice president of CRA, "but when they do that, they underestimate the effort it will take
of solving some of these problems."
7. The new Democratic led Congress is trying to put its mark on ______.
a. interest rates
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 32
b. phone rates
c. anti-child labor
d. climate change Correct
8. The flagship among the cap and trade bills unveiled last week by Republican Sen John
McCain of Arizona and Democratic Sens Joseph Lieberman of Connecticut and Barack
Obama of Illinois. The legislation would require industries to reduce their _____ to 2004
levels by 2012.
a. emissions Correct
b. taxes
c. use of gasoline
d. use of natural gas
For Two Brothers, Colombia's War Is Family Affair
By MATT MOFFETT
January 19, 2007; Page A1
http://online.wsj.com/article/SB116917344855981103.html
BOGOTÁ, Colombia -- Roberto and Guillermo Sáenz were the youngest and middle of
seven children born to conservative schoolteachers half a century ago. As a war between
the army and Marxist guerrillas gathered force, Roberto recalls being sheltered by
Guillermo and his other siblings in a childhood full of "studying, fútbol and fiestas."
Then when Roberto was entering the university and Guillermo was nearing graduation,
Guillermo broke some news. " 'Man, I don't see any sense in all of this,' " Roberto recalls
his brother saying. " 'I'm going.' " Guillermo fled into the jungle to join the largest leftist
guerrilla group, the Revolutionary Armed Forces of Colombia, or FARC, eventually
rising to the rank of "ideological leader" of the seven-member ruling secretariat. Today,
he's one of the most wanted men in the Americas, with a price on his head of $2 million
from the Colombian government and $5 million from the U.S.
Roberto pursued a political career, one that brought him to a quite different leadership
position: He's the designated peacemaker for the government of this capital city. The
municipal agency he heads, the Reconciliation Network, works in Bogotá's barrios
promoting nonviolent solutions to social conflicts, holding candlelight vigils and petition
drives, encouraging young people to express their opinions peaceably in graffiti art and
rap music. "Our mission is showing that creative protest is more effective than picking up
a gun," says Roberto, who is 50 years old.
Millions of Colombian families find themselves divided by the country's interminable
conflict, but few are at such odds as the Sáenz brothers. While Roberto collects signatures
to put a disarmament referendum on the ballot, Guillermo, 58, faces criminal charges
from the Colombian government of blowing up pipelines and bombing villages. While
Roberto manages a program to aid families of those kidnapped by the FARC, Guillermo
is charged with masterminding abductions. While Roberto uses politics, sports and music
to try keeping youths out of the orbit of violent drug traffickers, Guillermo faces a U.S.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 32
indictment alleging that he helped "set the FARC's cocaine [trafficking] policies" and
arranged the murder of hundreds of people who got in his way. The indictment handed up
in Washington last March accused 50 senior FARC guerrillas of shipping cocaine valued
at more than $25 billion to the U.S. and other countries.
'Wrong Path'
Roberto says he tried -- without success -- to get Guillermo to renounce violence in their
last meeting back in 1991, when FARC leaders left the jungle for peace talks with the
government held in Caracas, Venezuela. "To my brother, I say, 'I hope you're in good
health and don't have problems' " Roberto says. "But to the guerrilla, I say, 'Give up this
war because it's the wrong path.' "
Though Roberto says he hasn't tried to contact Guillermo since their meeting 16 years
ago, he has found that having a rebel comandante in the family is a hard thing for an
antiviolence activist to live down. "Even though in Colombia nobody gets surprised by
anything anymore," the newsweekly Semana said last year, Roberto's position "doesn't
fail to attract attention." Roberto believes his phones are tapped by intelligence operatives
hoping for some clue that could lead them to Guillermo, who is generally referred to by
Colombians, including Roberto himself, by his nom de guerre, Alfonso Cano.
In revenge for abductions carried out by Guillermo, another Sáenz brother, José Ricardo,
was kidnapped in 1996 by right-wing paramilitaries, which oppose the guerrillas and are
involved in drug trafficking and other criminal activities. The kidnappers had intended to
seize Roberto, he says, but he had already left Colombia for a diplomatic post in Europe
after getting death threats. Hoping to win his brother's release, Guillermo, from hiding,
issued a statement saying José Ricardo, a teacher, had no links to the FARC. "My intense
fraternal pain is mingled with the pain of many Colombians wearied by similar or worse
tragedies," Guillermo wrote. José Ricardo was freed after eight months in captivity.
The family drama doesn't seem to have shaken Guillermo's revolutionary fervor. In
position papers and interviews with Colombian journalists over the years, he has
maintained that violence is justified because of inequities that are built into Colombia's
economic and political systems. "We guerrillas have been obliged to take up arms to find
peace," Guillermo once wrote. "It's the great contradiction and a terrible truth."
9. FARC the largest leftist guerrilla group is active in ________.
a. Mexico
b. Brazil
c. Peru
d. Colombia Correct
10. Pacifist Páez Indians, once halted a firefight between guerrillas and rural police by
walking into the no man's land carrying only _____.
a. newspapers
b. peace signs
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 32
c. white flags
d. ceremonial palm staffs Correct
Questions 11 – 15 from Marketplace
Vista: Worthy, Largely Unexciting
By WALTER S. MOSSBERG
January 18, 2007; Page B1
http://online.wsj.com/article/SB116908385298979668.html
A new version of Microsoft Windows, the world's most popular and important computer
operating system, will finally arrive for consumers on Jan. 30. It has taken the giant
software maker more than five years to replace Windows XP with this new version,
called Windows Vista -- an eternity by computer-industry reckoning. Many of the boldest
plans for Vista were discarded in that lengthy process, and what's left is a worthy, but
largely unexciting, product.
Vista is much prettier than previous versions of Windows. Its icons look better, windows
have translucent borders, and items in the taskbar and in folders can display little
previews of what they contain. Security is supposedly vastly better; there are some new
free, included programs; and fast, universal search is now built in. There are hundreds of
other, smaller, improvements and additions throughout the system, including parental
controls and even a slicker version of Solitaire.
After months of testing Vista on multiple computers, new and old, I believe it is the best
version of Windows that Microsoft has produced. However, while navigation has been
improved, Vista isn't a breakthrough in ease of use. Overall, it works pretty much the
same way as Windows XP. Windows hasn't been given nearly as radical an overhaul as
Microsoft just applied to its other big product, Office.
Nearly all of the major, visible new features in Vista are already available in Apple's
operating system, called Mac OS X, which came out in 2001 and received its last major
upgrade in 2005. And Apple is about to leap ahead again with a new version of OS X,
called Leopard, due this spring.
There are some big downsides to this new version of Windows. To get the full benefits of
Vista, especially the new look and user interface, which is called Aero, you will need a
hefty new computer, or a hefty one that you purchased fairly recently. The vast majority
of existing Windows PCs won't be able to use all of Vista's features without major
hardware upgrades. They will be able to run only a stripped-down version, and even then
may run very slowly.
