bsm fall 2010

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Fall

The Future of Real Estate Investing: Interview With Hines Capital Markets Group CE

Interview: Twitter Co-Founder Biz Stone Solar Roadways Petrodollar Recyclin

Haitis Housing Crisis Introduction to Distressed Investing College Start-Up

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Business Sphere Magazine | Fall 202

[Fall 2010. Volume II. Issue I]

Te Yale Undergraduate Business Society is a student-run eort to educate Yales uturebusiness leaders and prepare them or consequential careers in the corporate world.Business Sphere has been instrumental in urthering business awareness on campusthrough internationally pertinent themes and relevant topics.

Business Sphere has grown tremendously in reach and scope over the last ew semestersand is now distributed widely through the undergraduate and graduate schools at Yale.BSMhas not only built upon the quality and depth o its articles but has also incorporatedthe business side o YBS operations.

Te Fall 2010 issue o the Business Sphere would not have been possible without theeorts o Paul Joo, BSMEditor-In-Chie, Aimee Marquez, Director o Brand Managemenand Christopher Lee, Director o Finance. I also wish to thank the Yale Department oEconomics or its generous support this semester.

Shashwata Narain, YBS Presiden

Editor-In-ChiePaul Joo

Editorial DirectorsJennier BarrowsMonish Shah

Managing EditorsEvan BeckNabila Chitalwala

Administrative EditorsBrian DeJames Zhang

Design DirectorAimee Marquez

Finance DirectorChristopher Lee

Operations Director

Shiv Kachru

YBS PresidentShashwata Narain

Managing DirectorAdam Bao

Conerence DirectorElizabeth Andrekovich

On-Campus AairsEric Li

Faculty AdvisorLanier Benkard

PO Box 200402 New Haven, CT 06520-0118www.BusinessSphere.org

From the EditorFrom the Editor

From the Yale Undergraduate Business Society

In this issue oBusiness Sphere magazine, our writers address the complexity o businessrom a student perspective as it relates to a wide variety o popular news. Business Sphereaims to serve as a platorm or increasing awareness o and interest in the ar-rangingimplications o business in social, economic, legal and political arenas.

Amid the uneven recovery rom the global economic downturn, it is clear thatinnovation and entrepreneurship are more important today than ever beore. Tis issueoBSMcontains an exclusive interview with Twitter co-founder Biz Stone, whose ideas

have revolutionized social networking around the world. You will also hear rom SolarRoadways CEO Scott Brusaw, who aspires to transorm Americas roads into a source orenewable energy. In other eatured articles, Yale students talk about their experiences inelds ranging from college start-ups in New Haven to non-prot work in Haiti.

I would like to extend a warm thank-you to the editorial and design teams or theirtireless eorts, without which this publication would not have been possible. Specialthanks go to the Yale Undergraduate Business Society or its continued support andcollaboration. We hope or continued success and expansion throughout the year!

Paul Joo, Editor-In-Chie

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Fall 2010 | Business Sphere Magazine

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Major ChangesJennier Barrows

Go State!Dakota Meyers

Destination: MasdarMelissa Hou

Solar RoadwaysShiv Kachru

Meet Mr. witterMonish Shah

Te College EntrepreneurEvan Beck

Recession-Era Real EstatePaul Joo

Petrodollar RecyclingMonish Shah

Internet PiracyNabila Chitalwala

Return o the VulturesJerry Feng

27 Leover WomenJoanna Zheng

29 Te Dania FoundationDaniel Kelly

CONENS

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Education

Major Changes

Students choose their majors or avariety o reasons. While the adviceis usually do what you love, stu-dents oen nd the choice dicultin light o uture internship and jobprospects, particularly in todaysrecession economy. Although somestudents certainly change majorsto become more competitive in theapplication process, motivations be-hind major changes are varied acrossprivate, liberal arts colleges andlarge, state universities. Althoughthis issue has been covered widely,perhaps new perspectives can begained today, several years into theaermath o the global nancialcrisis. Are students across dierenttypes o universities consideringeconomic conditions when theychoose their major? In what uni-

versity settings are such decisions,i any, being made? Are they look-ing toward a particular job, or moretoward a particular major that canlend itsel to an industry?

To place the issue in more con-crete terms, the National Associationo Colleges and Employers (NACE)surveyed members o the class o2009 and ound that education,oreign languages, English, historyand political science the liberalarts had the lowest job oer rates.In addition, the U.S. Bureau o LaborStatistics believes that between nowand 2018, technical and hands-on

jobs will have the most job openings.It is no surprise, then, that majorssuch as accounting, computer sci-

ence, business, and engineering werethe most likely to obtain jobs aergraduation, according to the NACEsurvey.

Although a blanket statementregarding student preerences cannot be made, it seems that there is agrowing trend towards areas o studythat lead to secure employment.Degrees given out in health proes-sions, engineering and business, orexample, increased by double digitpercentages between 2007-2008, ac-cording to a 2010 report by the U.S.Department o Educations NationalCenter or Education Statistics.

However, choosing a concentra-tion based upon what job you hopeto have in the uture or what jobsyou predict will be available aergraduation can be a dicult, i not aseemingly impossible, task. Studentsmust weigh the content o the majoragainst the work load and potentialinternship and job opportunitiessuch a major may oer. Studentsmust also consider what types oextracurricular activities they wantto engage in to make up or what-ever concrete skills they cannot learnin the classroom setting. In todaysrecession economy, this choice cangain even greater importance.

Te liberal arts majors have tend-ed to be characterized as providinga more holistic education, craingstudents abilities to think and writecritically about a wide variety o in-ormation. Indeed, proponents o aliberal arts education argue that thebroader skills o writing, analysis,and argument are crucial elements

o success in almost any job. Teother edge o the liberal arts swordthough, is the ear that students wilack specialized skills that many

jobs require. For students desiringto major in the humanities or sociasciences, the debate oen ocuses ohow they will obtain and demon-strate concrete skills employers seein their applicants.

To bridge these goals, manystudents at liberal arts universi-ties are turning to the economicsmajor, seeing it as a middle groundbetween a technical knowledge othe business world and a holistictheory-based understanding o theeld. David Colander and KimMarMcGoldrick, proessors o economics at Middlebury College and theUniversity o Richmond respectivewrote in 2009 about two constituencies within the broad umbrella o theconomics major: students who ma

jor in economics with the desire togo to graduate school and studentswho use the major as a steppingstone to business and policy.

Proessors lament the gen-eral trend o undergraduate majorsbecoming more vocational. Withrespect to economics, they desirechanges in pedagogy and contentsuch that economics majors hew tothe ideal o a liberal arts education the attainment o an economicway o thinking alongside broaderhumanistic lessons.

In act, thinking like an economcan sometimes be the motivatingactor to choose this exible major.Lydia Stepanek, Yale, BR12, recent

By Jennier Barrows

Uncertain economy convincing some college students to switch majors

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echoed the sentiment that studentsshould major in something in whicthey can invest their passion, al-though their end career goals diein their concreteness. Other articlediscussing the issue o the economand student majors primarily ocusupon students changes that t thei

predictions about the economy; tharticle has shown some students owhom a strong love or a particulareld has shaped their extracurriculchoices and career paths.

Anecdotal evidence such as thoused or this article can hardly berm oundation or hypothesesregarding the relative importance oeconomic conditions in the choiceo a major, liberal arts or other-

wise. What can be gleaned rom thgeneral evidence and the intervieweatured here are that students oeshape their employment and ex-tracurricular choices during theircollege years in relation to the easewith which their major lends itselto desired job opportunities. Mo-tivating actors behind majors atwealthy Ivy Leagues or large statecolleges dont always take into ac

count the economy, although recencoverage o this issue tends to hypethe situation in such a light. (For aexample, see Te Death o LiberalArts, NewsWeek, April 5, 2010).

Ultimately, the success o astudents job application processwill likely reect more the way thateducation has shaped the studentspassions rather than what specicskills he or she has learned in the

classroom, as Colander and Mc-Goldrick state in their paper. In theend, all employees need to learn thropes o their new job, new lessonsno matter what background theybring to the table.

Jen is a junior History major inDavenport College.

switched rom the Literature to Eco-nomics major. While Ms. Stepaneksreasons or switching to this majorwere not ueled by job prospects indeed she notes that economicshas a reputation or producing...heartless I-bankers she believesthat being an Economics major will

provide her with the appropriatetools and modes o thinking to enterthe business world.

Most companies, I imagine,are interested in students whounderstand numbers and markettrends, she said. Literature majorsare extremely smart, well-spokenpeople, but I want to have a bettereel or the reality o the businessworld: how to make it work, not how

to analyze the psychological motiva-tions o a banker in a 19th-centuryGerman play.

What Ms. Stepanek laments, how-ever, is that her lack o more special-ized skills could pose a hindrance inher job application process.

Majoring in something concretedenitely gives students a leg up inwhatever eld theyre going into,she said. For Ms. Stepanek, then, she

believes that most o her actual busi-ness acumen has been developedthrough her club activities.

I know how to talk to businessowners, get advertisement deals,plan events, etc. all because o clubactivities, she said. I oen eel thatmy classes dont teach me how toimplement the rules they teach...Iknow how to theoretically set theprice o a product Im selling, but

I dont really know whats going towork in the real world until I try sellsomething.

