IFJ March Edition by The IFJ

THE INTERCOLLEGIATE FINANCE JOURNAL P.10 THE HOTTEST RUNWAY

OF 2014: WALL STREET BY KADEN LEE

P.13 CALLING ALL

SHOPAHOLICS BY TIFFANY CHANG

P.30 THE BUSINESS OF

BURBERRY

BY CAMIL A MCHUGH

P.18 GROWING A MARKET

IN YOUR BASEMENT BY MIGUEL FERREIRA

P.24 GET YOURSELF

LINKEDIN BY CL AIRE SU

MARCH EDITION 2014

LETTER FROM THE EDITOR While I was handing out copies of our December edition, someone challenged me to answer a single question: why does finance matter? It’s a difficult question even for those already familiar with the industry. I could tell you about fiscal policy and interest rates and the 2008 financial crisis, but the answer is much simpler: finance provides money today to those who can make money tomorrow. Imagine there are two technology enthusiasts in California that have an amazing idea for a product that’s going to revolutionize society. It’s the start of a billion dollar industry. The only problem, they’ve got little else than the lint in their pockets. They need money today. A college student in Boston has just started his summer internship. He works hard for his money, and he wants his money to work for him. He knows that one day he’ll want to have a family, buy a house, and maybe even have a shiny, red convertible sitting in his garage. He’s got money today, but the future is uncertain. He needs money tomorrow. Financial markets can connect these people, and millions of others like them all over the world. For the technology company, the answer is to raise money in the capital markets (see page 5). Helping these companies raise capital is the responsibility of investment banks. Meanwhile, the student can invest his excess funds through a mutual fund or asset manager, which allows him to profit from the growth of great companies. Learning to manage your money is important, so make sure to take a look at our Personal Finance section (see page 13). Many of you may already be pursuing careers in finance (see page 24). And if you’re not, finance will still have a role in your industry. Whether you’re leading a start-up (see page 30) or working on Capitol Hill (see page 16 for our new Political Economy section), finance matters. And it shows – our team at our headquarters at Brown University has doubled since our last issue! People of all backgrounds, interests, and concentrations have worked to create the issue currently in your hands. So take the time to read on. I promise it’ll be worth the investment.

Alex Dreschler Co President & Editor in Chief

EXECUTIVE BOARD

Alex Drechsler – Co-President Brice Gumpel – Co-President & Founder Max Deutsch – Co-Head of Business Matthew Ostrow – Co-Head of Business Steven Adler - Head of Content Alexandra Nuttbrown – Head of Style Stephanie Hennings – Head of Layout Emily Law - Head of Design Felicia Iyamu – Head of Distribution Michele Narbonne – Head of Recruitment Lauren Tsai – Head of Operations Yuta Inumaru – Head of Web & Social Media Wonnie Sim – Treasurer

EDITORIAL BOARD

Steven Adler - Head of Content Christian Ackmann - Personal Finance Sarah Park - Personal Finance Andrea Wistuba Behrens - Careers and Internships Alon Galor - Markets & Investing Alex Lloyd George - Markets & Investing Carter Johnson - Business & Start-ups Eric Han - Political Economy Thomas Pesce - Political Economy Caroline Vexler - Interviews & Other Content

BUSINESS TEAM

Max Deutsch- Co-Head of Business Matthew Ostrow- Co-Head of Business Lauren Tsai- Head of Operations Wonnie Sim- Treasurer Christopher Heo Yuta Inumaru Kaden Lee Aidan Leonard Quinn Herrera Destin Sisemore Wenjie Zheng Scott Fielding Amanda Beaudoin Christine Blandhol Kyle Law Madalyn Metz Heather Sabel Paul Cichocki Sara Hartse Connor Lynch Arielle Schacter Pranav Sharma Ashna Mukhi Sara Hartse Ian Green Connor Lynch Arielle Schacter Manfredo Koelliker Pranav Sharma Ashna Mukhi

WEB & SOCIAL MEDIA

Yuta Inumaru - Head of Web & Social Media Sara Hartse - Head of Technology Tung Nguyen - Project Leader Amanda Yao Karthik Harihar Reddy Battula Wenjie Zheng Raymond Zeng

BLOG TEAM

Julia Verbrugge - Blog Editor Angelo Nakos Maria Jose Herrera Patrick Rosanelli Paul Cichocki Shiying Luo Masahiro Nakanishi Eric Hu

STAFF WRITERS

SENIOR STAFF WRITERS

Tiffany Chang Lauren Sukin Kaden Lee Ebony McCaskill Camila McHugh Tung Nguyen Jasmine Bala Ana Rosenstein Claire Su Caroline Vexler Angela Marie Bernadette Teng Amanda Yao Julia Verbrugge Elizabeth Studlick Christopher Dederick Michael Golz

COPY EDITORS

Lisa Opdycke Nathan Johnson Francesca Whitehead Duncan Weinstein Maria Jose Hererra

FACT CHECKERS

Francesca Whitehead Arielle Schacter Shreya Bhargava Scott Schubert Ella Warshauer Eric Hu

DESIGN TEAM

Emily Law – Head of Design Chandelle Heffner – Graphic Designer Sarah Lee – Graphic Designer

Alexander Behnke Shreya Bhargava Frances Chen Noah Elbot Perry Feldman Miguel Ferreira Alexandra Garcia Peter Hix Kristina Hu Nathan Johnson Joanne Low Lehm Maguire Giuliano Marostica Alisa Owens Kiera Peltz Christian Petroske Ignacio Perez-Pozuelo Graham Rotenberg Jordan Schochet Kelsey Sherman Kjetil Stiansen Carolyn Stichnoth Mark Valdez Jonathan Vu Matthew Janigian Jonathan White

LAYOUT TEAM

Stephanie Hennings – Head of Layout Madeleine Johnson – Head Illustrator Quinn Herrera Israel Carrete Kaden Lee Kimberly Meilun Amy Yao Meng Nicholas Pucel Lorraine Salim Mili Sanwalka Claire Su Sirena Turner Kayla Tyrrell Kwa Jie Hao

WANT TO GET INVOLVED?