In fact, in my tests, some elements of Vista could be maddeningly slow even on new,
well-configured computers.
Also, despite Vista's claimed security improvements, you will still have to run, and keep
updating, security programs, which can be annoying and burdensome. Microsoft has
thrown in one such program free, but you will have to buy at least one more. That means
that, while Vista has eased some of the burden on users imposed by the Windows security
crisis, it will still force you to spend more time managing the computer than I believe
people should have to devote.
Here's a quick guide to the highlights of the new operating system.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 32
Versions and Upgrading
Vista comes in six versions, two of which are primarily aimed at consumers. One, called
Home Premium, is the one most consumers will want. It contains the full Aero interface,
and it includes the functionality of Windows Media Center and Windows Tablet edition,
which have been discontinued as separate products. Home Premium costs $239, or $159
if you are upgrading from an earlier version of Windows. It will come preloaded on most
midrange and some high-end consumer PCs.
11. A new version of Microsoft Windows, the world's most popular and important
computer operating system, will finally arrive for consumers on _____.
a. January 20
b. January 30 Correct
c. February 30
d. March 20
As Disk Drives Reach New Milestone, Flash Gains New Currency
By LEE GOMES
January 17, 2007; Page B1
http://online.wsj.com/article/SB116899926866178403.html12.
Each measurement of one mile is like any other, so there is no particular reason that one
particular turn of a car's odometer wheel, say from 9,999 to 10,000, should be as much
fun as it is to watch. But some are, just like in the computer industry, which just observed
a remarkable century milestone of its own.
Earlier this month, disk-drive maker Hitachi announced that it would soon be shipping a
terabyte-capacity disk drive. Seagate, another big drive maker, quickly followed with its
own announcement. A terabyte is 1,000 (actually, 1,024) gigabytes; the PC on your desk
probably has 100 or so gigabytes in it; the biggest iPod nano has eight gigabytes. The
new top-of-the-line terabyte drives are expected to cost around $400 at first -- in other
words, what top-of-the-line disk drives have lately tended to cost, regardless of capacity.
The last time the disk drive crossed such a threshold was in 1991, when the first gigabyte
drives were introduced. Back then, all that people used computers for was actual work -spreadsheets and such -- and it was hard to imagine why anyone would need so much
storage. News accounts noted that a gigabyte would store 1,000 copies of "Gone With the
Wind," without ever explaining why you would want to. Those first gigabyte drives were
priced in the neighborhood of $2,000, which on a cost-per-byte basis is 5,000 times as
expensive as the latest model.
Even though not many people are expected to buy them, at least initially, it's not as hard
to explain what someone would do with a terabyte drive: record a lot of TV shows and
movies. Television, especially high-definition TV, is the savior of the disk-drive industry
because it requires vast amounts of storage. A terabyte gets you 250 hours of HD
programming: Sopranos, Super Bowls, whatever.
The makers of digital video recorders and set-top boxes are adding bigger-capacity disk
drives to their units. Some of them are also, finally, starting to allow their users to attach
external drives, easily adding extra capacity on their own without having to replace the
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 32
whole unit. Dish Networks, for instance, will in the spring allow an external drive to be
connected to its high-definition DVRs via a computer-style USB connection.
Video and music, much of it of illegal provenance, is the engine of the converging
computer and consumer-electronics industries. But when it comes to storage, disk drives
don't have the field to themselves. In fact, one of the most heated bits of competition in
the computer industry is between the disk-drive and flash-memory industries.
Flash is the solid-state memory found in USB thumb drives; with no moving parts, it's
considered more rugged than disk drives, which have rapidly spinning platters and much
more. But flash drives don't have the enormous capacity of disk drives; the biggest flash
drives on the market right now are in the eight- to 12-gigabyte range.
They are also, compared with disk drives, very expensive. The gigabyte of data that
would cost you 40 cents to store on the latest big disk drive (or 24 cents on the 250-gig
drive at CompUSA that, with rebates, comes to $60) would require in the neighborhood
of $20 if saved to flash.
But flash is getting cheap enough and capacious enough to be used in many markets that
disk-drive makers had wanted to keep for themselves, notably, cellphones and digital
cameras. (Tiny disk drives, some not much bigger than your thumb, have been
engineered for these gadgets.)
For example, Apple picked flash, not disk drives, for its new iPhone. As an example of
flash economics, the company announced two iPhone models, priced at $599 and $499,
with the former being more expensive almost entirely because it will have four more
gigabytes of flash.
The disk-drive industry is fighting back, making, for example, more rugged drives that
can detect sudden motion and briefly suspend operations. At last week's Consumer
Electronics Show, Seagate showed a new drive attached to a skateboard while a Tony
Hawk-figure put it through its paces.
Prices for both disk drives and flash are in the usual state of constant decline, perhaps
slightly more so with flash, so that a year from now the same amount of money is likely
to buy you twice as much storage.
Flash drives of 16 and 32 gigabytes are expected this year; the half-gig drives that were
top of the line just a few years ago are being phased out of manufacturing.
As flash closes in on 100 gigabytes, the next milestone for hard-disk drives is the
petabyte, or a thousand terabytes. "Peta" is Greek for fifth; a petabyte is 1,024 to the fifth
power, as well as fifth in line after kilo, mega, giga and tera. Petabytes sound like an
absurdly large amount of storage: Who needs to keep a quarter of a million hours of
video in their set-top box, especially if faster Internet connections will allow you to
stream video from someplace else whenever you want to watch something?
But a terabyte had an impossible, Everest-like feeling to it not too long ago. Come back
in 15 years, and let's talk.
12. Earlier this month, disk-drive maker Hitachi announced that it would soon be
shipping a ________.
a. gigabyte-capacity disk drive
b. terabyte-capacity disk drive Correct
c. petabyte-capacity disk drive
d. petabyte-capacity flash drive
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 32
Social Networking by Cellphone
By JESSICA E. VASCELLARO
January 16, 2007; Page B1
http://online.wsj.com/article/SB116891617417377256.html
John Peattie was worried that some of his friends would be late for a 7:30 p.m. movie so
he turned to his cellphone to track their whereabouts.
With one click, the 22-year-old chemical engineer pulled up an electronic map of the San
Francisco area with his friends' locations pinpointed. From the map, he could tell that
some were as much as 45 minutes away. "We basically knew they weren't going to make
it," he said.
The new buddy-tracking tool is from Loopt Inc. and is available from wireless operator
Boost Mobile, owned by Sprint Nextel Corp., Reston, Va. Loopt is one of a host of
companies putting a fresh spin on social-networking services by adding in a new element:
phones equipped with Global Positioning System receivers. GPS is used to determine an
object's location based on how long it takes for a signal to reach the object from satellites.
Loopt alone has roughly 100,000 users since it kicked off last fall.
