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DARTMOUTH BUSINESS JOURNAL

In the midst of Recovery?

July 1, 2010 | Summer Issu



TABLEof



Pittsburgh 2.0Camden Nogay

On September 24 and 25, 2009, the

city of Pittsburgh hosted the G-20

summit, the meeting of the heads of

state for the world’s 20 largest

economies. While the city was onceknown for its steel and other similar

manufacturing industries, Pittsburgh

has now become an example

of a strong twenty-first century

economy. It has rebuilt its

economy from the nadir of the

1970s and 1980s when the city

lost many of its manufacturing

jobs. Pittsburgh has shifted its

economic base away from the

volatile low-education jobs

that were once the hallmark of

American manufacturing

towards an economy with a

foundation based upon

banking and higher education,

which has then been built

upon by health care and

service. As President Barack

Obama said in the build-up to

the G-20, “Pittsburgh stands as

a bold example of how to create new

jobs and industries while transitioning

to a twenty-first century economy. As

a city that has transformed itself from

the city of steel to a center for high-

tech innovation, including green

technology, education and training,

and research and development,Pittsburgh will provide both a

beautiful backdrop and a powerful

example for our work.”2

The steel industry was once the

backbone of the economy for the city

of Pittsburgh. But by the 1980s, the

American-made steel industry’s

dominance came to an end. From

1981-1985, the industry shed 120,000

jobs and Pittsburgh, the center of the

American steel industry, was crushed

by the decline.3 But, it was small

communities throughout the

Pittsburgh area that felt the real

effects of the collapse.Homestead, Pennsylvania is one

example of a community harmed by

the closure of a U.S. Steel Mill. The

Homestead Works employed 9,000

workers as late as the 1970’s, but it

closed in July 1986.4 Without the mill

employees spending their money at

the local shops and stores, the

economy of the area soon shriveled

up. A similar situation occurred in

Weirton, West Virginia, a western

suburb of Pittsburgh. The mill in the

center of the town employed more

than 8,000 workers in the early

1980s.5 Now, it employs less than

1,000.6 A look at the population

statistics for Weirton’s metropolitan

area shows the consequences that

come about from having a town

reliant on a single employer. From

2000 to 2008, Weirton’s metropolitan

population declined by more than

7.5%, the second largest decline of

any metropolitan area in the United

States.7 Weirton is just a microcosm

of the whole Pittsburgh area after thecollapse of the American steel

industry.

The foundation for Pittsburgh’s

modern economy is in the banking

and higher education sectors. Two

banks in the area are among top

ten employers in the metropolitan

area. PNC Financial Services

Group Inc. employs 8,000 people

and Bank of New York Mellon

Corporation employs almost

7,000.8 While the number of

people they employ alone makes

these banks a strong element of the

economy of Pittsburgh, they serve

another more important purpose.

Large, successful banks such as

Bank of New York Mellon and

PNC are able to offer loans and

capital to small businesses so that

these businesses are able to expand

and grow. Although one business

may shut down, the banks may loan

funds to another small business that is

expanding and creating new jobs and

can thus fill the void of the closed

business.

Second, higher education provides a

foundation of well-educated workers

who are inherently more skillful than

the low-education steel laborers who

were once the hallmark of the

Pittsburgh area. Two of the ten

largest employers in the entire area

are institutes of higher learning: the

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University of Pittsburgh employs

about 11,000 workers and Carnegie

Mellon University employs about

4,700.9 In addition, many other

institutions such as Duquesne

University and Robert Morris

University are also located in the

area. These universities must be

viewed as much more than simply

sources of employment: their primary

role in Pittsburgh’s economy is

bringing individuals to the area to get

an education. These individuals then

invest their money in the local

economy by buying goods and

services at local enterprises.Moreover, for banks to be willing to

lend money, they must have

individuals and businesses that have a

low probability of defaulting on their

loans. College graduates and the

sorts of industries, like health care,

that employ them are a much safer

group to lend to, especially compared

to the volatile steel industry and the

low-education laborers that make up

the bulk of their workforce. While

people will always get sick and need

the health care industry to take care

of them, there is not always a

demand for steel.

Additionally, having so many top

colleges and universities attracts

businesses to relocate to the area to

take advantage of the highly-skilled

graduates. For instance, Google Inc.

recently moved into the area near

Carnegie Mellon University to take

advantage of its CollaborativeInnovation Center. The business

currently employs more than one

hundred workers, about half of

whom were educated at local

colleges. Recently, the company

announced plans to expand its

business and will now lease more

than 40,000 square feet near

Carnegie Mellon. The president of

Carnegie Mellon, Jared Cohon,

recently said about the expansion,

“Google’s decision is driven by the

need for more space, and that’s fine.

The big payoff here is more jobs and

very high-quality jobs. They’re high-

paying, stable, and ones that generate

more jobs.”10

The growth of higher education in

Pittsburgh has led to the expansion o

the field that is now the largest

employer in the area: health care.

The University of Pittsburgh Medica

Center, a corporation whose veryname attests to its grounding in

Pittsburgh’s higher education sector,

employs almost 50,000 people,

making it the largest employer in the

Pittsburgh area.11 UPMC has fifteen

hospitals and many other medical

facilities throughout the metropolitan

region.12 Furthermore, the

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University of Pittsburgh Medical

Center is considered to be one of the

best hospital systems in America.

According to U.S. News and World

Report’s most recent ranking of

America’s Best Hospitals, UPMC

ranked number thirteen in the

nation.13 Having such high-qualitymedical care provides an economic

benefit not only because of its

employment numbers and the service

it renders to the local population, but

also because it compels individuals to

come to Pittsburgh to receive world

class medical treatment. These

“medical tourists” add additional

money to the local Pittsburgh

economy, because of the spending

they do at local enterprises.

However, one thing about UPMC, in

particular, serves to illustrate its

leading role in Pittsburgh’s

transformation into a strong twenty-

first century economy. The sign on

the building known as the U.S. Steel

Tower, named after the company that

built it, now reads “UPMC.” As Mr.

Todd Reidbord, a member of the city

planning commission that approved

the addition of the sign, said, “I think

it's a good sign. I like the sign. I think

it does give a vitality to Pittsburgh. Ithink that's what we need. We need to

look forward."14

The growth of banking, higher

education and, health care has

necessitated a growth in the service

sector to provide for all the

individuals both within those

industries and those who are in

Pittsburgh to take advantage of them.

In particular, the city has seen a

growth in the upscale shopping sector

thanks to the higher paying jobs that

come with these sectors. One

example is Giant Eagle Inc., the

fourth largest employer, with more

than 10,000 employees, in the area is

which runs a number of Giant Eagle

supermarkets throughout the area.15

The company has opened three

Giant Eagle Market Districts, which

are designed towards a more upscale

consumer.16 The opening of Giant

Eagle Market Districts indicates thechanging patterns of consumption in

Pittsburgh and shows that Pittsburgh

is becoming a prosperous area.

Other forms of upscale shopping

have also come to Pittsburgh:

Nordstrom, an upscale department

store, recently opened a store at the

Ross Park Mall in a Pittsburgh

suburb, and in Homestead, a

formerly-decimated steel town,

another shopping area has opened

called the Waterfront. 17 18 19 Not

only does the Waterfront serve to

emphasize how Pittsburgh’s economy

has changed, but it also illustrates the

benefits of a diversified economy.

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The Waterfront contains a wide

variety of shops. When the steel mill

on the site closed, everyone was laid

off. If one store at the shopping

complex were to close, however there

would be no large-scale effect on the

overall economy of the area, or even

on employment at other stores. Bydiversifying its economy, Pittsburgh is

avoiding the catastrophic issues that

can arise when a singular employer,

like a steel mill, shuts down.

However, Pittsburgh has not

completely abandoned its

manufacturing roots. In fact,

manufacturing still employs almost

100,000 workers. Businesses such as

Alcoa, ATI, Bayer, GlaxoSmithKline

Consumer Healthcare, Koppers,

Nova Chemicals, H.J. Heinz, PPG

Industries, and United States Steel all

have plants and mills in the

Pittsburgh area.20 A scan of the

above list, though, shows that

Pittsburgh is no longer reliant on just

one type of manufacturing. Rather, it

is home to chemical, pharmaceutical,

food processing, and steel industries.

Pittsburgh has again avoided the

trappings of being a one-industry

town. Although it has still kept

manufacturing jobs in the area, it has

done so in a wide range of industries.

This diversification will allow the city

to avoid any one major change, like

that which occurred with the decline

of American steel in the 1980s.