JOIN THE INTERCOLLEGIATE FINANCE JOURNAL For more information, check out the “GET INVOLVED” tab on our website! Become a general body member, submit to our next edition, or join one of our sub-teams: design, business development, and web. If you have any questions, please contact team@theifj.com or

alex_dreschler@brown.edu

Markets and Investing

Personal Finance

Careers & Internships

Political Economy

Business & Startups

Blog

Blonde or BRUnet: Alumni Who Defy Career Expectations

Russian Trade Policy: The Empire Strikes Back

Three Protests, Three Countries, Three Continents

Starting Your Retirement Nest Egg

Russian Trade Policy: The Empire Strikes Back

Latest News

The Sociology of Your Power Suit (Why “Dressing to Impress” is a Thing That Exists:”

Markets & Investing

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MARKETS & INVESTING 05

THE HOTTEST RUNWAY OF 2104:

SHADOW BANKING:

THE ECONOMISTS:

THE MINIMUM WAGE:

Wall Street - BY KADEN LEE

How an Abstract Financial Chain Nearly Brought Down the Financial System - BY MATTHEW JANIGIAN To Each a Piece of the Prize - BY ALEX LLOYD GEORGE Waxing or Waning Income Inequality? - BY ALON GALOR

CAREERS & INTERNSHIPS

PERSONAL FINANCE 13 14

CALLING ALL SHOPAHOLICS

ROTH IRA:

TRADITIONAL VERSUS ROTH IRAS:

INFORMATION ASYMMETRY

- BY TIFFANY CHANG

THREE FREE ONLINE SHOPPING TOOLS - BY CHRISTIAN ACKMANN

A Wise Choice for College Students - BY PERRY FELDMAN The Differences Explained -- BY CHRISTIAN ACKMANN - BY MATTHEW JANIGIAN

POLITICAL ECONOMY

24 26

GET YOURSELF LINKEDIN - BY CLAIRE SU

STUDENT SPOTLIGHT: Natalie Roe

APPLYING FROM AFAR:

THE SOCIOLOGY OF YOUR POWER SUIT:

SO, YOU WANT TO WORK FOR GOOGLE? - BY JULA VERBRUGGE

- BY CAROLINE VEXLER

Tips on Finding a Job or Internship while Abroad - BY ANDREA WISTUBA BEHRENS Why “dressing to impress” is a thing that exists - BY ANDREA WISTUBA BEHRENS

WHAT IS BLOOMBERG?

GROWING A MARKET IN YOUR BASEMENT

A Guide to the Financial Markets Platform - BY THOMAS PESCE

THE FEDERAL RESERVE:

BUSINESS & STARTUPS

19 20

CHURCH VERSUS STATE - BY CAROLINE VEXLER

21 22

THE (UN)DEMOCRATIC UPRISING - BY LAUREN SUKIN

- BY MIGUEL FERREIRA

An Overview - BY SARH PARK

RUSSIAN TRADE POLICY:

The Empire Strikes Back - BY CHRISTOPHER DEDERICK

THE DUBAI MODEL UNVEILED - BY TUNG NGUYEN

30 32 33 33

THE ROBINHOOD APP- BY ELIZABETH STUDLICK THE BUSINESS OF BURBERRY - BY CAMILA MCHUGH STARTUPS, FROM BROWN TO YOU - BY CARTER JOHNSON BLONDE OR BRUNET:

Alumni Who Defy Career Expectations - BY MICHAEL GOLZ

ALSO IN THIS SECTION (p. 7) SHADOW BANKING: How an Abstract Financial Chain Nearly Brought Down the Financial System (p.9) THE ECONOMISTS: To Each A Piece of the Prize (p.10) THE MINIMUM WAGE: Waxing or Waning Income Inequality

BY KADEN LEE The spectacular growth of Michael Kors Holding Limited following its IPO in December 2011 has proved to be more than a fad. The Kors brand has laid claim to the seemingly paradoxical but exploding niche of ‘affordable luxury’ as the global economy recovers from the financial crisis. The U.S. premium handbag and women’s accessories market is currently estimated to be $10.3 billion dollars, and in China, Bain & Co. estimates that luxury goods sales will reach up to $21 billion this year. In the last three years alone, Michael Kors has already captured an estimated 16 percent of the market.

COUNTDOWN FOR COACH

But as Kors continues to prosper, fashion incumbents have taken a big hit – most notably Coach, Inc. Coach has been a regular in the financial news, and for all the wrong reasons. The company, which pioneered the democratization of the luxury market, has subsequently lost significant market share to new competitors such as Kors, Kate Spade, and Tory Burch. After reaping gross profit margins of more than 70 percent for years in a relatively unchallenged market, Coach’s clock has finally struck midnight. Despite the two companies’ radically divergent paths, the similarities between them are striking. In fact, it is almost too easy to see Kors as little more than Coach’s younger, more fashionable counterpart. The growth patterns of the two companies following their respective IPOs are similar, and Coach too enjoyed steady growth until 2008.

SOARING FACTORY SALES

Fast growing lines often face the challenge of simultaneously pursuing rapid sales growth while maintaining the brand’s aura of exclusivity. Even before Michael Kors or Kate Spade entered the fashion scene, Coach attempted to shore up sagging sales by expanding into a line of outlet stores. Interestingly, up to 85% of the products sold in factory stores are designed exclusively for the outlets using cheaper materials and logo-heavy designs. This was a conscious decision on Coach’s part to distinguish outlet items from its regular line. As the outlets have flourished, these items have flooded the market, and today, the pattern of crosshatched ‘CC’s is instantly recognizable as Coach. Factory stores now earn more per square foot than full-line stores, and outlet sales now account for almost two-thirds of Coach’s US retail sales. Rising sales are a boon for almost any other industry, but this self-administered shot of adrenaline is proving to be more poison than panacea.

THE CATCH IS THE CACHET

A luxury brand’s greatest asset is its cachet, or prestige. A brand like Coach faces the added challenge of preserving its cachet while marketing itself as ‘affordable.’ Many people would be reasonably dumbfounded to hear that a brand that sells women’s handbags for a median retail price of $298 is considered affordable, but compared to Louis Vuitton or Chanel bags that

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

MARKETS & INVESTING rarely hit stores for less than $1,500, a Coach bag is a steal. This sense of relative value rests on the fragile foundation of Coach’s cachet. And as the company plans to demolish up to 20 of its full-line stores to open 15 factory stores, the floor may start to crumble under Coach’s feet.

LUIS LOOKS AHEAD

In Coach’s first earnings call of the year, CEO Victor Luis laid out the company’s plan to recover from its history of overexposure and restore its luxury image. Luis plans to introduce a greater number of bags priced over $400 that feature exotic materials for added value. New designs will also feature classic and clean silhouettes that don solely minimalist and discrete logos. Furthermore, Coach is optimistic about market growth in China where overexposure has not been a problem. According to a survey commissioned by Swarovski, more than 75 percent of Chinese consumers reported that they would favor trying new brands. In the U.S., the same figure is slightly over percent.

APPEALING UP AND DOWN

At first glance, Kors appears to be at risk for following in Coach’s footsteps. Stylistically, Kors also features its ‘MK’ logo prominently in many of its cheaper (under $400) designs. However, unlike Coach’s strategy, Kors has strictly avoided the outlet route. Instead, Kors has adopted a low-high approach by creating a more casual and lower-priced subsidiary line, MICHAEL Michael Kors. Using this approach, the company has been able to reach a wider demographic with full-priced items from both collections without risk of damaging the brand’s image. In fact, the collections often work in tandem: the higher-end designs lure in the customers, and the more affordable bags offer a viable option for purchase. Combined, the collections currently span a price range from $98 to $2,995.

