The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from Feb 10-16, 2007
Professor Guide with Summaries Spring 2007
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
Is This the Next President of France?
By ALESSANDRA GALLONI
February 10, 2007; Page A1
http://online.wsj.com/article/SB117104893332903974.html
PARIS -- During her campaign to become France's first woman president, Ségolène
Royal has been photographed in a turquoise bikini, appeared in a gay magazine with a
naked man on the cover and suspended a top campaign aide for poking fun at her
longtime companion.
The 53-year-old mother of four has praised China for the efficiency of its justice system
and criticized the most sacred of French cows, the 35-hour workweek. Many senior
members of her Socialist Party aren't sure whether to call Ms. Royal's campaign a bold or
amateurish foray into the hallowed halls of French presidential politics.
Even party boss François Hollande is often irked -- and for him, it's personal as well as
political. He is the father of Ms. Royal's children, though the two never married, and had
his own designs on the French presidency. "I should have been the candidate," he said in
an interview. "But I thought, if Ségolène has more of a chance, I won't stand in her way."
When Ms. Royal last year suggested ordinary citizens should oversee elected officials to
improve French democracy, Mr. Hollande balked at his partner's populist bent. "I told
her, 'Don't go around saying this. Why are you doing it?' ” he recalled in an interview.
The French public had a different reaction, he acknowledged: "They all came to her
defense."
Since she first hinted at a run for the presidency in a French gossip magazine, Paris
Match, in 2005, Ms. Royal's crowd-pleasing proposals and glamorous looks have
transformed her from a back-bench Socialist politician into one of the two front-runners
for France's highest office.
"It's the French people who have given me legitimacy," Ms. Royal said during a recent
car ride between campaign stops. "After the Paris Match article, there was a popular
uprising. The French people wanted me."
Her rapid rise speaks to the growing disconnect in France, and throughout much of
Europe, between an aging generation of leaders and voters who feel their economic and
social concerns are going unheard. By basing her campaign on a simple proposition of
listening to the people, she has tapped into a sense of public disaffection rooted
particularly in France's inability to create jobs. That is prompting voters to reach for
something new and antipolitical -- even if they don't know quite what it is.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 1 of 28
"I can't say how things will change," says Nasser Ledrac, a 23-year-old university student
who was handing out leaflets for Ms. Royal in the poor Paris suburb of Bondy late last
year. "What I like about her is that she doesn't hesitate to shake things up."
A recent series of personal and diplomatic gaffes has left Ms. Royal trailing her main
rival, Interior Minister Nicolas Sarkozy, by several percentage points in the latest polls.
Mr. Sarkozy too is claiming rebel status within his party, despite being a longtime force
within the administration of current President Jacques Chirac. With the first round of
elections on April 22, the race remains tight.
Ms. Royal has come this far by tossing ideology out the window and by selling her
personality instead of her beliefs, a phenomenon rarely seen in continental Europe. An
attractive brunette who favors white skirt-suits made by French designer Paule Ka, Ms.
Royal often has dodged policy debates. Asked during the car ride to discuss her record as
current president of France's Poitou-Charentes region, Ms. Royal snapped: "Haven't you
talked to my chief of staff about that?"
Despite a 25-year career in the Socialist Party, she portrays herself as an outsider.
Promising a break with the past, she beat out elder statesmen known as "elephants" for
the nomination and has all but ditched the party's official platform for her own version -due to be unveiled this Sunday. Her platform, she says, will be based largely on ideas
gathered from some 6,000 town-hall meetings with voters, smaller coffeehouse sessions
dubbed "café Ségolène," and 2.8 million visitors to her campaign Web site.
In speeches she often evokes her own struggle between maternity
and a career, and recently noted how democracy is like amour -the more there is, the more it grows, she said. She recently
decorated the hallway of Socialist Party headquarters in Paris with
2007 red roses. Last summer, she was voted the world's sixthsexiest woman in a poll by the French edition of FHM men's
magazine, behind Angelina Jolie and ahead of Elizabeth Hurley.
So far, Ms. Royal's popular appeal has given her the upper hand
with her party and her partner, Mr. Hollande. Though flummoxed
by some of her remarks, most of the Socialist elite concede she's
their best shot at winning back power after 12 years of Mr.
Chirac's conservative rule. During this time, France has not
resolved key economic problems, such as high unemployment
among young people, the increasing cost of a generous socialwelfare system and tensions in the fast-growing immigrant population.
"I had no idea she would rise so fast," says Mr. Hollande.
1. _____ is campaigning to become France's first woman president.
a. Elizabeth Hurley
b. Francis Hollando
c. Ségolène Royal Correct
d. Angelina Jolie
2. The typical French work week is ____ hours.
a. 30
b. 35 Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 28
c. 38
d. 42
Media Firms Say Google Benefited From Film Piracy
By MATTHEW KARNITSCHNIG and JULIA ANGWIN
February 12, 2007; Page A1
http://online.wsj.com/article/SB117125197567105533.html
A group of major media companies has accused Internet giant Google Inc. of benefiting
from the sale of pirated movies and providing business support to two Web sites
suspected of offering access to illegal film downloads, according to several people
familiar with the matter.
The allegations are an embarrassment for Google, which assured the companies on
Friday it would take measures to prevent a recurrence of the episode.
The flare-up comes amid what have been often-tense negotiations between Google and
the big film and TV studios over the unauthorized use of copyrighted programming by
YouTube, a free video Web site Google bought last year after the site quickly became a
cultural phenomenon.
Media companies regard Internet piracy -- the unauthorized online transfer of movies,
music and other copyrighted content -- as a major threat to their businesses and claim that
it has already cost them billions of dollars. Yet they acknowledge that consumers want
the convenience of downloads, and the companies don't want to miss out on a potential
business opportunity or try to block downloads completely, as the music industry for a
time unsuccessfully sought to do.
Despite months of talks, first with YouTube and then with Google, none of the big TV
and film companies have secured broad licensing agreements for their content. Excerpts
from some TV shows, such as "The Daily Show with Jon Stewart" and "South Park,"
both from Viacom Inc.'s Comedy Central, have been huge draws on YouTube.
Core of the Dispute
At the core of the media companies' dispute with Google, which isn't a defendant in the
piracy case, is their claim that Google deliberately directed traffic to Web sites that were
engaged in fostering piracy. Although people familiar with the situation say the incident
doesn't involve large sums of money, several media executives say it has led them to
question Google's internal controls. Google told the studios on Friday it would implement
new procedures to prevent recurrences.
Meanwhile, talks among several of the media companies about creating a service to rival
YouTube have heated up again, according to company executives involved in the
discussions. In a move that could also step up pressure on YouTube, MySpace, the
social-networking Web site owned by News Corp., is expected to announce today a
video-filtering system it hopes will make it easier to bar copyrighted videos from its site.
The media companies, including News Corp., Viacom, Sony Corp., General Electric
Co.'s NBC Universal, Time Warner Inc. and Walt Disney Co., based their claims against
Google on sworn statements made late last year as part of a civil lawsuit brought by
Hollywood studios against two men accused of operating Web sites that allegedly helped
users illegally access copyrighted material. These statements indicated that Google
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 28
representatives sold ads to these two sites knowing they were doing this, and had a close
relationship with the two defendants, according to people familiar with the matter.
Some of the documents in the case have been sealed and others are inaccessible.
Executives and lawyers for the media companies recently complained directly to Google
and demanded that it end its support of such sites, if any more exist. Google hasn't been
accused of engaging in any illegal activity.
Response to the Complaints
On Friday, Google responded to the complaints by agreeing to implement a series of
measures it believes will help thwart piracy. In an afternoon conference call with studio
representatives, lawyers for Google said the company would remove certain ads the
companies objected to, create a list of approved advertisers and refrain from selling
keywords used by rogue sites to lure users to pirated material. In addition, the Google
lawyers said the company would introduce internal guidelines on monitoring keywords
and train its ad sales force about how to avoid selling such ads.
A spokesman for Google declined to comment on the call or the specific allegations the
media companies have leveled against it. In a written statement, Google said it prohibits
advertisers from promoting "the sale of copyright infringing materials." It also said, "We
are continually improving our systems to screen out ads that violate these policies."
A spokesman for Sony Corp.'s Sony Pictures said, "Discussions with Google have been
ongoing for a while, and there's hope it can result in a mutually satisfactory arrangement
whereby Google will not give support to pirate sites." He declined to comment further.
Google, whose informal corporate motto is "Don't be evil," generates much of its income
by selling ads linked to words or phrases users submit to its search engine. It says it
doesn't accept ads for counterfeit designer goods, for example, or certain weapons
including firearms. Most ads are sold through Google's automated system, but in this
case, the operators of the movie-downloading sites generated enough revenue to win the
attention of a Google account representative, said a person familiar with the case.
