The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from Mar 17-23, 2007
Professor Guide with Summaries Spring 2007
Developed by: Scott R. Homan Ph.D., Purdue University
Spring Break Is A Legal Specialty For Ben Bollinger
By SUSAN WARREN
March 17, 2007; Page A1
http://online.wsj.com/article/SB117407617454939751.html
PANAMA CITY, Fla. -- This time of year, defense lawyer Ben Bollinger likes to stick
close to his office between noon and 2 every afternoon. That's when the spring breakers
begin to call from jail.
Free of classes and heading south to bask in the sun, tens of thousands of hard-partying
youths are pouring into this tiny Gulf Coast resort town for their annual spring fling,
crowding beaches, bars -- and courtrooms.
In March and early April, hundreds of youths are arrested or issued citations for minor
crimes such as underage drinking, balcony-climbing or public nudity. Sometimes
sheepish, sometimes defiant, and almost always hung over, spring breakers parade
through the courtrooms of the country's hottest party towns in swimsuits and flip-flops to
answer to judges for their drunken misdeeds, praying that their parents don't find out.
A native of Panama City, one of the top spring-break destinations, Mr. Bollinger has been
defending wayward breakers since he graduated from law school 10 years ago. At the age
of 36, he can still relate to the kids. "I don't think of myself as a lawyer, I'm a redneck
with an education," he says with a Southern drawl. "They come down here and act stupid
and get into a little bit of trouble. I could be in their same shoes."
He advertises a 24-hour hotline so the newly arrested can reach him in the middle of the
night. He runs ads during "Club Hour" on Beach TV, the local round-the-clock tourist
channel, where he dispenses advice on how to stay out of trouble. "When they start
reading you your rights," he cautions, "it's gotten serious."
Mr. Bollinger is among a handful of criminal defense attorneys who have developed a
microspecialty in spring-break offenses. In South Padre Island, Texas, attorney Mike
McNamara, a professed "major beach bum," posts fliers with the slogan, "Got drunk? Got
caught? Call Mike. He won't tell your mama!" The 65-year-old Mr. McNamara's Web
site features a photo of himself lounging in a lawn chair on the beach in bathing trunks
and sunglasses, with a beer in his hand.
At the height of spring break, South Padre's population of about 3,000 swells by up to
70,000 spring breakers. The municipal court, usually in session just one day a week, runs
seven days a week processing 50 to 60 cases a day, says city prosecutor Stuart Diamond.
Judges know the kids are in town for just a few days and usually assess a fine and let
them go. Cops even give offenders a ride to the ATM to get cash to pay their fines, which
run up to $500 for Class C misdemeanors like public intoxication.
At the University of Florida's Student Legal Services, staff gathers each March to watch
MTV's raunchy 2001 movie "Spring Break Lawyer," about a refugee from law school
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 1 of 31
who heads for Fort Lauderdale to help kids with spring-break legal problems. "Spring
Break is a big, big time of year for us," says attorney Daintry Cleary, director of the
service that provides free legal help to students. Her phone starts to ring the day kids
come back from the beach. "One of the first things they ask us is, 'Are you going to tell
my parents?' " The answer is no.
Panama City Beach, with miles of white sands and sparkling emerald water, has a longestablished reputation as one of the nation's premier spring-break capitals. And the Gulf
Coast town has remained loyal to the 300,000 or so college students who spend more
than $60 million on goods and services during the month of March according to tourism
officials.
It's also big business for cops, lawyers and courts. On Friday, March 9, 54 people were
arrested and packed into the Bay County jail overnight -- twice the number the jail
normally accommodates. "Spring breakers," explained court clerk Kenia Martir. "That's a
big number, but it's only going to get worse."
During especially busy years, spring breakers can make up 25% of Mr. Bollinger's
caseload of accidents, drunk-driving arrests and traffic tickets. The business usually
comes in two waves: when the students get arrested, and two months later when their
parents find out about an impending court date. Thursdays and Fridays tend to be the
busiest nights for arrests.
Mr. Bollinger knew from a private investigator that the jail was packed on March 9. Sure
enough, as the offenders were allowed access to a phone to prepare for their court
appearance at 2 p.m., Mr. Bollinger got a call. A Tallahassee college student had been
picked up for a felony -- selling marijuana to an undercover police officer.
Mr. Bollinger walked to the courthouse, located across from his law offices, and entered
a small courtroom wired with microphones and cameras where offenders make their first
appearance before a judge via videoconference from the jail.
On a TV screen, a jailhouse camera telecast the fuzzy image of a downcast 25-year-old
man standing meekly at a podium. Mr. Bollinger leaned over into a small microphone
dangling on a wire over the defense table and shot off a few questions: Did the young
man have a job? Was he a student? Did he have any priors?
The news was good: no priors. When his turn before the judge came up, Mr. Bollinger
asked the judge to set a modest bail, arguing that the youth was a student in nearby
Tallahassee and could be relied on to appear. Bail was set at $7,500. Mr. Bollinger often
doesn't charge spring breakers anything for a first appearance. If he's hired to represent
someone in a felony case, his fees can run thousands of dollars, hundreds for a
misdemeanor.
This was more serious than most spring-break cases. Misdemeanor offenders are often
simply given a notice to appear in court at a later date, or are allowed to mail in
paperwork, then pay a fine, write an essay, or perform community service.
Through the following week, Mr. Bollinger's phone continued to ring, often in the middle
of the night. "They usually start at 1 o'clock in the morning," he said. One kid had been in
a bar brawl; another had left the scene of a minor car accident; another was arrested for
pulling down a young woman's shirt.
As Mr. Bollinger wrapped up in court, another day of heavy partying was just getting
started on the beach. Students these days are well-versed in the risks of spring break.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 31
Many make careful plans with friends about what to do and whom to call if they land in
jail.
On Saturday morning, Keegan Keeney, 24, and Jerad Busch, 23, arrived at the beach with
four other friends from the Southern Illinois University at Carbondale, after driving all
night. They were more than aware of the potential for trouble. "You know the cops are
going to be watching, and you have to keep yourself halfway in control," said Mr. Busch.
He and his friends had decided to play it smart: They had rented a recreational vehicle for
the trip but planned to take taxis to and from the clubs at night.
1. Mr. Bollinger is among a handful of criminal defense attorneys who have developed a
microspecialty in ______.
a. trust funds
b. traffic law
c. stocks and bonds
d. spring break offenses Correct
2. At the height of spring break, the South Padre municipal court, usually in session just
one day a week, runs seven days a week processing ______cases a day.
a. 10 to 20
b. 21 to 30
c. 31 to 40
d. 50 to 60 Correct
Behind Crashes Abroad, Ill-Regulated Airlines
By DANIEL MICHAELS in Rome and ALAN CULLISON in Bishkek, Kyrgyzstan
March 17, 2007; Page A1
http://online.wsj.com/article/SB117407891354239814.html
Kam Air Flight 904 was approaching Kabul on Feb. 3, 2005, when it slammed into a
mountaintop. The crash killed all 104 people on board the Boeing 737 jet, including
American and Italian aid workers.
The accident's cause remains a mystery. Kam Air, a small, private Afghan carrier, had
leased the plane and its crew from a company registered in Kyrgyzstan, Phoenix
Aviation, and neither outfit could offer clues. The plane's voice recorder was never found
amid wreckage strewn across a snow-covered minefield, and a recovered data recorder
was blank due to a technical failure.
Although the investigation ended inconclusively (See the report1), it prompted the
European Union to place Phoenix Aviation on its blacklist of nearly 100 foreign carriers
considered too dangerous to fly within the EU.
This blacklist, originally created to ensure the safety of EU citizens, is now shedding light
on an obscure but widespread threat to global aviation. Even as air travel grows safer in
the developed world, a parallel universe of hazardous aircraft exists across Africa, the
Middle East, Latin America and the former Soviet Union.
The root of the problem is "flags of convenience," or countries -- mainly in Africa and the
former Soviet Union -- that register carriers without properly regulating them.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 31
The phenomenon is similar to a trend that has plagued maritime commerce. Liberia and
Panama, for example, gained notoriety in the 1970s as flags of convenience. These
nations indiscriminately certified decrepit freighters and tankers, some of which sank
with their crews or caused devastating oil spills.
According to EU and United Nations officials, there are potentially hundreds of planes in
dozens of countries that are either illicit or operate on the edge of illegality. Their
operators put passengers' lives at risk by flying with little regard for safety, and they
endanger many more people on the ground by funneling money and weapons that fuel
wars. Numbers are hard to come by, but crashes of suspect carriers have killed several
hundred people over the past four years.
Phoenix Aviation illustrates the menace. In examining the Kam Air crash, investigators
discovered that Phoenix, the plane's lessor, held an operating certificate from Kyrgyzstan,
an impoverished former Soviet republic. Phoenix's headquarters, however, were actually
a continent away in the United Arab Emirates.
Escaping Oversight
By registering in one country and operating from another for many years, Phoenix
escaped oversight that might have prevented the Afghan crash, Western aviation officials
say. Phoenix last year ceased operation. The company's former owners could not be
reached for comment in Kyrgyzstan or the U.A.E., and former managers declined to
comment.
Kyrgyzstan, Liberia and Equatorial Guinea are among the countries singled out for
failing to monitor air-operation licenses. International safety officials say regulators from
these countries don't check where the planes they license actually fly, or even whether
they ever land on home soil.
Unscrupulous or criminal aircraft operators, in turn, move among these havens to chase
fast profits by flying cargo without asking questions and carrying passengers without
taking basic precautions.
These operators "create an airline like they'd set up a fruit-juice factory," says Paul-Louis
Arslanian, director of France's aircraft-accident investigation bureau, known as BEA.
Officials from Equatorial Guinea, Sierra Leone and Kyrgyzstan say they are trying to
improve regulation. Regulators from Liberia could not be reached for comment.