FASHION’S FUTURE

Overall, Michael Kors seems to be well positioned to avoid Coach’s major mistakes. Even so, established brands are never safe from the whims of the fashion industry. A key rival, Marc Jacobs, recently left Louis Vuitton Moet Hennessy (LVMH) to prepare for his own line’s imminent IPO. The markets are also whispering that newcomer Tory Burch may soon follow suit. Regardless, these next few years are sure to be an exciting time for finance and fashion.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

Instead of borrowing money from banks, companies are increasingly turning to credit markets for sources of borrowing—what’s known as the “Shadow Banking System.” Through this intermediation process, opaque long-term assets are converted into money-like short-term liabilities that provide a quick source of financing. For example, mortgages can be aggregated into a bundle and sold off as “mortgage-backed securities.” The Shadow Banking System (SBS) is similar to traditional banks in the types of transformation it performs, but unlike the traditional banking system, there are no liquidity backstops provided by the government or the Federal Reserve’s Discount Window. Even though the SBS was at the center of the financial crisis because of its complexity and opacity, its actual operations and significance have eluded mainstream attention. To clarify, Shadow Banks are not brick-and-mortar banks. Instead, the whole SBS is a process of turning illiquid assets into liquid assets. Loans are originated by finance companies, which are then funded primarily by commercial paper (CP)—more on

that later. The loans are then structured and pooled into asset-backed-securities (ABS), which are then warehoused. ABS may then be pooled and structured into collateralized debt obligations (CDOs). In reality, the number of steps in the chain varies. For example, there may be more steps along a credit intermediation chain if CDOs are then packaged into CDO-squared (CDO2) securities. Conversely, the intermediation chain might also stop after assets are packaged into

ABS. In general, if the quality of the underlying loan pool at the beginning of the chain is poor, then the intermediation chain will be longer since more steps will be necessary to achieve greater credit transformation. The CP market is key to the functioning of the SBS. CP is a short-term debt instrument issued by large corporations. It is a cheap way to raise capital at short-term interest rates. During the financial crisis, there was a run on the asset-backed commercial paper (ABCP) market and, in order to prevent the sudden evaporation of liquidity, the Federal Reserve decided to directly purchase commercial paper instruments. Traditionally, the CP markets were viewed as safe. During the crisis, however, once the subprime mortgage problem became evident, investors in ABCP became concerned that the collateral backing the ABCP might be of lower quality than they expected. As a result, investors stopped refinancing CP. Because of the widespread confidence in the CP market during normal times, investors typically did not do much research on the market. During the crisis, investors dedicated more re-

MARKETS & INVESTING

sources to acquiring information about CP. Money-Market Mutual Funds— which are significant investors—initially invested heavily in CP. They have to invest in assets that are relatively safe, however, so when it became clear that certain banks were at risk of default and the CP market started to decline, they had to change their investments. This exacerbated the run on the CP market. As mentioned earlier, the SBS is not backed by any form of liquidity backstop. Unlike traditional banks, there is no access to the Federal Reserve Discount Window; unlike traditional banks, the government does not offer deposit insurance. With the size of the SBS peak-

ing at around $20 trillion, an erosion of the SBS meant widespread economic crisis. During the crisis, the Fed lowered the discount rate and announced the Term Auction Facility, which provided loans for longer durations of time than the discount window. Additionally, the Troubled Asset Relief Program (TARP) was instituted to provide sufficient capital for banks in order to prevent any more bank failures. Companies like American International Group, General Motors, and Citigroup all received substantial government investments since they were especially affected by the crisis. So what exactly went wrong? How did an abstract financial chain nearly bring down the global economy? As mentioned earlier, CP is used to finance everyday operations for banks. If the CP market comes to a halt, banks cannot lend to each other; liquidity evaporates. Without banks to provide liquidity, capital cannot move freely. Additionally, because it was not clear which institutions were exposed to toxic assets, banks did not know to whom they could lend. The financial system froze. Although they are topics of political debate, the Troubled Asset Relief Program (TARP) and the Federal Reserve’s Quantitative Easing (QE) programs offered much-needed liquidity during a time when financial operations were fro-

zen. TARP prevented a widespread collapse of the American financial system while QE provided greater liquidity to the market. Indeed, we have witnessed a significant rebound in markets as a result of those programs. Had those programs not been instituted, the Shadow Banking sector might have remained frozen for an even longer duration. After the injection of so much capital into the financial system, banks were more willing to lend and the financial system began to thaw. Going forward, economists and professionals alike have advocated for more transparent and less complex markets, especially in regards to Shadow Banking. Much of the problem resulting from the crisis was that no one knew who was exposed and no one knew just how toxic the MBS were. Indeed, the system undermined itself with its opacity. There is no question that Shadow Banking is absolutely vital to the operation of financial markets. However, in order to prevent another crisis rooted in Shadow Banking, it is likely that more regulation, transparency, and reformation of the SBS will be necessary.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

BY ALEX LLOYD GEORGE The field of economics is not one often connected with consensus. This breadth of opinion and philosophy was handily encapsulated in the choice of Nobel Prize winners this year. Both Robert Shiller and Eugene Fama produced notable and enormously influential works on the stock market, but the similarities end there.

FAMA

Educated, perhaps unsurprisingly, at the highly free market-oriented University of Chicago in the era of Milton Friedman, F.A. Hayek, and other titans of neoclassical economics, Fama is considered the father of the efficient-market hypothesis mentioned above. The efficient-market hypothesis dictates that markets are informationally efficient. Within this assertion Fama identified three levels of efficiency: weak, semi-strong-form, and strongform. These levels differ in the amount of information that they incorporate. The weak form incorporates only historical prices; the semi-strong-form integrates all publicly available information, such as quarterly earnings reports; and the strong-form efficiency takes into account all public and private information, as in cases of insider trading. In all forms it is impossible to exploit market inefficiencies systematically outperform the market. This is the central contention of Fama’s work - that investors cannot receive excess returns on a consistent basis.

CONSEQUENCES

SHILLER

Shiller is a Yale economist who was one of the pioneers of the behavioral finance school. Also lending his name to the CaseShiller index of repeat house sales, he first rose to prominence in the 1980s when he challenged the conventional efficient market hypothesis, which was widely accepted at the time. In contrast to Fama, Shiller received his economic training at MIT in the so-called ‘saltwater’ macroeconomic school of economics, after the coastal location of its primary university proponents: MIT, Harvard, and Berkeley. Contrary to the laissez-faire approach of the Chicago school, this school emphasized Keynesian economics and governmental interference to correct for market failures. While Shiller’s work veered away from addressing the responsibilities of government in the economy, he did focus much of his research on the fallibility of markets - specifically the impact of irrational investors. This concentration on irrationality pointed him towards bubbles, such as the 1987 Black Monday crash. With this in mind, he argued that the volatility of the stock market could not be explained through rational means, and that consequently markets could not be considered inherently efficient.