Many young people are obsessed with two things: social networking and their mobile
phones. Companies have been trying to cash in on combining them, but up until now,
nobody has found an approach that has really caught on. News Corp.'s MySpace and
Facebook Inc. recently launched offerings that help people connect to their Web sites
from their phones but the services don't allow users to do much more than they could do
online.
Now, GPS technology is adding a new dimension to wireless social-networking services,
letting cellphone users find each others' locations -- just as GPS-equipped phones are
becoming more prevalent, partly in response to federal rules that require carriers to make
it easier for emergency officials to locate cellphone users. An estimated 63% of mobile
phones sold in North America in 2007 will have GPS or assisted GPS functions, up from
55% of phones sold in 2006, according to market researcher Gartner Research.
"The race is just beginning in this area," says Clint Wheelock, vice president of research
for ABI Research.
Indeed, Sprint Nextel has launched "Family Locator," a $9.99-a-month service that lets
users track the locations of family members -- or at least their cellphones. (The company
is marketing the service as a way to provide "peace of mind" for parents.) And a host of
start-up businesses and wireless companies, including Helio, jointly owned by South
Korea's SK Telecom Co. and EarthLink Inc., of Atlanta, are turning to the technology to
tap the social-networking trend, helping users find their friends on the screen using a
combination of GPS technology and cell-tower triangulation.
GPS-equipped services like Loopt that help users find their friends' mobile phones
generally work anywhere in the U.S. and can zoom in to show a city or zoom out to show
the country. For now, the appeal of the services seems largely limited to urban areas or
college campuses -- places where users are more likely to meet up with friends on the fly.
Services that broadcast a user's location to other people do raise some serious privacy and
security questions. A number of parents and privacy advocates worry that some people
could sign up for, or hack into, the new services and employ them to stalk users.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 32
Many young people are obsessed with two things: social networking and their mobile
phones. Companies have been trying to cash in on combining them, but up until now,
nobody has found an approach that has really caught on. News Corp.'s MySpace and
Facebook Inc. recently launched offerings that help people connect to their Web sites
from their phones but the services don't allow users to do much more than they could do
online.
Now, GPS technology is adding a new dimension to wireless social-networking services,
letting cellphone users find each others' locations -- just as GPS-equipped phones are
becoming more prevalent, partly in response to federal rules that require carriers to make
it easier for emergency officials to locate cellphone users. An estimated 63% of mobile
phones sold in North America in 2007 will have GPS or assisted GPS functions, up from
55% of phones sold in 2006, according to market researcher Gartner Research.
"The race is just beginning in this area," says Clint Wheelock, vice president of research
for ABI Research.
Indeed, Sprint Nextel has launched "Family Locator," a $9.99-a-month service that lets
users track the locations of family members -- or at least their cellphones. (The company
is marketing the service as a way to provide "peace of mind" for parents.) And a host of
start-up businesses and wireless companies, including Helio, jointly owned by South
Korea's SK Telecom Co. and EarthLink Inc., of Atlanta, are turning to the technology to
tap the social-networking trend, helping users find their friends on the screen using a
combination of GPS technology and cell-tower triangulation.
GPS-equipped services like Loopt that help users find their friends' mobile phones
generally work anywhere in the U.S. and can zoom in to show a city or zoom out to show
the country. For now, the appeal of the services seems largely limited to urban areas or
college campuses -- places where users are more likely to meet up with friends on the fly.
Services that broadcast a user's location to other people do raise some serious privacy and
security questions. A number of parents and privacy advocates worry that some people
could sign up for, or hack into, the new services and employ them to stalk users.
Some privacy advocates also are worried that the government could use location
information to spy on people. "Accurate location information can reveal many things
about people's lifestyle they may wish to keep quiet," says Kevin Bankston, a lawyer at
the Electronic Frontier Foundation, a privacy-rights group based in San Francisco. "And
young people may be likely to freely advertise their location without considering the
implications."
"Location services do raise some special privacy concerns," says Jeffrey Nelson, a
spokesman for Verizon Wireless, which is jointly owned by Verizon Communications
Inc. of New York and Vodafone Group PLC of the U.K. In response, Verizon Wireless
has implemented a host of privacy measures. For instance, to sign up for a location-based
service like "VZ Navigator," an application that uses GPS to tell users where they are,
what is around them and give them driving directions, a user must accept the service's
terms and conditions, which includes allowing Verizon Wireless to gather information
about the location of their device. The company says it doesn't store any GPS information
after users close out the session.
The GPS feature, which is built into the phone, isn't always active. It generally starts
tracking when the user launches location-based service. Even when applications like
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 32
Loopt are running, users can elect not to have their information shared with other users
by pressing a button.
Sam Altman, 21, hatched the idea for Loopt two years ago while a sophomore at Stanford
University, where he is currently taking a leave of absence. He was looking for two
friends he wanted to have lunch with and wondered: wouldn't it be cool if I could look at
my cellphone and see whether they were already nearby?
At the time, he turned to his classmate Nick Sivo, now Loopt's chief technology officer,
who told him the system he envisioned was impossible because GPS phones weren't
widely available. That has changed.
Once users download the Loopt application to their cellphones, and invite and verify their
friends, they can click on the application icon to view a map that will display their
friends' locations as green dots. (Their friends also must have Boost and be members of
Loopt.) They also can go to another screen to look at messages, or photos, the user's
friends have tagged to their locations.
There are other players in the field. Rave Wireless Inc., a New York mobile services and
applications provider, is using GPS technology to power a new service called
"Entourage" that allows users to make their location available to friends in their Rave
address book. Kamida Inc.'s Socialight service requires you to tell it where you are by
sending it a text-message with your location. Once you "check-in" by doing so, it allows
users to leave text-messages for other people who have checked into the vicinity.
13. Phones equipped with ____ are becoming more prevalent, partly in response to
federal rules that require carriers to make it easier for emergency officials to locate cell
phone users.
a. microwave reader chips
b. cameras
c. GPS Correct
d. TiVo
How Thinking Can Change the Brain
By SHARON BEGLEY
January 19, 2007; Page B1
http://online.wsj.com/article/SB116915058061980596.html
Although science and religion are often in conflict, the Dalai Lama takes a different
approach. Every year or so the head of Tibetan Buddhism invites a group of scientists to
his home in Dharamsala, in Northern India, to discuss their work and how Buddhism
might contribute to it.
In 2004 the subject was neuroplasticity, the ability of the brain to change its structure and
function in response to experience. The following are vignettes adapted from "Train Your
Mind, Change Your Brain," which describes this emerging area of science:
The Dalai Lama, who had watched a brain operation during a visit to an American
medical school over a decade earlier, asked the surgeons a startling question: Can the
mind shape brain matter?
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 32
Over the years, he said, neuroscientists had explained to him that mental experiences
reflect chemical and electrical changes in the brain. When electrical impulses zip through
our visual cortex, for instance, we see; when neurochemicals course through the limbic
system we feel.