Pittsburg has seen other aspects of its

service industry grow as well. The

city has been constructing a new

hockey arena, called the Consol

Energy Center, for the Pittsburgh

Penguins hockey team at the cost of

$321 million.21 Furthermore, the

Pittsburgh International Airport has

seen the addition of direct flights

from Pittsburgh to Paris on Delta

Airlines. As the Pittsburgh Post-

Gazette, a local newspaper, puts it:

the new flights “[represent] a major

coup for the region which has beenwithout nonstop international flights

since November 2004.”22 The

continuing growth of Pittsburgh

shows why it serves as the perfect case

study for how a city can transition

into a twenty-first century economy.

The city has moved away from an

over-reliance on steel towards a well-

diversified economy based on

banking, higher education, health

care, and service. These industries

have developed an interrelationship

amongst each other that allow them

to grow and prosper together.

Nevertheless, they are different

enough and separate enough that no

one industry is too reliant on any

others. Pittsburgh should serve as an

example for any city looking to create

a diverse and successful local

economy.

Sources:

1 Statement by the President on G-20 Summit

in Pittsburgh, The White House Office of the

Press Secretary, Sept. 8, 2009, http://

www.whitehouse.gov/the_press_office/

Statement-by-the-President-on-G-20-Summit-

in-Pittsburgh/.2 Steven Greenhouse, “The Struggling Steel

Industry”, New York Times, May 17, 1985.3 William Serrin, “Requiem for a Steel

Town”, New York Times, Sept. 5, 1988.4 William Serrins, “Town Backs Workers In

Plan to Buy Steel Mill,” New York Times, Jun 8,

1982.5 Ian Hicks and Casey Junkins, “ArcelorMittal,

Ormet slash jobs,” Weirton Daily-Times,

January 26, 2010.

6 Population Change and Rankings,

Metropolitan and Micropolitan Statistical

Area Estimates, U.S. Census Bureau, http://

www.census.gov/popest/metro/CBSA-

est2008-pop-chg.html.7 Pittsburgh Regional Alliance, Allegheny

County Profile, http://

www.alleghenyconference.org/PRA/

RegionalData/CountyAllegheny.asp.8

Pittsburgh Regional Alliance, ibid.9 Erich Schwartzel, “Google to add space, jobs in

Pittsburgh,” Pittsburgh Post-Gazette, Decemeber 18, 2009,

http://www.post-gazette.com/pg/

09352/1021979-100.stm.10 Pittsburgh Regional Alliance, ibid.11 UPMC, UPMC Hospitals, http://

www.upmc.com/HOSPITALSFACILITIES/

HOSPITALS/Pages/default.aspx.12 Avery Comarow, “America’s Best Hospitals:

the 2009-10 Honor Roll”, U.S. News and World

Report , July 15, 2009, http://

health.usnews.com/articles/health/best-

hospitals/2009/07/15/americas-best-hospitals-the-2009-2010-honor-roll.html.13 Mark Belko, “Planning board OKs UPMC

logo atop U.S. Steel Tower”, Pittsburgh Post-

Gazette, June 27, 2007, http://www.post-

gazette.com/pg/07178/797432-53.stm.14 Pittsburgh Regional Alliance, ibid.15 Giant Eagle Market District, About Us,

http://www.marketdistrict.com/Article.aspx?

cntid=202260.16 Nordstrom Opens First Pittsburgh Store at

Ross Park Mall , iStockAnalyst , October 24,

2008, http://www.istockanalyst.com/article/

viewiStockNews/articleid/2735906.17 Karamagi Rujumba, “Group look toredevelop Mon Valley sites”, Pittsburgh Post-Gazette, June 12, 2008, http://www.post-gazette.com/pg/08164/889225-56.stm.18 The Waterfront Directory, http://www.waterfrontpgh.com/go/dirListing.cfm?FL=All.19 Three Reasons Why Pittsburgh Is Perfectfor The Pittsburgh Summit 2009, PittsburghRegional Alliance, http://www.alleghenyconference.org/PDFs/PRAFactSheets/FS09ThreeReasons.pdf.20 Mark Belko, Architect predicts Aug. 1completion of Pittsburgh’s new arena,

Pittsburgh Post-Gazette, October 14, 2009,http://www.post-gazette.com/pg/09287/1005232-61.stm.21 Surprise? Delta adds Paris flights fromPittsburgh, Raleigh/Durham, USA Today,http://www.usatoday.com/travel/flights/item.aspx?ak=58128016.blog&type=blog.

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Touching the Future ofComputingJ. Alexander Gonzalez

Just ten years ago, Palm was at the forefront of the mobile

devices market with its Palm Pilot products. These

compact machines were capable of keeping track of your

calendar and contacts and they were able to run an

application or two. Palm’s devices were revolutionary

because they allowed you to not only access your data

wherever you needed access to it, but also touch it.

For years, the technology behind touch screens went

largely unchanged. Palm, smartly, eventually combined a

touch screen PDA and a telephone with its Treo devices.

Unfortunately, the Treo’s screens were not very advanced:

they were built from plastic, they were inaccurate, and

they could only accept input from one source at a time.

Palm had come up with a fantastic idea for a product, but

its poor implementation – and equally poor clones from

competitors – prevented touch screen devices from

moving into the mainstream.

In 2007, Apple, Inc. introduced the iPhone. Criticsinitially dismissed the iPhone as a late player in a dying

market. The iPhone – the critics said – was nothing more

than a pretty device from Apple. But what made the

iPhone different, and ultimately led to its wild success in

almost every market that it was introduced in – was its

revolutionary glass, multitouch touch screen. Multitouch

changed the way that people interacted with a touch

screen. Before the iPhone, a person would use a stylus as

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a mouse pointer-equivalent. With multitouch, users could

interact with content in ways that felt natural. If a user

wanted to zoom in on a website, all the user would have

to do was pinch to make the site’s text bigger. To rotate a

photo, all that was required was a simple finger twist. If

people wanted to play a two-player game on a single

device, the screen was capable of registering multiple

simultaneous taps. Multitouch made the mouse obsolete;why point with some external device when you could just

poke at what you want with your finger?

It quickly became evident that multitouch technology was

a game changer. Apple introduced it for its trackpads on

all of its computers, and even as part of a desktop mouse.

Microsoft created a table-sized computer called the

Surface that allowed several people to interact with the

table at once, simply by touching. Phone manufacturers –

Palm, Motorola, HTC, and others – all rushed toimplement their unique takes on the technology. Today,

you would be hard pressed to find a smartphone that

didn’t offer multitouch.

Multitouch technology is going to revolutionize the way

that we all use computers. The technology has already

moved to larger, more computer-like implementations.

Apple’s iPad provides an excellent example of how

multitouch hardware can be used to transform even the

most familiar applications. Keynote, Apple’s version of

PowerPoint, allows users to shuffle slides, arrange photos,

and even create advanced animations with just their

fingers. Students can highlight and annotate books and

pdfs with their hands; no ink or pen required. Games,

from Scrabble to Hungry, Hungry, Hippos, can be played

on the screen with a group of people without confusing

the screen; it all just works – and feels natural. But Apple

isn’t alone in implementing multitouch in its devices.

Hewlett-Packard, Fusion Garage, Asus, and a whole

dearth of companies are introducing touch computerdevices.

While touch screen laptops have existed for almost a

decade, none have been designed for finger use. Today’s

multitouch enabled touch screens have the software

support that past devices didn’t have. In fact, Apple’s App

Store has over 200,000 unique, multi-touch capable

applications, and that number grows every day. Google’s

Android operating system has a thriving developer

community that has created over 50,000 applications for

its touch screen devices. The fact that most of these

applications have been created in the last two years is

outstanding. The market for multitouch enabled apps is

now several billion dollars large. As this technology

becomes more and more ubiquitous, that market is

expected to grow even larger.

Computing as we know it is about to change profoundly.

Now is the time to invest in companies pioneering

multitouch technology and watch as their stock values rise

by the day.

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All About OptionsDavid Kellenberger

Plain Vanilla Options

An option is “The right, but not

the obligation, to buy or sell [a

security] at a specified price during

a specified period of

time” (“Option”). What this means

is that you, the buyer, pay someone

a small amount of money (relative

to the stocks share price) to have

the ability to lock in a purchasing

price from that seller. However it is

important to note that you only

have the ability to buy from him

for a limited time. This can be a

very profitable strategy. For

example, you might pay someone

$2 to lock in the ability to buy

company P at $60 (strike price =

$60). Assume the company is

already trading at $60. Thus if it

the share price rises to $64 you

have doubled your money:

$64 - $60 = $4

$4 - $2 (originally paid) = (an

additional) $2

doubling your initial investment, a

100% gain ( $2/$2 = 100%)

If you had just purchased a share

of the stock you would have made

$4; however, your return would

only equal 6.7% ($4/$60 = 6.7%).

We can see from this example that

options are a way to leverage your

capital, as a small move in the

underlying stock is amplified in the

movement of the option.