Tus, it appears that studentswith broad majors such as eco-nomics tailor their extracurricularchoices to supplement the theorythey learn in class. Other interviewswith students, however, shed lighton another approach: choose nar-

row, career-oriented majors andutilize internships and extracur-ricular activities to urther theirpath toward that career. Indeed,while the students interviewed orthis article represent only a smalland perhaps skewed sample, theirsentiments regarding the minor role

the economy played in their choiceo major provides some insights intostudents decision-making processesand values today.

Anthony Parilla, a junior SportsManagement major at the Universityo Florida, knows that his specializedmajor lends itsel to a specialized ca-reer path with ew job opportunitiesavailable. However, with the lessonshe learns in his classroom and his

knowledge o the industrys di-culty, he is arguably in a better posi-tion to apply to sports managementinternships, since sports manage-ment is more about getting connec-tions with people who are managersof teams, he stated. He knows whatparticular internships he should seekin order to obtain the type o job hewants aer college.

As a senior Human Factors Psy-

chology major at the University oCentral Florida, Melissa Smith hasound that her liberal arts major hasoered her a range o research andinternship opportunities. Althoughcertainly her options have not beenas specialized as Mr. Parillas wouldbe, she worked in two research labsand partook in a summer intern-ship, all relating to human actorspsychology. With these internships,

Ms. Smith believes she has devel-oped a unique set o skills outsideo the classroom that she can bringto whichever career she chooses; inact, her options include militaryapplications, private practice andindustry positions, options that arearguably more varied than what Mr.Parilla knowingly aces.

Interestingly, both students

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Entrepreneurship

Te College Entrepreneur

In 2004 Mark Zuckerbergounded Facebook with ellowHarvard undergrads. Six years later,the company is valued at over $25billion and serves hal a billionindividuals rom every corner othe Earth. Zuckerberg is now theworlds youngest sel-made billion-aire. Just over ten years ago Stanordstudents Larry Page and SergeyBrin started Google, now the worldslargest and most amous web basedsearch engine. Each o the coound-ers is worth billions and since goingpublic in 2004 Google has reached amarket cap exceeding $150 billion.Yet the worlds most amous col-lege startup story may still belongto Bill Gates, who was convinced bychildhood riend Paul Allen to dropout of Harvard in order to co-foundMicroso.

By Evan Beck

Beneath the glamor o successul college startups lies a host o challenges

Tese are the gems o collegeventures, the romantic ideal tenso thousands o eager studentschase aer every year. In hopesthat they are pursuing the next bigthing, many college students areunaware o the intense amount owork that comes with building anorganization from scratch. To startwith nothing and build a corporatestructure rom the ground up is a

very daunting task, one many donot realize when they begin thequest or entrepreneurship. Yet,around the country, and here atYale there are students who are upor the challenge.

I recently had the privilege ospeaking with Jim Liu, one o theounders o the non-prot organi-zation ReadySetLaunch. ReadySet-Launch helps high school studentswho may be nancially disadvan-taged access college applicationpreparation and mentoring or reerom Ivy League students. Aerhelping to start the organizationin 2008, Liu, a Yale sophomore istaking the semester o to continuework building the organization.Launch currently has 35 memberstudents and 15 mentors here atYale as well as running operationsat Brown University in Providence,RI. Te organization has also beenawarded multiple grants romChase Community Giving to helpurther help high school studentsrom around the country.

I talked to Liu about what he eltwere the most important aspects ostarting up any venture, both o the

or-prot and not-or-prot varietTe theme that kept coming up wthat o teamwork. No matter howgreat an idea may be the peoplewho work to propel it are vital inkeeping it alive. Te people at thehead o a successul startup need tknow how to utilize every indi-

viduals strength so as to compli-ment the organization. Accordingto Liu, it can be especially hard tond people to join a non-prot,as the motives or joining need tobe completely based on passionor the project and not on possiblmonetary incentives. In the case onon-prots where a steady orm oincome isnt owing in, grants anddonations are exceedingly impor-tant in keeping the organizationalive. Tere are also many aspectso a non-prot that mimic quali-ties o a or prot venture though,including the need or setting upa budget and nancial structure,something not all people realize is

very important says Liu.Tere have been many hurdles

in getting ReadySetLaunch towhere it is today, and most companies and organizations ace grow-ing pains in their rst several yearOne o the larger problems acingthe organization concerns tryingto maximize ace-to-ace time witas many students who need it aspossible. Luckily the Internet hasproved a way to expand beyondhigh school students in the immediate area. When I asked Liu abouthe presence o ReadySetLaunch iNew Haven he said that

No matter how great anidea may be the peoplewho work to propel it are

vital in keeping it alive.

Te people at the heado a successul startupneed to know how toutilize every individualsstrength as to comple-ment the organization.

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tual founding of FedEx, the $66 billion shipping giant. Tough manygraduates o Yale may go on to bedoctors, lawyers, or investmentbankers, there is ample proo that,with a great idea and sucient am-bition, anything is possible. Evenin the modern era there are stillideas le to uncover and the nextbig thing is budding somewhere,maybe even in New Haven.

Evan is a reshman in BranordCollege.

it was sometimes hard to get localschools to accept or encourageYale programs to exist. Tis is dueto the lack o consistency amongsome Yale College service groupsin New Haven public schoolsover the years. All the same, theorganization has been able tomake ground in being available tostudents in the region.

Tere are many resources at

Yale or students who are inter-ested in starting their own busi-ness or non-prot. In act, DwightHall, the student service organiza-tion on campus, was instrumentalin helping ReadySetLaunch getstarted in its early days. Te YaleEntrepreneurial Institute (YEI) hasalso stepped up its role in help-ing launch student ventures. Te

year round services oered canhelp students plan out the detailso their businesses. YES oers anannual venture challenge opento all members o the Yale com-munity. Cash prizes and nancialassistance are oered to winningor-prot business ideas. Last yearswinning venture went to an earlystage business developing comort-able seats or wheel chair rames

called KiSS.In the wake o the release oTe Social Network, the glamor-ized rendering o the ounding oFacebook, Newsweek magazinerecently ran a story on businessesstarted by college students. Tearticle included a blurb on FredSmith, who while at Yale wrote apaper that would lead to his even-

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Company Prole

One-on-One with Mr. Twitter

Business Sphere is proud to pres-ent an interview with Mr. Twitterhimsel, Biz Stone. In 2009, Stonewas named in imes 100 annuallist o the worlds most inuentialpeople.

Prior to founding Twitter in2007, Biz Stone was a ormer seniorspecialist at Google and a ormercreative director at Xanga, the socialnetworking and blogging service.

Monish @ Biz:I really enjoyed the Would you

have a drink with you advertise-ment o Stolichnaya Vodka thatyou eatured in. What inspired youto eature in it? And what messagedo you hope to send about Twitterthrough this advertisement?

Biz @ Monish:When Stolichnayas creative team

approached me with a script eatur-ing two versions o mysel arguingthe merits of Twitter I thought it wasunny. It occurred to me that thiswould also be a good opportunity todebunk the myth that Twitter is onlya constant stream o meaninglessbabble by mentioning presidentialtweets, business applications, andNASAs use o the product.

It was a un project or me. Weshot on location at a bar in LosAngeles with a bunch o extras and abigger crew than youd imagine justor a thirty second spot. Te com-mercial will run in North Americaand South America or one year. My

wie and I are using the ee oeredor the endorsement to help undour charitable non-prot, Te Bizand Livia Stone Foundation, a phil-anthropic organization supportingart, education, environment, cleanwater, and healthy ood or those inneed.

Monish @ Biz:Twitter has come a long way in

recent years. To quote you, Twit-ter has moved on rom being icecreamun, i not that all thatuseulto being not a triumphor technology, but a triumph orhumanity.

One of the hottest TwitTrendsrecently was the buzz surround-ing the Nobel Peace Prize awardedto Chinese dissident Liu Xiaobo.Recognizing Twitters impact inconnecting people towards politi-cal dissent in regimes like Iran andMoldova and also in natural disastersituations, ormer National Securityadviser Mark Peie has called orTwitter to be nominated for the No-bel Peace Prize. While you did notoriginally oresee this impact, howdo you hope to maximize Twittersimpact in this regard?

Biz @ Monish:We had a hunch early on that

Twitter could be complemen-tary during disaster situations butthought it best to consider it one omany tools that could be used. Wehave created a globally relevant ser-

vice and brand but there is so muchmore work ahead o usmobile

access to the Twitter informationnetwork is very important becausethat is how most o the world can gconnected.

Monish @ Biz:On that note, I understand that

Twitter already enjoys approximate75% of trac outside twitter.com omobile applications. How are youfurther developing Twitters mobileapplications?

Biz @ Monish:We have built rich experiences

on the iPhone, Android, BlackBerrand Windows Phone. Smart phoneand other smart mobile computingdevices like iPad provide a wonderul canvas or developers to createbeautiful user experiences. Howeveeverything we do must also degradgraceully down to the most rudi-mentary eature phone capable onlo SMS. Tese are our roots andwe believe that constraint inspirescreativity.

Monish @ Biz:Speaking about creativity, what

your reaction to (former Twitter engineer) Alex Paynes comment thatTwitter resembles a walled gardenAre there eorts underway to creata better developer ecosystem to support more apps for Twitter?