But something had always bothered him about this explanation, the Dalai Lama said.
Could it work the other way around? That is, in addition to the brain giving rise to
thoughts and hopes and beliefs and emotions that add up to this thing we call the mind,
maybe the mind also acts back on the brain to cause physical changes in the very matter
that created it. If so, then pure thought would change the brain's activity, its circuits or
even its structure.
One brain surgeon hardly paused. Physical states give rise to mental states, he asserted;
"downward" causation from the mental to the physical is not possible. The Dalai Lama
let the matter drop. This wasn't the first time a man of science had dismissed the
possibility that the mind can change the brain. But "I thought then and still think that
there is yet no scientific basis for such a categorical claim," he later explained. "I am
interested in the extent to which the mind itself, and specific subtle thoughts, may have
an influence upon the brain."
14. As volunteers began meditating, the kind of brain wave that grew exceptionally
strong were _______.
a. alpha waves
b. beta waves
c. delta waves
d. gamma waves Correct
Questions 15 – 19 from Money & Investing
As Crude Falls, Don't Expect Rates to Follow
By JUSTIN LAHART
January 18, 2007; Page C1
http://online.wsj.com/article/SB116908461224779711.html
With crude prices retreating, oil producers will have less wealth to spread around the
world. That should mean lower energy prices and lower inflation, but not necessarily a
drop in long-term interest rates.
At $52.24 a barrel on the New York Mercantile Exchange, the price of crude oil is 32%
below its record of $77.03 in July. The result: A big drop in home-heating costs and
prices at the pump and more walking-around money for consumers. It also helps cool
inflation, giving the Federal Reserve less impetus to raise short-term interest rates.
Oil-producing countries will have less cash to throw around. They have been running
huge trade surpluses. But the surpluses might shrink, meaning fewer dollars flowing into
their coffers. Last year they received oil revenue estimated in a recent Federal Reserve
Bank of New York paper at about $970 billion. Total revenue, including nonoil exports,
came to about $1.5 trillion -- almost $1 trillion more than in 2002.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 32
Roughly half that rise went to increased imports, estimate the economists who wrote the
paper.
The other half went into foreign financial assets. It is hard to ascertain which ones, but
the economists argue that because the U.S. has the biggest borrowing needs, U.S. assets
have directly or indirectly been the destination for the bulk of oil producers' foreign
investments.
By lending the U.S. money, the oil producers have helped keep yields on long-term
Treasurys and other bonds low. If the drop in oil prices leads to a drop in oil producers'
purchases of U.S. financial assets, rates could head higher.
Less inflation will hold back that pressure. And other countries, like China, might end up
with more money to buy U.S. bonds.
15. This week the price of crude oil is _____ its level of $77 in July.
a. 12% above
b. 12% below
c. 32% above
d. 32% below Correct
Dow Clears Another Record As Oil Prices Continue to Fall
By PETER A. MCKAY
January 17, 2007; Page C1
http://online.wsj.com/article/SB116900087431578435.html
A plunge in crude-oil prices to their lowest level in nearly 20 months helped the stock
market finish higher, but technology shares were a notable laggard.
The Dow Jones Industrial Average rose 26.51 points, or 0.2%, to 12582.59, up 1% this
year and its 25th record close since Oct. 3. Energy company Exxon Mobil was the bluechip average's weakest component in percentage terms, off 1.4%.
Except for energy producers, most companies are helped by cheaper fuel costs, which
free up money in consumers' wallets to spend on products other than gasoline at their
local filling station. Yesterday's trading was driven by investors' faith in that dynamic,
which has been on stark display in 2007's early going.
"The oil selloff has definitely helped to unlock the rally," in stocks this month, said
Wendell Perkins, chief investment officer at the mutual-fund firm Johnson Asset
Management. "Energy has been a momentum-driven market, which isn't surprising if you
look at the way it traded back when it was on the way up."
Oil's decline extended the contract's year-to-date decline to 16.1%.
The Standard & Poor's 500-stock index nudged up 0.1%, or 1.17 points, to 1431.90, up
1% on the year.
The technology-stock-heavy Nasdaq Composite Index, however, slipped 0.2%, or 5.04
points, to 2497.78. Many Wall Street analysts remain confident tech stocks will be among
the market's strongest performers this year.
Ken Tower, chief market strategist at CyberTrader, a unit of Charles Schwab, said that
shifting expectations about if and when the Federal Reserve might cut its interest-rate
target could curb the market's gains in the short term.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 32
He added: "I don't think there's any way you can get away from how powerful the market
was in the fourth quarter last year. The bears can't really get traction for long."
16. Wall Street analysts are confident that tech stocks will _____.
a. be among the market's weakest performers this year
b. be among the market's strongest performers this year Correct
c. be among the market's strongest performers this year in the US only
d. be among the market's strongest performers this year in Asia only
Research Firms, Consultants Draw Scrutiny
By GREGORY ZUCKERMAN and PETER LATTMAN
January 16, 2007; Page C1
http://online.wsj.com/article/SB116891783041877324.html
A lucrative corner of the financial-services industry -- involving research firms like
Gerson Lehrman Group that pay employees of public companies and others to serve as
consultants to investors -- is coming under scrutiny by regulators.
In recent weeks, the New York Attorney General's office has begun examining whether
employees of companies including Best Buy Co. may have inappropriately discussed
material nonpublic information in consulting arrangements like these with hedge funds
and other investors. The examination also concerns Circuit City Stores Inc., according
to one person briefed on the matter.
According to people close to the situation, the office is looking into whether consultants
paid by Gerson Lehrman and another major provider of this kind of service, Vista
Research, may have inappropriately disclosed important information about the companies
in which they work. Securities rules prohibit trading on material nonpublic information -the term for potentially market-moving business details not otherwise available to the
investing public.
The New York Attorney General's office has issued subpoenas recently to Gerson and
Vista, a unit of McGraw-Hill Cos., as well as to hedge funds that are clients of Gerson
and Vista.
A Vista spokesman said by email that "Vista Research is fully cooperating with the
NYSAG's subpoena. Vista Research is committed to strong compliance practices and
procedures."
A spokeswoman for Best Buy said the company has been contacted by the New York
Attorney General's office "and we are cooperating with the investigation." Circuit City
didn't respond to a request for comment.
Separately, the Securities and Exchange Commission is working on several investigations
to see if hedge funds have received nonpublic information due to research firms like
these. The SEC has sent requests for information to a number of hedge funds, according
to an individual familiar with the situation. The inquiries come amid a broader push by
securities regulators to examine whether hedge funds -- which have emerged as
influential players in the financial markets -- are using nonpublic information to gain a
trading edge. Hedge funds are private partnerships catering to wealthy investors that trade
a range of investments.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 32
Gerson and Vista match consultants -- professors and lawyers as well as current and
former managers at companies -- with hedge funds and other investors interested in
certain industries.