The significant difference between the work of these two economists in the sphere of financial economics is indicative of a wider issue in the field - namely, the lack of consensus on market rationality. It is a lack of unanimity which is a blight on the argument of those who think the field of economics should be treated as a science. Regardless, it provokes intriguing questions about the diversity of opinion on such a pivotal economic topic, particularly when that variety is recognised by what can be fairly described as the highest arbiter of achievement in economic academia: the Nobel Prize.

MARKETS & INVESTING

BY ALON GALOR

As the debate over income inequality takes center stage, policymakers are considering raising the minimum wage as a means to narrow a widening fissure. Spearheading the initiative, President Obama declared his intent to sign an executive order that would hike the minimum hourly wage for federal contractors from $7.25 to $10.10. Following suit, more than 30 states are set to consider legislation or ballot measures to increase the minimum wage in the coming months. Since Congress first instituted a national minimum wage with the Fair Labor Standards Act of 1938, economists have struggled to evaluate the consequences of the policy. While Gregory Mankiwâ&#x20AC;&#x2122;s famed introductory economics textbook establishes that a minimum wage above the equilibrium level yields unemployment, a number of empirical studies including the work of renowned labor economists David Card and Alan Krueger have demonstrated that this theoretical framework may

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014 fail to hold in some economic environments. According to a 2006 study, economists are divided on the issue, with 47 percent of Ph.D. economists supporting the elimination of the minimum wage, 14 percent in favor of maintaining it at its current level, and 38 percent in favor of increasing it. So what is the source of the stark disagreement among economists? Using the price floor model as a frame of reference, this article explains the fundamental arguments that economists, and ultimately policy makers, use to justify their polar views of the minimum wage.

THE BASIC MODEL:

In a free labor market, the point at which labor supply meets labor demand marks equilibrium (see Figure 1a). In a labor market where a binding minimum wage is introduced, more laborers are willing to work since the new wage is higher. Firms, however, demand less labor since the per capita cost of labor is higher. Thus, the quantity of labor supplied exceeds the quantity of labor demanded which leads to a labor surplus, known as unemployment (see Figure 1b). In conclusion, the model demonstrates that the minimum wage raises the incomes of those workers who have jobs, while lowering the incomes of workers who cannot find jobs.

QUESTIONING UNDERLYING ASSUMPTIONS: Plausible perturbations of the model can yield dramatically different results. For example, suppose demand for lowskilled labor is highly inelastic, or in other words, the quantity of labor demanded is insensitive to price changes. (see Figure 2). In this case, while an increase in the minimum wage would not change the total number of people employed, it would still generate unemployment by increasing labor supply. Drawn by a higher salaries, laborers who previously were not looking for work now join the labor force, only to become unemployed. Alternatively, say employers have monopolistic power and set both wages and/or the level of employment below equilibrium levels (see Figure 3). If this were the case, in the event of an increase in the minimum wage, firms would be able to main-

tain the same levels of employment while paying higher wages. In addition to theoretical modifications that could yield different results, several empirical findings have led economists to reassess the simple textbook model. In particular, a seminal paper in the early 1990s by Card and Krueger of Americaâ&#x20AC;&#x2122;s National Bureau of Economic Research shocked the academic world. The paper showed no change in hiring among sur-

veyed fast food restaurants when New Jersey and eastern Pennsylvaniaâ&#x20AC;&#x2122;s minimum wage rose nearly 25 percent.

BUILDING ON THE MODEL:

Increasing the minimum wage tends to disproportionately affect young workers. According to a 2012 survey by the Bureau of Labor Statistics (BLS), teenagers make up about 25 percent of those paid the Federal minimum

MARKETS & INVESTING wage or less, and workers under the age of 25 as a whole make up 50 percent of minimum wage laborers. A high minimum wage for young workers can be problematic for two reasons. Firstly, studies have shown that when the minimum wage rises, some high school students choose to drop out and enter the labor force immediately. Secondly, teenagers are often willing to accept a lower wage in exchange for valuable on-the-job training. Increasing the minimum wage may decrease the availability of such opportunities.

RECONCILING THE TWO VIEWS:

With 70 percent of Independents and even 55 percent of Republicans in support of an increase in the hourly rate according to a CBS News poll last month, it appears the tide is turning. But keeping in mind economic equality, is this a step in the tw right direction? Advocates of the minimum wage draw comparisons to European nations such as France and the United Kingdom, which have fared well despite maintaining significantly higher hourly minimums than the United States. They point to the fact that Americaâ&#x20AC;&#x2122;s minimum wage was just 38 percent of the median wage in 2011,

close to the lowest proportion for a nation in the Organization for Economic Co-operation and Development (OECD). Critics respond by citing higher unemployment rates in the Eurozone. Moreover, advocates view the policy as a way to raise the income of the working poor since the average minimum wage worker currently lives in poverty (see Figure 4). It is important to consider, however, that never-married workers, who tend to be young, were four times more likely than married workers to earn the federal minimum wage or less. Coupled with the significant portion of teens and young adults who work minimum wage jobs, such statistics draw some to cite the policy as poorly targeted. Critics have proposed alternative policies that they argue may be better targeted, supporting families living in poverty, rather than middle-class teenagers and unmarried young adults. Despite some of the compelling arguments in favor of the minimum wage, it may be wise to consider alternatives to address the ultimate goal of reducing income inequality. One such alternative is the Earned Income Tax Credit (EITC), which is a government program that supplements the incomes of low-wage

workers. A workerâ&#x20AC;&#x2122;s EITC grows with each additional dollar of earnings until reaching the maximum value, creating an incentive for people to leave welfare for work and for low-wage workers to increase their work hours.

PERSONAL FINANCE

CALLING ALL SHOPAHOLICS BY TIFFANY CHANG

More and more consumers are looking to their electronic devices to fulfill their shopping needs. In 2012, The Wall Street Journal reported that e-commerce grew seven times more than U.S. retail spending. According to United Parcel Service’s (UPS) 2013 summer survey, seven out of ten online shoppers stated that they preferred to shop their favorite stores through digital channels rather than in store. After all, online shopping is fast, convenient, and instantly gratifying. Despite the high consumer satisfaction (83 percent) of online shopping, a critical question remains. Is online shopping really gratifying to your wallet? Not exactly. However, it is possible to save when you shop, even when online. Here are a few dollar-eating traps to spot and avoid the next time you make a purchase online.