The problem of unregulated carriers emerged as a byproduct of the Cold War's end and
economic globalization. The Soviet Union's breakup in 1991 left hundreds of Antonovs,
Ilyushins and other rugged cargo planes in the hands of almost anyone who could grab
them.
Mainstream airlines compounded the problem by modernizing their fleets. Thousands of
outdated jets landed on world aircraft markets at garage-sale prices. Many wound up in
Africa, Latin America and parts of Asia, carrying passengers on routes shunned by
established carriers.
Africa, in particular, became a magnet for rickety aircraft and profiteers willing to land
where conventional freight carriers fear to fly. A surge in demand for raw materials
sparked a Wild West-style air cargo market that has even figured in recent movies,
including "Blood Diamond" on the illegal diamond trade.
Africa's wars also created an import market. Weapons dealers in the Balkans and Eastern
Europe shipped munitions to both sides in conflicts like Angola's battles for oil and
minerals, Rwanda's ethnic feuds and Liberia's civil war. (See more information12.)
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 31
"It can be arms, it can be natural resources -- people just want to make big profits at the
smallest cost possible," says Abdoulaye Cissoko, an aviation expert from Mali working
on a U.N. panel monitoring an arms embargo on the Congo.
In 1996, a Russian Antonov cargo plane, overloaded with weapons for Angolan rebels,
failed to get airborne from the airport in Kinshasa, Zaire, and plowed into a crowded
market, killing more than 300 people
Over the following years, as officials from the U.N. and researchers from Amnesty
International and other groups focused on how weapons were reaching conflicts across
Africa, they zeroed in on a handful of middlemen. One person fingered as a kingpin of
weapons dealing and transportation was Viktor Bout, a Russian citizen and former KGB
officer.
A U.N. team monitoring the arms embargo on Sierra Leone in December 2000 said Mr.
Bout controlled "a complex network of over 50 planes, tens of airline companies, cargo
charter companies and freight-forwarding companies, many of which are involved in
shipping illicit cargo."
3. The root of many Aircraft crashes are countries that register carriers without properly
regulating them. This is often called _____.
a. flags of commerce
b. flags of continents
c. flags of convenience Correct
d. flags of inconvenience
4. In examining the Kam Air crash, investigators discovered that Phoenix, the plane's
lessor, held an operating certificate from______.
a. Libya
b. Kyrgyzstan Correct
c. Spain
d. Egypt
New Detroit Woe: Makers of Parts Won't Cut Prices
By JEFFREY MCCRACKEN and PAUL GLADER
March 20, 2007; Page A1
http://online.wsj.com/article/SB117435498998242272.html
Navistar International Transportation Corp. has supplied diesel engines to Ford Motor
Co. for almost 30 years. Yet in late February Navistar, embroiled in a financial dispute
with Ford, temporarily cut off all engine shipments to its single biggest customer.
The move dramatized a broad shift in the balance of power in the struggling U.S. auto
industry. The dispute involved competing views of warranty claims and price contracts.
But at its core was the engine supplier's refusal to play an old Detroit game, in which
U.S. car makers have deflected the pressure of global competition by repeatedly forcing
suppliers to trim their own prices.
For the old Big Three of Ford, General Motors Corp. and the Chrysler unit of
DaimlerChrysler AG, the case was evidence of a new reality. As the old-line U.S.
industry moves into a historic restructuring, it finds itself surrounded by parts suppliers
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 31
from which it can no longer easily squeeze price concessions. The reason: Many
suppliers have already faced, and in many cases painfully adapted to, the harsh changing
dynamics of the global auto market.
It was Detroit's relentless past pressure on the suppliers, paradoxically, that ended up
leaving some in a stronger position to resist Detroit's current demands. Some parts
makers went out of business. Some are on the verge of doing so -- forcing Detroit to back
off its demands for fear of losing another parts source. Other suppliers, such as Delphi
Corp., have sought bankruptcy reorganization, enabling them to shed unprofitable
contracts, high-cost labor and excess factories.
Still other suppliers fell into the hands of private-equity investors, who eschew old habits
like accepting money-losing contracts for the sake of keeping up relationships and
volume.
Finally, steel suppliers have both restructured and been blessed by growing demand,
which endows them with pricing power when they face off against auto makers. North
American steelmakers are fewer and stronger, reducing the odds that one firm desperate
to keep its mills occupied will knuckle under to price demands from car makers.
For the old Big Three of Ford, General Motors Corp. and the Chrysler unit of
DaimlerChrysler AG, the case was evidence of a new reality. As the old-line U.S.
industry moves into a historic restructuring, it finds itself surrounded by parts suppliers
from which it can no longer easily squeeze price concessions. The reason: Many
suppliers have already faced, and in many cases painfully adapted to, the harsh changing
dynamics of the global auto market.
It was Detroit's relentless past pressure on the suppliers, paradoxically, that ended up
leaving some in a stronger position to resist Detroit's current demands. Some parts
makers went out of business. Some are on the verge of doing so -- forcing Detroit to back
off its demands for fear of losing another parts source. Other suppliers, such as Delphi
Corp., have sought bankruptcy reorganization, enabling them to shed unprofitable
contracts, high-cost labor and excess factories.
Still other suppliers fell into the hands of private-equity investors, who eschew old habits
like accepting money-losing contracts for the sake of keeping up relationships and
volume.
Finally, steel suppliers have both restructured and been blessed by growing demand,
which endows them with pricing power when they face off against auto makers. North
American steelmakers are fewer and stronger, reducing the odds that one firm desperate
to keep its mills occupied will knuckle under to price demands from car makers.
5. Navistar International Transportation Corp. has supplied _______ to Ford Motor Co.
for almost 30 years.
a. transmissions
b. brakes
c. jet engines
d. diesel engines Correct
6. US car makers have deflected the pressure of global competition by repeatedly forcing
suppliers to _______.
a. trim their own prices Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 31
b. increase their own prices
c. trim their own product lines
d. increase research and development spending
Sales of Music, Long in Decline, Plunge Sharply
By ETHAN SMITH
March 21, 2007; Page A1
http://online.wsj.com/article/SB117444575607043728.html
In a dramatic acceleration of the seven-year sales decline that has battered the music
industry, compact-disc sales for the first three months of this year plunged 20% from a
year earlier, the latest sign of the seismic shift in the way consumers acquire music.
The sharp slide in sales of CDs, which still account for more than 85% of music sold, has
far eclipsed the growth in sales of digital downloads, which were supposed to have been
the industry's salvation.
The slide stems from the confluence of long-simmering factors that are now feeding off
each other, including the demise of specialty music retailers like longtime music mecca
Tower Records. About 800 music stores, including Tower's 89 locations, closed in 2006
alone.
Apple Inc.'s sale of around 100 million iPods shows that music remains a powerful force
in the lives of consumers. But because of the Internet, those consumers have more ways
to obtain music now than they did a decade ago, when walking into a store and buying it
was the only option.
Today, popular songs and albums -- and countless lesser-known works -- can be easily
found online, in either legal or pirated forms. While the music industry hopes that those
songs will be purchased through legal services like Apple's iTunes Store, consumers can
often listen to them on MySpace pages or download them free from other sources, such
as so-called MP3 blogs.
Jeff Rabhan, who manages artists and music producers including Jermaine Dupri, Kelis
and Elliott Yamin, says CDs have become little more than advertisements for morelucrative goods like concert tickets and T-shirts. "Sales are so down and so off that, as a
manager, I look at a CD as part of the marketing of an artist, more than as an income
stream," says Mr. Rabhan. "It's the vehicle that drives the tour, the merchandise, building
the brand, and that's it. There's no money."
The music industry has found itself almost powerless in the face of this shift. Its struggles
are hardly unique in the media world. The film, TV and publishing industries are also
finding it hard to adapt to the digital age. Though consumers are exposed to more media
in more ways than ever before, the challenge for media companies is finding a way to
make money from all that exposure. Newspaper publishers, for example, are finding that
their Internet advertising isn't growing fast enough to replace the loss of traditional print
ads.
7. Compact disc sales for the first three months of this year _____ from a year earlier.
a. plunged 20% Correct
b. increased 20%
c. plunged 40%
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 31
d. increased 40%
8. CDs account for more than _____ of music sold.
a. 55%
b. 65%
c. 75%
d. 85% Correct
As Its Brands Lag at Home, Unilever Makes a Risky Bet
By DEBORAH BALL
March 22, 2007; Page A1
http://online.wsj.com/article/SB117452813988844968.html
Struggling to sell its laundry detergent, margarine and soups to Americans and
Europeans, Unilever is shifting its focus to markets it considers more promising:
countries in the developing world.
Many companies are now seriously looking at places like India and China. But Chief
Executive Patrick Cescau is going further -- actually taking resources, people and
projects away from Unilever's home base of Western Europe and shifting them to less
mature markets.
That means brands like Bertolli olive oil -- once a jewel in the consumer giant's Italian
pantry -- have seen their budgets slashed, while basics like Sunlight laundry detergent,
popular in South Africa, are getting new attention. After years of defending its bouillon
cubes, soap and shampoo against cheaper generics, it is pushing them to a new wave of
consumers in India, Brazil and Vietnam.
Unilever faces big pressure to change. The company's annual sales growth slowed from
5.0% in 1998 to just 0.7% in 2004, the lowest growth since the mid 1990s, and has since
remained in the low single digits. It has also strained to raise profit margins, which were
12.4% in 1998. Last year, they stood at 13.6%.
For years, Unilever has been losing consumers to rivals like Procter & Gamble Co.,
which have proved more creative in introducing new products such as Gillette razors with
built-in shaving gel and $30 teeth-whitening kits. The company is also getting squeezed
by giant retailers like Wal-Mart Stores Inc., which sets exacting standards for suppliers to
land and keep their products on its shelves. P&G's sales have been growing twice as fast
as Unilever's. And its profit margins, of about 22% last year, were much higher than
Unilever's.