Options also allow you to limit your

potential losses. For example, if we

had bought this company P at $60

and it fell to $20, we would have a

$40 loss. However, with the option

to buy company P at $60, if the

price of the company falls to $20,

we simply do not exercise (use) the

option and in this way only lose $2

compared to $40. We also see the

leverage effect of options, as this

$2 is 100% of our investment,

whereas owning the stock only

costs you 66.7%; while in the first

scenario we doubled our money, in

the second we lost it all. But the

importance of the loss limit effect

of options is that you pay up front,

and thus know exactly how much

you stand to lose.

There are fundamentally 2 types o

options, ones that give you the

ability to buy a stock at a certain

price, and ones that give you the

ability to sell at a certain price.

Options that give the buyer the

power to buy at a certain price,

like the example above are called

Calls. Options that

give the buyer the

ability to sell a stock at

a certain price are

called Puts. It is also

possible to sell calls and

puts, but I will not go

into detail on that as it

is in general a strategy

used only by

investmentprofessionals.

Options in this

category that follow

simple rules are called

“Plain Vanilla

Options”. For example,

one of the most widely

used options is the

American Option, which

gives the buyer theability to exercise the

option (buy the stock) at

any time up till the expiration date

Another example of a plain vanilla

option is the European Option, which

is similar to the American Option.

However, with the European

Option you only have the ability to

buy (or sell) the stock at its strike

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http://www.investorwords.com/3669/period.html

http://www.investorwords.com/3373/obligation.html

http://www.investorwords.com/4282/right.html



http://www.investorwords.com/3807/price.html

http://www.investorwords.com/3807/price.html

http://www.investorwords.com/4467/sell.html

http://www.investorwords.com/4467/sell.html

http://www.investorwords.com/636/buy.html

http://www.investorwords.com/636/buy.html







price (price you locked in) on the

expiration date. While the

American and European Options

are the basic options used (thus

plain vanilla ones), other variants

on the option have arisen to fulfill

certain investment needs. The next

section has a look at “Exotic

Options”, and the role they fill

beyond giving investors leverage

and a limit on potential loss.

The Lookback Option

While “plain vanilla options” are

often enough to satisfy the needs of

most institutional and individualinvestor needs, there are other

options out there which can

conform to almost any investing

situation. A Lookback Option (also

known as a Russian Option ) is one of

the most interesting variants of an

exotic option. With a Lookback

Option, the “option buyer receives

the maximum price (discounted)

that the option has ever traded at

during the time period betweenthe purchase time and exercise

time” (Shepp). More simply put,

what this means is that the

purchaser of the option, upon

exercising the option, is able to sell

it at the highest price that the

security hit over the whole time

span of the option.

For example, with a call, let us say

that as in the first example you pay

$2 to lock in the ability to buy

company P at $60. The same

amount of time has gone by as in

the first example, and just as in

that example, the price of the

underlying equity when you

exercise the option is $64. Thus if

you were trading an American

Option, your profit would be exactly

the same.

However,

while the first

example can

ignore the

fluctuations

undergone by

the security,we need to

know the

maximum

value of the

company’s

equity over

that time

period to calculate profit for a

Lookback Option. If we say that the

maximum value company P hit

was $68, we then can find howmuch we net from our option

when we exercise it:

Highest value = $68

$68 - $60 = $8

$8 - $2(originally paid) = (an

additional) $6

quadrupling your initial

investment, a 300% gain ( $6/$2 =300%)

This example displays the basics of

a Lookback Option. The overall goal

of the Lookback Option is that there

is essentially no regret involved

(except for the lost time value of

money incurred). The investor

does not need to continually watch

the price of the security to

determine when he wants to

exercise the option. Rather, the

investor knows that whenever the

option is exercised it will receive

the maximum price over the

underlying.

While the Lookback Option is a greadeal to investors, it does come at a

price. Due to the nature of its

unique ability to lock in the highes

price for calls (or the lowest price

for puts), the premium for Lookback

Options is generally very high. In

reality, while you might only be

paying $2 for an American Option fo

the deal above, the Lookback Option

might cost you $3 or $4 or more.

Thus it is important to always take

cost into account as well as

potential return.

Overall, the Lookback Option allows

us to limit timing risk to a great

extent and can be very useful when

an investor knows that a security

should be trading at a very high (o

low) price but is not sure for how

long. If an investor expects an

acquisition announcement for the

company (causing the security

price to rise) but is not sure if they

will actually be acquired (causing

the price to fall), a Lookback Option

protects their loss and locks in

profit. The Lookback Option is one o

many exotic options that increase

versatility, and thus efficiency

within the marketplace.

Sources:

"Option." InvestorWords.com. Available from

http://www.investorwords.com/

3477/option.html. Internet;

accessed 9 May 2010.

Shepp, Larry & Shiryaev, A. N.. "The RussianOption: Reduced Regret." The

Annals of Applied Probability 3, no3 (1993): 631-640. JSTOR. [online.]ITHAKA.

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Natureʼs Wrath:Who Bears theCost?Jun Liang

Maybe Nostradamus and the Mayans

were right. Maybe the end of world is

at our doors. A series of majorearthquakes this year does seem

unusual, devastating people and

homes all around the world. In

financial markets, it is reasonable to

assume that one of the hardest hit

establishments would be insurance

companies. Property-liability claims

should put a significant strain on

insurance reserves. Yet the high

number claims did not even depletethe profit margin of some insurers.

This curious phenomenon requires a

look into the practices of today’s

insurers and the prevalence of

insurance against natural disasters.

Catastrophe insurance has come to

include every disaster from

earthquakes and storms, to volcanic

activities and terrorist attacks.

Insurance companies try their best to

price premiums based on available

estimates or probability of disaster

occurrence and evaluation of the

properties insured. However, these

methods cannot offset the one major

difference between catastrophic

insurance and the ordinary property-

liability insurance. In a catastrophe,

not to mention a series of

catastrophes, significant numbers of

claims are made concurrently. It

places pressure on the liquid assets of

insurance companies to meet these

claims.

Despite these inherent difficulties,

modern insurance companies are

experienced enough to take on the

risks. In the first quarter of 2010

alone, from covering the earthquakes

in Haiti, Chile, and Baja California

to Iceland’s erupting Mt.

Eyjafjallajökull, insurers such asTravelers, Zurich Financial Services,

and HCC Insurance all reported

drops in their first quarter profits

from estimated figures. Zurich

estimates $200 million in claims from

the earthquake near Concepcion,

Chile [5], while Travelers and HCC

report total first quarter catastrophe

payouts of $312 million and 13

million, respectively [2][4]. Thecompanies paid out on property

damages and delivered travel

insurance claims by those stranded in

airports across Europe.

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Although the raw numbers seem

large, catastrophe insurance

comprises a relatively small portion of

the business of these insurance

companies. Take Travelers, one of

the hardest hit insurers this year, for

example. Compared to the $5.3

billion Travelers received inpremiums in the first quarter plus its

reserves from previous years [2], $312

million seems a small price to pay,

especially considering the rarity of

earthquake related claims (during the

first quarter of 2009, Travelers only

paid out $54 million in catastrophe

claims). In fact, Travelers insurance

reported an 8% gain in stock prices

compared to last year [2].

The profitability of the property

insurer after a catastrophe seems

counterintuitive to the problems that

usually face catastrophe property

insurers. There are several possible

explanations. First, insurers purchase

reinsurance in case they cannot meet

the demand of sudden waves of claims. However, it is unlikely the

case here. A large insurer like

Travelers should be able to handle a

larger deductible than the amount it

paid. A second reason may be that

insurance companies are able to

decrease liability by erasing money it

owes on catastrophe bonds from its

balance sheet. Issuing “cat” bonds are

an alternative of meeting claims

without buying reinsurance. A third,

perhaps most intuitive, reason may be

that the number of people

purchasing catastrophe insurance is

still small, because the premiums are

high and the likelihood of a claim

makes the policy not worthwhile.

Basic homeowner insurance does notinclude protection against

earthquakes [3]. In Southern

California, one of the more

earthquake prone regions of the U.S.,

only about 12% of homes is insured

against earthquakes [3]. Small

businesses, which stand to suffer more

in property damages, also find

earthquake insurance unattractive.

With premiums of $5,000 for $2.5

million policy and up to 20%

deductible, business owners often

forgo the coverage [6].

Insurers try to price the risks for

earthquakes based on all the available

information. However, scientific

methods can only go so far in

predicting when catastrophes occur.

“We can’t do much more than say‘this is a volcano that erupts on

average every 50 years, it hasn’t

erupted for 55 years, so we expect

something to happen',” says Professor

Bill McGuire at the Aon Benfield

UCL Hazard Research Centre when

speaking about volcano insurance at

Lloyd’s Market in London [1]. This

echoes the fundamental problem of

catastrophe insurance.