1. THE SHIPPING PARADIGM

Through rain, snow, sleet, or hail, shipping and handling fees are the number one bane of online shoppers, adding five to eight dollars to every purchase. Arguably, shipping promotions which consumers use to “beat the system” make shipping fees worse. According to the UPS survey, three out of four online shoppers have added items to their carts just to qualify for free shipping. Instead of saving money, you are often playing directly into retailer’s profit-loving hands by items you did not intend to purchase. Instead of falling into this trap, look for free “ship to store” options or check items’ store availability and purchase items you cannot live without in store instead of online. Another option is to sign up for Amazon Student, which offers six months of free two-day shipping on millions of Amazon products. Just remember to cancel your membership before the trial period is over to avoid

ALSO IN THIS SECTION (p. 14) Three Free Online Shopping Tools (p.15) ROTH IRA: A Wise Choice for College Students (p. 15) TRADITIONAL VERSUS ROTH IRAS: The Differences xplained (p.16) INFORMATION ASYMMETRY

being charged for the benefits. If you cancel and then restart your Amazon Student membership, you can be eligible for a fifty percent discount.

2. THE DANGER OF 1-CLICK

The 1-Click Purchase Button is frightening tool that has made transactions simply to occur with or without mistake. It is the equivalent of picking an item up off the shelf and having its price automatically debited out of your wallet. Amazon, the online retailing giant who boasts the fifth largest total internet audience, utilized this money-making trap with its patent of one-click buying: shoppers no longer have to traverse the intermediate steps of a shopping cart and checkout page. However, these intermediate steps can save you money. According to the UPS survey, nearly nine out of ten online shoppers abandon their online shopping carts without purchasing items — a majority doing so because shipping costs made the order more expensive than expected. In addition, checking out— whether online or in store— is often a reminder that you are actually spending real money. Think before you click that button, or simply turn this option off in your Amazon account settings page.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

3. YOU NEVER KNOW UNTIL YOU TRY

Nothing says disappointment like opening a highly anticipated parcel and discovering the item does not fit or looks vastly different from the 300x300 jpg online. In such cases, a consumer is usually left with two undesirable options: send the item back and fork out additional money for shipping or restocking fee or keep the unsuitable item and mourn the wasted money. Before purchasing, visit the store to try on the items in real life instead, or shop retailers which offer hassle-free return and exchange policies.

4. ONE-DAY CLEARANCE SALE: ONLY ONLINE!

Email subscriptions often blast your inbox with tempting graphics and promises of huge savings. It is so easy to click and visit the website when you were not planning a shopping (read: money dropping) session. Though the savings can be significant, you are often better off not browsing and consequently purchasing items you do not need. Click â&#x20AC;&#x153;unsubscribeâ&#x20AC;? and your wallet (and cluttered inbox) will thank you later.

5. LOVE IS A TWO-WAY STREET

If nothing will deter you from being an online shopaholic, try signing up for a free membership to online rebate websites, such as eBates.com, which gives cash back for purchasing through its proportional platform. However, be sure to clearly read the terms and conditions to ensure there are no fees for inactive membership.

PERSONAL FINANCE

3 FREE ONLINE

SHOPPING TOOLS BY CHRISTIAN ACKMANN

1. PRICEBLINK This nifty add-on is available for all major browsers. When viewing an item online, PriceBlink searches the web and automatically alerts you if it finds a cheaper retailer or any coupons. PriceBlink also tracks the price history of items so you can decide whether it is the right time to buy.

2. BIGWORDS BIGWORDS.com is a search engine specifically designed for buying and selling textbooks. When you search for books, BIGWORDS considers quality, shipping fees, and available promotions to provide you with the best option. A textbook may be cheaper from one vendor, but promotions and shipping costs may cause the overall price to be lower from a different vendor. You can customize your search based on quality, rentals, used books, and even the date by which you need the textbook.

3. RETAILMENOT RetailMeNot.com compiles thousands of digital coupons that other online shopping tools often miss. If you forget to print your coupons before you leave your house, RetailMeNot also has mobile apps for iPhone and Android. RetailMeNot has coupons from over 50,000 retailers.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

ROTH IRA: WISE CHOICE FOR COLLEGE STUDENTS BY PERRY FELDMAN

If you, like most college students, have earned income from a summer job or internship, then you should give serious consideration to opening a Roth IRA. While most college students are not even thinking about retirement yet, the attraction and flexibility of a Roth IRA are too good not to take advantage of. This savings vehicle could really have a dramatic effect on your retirement. The fundamental attraction of a Roth IRA is that your contributions grow tax-free for decades and when you retire, all of the money can be withdrawn tax-free. Plus, you can invest in stocks, bonds, mutual funds, and real estate, which makes an IRA much more flexible than a 401(k). With the effects of compounding, even a relatively small contribution today will grow dramatically over the next 45 or so years and result in a substantial nest egg for your retirement. Even more, with a Roth IRA you are not taxed or penalized for withdrawing your own contributions (as opposed to the earnings), so you have nothing to lose! As an example, letâ&#x20AC;&#x2122;s assume that you made $4,000 last year in various jobs. If you fund a Roth IRA with $4,000 starting at age 20, and do so each year until you retire at 65, your account will grow to $1.67 million, assuming an average rate of return of 8%. If you fund the account with the current maximum contribution of $5,500 per year, the account will be worth $2.35 million. In the first example, although your contributions will have totaled only $180,000 over those 45 years, you will be enjoying $1.67 million at your retirement. Because of the effects of compounding over such a long period of time, if you begin this plan at age 18 and contribute just $4,000 each year, you will have nearly $2 million at retirement. With a $5,500 annual contribution, you should have $2.7 million and will have contributed just 10% of that total amount! As you can see, the earlier you start a Roth IRA, and the more that you can manage to put into it, the greater will be your available funds

TRADITIONAL VERSUS ROTH IRAS: The Differences Explained BY CHRISTIAN ACKMANN

Traditional and Roth IRAs are both accounts that allow you to save money for retirement. For each account, you can contribute $5,500 per year (or up to your taxable compensation if you made less than $5,500). However, Traditional and Roth IRAs differ in several ways.

WHO CAN CONTRIBUTE? You can contribute to a Roth IRA at any age, but only people aged 70.5 and younger can contribute to a Traditional IRA. The amount you can contribute to a Roth IRA is reduced if your income is greater than $114,000. If

for retirement. Also, you can choose to withdraw the contributions and the earnings tax-free upon your retirement or leave them to continue to grow. With a traditional IRA, your withdrawals will be taxed at retirement, there are mandatory withdrawals starting when you are 70.5 years old, and only certain withdrawals before retirement are permitted. While it is not recommended that you withdraw your contributions, you may do so without a tax or penalty after the Roth IRA has been open for five years and you are over the age of 59.5. Withdrawals are also permitted, even out of earnings, for extraordinary expenses such as buying your first home (up to $10,000) or funding your education or that of a family member. If you intend to save any of your summer earnings, you can fund your Roth IRA dollar for dollar against your earnings up to $5,500. You can make your contribution for 2013 up until April 15, 2014 too. You can open a Roth IRA at most brokerage houses, such as TDAmeritrade or Charles Schwab, as well as at most banks. Most financial institutions have lowered their minimum requirements to $1,000. They also offer the option of monthly funding, making it easier to save. Roth IRAs are only available to those earning less than $114,000 per year. As students, we should take advantage of this fabulous savings and investment vehicle while we remain within these income limits. So, while your retirement may seem like a lifetime away, the advantages of funding a Roth IRA are too numerous to pass up.

your income exceeds $129,000 you cannot contribute any money to a Roth IRA. Traditional IRAs have no income limit.