In the food market, with brands like Lipton tea, Hellmann's mayonnaise and Ben &
Jerry's ice cream, Unilever occupies the No. 3 spot behind Nestlé SA and Kraft Foods
Inc. Its products such as margarine and pasta sauce face heavy competition from
supermarkets' private-label goods, which typically cost less.
9. P&G's sales have been _____ as Unilever's.
a. growing half as fast
b. growing twice as fast Correct
c. growing three times as fast
d. growing five times as fast
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 31
10. In the food market, with brands like Lipton tea, Hellmann's mayonnaise and Ben &
Jerry's ice cream, Unilever occupies the ____ spot.
a. number 1
b. number 2
c. number 3 Correct
d. number 4
Ethanol Reaps a Backlash In Small Midwestern Towns
By JOE BARRETT
March 23, 2007; Page A1
http://online.wsj.com/article/SB117456975682445433.html
CAMBRIA, Wis. -- With empty storefronts on the main drag and corn stubble stretching
for miles in the surrounding hills, this fading farm town seems like a natural stop for the
ethanol express.
Not to John Mueller, though. The 54-year-old stay-at-home dad has led a dogged battle to
prevent a corn mill from building an ethanol plant up the hill from the village school.
Concerned about air pollution, the water supply and the mill's environmental track
record, Mr. Mueller and his group, Cambrians for Thoughtful Development, have blitzed
the village's 800 residents with fliers, packed public meetings and set up a sophisticated
Web site.
The mill has fought back with its own publicity campaign and local corn farmers have
taken to the streets in tractors to show support. Now, as the mill races to build the $70
million plant, the matter is headed to the federal courthouse in Madison, 40 miles
southwest.
Nuclear plants, garbage dumps and oil refineries have long faced opposition from
neighbors. Ethanol was supposed to be different. The corn-based fuel has a reputation for
being good for farmers, the environment and rural economies. Ethanol, which already
receives a 51-cents-a-gallon federal subsidy, figures prominently in President Bush's goal
of reducing gasoline consumption by 20% over 10 years. But a backlash has been
brewing in towns across the Midwest.
Fights have broken out in Indiana, Illinois, Missouri, Nebraska, Kansas and several towns
in Wisconsin. Opponents complain that ethanol plants deplete aquifers, draw heavy truck
traffic, pose safety concerns, contribute to air pollution and produce a sickly-sweet smell
akin to that of a barroom floor.
In southwestern Missouri, a Webster County citizens' group is suing to stop a plant
proposed by closely held Gulfstream Bioflex Energy LLC of Mount Vernon, Mo. The
detractors say the 80-million-gallon-a-year plant would use more water than the rest of
the 33,000-resident county, an "unreasonable" use of the area's underground water
supply.
"This is not about water," protests Bryan O. Wade, an attorney for Gulfstream. "This is
about a group of people who simply do not want an industrial facility near their homes."
Just outside Rockford, Ill., people who live near the site of a planned 100-million gallon
ethanol plant have filed lawsuits against Winnebago County questioning the procedures
by which it granted a rezoning to Wight Partners, a Schaumburg, Ill.-based developer.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 31
Last October, Wight filed a $3 million lawsuit against the residents, claiming they have
abused the legal process merely to delay the project.
Industry officials concede that ethanol plants have had problems with smell and toxic
emissions in the past, but say new technology has largely remedied that. "Generally,
communities look at these plants as local economic engines," says Robert Dineen,
president of the Renewable Fuels Association, a Washington trade group. The plants
bring jobs and have dramatically raised corn prices and farmland values. Many ethanol
plants have paid rich dividends to investors, who often include local farmers and other
residents.
11. John Mueller, a 54 year old stay at home dad has led a dogged battle to prevent the
building of an _______ up the hill from the village school.
a. nuclear plant
b. garbage dump
c. ethanol plant Correct
d. oil refinery
12. Ethanol, receives a _______ federal subsidy.
a. 11-cents-a-gallon
b. 31-cents-a-gallon
c. 51-cents-a-gallon Correct
d. 2-dollar-a-gallon
Questions 13 – 17 from Marketplace
More Outside Directors Taking Lead in Crises
By JOANN S. LUBLIN and ERIN WHITE
March 19, 2007; Page B1
http://online.wsj.com/article/SB117426406004741001.html
Directors of New Century Financial Corp. have met nearly every day for the past two
weeks, typically talking by phone late into the night, as they try to salvage the
beleaguered mortgage lender. Fredric Forster, the former mortgage banker who became
New Century's outside chairman in January, has temporarily installed himself at the
company's Irvine, Calif., headquarters. Richard Zona, chairman of the board's audit
committee, confers almost daily with New Century's outside auditors.
Independent board members typically provide oversight and monitoring of a company,
while managers run operations. But when a crisis erupts, as at New Century, such
directors increasingly are assuming a more hands-on role. Stronger governance standards
adopted following corporate scandals -- and the prospect that directors could be held
personally liable -- reinforce the trend.
"Your wealth is at stake, and your reputation is at stake," says Charles Elson, head of the
Weinberg Center for Corporate Governance at the University of Delaware's business
school, who also serves on two public-company boards.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 31
As a result, "the line between directors and managers is getting a little more blurry than
what it has been," says David Larcker, a professor at Stanford University's Graduate
School of Business.
When a company gets in trouble, outside directors may be part of the problem -- and the
solution. Whether they share the blame for poor oversight depends on the nature of the
crisis, according to Mark Nadler, a partner at Mercer Delta Consulting. Some crises, like
product tampering or natural disasters, aren't within a board's control, whereas, in a
massive scandal like Enron Corp.'s, he argues that the board should have been asking the
kind of tough questions that would have revealed the underlying business problems.
Every crisis is different, and the degree to which directors will -- or should -- get
involved will vary. At the same time, directors must be careful not to overstep their
bounds.
"The board should never supplant the CEO's authority unless the CEO really lies at the
heart of the crisis," cautions Allan J. Reich, a corporate attorney at law firm Seyfarth
Shaw in Chicago. Boards "shouldn't cross the line into becoming managers or micromanagers," he adds.
For all their involvement, New Century directors appear to be respecting that line.
Directors aren't running the company, but "counseling management on a real-time, 24/7
basis," says one person familiar with the situation.
The subprime-mortgage lender is searching for a lifeline after its bank lenders cut off
funding. New Century, which offers mortgages to borrowers with weak credit, has
stopped making new loans. It is the target of a federal criminal investigation into its
accounting and securities trading. In addition, the Securities and Exchange Commission
is conducting a preliminary probe of events leading up to its February announcement that
it would restate financial results for the first three quarters of last year. New Century,
once one of the nation's largest subprime-mortgage lenders, has been plagued by rising
defaults on its risky loans.
13. New Century, offers mortgages to borrowers with ______.
a. strong credit
b. no credit
c. weak credit Correct
d. older credit
March Tournament Is Really Maddening, But Not the Games
By JARED SANDBERG
March 20, 2007; Page B1
http://online.wsj.com/article/SB117433892273341843.html
The NCAA college basketball tournament began last week, bringing office betting,
workplace tournament watching, and frightful news releases: "NCAA March Madness
Strains Employee Productivity, Network Bandwidth and Security."
That's news to Colin Glinsman. The chief investment officer at an asset-management firm
has never seen evidence of employees distracted by the basketball games and, until a few
days ago, had no idea what March Madness meant. "I'm glad I finally know," he says.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 31
Every year, in the weeks before the NCAA's basketball tournament, consultants, hightech executives and lawyers warn of its perils to the workplace. Betting pools leave
companies legally exposed, they say. Game video cripples office computer networks.
Hackers can exploit fan interest. Corporations can suffer multibillion-dollar productivity
losses.
But the real madness of March is excessive fear mongering in the workplace, where
legions of employees don't know Blue Devils from Buckeyes. To them, March Madness
has more to do with that unspeakable Spring Break in Cancún.
For actual fans, the tournament is simply this month's distraction. "People who are
wasting time always find a golden opportunity to waste more," observes Steve Bosking, a
marketing director.
In reality, March is pretty mild. Researchers Birinyi Associates found that Big Board
trading volume during the busiest days of the tournament have been higher than average
for the past 10 years. For plenty of people, the NCAA games aren't distracting. In a recent
survey, WorkPlace Media found that 69% of American workers won't be wagering in the
office pool. Nearly half say they "have no interest in the tournament at all."
That doesn't stop a raft of high-tech companies from sounding alarms. One, eTelemetry,
which makes network computers that track Web surfing, sent out a news release claiming
companies "lose up to $3.8 billion in lost wages" during the tournament. The release touts
that one of its customers "is raising its game" by using eTelemetry's products to trace
Web usage "back to every staff member."
But the customer that eTelemetry cited, the American Association of Airport Executives,
uses the software for other, more routine, network-management issues, says Patrick
Osborne, senior vice president at the association. He was unaware his company was
mentioned in the release about March Madness. "I'm not doing anything different starting
tomorrow than I did today," he says on the eve of the tournament.
Similarly, Secure Computing sent out a news release that online fraud is "expected in
full-force throughout this March Madness season." During the Super Bowl, a hacker hid
malicious software on a football Web site that gathered visitors' personal information, the
company notes. Says Dmitri Alperovitch, principal research scientist at Secure
Computing: "We're almost certain they're going to try to take advantage of events like
March Madness."
Another release, for business-service provider CBIZ, says one of its advisers can address
"how companies can protect themselves from running afoul of the law" regarding betting
pools. "An office pool can qualify as an unlicensed gambling operation," notes attorney
Jennifer Berman, managing director at CBIZ. Roughly two dozen states have strict laws
making betting illegal.
That's scary, sort of. "I've never heard of these laws getting enforced," concedes Ms.
Berman. Still, she says turning a blind eye to gambling while having written policies
against it creates inconsistencies that can be legally problematic for companies -- though
apparently less so for individuals: "I ran my office pool in law school," she says
sheepishly.