Biz @ Monish:Twitter is one of the most open

organizations around today. Wevealways had application program-ming interaces (APIs) which helpe

By Monish Shah

witter co-ounder Biz Stone talks about the uture o social networking

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Given Twitters amazing successin a short span, you have pointed ohow Twitter can serve as a model fsunrise companies and industries.Specically, you expressed potentiaor the growth o the solar industryHowever, the solar industry has acompletely dierent business mod

as Twitter, specically being ham-pered by high initial costs along thearly stage o the adoption curve.Given this challenge, will the mes-sage o doing good be sucient topromote large scale solar use?

Biz @ Monish:Whether its the solar industry o

social media, consumers are increaingly making more meaningul

choices because they are generallygetting more educated. Underesti-mating peoples capacity to make thright choice is a mistake. However,that alone wont do the trickcon-sumers demand both meaning and

value so the bar or companies isnow set even higher. Weve got torise to that challenge.

Monish @ Biz:

Would you like to oer our readers any nal thoughts or commenton whats next for Twitter?

Biz @ Monish:We have 175 million registered

accounts creating more than 95 milion tweets per day and were gettinmore than 370,000 new registeredaccounts daily. Were just gettingstarted. Wed like to serve a billion

accounts and wed like to grow intoprotable business with lots o hapemployees. Were three years in having incorporated in 2007 but wevestill got a long way to go.

Monish is a junior Economics majoin Morse college.

create an ecosystem o innovationaround Twitter. e most importantpeople in the ecosystem are usersand that is where we need to stay o-cused. We will continue to improveupon our platorm oerings so us-ers, developers, and Twitter alike arerewarded by the experience.

Monish @ Biz:Twitter is a business that seeks

to do good as well. On the businessside, you had identied 2010 as theyear when Twitter starts makingmoney rom nontraditional ads.Could you elaborate on this andother hopes you have for Twitter as abusiness?

Biz @ Monish:We tell new employees that we

want to have a positive global im-pact, be a successul business, andhave un. For many organizations

just two o those things means suc-cess but or us, all three are required.Twitter makes money today fromdata licensing deals and non-tradi-tional ads.

Our non-traditional ads are in the

form of Promoted Tweets, PromotedTrends, and Promoted Accounts.Tweets, Trends, and Accounts areall native to Twitterthey are anatural, organic part o the system.Advertisers pay us to have theirTweets, Trends, or Accounts seenand engaged with more than theynaturally would by being promoted.Tese promoted products are clearlylabeled.

Monish @ Biz:While you have expressed that

Twitter is a great company and youdo not intend to sell it, you have alsopreviously stated that Twitter maygo public to raise unding or urtherexpansion. Do you have any com-ments on this?

Biz @ Monish:We have no plans or an IPO and

its not something were engaged indiscussing. Too much other worktakes priority.

Monish @ Biz:Arent Twitters eorts at growth

going to harm Twitters fun and coolactor? Aer all, even your ellowco-ounder Evan Williams describedTwitter as a six foot tall 6th grader.

Biz @ Monish:Im not sure i weve ever been

cool but we certainly wouldnt worryabout that over serving users, takinggood care o our employees, and in-novating. Our growth has, rom the

beginning been totally organic andword o mouth. We dont advertiseor market Twitterthat all happenson its own.

Monish @ Biz:I understand that one aspect o

Twitters growth is that it has be-come the worlds astest growingsearch engine, outpacing Bing andYahoo combined, with 800 million

searches daily. What are your expec-tations for Twitter as a search enginegoing orward?

Biz @ Monish:Twitter is not a web search engine

so comparing our growth to that oGoogle, Bing, or others is mislead-ing. Te only thing people search oron Twitter are tweets and even theway they do that is dierentoen

searching or the same term multipletimes to nd new inormation onthe subject. Twitter is a real-timeinormation network that is growing

very quickly because it helps peoplediscover what is happening in theirworld in a way that creates value.

Monish @ Biz:

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Changing the world takes bigideas. Tough you may initially dis-miss Scott Brusaws idea o replacingasphalt with solar panels as outland-ish and uneasible, his proposal isturning heads in government and bigcompanies. Brusaw is the co-ound-er and CEO o Solar Roadways, astart-up in Idaho that aims to reduceossil uel consumption by coveringroads with solar panels to generateelectricity. Tough the companyis still strapped or cash, Brusaw isalready on his way to make solarroadways a reality.

Brusaws idea began when hewas just six years old. Growing up,electric cars were my avorite toysto play with. I still have drawings oelectric roads rom when I was little,Brusaw said. When his wie one dayasked i roads could be made out o

Basically, what you haveis an intelligent road. Te

panels are all connected.Under the solar panelsare pressure sensors, soi there is a trac jam itcan suggest an alternateroute, or i there is a childin the road at night it canlet you know that some-

thing is there.

Green Business

Solar Roadways

solar panels, Brusaw initially dis-missed the idea, saying panels weretoo ragile. But the idea stuck, andthe couple began to think about howto make it work. Tough solar pan-els are extremely ragile, he thoughtabout using the material that makesup black boxes, which are used toprotect airline inormation in case oa deadly crash, to protect the panels.I thought that i black boxes could

protect airline recordings in the caseo a crash, then a similar materialcould denitely protect the panels,Brusaw said.

Solar roadways work by stickinga solar panel underneath a durablesheet o glass. Embedded in thesolar panels lie circular LED lights,which can be used or anythingrom guiding trac by lighting upwords on the road to providing

drivers with alternate routes whentrac is heavy. Basically, what youhave is an intelligent road, Brusawsaid, Te panels are all connected.Under the solar panels are pressuresensors, so i there is a trac jam itcan suggest an alternate route, or ithere is a child in the road at nightit can let you know that somethingis there. Given that car crashes killabout 40,000 people every year and

cost $164 billion each year, solarroadways could save lives while driv-ing down the costs associated withaccidents.

Te idea gained traction whenthe Department of Transportationbegan soliciting ideas to generateelectricity. Te State Departmentsof Transportation are all broke, and

they were looking or a new sourceo unding, Brusaw claimed. Whenthey saw his idea or Solar Road-ways, he was given $100,000 to builda prototype. Pleased with what theysaw, the Federal Highway Admin-istration told Brusaw to apply oran additional $750,000 in which tourther develop his technologies.

Solar Roadways also enteredGeneral Electrics Ecoimagination

Challenge, a competition with thewinner receiving up to $200 milliondollars. With the contest havingrecently closed, GE announced thatSolar Roadways was the top votereceiver rom the public, and wasawarded $50,000. GE will announcethe nal results o the competitionsometime during November. Wewere very happy to have received themost votes in the Ecoimagination

Challenge, Brusaw said. GE hasits own labs and own engineeringgroups, so this investment could re-ally accelerate the process o makingSolar Roadways a reality.

Tough Brusaws idea is trulyrevolutionary, the sticker price mightscare some potential investors away;the cost o a 12-oot by 12-oot panelis targeted to be $10,000. Tis gurewill come out to about $4.4 million

per mile. With millions o miles opaved road in the United States, thisproject is clearly outside the govern-ments budgetary reach. However,Brusaw argues the costs o industriesthat would be eliminated by clean,solar energy make the costs o implementing this project easible. I youadd up all the prices o coal plants,

By Shiv Kachru

CEO Scott Brusaw shares his plans to replace Americas roads with solar panels

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the glass. Glass is the only unan-swered question right now, Brusawclaims. We dont want to lose thetranslucivity o the glass, otherwisethe panels wont work. But we alsoneed something that will provideenough strength and traction so ththe panels can be driven on.

But Brusaw knows his idea willtake slow implementation to gaintraction, and he hopes to start withbig-name company like Wal-Mart McDonalds. I McDonalds decidto green their image and put inSolar Roadway parking lots, peoplecould charge their cars while theyeat, Brusaw said. I challenge yound 100 miles o interstate highwaywithout a McDonalds. In other

words, a person could theoreticallydrive across the country withoutstopping or gas at all, just by stop-ping at McDonalds to charge thecar along the way. People will startrading in their internal combustioengine vehicles with electric vehi-cles, Brusaw said, so as you do thiyou not only get companies puttingin solar panels, but you have peopleditching their gas engine cars as we

We are killing ossil uel emissionsas we do this, which is the ultimategoal.

Transportation fuel accountsfor about 26% of U.S. total energydemand, and solar roadways wouldbe a signicant step in reducing theamount o dirty energy used in thicountry. According to Brusaw, bycovering all our roads with panelswith only 15% eciency, we would

produce three times the amount oenergy this country uses on an an-nual basis, and thats almost enougto power the entire world.

Shiv is a junior Economics major inBerkeley College.

asphalt, nuclear plants, as well as thecost o the road system and electricalgrid, it is about equal, Brusaw said.

ough they only have a 15%eciency, Brusaw estimates that thepanels would break even in about 20years. Tough this may seem like asteep timerame in which to recover

an investment, he notes that once thepanels are serviced in about 20 years,the old panels could be replaced withnewer ones, with much higher e-ciency. Tough we only have about15% eciency right now, when weservice the panels in 20 years wecould switch them out or somethingwith 60% eciency or better, Bru-saw said. Not only would this helpus keep up with increased demand in

electricity, but the second round ocosts would be a whole lot less thanthe rst round.