WHEN IS IT TAXED? Income placed in a Roth IRA is taxed when it is invested in the account, but any earnings can be withdrawn tax-free. Conversely, Traditional IRAs are taxed when money is withdrawn, and provide a tax deduction when you initially contribute the money. Because of this difference, Roth IRAs are typically the smarter choice for young investors. Depending on your current and future tax brackets, the amount of taxes paid on the original contribution is usually less than the potential future taxes after interest has accrued for 40 or 50 years.

The biggest choice is deciding whether you want your deduction now or later.

WHEN CAN YOU WITHDRAW? You can withdraw earnings from either account if you are older than 59.5. At any younger age, you will have to pay a 10 percent penalty tax unless you qualify for certain exceptions, such as the down payment on your first house. With a Roth IRA, you are never required to accept a minimum distribution, but traditional IRAs require minimum distributions once you are 70.5 years old. If you have any questions, you can email RetirementPlanQuestions@irs.gov. And if you are still having trouble deciding, you can always split your contribution between each type of IRA!

PERSONAL FINANCE

INFORMATION ASYMMETRY AND WHY IT MATTERS WHEN YOU INVEST Those “buy buy buy!” and “sell sell sell!” prompts are probably pretty compelling on a particularly mad show about money and investing, especially considering the intellect and success of the man giving you the advice. But is it really advice worth acting on? Are you actually going to make a fortune following the suggestions you hear on news channels? Probably not: once you hear that information, it’s already too late to take advantage of it.

VICE AND ADVICE

Financial markets are filled with imperfections and frictions like transaction costs and information asymmetry. Transaction costs are fairly obvious: just look at the bid-ask spreads of a stock. If there’s a spread, then there’s a transaction cost. Information asymmetries, however, are less obvious. It’s common sense to think that certain firms and professionals have more information than the typical household. So when those smart professionals get in front of the camera or in front of the computer to write an article in order to give their advice, shouldn’t we listen? Indeed, their advice can be quite informative. However, think twice before acting impulsively on that advice.

INFORMATION ASYMMETRY IN ACTION Information asymmetries influence transaction costs. Information can be public or private. Public information could include free information like earnings reports or price movements in the stock market, or some form of costly information, such as analyses carried out by companies. Private information is information that is not released to the public, but instead is held by only a handful of people associated with a

firm. In either case, the information has some cost associated with it. Market makers impose a bid-ask spread not only to reflect this cost of information, but also to protect themselves from trading against informed traders. According to the Efficient Market Hypothesis (EMH), prices of equities traded on popular exchanges incorporate all information into them. As a result, it is possible to identify patterns that may be indicative of a general economic trend. Yet one must keep in mind that information about these patterns will also be incorporated into prices. Firms invest based on the information that they find and analyze. Once they know whether to invest, they act on the information they have. Let’s say that a firm decides to buy 10,000 shares of Apple stock. By placing that buy order, the price of a share of Apple will be pushed up; the information will have been incorporated into the market. If, later, a company executive appears on the news and says, “Hey, we just bought 10,000 shares of Apple,” then all we can assume is that this information has already been absorbed into the price of Apple. Prices move when potential opportunities are taken advantage of. It is, in some sense, speculative arbitrage.

BEST-LAID PORTFOLIOS OF MICE AND MEN So does this mean that there is no real useful financial advice? Well, not quite. For those looking to build a long-term portfolio, seeking financial advice is a wise move. The future is undeniably uncertain, and since new information is being incorporated into prices every second, prices are

constantly changing. There’s no question that it is possible to invest in a successful portfolio. However, it is important that one make informed—not impulsive—decisions. Prices are always adjusting to new information. Between quarters, the prices reflect predictions on the success of the companies. Once earnings are released at the end of the quarters, the prices adjust to the information given by the earnings report, and the predictions subsequently changed. Due to this dynamic nature of prices, there are always winners, and always losers.

SOME PARTING WISDOM

In general, a recreational investor should not be too concerned with daily price fluctuations. Instead, one should look at the big picture. If possible, one should also seek financial advice and guidance. There will always be more sophisticated and better-informed traders in the market. Rather than acting impulsively on immediate news, one should first consider the goals of his or her investment. The expert offering advice knows more than the typical audience member, and the information he or she gives will likely not cause any quakes in the market. However, information asymmetries mean that there are always opportunities from which to gain. If many experts believe that a certain company will be successful in the future, then of course the price of the stock will reflect the positive outlook. That does not necessarily mean that all of the future rewards have already been reaped. Ultimately, it is the long-term growth— not the short-term fluctuations— that matter.

POLITICAL ECONOMY

ALSO IN THIS SECTION (p.18) THE FEDERAL RESERVE: An Overview (p.19) Church Versus State (p.20) RUSSIAN TRADE POLICY: The Empire Strikes Back (p.21)The (Un)Democratic Uprising (p.22) The Dubai Model Unveiled

GROWING A MARKET IN YOUR BASEMENT BY MIGUEL FERREIRA

Colorado and Washington’s controversial recent legalization of marijuana has stirred up a lot of excitement in weed-enthusiasts and economists alike. On January 1st, 2014, Colorado officially became the first and only state where marijuana is now legally available for recreational use. (Washington will join them soon at the end of February) The law, passed in November 2013, was the culmination of much debate since the Controlled Substance Act of 1970, which prohibited any person to buy marijuana, or cannabis, for recreational use. However, lawmakers and advocates for the legalization of cannabis have had a rough journey thus far. In the past, other U.S. states have legalized cannabis for medical uses and decriminalized its use. In Rhode Island, cannabis possession is not a criminal offence but will instead only earn you a fine. But