Regulators are focusing on whether consultants who are or were employed by public
companies have shared nonpublic information with the investors they talk to, either
knowingly or unintentionally.
The subpoenas are broad in nature, according to two people who have seen them. A
spokesman for the New York Attorney General's office declined to comment.
Some subpoenas were issued at the end of December, when Eliot Spitzer was still New
York's attorney general. On Jan. 1, Mr. Spitzer became the state's governor, and Andrew
Cuomo became its attorney general.
In recent years, firms that match large investors with stables of consultants have seen
their businesses grow, both because there are more hedge funds eager for these insights
and because regulatory changes have barred companies from selectively disclosing
important nonpublic information.
In the information-broker business since 1999, Gerson charges top dollar to match
professional investors with its stable of 180,000 consultants. The consultants, who often
are paid hourly to speak with investors, include current and former middle managers from
hundreds of companies as well as doctors and other professionals. The vast majority don't
work for public companies.
Vista, founded in 2001, says on its Web site it has 100,000 consultants. The firm was
acquired in 2005 by Standard & Poor's, a division of McGraw-Hill Cos. There is nothing
inherently improper about matching investors with people familiar with companies and
industries, nor is there anything wrong with investors' speaking with industry managers to
understand trends in a business or receive views about competitors or products.
Investors and Wall Street analysts have long done in-depth research by speaking with
various employees. But regulators want to know if consultants paid by Gerson and Vista
are passing along material nonpublic information about companies.
In a page-one article on Gerson4, The Wall Street Journal reported in November that
Gerson consultants employed by public companies sometimes are unaware of their own
companies' restrictions or have a hazy understanding of what qualifies as nonpublic
information.
Gerson and Vista take steps to prevent their consultants from sharing inappropriate
information. Gerson has said all of its consultants must agree in writing each year to
follow the rules of their primary employers. The firm also has said it constantly reminds
consultants and clients not to discuss confidential or restricted information and advises
them on how to learn if their employer has rules governing this consulting.
A consultant can't speak with an investor client more than three times a year unless the
employee receives permission from his employer to moonlight, or is independent.
A Vista spokesman says each of its consultants has to sign a form periodically to affirm
that they are in compliance with Vista's code of ethics. The code of ethics says its
consultants are "never expected" to comment on their employer or company. It also says
its consultants may not disclose any confidential, proprietary or trade-secret information
of others.
The Journal's story in November about Gerson said its consultants sometimes don't
inform their employers when they are being paid to speak with a hedge fund or other
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 32
investor. And they sometimes consult with investors in violation of their employers'
policies.
The emergence of companies like Vista and Gerson coincided with a change in company
disclosure rules in 2000. That year the SEC instituted Regulation Fair Disclosure, or Reg
FD, which barred companies from selectively disclosing material nonpublic information.
Prior to Reg FD, employees spoke more freely with professional investors and analysts
about their businesses.
17. Securities rules prohibit trading on ______.
a. material nonpublic information Correct
b. public information material
c. information learned on MSNBC
d. information learned via foreign media sources
Smart Retirement Shopping
By JEFF D. OPDYKE
January 13, 2007; Page B1
http://online.wsj.com/article/SB116864698132375715.html
Winston Wong first learned about reverse mortgages over a plate of chicken.
The 73-year-old San Jose, Calif., retiree accepted an invitation two years ago to a seminar
at a local restaurant, where, during a free lunch, a salesman pitched him on ways to
borrow against his condo to finance a dream retirement. The pitch sounded so good, says
Mr. Wong, "You think, this is something you really need now."
He almost bit. But the deal raised alarm bells with his daughter, who persuaded him first
to meet with a financial planner, who ultimately steered him away by showing that his
pension and Social Security already provided plenty of income.
Many older consumers aren't so fortunate. A host of ill-suited financial products -- from
reverse mortgages, to life-settlement contracts and variable annuities -- are being targeted
at retirees with pitches designed to tap into deep-seated fears about the affordability of
retirement.
Regulators say the size of the problem is impossible to quantify. Still, it has reached such
a magnitude that the National Association of Securities Dealers, a self-regulatory agency
for the financial industry, this year will launch a campaign to teach people how to see
through the selling techniques used by pitchmen to pry open their wallets.
Some products are perennial favorites among unscrupulous salespeople: complex
variable annuities, top-heavy life-insurance policies, and living trusts. Others reflect
efforts among agents, brokers and planners to benefit from increased interest in relatively
new creations such as long-term-care insurance, reverse mortgages, life settlements and
even Medicare Part D prescription coverage.
In many cases, these products have legitimate uses. But used improperly they can also
leave elderly savers poorer or unable to get at their money in an emergency without
paying hefty penalties.
Here's a guide to some of the trickiest products and latest pitches, along with advice on
protecting against trouble.
Life Settlements
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 32
The Product: A financial transaction in which you sell your life-insurance policy for
more than the policy's cash value, but less than its face value.
The Hard Sell: Turn your insurance policy into cash while you're still alive to enjoy it.
Use the windfall to pay for everything from long-term-care insurance to a blowout
vacation.
The Pros: For people who no longer need insurance but who do need cash, selling an
unwanted policy can generate more money than cashing in a policy. The strategy can be
particularly appealing with term-life policies, which have no cash value and which
policyholders would otherwise let lapse.
The Cons: If you continue to need insurance coverage, selling an existing policy isn't
wise. Rates to replace your coverage could be unaffordable, or you could be uninsurable.
Also, you're spending down money your heirs may need after your death -- and while
insurance benefits paid to heirs are generally income-tax-free, the profits from selling a
contract are taxable at ordinary income rates, which are generally the highest rates.
Regulators have begun scrutinizing the industry because of concerns about the way these
products are sold. The NASD is set to soon publish an investor alert to warn consumers
about the dangers of life settlements.
The Fix: None. Once you sell your policy, you can't get it back.
Reverse Mortgages
The Product: A mortgage letting older homeowners tap into their home's value without
selling the house or having to make home-equity-loan payments.
The Hard Sell: Unlock the cash to improve your standard of living, to pay for long-termcare insurance, or to invest in annuities and life insurance.
The Pros: For seniors with pressing financial needs who are cash-poor but house-rich, a
reverse mortgage "can be a beneficial way to get the basic income you need to stay in
your home" or to pay for necessary expenses, says Sally Hurme, senior program manager
with AARP Financial Security.
The Cons: Reverse mortgages are costlier than traditional ones. Moreover, because
reverse mortgages are repaid only when a house is sold or the borrower dies, heirs may
be forced to sell the house before they want to or find other assets to unload, possibly
raising other tax issues.
In the most egregious cases, sellers persuade homeowners to take out reverse mortgages
to fund other investments such as annuities, says Cheryl Kringle, an assistant attorney
general in Washington state. The flaw with that strategy: The investment returns
generally aren't large enough to cover the cost of the mortgage and interest payments.