Tough many argue that a so-lar panel arm would harvest justas much energy, while saving theexpense o tearing up all the roads inthe country, Brusaws solar road-ways has the distinct advantage o

being able to charge electric cars onthe highway while they are parked.Similar to the way that an electrictoothbrush is charged in its dockingstation, electric cars can be chargedthrough mutual induction while thecar is in park. Tough you cantcharge batteries to ull capacity with

mutual induction, you can increasethe lie o a battery powered car,Brusaw said.

Although a 12-oot by 12-ootprotoype has already been created,Brusaw admits that it is ar rom thenal product. One product ault isthat the LED lights are hard to seerom a distance, since they are ardown in the structure. For the nextprototype, Brusaw plans to put the

LEDs and the solar panels betweentwo pieces o durable glass, muchlike the design o heating wires inmodern car windows. Tis wouldnot only make the LEDs easier tosee, but it would make the solar cellsmore ecient by placing them closerto the sunlight. As o now, the big-gest challenge Brusaw aces is with

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Green Business

Destination: Masdar

Imagine a uturistic city in whichhouseholds and businesses are en-tirely powered by renewable energysources and motor vehicles arereplaced by personal transit podsthat seemingly drive themselves atthe touch o an LCD screen. Tissetting has not been plucked rom ascience ction lm; such a city is astbecoming a reality. Situated ewerthan een miles southwest o AbuDhabi in the United Arab Emirates,Masdar was originally conceived bythe crown prince o Abu Dhabi andis poised to become one o the mostinnovative urban developments inthe world. Te project comprisesthe sustainable planned city itsel,the Masdar Institute o Science andTechnology for establishing a foun-dation o research and innovation,and an extensive energy-technologyunit composed o companies such asMasdar Carbon and Masdar Powersupporting its zero-carbon, cleanpower initiatives. Te growth o thismassive project is supported by thelong-term investments o MasdarVenture Capital.

In 2006, during the infant stageso its creation, the Masdar City

project generated much excitementamong developers, energy enthusi-asts and international corporationsseeking to capitalize on this cuttingedge development. Masdar ranksamong the most ambitious designundertakings o Foster + Partners,the London-based rm responsibleor the Berlin Reichstag renovation

and the upcoming Yale School oManagement campus expansion.Major investors also jumped onthe Masdar bandwagon, includingCredit Suisse and Siemens VentureCapital. Other companies, such asGerman industrial titan ConergyAG, were awarded contracts or thecomplex desalinization, solar energyand waste reduction apparatuses thatwill enhance Masdars unctionality.

Masdars innovative concept, design,and execution have not gone un-noticed by supranational organiza-tions and interest groups either. Itsocials have succeeded in increasingthe citys visibility as an eco-riendlydevelopment by securing endorse-ments rom the World Wide Fundor Nature and sustainability groupBioRegional, which has deemedMasdar a One Planet Living Com-

munity, an accomplishment urtherhighlighted by the United Nations.Masdars potential has also com-pelled the International RenewableEnergy Agency to establish its head-quarters there, urther cementingAbu Dhabis goals to position itsel atthe oreront o the renewable energymovement.

For its proponents, Masdar isa beacon o hope or the uture o

sustainable urban living. Its vision isa zero-waste and zero-carbon ecol-ogy, with a special diagonal streetdesign to channel and maximize thecooling eect o desert winds. Inact, developers are harnessing thepower o the wind by situating thecity on high ground, thereby cuttingenergy costs that would otherwise

be devoted to cooling systems. Teurban layout is also pedestrian-riendly, acilitated by the installa-tion o city-wide public and personrapid transit systems, rendering thestreets car-ree. Instead, conven-tional vehicles will be relegated to aunderground network.

Drab, blocky buildings will alsobe a thing o the past in Masdar,where the architecture will be dom

nated by latticework, curvature, andan eclectic usion o modern andtraditional Arab elements. Masdarultimate goal is to rank among themost cutting-edge, sustainable, andenergy-ecient urban developmenin the world, positioning Abu Dhabas a global leader in ecient energyresearch and investment. Its uniqueness lies in the act that Masdar isbeing built rom scratch on a plot o

desert land and aims to be completly contained and sel-sucient. Forexample, aer undergoing local de-salinization and citizen use, 80% ofthe water in Masdar will be recycle

But can Masdar live up to all thehype? I the city hopes to lead theindustries it seeks to dominate andserve as an exemplar, its concept andevelopment must prove sustain-able. A closer look at Masdar yields

some sobering truths. Maintain-ing Masdars high commitment tosustainability and energy-eciencycomes at a cost, though this cost isbeing derayed by the projects backers. Masdars $22 billion bill is beinooted by government entities, andthe development also benets romthe Abu Dhabi investment author

By Melissa Hou

Oasis o sustainability or desert mirage?

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thinking image and ail to catalyzewidespread and lasting advances insustainability.

In a nation o manmade archi-pelagos and underwater hotels thatdespite their unparalleled technoloand engineering, have proved morbenecial or the U.A.E.s tourism

industry and reputation o luxurythan its aims or sustainability,reservations about Masdars utureare not completely unounded. Butone thing is clear Masdars con-cept and creation are a step in theright direction. I even oil-exportincountries recognize the importanceo establishing alternative energysources in the advent o a post-petroleum world, perhaps others

will ollow their lead. Masdar is noPotemkin village or white elephantor Abu Dhabi, host o the annualWorld Future Energy Summit; it is resonating statement o the emirateintention to establish itsel as a longterm leader and knowledge exportein the clean energy and sustainabilmovement. While shopping and entertainment complexes cater exclu-sively to the leisure-seeking crowds

who requent nearby Dubai, Masdawill contribute urban engineeringknowledge, as well as an importantprecedent, whether or not it even-tually succeeds. Masdar may verywell be a ailure o unction romwhich engineers will gain valuableinsight; indeed, some o humanitygreatest innovations are productso persistent trial and error. Tisremains to be seen, o course, but

now, Masdar will stand in the deserpotentially a mirage o its innovatodreams, but a gem or those whobelieve in its promise.

Melissa is a sophomore in BerkeleyCollege.

itys support. Te U.A.E. governmentalone is contributing over $15 billiondollars, an advantage that ew othersustainability initiatives elsewherein the world can boast. Even simi-lar projects unded by prosperousnations have carried smaller pricetags; the Sino-Singaporean Tianjin

Eco City rings in at $9.7 billion,while Logroo Montecorvo EcoCity in Spain is projected to cost acouple hundred million euros. Andwhile Songdo International BusinessDistrict in Incheon, South Korea isestimated to cost at least as muchas Masdar, i not more, it is a muchlarger real estate development to bepopulated by a signicantly greaterpopulation. In the midst o a global

economic crisis, however, evenMasdar and the petro-dollars behindits creation have been compelledto sacrice a slice o its ambition inin order to meet realistic goals. Teprojected completion o Masdar hasbeen delayed our years, and devel-opers will still have to race to meetthe new 2020 deadline.

As such, should Masdar succeed,can its model be replicated suc-

cessully in other ast-developingnations? On a macro level, theprohibitive cost o constructing andmaintaining a planned city like Mas-dar could easily deter countries thatcannot rely on a steady stream o oilmoney rom pursuing similar eats;it is no coincidence that almostall attempts at creating high-techplanned environments have beenlimited to highly developed coun-

tries such as the United States, Japan,and South Korea. And there is noguarantee that Masdar will be widelyreplicated even within the U.A.E.,though the U.A.E. government mustbe applauded or its prescient eco-riendly investments. Even i govern-ments could nance the creationo Masdar imitations, such urbandevelopments would likely remain

inaccessible or all but the highestechelons o society, residents whocan aord to shoulder the nancialburdens o such a technology-inten-sive city with above-average livingcosts. Indeed, Masdars target seemsto be the afuent and environmen-tally savvy, as the local economy will

primarily depend on internationalcommerce, technological services,and energy research led by the Mas-dar Institute of Science and Technol-ogy (in partnership with MIT). Lessthan a third o Masdar will be zonedor housing, and providing low-costhousing is nowhere on the projectsagenda. Some academics and policy-makers ear that within a decade oMasdars completion, its sustainable

qualities and uturistic eatures willbe overshadowed by the presenceo an international jet-setting andtourist crowd, and that the seriouscommitment to clean technology bylong-term residents will be orgotten.New York Times architecture criticNicolai Ourousso has condemnedthe trend o such urban communi-ties evolving into playgrounds ortourists and the rich and recently

declared Masdar the culmination othis trend.

Te setbacks that Masdar Citydevelopers have already aced speakvolumes about the exorbitant costso ensuring that the project meets itsloy goals. Besides the project delay,desert dust particles that obstructsolar panels must be cleaned awayat great cost and have thus impededenergy productivity. In addition, city

ocials announced a year ago thatthe city may have to import energyaer all, a necessity that erodesMasdars sel-sucient appeal anddisappoints those who hoped to holdMasdar to the highest environmentalstandards. Such realities constituteone o the reasons that Masdarslong-term impact may be limitedto enhancing Abu Dhabis orward-

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U. S.

Go State!

College towns have always en-joyed certain economic advantages.Primarily, a continuous stream oresh wallets spurs an abundance ojobs in oodservice and retail. Teuniversities themselves also add jobs,attracting proessors, administrators,sta workers and their amilies. Tesecities are obviously well-equipped

economically, but are they recession-proo? Lets nd out by looking atstatistics, economic analysis, and alocal case study.