One of the biggest culprits in the scare is outplacement firm Challenger, Gray &
Christmas, which gives estimates of the value of lost productivity due to the tournament.
Its latest figure, $1.2 billion, is less than a third of last year's estimate of $3.8 billion,
which was four times the $889 million estimated two years ago. The latest swing is due
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 31
to the firm considering for the first time the number of Americans who have Internet
access at work.
Even Challenger, whose figures have been criticized, admits its productivity-loss
estimates are unscientific and "tongue-in-cheek," a spokesman says. Calling the
productivity hit "disastrous" last year, Challenger concedes this year that 94% of HR
executives "do not consider ... the tournament a problem."
"It's a cost of doing business," says Jason Trennert, a founder of an economic research
firm and Georgetown graduate: "The chances of me not having one of their games on are
about zero."
Others say high-tech safeguards of productivity are just plain unproductive. "The more
you try to police it, the more people spend their time trying to work their way around it,"
says automotive engineer Jason Rosenberger.
For Eric Smith, a sales engineer who used to work at a company that had some rabid
tournament fans, March Madness was welcome. "When other folks are distracted by
sports," he says, "that means they aren't bugging me."
14. Effects of the “March Madness” college basketball tournament include
a. office raids for illegal gambling
b. the threat of bringing civilization as we know it to a screeching halt as every single
employed person ignores their duties
c. for plenty of people, the NCAA games aren't distracting Correct
d. none of the above
Global Warming: Uncool on the Slopes
By JIM CARLTON
March 21, 2007; Page B1
http://online.wsj.com/article/SB117444123615643615.html
NORDEN, Calif. -- Snow has been hard to come by here in the Sierra Nevadas this
winter. Last year, the Berkshires and the southern Rockies went wanting. And the year
before that, the Cascades.
No one is quite sure why each has suffered its low-snow season of discontent, but as the
warmest winter on record winds down, the ski industry has settled on a suspect: It has
stepped up its efforts to combat global warming. After all, few businesses stand to lose as
much from climate change.
"Put it this way: If we don't start reacting now we may not have a ski season," says
Rachael Woods, spokeswoman for Alpine Meadows, a privately owned Lake Tahoe ski
area near here.
Resorts are trying everything from educational presentations for guests to investing in
renewable energy and soliciting skiers to contribute to those projects, too.
For example, Sugar Bowl Ski Resort here in 2004 launched a "Start Global Cooling"
campaign with Clif Bar & Co., a maker of protein bars in Berkeley, Calif. Under the
program, Sugar Bowl -- privately owned by a consortium composed of some of the San
Francisco Bay Area's wealthiest residents, including House Speaker Nancy Pelosi -invests about $25,000 to $30,000 a year in wind farms and other renewable energy
sources, says Greg Murtha, the resort's marketing director. The amount is calculated by
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 31
multiplying the amount of energy Sugar Bowl uses by the cost per kilowatt hour of the
renewable power it's investing in.
Even though that cost isn't huge, it can be significant in a competitive industry with lean
profit margins. "It's a tough business, but people up here are willing to do the right thing,"
says Jim Harleen, a retired art dealer and local resident, whose family is a part-owner of
Sugar Bowl.
Soon, other Tahoe resorts, including Northstar-at-Tahoe and Alpine Meadows, followed
suit. Across the country, 55 ski resorts are now buying renewable energy under a program
called "Keep Winter Cool," which was started in 2003 by the National Ski Areas
Association and the Natural Resources Defense Council. Of those, 26 -- including Sugar
Bowl, Aspen Skiing Co.'s four resorts in Colorado and Sugarloaf/USA Ski Resort in
Maine -- have offset all of their power consumption by investing in green generating
projects and making some of their own renewable electricity, such as using wind power
to run a chair lift. Industry officials estimate that this has kept out of the air the equivalent
of pollution from 168,000 round-trip jet flights between New York and San Francisco.
Some U.S. ski resorts have been blessed with abundant snowfall this season, especially in
states such as Colorado. And spurred by snowboarding and a renewed interest in extreme
skiing, numbers remain high, with a record 59 million people skiing or snowboarding in
the U.S. last season, according to industry estimates.
But many scientists say the conditions that some resorts are seeing are consistent with the
effects of global warming. Over all, 10 of the warmest winters globally since 1880 have
occurred since 1995, according to the National Oceanic and Atmospheric Administration.
No one knows for sure whether these milder winters are from climate change or natural
weather cycles.
Resorts in California and the Northeast saw slim snowpacks in their busy holiday period
this winter. Lake Tahoe's Alpine Meadows received about 200 inches of snowfall this
year, compared with an annual average of 365 inches. At Sugar Bowl, which averages
500 inches a year, the resort has gotten a little over 200 inches. Sugar Bowl officials say
the paucity of snow has contributed to an expected 10% drop to 180,000 paid visitors this
season, which was also a down year.
Like most resorts around Lake Tahoe, Sugar Bowl augments its base with artificial snow,
but it's impractical to cover many of the resort's 90 trails. Snowmaking is expensive and
the slopes here are rocky and need to be covered with three to four feet to be skied safely.
What's more, snowmaking uses power and water. And, of course, the temperature has to
be below freezing -- a problem if the world really is warming.
On the slopes, everyone has an opinion, even if their reasoning is less than scientific.
"It's definitely global warming," says J.J. Engel, a 17-year-old resident of the nearby
town of Truckee, who was skiing with friends amid 65° temperatures at Sugar Bowl last
week. "I mean, you can see dirt over there," he added, pointing to protruding soil near
one ski run. "We used to never see dirt there this time of year."
But some skiers wonder what all the fuss is about. Debarking from a chairlift on a
mountain atop Alpine Meadows last week, 56-year-old Phillip Layton scoffed at the
notion that global warming would be a problem for skiing. "I'm not going to buy into all
the left-wing, political, Al Gore hysteria," says Mr. Layton, a pharmaceutical
representative from Houston, before leaning into a steep run.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 31
15. Over all, 10 of the warmest winters globally since 1880 have occurred since ____,
according to the National Oceanic and Atmospheric Administration.
a. 1965
b. 1975
c. 1985
d. 1995 Correct
A New Force in Advertising -- Protest by Email
By CHRISTINA PASSARIELLO in Paris, KEITH JOHNSON in Madrid and
SUZANNE VRANICA in New York
March 22, 2007; Page B1
http://online.wsj.com/article/SB117452531396344892.html
Ads for luxury-goods brands including Dolce & Gabbana and Giorgio Armani are
increasingly under fire in Europe -- from groups as diverse as suburban mothers, Catholic
bishops and factory workers.
The latest target: a Dolce & Gabbana print ad, created by the fashion house, showing a
bare-chested man pinning a glamorously dressed woman to the ground by her wrists as
three other men look on. The ad, which started in February, drew widespread criticism
from consumers in Spain, Italy and the U.S., and the privately held Italian fashion house
decided this month to drop the image.
The ad "trivialized violence against women," says María Jesús Ortiz, director of
communications at the Spanish Labor Ministry's Women's Institute in Spain. "Every ad
has to be read in the context where it runs, and in Spain, gender violence is a huge and
deadly problem." Ms. Ortiz said the organization had received dozens of complaints from
consumers, many by email.
Faced with growing pressure from the Spanish government and the Women's Institute,
Dolce & Gabbana last week withdrew all its ads from Spain. It accompanied the move
with a statement citing the need "to protect the creative freedom which has always been
its signature."
The brouhaha spread to other countries. An Italian textile-workers union called for a
boycott of Dolce & Gabbana because of the ad. The fashion house decided to pull the
offending image, which had run in newspapers and fashion magazines including Esquire,
world-wide, even deleting it from its own Web site.
Susana Martínez Vidal, editor of Elle España, says the explosion of Internet, email and
blogs means, "every complaint gets magnified and gets spread much more quickly. They
can make a lot more noise than before, even if it isn't the prevailing view." She admits the
ad boycott is a blow to the magazine, but hopes it blows over "soon."
Spanish activists have since turned their attention to other fashion targets -- including an
ad that ran in newspaper El País for Armani Junior, the children's label of Italian fashion
house Giorgio Armani, showing two little girls dressed in midriff-baring Armani fashions
and wearing lipstick. A governmental office to defend children's rights said in a statement
that the ad was an incitement to sexual tourism.
"We would never have imagined that one could have interpreted any malice in this
photo," Armani said in a statement, adding that it didn't have plans to run the image again
in Spain.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 31
In the fickle and often prickly world of advertising, protests have long been part of doing
business. Still, the Internet, giving consumers and advocacy groups greater ability to
mobilize, has magnified their impact.
"In the past we didn't know the extent of reaction for weeks but with the Web it's easier
for people and special interest groups to mobilize people and get their voices heard," says
Brad Brinegar, chief executive officer of McKinney+Silver, a unit of Havas. "What might
have taken weeks to hear through the mail can now happen within seconds of an ad
program breaking."
Earlier this week, a campaign for "Captivity," a horror film starring Elisha Cuthbert, was
quickly withdrawn. Ads for the film -- appearing on 1,400 New York City taxis and on
30 billboards in the Los Angeles area -- offended so many people that the producer said
they would be withdrawn after complaints were lodged via e-mail messages and
telephone calls.
Following complaints from consumers and suicide-prevention groups -- many of them by
email -- General Motors Corp. re-edited a U.S. ad that came out during the Super Bowl,
showing a robot from one of its factories contemplating suicide after it makes a mistake
on the production line. The suicide scenes were cut.
Advertising executives say that in many cases, advocacy groups or interest groups have
become experts at using the Web to mobilize consumers or group members into action as
a way to promote their issues or point of view.
"Various interest groups that have a platform they want to promote are always looking
for spring boards to make their promotions, so when a brand does something that feeds
the issue they are trying to promote, they will use the ad as a spring board to get their
cause publicity," Mr. Brinegar adds.