A Major Challenge
The media companies' allegations highlight a major challenge for Google: how to keep its
advertising business flourishing in the often unruly world of Internet commerce while
also courting big corporations that say some of Google's clients are trying to undermine
their businesses.
The defendants in the case, Brandon Drury and Luke Sample, said in sworn statements
that Google representatives offered them credit to buy advertising on Google's search
engine. They also said Google supplied them with keywords, including terms such as
"bootleg movie download," "pirated," and "download harry potter movie," which boosted
traffic to their sites, according to people familiar with the case. In court filings, both men
deny any wrongdoing.
A Google employee deposed in the case largely corroborated the defendants' accounts,
these people said. The Google deposition has been sealed by the court. Of the $1.1
million in revenue the two sites -- EasyDownloadCenter.com and
TheDownloadPlace.com -- generated from 2003 to 2005, $809,000 was paid to Google
for advertising, the people said. The sites have since been shut down.
Messrs. Drury and Sample, both 26 years old and residents of Missouri, stand accused of
inducing and helping others to infringe on copyrights, which, like piracy itself, is illegal.
Neither man returned repeated phone calls seeking comment. The two are representing
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 28
themselves in the lawsuit, which was filed in U.S. District Court for the Southern District
of New York in October 2005. Plaintiffs include the major Hollywood studios; the
Motion Picture Association of America, an industry lobbying group, is coordinating the
litigation.
The two sites offered users a "download manager," for $29.95 a year. The software
package enabled users to search for movies on the Internet and then download them onto
their hard drives. Yet the sites themselves didn't host any illicit material. Rather, they
searched free peer-to-peer file-sharing networks, such as Kazaa, LimeWire and Grokster
to find the requested material.
The sites represented themselves as offering legal downloads. But often the sites
promoted movies that were still showing in theaters, which weren't available legally
online at the time. Movies the plaintiffs claim were illegally downloaded using the sites
include "The Incredibles," "Lost in Translation" and "Spiderman 2." Instead of relying on
spam emails to drive traffic to their sites, the two men decided to rely on Google
advertising.
3. A group of major media companies has accused Internet giant ___ of benefiting from
the sale of pirated movies.
a. Microsoft
b. Yahoo
c. Dell
d. Google Correct
4. The informal corporate motto of Google is __.
a. Live to Search
b. Search or Die Trying
c. Ad Revenue Rules
d. Don't be evil Correct
Bank of America Casts Wider Net For Hispanics
By MIRIAM JORDAN and VALERIE BAUERLEIN
February 13, 2007; Page A1
http://online.wsj.com/article/SB117133501870406767.html
LOS ANGELES -- In the latest sign of the U.S. banking industry's
aggressive pursuit of the Hispanic market, Bank of America Corp. has
quietly begun offering credit cards to customers without Social Security
numbers -- typically illegal immigrants.
In recent years, banks across the country have begun offering checking
accounts and, in some cases, mortgages to the nation's fast-growing
ranks of undocumented immigrants, most of whom are Hispanic. But
these immigrants generally haven't been able to get major credit cards,
making it hard for them to develop a credit history and expand their
purchasing power.
The new Bank of America program is open to people who lack both a
Social Security number and a credit history, as long as they have held a
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 28
checking account with the bank for three months without an overdraft. Most adults in the
U.S. who don't have a Social Security number are undocumented immigrants.
The Charlotte, N.C., banking giant tested the program last year at five branches in Los
Angeles, and last week expanded it to 51 branches in Los Angeles County, home to the
largest concentration of illegal immigrants in the U.S. The bank hopes to roll out the
program nationally later this year.
"We are willing to grant credit to someone with little or no credit history," says Lance
Weaver, Bank of America's head of international card services, whose team designed the
program based in part on the bank's experience in markets like Spain, which lack
conventional credit bureaus to rate a client's credit-worthiness.
The credit cards involved aren't cheap. They come with a high interest rate and an upfront
fee. And the idea of catering to illegal immigrants is controversial.
Bank of America defends the program, saying it complies with U.S. banking and
antiterrorism laws. Company executives say that the initiative isn't about politics, but
rather about meeting the needs of an untapped group of potential customers.
"These people are coming here for quality of life, and they deserve somebody to give
them a chance to achieve that quality of life," says Brian Tuite, the bank's director of
Latin America card operations and one of the architects of the program.
Critics say Bank of America is knowingly making a product available to people who are
violating U.S. immigration law. "They are clearly crossing the line; they are actually
aiding and abetting people who broke the law," says Ira Mehlman, a spokesman for the
Federation for American Immigration Reform, a group that advocates a crackdown on
illegal immigration.
Typical of the new card's customers is Antonio Sanchez, a Mexican immigrant whose
only major asset is a white 1996 Ford Thunderbird, which he drives to the two restaurants
where he works each day on opposite sides of Los Angeles. Mr. Sanchez, who says he
sneaked across the border a decade ago, has been a customer of Bank of America's East
Hollywood branch for nine years. He has no borrowing history and no Social Security
number.
Paying Balances
To obtain a Bank of America Visa card with a $500 line of credit, Mr. Sanchez had to put
down $99. If he stays within his $500 limit and pays his balances in a timely fashion, he
will receive his $99 security payment back in three to six months, and his credit limit
might be increased.
"I always wanted to start building credit to buy a home, but I couldn't," says Mr. Sanchez,
a father of three, who earns about $25,000 a year from his two jobs. "When a señorita at
the bank told me about this card, I couldn't miss the opportunity to get it. You need credit
to succeed in this country."
The variable annual percentage rate charged on Mr. Sanchez's card is 21.24%, higher
than the average interest rate of 18.1% card issuers nationwide charge on unpaid
balances, according to the Nilson Report, an industry newsletter based in Carpinteria,
Calif.
David Robertson, publisher of the report, says a rate of 21.24% is "unquestionably high."
"If that's the rate you're offered, it's a pretty safe bet you're in a high-risk group," he said.
To assess an applicant, the bank employs "judgmental lending," a concept pioneered by
MBNA Corp., the credit-card company that Bank of America acquired in January 2006.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 28
In essence, the bank bases its evaluation of a potential client's credit-worthiness on a
subjective review by its employees, rather than on standardized financial data crunched
by a computer.
Unorthodox initiatives like the new credit-card program may be crucial to Bank of
America's long-term success. In the past the bank, which operates in 31 states and the
District of Columbia, grew mostly by buying up other banks. Now, however, it is
bumping up against a regulatory cap that bars any U.S. bank from an acquisition that
would give it more than 10% of the nation's total bank deposits. That means Bank of
America's only way to grow domestically is to sell more products to existing customers
and to attract new ones.
Opening Accounts
Bank of America, the second-largest U.S. bank after Citigroup Inc. in terms of market
capitalization, estimates that there are 28 million Hispanics in its operating area and that
most of them, regardless of their immigration status, don't have a bank. It hopes the allure
of a credit card will persuade hundreds of thousands more Latinos to open accounts.
"If we don't disproportionately grow in the Hispanic [market]...we aren't going to grow"
as a bank, says Liam McGee, Bank of America's consumer and small-business banking
chief.
Illegal immigrants have typically relied on loan sharks and neighborhood finance shops
for credit. But that has begun to change. A few years ago, a handful of community banks
in the U.S. began offering mortgages to illegal immigrants, as long as they could prove
they had stable employment and paid U.S. taxes with an individual tax identification
number, or ITIN.
In December 2005, Wells Fargo & Co. began extending mortgages to consumers with an
ITIN. The bank is currently evaluating a pilot program in Los Angeles and Orange
counties before deciding whether to expand it.
Department of Homeland Security spokesman Russ Knocke said banking products aimed
at illegal immigrants "reinforce the need for a temporary worker program" that the Bush
administration has been promoting. That program would screen, tax and otherwise
regulate immigrant workers and, the administration contends, would squeeze out illegal
workers who now use forged or stolen documents to get jobs, driver's licenses and
occasionally credit.
Anti-money-laundering regulations passed in the wake of the Sept. 11, 2001, terror
attacks put more pressure on banks to verify customers' identity and watch for suspicious
transactions, but they don't require banks to ascertain whether account holders are in the
U.S. legally. Most banks require a Social Security number or ITIN to open an account,
but regulations also allow them to accept other government-issued forms of identification
in some instances, including passport numbers, alien identification numbers or any
government-issued document with photo showing nationality or place of residence.