Fight! Fight! Fight!Te term college town is a bit o

an abstraction, and the line is oenblurred between a college town and atown with a college in it. For simplic-

itys sake well consider a college townto be any metropolitan area with atotal population that is less than tentimes the size o the student body oits college(s). Sorry New Haven, thatexcludes you! Well look at you spe-cically in another section. Well alsoomit metro areas with populationsabove 1 million, thereby minimizingother unseen actors that could aectthe local economy. For now, college

towns include only cities like: Man-hattan, KS, Gainesville, FL, ChapelHill, NC, Amherst, MA, Ithaca, NY,and Hanover, NH, to name a few.

Long may thy colors fySome o the economic advantages

enjoyed by college towns are prettystraightorward, and some take a bitmore thought. Obviously, the collegeitsel brings jobs to the community.

It also spurs the local economy byattracting proessors and other teach-ing sta rom outside. Tis resultsin long-term gains or the localeconomy because proessors tend toraise thoughtul, well-read childrenwho, as students, help to improvelocal schools and, as adults, becomesmart, skilled doctors, lawyers, andexecutives, thus improving the overallquality o the local labor pool.

Students bring similar benets.Many o them contribute smart,socially responsible ideas to com-munity organizations, live and workin the community during and aertheir our years o school, and goon to have bright children who alsostay in the town. Students also bringat purses ull o Pell grants anddaddys money to spend on late-night

egg sandwiches, booze, and generaldebauchery. O course, this moneyalso helps to prop-up real estate pricand create jobs in retail and service.On top o this students also providea general eeling o calmness. Most othem posses ew assets and have yet ormulate long-term investment goathus, they dont allow the wealth-eegenerated by a downturn in the stockmarket to aect their spending as

much as does the general populationIn other words, during a prolongedeconomic boom, most consumers sethe price o their homes, 401Ks, andor IRAs rise. Tis causes them to eewealthier and leverage their assetsmore riskily in order to consume mo(thats not to say that this practiceis good or the economy as a whole;its just what happens). Te oppositeproves true during a recession. I the

value o a consumers assets drops, thconsumer eels less wealthy and consumes less. However, most studentshave no real assets; thus, their spending is generally not as dependent onthe state o the economy as a whole.

Te state o the economy may alshave less eect on student consump-tion now than in previous generatioAccording to the Caliornia StudentPublic Interest Research Group, the

national per-student gure or studeloan debt nearly doubled between1992 and 2000, and other sources indicate that this gure is still generallrising. Te increasing cost o tuitionhas played a role in this trend. Howeer, the acceptance o debt by studentalso indicates that they, as a group, aless averse to debt and thereore lesslikely to alter their spending habits i

By Dakota Meyers

How college towns across the country are aring during the recession

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New Havens problem is not itsuniversities but rather its surround-ings. Te city sits squarely in themiddle o the Boston-WashingtonMegalopolis. Tis means that NewHaven has to share many of theadvantages brought by its collegeswith New York, Washington D.C.,

Philadelphia, and Boston. Insteado attracting proessors only to NewHaven, Yale and Quinnipiac bringprofessors to New Haven, New YorkStamford, Hartford, and any citywithin a morning commute o cam-pus. Te Megalopolis has the same ect on students. Rather than stayinin town, many students spend weekends (and money) shopping in NewYork, sightseeing in D.C., or watchi

a basketball game in Boston. Whilethis provides more enriching opportunities, it spreads thin the economadvantages brought by the colleges.

Te one commonality betweenthe six college towns in the top teno the BLS unemployment rankingis their distance rom other metros.New Haven proper is comparable insize to Lincoln, NE. However, unlikLincoln, New Haven rests in a Ber-muda Triangle of other metropoliseTus, the University o Nebraskaaects Lincoln like a pressure washetargeting a small area with all o itsmight, while Yale and Quinnipiac amore like a garden sprinkler, aect-ing a much larger area with much leorce.

Overall, college towns stand amuch better chance o leaving a re-cession unscathed. However, relativisolation plays a key role in ensurin

that the college town actually realizthe economic benets that its schoobrings. In the case of New Haven, ituniversities are a bit too small andits neighbors a bit too big or it toreceive the ull economic boost thatcollege can bring to a city.

Dakota is a sophomore Economicsmajor in Branord College.

accordance with their employment orlack thereo.

A spot that I love ull wellCollege towns clearly have certain

economic advantages over other partsof the country. However, this doesnot mean that they are recession-

proof. To determine this, we mustseparate holistic advantage romthose that melt away as a recessiontakes hold. Generally, we can saythat some o the employment boostbrought by the university and someo the additional spending brought bystudents are vulnerable to recession.In terms o employment, universitiesunction much like other businesses.When overall prots all universities

begin to realize ewer dividends romtheir endowments. Tus, budgetsshrink and jobs are cut. Students par-ents also tend to tighten their belts inthe midst o an economic downturn.Tough students themselves may noteel the ull wealth-eects o a dip inthe economy, their parents likely doand push them to spend less.

However, recessions do not aectsome o the economic advantageso having a college. Most universi-ties receive ederal unding, whichis not always aected by economicconditions. In act, government und-ing oen varies inversely with theeconomy during short-term uctua-tions. Additionally, colleges still at-tract proessors and intellectuals, andthis can lead college towns to have abetter-educated workorce.Our eam Will Never Fail

Tis leaves us at a point o un-certainty. Recessions certainly aectcollege towns, but to what extent? Toanswer this lets look at employmentstatistics. Here are the top ten metro-politan areas (rom lowest to highestunemployment rate) in the U.S. Bu-reau o Labor Statistics August 2010unemployment rankings:

1. Bismarck, ND*2. Fargo, ND*3. Lincoln, NE*4. Rapid City, SD5. Grand Forks, ND*6. Sioux Falls, SD7. Burlington, VT*8. Omaha, NE

9. Portsmouth, NH10. Iowa City, IA*

Notice that six o the top 10 met-ros (*) approximately t our deni-tion o a college town. Tree othercollege towns Manhattan, KS, AmesIA, and Madison, WI round out theBLS top 15.

What does this tell us? It indicatesthat college towns have weathered

the recession ar better than the resto the United States. Te nationalunemployment rate or August wasa whopping 9.5%. is compares to3.1% for Bismarck, ND and 5.1% forIowa City, IA. Tough none o thesegures are seasonally adjusted, theyshould still give us a good idea ohow comparatively well college townshave weathered the recession.

All o this means that, though col-lege towns are not completely re-cession-proo, they do usually enjoyhigher employment and less holisticdecline than other regions o thecountry. Tus, being a college towndoes not eliminate the impacts o arecession, but it does minimize them.

Go Yale!I college towns really do enjoy

tremendous economic benets, whyhasnt the Elm City ared better dur-

ing the Great Recession? Te NewHaven Metropolitan Area ranks 234on the BLS August unemploymentrankings with a rate of 9.6%, slightlyhigher than the national average.Shouldnt Yale and Quinnipiac facili-tate economic growth for New Havenjust like Kansas State does or Man-hattan or the University o Vermontdoes or Burlington?

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Finance

Petrocurrency Position in Peril?

In the Organization o PetroleumExporting Countries (OPEC) meet-ing in November 2007 in Riyadh,Saudi Arabia, Iranian PresidentMahmoud Ahmadenijad railed,Tey [the United States] get ouroil and give us a worthless piece opaper; we all know that the U.S. dol-lar has no economic value. Venezu-elan President Hugo Chavez addedto this chorus o disapproval, Teempire o the dollar has to end.Were Ahmadenijad and Chavez justengaging in anti-American rhetoric,or was there substance underlyingtheir remarks?

It is well established that the U.S.dollar has depreciated signicantlyin recent years. Te Federal Reserveslatest round o quantitative easingto make sure it [deation] does nothappen here poses urther down-ward pressure on the U.S. dollar. Assuch, the current and likely utureweakness o the U.S. dollar makes itapt to ask whether there will be reshchallenges to the petrodollar system.It is important to understand thehistorical context o the petrodollarsystem to understand the challengesgoing orward.

What is the the petrodollar system?Petrodollars are U.S. dollars

earned by oil-exporting countriesrom the sale o petroleum (pricedin U.S. dollars), a system dating backto World War II. Te 1970s saw therst period o high oil prices anda resulting boom in petrodollars.

In the last decade, especially since2006, the price for oil has surgeddue to rapid growth in demand romemerging economies. Finance andEconomics Proessor at RutgersBusiness School Farrokh Langdanahas described these two phases ohigh oil prices and correspondingbooms in petrodollars as Petrodol-lars I and II.

Currently, the U.S. dollars statusas the international reserve currencyis imperiled by two key structuralissues in the American economy.High and continually rising U.S.trade and budget decits put the

valuation o the U.S. dollar underjeopardy. As a result, it is appropri-ate to ask whether there will be reshchallenges to the petrodollar system,which concerns dollars earned by oilexporters being recycled back to theU.S. and ensuring the strength o theU.S. dollar.

Te petrodollar system emergedrom the cauldron o the gold stan-dard system. Te U.S. had played aleading role in creating and uphold-ing the Bretton Woods system inthe aermath o World War II. Untilthe early 1970s, the U.S. dollar wasstabilized by a xed exchange rateof $35 to an ounce of gold. Othermajor international currencies werealso linked to the U.S. dollar. Hence,reserve banks internationally helddollar reserves which were good asgold.