Most fashion houses don't use ad agencies, instead producing their campaigns in-house -a policy that takes away some checks and balances of the advertising world and leads to
them being more provocative, ad executives say.
Britain's Advertising Standards Authority logged 26,236 complaints overall in 2005, up
16% from the previous year, in part, it says, because of the ease of lodging an objection
via the Internet. Two groups that regularly weigh in with the ASA, the authority says, are
Mothers Against Murder and Aggression and mediamarch, a conservative organization.
Last fall, the ASA received 166 complaints about a Dolce & Gabbana ad created around a
Napoleonic theme. The ads, which drew on empire-waist dresses and capes unveiled on
the fashion house's catwalk, featured two dramatic images of foppish men threatening
each other with daggers.
At the time, Dolce & Gabbana defended the ads, saying they were inspired by paintings
by 19th-century French artists such as Eugène Delacroix and hadn't drawn criticism in
other European countries, the U.S. or Asia.
Nonetheless, the ASA concluded after an official inquiry that Dolce & Gabbana had
"breached...social responsibility" because the ads could be interpreted as "condoning and
glorifying knife-related violence." The ASA says it doesn't ban ads, but puts pressure on
newspapers and magazines to not accept them. (By the time the report was out, the
campaign was ending.)
A print ad by French designers Marithé et François Girbaud, depicting Leonardo da
Vinci's painting "The Last Supper" reinterpreted with women, was banned by a French
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 31
court when it came out two years ago, after the Conference of Bishops of France called it
blasphemous. That ruling was recently overturned by France's highest court.
Of course, controversial images in fashion advertising are nothing new. Ads in the 1980s
and '90s by Italian fashion house Benetton, for example, included images of an AIDS
victim and a nun kissing a priest that stirred outrage and debate. But advertising
executives say fashion's provocative messages are gaining more attention as advertising
for other products has become more politically correct. At the same time, fashion ads are
pushing into ever racier territory.
"Fashion advertising conveys its message through images of attraction," says Hervé
Brossard, president of France's Association des Agences Conseils en Communication, an
industry group, and vice-chairman of DDB Worldwide, a unit of Omnicom Group Inc.
"But when it's sick or perceived badly, people now have the means to react."
16. In the fickle and often prickly world of advertising, _____ have long been part of
doing business.
a. protests Correct
b. overweight models
c. underpaid models
d. pampered models
A Few Sales Tricks Can Launch a Book To Top of Online Lists
March 23, 2007; Page B1
http://online.wsj.com/article/SB117459402867645874.html
For $10,000 to $15,000, you, too, can be a best-selling author.
New York public-relations firm Ruder Finn says it can propel unknown titles to the top of
rankings on Amazon.com and Barnes & Noble with a mass email called the Best-Seller
Blast. Popular authors such as Mark Victor Hansen of the "Chicken Soup for the Soul"
series recommend your book in messages to fans, and offer a deal: Buy the book today
and you'll get downloadable "bonuses" supposedly valued at thousands of dollars -- such
as recordings of motivational speeches and contact information for important people.
Orchestrating even 1,000 book purchases in a single day can drive a title from obscurity
to the top of the charts.
Rick Frishman, who oversees the campaigns for Ruder Finn's Planned Television Arts,
also is a client. His 2004 book "Networking Magic" went from a sales rank of 896,000 on
barnesandnoble.com the morning it was published to No. 1 at 4 p.m. He has a poster in
his office showing the sales chart he briefly topped. "I'm a nobody, but I was somebody
for a day," he says.
A decade after they were introduced, online book-sales rankings remain an object of
obsession for authors. Because they're unrestrained by shelf space, the Web stores give
millions of books a ranking. These are updated hourly and displayed on the book's sales
page and on best-seller lists. This "democratic" potential is celebrated by compulsive
watchers of the numbers. Cindy Ratzlaff, vice president of brand marketing for Rodale
Books, has noticed that Amazon seems to refresh its numbers 35 minutes after every hour
and she makes it a point to check the page soon after, every hour during the workday.
"It's really pathetic and extremely addictive -- and we all do it," she says.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 31
But if this is the democracy of bookselling, vote buying is an option. Ruder Finn's bestseller program is one of several online aimed at new authors; entrepreneurial sorts do it
themselves. Suzanne Falter-Barns sent me the eight-page journal of her own personal
Amazon Day, as she calls the time an email campaign sent her book to No. 8 on the list.
("Life is good, I think, as I watch the sun rise over Lake Champlain," she wrote of
learning she was an online best-seller.)
Amazon says little about how it calculates its rankings, though scholars and publishers
have attempted to reverse-engineer the system to determine how a sales ranking translates
into actual sales. One major quirk: Used and new book sales are counted equally. So an
author anxious about his sales ranking could put a few dozen of his books for sale for a
penny apiece and ask a friend to buy them all.
This all adds up to numbers that are ubiquitous, closely watched -- and of dubious value.
The targeted marketing campaigns contribute volatility to sales-ranking numbers that are
inherently unstable. Outside the top 1% or so of books, few sell multiple copies a day, so
little separates books with rankings tens of thousands, or even hundreds of thousands,
apart. Morris Rosenthal, an author and publisher based in Springfield, Mass., who has
studied the Amazon charts, says a day without a sale can send a book ranked 10,000 to as
low as 50,000.
On Charteo.us, a free Web site that tracks the ebb and flow of Amazon rankings daily,
dozens of the 1,500 books currently tracked rise or fall by 75% or more each day. Online
sales can be throttled quickly by national media mentions. Author appearances on
"Oprah," "Larry King Live" and "60 Minutes" accounted for some of the most dramatic
increases measured by Charteo.us in the past couple of months, according to the
publishers.
"We think of Amazon as the instant-gratification indicator for us," says Ms. Ratzlaff.
Publishers also say they look to Amazon rankings as an indicator of future sales potential
for authors -- along with rankings from Nielsen BookScan, the New York Times, The
Wall Street Journal and others that cut across retailers. Publishers can chart books'
rankings on sites such as Charteo.us and TitleZ. The Planning Shop, a publisher that
developed TitleZ to track its own books, plans to start charging for the service later this
year.
Hence, sales pitches such as those from Mr. Frishman to new authors eager to become
best-sellers, if only for an hour and only on a single site. "Everyone wants to call
themselves a best-seller if they can," he says, even if it means doing so by luring wouldbe buyers with bonuses.
17. A decade after they were introduced, ______ remain an object of obsession for
authors.
a. New York Times book-sales rankings
b. Wall Street Journal book-sales rankings
c. Los Angeles Times book-sales rankings
d. online book-sales rankings Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 31
Questions 18 – 23 from Money & Investing
Learning to Be a Landlord
By JEFF D. OPDYKE
March 17, 2007; Page B1
http://online.wsj.com/article/SB117408873917340108.html
With home prices retreating from fever-pitch highs, a new breed of real-estate investor is
eclipsing the speculator: the landlord.
More Americans are hanging out "for rent" signs. Some were forced into the business
after buying investment houses or condos at top dollar during boom times that they now
can't sell. But many are discovering their inner landlord on purpose, often buying
properties well below prices from a year or two ago.
It can be lucrative. For the first time in several years, rents are rising in many places, in
part because the subprime-lending crisis is making it harder for people with marginal
credit records to secure mortgages, increasing rental demand.
Shantay Wakefield and Gerald Taggart, a couple in Fairview Heights, Ill., have bought
two rental properties in the past two years. The two 30-year-olds figured they would be
income-generating investments, though they didn't foresee the pitfalls.
"You find out quickly that this is not easy," says Ms. Wakefield, a high-school teacher.
They expected repairs to one of their rentals to take four weeks; they took seven months,
and costs piled up.
Nevertheless, she says, "The sense of accomplishment, that's what we've enjoyed."
At the National Association of Residential Property Managers in Virginia Beach, Va.,
membership in the past year has increased by more than 20%. In Nashville, Tenn.,
Wilson Group Real Estate's property-management-services arm has nearly doubled to
250 clients in the past year, thanks to the landlord boom.
Getting into real estate remains relatively easy. Despite the difficulties in the loan market
for higher-risk, subprime borrowers, there are lots of financing options available for
investment real estate, assuming your credit is good.
But that doesn't mean it is a good idea for you. Think of it like operating a small business,
even if it is just a single condo. Tricky tax laws, obscure local ordinances and other
imponderables can turn what looked like a no-brainer rental into a money pit.
Keep in mind that "you're buying an income stream, not a pretty house," says Paul
Howard of the Florida Landlord Network, which provides services to landlords in the
Sunshine State. A house will attract only so much rent. If you overpay, you can raise the
rent only so much before your property starts sitting vacant.
Mr. Howard says he recently took a call from an engineer in Maryland who had just
bought a waterfront Florida home and was looking for help finding a renter. "I ran the
numbers," and "even if this guy got top dollar for rent, he was still underwater by $800 a
month," Mr. Howard says. "He overpaid, and now he's got problems."
The first step is to assemble a small team of pros, especially a real-estate agent
knowledgeable about local rental rates and other issues that will impact your bottom line.
Consider retaining a local property manager who can help you navigate ordinances, set a
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 31
fair rent, find tenants, arrange lawn services and handle worst-case scenarios, like
evictions.
The downside: Managers tend to charge a month's rent upfront and about 10% of the rent
thereafter.
Tenant Complaints
Ms. Wakefield and Mr. Taggart manage such duties themselves. One of their two
properties has been smooth sailing. The other's tenant is "calling every day with a new
complaint," Ms. Wakefield says. "Right now she wants us to put in a water line because
she bought a new refrigerator with a water dispenser."