A handful of retailers, such as Los Angeles's closely held La Curacao department store
chain, have boosted their business by cultivating illegal immigrants with store credit
cards. "Once you capture them, they become very loyal," says Ron Azarkman, chief
executive of La Curacao, which has developed its own in-house credit-ratings system.
"This is a promising market, as long as it is carefully managed," he says, adding that the
average APR charged by his company is 22.9%.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 28
5. Bank of America has quietly begun offering credit cards to customers without ___.
a. jobs
b. any debt
c. Social Security numbers Correct
d. health insurance
6. To obtain a Bank of America Visa card with a $500 line of credit, Mr. Sanchez, a
Mexican immigrant, had to ____.
a. sneak into the bank at night to apply
b. pay $99 Correct
c. sell his car and pay $199
d. pay $599
In Humbling Overhaul, Chrysler Faces Big Cuts
By STEPHEN POWER, GINA CHON and NEAL E. BOUDETTE
February 14, 2007; Page A1
http://online.wsj.com/article/SB117142351596308094.html
With a painful restructuring slated for today, Chrysler becomes the last of the Detroit Big
Three to abandon hope of growing its way out of problems. Now it has a humbler goal:
making money.
DaimlerChrysler AG is set to announce that it plans to cut some 10,000 jobs and close
factories at its Chrysler Group unit in the U.S. The retrenchment by the company that not
long ago claimed to have risen above the problems plaguing General Motors Corp. and
Ford Motor Co. highlights the challenges unionized U.S. auto makers face. It's also a
setback for DaimlerChrysler chief Dieter Zetsche, who got his job in large part because
of his apparent success at turning around Chrysler after a profit collapse in 2000.
One striking feature of Chrysler's latest plan: The company is turning away from the big
pickups and sport-utility vehicles that powered its profits in the past. GM and Ford,
which also rely heavily on those models, are putting similar effort into more fuel-efficient
vehicles, chasing a shift in consumer tastes driven by high gasoline prices.
Chrysler is expected to close a sport-utility vehicle assembly plant in Newark, Del., and
possibly another truck factory near St. Louis. DaimlerChrysler will again push to cut
costs by making its Chrysler and Mercedes units cooperate more. The next generation
Jeep Grand Cherokee and Mercedes M Class could ride on similar foundations. But many
on the Mercedes side fear working too closely with Chrysler will hurt the luxury brand's
sales by sullying its image.
Analysts believe Chrysler will take a significant restructuring charge and report an
operating loss when DaimlerChrysler reports its fourth-quarter earnings today. Most also
believe problems will linger throughout the year. Adam Jonas, automotive analyst with
Morgan Stanley, said he expects Chrysler to lose money in the first quarter and to have
an operating loss of more than $1.6 billion for 2007, excluding restructuring charges,
following an operating loss in 2006 believed to have topped $1 billion.
Mr. Zetsche had once vowed Chrysler would see a sharp increase in sales to about 3.2
million vehicles a year by 2012 from 2.2 million in 2002. Now Chrysler Group Chief
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 28
Executive Tom LaSorda says he's willing to accept lower sales as long as
dealers and the company are making money. Sales in 2006 were more
than 2.1 million vehicles.
Chrysler's restructuring could be the last chance Mr. Zetsche gets to
prove the wisdom behind the 1998 DaimlerChrysler merger, which
sparked a flurry of deals and partnerships in the auto industry. Mr.
Zetsche's predecessor, Jürgen Schrempp, once promised the combination
of Mercedes luxury cars and stylish Chrysler designs for the mass market
would create the world's most profitable auto maker. The merged
company has fallen far short of that goal and its market value has
plunged, thanks to Chrysler's repeated breakdowns and, more recently, a
rough patch for Mercedes.
An increasingly vocal group of shareholders is calling on Mr. Zetsche to dump Chrysler.
"I believe it would be reasonable to break these two companies up if it's possible at a low
price," says Jürgen Meyer, a fund manager in Frankfurt for Sweden's SEB Asset
Management, which owns roughly 1.2 million DaimlerChrysler shares, representing less
than 0.5% of DaimlerChrysler's value.
Last October, Chief Financial Officer Bodo Uebber repeatedly sidestepped questions
about the idea during a conference call with analysts and reporters. DaimlerChrysler later
issued a written statement denying any intention to sell Chrysler, and such a move isn't
considered imminent.
Shedding Jobs
Chrysler has 83,000 workers including more than 61,000 hourly workers. It also has 12
assembly plants and 17 component and stamping plants in North America. It isn't clear
how it will eliminate the 10,000 jobs, but one option is offering buyouts to workers. Both
GM and Ford did so last year. Chrysler's cuts would push to more than 90,000 the
number of hourly and salaried jobs shed by Detroit's Big Three since late 2005.
All three Detroit makers are in the throes of a historic restructuring, hoping they can
return to steady profitability by clearing away unneeded workers and unpopular models.
But shrinkage doesn't solve some of their core problems, such as higher labor costs and
weaker brand images compared with overseas-based rivals. As they try to cover pension
and health costs, the Big Three are constantly tempted to overproduce big cars that
consumers may not want, even as Toyota Motor Corp. and others make big profits with
more diverse lineups.
In a sign that GM has yet to throw its past aside, it announced yesterday that it will bring
back 0% financing deals, a fire-sale tactic executives had hoped to avoid after rolling out
a new pricing strategy last year. GM had weaker-than-forecast January sales and is under
pressure to prove its new crop of models can sell.
When Mr. Schrempp announced the merger of Daimler-Benz and Chrysler in May 1998,
Chrysler was highly profitable and enjoying one of the many booms that so often in its
long history have been followed by busts.
In 2000, a new line of redesigned minivans flopped and piled up unsold at dealerships.
Chrysler reported a $1.3 billion quarterly loss, the American running Chrysler was ousted
and Mr. Zetsche was sent to Detroit.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 28
He was stunned by what he found: mass inefficiencies, runaway expenses, a drab
product line and few new models in the pipeline. His prescription: first shrink
Chrysler, and then launch a barrage of new vehicles to lift sales and revenue.
Over two years, he cut 26,000 jobs and closed six plants. He slashed the development
budget and challenged Chrysler engineers to "do more with less" by using one set of
basic components to create three or four different vehicles. Designers were urged to
create bold, eye-catching vehicles without going overboard on costs, an approach he
called "disciplined pizzazz."
7. DaimlerChrysler AG is set to announce that it plans to cut _____ jobs and close
factories at its Chrysler Group unit in ______.
a. 2,000/ the US
b. 2,000/ Germany
c. 10,000/ the US Correct
d. 10,000/ Germany
8. One striking feature of Chrysler's latest plan: The company is turning away from ____
that powered its profits in the past.
a. minivans
b. four door sedans
c. convertibles
d. big pickups and sport-utility vehicles Correct
For One Condo Developer, Boom Ends With Arrest
By ALEX FRANGOS
February 15, 2007; Page A1
http://online.wsj.com/article/SB117150851833809456.html
KISSIMMEE, Fla. -- The condominium boom that ended last year made a lot of
developers very rich. Aleem Hussain, a journeyman property salesman with a winsome
personality, wanted to be one of them.
He formed his real-estate company in 2004, calling it Main Street USA, after a nearby
Disney World attraction. He bought a complex of 27 aging, two-story apartment houses
in Orlando and set out to convert them into condos. His timing looked favorable. That
year, for the first time, the average price of a condo in the U.S. exceeded that of a singlefamily home, and in the Orlando area, condo and house prices jumped 15%.
But not much has gone as planned for Mr. Hussain, 42 years old, nor has it for his
hundreds of investors, who include a bunch of local sheriff's deputies. Today, Mr.
Hussain's company is being liquidated by a federal bankruptcy court, and he is residing in
the Seminole County jail, charged with 23 counts of federal mail and wire fraud.
Mr. Hussain's rise and fall illustrates one of the hazards of a frothy property market:
inexperienced developers get in over their heads and drag unsophisticated investors down
with them. "Schoolteachers, cops, doctors, priests, everyone thought they were Donald
Trump," says Lewis Freeman, the court-appointed trustee administering Main Street's
bankruptcy proceeding. Mr. Hussain's company, he contends, was a "microcosm of the
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 28
total market. You had a lot of unqualified people getting easy money and able to go into
businesses in which they didn't know what they were doing."
Mr. Hussain's 300 or so investors face potential losses of up to $400,000 apiece. Alan
Cayo, 76, a retired Army officer who says he invested his "entire life savings" of
$280,000 with Mr. Hussain, conjectures that the developer crossed the legal line only
after financial problems began mounting. "It was incompetence, fraud, plus the market
going down -- a triple whammy," he says.