Despite these risks, insurers continue

to provide coverage. The high

premiums they charge results in a

small number of policyholders, which

results in a relatively small amount of

claims when disasters do strike. Most

of those affected by these natural

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disasters have to face the costs

themselves. But is this really the best

the market can do? A financial

innovation that provides affordable

coverage to everyone will be surely

revolutionary, and profitable for its

inventor.

Sources:

[1] "Bubbling under – disasters waiting to

happen." Lloyd's (February 11, 2010

Internet; accessed 28 April 2010.

[2] Comlay, Elinor. "Travelers misses

estimates, catastrophe losses soar."

Reuters (April 23, 2010) Internet;

accessed 28 April 2010.

[3] Insure.com, "Get the facts on earthquakeinsurance." MSN Money. Available

from http://

articles.moneycentral.msn.com/

Insurance/InsureYourHome/

GetTheFactsOnEarthquakeInsuran

ce.aspx?page=1. Internet; accessed

28 April 2010.

[4] Sharma, Abhinav. "UPDATE 1-HCC

Insurance says Chile earthquake to

hurt Q1." Reuters (April 13, 2010)


[5] "Zurich Estimates Chile Earthquake

Damage Claims At $200M ." TheWall Street Journal (April 23, 2010)


[6] Zwahlen, Cyndia and Nathan Olivarez-

Giles. "Firms find cost of

earthquake insurance too big a jolt

Los Angeles Times (April 19, 2010),

Internet: accessed April 28, 2010.

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Can Bond SaveMGM?Jonathan Greig

James Bond and Bilbo Baggins could

soon be no more. Metro-Goldwyn-

Mayer, the studio known for theroaring lion at the beginning of their

movies, is on the verge of filing for

Chapter 11 bankruptcy. How could

the studio behind classics such as Gone

with the Wind, Shaft, Doctor Zhivago,

Singing in the Rain, and every Bond

movie since 1981 be on the verge of

folding? Known for its big budget

movies in the 40’s and 50’s, MGM

has been dying a slow death since the60’s, when it had its last big

worldwide hit in Ben-Hur.

MGM was created in 1924, when

Marcus Loew decided to buy Metro

Pictures Corporation, Goldwyn

Pictures and Mayer Pictures because

he needed studios to provide him

with a consistent source of movies to

show at his chain of theaters in NewYork 2. From the beginning, the studio

attracted massive amounts of

attention because of its big stars and

big budgeted movies that highlighted

the sense of glamour and

sophistication that people craved for

in the 20’s. They made it a priority to

sign rising stars like Greta Garbo and

Frank Sinatra3 to long term contracts

and snag some of the top directorsfrom Europe and other American

studios. The extravagance with which

they ran the studio was something

that clearly couldn’t be sustained long

term and, sure enough, by the 50’s

the studio began to run into money

issues. Their business model was

severely flawed and set them up for

failure. Each year, they made 1 or 2

big budgeted movies and a number of

smaller films as well, hoping that one

of them would be a hit and pay for

the expenses of the other movies. But

as musicals began to lose their allure

with American audiences and MGM

began to make more and more

movies that failed at the box office,

they began to fall into debt. Their last

big hit, Ben-Hur , ended up being

worse for the company because it

kept the executives thinking they

could sustain this business model for

a long time. The 1970’s were a time

of change for the company, with new

management taking over, diversifying

the company’s investments and

cutting down the amount of money

spent on feature films. The company

reached its low point in 1973, when it

was forced to auction off most of the

props and set materials from its

illustrious past for basically nothing.

The studio was able to survive till

now by cutting most of its production

budget as well as outsourcing thedistribution of its films to another

company.

As of 2009, they are 3.7 billion in

debt, and interest payments alone

totaled $250 million a year. MGM

earns approximately $500 million a

year on income from its extensive film

and television library, but

the economic recession is reported to

have reduced this income

substantially. After only producing

about 5 movies a year since 2004 and

with The Pink Panther 2, Taking of

Pelham 123, FAME and Hot Tub Time

Machine4 being the only films the

studio has produced in the last 2

years, fans have lamented the fall

from grace of one of the original big

movie studios. Companies such as

Time Warner have discussed buying

the company but its 2 billion dollar

price tag has scared off a lot of

potential suitors. They are now

forced to have another auction, but

instead of selling off props and set

relics, they have to sell the rights to

their film library, which is close to

4,000 films. Not only do they have to

sell their past movies but they may

need to sell the rights to future movies

such as the Bond franchise, the

planned Hobbit movies and many

more. Any hope the studio had of

keeping the Bond franchise and using

the next Bond movie to keep itself

afloat died when the studio was

unable to put any money upfront to

start production on the film. 5 The

inability to adapt to changing styles of

filmmaking as well as the inability to

create an economically sound

business game plan has left MGM in

a position that even James Bond can’t

get them out of.Sources:

Encyclopedia Britannica, "Metro-Goldwyn-Mayer

Inc.." http://www.britannica.com/EBchecked/

topic/378825/Metro-Goldwyn-Mayer-Inc

(accessed 5/20/10).

Marcus Loew." Encyclopedia of World Biography.

2004. Encyclopedia.com.(May 18, 2010). http://

www.encyclopedia.com/doc/

1G2-3404703944.html

Gritten, David. "MGM bankruptcy: lion's roar has

long been a whimper."Telegraph, 4/22/10,

Rabil, Sarah. "News Corp. Said to Offer Cash,

Debt Help to Keep MGM Running." Bloomberg

News, 1/30/10,

White, Michael. "James Bond Film ‘Indefinitely’

Delayed by MGM Auction." Bloomberg Newsweek

4/19/10,

Barnes, Brooks. "In Hollywood, Grappling With

Studios’ Lost Clout."New York Times, 1/17/10,

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http://en.wikipedia.org/wiki/Late-2000s_recession





After any sort of disaster like the recent financial

meltdown, it is necessary to identify the root cause and

take action to mitigate the problem. This is obvious. The

cause of the meltdown, however, is far from it. For the vast majority of Americans, the factors that led to

collapse are inscrutable, so our political leaders have tried

to make it very simple: Wall Street is the culprit that

single-handedly destroyed our economy.

The government’s war on Wall Street is one based not on

facts, data, or even logic, but on rhetoric. Of course,

Wall Street makes for an easy target. The image of

extravagantly dressed executives raking in millions of

dollars- what seems to the average-Joe to be getting

money out of thin air- has been a part of popular culture

for decades. Politicians have been eager to help paint apicture of Wall Street as a bastion of greed, excess, and

pure evil. President Obama himself hasn’t shied away

from the dirt slinging, making “fat cat bankers” a part of

his every-day vocabulary. In the recent Goldman Sachs

senate hearing, which more resembled a witch-hunt, the

attitudes of the senators were obvious before any

information was even presented. Every question dripped

with condescension and contempt as Goldman was

The War on Wall Street:Seeing Behind the Rhetoric

Daniel Rozenfeld

“The government’s war on Wall

Street is one based not on facts,

data, or even logic, but on

rhetoric.”

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likened to nothing more than a glorified, corrupt

“bookie.” Goldman Sachs is by no means an angel, but

they, along with Wall Street did not, as one onlooker

wearing a prison costume screamed, “destroy the

economy.”

Government rhetoric centers on this idea: Wall Street got

rich by stealing from the American people and running our economy into the ground. Anything that the people

on “Main Street” lost in the crisis went straight into the

pockets of those on Wall Street. Furthermore, a big part

of what Wall Street does is nothing more than betting,

with no social benefit. For politicians eager to quickly

draw up financial reform before reelection time, this

strategy is perfect. Assign blame and get the public on

your side by vilifying Wall Street and then legislate to

“fix” the problem. The rhetoric is working. Polls show

that a majority of Americans favor Wall Street reforms.

Sentiments against the financial industry, and corporate

America as a whole, are extremely prevalent. Bonuses,

for example are seen by many as outright stealing (a

senator was quoted calling for the suicides of AIG

executives who had paid out large bonuses). The interests

of our politicians may not be aligned with the interests of

our country. Wall Street reform addresses the symptoms

of our country’s distorted financial system, but not the

disease itself.

The major bailout of Wall Street was necessary because

of massive, highly leveraged positions taken by the big banks on inherently dangerous pools of mortgages, many

of them sub-prime. If we take the rhetoric at it’s face,

that irresponsible investing with other people’s money

and with no regard for risk caused the financial disaster,

this is all the explanation needed to explain the crisis. In

fact, that rhetoric has a good measure of truth to it.

However, it doesn’t take much analysis to realize that Wall

Street’s demand for mortgage-backed securities is not an

explanation in and of itself.

Where did the inflated supply of sub-prime mortgages

come from? The answer lies with our government.

