COURSE CONNECTOR

 ARTICLE SUMMARIES AND QUESTIONS

"Can Meg Whitman Save California?" pp. 64-73: Meg Whitman's friends and colleagues think she's crazy. Why would any sane person want to risk their good reputation — one built on a wildly successful career as CEO of eBay — to run for governor? And not just the governor of any state, but of California, arguably the sorriest state in the union? These are logical questions when you consider facts: in the past year, more people have lost jobs in California than in any other state, more homes have gone into foreclosure, more banks have failed, and businesses are moving out at an alarming rate, citing excessive regulation and intolerable taxes. Indeed, for top earners, California’s taxes are the highest in the U.S. And to what end? California's credit rating is the lowest in the nation. Yikes. But Whitman thinks she has the answer — less government. Her campaign platform centers on shrinking the state bureaucracy and holding the line on taxes. Though she has no prior governing experience, she contends that her business career routinely required her to balance budgets, run large organizations, and create jobs, all tasks that governors must be able to do really well. Even early doubters have come to recognize her sincere passion for public service. She will need all the passion she can muster if she becomes the troubled state's next governor.

In this article, students read about former eBay CEO Meg Whitman’s quest to become the next governor of California.

Discussion Questions:

1. Why is California more critical to the recovery of the U.S. economy than any other state? What two points does Meg Whitman believe she has to "get right" in order to create jobs and lift the economy in California?

2. What steps has Whitman taken to learn the political ropes and get a handle on policy issues? What criticisms has she faced from potential opponents? Are they valid? Explain.

3. Based on her business management record, what sort of governor is Whitman likely to be? Do you believe she can "save" California? Why or why not?

"Inside the World’s Biggest Hedge Fund," pp. 77-83: Not many hedge funds can say they made money in 2008. But while the average fund fell 18%, Bridgewater Associates' flagship fund, Pure Alpha, generated a gross return of 14%. How? Through the rigorous analysis that founder Ray Dalio applies to understanding markets, organizations, the economy, and life. During the long boom, when many hedge fund managers were earning billions on big leveraged bets that stocks would rise, and later, when some made fortunes by anticipating the bust, Dalio, who isn't even comfortable being called a hedge fund manager, refused to magnify his bets with a lot of borrowed money. He prefers to translate his insights, gleaned from careful research, into algorithms, and then to have his powerful computer system scope the currency and fixed-income markets for mispriced assets and other opportunities. Bridgewater's slate of clients, which consists of large institutions like pension funds and sovereign wealth funds instead of wealthy individual investors, love the approach, and not just for the returns. Bridgewater's army of analysts provides clients with a steady stream of economic research as well as investment advice — even of allocations to other hedge funds — that inspire trust and good will. The unassuming Dalio wouldn't have it any other way.

Students examine the people, the philosophy, and the practices behind the success of the world’s biggest hedge fund, Bridgewater Associates.

Discussion Questions:

1. Which major deleveraging episode of the past century does Bridgewater Associates founder Ray Dalio believe the current economic crisis most closely resembles? Why? How does Dalio define the difference between a recession and a depression (or "D-process")?

2. Define the "portable alpha" approach to investing. Why is it so difficult to apply? Why did Bridgewater turn money away in 2005?

3. Describe Bridgewater’s corporate culture. How is it a reflection of Dalio's principles? Why does Dalio believe his system has generated such positive results?

"Mel Karmazin Fights to Rescue Sirius," pp. 84-88: Mel Karmazin has had a tough stretch as CEO of Sirius XM, the progeny of last year's merger of the two satellite-radio companies. Once a Wall Street darling during his years at Infinity Broadcasting, CBS and Viacom, Karmazin has taken some hits over the last four-plus years, which isn't surprising, considering that he has presided over a 98% decline in stock price during that time. He's been criticized for failing to refinance the company's debt before the high-yield bond market collapsed, giving up too much in an eleventh-hour deal with Liberty Media to save the company, and refusing to adequately entertain alternative offers. And as recently as March 2, Sirius XM said it would be late filing its 2008 annual report because it had not finished evaluating whether it could "continue as a going concern." Despite all of this, Karmazin remains optimistic that the $530 million lifeline Sirius XM got from the Liberty deal not only will be enough to pull the company back from the brink permanently, but also will open the door to very profitable years ahead for the struggling company. One sign of hope for Karmazin: in the fourth quarter of 2008, a miserable one for most companies, Sirius XM reported its first-ever operating profit.

This article profiles Mel Karmazin, CEO of Sirius XM, and his efforts to keep the satellite-radio company afloat.

Discussion Questions:

1. According to Sirius XM CEO Mel Karmazin, the company is now on the verge of living up to its early promise. Do you agree with this assessment? Why or why not? What is Karmazin focusing on to ensure Sirius XM's long-term viability?

2. Why does Sirius founder Martine Rothblatt believe Sirius XM's business model has become dated? What forces could undermine the satellite-radio market?

3. What distribution possibility does Liberty Media CEO Greg Maffei foresee for the company, using the combined resources of Sirius XM and DirecTV? Even if Sirius XM fails, what benefit to Liberty still exists?

"Diamonds Are a Banker’s Worst Friend," pp. 92-98: Ralph Esmerian's vision seemed sound back in 2005. The jewelry dealer and art collector wanted to buy a retiring friend's company — Fred Leighton, which then consisted of a store in Manhattan and a boutique in Las Vegas — and turn it into an international brand with stores around the world. He found backing in an unlikely place, Merrill Lynch, which had recently begun making less traditional plays to make money. Merrill was comfortable with the deal because Esmerian offered up millions of dollars in jewelry from his personal collection as collateral. However, a little more research on the bankers' part would have revealed that Esmerian was already indebted to auction houses Sotheby’s and Christie’s to the tune of $18 million. Further, the jewels Esmerian pledged as collateral to Merrill had already been pledged under a different name to the family’s financial trust in order to keep Esmerian’s siblings solvent. Esmerian claims that Merrill cared more about generating fees than building a business, and the bankers intentionally inflated the value of the collateral to win approval for the loan from Merrill's internal credit committee. Whichever the case, the company itself is the real casualty — Fred Leighton, operating under Chapter 11 bankruptcy protection since April 2008, may soon cease to exist.

Students take a closer look at the legal battle between Merrill Lynch and estate jeweler Ralph Esmerian over a business loan gone bad.

Discussion Questions:

1. Why did Fred Leighton begin to fail under Ralph Esmerian’s control? How did Merrill Lynch attempt to work with him after he missed his first debt payment? Why did the bank eventually sue Esmerian?

2. What is the goal of the restructuring officer who is currently running Fred Leighton? Do you believe the company will be salvaged? Why or why not?

3. The author of the article concludes of Esmerian that "at best he was careless; at worst he was cunning." Which do you think is the case? Explain.