Mr. Hussain's lawyer, James Lenihan of White Plains, N.Y., describes his client as
"someone with good intentions who made bad judgments and got overextended." He says
others at the company were also responsible for what went wrong. Mr. Hussain has
pleaded not guilty.
Mr. Hussain was born in the South American nation of Guyana in 1964, according to a
résumé recovered from his computer by investigators. In the 1980s and 1990s, he worked
in real-estate sales in Pennsylvania, New Jersey and Costa Rica.
When he settled in Orlando about three years ago, the city was the epicenter of a national
boom of conversions of rental apartments to condominiums. In 2005 and 2006, 24,550
apartments in the Orlando metro area, or 18% of the total in 2004, were taken off the
rental market to convert, a greater number than in any other metropolitan area in the U.S.,
according to Reis Inc., a New York real-estate information firm.
The converters were attracted by rising prices. Between 2001 to 2004, the median resale
price of existing condos nationwide jumped 57%, compared with a 25% increase for
single-family houses, according to the National Association of Realtors. Real-estate
experts say demand was boosted by baby boomers downsizing their homes upon
retirement, and young people who were moving to cities. In addition, investors who had
soured on the stock market had begun buying and selling condos.
Mr. Hussain envisioned Main Street USA, which is located south of Orlando near
Gatorland amusement park, as a residential real-estate conglomerate. Its main business
would be condo conversions. He and his partners formed "No-Fee Realty" to broker
condo sales, and two subsidiaries, "USA Mortgage" and "Main Street USA Mortgage," to
broker mortgages and home-equity loans, in some cases to enable property owners to
invest in condos.
Former associates describe Mr. Hussain as charismatic and beguiling. He would
demonstrate for employees his formidable sales skills by buttonholing potential homefinancing customers at supermarkets and persuading them to fill out applications, which
involved disclosing their Social Security numbers, recalls former employee Michael
Lombardo.
To build trust with the local real-estate community, he took on a partner, Alan Randel, a
real-estate broker who had worked in the area for several decades. Mr. Randel, the
company's president, hasn't been charged in the case and declines to comment.
9. Mr. Hussain's 300 or so condominiums investors face potential losses of up to ____
apiece.
a. $400
b. $4,000
c. $40,000
d. $400,000 Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 28
10. Between 2001 to 2004, the median resale price of existing condos nationwide jumped
a. 7%
b. 27%
c. 57% Correct
d. 75%
Democrats Focus On Tax Relief For Middle Class
By SARAH LUECK
February 16, 2007; Page A1
http://online.wsj.com/article/SB117159389782010715.html
WASHINGTON -- The new Democratic-controlled Congress is looking to rein in
looming tax increases on the middle class, possibly covering the cost by raising taxes on
upper-income households. And the Bush administration may not stand in the way.
The possible bargain centers on the Alternative Minimum Tax, a kind of parallel income
tax that hit 3.5 million U.S. taxpayers in the 2006 tax year. Congressional Democrats are
eager to keep the AMT from ensnaring millions more middle-class taxpayers. They also
must find a way to cover the estimated $50 billion cost of scaling back the tax this year.
In recent days, Bush administration officials have signaled they may not oppose a likely
method of covering those costs: raising taxes on the nation's wealthiest citizens. That
concession could mark the beginning of a bigger debate on revisiting the Bush tax cuts,
which could ultimately lead to reversing at least some of the cuts given to upper-income
Americans over the past six years.
The AMT dates back to the late 1960s when Congress discovered that a small number of
upper-income households had managed to avoid federal income taxes entirely by
exploiting deductions, credits, loopholes, and shelters. The AMT has been adjusted since.
But because it has never been indexed for inflation, rapidly growing numbers of
taxpayers are vulnerable to its bite. The Treasury estimates that unless Congress acts,
more than 23 million households will be affected by the AMT in the current tax year,
many with incomes below $100,000.
Among those most likely to face higher tax bills because of the AMT, at least in the near
term, are those who live in high-tax states such as New York, California and
Massachusetts, which also tend to be Democratic-leaning. Unlike regular income taxes,
the AMT doesn't provide for deductions of state and local taxes.
11. A kind of parallel income tax dating back to the late 1960s when Congress discovered
that a small number of upper income households had managed to avoid federal income
taxes entirely by exploiting deductions, credits, loopholes, and tax shelters is called the
____.
a. Anti Parallel Tax
b. Anti Exploitation Tax
c. Alternative Minimum Tax Correct
d. Loophole Credit Tax
12. Unlike regular income taxes, the AMT doesn't provide for deductions of ____.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 28
a. dependent children
b. state and local taxes Correct
c. blindness
d. mortgage interest
Questions 13 – 17 from Marketplace
Raising Women to Be Leaders
By CAROL HYMOWITZ
February 12, 2007; Page B1
http://online.wsj.com/article/SB117124259912205306.html
Denise Sullivan was nine years old and her sister Maggie was eight when they organized
their first carnival to raise money for muscular dystrophy. They mobilized friends on
their block to build game booths in their backyard in Elberon, N.J. They rode their bikes
to other neighborhoods to post signs advertising the carnival and collected used toys for
prizes. One year, they raised $25, charging a penny a game.
"We discovered we liked handling money and liked being in charge," says Maggie.
They have been bouncing business ideas off one another ever since, handling more and
more money as they have taken charge of bigger and bigger enterprises. Denise Sullivan
Morrison, 52 years old, is president of Campbell USA at Campbell Soup Co., having
advanced through a variety of high-octane jobs at Nestlé SA, Nabisco, Kraft Foods Inc.
and other food giants. Maggie Sullivan Wilderotter, 51, is chairman and CEO of Citizens
Communications Co., a $2 billion telecommunications company.
Their two younger sisters also are executives. Colleen Bastkowski, 45, is a regional vice
president of sales at Expedia Inc.'s Expedia Corporate Travel. Andrea Doelling, 42, a
champion horse jumper now devoting time to equestrian competition, most recently was
senior vice president of sales at AT&T Wireless.
It is rare for four brothers to achieve such levels of success. The fact that they are sisters
is striking. Half of all managers in the U.S. are female, but most are stuck in midlevel
staff jobs. In senior posts, men outnumber women by almost six to one.
The Sullivan sisters, as they were known growing up, beat these odds, in large part
because of their upbringing. Their father, an AT&T Inc. executive, wanted to share
everything he knew about business with his girls, including talking to them, while they
were still in grade school, about setting profit-margin goals. Their mother taught them
that ambition is a part of femininity.
Dennis Sullivan, a Korean War veteran who started his career at New Jersey Bell,
expected to raise at least one son. When he had four daughters, he imbued them with his
intense work ethic and encouraged them to be independent and determined, and to
cultivate big goals. "He didn't have sons to mentor so he was stuck teaching us," says
Maggie.
He brought home models of the Princess Trimline phone when it was being developed
and talked about marketing. He took the girls to his office decades before the launch of
"bring your daughters to work day." And he showed, through his own climb, how getting
ahead requires changing jobs frequently to gain broad experience. From New Jersey Bell,
he moved to New York Telephone, then to AT&T, back to New York Telephone and
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 28
AT&T, to Ohio Bell, to AT&T again, and finally to Cincinnati Bell, where he was chief
financial officer.
"I tried to inculcate them with what the business world is like -- how products get
launched, customers sampled -- and about all the interesting people I met, and how they
could be part of that," says Mr. Sullivan. "I'd ask them what their goals were and when
they told me, I'd add a few more to their list."
Mr. Sullivan told each of his daughters to read at least one book a week and then write a
report about it. He also expected them to get A's in school. When President Kennedy
promoted the Royal Canadian Air Force fitness regimen, he woke his family at 6 a.m. to
exercise together. " 'Rise and shine,' he'd shout to us and we'd all have to do leg lifts,"
says Denise.
Connie Sullivan, his wife of 54 years, was equally disciplined. A self-professed
perfectionist who still wakes up at 4:30 every morning, she designed her daughters'
Halloween costumes by August each year, dressed stylishly and enjoyed decorating her
home. But she wasn't a traditional housewife. She became a Realtor when her youngest
daughter started school and soon earned a spot in her employer's million-dollar club -selling $28,000 homes. "Money was tight then," she says, and she was able to boost her
family's income.
The Sullivans expected their daughters to choose activities they liked and to figure out on
their own how to excel at them. Aim high, they said, and if you don't get what you want,
analyze what went wrong and try again.