Fannie Mae and Freddie Mac, government sponsored

enterprises (GSEs) charged with purchasing and

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securitizing mortgages from original lenders, executed the

Department of Housing and Urban Development’s

policy of increasing the number of low-income

homeowners. Fannie and Freddie stood ready to

purchase, re-package, and either sell or hold low quality

mortgages from their originators. That in turn

encouraged lenders to loosen fiscal standards for

homeownership that had been in place for decades, andprovide mortgages for people who could not afford them.

The lenders didn’t bear any of the risk of the loans they

were making, because Fannie and Freddie would take the

sub-prime mortgages off their hands. Furthermore,

because of Fannie and Freddie’s GSE status and extensive

credit line from the treasury, mortgages sold by the

companies had the government’s implicit guarantee

against failure. As a result, pools of loans made to

individuals likely to default had the same status as risk-

free government treasury bills. This also gave Fannie and

Freddie access to cheap funds, allowing them to

significantly leverage their inventory of sub-prime

mortgages, thereby amplifying any potential losses or

gains.

Adding to overconfidence in the mortgages was the

flawed ratings system. Based on government regulations,

barriers to entry into the rating industry are artificiallyhigh, allowing it to be monopolized by three major firms.

Furthermore, because bank assets are regulated according

to the ratings assigned to them by the big three ratings

agencies, those agencies are essentially in charge of

regulating banks. The fact that ratings agencies were paid

by the very firms whose deals they were rating created

enormous incentives to inflate ratings to get more

business. Banks worked with the agencies in structuring

their deals to maximize the ratio of rating level to risk.

This allowed for what is known as ratings arbitrage-

banks were able to

sell highly risky assets

for much less than

their risk warranted,

due to their high

ratings. If these

regulation-fueled

incentives had not

been in place, ratings

would have been

much more likely to

accurately reflect the

low quality of the

deals being made.

Instead, those deals

had the highest

ratings possible. The

outcome was an

enormous housing

bubble based on

worthless mortgages

that no one believed

could fail.

Rhetoric against

Wall Street goes

beyond just the crisis

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though. The industry has been attacked for it’s supposed

lack of social utility. One example that has been making

headlines is Goldman Sachs’ synthetic collateralized debt

obligation deals. During the Goldman Senate hearing,

senators argued that investing in commodity futures has a

tangible benefit for people who buy or sell those

commodities as a hedge of risk, but that this same

argument does not apply to synthetic CDOs. Thesenators repeatedly used casino metaphors, and while this

metaphor is easy to understand, it reflects a fundamental

financial confusion on the part of the senators. On it’s

face, this kind of deal is in fact a bet. One side wins and

one side loses- it’s a zero-sum game. While a synthetic

CDO deal is abstract and perhaps hard to understand, it

is a hedge for anyone with either a long or short position

in the CDOs it is based on. It is an instrument for

someone facing a risk to mitigate that risk. Such a

position in turn provides liquidity for loan originators and

thus increases the availability of loans for people. These

kinds of “bets” allow economic parties to protect

themselves from risks, and used responsibly, promote

financial stability and efficient allocation of funds.

Wall Street most definitely acted in ways that damaged

our economy, but it was operating in the flawed system

already created in large part by the government.

Politicians have a conveniently short memory. Their

battle cries never seem to mention Fannie or Freddie, or

the politically-driven but economically unsound housing

policies enacted by the government. Discussion of

bailouts of Wall Street firms funded out of the pockets of

hard-working Americans (the majority of which have

been paid back at exorbitant rates of interest), do not

mention the bailouts of Fannie and Freddie, which are

still hemorrhaging money. It is likely that the government

will get its financial bill passed, and will gain significant

control over the financial industry. Wall Street’s profits

will be reduced, America’s anger will be quelled, and

politicians will fare better in their reelections.

Wall Street reform of some sort is necessary to help

prevent another financial disaster, but it is not nearly the

most important change we need, as the political rhetoric

would have us believe. Without a drastic reform of

housing policies, the rating industry, and Fannie Mae and

Freddie Mac, our economy will not be safe. Based on the

present state of the impending financial reform bill,

perhaps it will take us another meltdown to realize that.

Sources:

http://www.nytimes.com/2009/02/28/business/28nocera.html?

_r=3&pagewanted=1

http://online.wsj.com/article/

SB10001424052748703757504575194521257607284.html?

KEYWORDS=ratings+arbitrage

http://www.theatlantic.com/business/archive/2010/04/committee-

reviews-the-rating-agency-problem/39449/

http://www.nytimes.com/2010/04/25/magazine/25fob-wwln-

t.html?scp=1&sq=fannie%20freddie&st=cse

http://online.wsj.com/article/SB122298982558700341.html

http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?

id=1202448719811&Denationalize_housing_finance&hbxlogin=1&lo

ginloop=oo

http://www.nytimes.com/2010/04/28/business/28bankers.html?hpw

http://www.usatoday.com/news/washington/2010-04-17-obama-

financial-regulations_N.htm?csp=hf

http://www.nypost.com/p/news/opinion/opedcolumnists/

fannie_freddie_the_biggest_bailout_rAyIYVNxCGXc4UrUntXkCK

http://www.bloomberg.com/news/marketsmag/ratings.html

http://www.ft.com/cms/s/0/01fc2304-51f8-11df-

a2a2-00144feab49a.html

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TwitterMegan Ji

Established in 2006, Twitter has

revolutionized the concept of micro-

blogging and risen to become a

powerhouse in the social media

movement. The website’s concept issimple: users can both update

“followers” on plans, moods, and

thoughts through bite sized, 140-

character “tweets” and receive

updates on the lives of friends,

coworkers, and even favorite

celebrities. The site combines the

convenience and brevity of text

messaging with the versatility and

thoughtfulness of a traditional blog. With millions of users logging on

daily, Twitter’s popularity has been

undeniable. Even still, the company

has generated only minimal revenue.

Like many successful internet

enterprises, Twitter prioritized

popularity over profits in its early

years. Right now, the company is

struggling to establish a concrete

business model that will convert the

website’s popularity into income.

Careful, deliberate moves will be key

to Twitter’s transition from an

acquisition target to an independent,

profitable business.

Four years after its inception, Twitter

has yet to turn a profit. Exact figures

are unavailable to the public, but

estimates predict that venture

capitalist firms, such as Institute

Venture Partners and Benchmark,

Union Square Ventures, and Spark

Capital, have funneled over $57

million into the website23; in total, the

company has received $155 million in

investor money4. Yet, Twitter’s

revenue has been minimal. For years,

the website’s main income has come

from royalties from granting Google

and Microsoft favorable access to its

service5. In fact, Twitter’s business

model, or lack thereof, has virtually

become an industry joke.

Twitter’s apprehension in itstransition into profit making stems

from both a concern of the potential

repercussions of an ill-received

business model and the knowledge

that it has the funds to delay revenue

generation until something perfect

comes along. To prevent sacrificing

website appearance and user-

experience for profit, executives have

said that Twitter will not runtraditional advertising. Twitter is also

hesitant to leverage any data it

collects on user habits, preferences,

and product usage for fear of igniting

privacy concerns6. Both Facebook

and Google faced considerable

backlash regarding their use of user

information to target advertising;

Twitter wants to avoid such a fiasco.

As of now, the website’s enormouspopularity allows the company

continued access to significant

investor funding. In fact, co-founder

Biz Stone has said they have “no

dates when [they] need to break even.

[They] have plenty of money in the

bank.”7 This affords Twitter with the

luxury of holding off on generating

revenue and, to maximize this

advantage, the company wants to

reconsider and perfect any business

model before implementation.

At a company developer’s conference

this past April, company executives

announced their first semblance of a

concrete business model. Their plan,

according to Chief Operating Office

Dick Costolo, has two main “pillars.”

The first, “sponsored tweets”,

essentially advertisements in the form

of generic tweets, will allow

companies to pay for their tweet ads

to come up as top searches for certain

keyword. The second pillar,commercial accounts with special

business tools, will allow companies to

pay a premium for permission to

allow several users to post from the

same account and access to detailed

analytical tools. These accounts will

also give company accounts

legitimacy and protect them from

imposters8.

This model, though, is by itself too

conservative for the company’s long

term sustainability. In fact, early

rounds of promotional tweets are

bringing in minimal, if any, revenue.

Virgin America has announced that

the airline company is not paying for

its first batch of promotional tweets9.

Although Twitter has declined to

comment, it seems likely that otheradvertisers (including Best Buy Co.,

Sony Pictures, and Starbucks Corp.10 ), are also receiving their first

promoted tweets gratis. Twitter is

instead focusing on mitigating the

perceived intrusiveness of the newly

introduced advertising. Executives

have been adamant in differentiating

sponsored tweets from ordinary

banner ads, explaining that tweets

themselves are free; companies are

only paying to promote them11. They

further emphasize that Twitter plans

on measuring the resonance of tweet

through a metric of impressions,

retweets, and clicks on links. Because

tweets failing to resonate will be taken

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down, all sponsored tweets will be

fun, interesting, and interactive12.