18. For the first time in several years, _____ are rising in many places, in part because the
subprime lending crisis.
a. condo sales
b. land prices
c. muti family housing sales
d. rents Correct
Believing In House of Cards Haunts Investors
By JUSTIN LAHART
March 19, 2007; Page C1
http://online.wsj.com/article/SB117426469866641020.html
Investors who trusted in the magical powers of the stock market to forecast a recovery in
housing have been finding out what can come of trusting in fairy tales.
Less than two months ago, the idea that the housing market was at a turning point, and
that shares of home builders were a screaming buy, was firmly established. In early
February, the Dow Jones Wilshire U.S. Home Construction Index of home-builder stocks
was 39% above its July 2006 low point. Since then, it has tumbled 21%.
One reason for the drop was that subprime mortgages turned out to be a much bigger
problem than many investors thought. There also was a spate of economic reports that
made it clear a recovery in the housing market wasn't yet at hand.
How did investors come to believe housing was getting better in the first place? One
possibility is that the rebound in home-builder stocks tempted them into seeing signs of
improvement that weren't really there. While there is a certain allure to the idea that
stocks, which move on the real-money decisions of thousands of investors, are better at
predicting the future than any forecaster, this sort of thinking can be dangerously circular:
Home-builder stocks are going up, therefore housing is getting better and therefore it is
time to buy home-builder stocks.
It wasn't just the stocks that got it wrong. Former Federal Reserve Chairman Alan
Greenspan, who last week warned that the trouble with subprime mortgages could spread
to other areas of the economy, said in October that he saw signs that the worst was over
for the housing industry.
Home builders were talking about how they expected the spring selling season, which
actually starts before winter is over, to take care of a glut of excess homes, which would
lead to a recovery in prices that would lure buyers back into the market. Now they are
saying the season has been lousy.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 31
But not everyone got caught up in the idea that housing was on the road to Wellville. Ivy
Zelman, a Credit Suisse analyst who became bearish on home-building stocks as they
approached their top in July 2005, has continued to document how far-reaching the
sector's woes extend. Her latest report, published last week, details how the mortgage
mess could affect the builders. She estimates that 20% fewer new homes will be sold in
2007 than last year.
Northern Trust economist Paul Kasriel says he saw no reason to revise his negative view
on housing this fall. He thought the speculation on the way up had led to a glut of homes
on the market that couldn't be easily worked through, and he suspected there were lurking
problems in the lax lending standards that helped to fuel the latter stages of the boom.
Finally, with the help of bearish housing blogs like Calculated Risk, Mr. Kasriel kept tabs
on a lot of the local news stories on housing. Even allowing for the fact that there was a
negative slant to which items were selected, he says, "there were so many bad stories out
there that it suggested further problems."
19. In early February, the Dow Jones Wilshire US Home Construction Index of home
builder stocks was 39% above its July 2006 low point. Since then, it has tumbled _____.
a. 2%
b. 11%
c. 21% Correct
d. 31%
Cotton May Fight Back
By PATRICK BARTA
March 20, 2007; Page C1
http://online.wsj.com/article/SB117435594910242287.html
Unlike corn, sugar and some other crops, the famed fiber has been largely overlooked as
investors drive up the prices of agricultural commodities across the globe.
Cotton isn't widely used to make such alternative energy as ethanol, so there has been no
recent surge in fuel-related demand as there has been with other farm products. There
also are millions of bales of excess supply left over from bumper harvests in recent years,
keeping a lid on prices.
Some say that makes King Cotton just the kind of smart, bargain investment that is
becoming increasingly rare as the world's commodities boom powers through its fifth
year. That boom has pushed up the prices of a wide range of commodities and raw
materials. As some of these products slip from their recent highs, many investors believe
there won't be significant new increases anytime soon, prompting hedge funds and others
to scour for new bets.
Cotton has a lot in its favor, they say. China's growth and a booming textile trade are
fueling demand, with world-wide consumption rising about 5% a year -- more than three
times the annual average rate of 1995 to 2004.
More important of late, the soaring need for biofuels is pulling acreage away from crops
that aren't as widely used to make them, including cotton. In the future, farmers will have
to devote even more land to corn, sugar and other energy-yielding crops to meet new
goals for biofuel production in the U.S. and Europe.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 31
This month, the Agriculture Department predicted U.S. farmers would cut cotton acreage
this year to the lowest level in 17 years. The National Cotton Council of America recently
added that cotton acreage could fall nearly 14% in 2007 from last year to about 13
million acres.
Such a shift -- by the world's biggest cotton-exporting nation by far -- is significant,
especially if the trend continues, says Ricardo Leiman, chief operating officer of Noble
Group Ltd., a Hong Kong commodity supply chain manager. "What you have to figure
out is: Who will supply all that cotton in the long term?"
One answer, of course, is other countries, especially developing nations such as India.
India has significantly boosted yields in recent years, in part by introducing better seed
varieties.
Still, India and other producers may not have enough land and water to sustain a
prolonged boom. Cotton is among the most water-intensive crops in the world.
China, by far the world's biggest consumer, faces a similar predicament. "The Chinese
have the same problem with cotton as with all crops: They're [already] using every acre
that they're not devoting to a construction project," says Dan Basse, president of
AgResource Co., a Chicago research firm.
China is expanding production in its less-developed Western provinces, but water
supplies there already are under tremendous strain, leading to widespread desertification.
Partly as a result, Mr. Basse says he could see cotton prices shoot up as much as 45% in
the next two years. The price of the front-month cotton futures contract closed at 53.71
cents per pound yesterday on the New York Board of Trade.
Skeptics note that it could be years before the world works through the large stockpiles
held in the U.S. and elsewhere.
Government support programs in the U.S. also complicate the picture, by potentially
encouraging some farmers to keep growing cotton even if prices aren't high by historical
standards.
Developing nations could wind up boosting yields more than some people expect and run
the danger of overproducing.
Still, cotton has plenty of high-profile fans, among them, longtime commodity bull Jim
Rogers, who says cotton prices could more than double in the next several years, in part
because some of the alternatives -- synthetic fibers made from petroleum products -- are
becoming more expensive, too.
20. The National Cotton Council of America recently added that cotton acreage could fall
nearly ____ in 2007 from last year to about 13 million acres.
a.10%
b.14% Correct
c.18%
d. 22%
Tall Order for Starbucks
By JANET ADAMY
March 21, 2007; Page C1
http://online.wsj.com/article/SB117444307954043630.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 31
Like a bad cup of coffee, Starbucks Corp.'s stock may have left a bitter taste in some
investors' mouths. But the coffee chain's shares, off about 20% since their 52-week high
in mid-November amid a drumbeat of concerns over weaker sales and a leaked in-house
missive, may have more perk in them than some investors realize.
At Starbucks's annual meeting, scheduled for today in Seattle, executives plan to reaffirm
the company's growth plans and shed light on their vision for the future. That usually
wouldn't mean much to the company's investors, who have been accustomed to rapid
growth and rising shares. But this year is different.
Ever since a frank memo questioning Starbucks's business model from Chairman Howard
Schultz surfaced last month, investors have been worried that Starbucks's rapid growth
could be in danger of cooling. In the memo, Mr. Schultz, the resident visionary, warned
Starbucks executives that the push for efficiency may be diluting the brand and has made
the company more vulnerable to encroachment from fast-food chains and other
competitors. That stoked fears that Starbucks's biggest asset -- the strength of its brand -may be in danger.
"People want to be reassured that there is not a brand problem," says UBS analyst David
Palmer.
Part of what has always driven Starbucks's stock is the magic surrounding its brand, led
by Mr. Shultz's cheerleading, and investors are sure to get a dose of that at today's
meeting. Last year, Mr. Schultz and Chief Executive Jim Donald mixed homespun
anecdotes with financial charts showing the company's rapid growth before crooner Tony
Bennett appeared on stage for a surprise performance. "To the degree that people need to
see confidence from Howard," Mr. Palmer said, "we believe that they will see it."
Over the past two quarters, the company's typically breakneck sales growth has softened
slightly. Starbucks's costs have risen in part because the company gave store workers a
wage increase, and the company's heavy investments to open in new markets overseas
have yet to yield rewards for shareholders. A further question is that posed by growing
coffee competitors McDonald's Corp. and Dunkin' Brands Inc.'s Dunkin' Donuts chain.
But analysts say investors may be overly focused on those negatives. They point out that
when the stock slides, Starbucks often buys back chunks of shares, which can help boost
the price by reducing the number of shares outstanding. Some analysts expect Starbucks's
profit-margin pressures will ease in the second half of the year, and that new initiatives
such as hot breakfast sandwiches will drive up sales at stores open at least a year -- socalled same-store sales -- when Starbucks reports fiscal second-quarter results in May.
"We're proud of what we've accomplished thus far and we intend to continue to deliver
strong financial performance," Mr. Donald said through a spokeswoman
Even when Starbucks's stock declines, few investors would call it cheap. Since going
public in 1992, Starbucks has become one of the best-performing big-company stocks
with strong growth potential thanks to the company's consistent ability to deliver samestore sales growth beyond its own targets and create an expanding market for lattes and
cappuccinos. The stock currently trades at about 35 times expected per-share earnings for
the current fiscal year ending Sept. 30, according to Thomson Financial.
While that may seem pricey, compared to McDonald's with a P/E of 17, several analysts
who follow Starbucks call it a bargain.
Goldman Sachs analyst Steven T. Kron last week added Starbucks to his "conviction buy
list" and told investors that "valuation is cheap at new lows by historical standards."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 31
UBS's Mr. Palmer also says it is a good time for investors to buy the stock given its
valuation. Messrs. Kron and Palmer don't own shares of Starbucks, though their firms
have done banking work for the coffee chain.
Mr. Kron says that given Starbucks's pattern of share buybacks, he expects the company
to report a significant reduction in share count when it releases its next quarterly earnings
in May and that investors should get in before the stock gets expensive. The last time
shares were down at these levels, in the fiscal fourth quarter that ended Oct. 1, the
company repurchased 14.6 million shares for $474 million. Starbucks shares added 34
cents to $31.38 each in 4 p.m. composite trading on the Nasdaq Stock Market yesterday.