When Denise, the eldest sister, didn't make her high-school cheerleading team at 14, she
quickly set her sights on becoming a baton twirler in the marching band. A teacher tried
to dissuade her, saying she didn't walk gracefully. But Denise talked to her mother and
concluded, "I think what the teacher is saying is I'm a little pigeon-toed," recalls Connie
Sullivan.
Denise worked to correct the problem by taking long walks. She became captain of the
team and the first twirler in her school to perform with a fire-lit baton. Her mother
worried she might get hurt, but instead of stopping her, sewed her a fireproof twirling
outfit.
13. Half of all managers in the US are female, but most are stuck in midlevel staff jobs.
In senior posts, men outnumber women by almost _______.
a. three to one
b. four to one
c. six to one Correct
d. eight to one
In China's Offices, Foreign Colleagues Might Get an Earful
By GEOFFREY A. FOWLER
February 13, 2007; Page B1
http://online.wsj.com/article/SB117130288782606066.html
HONG KONG -- I was riding the elevator a few weeks ago with a Chinese colleague
here in the Journal's Asian headquarters. I smiled and said, "Hi." She responded, "You've
gained weight."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 28
I might have been appalled, but at least three other Chinese co-workers also have told me
I'm fat. I probably should cut back on the pork dumplings. In China, such an intimate
observation from a colleague isn't necessarily an insult. It's probably just friendliness.
There's a lot that goes on in Chinese workplaces that mystifies -- and occasionally
embarrasses -- the expatriates pouring into China. Chinese people draw the lines between
personal and work space differently from Americans. Beyond weight and body shape,
office small talk here often includes the size of your apartment and your salary.
Sometimes, my Chinese colleagues nap at their desks during lunch.
Some Chinese office characteristics came about because corporations here embrace the
idea of company as surrogate family. Many offices have a "tea lady," who spends all day
making tea and heating lunches -- kind of an office nanny. For Lunar New Year, starting
Feb. 18 this year, bosses give employees red envelopes filled with money, as family
elders do, and host a banquet complete with games, prizes and karaoke.
Shoe habits suggest that Chinese women feel more at home in the office. Many female
American executives commute to work in sneakers and put on professional shoes in the
office. Chinese women are likely to do the opposite, slipping out of the Manolo Blahniks
they wore to get to work and into slippers at their cubicles.
When American lawyer Jennifer Gallo moved to Beijing a few months ago, she had to go
from her own office in San Francisco -- "my little haven," she called it -- into a shared
room with another lawyer. After one day of polite silence in the new office, Ms. Gallo's
Chinese office mate cried out, "Jennifer Gallo, you are incorrigible!"
Her co-worker's problem: too much quiet. "My Chinese colleagues seem to thrive on
noise and community," says Ms. Gallo, 30. She's surrounded, she says, by loud phone
talk, buzzing gadgets and a "concert of ring tones." Her office mate's phone blasts "Work
It" by Missy Elliott.
14. Office culture differences in China include
a. having a “tea lady” that heats lunches and makes tea Correct
b. complete silence in the office with no friendly chatter
c. women wear high heels after wearing slippers for their commute
d. extreme privacy concerning personal matters
Game Companies Worry as Players Grow Up, Grow Bored
By NICK WINGFIELD
February 14, 2007; Page B1
http://online.wsj.com/article/SB117139112208407483.html
Executives in the videogames industry often boast about how successful their racing
titles, shoot-'em-ups and other games have been at snatching away viewers from
traditional television watching. Indeed, past media studies show that trend is true among
the prized demographic of young male adults, for whom the thrill of blasting away at
buddies over the Internet in Halo 2 is more appealing than watching "Grey's Anatomy."
What they talk less about is how the games business begins losing its own audience as
players head into adulthood. This could be a worrisome trend, if it continues, as so-called
Millennials -- a large swath of population born between 1980 and 2000 -- mature.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 28
For now, the business still shows sales growth far greater than movies and other more
traditional forms of entertainment. But game companies like Nintendo have begun to
tackle the demographics problem head on.
Mike Vorhaus, managing director of consulting and research firm Frank N. Magid
Associates, oversees one of the most comprehensive surveys of consumer trends in
gaming and has constructed a profile of "lapsed" console gamers -- people who once
played a game machine like Sony's PlayStation 2 or Microsoft's Xbox, but no longer do.
Let's start with the guys -- the core of the console-games market. Mr. Vorhaus says there
are several "cliffs" in game playing as consumers get older. The first plummet occurs
when males enter the 18-to-34-year-old bracket and the portion who say they play
console games at least once a week drops to 42% from the 78% of 12-to-17-year-old
boys who play with the same frequency, according to last year's online Magid survey of
1,840 people.
When male gamers join the 35-to-44 age bracket, weekly playing drops to 24%. The
numbers slide still further after that. The same downward trend is true for women, though
they play console games less often than men in nearly all age brackets.
Overall, a bit more than a third of consumers surveyed by Magid said they used to play
console games but don't anymore.
Why do they give it up?
Blame life. By far, the two most common explanations lapsed gamers provide for why
they quit is that they got too busy with other things (48%) or simply got bored with
games (40%). Marriage, kids and work are all among the forces that seem to pry gamers
inexorably away from consoles. Mr. Vorhaus points out that many games take tens of
hours of playing to complete -- fine for a bachelor, perhaps, but a serious time
commitment for someone with few hours to spare between the evening commute, diaperchanging and sleep.
The games and hardware they run on turn some people off, too. Game makers have done
an exceptional job of amping up the intensity level and graphical realism of their products
with every new generation of hardware. They've also gotten incredibly complex, aided by
a bewildering array of buttons and joysticks that festoon modern console controllers.
15. The population born between 1980 and 2000 is called the ______.
a. Baby Boomers
b. XY Factors
c. Millennials Correct
d. Gamers
Wal-Mart's Radio-Tracked Inventory Hits Static
By GARY MCWILLIAMS
February 15, 2007; Page B1
http://online.wsj.com/article/SB117150681979009405.html
Wal-Mart Stores Inc.'s next leap forward in ultra-efficient distribution is showing signs of
fizzling. A pioneer in low-cost practices widely copied by competitors, Wal-Mart has
pushed its suppliers to use exotic radio-activated tags to chop labor and inventory costs
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 28
anew. But tests using the tags aren't showing any savings, and suppliers forced to invest
in the relatively expensive technology are grumbling.
Wal-Mart once hoped to have up to 12 of its roughly 120 distribution centers using the
Radio Frequency Identification, or RFID, technology by January 2006. But so far it has
installed the technology at just five, plus 1,000 stores. Wal-Mart expects to add a further
400 stores this year.
The world's largest retailer needs another breakthrough in its logistics operations, the
main driver of its pricing advantage. While its costs are still the industry's lowest, rivals
such as Target Corp. and CVS Corp. are catching up. Wal-Mart's operating costs have
risen sharply in recent years, blunting its edge. Expenses rose to an estimated 18.4% of
sales in 2006, nearly two percentage points higher than in 2001. In contrast, expenses at
Target and CVS rose less than one percentage point each from 2001 to 2005, to 21.8%
and 19.7%, respectively.
Wal-Mart declined to make an executive available to comment on its RFID efforts. In
response to questions about whether it was saving money with the technology,
spokesman Kevin Gardner replied that the tags had improved product availability on
store shelves and store managers worked more efficiently in replenishing inventories.
"We look for our RFID expansion to build on these results," Mr. Gardner wrote in an
email.
16. At Walmart RFID stands for _____.
a. Recall Forensics Identification
b. Radio Frequency Identification Correct
c. Recall For Individual Dealers
d. Rural Fire Department Identification
The Race to Update Tech Gear by 3/11/07
By VAUHINI VARA and ROBERT A. GUTH
February 16, 2007; Page B1
http://online.wsj.com/article/SB117157203313010235.html
Lawmakers have lengthened daylight-saving time so that it will begin three weeks earlier
this year than it used to. The idea is to shrink the hours between sunset and bedtime so
that people will reduce the amount of electricity they use at home, thereby saving energy.
Now try explaining that to your computer.
The Energy Policy Act of 2005, meant to improve energy efficiency, included an item
that called for "springing ahead" earlier than usual and "falling back" later than usual
starting in 2007. That means daylight-saving time will now begin on the second Sunday
of March instead of the first Sunday of April.