The company describes these

strategies as a first phase. After

gauging user response, Twitter will

cautiously attempt incorporate other

strategies into its business model. For

example, the company has

mentioned potentially integrating

tailored sponsored tweets into the

home page’s live stream13. However,

until Twitter finds a way to do this

without raising privacy concerns, it

will refrain.

Despite current difficulties in finding

ways to generate revenue without

alienating its base, Twitter was wise to

delay establishing a business model

until after the site achieved significant

popularity. Costolo and company co-

founders, Biz Stone and Evan

Williams, all worked for Google prior

to launching Twitter14

and whenquestioned on their company’s lack of

business model in the early years,

both pointed to the Google

approach15. Despite grossing nearly

$23 billion last year in ad sales, the

search engine giant did not in fact

turn a profit until years after its 1998

inception16. Instead, the company

focused on expanding its functionality

and user base. Stone and Williams

hoped to take the same approach in

developing Twitter. Implemented

correctly, such a strategy will likely be

more effective for internet companies

in the long term, because unlike

traditional businesses, internet

companies are cheap to start up and

maintain; their challenge is drawing

attention. By establishing a large base

early on, websites create a larger

foundation from which to later raise

income. Moreover, because they are

cheaper to establish, internet

companies can take advantage of

extra leeway to experiment before

settling on a business model. As social

media expert Caroline McCarthy

points out, by allowing the site to

grow organically before attempting to

generate revenue, Twitter actually

was able to come up with a more

effective business model. When thesite was first launched, it was

intended solely for social networking.

Both currently proposed “pillars”,

however, are business focused—

something Stone and Williams would

never have predicted four years ago17.

Costolo is quoted as having said,

“Initially this is not about maximizing

revenue. It’s about getting it right.”18

With such a strong user base, Twitter

has no doubt “gotten it right.” The

company’s current challenge is in

leveraging this success into revenue

generation. Only by creating an

effective and complete business

model, can Twitter graduate from

acquisition target (as YouTube was) to

an independent and profitable

company.

Sources:

1 http://www.marketingvox.com/twitter-raises-

over-35m-in-series-c-0431922 http://www.bloomberg.com/apps/news?pid=20601109&sid=afu06n0L7LZ43 http://www.google.com/hostednews/ap/article/

ALeqM5h51oZKi0PpOIcpnnsbgdzpseGf1AD9F2ELQ804 http://www.google.com/hostednews/ap/article/

ALeqM5h51oZKi0PpOIcpnnsbgdzpseGf1AD9F2ELQ805 http://www.cnet.com/8301-30976_1-20003330-10348864.html6 http://www.wired.com/epicenter/2010/04/twitter-unveils-ad-supported-business-model7 http://www.reuters.com/article/idUS1659700507201004158 http://www.google.com/hostednews/ap/article/

ALeqM5h51oZKi0PpOIcpnnsbgdzpseGf1AD9F2ELQ809 http://blog.twitter.com/2010/04/hello-

world.html10 http://www.cnet.com/8301-30976_1-20003330-10348864.html11 http://blog.twitter.com/2010/04/hello-world.html12 http://blog.twitter.com/2010/04/hello-world.html13 http://www.google.com/hostednews/ap/article/

ALeqM5h51oZKi0PpOIcpnnsbgdzpseGf1AD9F2ELQ8014 http://www.cnet.com/8301-30976_1-20003330-10348864.html15 http://www.google.com/hostednews/ap/article/

ALeqM5h51oZKi0PpOIcpnnsbgdzpseGf1AD9F2ELQ8016 http://www.cnet.com/8301-30976_1-20003330-10348864.html

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A World of PromiseOlga Korostelina

Climate change looms over the world, threatening its

ultimate and inevitable demise. Climbing Carbon

Dioxide levels and increasing temperatures are the talk of

the world, with the potential dangers that they present.

These threats are terrifying indeed, with the possibility of sea levels rising to swallow some countries whole. What is

rarely mentioned though, is the fact that adapting to the

global climate change presents many business

opportunities worldwide.

The quest for alternative energy sources differs among

societies depending on their financial capabilities. Spain,

for example, has subsidized the building of a commercial

solar plant that now heats over 6,000 homes near Seville.

With the project considered an immense success,

companies such as Abengoa, the designer of this plant,

plan to expand further into Europe and even North

Africa. The current plant itself, the PS-10, is expected to

expand to a production level of 300 megawatts,

transforming enough solar energy to heat 180,000 homes Any company that would be able to reproduce such a

result is bound to find itself in a market with few

competitors, and high profits.

Another solution to the problems of climate change and

rising sea water levels is the design of so-called floating

islands, pioneered by Holland’s Paul van de Camp. In the

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past, van de Camp has designed construction projects

such as floating cruise ship terminals, a floating mosque,

floating hotels, and even a floating beach. His company,

Dutch Docklands, has recently been authorized to begin

building a series of islands in the Persian Gulf. These

concrete and foam constructions will feature hotels,

restaurants, and other amenities. The entire island

structures would rise and fall to accommodate changing water levels while preserving balance to the extent that it

would appear as if they were all was built on dry land.

This model of a coastal city, while for now only present in

Dubai, could expand to serve the needs of many

worldwide. For now this technology remains expensive,

and is seen as mostly a demonstration of a country’s

wealth and abilities. The technology’s future

advancements, however, could make it more affordable,

and allow it could be installed in many regions that would

be in dire need of replacement of land. Nations of thePacific islands, for example, could then potentially replace

their homeland with a chain of newly constructed islands

much like the original models. In order to accommodate

this demand, many companies would need to fill the void,

thus opening a new field of lucrative business. Perhaps,

years from now, floating island vacations will the premier

destination of tourists seeking a beach experience.

In order to profit from this new wave of green technology,

companies do not need to come up with ideas asgrandiose as floating islands as urban planning. By simply

designing parts for grandiose technological advances as

floating islands, a company can earn large profits from

not only the private business world, but also from

government grants. For example, Sage Electrochromics, a

manufacturer of energy efficient windows, not only

profits from its contracting work, but also from

development grants from the Department of Energy. At

this time, green technologies and construction materials

are a prime area of investment and development, withthe government and the general public’s support of

moving toward a ‘greener future.’ This push towards

replacement of old construction materials with new ones

could come from either government incentives, such as

tax breaks, or from simply shifting social values about the

importance of being green. Eventually, most if not all

homes and offices will renovate or build from Earth-

friendly materials. Companies that can foresee and

capitalize on this trend are sure to make handsome profits

in the future.

Our planet is changing, perhaps for the better, perhaps

for worse. What is known is that the changes that are

coming will affect a large number of people worldwide,

and in different ways. Already, the declining water flows

in the Himalayas have forced the local cultures to shift the

practices that they have been following for hundreds of years. For example, new technologies are originating on a

local level in places like the Himalayas, where artificial

glaciers are built to help collect the much needed

precipitation. Innovation on both a local and a global

scale is necessary if we are to overcome the challenges

that are ahead of us. New construction methods and

materials will be needed worldwide to accommodate

issues of both water scarcity and overabundance of water

New adaptations will come as part of a booming industry

which already begun its growth. The Green Industry’sfuture seems bright, with an ever-changing world

requiring new innovations to solve its problems. And with

a constantly increasing demand, those who are able to

supply the new earth-friendly technology and products

are bound to make a profit.

Sources:

http://www.npr.org/templates/story/story.php?storyId=13826548


http://www.sage-ec.com/index.html


http://news.nationalgeographic.com/news/2001/08/0830_artglacier.html

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Investing in Sustainability toProtect Valuable Brands:Lessons from the Coca-ColaCompany

Kunal Arya

For investors, April 2010 was when the global economic

recovery became official. Several months before that,promising data had started to trickle in with regard to the

leading economic indicators, notably inventory and

durable goods sales.[1] However, high unemployment and

stagnant consumer spending made the macroeconomic

forecast a mixed bag. So when evidence of growth in

consumer spending

finally arrived at the

end of March, it

was quickly seized

by institutional

investors asconfirmation that

the US economy

was pulling out of

the “Great

Recession.” Hedge

fund manager James

Paulsen proclaimed,

“Consumers are

coming back…that

indicates a

sustainable

recovery.”[2] For the

retail and consumer

goods sector, which

is notoriously

subject to the whims

of the American

consumer, it was a

panacea. Moody’s

upgraded its retail

sector outlook to“positive” on the

expectation that

“growth in operating

income will be driven by increases in consumer spending

and retail sales and not just from aggressive cost saving

programs.”[3] The desperate cost cutting resulting in

productivity increases had gotten retail and consumer

goods companies through the recession, it is once again

time to think about how they can regain the profitability

they enjoyed prior to the financial crisis.