Te excessive spending o succes-sive administrations, especially theguns and butter spending o Lyn-don Johnsons administration, re-

sulted in growing U.S. decits. Tistriggered a run on the U.S. dollar, ainvestors sold U.S. dollars in returnor gold. Johnsons Secretary o theTreasury John Connolly shruggedo the problem o a weakened U.S.dollar. He famously remarked tocentral bank governors that thedollar is our currency, but yourproblem. However, Connolly wasshortly proven wrong. With the value o the U.S. dollar in jeopardy, onAugust 13, 1971, Britain called orits entire dollar reserves o $3 billioto be paid back in gold. Within twodays, on August 15, 1971, PresidenNixon delinked the US dollars pegto gold. Te so-called Nixon Shocled to the eventual collapse o theBretton Woods nancial system.

Oil shocks o the 1970sFrom its founding in 1961, OPE

was an unwieldy group o countriewith varying socioeconomic struc-tures. Hence, OPEC ended up sellinits oil cheaply in the 1960s due to aailure to control group productionquantities and petroleum prices.OPECs ounding president LuisHerrera Campina expressed frustration that a decade o cheap oil toWestern oil importers had causedoil exporters to sacrice their owngrowth, or halt it, in order to permor nance the development o theindustrialized countries.

Eventually, OPEC members succeeded in cooperating to control thprice o oil. Tis orm o cooperatioamong the oil exporting countries setting the price o oil has led many

By Monish Shah

Will the weakening o the U.S. dollar pose a threat?

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eel that the petrodollar system isonce again causing them to sacritheir own growth.

In act, the depreciation o theU.S. dollar in a time o high oilprices has prompted calls withinOPEC to shi rom U.S. dollars toother currencies. Javad Yarjani, the

head o OPECs Petroleum MarketAnalysis Department, has remarkethat in the long run, many oil ex-porting countries could shi to seling oil in euros, i the euro emergeas a more widely benecial systemor the OPEC nations. Yarjani aileto convince the OPEC to sell oil ineuros, but his country, Iran, did stoaccepting U.S. dollars or oil in Apr2008. Furthermore, in 2008, Russia

President Vladimir Putin expressethe possibility that Russia wouldstart selling oil in euros. With therecent weaknesses in the Eurozonethat possibility seems to be deerreor now. Te U.S. dollar may continue beneting rom the ugly sistersyndrome, which reers to its relatistrength vis--vis other major cur-rencies, for the short term. Howeveoil producers could eventually mov

away rom the petrodollar system.Saudi Arabia was among the

countries making cries or a switchto the euro. However, in early 2008Vice Governor o the Saudi ArabiaMonetary Authority MuhammadAl-Jasir reassured the United Statein a public announcement that SauArabia would continue to sell oilin dollars. However, Al-Jasir nowseems to have shied his position.

In March 2010, Al-Jasir, as the newappointed chairman o the GulCooperation Council MonetaryCouncil, announced that he wasspearheading a push or the Gul oexporting countries to institute theown currency. While a commonGul currency is probably years awrom ruition, the announcement i

to describe OPEC as a cartel. Tenewound OPEC solidarity, com-bined with other actors such as theSix Day War caused an astronomicalrise in oil prices; from $1.80 in 1970to $39 in 1980 (nominal prices).While petrodollars were not a newphenomenon, the rise in oil prices

caused the volume o petrodollars tosurge.

Te sharp contrast between thesurpluses earned by the oil export-ers and the decits incurred by theimporters created an internationalimbalance o payments. Te pet-rodollar recycling system requiredOPEC countries to recycle theirpetrodollar surpluses in dollar-denominated assets to nance the

decits o oil-importing countries.Tus, the development o a petro-dollar recycling system alleviatedthe international imbalance o pay-ments. Petrodollar recycling playeda crucial role in preventing a beggar-thy-neighbor currency depreciation,which would have plunged the worldeconomy to the depths o the 1930s.

George Shultz, who served as U.S.Treasury Secretary under Nixon

aer Connolly, commented on theeectiveness o the nancial mar-kets: Far rom collapsing under theweight o the petrodollar problem,nancial markets thus worked tosolve that problem.

Trough the petrodollar recyclingsystem, the United States led a newinternational nancial system whichcemented the position o the U.S.dollar as the international reserve

currency. Te U.S. dollars predomi-nance as the currency or globaltrade and commerce accrued it anetwork externality eect. Sincethe U.S. dollar was used internation-ally to service debts, pay or goods(including oil) and services, and tohold reserves, it became stronger.Tis in turn compelled more coun-

tries to use the U.S. dollar. Tis posi-tive eedback loop or the U.S. dollar,where its increasing use reinorcedits strength, ensured the reserve cur-rency status o the U.S. dollar.

Indeed, the U.S. dollar was e-ectively backed by oil, or black gold,in the words o journalist William

Clark. Former Federal Reserve BankChairman Paul Volcker later re-ected on the importance o pet-rodollar recycling. He said, erewas great irony, people were morewilling to hold dollars that werentbacked by gold than they ever werewilling to hold dollars that werebacked by gold. Craig Karminwrites in his book that jettisoningthe Bretton Woods systemliber-

ated the dollar[It was] an oppor-tunity to spread the inuence o thedollar even urther. Te system opetrodollar recycling promoted anincreased circulation o U.S. dollars.

While the U.S. has had theexclusive privilege o supplying thecurrency or recycling capital, suchan international nancial systemis inherently unstable. Former Yaleeconomist Robert Trin proposed

the Trin Dilemma which sug-gests that an international nancialsystem such as that built by theUnited States through petrodollarrecycling is inherently volatile asthe only way or all other econo-mies to accumulate net assets in thedominant currency is or the domi-nant economy to perpetually run acurrent account decit. Tus, theU.S. economy was bound to run a

current account decit that wouldimperil the stability o the interna-tional nancial system.

Te prisoners dilemma acing oilexporters

Te current slide o the U.S.dollar thereore may raise seriousconcerns or oil producers who may

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a signicant development. Te GulCooperation Council has among itsmembers an estimated 40% of theworlds reserves. Tus, a commonGul currency would signicantlychallenge the U.S. dollar as a cur-rency to invoice oil, and ultimately,as an international reserve currency.

While a growing response o oilexporting countries to the prob-lem o petrodollar recycling is builtaround moving away rom the U.S.dollar, most oil exporting countriesare currently working within thepetrodollar system to maximizethe benets o having petrodollarsurpluses. For example, countrieslike Saudi Arabia, Kuwait and theUnited Arab Emirates are launching

wide-ranging reorms to increasetheir absorptive capacity and alsoattempting to maximize investmentsmade through the nancial accountchannel.

Nevertheless, the signicance ooil exporters like Iraq, Iran, Venezu-ela, Russia, Kuwait and Saudi Arabiahaving made or making attempts tomove away rom selling oil in dol-lars cannot be understated. Tese

countries hold the largest remainingoil reserves. I any or a ew o thesecountries do successully turn awayrom the dollar, such an event couldspark an exodus o nations rom thepetrodollar system.

To borrow economic histo-rian Barry Eichengreens analyticalramework, it is in an oil exportersindividual interest to switch romcharging depreciating dollars earned

rom oil sales to other more stablecurrencies. However, it is not inoil exporters collective interestto switch rom dollars as a masssello would bring about the verydepreciation o the dollar theyear. Given that most oil exportershold a majority o their reserves indollar-denominated assets, deprecia-

tion in the U.S. dollar would put asignicant dent to the value o theirreserves. Tis prisoners dilemmaraises the spectre o an individualoil-exporting country switchingrom petrodollars towards otherpetrocurrencies and bringing abouta collapse o the petrodollar system,

triggering a domino depreciation onthe U.S. dollar.

Will QE2 cause a crash o the U.S.dollar as the petrocurrency?

Ironically, the United States mayinadvertently bring about the endo the U.S. dollars reign as interna-tional reserve currency. As ProessorEichengreen points out, the UnitedStates may decide to depreciate the

U.S. dollar to reduce its ballooningcurrent account decit. Te FederalReserves latest round o quantita-tive easing (QE2) has put furtherdownward pressure on the U.S. dol-lar. Tis depreciation could urtherpush oil exporters towards anothercurrency. Conversely, i the U.S. doesnot tackle the ballooning decit, U.S.debt will grow and this will surelylead to speculative attacks on the

dollar. Martin Wol, the chie eco-nomics commentator o the Finan-cial Times, gave a grim prognosis tosum up the American predicament:Te Americans no longer have themeans to save themselves.

Compared to Petrodollar I, thePetrodollar II phase symbolizesthe shiing o the international eco-nomic and nancial center o gravityaway rom the United States. Going

orward, this begs the question owhether we will see the emergenceo any currencies with sucientliquidity to take over the U.S. dollarsposition as petrocurrency. Somespeculate that the Chinese ren-minbi is a viable candidate given theincreasing prominence o China inthe global economy and the Chinese

governments moves towards inter-nationalizing the renminbi. How-ever, China seems reluctant to makthe renminbi the next internationareserve currency lest it suer romthe Trins Dilemma.

In conclusion, petrodollar recy-

cling was originally a means to es-tablish the U.S. dollar as an international reserve currency. Te UnitedStates has abused that positionto run an empire o debt[builtupon] decit without tears, to borrow the words o Italian economistAntonio Mosconi. However, theUnited States scal irresponsibilityhas caught up with it. Te continuedecline o the U.S. dollar makes its

exclusive use as a petrocurrency inthe long term unlikely.