17. Daylight saving time will now begin on the ____ instead of the first Sunday of April.
a. first Sunday of March
b. second Sunday of March Correct
c. third Sunday of March
d. last Sunday of March
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 28
Questions 18 – 23 from Money & Investing
Give Your Heart but Mind Your Money
By JOANNA OSSINGER
February 10, 2007; Page B1
http://online.wsj.com/article/SB117106904200204367.html
Thinking about popping the question on Valentine's Day? You might want to pop the
prenup shortly thereafter. Prenuptial agreements no longer are limited to the very
wealthy, says Cheryl Lynn Hepfer, a past president of the American Academy of
Matrimonial Lawyers. Among those who should consider signing one before promising
to love, honor and cherish: professionals earning big bucks or with the prospect of
substantial earnings later; anyone with children from previous relationships; beneficiaries
of a future big inheritance; and people who own or expect to buy property.
Statistics on prenups are hard to come by, but experts say about 20% of people on their
second or subsequent marriage get a prenup. An estimated 5% to 10% of people walking
down the aisle for the first time sign them.
The prenup can be a tough subject, so consider having a financial planner, premarital
counselor or other third party broach it, says Mark Oleson, a personal-finance professor
at the University of Missouri-Columbia and a marriage therapist.
18. Statistics on prenuptial agreements are hard to come by, but experts say about ____ of
people on their second or subsequent marriage get one.
a. 5%
b. 10%
c. 20% Correct
d. 40%
A Tall Order
By YAROSLAV TROFIMOV in Singapore and EDWARD TAYLOR in Frankfurt
February 12, 2007; Page C1
http://online.wsj.com/article/SB117124939838505468.html
When Simon Ng, a Singaporean army officer, set his sights on the glamorous world of
private banking last year, he didn't know much about stocks and bonds. "I thought a bond
is something they tie you up with," he recalls.
Then he turned down an army promotion and forked over S$48,000, or roughly $31,000,
in savings to enroll in a wealth-management program. These days, he is interning at a
major private bank's Singapore branch and expects to land a private-banking job by
summer. "This industry is booming here," says the 31-year-old Mr. Ng. "It is the right
place to be."
Such career changes are by no means rare in this island-state, which, with an estimated
$250 billion in private-banking assets under management, aims to rival Switzerland as a
global private-banking hub. As private banks operating in Singapore report assets
increasing at rates of 15% to 30% annually, they can't get enough warm bodies to cater to
Asia's multiplying class of super-rich.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 28
"It has become very difficult to find good people," says Rolf Gerber, Singapore chief
executive of Liechtenstein's LGT Bank.
19. With an estimated $250 billion in private banking assets under management, _____
aims to rival Switzerland as a global private-banking hub.
a. Singapore Correct
b. Japan
c. England
d. Spain
Deal or No Deal Isn't a Possibility When on Defense
By DENNIS K. BERMAN
February 13, 2007; Page C1
http://online.wsj.com/article/SB117132802442206577.html
By the Samurai code of corporate deal-making, fessing up to weakness is the greatest
dishonor.
Imagine a chief executive who describes a deal as his company's "least-worst option."
He'd be melted on the spot, rendered into mush like one of the ark-opening goons from
Raiders of the Lost Ark.
The reality is that executives often get grief for doing deals that turn sour -- even though
their companies might have fared worse without doing a deal.
This is one of the most important and least discussed facets of the M&A game. It's
especially relevant given some recent developments in the deal market.
Consider the drubbing medical-device maker Boston Scientific Corp. has taken for its
$27 billion acquisition of Guidant Corp. last April. Fortune magazine dubbed it the
second-worst deal ever, next only to that icon of regret, AOL-Time Warner.
"Grumpy" is how the Boston Scientific's CEO, James Tobin, assessed investors' mood in
an interview last week. Mounting product-safety worries have hit Boston Scientific's
sales of artery-opening stents very hard. Similar concerns have wrecked Guidant's main
business of selling heart-zapping defibrillators.
A decades-old growth machine, Boston Scientific last quarter had to endure the indignity
of reporting a drop in sales. Its shares have lost 24 cents on the dollar since the deal
closed.
But what would Boston Scientific's future look like without Guidant? Oddly, it is only
through the company's recent struggles that an answer begins to appear: Worse.
In mid-2006, the company relied on a special kind of stent called Taxus for two of every
five dollars it brought in. Rival Johnson & Johnson was eating away at Boston
Scientific's commanding market share.
If Boston Scientific were still on its own, its recent stent-sale convulsion -- such sales fell
by 22% -- would have been far more critical.
With Guidant in the fold, these declines are easier to absorb, because Boston Scientific is
less concentrated on one product. And the Guidant addition presents Boston Scientific
with another source of growth once the defibrillator market recovers, which Mr. Tobin
says will happen faster than for stents.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 28
Concentration "leaves you very vulnerable," Mr. Tobin said. "We had one product line in
one business that was 40% to 50% of our sales. It gave us a risk profile that was
unacceptable." Investors had caught on to the risk before the Guidant deal, pushing the
shares down nearly half from mid-2004 to the end of 2005.
Mr. Tobin said he has used the "least-worst option" phrase at various times in his career.
But in private. Investors don't seem to understand it. "The market cannot deal with
hypotheticals like that," he said. "They look at earnings."
The Nasdaq's failed run at the London Stock Exchange is another example of the leastworst option in play. Nasdaq Stock Market CEO Bob Greifeld loaded his company up
with debt to pursue a deal with a rival that wasn't interested. Why? The rest of the
industry is consolidating. Without a bigger base of its own, Nasdaq could end up a
pipsqueak that can't compete.
The CEOs are a part of something that is of growing fascination to psychologists,
economists and the occasional science-fiction author. The tweedy types use a term called
"downward counterfactuals," which describes when one believes his current fate is better
than some other path he could have taken and managed to avoid.
It turns out people just aren't programmed that way. (That's especially true when it comes
to investing.)
In the excellent book "The Paradox of Choice," author Barry Schwartz brings up the
proverbial silver medalist. Instead of being happy she avoided missteps that would have
earned a bronze, she is likely to regret the flubs that kept her from winning the gold.
20. By the Samurai code of corporate deal making, ______ is the greatest dishonor.
a. fessing up to weakness Correct
b. stealing money
c. over charging interest
d. not paying debts on time
Venture Funding Twist
By PUI-WING TAM
February 14, 2007; Page C1
http://online.wsj.com/article/SB117142253910708073.html
When Web search start-up Retrevo Inc. went looking for financing in December, it
landed three $500,000 offers from interested parties in just four days. But they didn't
want to buy stakes. They were offering loans.
"Suddenly I was getting phone calls from debt lenders who all wanted to talk to me," says
Vipin Jain, Retrevo's chief executive. He says the Sunnyvale, Calif., company, which
runs a search Web site for consumer-electronic gadgets, ended up taking on $500,000 in
debt rather than selling a piece of itself to a venture-capital firm, the traditional funding
route for high-tech start-ups.
Venture lenders are playing a growing role in bankrolling Silicon Valley's latest boom.
They include SVB Financial Group, Lighthouse Capital Partners, Hercules Technology
Growth Capital Inc. and Pinnacle Ventures. Such firms typically provide loans of
$500,000 to $10 million and sometimes more to fund start-up operations or equipment
purchases.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 28
These lenders generally charge double-digit interest rates on par with the interest
payments on high-risk corporate bonds, known as junk bonds. Lenders typically also get
potential future stakes in the companies, via warrants that can be converted into equity.
The warrants convert to equity if the start-up eventually gets bought or goes public.
In contrast, the venture capitalists who typically invest in such companies pay cash for an
immediate stake in hopes of a payout later when the company is sold.
Venture debt can be a risky path for early-stage start-ups. The loans need to be repaid
over time, which can burden a start-up if it has trouble generating revenue. As creditors,
venture lenders also have the first right to demand payback, before other investors.
Though they remain largely out of the spotlight, venture-debt providers are growing fast,
becoming some of Silicon Valley's biggest stakeholders. They loaned nearly $2 billion to
U.S. venture-backed companies last year, up from $434 million in 2002, according to
research firm VentureOne. In total, debt formed 7% of the money invested in U.S.
venture-backed companies in 2006, up from 2% in 2002.
21. People who typically invest in companies and pay cash for an immediate stake in
hopes of a payout later when the company is sold are called ______.
a. VentureOnes
b. Venture Lenders
c. Venture Capitalists Correct
d. Silicon Stakeholders
China May Get More Daring With Its $1.07 Trillion Stash
By ANDREW BATSON
February 15, 2007; Page C1
http://online.wsj.com/article/SB117150400289909347.html
BEIJING -- The government of China, a country where more than 100 million people
subsist on less than a dollar a day, is now dealing with an unusual problem: what to do
with all its money.
China's central bank sits on a hoard of $1.07 trillion in foreign currencies and securities,
making it one of the biggest investors in the world. Now, officials have agreed that the
traditional approach to managing this massive rainy-day fund -- keeping it safely invested
in bonds issued by U.S. and European governments -- is out of date.