what does it mean to legalize the recreational use of marijuana? Are officials in Colorado and Washington ignoring the problems associated with drug usage? Typically, economics and policy go hand-in-hand, and it is almost impossible not to link one to the other. In the realm of the political economy, policymakers, politicians, and other lawmakers consider more than public opinion when signing bills that impact state policies and laws. In the spirit of making the best decisions possible, they turn to economists, who are major players when it comes to understanding some of the consequences associated with different decisions made by Congress or state authorities. In essence, an economic advisor plays devil’s advocate and seeks to understand the resulting social impact of the political world. In economics, it is important to consider the effect of decisions on society. After all, legalizing marijuana infers a negative externality. Many economists have argued that the primary concern with marijuana is that it conveys an ‘OK’ on drugs- seeing as many scientific studies suggest that it can serve as a gateway to other more harmful substances. But then why would any economist advise for the legalization of drugs in Colorado or Washington? Many economists believe that cannabis generates illicit markets. Black or illicit markets only arise from an inability to sell in legitimate markets, which is what typically occurs with drugs. Demand for drugs exists and therefore producers (illicit or not) will have an incentive to sell cannabis. However, this poses a greater concern on consumers and producers. On one hand, consumers purchase unregulated marijuana which may contain other more harmful substances or higher levels of Tetrahydrocannabinol (THC), than those that have been approved. On the other hand, illicit production generally incites other types of criminal activity that are harmful not only to themselves, but to those around them. Many prominent economists, including the Nobel laureate Milton Friedman, believe in the legalisation of cannabis, because much like the prohibition of alcohol it seems to create more crime and poses a danger to consumers. In 2005, a

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

POLITICAL ECONOMY

“Before you decide to pack your bags and move to either of these US pot-havens, it is important to mention that economists treat problems of externalities with the intent of improving social welfare.” group of over five hundred economists, including three nobel laureates, advocated for cannabis legalization stating that there is great benefit to be harvested from its legalisation. Among these benefits, economists found that governments would be able to save vast amounts of revenue that are used to convict those involved in the illegal sale or purchase of marijuana, and any other activities used to police the illicit activity. Before you decide to pack your bags and move to either of these US pot-havens, it is important to mention that economists treat problems of externalities with the intent of improving social welfare. In order to disincentive people from abusing the narcotic, the government has imposed sales taxes that will drive prices up. The intuition behind the use of taxes is to control the consumption of marijuana and reduce the negative effects associated with its consumption. In Colorado, taxes in the wholesale market are fifteen percent, but with prices already high in the narcotic industry, this could mean a very large difference in prices for consumers. In addition, governments have imposed numerous regulations consistent with other legaldrug laws, including age restrictions (over 21) and license requirements. In general, it is extremely difficult to foresee the impact the recent changes will have on the future of marijuana consumption, but it appears that Colorado and Washington’s current legislation already represents a major shift in policymaking. There are,

however, still some problems to consider: producers face rough paths ahead, due to the lack of banks willing to grant loans and difficulty in accessing the market itself. Furthermore, consumer behavior may not be as predictable as previously imagined. With the rise of prices in the legal market in comparison to the black market, there is ambiguity as to whether people will have an incentive to purchase in legal markets at all.

Gallup Poll Results for Marijuana Legalization “Do you think the use of marijuana should be made legal, or not?”

90% 80% 70% 60% 50% 40%

IT’S INCREASINGLY NORMAL TO SUPPORT MARIJUANA LEGALIZATION

30% 20% 10% 0%

1969

1974

1979

1984

1989

Yes- Legalize Marijuana

1994

1999

2004

No- Keep it Criminal

2009

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

FEDERAL RESERVE: An Overview BY SARAH PARK DOW

monthly $85 billion stimulus program. Yellen has a reputation for being what is known as a 16,500 “dove,” or someone who prefers 16,000 using low interest rates to encourage growth, and is widely 15,500 expected to continue Bernanke’s policies moving forward. 15,000 The Federal Reserve began to reduce its monthly purchases 14,500 to $75 billion in December 2013 after the U.S. economy 14,000 continued its recovery - indicated by a rebounding housing market 13,500 and both major stock indexes Mar 13 May 13 Jul 13S ept 13 Nov 13 Jan 14 reaching record levels, increasing Graph Above: Dow Jones Industrial Average consumer confidence. In its late January policy meeting, the The Federal Reserve, or “The Fed” as it is commonly called, is Federal Reserve announced a further reduction of $10 billion the United States’ central bank and one of the most influential to the bond-buying program. The Reserve hopes to completely financial institutions in the world. Established in 1913, the end the stimulus program by mid-2014. Still, the Fed will retain Federal Reserve’s responsibilities have evolved and expanded short-term interest rates near zero until unemployment reaches over time, primarily in response to fiscal panics or recessions. 6.5 percent, and possibly longer, contingent on the overall Today, the Federal Reserve’s duties include conducting monetary health of the economy. Although the unemployment rate has policy, regulating financial institutions, and maintaining market steadily decreased to 6.7 percent, some of its reduction can be stability. Arguably the Federal Reserve’s most important task attributed to large numbers of discouraged workers leaving the is controlling the monetary supply through changing interest labor force rather than a significant increase in jobs. Therefore, rates and either buying or selling bonds—formerly known as the Federal Reserve has emphasized that it will consider a range open market operations. of economic data when it debates raising interest rates.

The Fed consists of a Board of Governors, the Federal Open Market Committee, and twelve regional banks. The Federal Reserve was designed to be independent of partisan influences; thus, its decisions are not subject to the approval of Congress or the President. Furthermore, the terms of the Fed’s members do not coincide with presidential or congressional terms. However, the Board of Governors are appointed by the President and must be confirmed by the Senate.

A NEW CHAIRWOMAN

Janet Yellen, Brown University graduate, took over as the Chairwoman of the Federal Reserve after Ben Bernanke’s term ended on January 31, 2014. Not only is she the first female to hold this prestigious position, but her term begins at a crucial time for the Federal Reserve as it has started to scale back its Janet Yellen, Brown University Graduate & Chairwoman of the Federal Reserve

17,000

THE TAPER

Yellen’s decisions, particularly the pace of tapering - pulling back and the eventual rise in interest rates, could have enormous ramifications for U.S. and global markets. Thus, her actions will be closely scrutinized by the entire world. In order to prevent economic turmoil, clear and credible communication is essential. In fact, the reduction of the Fed’s bond buying purchases and prediction of rising interest rates have already sparked a sharp pullback among investors in emerging markets. In the aftermath of the financial crisis, riskier assets in countries such as Brazil, Argentina, and India enjoyed increasing popularity due to extremely low yields on U.S. investments. After years of being supported by unprecedented monetary stimulus, it will be interesting to see how the U.S. and the rest of the world will fare as this program finally reaches its conclusion. What does the taper mean for college students? First off, higher interest rates mean borrowing costs will become more expensive. If you are planning on taking out loans, you may want to take this into account. Moreover, as the Fed gradually begins to raise interest rates and borrowing becomes more expensive, expect these increases to be passed on to you - the consumer - in the prices of big-ticket items. Lastly, if you have a portfolio or are thinking of creating one, you may want to factor in expected increases in U.S. interest rates when deciding where to allocate your money.