Paul Kennedy expressed in theNew York imes that this growingmovement away rom the U.S. dol-lar is part o a larger internationalmovement. Te nastier interpretation o this move toward ending thdollars preeminence is, let there beno doubt, an anti-American one, hsaid.

OPEC recently celebrated itssilver anniversary, marking 50years o support or the petrodol-lar system. Going orward, OPECschoice o whether or not to stickwith the status quo is likely to be akey strategic issue or OPEC. As thU.S. dollar continues to depreciate,the economic rationale or a moveaway rom the U.S. dollar grows.Losing its status as a petrocurrency

could put the writing on the wall othe U.S. dollar as the internationalreserve currency.

Monish is a junior Economics majorin Morse College.

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Environment

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Company Prole

Te Future o Real Estate Investing

Since its inception in 1957, Hineshas grown into one o the largestprivate real estate organizations inthe world, with a portolio oapproximately 1,100 projects valuedat $22.9 billion. Tese propertiesrepresent 451 million square feet ofoce, residential, mixed-use,industrial, hotel, medical, retail andsports acilities in more than 270cities throughout the world. Business Sphere spoke with HinesExecutive Vice President and CapitalMarkets Group CEO Charles M.Baughn about the rms strategythrough the economic downturnand its plans or the uture.

BSM: Could you tell us a bit aboutHines model o vertical integration?How unique is this approach in theindustry and how does it inorm thedecisions o the company?

Baughn: Tere are a number o largeregional developers that develop andalso manage and lease their build-ings, but there are very ew inter-national rms that do this. So wemight compete with a rm in, say,

southern Caliornia that uses a mod-el very similar to ours. Or we mightcompete with someone in Chicagothat has a comparable approach. Butwhen it comes to competing eitheracross the U.S. or globally, we have

very ew competitors that are verti-cally integrated, that are providingboth the development or renovationas well as the property management.

A typical investor would go intoa market in Russia and nd a localdeveloper that they could team upwith, whereas with Hines, we haveour own people on the ground that

are executing the business. It allowsus to maintain control over qual-ity as well as alignment o interests:if everybody is working for Hines,we dont have problems with a localpartner that might have dierentgoals.

We view this as a real competitiveadvantage. In Moscow, or example,where the market is not very trans-parent, weve had our own team or

15 years. Its allowed us to createthe largest management and leasingbusiness or Class A internationaloce space in the market.

Since its inception, Hines centralocus has been in the class A ocespace market. Does this remain thecentral ocus o the company withinthe context o the global recession?

Yes. Whether we purchase oracquire a building, whether it onlyneeds leasing or also needs renova-tions, we always want to have buildings that, when theyre nished, wi

be core buildings. Tis means a verstrong location, as well as eciencyboth in how a tenant uses the spaceas well as things like energy eciency. Ultimately, o course, we want thave strong leasing in the building.

Tere are certain things you canx about a building. I you have agreat building that has a lot o leaserollover you can x that. But iyou have a building in a secondary

location that tenants only go to in avery strong market, thats obviouslysomething you cant x. So our ocis always on premium locations anhigh-quality buildings.

How has the economic slowdown haaected Hines operations? Have anymajor projects been canceled due tochallenges in raising capital?

By Paul Joo

Te challenges and opportunities acing private real estate giant Hines

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Fall 2010 | Business Sphere Magazine 2

can extend it or a ew years and stacurrent on the interest, that may bemore attractive to them than takinback the building. As a result, therhas not been a lot on the market interms o distressed assets.

Looking ahead, whats exciting on th

horizon or Hines?

Emerging market countriesare doing quite well. We have, orinstance, a strong business in Braziwhere weve had a team or a num-ber o years. Te Brazilian economis not as linked to the U.S. and Eu-rope as many other economies are,and it has continued to perorm wethrough the recession. Te same ca

be said o our operations in Chinaand Russia. Being in those parts othe world, were seeing traditionaldevelopment opportunities today.

As a fnal question, what makesHines dierent? Why is Hines specia

or you personally?

e Hines family has done agreat job o setting the right tone,

the right culture. You have a lot opeople at Hines who come out ofbusiness school and are here 20, 25years later. I think its a combinatioo having the right ethics, as well abeing a platorm or entrepreneursYou can create your own opportunties, and you have behind you thesupport o a global company.

Paul is a junior Cognitive Science

and International Studies major inBerkeley College.

We had our capital in place oreverything we were doing; certainlywe use leverage and debt, but unlikesome o our competitors, we werenot overleveraged. So we did notget into a position where we did nothave the capital to und a project.It has been challenging, though, to

raise capital or new projects.

A unique aspect o the company isthat it remains privately owned. Howdoes this aect Hines operations? Hasthe ownership structure been a ac-tor in raising capital during the pastcouple years?

I you look at the public com-panies in real estate, they have an

advantage right now in terms oraising capital, whereas, a ew yearsago, they were at a disadvantage. Soit swings both ways.

Its important to note that beingprivate ultimately makes sense orreal estate investment. We do whatwe think is the best long-term strat-egy, as opposed to being dictated byWall Street analysts and quarterlyreports. But yes, there are certainly

times in a market cycle when youlook across the ence and wish youcould be doing what other rms aredoing.

Are there any bright spots in thiseconomic slowdown? How would youdescribe the state o recovery in thereal estate market?

One, I think the debt markets or

high-quality oce buildings havecome back a lot stronger than any ous would have thought a year ago.I mean, today, i youve got a ullyleased oce building, you can bor-row money at somewhere between4-5%, which is much lower thanexpected. Tats a huge positive.

Te other thing is, because re-

turns across the market are so low,not just in real estate, i you havea ully leased high-quality ocebuilding in a major market, it will betrading at cap rates that are remi-niscent o the peak o the market.So again, the rebound o values inhigh-quality core real estate has been

much stronger than we expected ayear ago.

Tat said, even i we dont gointo a double-dip recession, thereare very ew major economists whothink we are going to have a lot ogrowth in the next year or two. 2011is going to be a challenging year interms o lling up oce space, andprobably 2012 as well. Hopefullyby that point the recovery kicks in

and we start to see a more completeturnaround.

Have distressed assets presentedacquisition opportunities or Hines?

Tere are certainly some dis-tressed opportunities, particularlyin Western markets, but were notseeing the ood o large-scale op-portunities in the real estate market

that many predicted.

Why do you think that is?

Its dierent or the class A ocemarket because the regulators arenot orcing banks to sell o their badloans. Unlike the early 90s and RTCdays, when the regulators basicallycame in and orced the banks towrite down and sell their assets, the

banks this time are being allowedto strengthen their balance sheetsslowly and have not been told thatthey need to sell assets.

And with interest rates so low, iyou extend a loan, most mortgageswill cover their debt service. Teloan to value may be too high, butrom a banks point o view, i they

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Fricklas, Viacoms generalcounsel, reiterated theundamental purpose ocopyright, explaining thatcopyright protection is

essential to the survivalo creative industry andclaimed that this rulingwould serve as a disin-centive to creation andinvention in society.

Law

Internet Piracy

Legal rights are the oundationon which any democratic societystands, and protecting copyrightsis essential or the development onew works in the artistic, scienticand economic spheres. On the onehand, upholding copyrights pro-

vides incentive to artists, scientists

and entrepreneurs to invest in theircreations. But on the other hand,stringent copyright laws can createobstacles or the spread o knowl-edge, harming the interests o thepublic. A recent lawsuit that high-lights this dilemma in the natureo copyright laws is the Google-YouTube vs. Viacom lawsuit.

Google won a huge victory whenJudge Stanton, district judge o New

York, dismissed Viacoms $1 bil-lion copyright inringement lawsuitagainst YouTube, which is ownedby Google. Te basis o the rulingwas the sae harbor provision o theDigital Millennium Copyright Act(DMCA). Te ruling validated You-Tubes practices for handling copy-right material, thereby encouragingother sites handling user-generatedcontent, like Facebook, to ollow

similar practices.Viacoms expectation that Google

police every video uploaded onYouTube, the worlds largest video-sharing website, seemed uneasibledue to the heavy amount o tracreceived by the site. At the sametime, had Google sat complacently,other media companies would have

been angered. As a result, YouTubespent signicant amounts o moneydeveloping its content ID system,an automated ltering system thatdetects and blocks inringing videos.Google also signed revenue-sharingagreements with over a thousandmedia companies. Notably, thesemoves were voluntarily undertakenby Google to placate other compa-nies and were not legally mandatory.

According to the law, all YouTubewas required to do was to take downmaterial when copyright holderscomplained about specic content.And as Judge Stanton noted, Tepresent case shows that the DMCAnotication regime works eciently:when Viacom over a period omonths accumulated some 100,000

videos and then sent a mass take-down notice on February 2, 2007, by

the next business day YouTube hadremoved virtually all o them.