"This is wreaking havoc on people's lives," says Ms. Kringle.
The Fix: You have the right to cancel the mortgage within three days, says Ken Scholen,
director of the AARP Foundation's Reverse Mortgage Education Project. But past that
"there's not much you can do."
Variable and Indexed Annuities
The Product: An insurance contract wrapped around mutual-fund-like subaccounts.
The Hard Sell: Variable annuities provide tax-advantaged savings and help heirs avoid
probate. Equity-indexed annuities offer stock-market gains while protecting against
losses.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 32
The Pros: Aside from Social Security and a pension, annuities are about the only source
of guaranteed lifetime income. For seniors, however, the best ones are usually immediate
annuities, which begin to pay out within one year of purchase.
Variable annuities can be useful for people still in the work force who are planning to
retire in 10 to 15 years, and who have already maxed out their annual contribution to
401(k) plans and IRAs.
The Cons: Regulators continually warn that variable and indexed annuities are ill-suited
for retirees. The reason: These products generally require a holding period at least a
decade long. Getting your money early imposes surrender charges that can exceed 10%
of the annuity's value and last seven to 10 years or more.
Equity-indexed annuities have their own kinks. Most limit potential gains from the stock
market. If stocks roar ahead one year by 20%, for instance, you might only get 8% of that
return in your annuity, depending upon the contract.
While annuities do grow tax-deferred, the profits are taxed at ordinary rates at
withdrawal. By comparison, profits on stocks and mutual funds in a standard brokerage
account are taxed at lower capital-gains rates. Moreover, at your death the value of your
ordinary stocks and funds is stepped up to current market value, meaning heirs avoid
taxes on earlier profits. Annuities receive no step-up.
The Fix: Depending on the state you live in, consumers generally have at least 10 days to
cancel an annuity contract. Conversely, you can contact state securities and insurance
regulators (as well as the firm that sold the contract) and request they examine the
suitability of the sale. Be sure to include some proof that the contract wasn't suitable for
this particular situation.
Another way out: Annuities generally let you withdraw 10% of the contract value each
year without penalty. "Do that each year until you reach a point where the surrender
charge is less onerous and you can withdraw the rest of the account completely," says
Peter Katt, a fee-only insurance consultant in Mattawan, Mich.
Life Insurance
The Product: Whole-life, universal-life and variable-life insurance contracts that
combine a death benefit with a savings/investment component.
The Hard Sell: Your estate will be consumed by estate taxes. Investing your money in a
life-insurance policy helps you avoid that, since death benefits pass tax-free to heirs.
The Pros: Not much with variable life, because the death benefit and cash value fluctuate
with underlying investment performance, and that's a lot of risk for retirees.
Universal and whole life can be useful in narrow circumstances. For instance, retirees
who can't spend as much cash as their portfolio kicks off might consider moving assets
into a whole-life policy as a way to ultimately transfer assets to heirs tax-efficiently. In
this case, you're not buying insurance for the sake of insurance, you're taking advantage
of the policy's tax characteristics, says Mr. Katt.
The Cons: First, "there is no estate-tax advantage to life insurance," says Glenn Daily, a
fee-only insurance consultant in New York City. While life-insurance beneficiaries don't
pay income tax, the sum is still subject to estate taxes. Second, these sorts of insurance
policies are frequently sold based on overoptimistic projections of future account values.
Then there are the surrender charges. Many policyholders see on their statements that
they have an account value of, say, $75,000. But cancel your contract and try to recoup
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 32
the money and you might find you get substantially less. That's the surrender charge,
which, Mr. Katt says, "can be in place 10 or 15 years, or longer."
The Fix: Don't just drop your policy. Check with your insurer to see if you have a
reduced, paid-up death benefit available, as the cash value of your contract may be
enough to fully pay for reduced coverage without imposing any future premiums.
You can also cash in your policy for the cash value. But, as with annuities, you may face
a surrender charge that eats away all or some of that value.
If you're certain you don't need or want the insurance policy, you might try the lifesettlement market, where you can sell your policy to recoup at least some of its value.
18. A mortgage letting older homeowners tap into their home's value without selling the
house or having to make home equity loan payments is called a ________.
a. Indexed Annuity
b. Life Settlement
c. Reverse Mortgage Correct
d. Variable Annuity
GE's Profits May Shed Light On a Strong '07
By SCOTT PATTERSON
January 19, 2007; Page C1
http://online.wsj.com/article/SB116916839629380959.html
There's a growing sense on Wall Street that 2007 could be a breakout year for General
Electric. Its shares have bounced since August, though they've still underperformed the
Dow Jones Industrial Average since Jeffrey Immelt took the reins as CEO in September
2001.
Today's earnings report for the Dow stalwart will provide important clues about whether
2007 will be his year.
Mr. Immelt is pushing hard to move GE into faster-growing businesses and new markets.
Recent moves -- putting a laggard plastics business up for sale and the purchase of
Abbott Laboratories' diagnostic business -- highlight the strategy.
And it seems to be paying off. GE is expected to post net income of $1.98 a share for
2006, according to Thomson Financial, up 15% from 2005. In mid-December the stock
rallied on talk of the plastics sale and comments from Mr. Immelt that 2007 earnings
should be "solid and low-risk."
But there are still plenty of hurdles in the way. Wall Street wants more growth out of
GE's NBC broadcasting unit. Investors also want proof Uncle Sam isn't behind GE's
growth -- the company's effective tax rate has been falling in recent years, helping the
bottom line.
A newer risk is credit quality. Roughly 50% of GE's net income comes from its financialservices business, GE Capital. The unit has been reducing loan-loss provisions the past
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 26 of 32
few years, helping the bottom line, because its customers have done such a good job
paying off their debts. But the tailwind seems to be fading.
Several banks have said lately that their customers are having trouble keeping up. J.P.
Morgan Chase this week said some customers were having problems paying mortgages
and credit-card balances. M&T Bank, of Buffalo, N.Y., and Marshall & Ilsley of
Milwaukee also said they were increasing the amount of money they set aside for loan
losses.
19. Roughly _____ of GE's net income comes from its financial-services business, GE
Capital.
a. 10%
b. 20%
c. 50% Correct
d. 60%
Questions 20 – 22 from Personal Journal, Section D
Giant Retailer Reveals Customer Data Breach
By ROBIN SIDEL
January 18, 2007; Page D1
http://online.wsj.com/article/SB116906153282079233.html
Retailer TJX Cos., which owns big discount clothing chains like T.J. Maxx and
Marshalls, said it has been hit by a wide-reaching security breach that may leave its
customers around the world exposed to fraud and identity theft from transactions that
date back to 2003.
Although the full extent of the breach isn't yet known, people familiar with the matter
said the number of exposed cards could exceed the 40 million that were made vulnerable
to fraud nearly two years ago in a breach involving CardSystems Solutions Inc., a small
company that processed transactions for merchants.