Following the lead of countries like Singapore, South Korea and Norway, China is
starting to look at new ways of managing its investments.
Together, these moves by central banks have ramifications for financial markets worldwide. The likely result: fewer steady purchases of investments like U.S. Treasury bonds
and more buying of investments that are riskier but have better long-term returns, like
corporate bonds, stocks or even real estate and commodities.
Scholars suggest China could spare perhaps $200 billion or $300 billion from its reserves
for more aggressive investments.
Even a slight shift of this type could have a significant impact in U.S. markets. China has
long been one of the biggest buyers of Treasury notes, making it in effect a major lender
to the U.S. government. China's buying has helped keep interest rates low in the U.S.:
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 28
The greater the demand for a country's bonds, the lower the interest rates the country
needs to offer.
China hasn't publicly discussed its strategy yet. In late January, Premier Wen Jiabao said
only that China will "strengthen the management of foreign-exchange reserves and
actively explore and expand the channels and methods of using the reserves."
That is a break from the historical pattern of central banks being more concerned about
preventing losses than achieving gains. They have long been steady buyers of the safest
and most widely traded investments: cash and government bonds.
A big chunk of their holdings is in U.S. dollars. According to the International Monetary
Fund, the official reserves of developing nations are composed of roughly 60% U.S.
dollars and 30% euros. Most of the remainder is in British pounds and Japanese yen.
So any move by China to broaden its investments would mean buying less U.S. debt.
That has led some to worry that less demand for dollar-denominated investments will put
downward pressure on the U.S. currency.
However, that doesn't have to be the case, argues Stephen Jen, global currency strategist
for Morgan Stanley. That is because central banks looking for higher returns could still
put money into U.S. corporate and agency bonds, as well as stocks.
Not for Minor Leaguers
Since central banks are so large, they need to invest in markets big enough to absorb their
money. So the biggest beneficiaries should be the deep, mature markets of developed
nations: the U.S., Europe and Japan.
China would be joining a growing number of governments that manage their investments
with a commercial flair, aiming more for longer-term gains and less for short-term
stability. Last month the chairman of Russia's central bank (with holdings of more than
$300 billion) said it is looking at spreading its investments more widely. The head of
South Korea's central bank said this month that he is considering putting more of that
country's $240 billion in reserves into different types of investments, including stocks.
Officials in China "will quietly and slowly gather the expertise," says John Nugee, a
former Bank of England official who works with central banks for State Street Global
Advisors.
The range of possible investments could include national priorities as well as financial
assets. In December, Vice-Premier Zeng Peiyan said China should "take advantage of the
rather large foreign-exchange reserves to add to the nation's reserves" of natural resources
-- which are in great demand as China feverishly builds new roads, factories and
skyscrapers.
China has already proved adept at finding creative ways to use its reserves. Over the past
few years, the government has used them to shore up the finances of domestic banks,
insurers and brokerages to the tune of about $70 billion.
The debate on what to do with the reserves in China is still going on, although some
principles have been established. "The central government has already set the basic tone.
They are planning to separate the functions of reserve management," says Yi Xianrong, a
scholar at the Chinese Academy of Social Sciences, a government think tank.
He and other scholars say one or more new organizations will be given a mandate to
pursue a different investment approach on a portion of the country's foreign reserves.
Still, China is likely to continue to manage a large portion of its reserves the traditional,
conservative way. One reason developing countries hold lots of reserves is to protect the
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 28
local economy if financial crisis strikes -- essentially, it is money in the mattress to, say,
prop up banks or support the local currency by buying it if foreign confidence flags.
22. China is starting to look at new ways of managing its investments. The likely result is
fewer steady purchases of _______.
a. stocks
b. real estate
c. corporate bonds
d. US Treasury bonds Correct
Housing Report May Not Shed Much Light
By JUSTIN LAHART
February 16, 2007; Page C1
http://online.wsj.com/article/SB117158631094210509.html
Depending on whom you ask, the U.S. housing market is either on the cusp of recovery
or the crest of collapse.
Optimists point to reports that sales have stabilized, the dissipating glut of unsold homes
and a pickup in mortgage applications. Just yesterday a survey of home-builder sentiment
pointed up.
The pessimists warn the blips in housing data are short-term bounces owed to warm
early-winter weather.
One might expect today's report on housing construction to help clear the air, but it
probably won't.
Economists estimate the Commerce Department will report that builders started
construction on fewer new homes in January than they did in December, after adjusting
for seasonal swings. But the 2.6% drop in "housing starts" that's expected would
represent small payback for a 4.5% December gain.
These are very volatile numbers, and December was one of the warmest on record,
allowing construction crews to break ground on more homes than usual. The weather
went from warm to cold in January, making it a tough read.
"The problem with weather distortions is that you can never know how much is weather
and how much is underlying conditions until you see a nondistorted number," says Banc
of America Securities bond strategist Mike Cloherty.
The next challenge for the industry could come from the shakeout in subprime
mortgages. Investors stuck with loans gone bad complain the mortgage originators were
too lax. That should lead to tighter standards, making it harder for would-be homeowners
to buy a house.
The optimists will shrug, but it could be awhile before anyone can say with confidence
the housing market is recovering.
23. Economists estimate the Commerce Department will report a ____ drop in "housing
starts".
a. 2.0%
b. 2.6% Correct
c. 4.6%
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 28
d. 6.6%
Questions 24 – 26 from Personal Journal, Section D
The Online Storage Wars
By JESSICA E. VASCELLARO
February 13, 2007; Page D1
http://online.wsj.com/article/SB117132942506806612.html
David Beach of Santa Cruz, Calif., recently started up his computer, heard a grinding
sound and grimaced. "I knew it was fried," says Mr. Beach, who lost about 1,000 music
tracks stored on the machine along with hundreds of photos of his children. "It was a
devastating loss."
After the disaster, Mr. Beach started hunting for a way to store his files other than on a
computer hard drive. He found Box.net, a new online remote storage service, and signed
up for 15 gigabytes of storage for $99.99 a year. "This is precious information and you
want to make sure it is around," says Mr. Beach, 37, a product manager for an Internet
company who has uploaded and shared hundreds of music files and graphics through the
service.
Internet companies are pushing to change the way consumers store personal computer
files. While most people still prefer to back up their data on discs, external hard drives or
flash-memory devices, new services that outsource the storage process to the Web can be
faster, safer and often less expensive than other storage methods.
After creating an account with an online storage site, you can upload and access your
files anytime from any computer with an Internet connection. The companies use several
layers of security to ensure the files saved to their service remain private, including
requiring and encrypting user names and passwords. The services also come with slideshow software, media players and the ability to upload from a mobile device.
But the ease of using the sites largely depends on the speed of your Internet connection.
In rare cases, the service downtimes may leave you temporarily unable to access your
files.
Online storage options have existed for years but they have been relatively expensive,
mostly targeted toward businesses, and tricky for an average consumer to figure out.
While nearly two-thirds of Internet users in the U.S. say they back up their documents
and content, according to research firm Parks Associates, only 9% do so through online
services.
The new consumer-focused storage services are easier to use than earlier versions geared
toward businesses. And prices are falling thanks to technological improvements that
make it possible to stack more data into smaller hardware.
AOL LLC, a unit of Time Warner Inc., began doling out five free gigabytes of online
storage to anyone with an AOL screen name late last year. (The service is offered through
Xdrive1, which AOL acquired in 2005.) A year ago, the same amount of storage on
Xdrive cost $9.95 per month, or $99.50 per year.
Omnidrive2 Inc. late last year launched a service that allows users to drag and drop files
from their desktop into online folders than can be accessed from any Internet-connected
computer. It offers one gigabyte of space at no charge and 10 gigabytes for $40 a year.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 28
Box.net3, of Palo Alto, Calif., helps users store and organize files in various folders to
which they can grant access to other users such as family members. Berkeley Data
Systems Inc.'s Mozy.com4 encrypts and backs up files remotely by making a copy of the
files that sit on your machine -- including emails -- on its own servers for safekeeping.
The service, which will soon also allow users to create an archive for an additional
charge, offers two gigabytes of space free and unlimited space for $4.95 a month.
An average user storing songs and photos would typically require between one and 10
gigabytes of storage. (One gigabyte holds around 250 songs; about half of a two-hour
movie; or around 1,000 photos, although it varies depending on their resolution.) Heavy
users might want to have 20 gigabytes or more of storage available.
For now the battle to offer the most features at the lowest price is being waged largely by
start-ups along with AOL. Most offer some free storage, from one to five gigabytes. They
earn money by upgrading heavier users to premium packages, with each added 10
gigabytes often a few more dollars per month.