It may be difficult for Starbucks to post high same-store sales growth during the current
quarter since it is up against a 9% comparison from last year. But analysts point out that
there are new drivers that will help boost sales during the quarter, like the addition of hot
breakfast sandwiches and more gift-card redemptions stemming from the holidays. A
price increase that took effect last fall also should fatten the sales number.
People close to the company say they're surprised Mr. Shultz's memo garnered so much
attention and alarm. They say Mr. Schultz, who built the chain into the coffee empire that
it is today, often sends impassioned messages to management to keep them on their toes,
and that this one shouldn't indicate an unusual level of concern.
One big wild card is whether McDonald's addition of espresso drinks at some stores will
eat into Starbucks's sales. Mr. Palmer believes it could do the opposite, given that the
introduction of lattes at chains like Dunkin' Donuts increased awareness of the drinks.
Analysts have said Dunkin' Donuts's introduction of espresso drinks didn't eat into
Starbucks's sales. In response to any possible competitive threat, Starbucks argues that
the ambiance and personalized service in its cafes sets it apart from competitors.
21. Ever since a frank memo questioning Starbucks's ________ from Chairman Howard
Schultz surfaced last month, investors have been worried.
a. supply chain
b. new flavors
c. business ethics
d. business model Correct
Is Deciphering Jobs Report Worth the Work?
By JUSTIN LAHART
March 22, 2007; Page C1
http://online.wsj.com/article/SB117452687906844931.html
Among economic reports, the monthly tally of jobs created is Wall Street's main event,
with billions of dollars riding on it every time it comes around.
For investors interested in knowing what's happening in the job market, rather than just
plunking money down on the Street's roulette table, watching the far-less-closely
followed initial jobless claims report that comes out every Thursday might be a better bet.
Claims measure the number of workers filing for state unemployment benefits, giving a
real-time picture of layoff activity. Since claims come out every week they're considered
"high-frequency data" -- a nearly derogatory term among economists, because the more
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 31
frequently an economic report comes out, the more misleading statistical noise it tends to
invite.
When it comes to noise, claims may need to take a back seat to the monthly jobs report.
Economists spent much of last year wondering how consumer spending could hold up so
well when the monthly jobs numbers looked so lackluster. They got their answer last
month, when the Labor Department said the economy created 400,000, or about 20%,
more jobs in 2006 than estimated.
The Labor Department revision showed, according to Lehman Brothers economist Ethan
Harris, that job-forecasting models based on weekly claims reports -- which had been
pointing to higher numbers -- had been doing a good job. "If you look back, it's the
claims numbers that were right all along," he says. He doesn't advocate not paying
attention to the report, but he thinks investors are foolish to put so much stock in the
numbers.
An average of 330,000 jobless claims have been filed each week in the past month,
suggesting that despite the trouble in housing, the job market is in good shape; anything
over 400,000 is considered high. Unless jobless claims hook higher, it may be too early to
call it quits on the economy.
Merger Could Be Next Chapter for Borders, Barnes & Noble
Deal rumors have swirled around Barnes & Noble and Borders Group ever since activist
hedge fund Pershing Square Capital Management took large stakes in the two booksellers
late last year. A merger is one of the more daring notions afloat -- and perhaps the most
likely outcome.
Both companies report earnings today, and Borders is expected to announce restructuring
plans that could ignite more deal chatter. Hurt by competition from discounters such as
Wal-Mart Stores and online retailers like Amazon.com, the companies have struggled to
increase profits in one of their biggest businesses: best-selling hardcover books.
Barnes & Noble slashed fiscal-year earnings targets and said "Harry Potter and the
Deathly Hallows," set for release in July, will produce little profit, because the company
will have to offer it at a steep discount to compete with rivals.
Goldman Sachs analysts are skeptical about a buyout of either company, due in part to
their soft earnings growth. Goldman thinks a merger makes more sense. While a
combination will face antitrust scrutiny, that didn't stop appliance rivals Whirlpool and
Maytag from linking up last year. So there's precedent to suggest that a Barnes and
Borders merger could win approval -- a good deal for buyers of bookseller shares.
Perhaps not so great for book buyers.
22. The initial jobless claims report that comes out every Thursday measures the number
of workers filing for state unemployment benefits, giving a real-time picture of ____.
a. economic growth
b. company expansion
c. hiring activity
d. layoff activity Correct
Accounting's Crisis Killer
By DAVID REILLY
March 23, 2007; Page C1
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 31
http://online.wsj.com/article/SB117461651648146411.html
When Dennis Nally took over PricewaterhouseCoopers LLP in the U.S. in 2002, the
accounting world was reeling from a series of corporate scandals and the demise of
Arthur Andersen LLP. The remaining Big Four accounting firms soon faced new rules, a
new regulator and an investing public that had lost some confidence in auditors.
Today, the sense of crisis has diminished. Market-shaking corporate meltdowns have
been on the wane. The Big Four -- PwC, Deloitte & Touche LLP, Ernst & Young LLP
and KPMG LLP -- have adjusted to their new, regulated environment. And they have
actually seen business boom thanks to work heaped on them by new rules meant to clean
up a mess that some critics say they helped create.
Mr. Nally, 54 years old, is in his second term as chairman of PwC, the biggest U.S.
accounting firm by revenue generated from auditing companies.
The son of a Federal Bureau of Investigation agent, Mr. Nally was born in Washington,
D.C., and went to college at Western Michigan University in Kalamazoo, deciding on a
career in accounting during his senior year. An avid boater, Mr. Nally keeps a 44-foot
powerboat in Florida, which he calls his biggest extravagance.
With the firms today on surer footing, Mr. Nally now finds himself dealing with
numerous nettlesome long-term issues, which he discussed during an interview in his
firm's New York headquarters. Fearing potentially catastrophic litigation, he argued that
firms should get special protection from lawsuits. Mr. Nally also said the public needs to
better understand auditors' responsibility when it comes to catching fraud. And he
expressed willingness to consider publishing accounting firms' financial results,
something these private partnerships don't now do.
In a nod to this possibly increased transparency, Mr. Nally disclosed details about PwC's
profits. No other Big Four firm has ever publicly disclosed such figures; in fact, the firms
until recently even balked at disclosing revenue figures for their U.S. arms.
23. When Dennis Nally took over PricewaterhouseCoopers LLP in the US in 2002, the
accounting world was reeling from a series of corporate scandals and the demise of ____.
a. Arthur Andersen LLP Correct
b. Deloitte & Touche LLP
c. Ernst & Young LLP
d. KPMG LLP
Questions 24 – 26 from Personal Journal, Section D
What Airlines Do When You Complain
By SCOTT MCCARTNEY
March 20, 2007; Page D1
http://online.wsj.com/article/SB117434940900142112.html
Mike Wallace of San Francisco was so mad about recent travel experiences and a lack of
response to his complaints that he searched the Internet for email addresses at UAL
Corp.'s United Airlines and fired off an angry letter to more than 60 company officials.
No response.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 26 of 31
A second email to all the addresses he could find that used @united.com and @ual.com
did get some attention. In all, after corresponding with United a dozen different times
about being stranded at airport hotels on two different trips because of United flight
problems, Mr. Wallace and his wife got some measure of satisfaction: business-class
upgrades for some future trips and a $400 voucher.
"It's a series of systems, policies and nameless, faceless people in place to wear you out.
Most people just give up, but I pursued and pursued and pursued before I finally got
something," said Mr. Wallace, an environmental consultant and elite-level United
customer.
A United spokeswoman says the airline's goal is to "satisfy our customers the first time
they call, write or email us."
After the aggravation of mechanical breakdowns, computer meltdowns, schedule
changes, lost luggage, missed connections and long telephone or airport waits, many
customers fire off angry complaints to airlines -- only to get less-than-satisfying
responses.
But there are ways to get more redress, airlines and travel experts say. (This week, The
Middle Seat focuses on how airlines handle complaints; next week, the column will look
at the Department of Transportation's role in addressing fliers' grievances.)
A common mistake: Telling an airline you'll never fly them again. If so, then the airline
no longer has an incentive to try to win back the customer, some airline officials say.
Another tip: Always tell the airline what you want in compensation, and be realistic. A
one-hour delay won't get you anything, but if the airline canceled your flight because of a
mechanical problem, forced you to spend the night in a cheap motel and miss your
important morning meeting, then lost your bag the next day, you can ask for something
meaningful, like a free ticket.
"Sorry doesn't cost the airline anything, and there's no reason for them to give you
anything if you don't ask," says Joe Brancatelli, publisher of business-travel site
JoeSentMe.com.
Federal rules require airlines to reimburse customers for lost luggage and compensate
them for bumping them from overbooked flights. After that, as with most any business,
consumers are on their own seeking redress for bad service.
There are differences in how airlines handle customer complaints. United and Continental
Airlines, for example, still have phone lines to field complaints. More than 200
Continental employees are trained to resolve problems and compensate passengers on the
spot, a spokeswoman says. Most other carriers don't take complaints by telephone -- mail,
fax or email only. Once airlines respond to a written complaint, you typically can't talk to
the customer service agent to appeal, either.
In general, most airlines pay more attention to complaints from top-tier frequent fliers,
especially customers who spend lots of money each year with the airline. Airlines track
customers not by miles flown but by dollars spent, and high-dollar customers get more
generous compensation when they complain.
But airlines say all complaints do get heard, many get investigated and all get a response
of some sort, even if it's only a formulaic apology. Most carriers say they track
complaints and compile monthly summary reports for executives, and many say they
forward the complaint to the employee involved and supervisors. The most efficient way
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 27 of 31
for them to field complaints is by email -- letters get scanned electronically into computer
systems, and airlines generally respond quicker to emails than to mailed letters.