News of the breach sent financial institutions scrambling to identify potential fraud. The
company's more than 2,300 stores accept all the major card-network brands, including
Visa USA Inc., MasterCard Inc., American Express Co. and Discover Financial
Services, a unit of Morgan Stanley.
TJX said customer information was stolen from a computer network that handles a wide
range of financial information, including credit cards, debit cards linked to checking
accounts and transactions for returned merchandise. It didn't provide details of the
breach, saying only that it discovered in December that an "unauthorized intruder"
accessed its computer systems. Some drivers' license numbers also were stolen.
The affected computer processed and stored customer transactions for T.J. Maxx,
Marshalls, HomeGoods and A.J. Wright stores in the U.S. and Puerto Rico, as well as
Winners and HomeSense Stores in Canada. The company also said it is concerned that
the breach could expand to computer systems related to transactions for T.K. Maxx stores
in the United Kingdom and Ireland, and to its Bob's Stores chain in the U.S.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 27 of 32
Some portions of the information stored in the network included transactions that
occurred in 2003, as well as data from last May through December. Although it wasn't
immediately known if TJX was complying with security rules set by Visa and
MasterCard, retailers are typically prohibited from storing certain cardholder data in their
computer systems.
20. Retailer TJX which owns big discount clothing chains like TJ Maxx and Marshalls,
said it has been hit by a wide-reaching security breach that may leave its customers
around the world exposed to fraud and identity theft from transactions that date back to
____.
a. 1999
b. 2001
c. 2003 Correct
d. 2005
The Shifting Calculus Of Workplace Benefits
By M.P. MCQUEEN
January 16, 2007; Page D1
http://online.wsj.com/article/SB116891292405877245.html
Joann Visconto was considering buying life insurance that was offered through the bank
where she works. But the policy had a premium that could rise every year, and it wasn't
portable, so she would lose coverage if she changed jobs. So Ms. Visconto, who is over
40, called an agent and bought a guaranteed level-premium policy for a similar price.
"When you go with a broker," says the Burlington, N.J., resident, "you can tell him this is
what I want, and he is going to get it."
Increasing numbers of Americans are encountering similar choices as employers ask
them to buy their own benefits, including disability and life-insurance policies, medical
and dental coverage, and even benefits not normally found in the workplace like
homeowner insurance and identity-theft coverage. Few businesses are actually replacing
employer-paid benefits with these so-called voluntary benefits -- "voluntary" because you
pay for them yourself. But some experts predict that eventually, American workers will
have to buy many of the benefits they now get free at work, much the way most of the
burden of funding retirement savings has shifted from employers to employees in recent
years.
For now, many small businesses that could never afford to subsidize benefits are
contracting with insurance companies to offer them to workers at a group discount. And
large companies are adding more such benefits, figuring that the discounted rates help to
offset the pain for employees who are being asked to pay a bigger share of their major
medical coverage. Employees can usually buy such benefits at a discount of as much as
25% to what they would typically have to pay on their own.
But as Ms. Visconto's experience shows, voluntary benefits sold through an employer
aren't necessarily the best -- nor the cheapest -- alternative. While it's often hard to beat
workplace deals on essential health benefits, consumer advocates caution that employees
should weigh any benefit offered in the workplace against similar products they can buy
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 28 of 32
solo. Young, healthy employees, for instance, might find term life insurance on their own
that is cheaper than discounted life insurance in the workplace.
Danny Sparks, plant manager at Willacoochee Industrial Fabrics, says the Georgia
manufacturing concern has always paid the bulk of the health-insurance premiums for its
55 employees. For the company to continue to afford that, Willacoochee's other benefits,
including disability and accident insurance, are only made available for workers to buy
themselves. "Our major medical continues to go up, and instead of passing along that
increase to our employees, we keep absorbing that in," Mr. Sparks says.
Many companies also make available benefits that workers can buy to supplement
employer-paid coverage, such as life and disability insurance. "It's a nice enhancement to
our normal benefits package," says Jan Jedliskowski, director of benefits at Brandywine
Senior Care, which operates assisted-living centers in Pennsylvania and New Jersey.
Insurance companies, including MassMutual Financial Group, Metropolitan Life
Insurance Co. and Allstate Corp., are rolling out more products aimed at individual
workers. Last year there were about $22 billion in sales of new and renewed voluntary
benefits, mostly life, disability and accident insurance, about double the amount from
2000, according to Eastbridge Consulting, a firm specializing in the area.
That represents a small part of the estimated $735 billion spent last year by U.S.
employers on workplace benefits, according to the Employee Benefit Research Institute.
But insurers are counting on growth. American International Group Inc. says sales of
voluntary benefits have grown 25% annually for the past several years, and now make up
50% of overall benefits sales. And both Aetna Inc. and Cigna Corp. recently acquired
companies that specialize in providing limited-benefit medical plans that are sold in the
workplace.
When benefits are offered for sale in the workplace, employees often assume the products
have been independently vetted by their company's officials and are better or cheaper
than those in the marketplace. That isn't always the case, though, and consumer advocates
and financial advisers say employees should shop around before buying a number of the
benefits offered at work. Some benefits offered for sale at work, which are typically
simplified, mass-market products, also might not be right for all employees.
But when it comes to buying health benefits, it's often hard to find a better deal than what
is offered at work. That's because voluntary benefits like medical, disability, dental and
vision insurance typically don't require that you undergo any prior medical testing, and
employees usually can't be excluded because of their health status. That makes them
cheaper for many people, but not all. Young and healthy workers in particular may find
they can beat the price on such products by shopping around on Web sites such as
Insure.com, Insweb.com and ehealth.com.
Companies that currently fund employee benefits get to deduct them as business
expenses, a tax break they lose if workers pay all of the costs themselves. Meanwhile,
workers may gain some tax advantages from paying for their own benefits. Payouts from
disability insurance, for instance, are tax-free if workers have paid the premium with
aftertax dollars. Some voluntary benefits, including some health-insurance products, can
also be purchased with pretax dollars, reducing an employee's taxable income.
One of the fastest-growing voluntary benefits is a stripped-down health plan called
limited-benefit medical insurance, often offered to part-time and temporary workers who
aren't eligible for a company's group comprehensive health plan. The plans typically
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 29 of 32
cover routine and preventive services with no or low co-payments. But doctor visits may
be limited to four or five a year, and overall benefits may be capped at as little as $2,000
annually. Major needs, such as surgery and hospitalization, generally aren't covered or
have low benefit caps.
Insurance-industry officials say the plans are an affordable alternative to going without
health insurance. Monthly premiums for Cigna's limited plans, for instance, range from
about $200 to $800 a month for a family. By contrast, the cost for comprehensive
coverage is more than $900 a month for the average family, according to Kaiser Family
Foundation.