Companies are also going after consumers with tools to help them edit and share their
personal content -- whether photos, videos, or documents -- more easily. Xdrive will soon
launch a feature for combining photos and music into a multimedia slide show within the
service. Box.net lets users create links to their stored photos, videos or documents back
on Box.net from their own personal Web site or social-networking profile -- a tool more
related to self-expression than storage.
24. Internet companies are pushing to change the way consumers store ___.
a. personal computer files Correct
b. personal class notes
c. personal school transcripts
d. personal computer applications such as Microsoft Word
How Good Are Zillow's Estimates?
By JAMES R. HAGERTY
February 14, 2007; Page D1
http://online.wsj.com/article/SB117142055516708035.html
In the year since its launch, Zillow Inc. has made millions of Americans familiar with
computer-generated estimates of home values, created a new online addiction and
become a staple of dinner-party chatter.
But just how accurate is it? A Wall Street Journal analysis of 1,000 recent home sales
shows that Zillow's "Zestimates" often are very good, frequently within a few percentage
points of the actual price paid. But when Zillow is bad, it can be terrible -- off the mark
by more than 25% on one in 10 homes. In one case, it was off by $2 million.
Zillow, based in Seattle, operates a Web site that offers free estimates and other online
tools for real-estate buyers and sellers. It draws revenue from online advertising.
The Journal looked at transaction prices recorded for 1,000 recent home sales in seven
states, using data from First American Real Estate Solutions, a data provider in Santa
Ana, Calif., and compared those prices with Zillow estimates, which didn't yet reflect the
sales. The median difference between the Zillow estimate and the actual price was 7.8%.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 28
(That was close to the 7.2% median "margin of error" reported by Zillow itself on all
transactions involving homes whose value it has estimated.)
The estimates were about equally split between ones that were too high and those below
the mark.
Zillow came within 5% of the price in a third of the transactions studied by The Journal.
It was more than 25% off target on 11% of them. In 34 of the 1,000 transactions, Zillow
was off by more than 50%.
Zillow had estimated that a four-bedroom, 7,600-square-foot home in Fall City, Wash.,
was valued at $661,756. The home, built last year, sold in early January for $2.7 million.
"If you don't visit the property, you're never going to know that it's in an exclusive, gated
part of the neighborhood," says Maria Danieli, who represented the sellers. Ms. Danieli
says Zillow may be fine for "cookie-cutter" neighborhoods but "they can't compute" the
values of the luxury homes she sells.
Zillow executives acknowledge that the estimates can be way off in some cases. The
estimate "is a starting point" for people trying to figure out how much a home should
cost, says Amy Bohutinsky, a spokeswoman for the company. "We don't recommend it as
the final word."
Sometimes the estimates take big lurches in brief periods as Zillow's computer analyzes
the latest home-sales data, updated weekly. "My God!" said Jonathan Miller after he
looked up his own house in Darien, Conn., on Zillow last week. "My value has dropped
25% in six months. There's no way -- that would be the market collapsing!" Zillow has
the house pegged at $1,442,851, down from about $2.1 million last July. Mr. Miller, chief
executive officer of Miller Samuel, an appraisal firm based in New York, watches his
local market closely and figures his home is valued at around $1.9 million.
Zillow can be quite accurate in some markets, Mr. Miller says, but he argues that the
estimates are hit or miss. He suggests that Zillow should produce only an estimated price
range rather than an exact figure: "When you go down to the $1 level, you're implying
precision." Ms. Bohutinsky, the Zillow spokeswoman, notes that Zillow produces both a
range and a precise estimate and says users like both.
Zillow also missed the target for Josh Benton, a management consultant at Kurt Salmon
Associates in Atlanta. He sold a home last fall for about 15% more than Zillow's
estimate. Still, Mr. Benton says he found Zillow useful for getting a sense of the relative
value of houses in a neighborhood. And he liked the site's aerial views of neighborhoods
as a research aid. "Overall, it's an excellent site," he says.
Zillow's estimates come from a proprietary computer program that takes into account sale
prices for nearby homes that appear comparable, the size and other physical attributes of
the home, its past sales history and tax-assessment data, says Stan Humphries, vice
president of data and analytics.
Zillow tends to work best for midrange homes in areas where there are a lot of
comparable houses, he says. It is less accurate for low- and high-end homes because there
are fewer of those and thus less data available from comparable sales, known as "comps."
Values of rural homes are hard to gauge for the same reason. Partly for that reason, none
of the Web sites can offer 100% coverage of U.S. homes; Zillow says it has estimates on
about 57% of all homes.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 26 of 28
25. In the year since its launch, Zillow Inc has made millions of Americans familiar with
computer generated _____.
a. estimates of used car values
b. estimates of wedding expenses
c. estimates of vacation expenses
d. estimates of home values Correct
Yale on $0 a Day
By ANNE MARIE CHAKER
February 15, 2007; Page D1
http://online.wsj.com/article/SB117150338599609332.html
Getting into college may be tougher than it used to be. But top schools are offering a
growing number of courses free online.
Following the lead of the Massachusetts Institute of Technology and other highly
competitive schools, more institutions are posting online everything from lecture notes to
sample tests, and even making audio and video files of actual lectures publicly available.
The sites attract anywhere from thousands to more than one million unique visitors each
month.
The moves -- which differ from the "distance learning" courses that many schools offer
for credit and charge for -- come as colleges and universities say they want to
democratize education, making the best resources available to more people. But they also
hope that it leads to more interest from potential applicants and inspires alumni in farflung locales to make a donation.
MIT's pioneering "OpenCourseWare" program, which was launched in 2003, posts the
syllabus and class notes for more than 1,500 courses online for anyone who wants them.
By this November, it aims to publish materials from virtually all 1,800 of its courses
across all its schools.
Starting last fall, the University of Notre Dame in South Bend, Ind., began offering eight
courses, from Introduction to Philosophy to African American History, and including
everything from class plans, links to required readings, lecture notes and homework
assignments. The school aims to increase the number of classes offered online to 30
courses over the next two years.
Yale University, meanwhile, has announced it will produce digital videos of
undergraduate lecture classes and make them available free to the public. This academic
year, it is taping seven classes -- from Introduction to the Old Testament to Fundamentals
of Physics -- to be posted online this fall.
Some smaller liberal-arts schools are following suit. Bryn Mawr College, a women's
school in Pennsylvania, is in the process of selecting course materials to post online, free
to the public, beginning this summer. It plans to include classes ranging from psychology
and physics to one on the history of Philadelphia.
Some schools that follow the MIT model are focused on making available as many
course materials as possible -- including class plans, lecture notes, lists of reading
materials and even homework. Other schools, including University of California,
Berkeley, are simply making lectures available through audio and video files. In MIT's
Introduction to Modeling and Simulation, a science and engineering class, Web surfers
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 27 of 28
can browse through assignments and sample quizzes, as well as suggested project ideas.
As with other MIT courses, the syllabus is posted -- so you can see the structure of the
course and what text and other reading materials are used -- but only some lecture notes
are available.
Some MIT online courses are even more comprehensive. All of the lectures for legendary
professor Walter Lewin's Physics I, II and III courses are on video, in addition to detailed
lecture notes, assignments and practice exams.
Dr. Lewin says he receives emails every day from the general public and tries to answer
all of them. And while a few of them can be "annoying" when they start to dispute his
reply, he says the emails of appreciation from the public -- kids and adults who say they
grew to love physics through the lectures -- make it all worthwhile. "Some of them make
me cry," Dr. Lewin says.
Robert Croghan, a Canadian entrepreneur living on the Caribbean island of St. Lucia,
says he has used some of the MIT courses as guidance for an alternative-energy project
he is working on. Mr. Croghan says he read the lectures for courses on international
development and entrepreneurial finance for extra guidance. "They allowed me to take
my street smarts and apply it with the terminology from a formal education," he says.
In White House, Tenn., Army First Lt. Ronnie E. Matthews Jr. took Notre Dame's
Foundations of Theology course online. Lt. Matthews has been doing "a lot of soul
searching," he says, which is why he was drawn to the course. He says he spends about
an hour a day reading the Bible by following the class plans and lecture notes and doing
the homework assignments listed by Prof. Gary Anderson. "It's challenging," he says. On
most nights, he dives into his studies after he puts his baby to bed.
26. MIT's pioneering "OpenCourseWare" program, posts _____ for more than 1,500
courses online for anyone who wants them.
a. the syllabus and class notes Correct
b. the textbooks
c. the final exams
d. the homework answers
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 28 of 28