Viacom sued Google in 2007,claiming that Google deliberatelyoverlooked piracy that was ram-pant on YouTube in order to protrom that piracy. Google did takedown material when notied, butuntil then, it proted hugely romthe heavy trac on its site, some owhich was attracted by copyrightedmaterials, many o them time-senstive. According to Viacom, Google

robbed copyright owners o theirrevenue and paid no price or it.Evidence that this was done delibeately was shown via internal emailsamong YouTubes founders. esee-mails between Chad Hurley, StevChan and Jawed Karim revealed thYouTube was willing to overlook thpirated material on its site, knowinthat i they gave in to heavy lterinthey could lose a high percentage o

their protable trac. Arguably, thhosting o such illegal and highlyprotable pirated material contrib-uted to YouTubes growth into a$1.65 billion company. us, manybelieve that this ruling is a blow toAmerican inventors and creatorswho are ghting piracy around theglobe.

On the other hand, it may beunreasonable to hold companies

that market products or servicesthat merely make copyright viola-tions easier ully responsible orsuch violations by their customers.For instance, a photocopy machinemaker would bear no liability or tcopyright o protected works by itscustomer, even i this were doneusing the companys photocopier. I

By Nabila Chitalwala

As online content expands, so do high-stakes legal battles

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invention in society.Copyrights are integral to the

progress o business, especially asideas and content circulate around

the world at an unprecedentedrate. However, in a digitalized age,the measures needed to ensurethe protection o such copyrightsare becoming elusive, as technolo-gies that promote the widespreaddissemination o inormation suchas le-sharing sites on the Internetbecome increasingly popular. It isextremely important to protect theinterests o inventors and to ensure

that their work is rewarded, so thathey are motivated to continue tocreate and invent. At the same timit is equally important to ensure thlarge companies do not monopolizinormation or content. Te publicshould be granted the right o acceto materials aer either a certainperiod o time or by paying orthat material at prices that are notkept articially high by such com-

panies. Te limited establishmentand upholding o copyright laws arbenecial to society as a whole.

Nabila is a reshman in DavenportCollege.

companies could be sued or piratedmaterials uploaded by their custom-ers, a huge money-makingscheme would be created by which

companies could sue sites orpirated materials that they them-selves uploaded. For instance, inthe Google vs. Viacom case, Googleprovided e-mail messages showingViacom employees uploading copy-righted clips to YouTube even as thecompany was complaining aboutcopyright inringement.

Nevertheless, Viacom and manyothers believe that companies

should take more direct measures toensure that they are not acilitatingcopyright inringements. Te lawshould make provisions or com-panies to monitor their own sitesto check or such violations. Teeasibility o such a scheme, how-ever, is in doubt. For example a sitelike YouTube receives up to 24 hourso video every minute; monitoringsuch a site would be nearly impos-

sible.However, without such a monitoringsystem in place, the rights o manyindividual copyright holders, wholack Viacoms resources to searchthe Internet or inringing material,would be violated. Tus, the argu-ment is that site operators, ratherthan looking the other way, should

take action to prevent violationswhen they have reason to believe, asGoogle does, that such violations areoccurring.

Despite heavy opposition romViacom and many other mediacompanies, Judge Stanton sidedwith Google, which claimed that,although they knew that some mate-rial uploaded on their site was in

violation o copyright law, they didnot know which clips had been up-loaded with permission and whichhad not. Tus, they could not dis-criminate among and remove these

clips unless copyright violationswere reported by a third party.

Te courts ruling was hailed asreasonable and air by many com-panies, especially sites that rely onusers to upload their own con-tent. Kent Walter, Googles generalcounsel, rejoiced, Tis is a victoryor the Internet and the people whouse it. However, the ruling wascriticized by others. Viacom decided

to appeal, condemning the rulingas undamentally awed. MichaelFricklas, Viacoms general counsel,reiterated the undamental purposeo copyright, explaining that copy-right protection is essential to thesurvival o creative industry andclaimed that this ruling would serveas a disincentive to creation and

Google provided e-mailmessages showingViacom employeesuploading copyrighted

clips to YouTube even asthe company was com-plaining about copyrightinringement.

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Finance

Return o the Vultures

It may be dicult to imagine howanyone, besides corporate lawyers,can make good money rom corpo-rate bankruptcies, but there is oneasset class o investors who representthe vultures o the nancial world.Tey desire nothing more than toeast on the rotten carcasses o allencompanies enveloped in nasty legalquagmires that make most ana-lysts squirm. Tey are, o course,the distressed investors, specialistswho utilize their legal and nancialacumen to excavate any remaining

value rom allen companies. Tesecompanies are avoided by regularinvestors who are taught ad nau-seum to only pick blue chip stockswith strong earnings growth and adurable, lasting ranchise value. Formost regular investors, distressedinvesting represents an esotericworld ar, ar away rom the universeo healthy stocks value and growthinvestors are told to remain restrict-ed to.

Distressed investing is nothingmore than investing in the securi-ties o corporations that are in gravedanger o not earning enough mon-

ey to pay o their lenders and sup-pliers. In the aermath o the GreatRecession of 2007-08, the ranks ofcompanies with a distressed statushave surged. Besides an unavor-able shi in the overall economy,a detrimental business move byunwise management is another ma-

jor reason why companies becomeinsolvent, unable to satisy payments

to its creditors and suppliers.Most healthy corporations derive

a majority o their unding rom acombination o bank loans, bonds,and stocks. When companies areprotable, they generate enoughcash to be able to pay o the inter-est and principal obligations to theircreditors. However, when companiesexperience a shock in sales revenue,or an unavorable surge in expenses,they are unable to satisy inter-est and principal payments. Tisinsolvency amounts to a violation othe legal contract between creditorand borrower and sparks an entireonslaught o legal and nancial sanc-tions that prevent the company romemploying any expansive strategiesuntil the debt has been paid o.

Most people are quite amiliarwith stocks ticker values ashacross the bottom of the TV screensevery evening during prime-timenews. But what ew outside o the -nancial world know is that the bankloans and bonds are also activelytraded in global, over-the-countermarkets that are outside the reach oorganized stock exchanges like theNYSE. But in act, the market valueor all tradable bonds and loans ar

exceeds the value o all traded stocksin the world. Bonds represent a ormo nancing where the borrowerreceives a specic amount o moneyrom a lender, and returns thatmoney at a set date with additionalinterim payments commensuratewith the borrowers own risk level.Bonds have remained invisible tomost retail investors simply because

they are more mathematical and lessuitable or conversation starters ata cocktail party. Te distressed bonmarket is a subset o the overallbond market, which includes analmost innite variety o securities,including government Treasuries,emerging-market bonds, corporateissued bonds, mortgage bonds, andspecially structured notes. Dis-tressed bonds and loans, however,represent only a modest share ototal bonds. Currently, the estimatesize o the distressed bond marketin the United States is about $320billion.

So how do distressed investors

eed on the securities o a companythat is experiencing problems pay-ing its creditors? It turns out thatthe bonds o a company, which canbe traded thanks to the historicaldiscovery o ormulas to properlyprice them, will be extremely cheapoen selling or several cents on thdollar, in nancial jargon. What thessentially means is that you, the in

By Jerry Feng

An introduction to distressed investing

Tese companies areavoided by regular

investors who are taughtad nauseum to only pickblue chip stocks withstrong earnings growthand a durable, lastingranchise value.

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course that what you bought is trua dollar, backed by the ull aith an

credit o the powerul U.S. FederalReserve. By placing their aith indistressed companies, this class oinvestors arguably plays a vital rolein resuscitating many moribundcompanies. Te spectacular returnare a corollary o the outsized riskdistressed investors bear. Tus, thepopular conception o distressedinvestors as vultures ails to take inaccount the crucial role they play a

well as the risk they bear.According to the Combined

Altman-NYU Salomon CenterDeaulted Public Bond and BankLoan index, the average returnon distressed assets in 2009 was aspectacular 56%. Of course, makindouble or even triple digit returnson distressed securities is easiersaid than done. Indeed, the roadto success in distressed arbitrage

is paved with nancial and legalpotholes or the unwary investor. Ireal lie, distressed investing requira sophisticated understanding obusiness models and relationshipsbetween securities. Te spectrum odistressed securities rom which oncan buy is vast, ranging rom seniosecured bonds to junior unsecured

vestor, are presented with the chanceto buy a dollar bill or, say, ve cents.

Te concept is simple. Assumethat I just borrowed $10,000 romyou and promise to pay you back$12,000 in two years, with the extra$2,000 rom the act that I need tocompensate you or the extra money

your $10,000 would have earned ina bank account had you just depos-ited it for two years. However, aerthe rst year, I have indulged intoo proigate o a lie, bought somespiy gis, and lost my job. Aer therst year, it doesnt look like I willhave that $12,000 to pay you nextyear. What would be the rationalthing or you to do to recoup yourloan? For one, you could discipline

my lie, restrict me rom buying any-thing else, and orce me to nd a job,so that I can have enough money topay you back, giving me more timeto repay (debt renancing). Alterna-tively, you could sell to someoneelse the $12,000 claim you haveagainst me. A buyer will pay you acertain price or the right to receivethe potential $12,000 (remember,I may still not be able to pay that

back). But what price should you getor selling the claim? Given my tenu-ous situation, a rational buyer wouldpay much less than $12,000 or theclaim, to account or the possibilityo my deaulting. Lets assume thebuyer pays you $7,000 or this claim.You walk away with $7,000 in yourwallet and can nally sleep soundly.In this case, the buyer is the dis-tressed investor, and I represent the

distressed company. Te buyer, sayMr. X, is down $7,000 and prays thatI pay back the $12,000 I now owe tohim, not you.

One year passes, and severalscenarios are possible. In the rosycase, I somehow win the lot

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