Automation is changing the airline complaint business. Many carriers now have systems
that flag flights with lengthy airline-caused delays or nightmarish conditions, then
generate letters of apology to passengers, some with offers of additional frequent-flier
miles or vouchers offering discounts on future trips.
24. Tips for getting the airlines to acknowledge your complaints include
a. Always tell the airline what you want in compensation, and be realistic Correct
b. Always threaten never to fly the airline again
c. It is best to relay your complaint via telephone so they can hear the anger in your voice
d. All of the above
Nickel-and-Diming Your Way To Riches, if That's Your Thing
By JONATHAN CLEMENTS
March 21, 2007; Page D1
http://online.wsj.com/article/SB117443009958243307.html
I thought I was fairly deft at handling money. But that was before I met the maestros of
money management.
We're talking here about the legions of Americans who manipulate their monthly cash
flow like chess masters, along the way snagging frequent-flier miles, cash rewards and
interest income.
Behind all this lies that unquenchable human desire to beat the system, score a bargain
and turn a buck. In my book, those are admirable qualities. But you've got to wonder: Is it
worth it?
Reaping rewards. To make it as a money maestro, you need the right combination of
bank accounts and credit cards -- and a certain financial fanaticism.
Consider Dan Goldzband, a cost accountant in San Diego. He has his paycheck deposited
directly into a high-yield savings account, where the money sits until he transfers it to his
checking account to pay bills. His reward: $35 to $85 in interest each month.
"My checking-account balance rarely exceeds $100," Mr. Goldzband says. "If it does for
more than a couple of days, I am doing something wrong. Of course, only a compulsive
like me could make this work. But the general idea, less rigorously applied, would still
work for many people."
Don't have much money in your savings account? No problem. Maestros will borrow
from credit cards with 0% introductory rates and then use the money to earn a little
interest, often stashing the cash at EmigrantDirect, HSBC Direct or one of the other
banks with high-yield online savings accounts.
"One year, I took $62,000 in cash advances on four cards with 0% rates and put it in a
money-market account," chortles Scott Bilker, founder of DebtSmart.com, who has 80
credit cards to his name. "I made $1,800 in interest."
When the maestros aren't gaming those 0% offers, they're hunting for the credit cards
with the best rewards. Thanks to this strategy, Mr. Bilker says he hasn't paid to take his
family to the movies for two years. He's also got $500 in convenience-store gift cards,
and he garnered a $1,700 discount by charging $17,000 in kitchen remodeling expenses.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 28 of 31
For many cardholders, the prize is frequent-flier miles. Bob Smith, a retiree in rural
Michigan, has 30 credit cards. He charges everything, from groceries to utility bills, to
whichever card is currently paying the highest reward. He figures he and his wife have
collected more than 100,000 frequent-flier miles over the past year.
"We've been to Finland," Mr. Smith says. "We've been to Lake Tahoe. And we've got
enough points so we can go to Europe again."
Going easy. Add it all up and the savings can clearly be significant. But there are also
risks involved. Bounce a check or miss a credit-card payment, and you could get
whacked with hefty fees and a black mark on your credit report.
Sound too risky -- and too much like hard work? Forget shuffling back and forth between
your checking account, your savings account and the latest, greatest credit-card offer.
Instead, go for the easy money.
Pile your expenses onto a good rewards card and be sure to pay off the balance every
month. Let's say you charge $1,000 a month to a credit card that earns frequent-flier
miles. That should give you enough points every two years to get a domestic round-trip
ticket worth perhaps $400 -- and maybe two or three tickets if the card pays double miles
and gives you a sign-up bonus.
Meanwhile, if your checking account is on the plump side, keep enough there to avoid
triggering fees and move the rest into a high-yield savings account or a money-market
fund. If you shift $5,000 into an account paying 5%, you will pick up $250 in interest
over the next 12 months.
Most important, focus first on your portfolio rather than your monthly cash flow.
Suppose you revamp your $300,000 mutual-fund portfolio, cutting your annual fund
expenses by half a percentage point. That would save you $1,500 a year -- without the
ongoing hassles that come with juggling credit cards and bank accounts.
25. “Maestros of money management” manipulate their monthly cash flow like chess
masters. Some of their moves include:
a. charging everything, from groceries to utility bills, to whichever card is currently
paying the highest reward
b. paycheck deposited directly into a high-yield savings account
c. borrow from credit cards with 0% introductory rates and then use the money to earn a
little interest
d. all of the above Correct
Wall Street Women: Dress Code of Silence
By CHRISTINA BINKLEY
March 22, 2007; Page D1
http://online.wsj.com/article/SB117451773437144714.html
In her corporate bio photo, Karen Firestone's dark blue Akris suit is trim but not snug.
Her dark sweater displays her collar bones but no décolletage. She is the image of a
successful woman in finance, whose clothes venture neither too far nor too near.
Ms. Firestone is one of the chief rainmakers for Aureus Asset Management, an
independent Boston money manager that is responsible for investing $250 million of
other people's cash. So when she steps out in public she knows that what she wears
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 29 of 31
becomes the embodiment of her company. "I feel that I have a responsibility to project
the right image," Ms. Firestone says.
In an age where the rules of professional dressing are constantly shifting, and women
have much more freedom than in decades past, there is still one area where there are
more unspoken rules than ever: finance. While their male counterparts may sport
"business casual" khakis, many women on Wall Street feel they must toe a careful and
conservative line. They often feel obliged to dress up in order to command authority.
These women still struggle not to be defined by traditionally feminine pastimes, like
dressing well.
The result: They don't talk about fashion openly, for fear of appearing frivolous.
Ms. Firestone, for instance, was nervous about discussing her wardrobe because it might
distract attention from her firm's accomplishments. Several women in financial services
flatly declined to discuss what they wear to work. (It's worth noting, though, that all of
the men I approached spoke eagerly about their wardrobes.)
These women have leapt many hurdles, the least of which is getting dressed in the
morning. But the old, scripted uniform of dark suits and high collars isn't quite sufficient
for handling today's wide range of clients, in far-flung locales, on any given day of the
week. It's tricky to adopt a varied wardrobe while still commanding the respect of hedgefund managers and major investors. Just try shopping for a power evening gown.
Casual events often call for chinos and an Izod for men. But women who arrive in golf
clothes are likely to strike the wrong note. This came home for Lisa Tames, a banker at
Citigroup in New York who favors practical looks from Ellen Tracy and Ann Taylor,
when she recently attended a conference. The dress code was casual, but a female
colleague raised a few eyebrows by wearing slim green capri pants. "It wasn't projecting
her ability in her field," recalls Ms. Tames, who says she rarely dresses down.
It isn't clear to me that a guy in khakis looks any more accomplished than a woman in
capri pants. But I understand, as Ms. Tames did, the unspoken rule that a woman in
finance should be more dressed up than the men she works with -- especially when those
men report to her.
Remember the Bows?
Such caution is understandable. After all, the fashion industry failed these women for
decades. Remember the "ladies' ties" of the 1980s: silk neck bows that were a feminine
interpretation of the men's cravat? In the '90s, women in a range of fields were able to
move beyond that, ditching the awkward briefcases, donning pants. Designers like Elie
Tahari began offering suits that actually looked feminine yet professional. And it went
on. First came the red suit, then the pink one, thanks to executive trendsetters like Jill
Barrad, former Mattel chief executive whose career flourished, then floundered, on the
Barbie doll.
By the turn of the millennium, some people began hopefully to speak of "girl power" -but probably none of them worked on Wall Street.
On Wall Street, it's still baby steps, as women like Leslie Rahl can attest. Ms. Rahl,
president of Capital Market Risk Advisors in New York, ran the derivatives business for
Citibank for 10 years in the 1980s; it was she and her colleagues who called in the SEC
when Orange County, Calif., was going under. And she recalls the old standard, mannish
suit-with-a-bow. "Many of my colleagues wore those stupid little women's ties," says Ms.
Rahl, who says she never owned one.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 30 of 31
Careful and Correct
Today, she says, she has carved out a look that is careful and correct, yet still feminine.
"It's very important for women to be women and not little men," she says. But she doesn't
trust the vagaries of designer labels. She relies on the advice of her favorite Upper East
Side boutique, Miriam Rigler, which provides her staple of pant suits for board meetings,
sweaters and jackets for hedge-fund clients.
Even for women who sought safety in high collars and sober suits, the waters are tricky
to navigate. Heather Hay Murren started working at Salomon Brothers as a research
associate in 1989, wearing a dowdy double-breasted Brooks Brothers suit and a white
blouse buttoned to the neck. Her female boss suggested she wear a "lower-cut shirt" so
she wouldn't seem uptight to Salomon's sales force. The lesson drove home how loudly
our wardrobes speak for us.
"I hadn't realized people were looking at my clothes," says Ms. Murren, who is now chief
executive of the Nevada Cancer Institute. "It was like an epiphany."
At Aureus Asset Management, Karen Firestone's aplomb is illustrated, subtly, in a photo
stripped across a page on the firm's Web site (www.aureus-asset.com). In this photo, a
male subordinate has doffed his jacket, projecting an image of getting down to brass
tacks. Ms. Firestone is primly clad in her favorite power suit, a white Luciano Barbera;
she looks put-together, just what is wanted by Aureus's clients, whose returns have
consistently beaten the S&P.
Donning a Jacket
Ms. Firestone, who spent 22 years at Fidelity as a portfolio manager and analyst before
co-founding Aureus two years ago, says she does often wear dresses, but avoids anything
that is frilly or girly. If wearing something sleeveless, she dons a jacket for clients. Her
working closet includes Piazza Sempione, Missoni, Roberto Cavalli, and even Dolce &
Gabbana -- a list of labels that creates an image that she hopes is "hip in a sophisticated
way."
26. The unspoken rule that a woman in the business area of_______ should be more
dressed up than the men she works with -- especially when those men report to her.
a. finance Correct
b. sales
c. marketing
d. human resources
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 31 of 31