Critics of limited-benefit medical plans say an individual could be insured, but still risk
ruinous hospital bills. Health-insurance experts say employees should opt for the plans
only if affordable comprehensive group coverage isn't available from a spouse, parent or
other source.
21. Young, healthy employees might find _______ on their own that is cheaper than in
the workplace.
a. dental insurance
b. whole life insurance
c. short term disability insurance
d. term life insurance Correct
Upper Class: Why the Rich Are Heading Back to School
By RACHEL EMMA SILVERMAN
January 17, 2007; Page D1
http://online.wsj.com/article/SB116899825849778371.html
The wealthy are flocking back to school to learn how to be rich.
As investing and estate planning grow ever more complex -- with labyrinthine trusts,
derivatives, hedge funds, structured products, complex philanthropic options and everchanging tax laws -- wealthy individuals increasingly want to get a better handle on what
to do with their money.
Often, the students are successful business owners who have recently sold out and are
struggling with how to invest their windfall. In other cases, they are women who have
been widowed or divorced and may not have handled tough financial decisions before.
And a growing number of fortunes are passing into the hands of baby boomers, who are
more apt than their parents to reach out for help in understanding how to manage their
finances.
To that end, they are signing up for courses offered by universities and business schools,
financial-services companies and independent firms that focus solely on wealth
education. In addition, peer-education groups are sprouting up, allowing wealthy
individuals to meet regularly and learn from each other and from guest speakers.
Sandra Fox attended a wealth-management course at the University of Pennsylvania's
Wharton School this past November with her two adult daughters, one of whom has an
M.B.A. and oversees the family's investment portfolio. Ms. Fox's husband had operated a
large real-estate brokerage business but had sold the firm several years ago.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 30 of 32
"The nature of our wealth had changed," says Ms. Fox, 65, of Medford, N.J., who had
worked as an interior designer and holistic health teacher. "Suddenly we had liquid
assets. Although we knew how to manage a real-estate business, I did not have the
background to know what to do with liquid assets."
The five-day course, which is organized by Wharton and the Institute for Private
Investors, a networking group for wealthy families, has enrolled 352 wealthy investors
from 21 countries since its launch in 1999. Offered twice a year, the course focuses on
investing and family governance, and is so popular among wealthy families that it
consistently has a waiting list.
This June, the University of Chicago's Graduate School of Business is launching a fourday private wealth-management course for high-net-worth individuals and families. The
curriculum addresses topics such as selecting advisers, estate planning for multiple
generations and effective philanthropy. (Participants must sign a confidentiality
agreement before joining the course.)
Financial-services companies, meanwhile, are turning to education in order to cement
relationships with clients and their heirs. Most private-banking divisions of major firms,
such as J.P. Morgan Chase & Co., Citigroup Inc. and Merrill Lynch & Co., now offer
extensive "next generation" financial-training programs for adult children of their
wealthy clients, with sessions on investing basics and trusts.
At the same time, some family offices -- small companies built solely to manage the
fortunes of super-rich families -- are hiring specialized educational directors, in charge of
orchestrating how the family learns about investing, estate planning, philanthropy and
responsible stewardship of wealth.
Private firms, such as IFF Advisors, that offer wealth-management education say
business is booming as clients find themselves overwhelmed with the variety and
complexity of financial-services products. And peer-education groups, such as Tiger 21
and CCC Alliance, report having no trouble attracting members. Tiger 21, for instance,
whose members must be self-made and have at least $10 million in investable assets, now
has 109 members in New York, San Francisco and Los Angeles, up from 63 members in
New York alone a year ago.
The cost for the educational programs varies. Wharton's five-day residential program
costs $8,755 per person, for tuition, room and board, while the shorter University of
Chicago course will cost $6,975, which includes course materials and meals. An evening
wealth-management course at the University of Miami's Division of Continuing and
International Education costs just $99 for tuition and course materials, while the wealthmanagement certificate program at New York University charges $295 to $695 per
course. Seminars offered by private banks are generally free for clients and their families.
Often, people turn to wealth-education courses after having been coddled for years,
without having to make substantial financial decisions. Elizabeth P. Anderson, who runs
her own boutique wealth-management firm in New York -- Beekman Wealth Advisory -recently led a private seminar for three generations of a client's family. The senior
generation consisted of two brothers who had founded a family business, but their wives
and offspring "had always been taken care of," says Ms. Anderson. The second
generation "was really frustrated -- they didn't know what was going on."
Some of Ms. Anderson's clients say they are frustrated with their experiences at larger
private banks. "One thing that Wall Street sometimes does is deliberately talk over
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 31 of 32
people's heads to make their financial consultants sound smart," she says. "Much of what
is called education is actually disguised product sales."
Banks, for their part, say they offer a wide range of educational seminars, including estate
planning and alternative investments. Northern Trust Corp., for instance, recently held
programs on such subjects as family limited partnerships and surviving an Internal
Revenue Service audit, and even one on investing in pearls. Still, some banks say their
wealthiest clients prefer customized educational programs -- often held in fancy retreats
or at the client's vacation home -- rather than group seminars, which can be timeconsuming and less private.
The classes and seminars don't teach the secrets of how to become rich; instead they
focus on how to handle the money that the participants already have. As a result, they are
all geared to those who anticipate having taxable estates and who can afford to invest in
hedge funds, private equity and other investments generally open to accredited investors.
Although none of the courses have hard and fast wealth thresholds, the University of
Miami course, for instance, is targeted toward individuals whose family holdings are at
least $4 million, while many students at the Wharton program have at least $25 million in
family assets.
Those who teach wealthy clients say the topics most in demand are some of the most
basic, such as choosing a financial adviser and deciphering cryptic bank and trust
statements. "The biggest question we get is, 'How do I know if my adviser is doing any
good?'" says Douglas Freeman, chairman of IFF Advisors, which offers a variety of
wealth-education programs. (A customized educational program for a family would cost
about $10,000 for a weekend course.) "We teach them how to monitor and measure
performance."
Andrew Menachem, who teaches the Miami class, says that many of his students this
year were major South Florida real-estate developers who have recently sold some of
their holdings. "Even though they have been very successful in real estate, they don't
really know the public capital markets," says Mr. Menachem, who is also a financial
adviser with Morgan Stanley.
Lawrence S. Forman, who runs a successful health-care management firm, recently took
the Miami class. He wanted to make sure that his wealth lasts after he retires and to
communicate more articulately with his financial adviser.
"When I see terminology I don't understand or I look at a prospectus for a hedge fund that
he wants me to invest in, I want to be able to talk at the same level that he does," says Mr.
Forman, 59.
22. Wealthy people are taking classes _____.
a. in order to cement relationships with clients and their heirs
b. because they are bored with shopping and hosting charity events
c. to better educate themselves on how to manage their wealth Correct
d. to learn secret ways to get richer quicker
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 32 of 32