Although consumers may be comfortable spending

money again, a still weak labor market and increased

savings rates means that US consumption expenditure

growth returning to its pre-crisis level anytime soon is

unlikely.[4] Branded goods companies, especially, are likely

to have a very difficult time. Consultants fromMcKinsey’s Consumer Packaged Goods Practice note

that “companies with strong premium brands

anticipating a rapid rebound in consumer behavior…are

likely to be disappointed…Their customers have tried

cheaper products—and actually like them.”[5] Unless

producers and sellers of consumer

goods can find a way to create

added value and re-establish profit

margins that suffered heavy cuts

during the recession, it will be

difficult for them to justify theirhigh valuations.

Thus the question that is giving

Fortune 500 marketing executives

sleepless nights: how can they

generate new reasons for

consumers to pay premiums for

their top brands during the

economic recovery? After two

years of reduced SG&A expenses,

which translate into smallerbudgets for product development

teams and fewer ad campaigns

and sponsorships, several

premium brands are simply

floating along on their past

reputations. But this economic

recovery is a rising tide that will

not lift all boats, and so being on

the forefront of the two major

trends in consumer goods – global

marketing and sustainability – will

be critical to the continued succes

of venerable companies and

brands.

The perfect example of clear focus on sustainability and

global growth is Coca-Cola. The CEO of Coke, Muhtar

Kent, is a living embodiment of these qualities. A recent

profile in Fortune pointed out that Kent is not only the

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son of a Turkish diplomat and thus the perfect

ambassador of Coke to the billions of global consumers

that company now serves, but also has a rock-solid

commitment to sustainability, fulfilling the role of “chief

sustainability officer” at Coke himself and further

pointing out that he never intend to appoints another

executive to that role.[6] Even during the crisis, Coke

continued to roll out ambitious new marketing campaigns

and set sustainability goals. Its successful “OpenHappiness” campaign, credited with driving international

sales and share growth during the 2009 fiscal year, was

entirely conceived and implemented during the Great

Recession.[7] Also in Kent’s first year as chief executive,

with full knowledge of the slump in consumer spending,

Coke formulated and began implementing its broad (and

expensive) “Live Positively” sustainability strategy, which

not only sets goals for internal operational improvement

(including water usage neutrality and eliminating

hydrofluorocarbon usage as well as reducing the carbon

footprint of its vending machine distribution network),

but also development of new products (like a partially

bio-plastic bottle) and supplier and bottler initiatives. In

the Fortune interview, Kent point out that these projectnot only allow Coke to differentiate its brand but also

continue to drive cost reductions throughout its massive

supply chain, going so far as to point out that “unless [a

sustainability initiative] is synonymous - business and

planet - it doesn't get traction.”[6]

However, although Coke was one of the first companies

to expand its global operations, it was not always so clear

in its focus on sustainability. For years, sustainability, in

the words of Kent, was “simply a warm and fuzzy word

in our corporate responsibility report, and part of

compliance.”[6] What changed at Coke was that

sustainability was embedded into the overall business plan

and the correct metrics to examine its impact, as well as

its financial benefit, were introduced. The quick

turnaround at Coke, which, while it is an exceptionally

well managed company is also hug e and faces all of the

challenges that come with a corporate bureaucracy,provides hope for other consumer goods companies that

wish to create value in their brand portfolio by improving

the sustainability of their businesses. Consumers seems to

be willing to give companies time to change – Coke is by

no means water neutral yet – and buy their products in

the meantime. However, those companies that do not

change their focus as the preferences and demographic

makeup of their consumers change, will find that the

emergence of low-cost competitors, be it private label

supermarket brands or generic drugs or non-branded

office supplies, will likely constrain their ability to take full

advantage of the economic recovery and mig ht prove the

optimism of the markets with regard to their future

earnings unjustified.

Sources:

1] Bureau of Economic Analysis News Release. http://www.bea.gov/

newsreleases/national/gdp/2010/txt/gdp4q09_3rd.txt

[2] BusinessWeek

http://www.businessweek.com/news/2010-03-29/u-s-stock-futures-advance-

on-speculation-economy-is-improving.html

[3] Fox Business

http://www.foxbusiness.com/story/markets/industries/retail/moodys-boosts-

rating-retail-sector/

[4] The Federal Reserve Bank of San Francisco

http://www.federalreserve.gov/newsevents/speech/kohn20100408a.htm

[5] McKinsey Quarterly

http://www.mckinseyquarterly.com/Retail_Consumer_Goods/

How_the_recession_has_changed_US_consumer_behavior_2477

[6] Forbes

http://www.forbes.com/2010/01/29/muhtar-kent-coca-cola-leadership-

citizenship-sustainability.html

[7] The Coca-Cola Company

http://www.thecoca-colacompany.com/presscenter/nr_20100209_corporate_fourth_qtr_earnings.html

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http://www.forbes.com/2010/01/29/muhtar-kent-coca-cola-leadership-citizenship-sustainability.html


http://www.mckinseyquarterly.com/Retail_Consumer_Goods/How_the_recession_has_changed_US_consumer_behavior_2477




http://www.foxbusiness.com/story/markets/industries/retail/moodys-boosts-rating-retail-sector/


http://www.businessweek.com/news/2010-03-29/u-s-stock-futures-advance-on-speculation-economy-is-improving.html

























http://www.bea.gov/newsreleases/national/gdp/2010/txt/gdp4q09_3rd.txt






Organ Trafficking:A Multimillion-DollarBlack Market

Kedar Mulpuri

With groundbreaking innovations

in organ transplantation

technology in the 1970s, modernmedicine witnessed a phenomenal

milestone. Previous attempts at

organ transplantation had failed

because the immune systems of

receiving patients had rejected the

transplants. Scientists discovered

that organ transplantation was a

highly specific operation that

could only be conducted between

compatible groups of donors andrecipients. They also found that

the use of certain

immunosuppressive drugs

increased the likelihood that the

recipient’s body would accept the

transplant. After these

breakthroughs, the demand for

organ transplantation rose, even

though it was still a relatively risky

operation. More and morepatients opted for these

procedures in hope that they

would be able to live longer lives.

As is the case for most industries

where demand is high and supply

is limited, this fostered the growth

of a large black market.

While the sale of organs in most

countries is illegal, it remains acommon practice across the

world. In 2004, organ trafficking

expert Nancy Scheper-Hughes

conservatively estimated the total

organ trafficking market to be

valued around $75 million. This

estimate was based on figures that

suggested around 15,000 organs

(with an average compensation of

about $5,000 per kidney) were

trafficked through the black

market every year (Havocscope

LLC). It is also estimated that

10% of the approximately 70,000

kidney transplants performed each

year across the world utilizekidneys purchased through the

black market (Jane’s Information

Group 2008). However, many

believe these numbers are a gross

underestimation of the actual

values, especially with the recent

discovery of large organ theft

rings where organs were removed

from victims without their

consent.

At first, the concept of organ theft

was only an urban legend, a

possible theory for a series of

mysterious disappearances and

murders. It became the subject of

many fiction books, including

Larry Niven’s popular Know

Space series with the first book,

World of Ptavvs, written in 1966(Pierce 1983). Only recently were

a series of detailed studies and

extensive criminal investigations

able to confirm the incidence of

large-scale organ theft.

Many reports show that prisoners’

organs in China were extracted

after their executions for profit

(BBC News 2006). Harry Wu and

the Laogai Research Foundation

alleged that the lack of significant

time for appeals following a death

sentence showed a corrupt

Chinese judicial system that

sanctioned organ theft (Laogai

Research Foundation). It was not

until 2006 that the Chinese

government implemented certain

laws to prevent the extraction of

organs without the direct consent

of the donor; however, the

country still maintains

contradictory statutes that allow

prisons to use prisoners in

whatever way deemed mostbeneficial to the state (Feng 2006).

Former Canadian Secretary of

State David Kilgour and Human

Rights Lawyer David Matas

published a report in July 2006

that claimed “large numbers of

Falun Gong practitioners are

victims of systematic organ

harvesting, whilst still

alive” (Matas and Kilgour 2007).

Similar incidences have occurred

in different places across the

world. In Kosovo, the Kosovo

Liberation Army purportedly

extracted organs from at least 300

ethnic Serbs during the Kosovo

War in 1999. These atrocities

were brought to light in former

chief prosecutor of InternationalCriminal Tribunal for the former

Yugoslavia (ICTY) Carla De

Ponte’s book The Hunt: Me and

War Criminals (Gorin 2008). In

December 2009, Israel

acknowledged that, during the

1980s and 1990s, the dead bodies

of Israeli soldiers and citizens,

Palestinians, and foreign workers

at the Abu Kabir ForensicInstitute had been used for the

extraction of skin, corneas, heart

valves, and bones without the

consent of their relatives (Flower

and Azriel 2009). These events

were revealed as a result of the

Aftonbladet-Israel controversy in

2009. Israel claimed that this

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practice ended in the 1990s (Black

2009).

