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| COURSE CONNECTOR |
| ARTICLE SUMMARIES AND QUESTIONS |
"Wall Street's Money Machine Breaks Down," pp. 64-78: Among the wreckage of the financial debacle known as the subprime mortgage crisis are several leading financial institutions and their seemingly astute chief executives. What caused the judgment of these esteemed business leaders to break down? Apparently, a collective case of greed. At the height of the real estate boom, banks began investing in collateralized debt obligations (CDOs), a type of investment vehicle that buys and sells bonds. Banks typically don't operate CDOs; they merely help clients create them, take a fee, and exit the deal. But when the housing market was thriving — and default rates on all mortgages were unusually low — bankers built unrealistic assumptions about future default rates into their valuation models. They figured that only an unimaginably high percentage of defaults could cause any real problems. So they bought big swaths of the bonds themselves, loading the debt onto their own books, and for a time, enjoying the huge fees that flowed from financing CDOs. Then, of course, the bottom fell out. Now Citigroup's Chuck Prince and Merrill Lynch's Stan O'Neal are out of jobs, and that's just the tip of the iceberg. As the subprime saga continues to play out, no one on Wall Street is safe. Students examine one of the worst miscalculations in the annals of risk management and how it brought down some of Wall Street's best minds. Discussion Questions:
"Cleanup Crew," pp. 82-92: Noted venture capitalist John Doerr of Kleiner Perkins Caufield & Byers has found religion — of the Al Gore variety. The high-tech lifer best known for his prescient early investments in Netscape, Amazon, and Google has teamed up with the former Vice President's firm, Generation Investment Management, to pursue investments in the fast-growing, increasingly competitive arena of "clean technology." This marks a significant departure for Kleiner, which has traditionally invested heavily in information technology and health care. Doerr's position is that the effort to halt the effects of global warming will require nothing less than a total makeover of the $6 trillion global energy business. Coal plants, gas stations, the internal-combustion engine, petrochemicals, plastic bags, even bottled water will have to give way to clean, green, sustainable technologies. Needless to say, there's a lot of money-making potential wrapped up in a revolution of such a grand scale. Not everyone is pleased with Kleiner's shift in focus, however. Kleiner's lack of experience in the field is a real concern, as the capital requirements in the energy business are massive compared with what's needed to start an IT company. But clearly Kleiner is in it for the long haul, for the sake of profits and the planet. This article reveals how the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers has teamed up with Al Gore to promote green technology. Discussion Questions:
"The PayPal Mafia," pp. 96-108: "Mafia" may seem like a strong word to describe the mob-like cast of characters to emerge from PayPal, the ubiquitous online currency system, but it's not completely off base. This band of hyperintelligent, ultra-ambitious, slightly odd fellows (like the real mafia, there's nary a woman in this bunch) — all of them either PayPal founders, employees, or investors — make money like gangsters, only legally. Since PayPal was sold to eBay in 2002, the mafiosi have been busy building investment firms, philanthropies, solar-power companies, entertainment groups, an electric-car maker, a firm that aims to colonize Mars, and a slew of Internet companies. Hot web properties like Facebook and YouTube are just two of dozens of enterprises, worth roughly $30 billion, that can trace their ancestry back to PayPal. The don and consigliere of this syndicate, Peter Thiel and Max Levchin, who also happen to be the co-founders of PayPal, are at the center of it all, offering money and advice to their capos. Supercompetitiveness abounds, but their shared work ethic, unconventional worldview, and uncanny ability to make money for and off of one another continues to bind these wiseguys together. Kind of like the real thing . . . without the hits. Students take a closer look at the PayPal mafia, an interconnected group of serial entrepreneurs who rule Silicon Valley. Discussion Questions:
"All in the Families," pp. 126-136: While private equity firms, real estate investment trusts (or REITs), and public companies have made some inroads into commercial real estate, multigenerational clans still control huge chunks of pricey New York City realty. Currently, 9 of the top 20 commercial property owners in New York are old-school family operations, holding a total of 68.5 million square feet worth an estimated $48.5 billion, according to research firm CoStar. Even the iconic Chrysler Building remains in the hands of enterprises passed down through generations. These are classic American success stories: Many of the founders arrived penniless on Ellis Island a century ago, and their descendants have gone on to play crucial roles building New York, and increasingly, other cities. How do they do it? Interestingly, each family has formed its own niche, and operates accordingly. The LeFraks own entire communities, mostly residential, in Queens and Brooklyn. The infamous Trumps focus on Manhattan luxury. The Fishers have a smaller but equally influential portfolio. The Dursts are committed to energy efficient properties. The Silversteins are in healthy recovery mode after losing the World Trade Center, and the Rudins have led the way in developing NYC's dot-com district. In this article, students read about six family dynasties that maintain staunch control of large portions of New York City real estate. Discussion Questions:
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