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| COURSE CONNECTOR |
| ARTICLE SUMMARIES AND QUESTIONS |
"Wall Street Special Report: What's Wrong with Wall Street and How to Fix It," pp. 70-76: Unless you've been living in a cave for the past few months, you're probably well aware of the news that the ol' Wall Street magic is gone. All those bull-market years of sumptuous profitability, ever-rising share prices, and trader compensation to die for are over, at least for a while. And now Wall Street has to pay for its misdeeds — or rather, its addiction to risk, leverage, and high pay. Redemption won't be easy, as those three weaknesses are deeply embedded into Wall Street culture. Firms depend far too heavily on risky trading as opposed to the solid, reliable fee businesses favored by commercial banks, and they embrace leverage levels so dangerous that the Street’s vaunted risk-management systems can’t prevent a collapse. Further, with an outsized share of the gains going out the door to executives and traders when times are good (i.e., when firms get lucky), shareholders are left with far less wealth when markets go sour (i.e., like now). The solution, of course, is to rein in those bad habits. But as long as there are capital markets and people can make vast sums by taking big risks with borrowed money, it’s unlikely that any reform toward more prudent behavior will last very long.
Students examine the causes of the Wall Street debacle and explore potential reforms that could prevent a similar financial collapse in the future.
Discussion Questions:- Why did many respected investment firms' risk-management procedures
fail to prevent losses? What is leverage? How did it exacerbate the
problem?
- According to the article, why is it almost certain that a new wave of regulation will force major changes on Wall Street? What changes do you anticipate? Will they help fix Wall Street’s flaws, in your opinion? Explain.
- What reform does the author of this article expect to occur with regard to independent investment banks? Why? What will be the long-term effects, if any?
"Wall Street Special Report: On the Brink of Disaster," pp. 78-84: It's the financial crisis that won't go away. At last count, there were problems in all sorts of unexpected places — mortgage-backed securities, collateralized debt obligations, collateralized loan obligations, financial insurers, structured investment vehicles, asset-backed commercial paper, auction rate securites, liquidity puts — with more apt to come. Washington's response thus far has been to bail out the Wall Street titans that caused the problems in the first place, leaving struggling homeowners to fend mostly for themselves. Yet even as Federal Reserve chairman Ben Bernanke cuts rates like mad to prevent another Great Depression, the vital markets remain frozen because the big banking institutions are literally paralyzed by losses, fear, and uncertainty. How in the world did we get to this state? Article author Allan Sloan says we're suffering the aftereffects of the collapse of a "Tinker Bell" financial market, one that depended heavily on borrowed money that has now vanished like pixie dust. The Tinker Bell market could only exist as long as everyone agreed to believe in its fantasies, like U.S. house prices never falling and cheap short-term money always being available. Those fantasies first began fading last June, when Bear Stearns let two of its hedge funds collapse. It's been a painful return to reality ever since.
This article explains why the world financial system is on the brink of a total meltdown and what the government — and American taxpayers — are doing to prevent it.
Discussion Questions:
- According to political economist Allan Meltzer, how is this economic slowdown unlike most other slowdowns? Why is it particularly challenging?
- What new financial vehicles is the Federal Reserve using to inundate the financial system with large amounts of short-term money? How do they differ from the Fed's existing mechanisms? How can the Fed afford the bailout?
- What impact will the financial crisis and the Fed's attempts to stabilize debt markets have on the American taxpayer? What other effects can be expected?
"CNBC Feels Your Pain . . .," pp. 112-116: Take the credit crunch, throw in the plummeting housing market, add an untested Fed chief and careening investment banks, and what do you get? Big ratings for CNBC, the cable business news channel that has seen its home viewership rise by 21 percent this quarter over the same quarter in 2007 — and that's not counting the scores of folks who are glued to the channel at the office, on the trading floor, and at the gym. The surprising resurgence of the 19-year-old network, which has suffered from dismal ratings in the last few years, wasn't really expected six months ago, when Rupert Murdoch launched the competing Fox Business Network. Having successfully wooed the swaggering TV executive Roger Ailes from CNBC, Murdoch — and just about everyone else — fully expected his new network to trounce CNBC, just as Fox News previously dispatched with CNN. Instead, the opposite happened. According to Nielsen, an average of 310,000 viewers tune into CNBC each day, while a paltry 10,000 watch the Fox Business Network. And while Fox targets a more populist audience, CNBC's typical viewer has a net worth of $2.7 million and an average income of $156,000, precisely the kind of person who "gets" its programming. It's been said before that someone, somewhere always benefits during tough times. Looks like this is CNBC's time.
Students take a closer look at how uncertain economic conditions have yielded big gains for cable's long-running business news channel, CNBC.
Discussion Questions:
- Describe CNBC president Mark Hoffman's strategy for reviving the network. What new challenges does he face in 2008?
- What roles have program director Susan Krakower and news chief Jonathan Wald played in CNBC's resurgence? In what ways has the Fox Business Network affected staffing at CNBC?
- Despite the fact that the Fox Business Network's ratings are presently far outpaced by CNBC's, why is Fox still considered a vital competitor? What programming wins has Fox sustained? Where is the battle between the networks headed? Explain.
"The Man Who Would Be Robbins, Covey, and Chopra," pp. 128-134: Be honest. Why do you read FORTUNE? Is it for its authoritative coverage of business, fine writing, and elegant photography? Or is it because you are interested in unleashing your true potential and mastering the secrets of success — because you want to know how all the rich people in the pages of FORTUNE got that way? If it's the second, then you should get to know the name James Arthur Ray. Ray is the latest motivational guru in a highly competitive world that includes more well-known names like Anthony Robbins, Stephen Covey, Zig Ziglar, and Deepak Chopra. What sets Ray apart from the others is that the inspiration he dispenses combines spiritual wisdom, life lessons, and get-rich advice. It's a concept he calls Harmonic Wealth, which also happens to be the title of his latest book, being released this month by Walt Disney's Hyperion publishing division. After years of holding seminars and self-publishing, Ray hopes Harmonic Wealth helps him finally break into the top tier of the $7 billion self-improvement industry, which includes motivational speakers, infomercials, books, and personal coaches. If there's anything to Ray's teachings, then he's in luck — as far as he is concerned, time is just an illusion, and he is already the über-guru of the future.
In this article, students read about motivational speaker and writer James Arthur Ray and his quest to become king of the self-improvement industry.
Discussion Questions:
- Why has the self-improvement industry grown so much in recent years? What are James Arthur Ray's “five pillars of well-being?” How do the pillars attempt to address specific needs in modern society?
- Ray has said, "Once I know that I can help you and provide a
value to you, then I believe I have a responsibility — not an
opportunity — to
sell it to you." What does he mean? Do you think this is a valid
business philosophy? Explain.
- In your opinion, does Ray have the chops to become the next big thing in motivational speaking and writing? Why or why not?
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