Perhaps the largest case of organ

theft led by an individual was in

Gurgaon, a town near New Delhi,

India. Amit Kumar was arrested

in Nepal on February 7, 2008 for

running a kidney transplant racket

over the course of several years,

where donors were lured with false

pretexts of employment

opportunities (Ramesh 2008,

“Doctor arrested over Indian

kidney racket”; The Times of

India 2008). Kidneys were

extracted mostly from

impoverished natives of UttarPradesh and were transplanted

into affluent clients from abroad,

including patients from the United

States, United Kingdom, Canada,

Saudi Arabia, and Greece (Ahuja

2008). People who refused to

donate their kidneys were

subsequently drugged and

operated on against their will

(Ramesh 2008, “Indian policearrest suspected kidney snatching

gang”). It is estimated that Kumar

and his associates extracted and

performed about 600 kidney

transplantations over the course of

a decade at a local clinic (IANS

2008).

While organ transplants may be

beneficial to their recipients, the

issue of organ trade brings up

many ethical concerns that have

been addressed in worldwide

forums, including the United

Nations. Many argue that the

organ trade is an infringement of

human rights and mostly exploits

the poor who have few other

options to earn money, arguably

violating Articles 3 and 4 of the

Universal Declaration of Human

Rights (UDHR) (Franklin andEleanor Roosevelt Institute).

Scheper-Hughes, an ardent

adversary of legalizing organ

trade of any kind, says that “in

general, the movement and flow of

living donor organs - mostly

kidneys - is from South to North,

from poor to rich, from black and

brown to white, and from female

to male bodies” (Vaknin 2009). Atthe same time, however,

proponents of organ trade argue

that a regulated industry, in which

the donors are warned of possible

health risks

of organ

extraction

and are

adequately

compensatedfor their

organs,

would allow

a mutually

beneficial

transaction

for both the

donor and

recipient. In fact, they argue that

prohibiting the trade would be a

violation of Articles 3 and 29 of

the UDHR, which defend the

exercise of personal freedom and

liberties (Franklin and Eleanor

Roosevelt Institute).

In 2006, Iran legalized and

regulated the industry for kidney

sales, establishing the value of a

kidney between $2,000 and

$4,000. Because of the popularity

of organ compensation, Iran is

among the few countries that lack

a waiting list for kidney

transplants, justifying the legality

of such an industry (Ghods 2006).Because of Iran’s success in

creating a supply for kidney

transplants, some experts argue

that the voluntary sale of kidneys

should be legal across the world

and would prevent long waiting

lists that deter patients from

receiving prompt kidney

transplantation. In fact, The

Economist argued that if 0.06%of Americans between 19 and 65

donated one kidney, there would

no longer be a waiting list for

kidney transplantation in

America. It also contended that

organ sale is no more risky than

surrogate motherhood, a legal and

acceptable industry across much

of the world (The Economist

2006). In fact, many scientistshave already proven that human

life can be sustained on one

healthy kidney with little or no

consequence to aperson’s life span

so the legalization of such an

industry might allow more

Americans to live longer (Levitan).

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The organ sales debate has not

reached a level of significant

exposure in mainstream media.

Many do not realize that organ

trafficking is a rapidly growing

trade that needs to be addressed

urgently. The recent advances in

cloning technologies only furthercomplicate discussion on the issue

since many believe clones will

soon be used for organ extraction

whether officially or through the

black market. However, regardless

of our future policies on these

matters, it is clear that we need to

eliminate any opportunities for

black market trade since it is a far

more dangerous and exploitativeindustry when pursued through

those means.

Sources:

Ahuja, Sanjeev. "Global kidney racket busted inGurgaon." Hindustan Times (New Delhi),

January 25, 2008. http://www.hindustantimes.com/News-Feed//Rogue-doctors-go-global-Indian-kidneys-on-sale/272246/Article1-271683.aspx (accessed

May 14, 2009).BBC News. "Organ sales 'thriving' in China." BBC

News (London), September 27, 2006. http://news.bbc.co.uk/2/hi/asia-pacific/5386720.stm (accessed May 14, 2010).

Black, Ian. "Doctor admits Israeli pathologistsharvested organs without consent." TheGuardian (London), December 21, 2009.http://www.guardian.co.uk/world/2009/dec/21/israeli-pathologists-harvested-organs(accessed May 14, 2010).

Laogai Research Foundation. "Death Penalty &Organ Harvesting." Laogai ResearchFoundation. http://laogai.org/our_work/death-penalty-organ-harvesting (accessed May14, 2010).

Feng, Zhang. "New rule to regulate organ

transplants." China Daily (Beijing), May 5,2006. http://www.chinadaily.com.cn/china/2006-05/05/content_582847.htm (accessedMay 14, 2010).

Flower, Kevin, and Guy Azriel. "Israel harvestedorgans without permission, officials say."CNN, December 21, 2009. http://www.cnn.com/2009/WORLD/meast/12/21/israel.organs/index.html (accessedMay 14, 2010).

Ghods, Ahaj, and Shekoufeh Savaj. "Iranian Modelof Paid and Regulated Living-UnrelatedKidney Donation." Clinical Journal of the

American Society of Nephrology 1, no. 6 (2006):616-625. http://cjasn.asnjournals.org/cgi/

rapidpdf/CJN.00700206v1.pdf (accessed May14, 2010).

Gorin, Julia. "Coverup on Serbian-OrganHarvesting: 'Pro-American' Kosovo PrimeMinister Thaci Oversaw the Scheme." TheHuffington Post (New York City), April 11,2008. http://www.huffing tonpost.com/julia-gorin/coverup-on-serbian-organ_b_96272.html (accessed May 14, 2010).

IANS. "Kidney kingpin has network of overseastouts." Sify News. http://sify.com/news/kidney-kingpin-has-network-of-overseas-touts-

news-national-jegm96hgadj.html (accessedMay 14, 2010).The Times of India (New Delhi), "Kidney racket

busted in Gurgaon," January 25, 2008. http://timesofindia.indiatimes.com/Kidney_racket_busted_in_Gurgaon/articleshow/2729795.cms (accessed May 14,2010).

Levitan, Dave. "One Kidney is More ThanEnough." Scienceline. http://www.scienceline.org/2009/03/04/levitan-health-living-kidney-donor-transplant/(accessed May 14, 2010).

Matas, David, and David Kilgour. "An IndependentInvestigation into Allegations of OrganHarvesting of Falun Gong Practitioners inChina," January 31, 2007. http://

organharvestinvestigation.net/ (accessed May14, 2010).Havocscope LLC. "Organ Trafficking Market

Value: $75 Million." Havocscope Black Market. http://www.havocscope.com/organ-trafficking-market-value/ (accessed May 14,2010).

Jane's Information Group (London), "Organ trafficking:a fast-expanding black market," March 5,2008. http://www.janes.com/news/publicsafety/jid/jid080305_1_n.shtml(accessed May 14, 2010).

Pierce, Hazel. A Literary Symbiosis: Science Fiction/ Fantasy Mystery (Contributions to the Study of Science Fiction and Fantasy). New York:Greenwood Press, 1983.

The Economist. "Psst, wanna buy a kidney?" The

Economist , November 18, 2006. http://www.economist.com/node/8173039?story_id=8173039 (accessed May 14, 2010).

Ramesh, Randeep. "Indian police arrest suspectedkidney snatching gang." The Guardian (London), January 25, 2008. http://www.guardian.co.uk/world/2008/jan/25/india.randeepramesh (accessed May 14, 2010).

Ramesh, Randeep. "Doctor arrested over Indiankidney racket." The Guardian (London),February 9, 2008. http://www.guardian.co.uk/world/2008/feb/09/india.health (accessed May 14, 2010).

Franklin and Eleanor Roosevelt Institute. "TheUniversal Declaration of Human Rights."The Universal Declaration of Human Rights.http://www.udhr.org/UDHR/default.htm

(accessed May 14, 2010).Vaknin, Sam. Financial Crime and Corruption. 3rd ed.Skopje: Narcissus Publications, 2009.

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President: David Kellenberger

Editor-in-Chief: Kedar Mulpuri

Layout Editor: Anoosha Reddy

Staff Editors: Alexander Gonzalez and Jonathan

Greig

Treasurer: C. Ryan Zehner

Secretary: Alexandar Villar

Head of International Business: Alexander Lucey

Head of Domestic Business: Kunal Arya

CONTRIBUTORS

OFFICERS

David Kellenberger

Kedar Mulpuri

J. Alexander Gonzalez

Kunal Arya

Jonathan Greig

Camden Nogay

Daniel Rozenfeld

Megan JiOlga Korostelina

Jun Liang

dartmouth business journal: spring/summer 2010

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