POLITICAL ECONOMY

BY CAROLINE VEXLER

Pope Francis’s recent step into the socioeconomic sphere has left the world wondering whether economics falls under his ecclesiastical jurisdiction. As one of the central dogmas of the faith, Catholic social teaching endorses economic justice and above all charitable treatment of the poor. Without being particularly specific in terms of solutions to global poverty, Catholic social teaching champions helping the lowest members of society and the preservation of

cation, so many poor persons. Poverty today is a cry.” The Pope’s characterization of global poverty is not unfounded. According to the World Bank, even though progress has been made in fighting extreme poverty, at the current rate 1 billion people will live in extreme poverty - living on less that $1.25 per day - in 2015. Given these facts, it seems logical that Pope Francis, considered to be a somewhat radical pope, would make a stand against poverty.

“Trickle-down economics,” sometimes referred to as “Reaganomics” or “supply-side economics,” is the theory that the economy as a whole will benefit by giving tax breaks to the wealthy. With the increased spending as a result of the tax breaks, the benefits will presumably “trickle down” to the middle and lower classes. However, President Barack Obama - along with most liberal politicians - is not a proponent of trickle-down economics; instead, he and they

“The current controversy is Francis’s condemnation of capitalism in his first written teaching, Evangelii Gaudium.” human dignity while denouncing both socialism and capitalism among other social and political “isms.” This teaching has been echoed by popes throughout history. In more recent times, Pope Benedict XVI advocated for fighting poverty as a mechanism for creating world peace on the 2009 World Day of Peace. Similarly, Pope Francis is a proponent of this doctrine. On 7 July 2013, he declared, “The times talk to us of so much poverty in the world and this is a scandal. Poverty in the world is a scandal. In a world where there is so much wealth, so many resources to feed everyone, it is unfathomable that there are so many hungry children, that there are so many children without an edu-

A MODERN POPE

Pope Francis’s attempts to modernize the papacy have landed him on the cover of Rolling Stone Magazine. The current controversy is Francis’s condemnation of capitalism in his first written teaching, Evangelii Gaudium. “Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.”

favor an income tax system where individuals are taxed at a progressively higher rate as their income increases. Unsurprisingly, Pope Francis’s attack on capitalism has received a great deal of media attention. As Rolling Stone points out, “It’s one thing to question God’s will when it comes to sexual morality, but for American conservatives, taking on the sacred economic doctrines of Ronald Reagan is a mortal sin.” Ultimately, it is important to remember that whether you agree or disagree with Pope Francis’s claims about the effects of free-market policies or even theological ideology, politicians and popes alike are working towards the same goal - a better world.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

THE RUSSIAN TRADE POLICY: THE EMPIRE STRIKES BACK BY CHRISTOPHER DEDERICK

As a young KGB officer stationed in East Germany, one can imagine the thoughts that must have been racing through the mind of Vladimir Putin on November 9, 1989. Confusion? Dismay? Frustration? The Berlin Wall had fallen. Years later, Putin would look back on this day as the President of the Russian Federation, through a lens far removed from that of Europe’s newly freed people. He later described the Soviet Union’s collapse as the “greatest geopolitical disaster of the century.” For Putin, it was not a question of communism or capitalism; instead, the Soviet Union was a superpower - an empire. The Russia he would later inherit was neither. It was a Russia beset by internal instability, corruption, currency crises, and unmanaged inflation – a country that could no longer compete with the United States in international realpolitik. When Putin assumed the presidency in 2000, he had a vision for a newly assertive Russia, a superpower in a multipolar global order. As president, Putin quickly consolidated his control domestically and turned his attention abroad, specifically the “near abroad.” Shaped in Cold War geopolitics, Putin’s worldview focused on Central and Eastern Europe, Russia’s historic buffer zone and sphere of influence. For Putin, the expansion of the North Atlantic Treaty Organization (NATO), and later the European Union (EU) was a source of humiliation. Specifically Poland, Hungary, and the Czech Republic’s inclusion in the EU represented the United States exploiting Russia’s weakness, in violation of an understanding between George H.W. Bush and Mikhail Gorbachev. For Putin, reasserting Russia’s influence in the “near

abroad” was paramount. Today, we see his Machiavellian streak mirrored in Russia’s rhetoric, foreign policy, and trade policy.

RETALIATION

Putin has historically used trade policy as a geopolitical weapon, most recently in Ukraine. Putin’s government pressured Ukraine’s pro-Kremlin president

to renege on an EU association agreement that paved the way for Ukraine’s full membership. This spawned unrest among a population that envisioned Ukraine as part of Europe. Consequently, Putin turned to trade policy, offering Ukraine’s insolvent government an interest-free loan and reduced gas prices. Given the time value of money principle, Russia’s interest-free loan is the equivalent of free money - underscor-

ing the fact that Putin’s trade policy is motivated by geopolitics, not sensible economics. This is nothing new, however. In 2007, Russia retaliated to Estonia’s removal of a Soviet-era statue by halting the delivery of energy products. In 2006 and 2009, Russia cut off natural gas exports to Ukraine, a major energy transit hub for the rest of Europe. In the dead of winter, this left much of Europe with a natural gas shortage and drove prices up - a move many saw as an attempt to punish Ukraine’s Western-leaning government. Today, Putin continues his efforts to expand Russia’s existing customs union to include Ukraine. Putin hopes the customs union will give way to a Eurasian Union by 2015, an economic bloc intended to rival the European Union. Above all, Putin’s Eurasian Union is an attempt to reestablish Russia’s geopolitical grip over its near abroad. How this will all play out remains to be seen. The backlash towards Putin’s policies threatens to unseat his pro-Kremlin ally in Ukraine, President Yanukovych. History has a sense of irony, it seems, and Putin’s attempts to bring Ukraine into the fold could ultimately empower an opposition deeply hostile to Russian interference. In addition, natural gas fracking technology has the potential to sever Central and Eastern Europe’s longstanding dependence on Russian gas imports. What is abundantly clear, however, is that Putin is a man on a mission, and he is unlikely to easily give up.

POLITICAL ECONOMY

THE (UN)DEMOCRATIC UPRISING BY LAUREN SUKIN

America is not the only country confronted with the consequences of a government shutdown. Now, it is Thailand’s turn, as protesters divert traffic, shut down streets, and picket the homes of top government personnel. Thai protesters have received more recognition from their government in a shorter time period than most of the recent protests that have rocked the globe. But the Thai protests represent a new kind of failure – one where, if the protestors succeed, successful democracy is unlikely to reemerge for some time.

CORRUPTION THAT BESTS EVEN COLOMBIA AND INDIA

The protesters have explained that they are primarily concerned with a government overhaul in the face of upcoming elections. The current ruling party, the Pheu Thai, and prime minister, Yingluck Shinawatra are slated to win. Indeed, the Pheu Thai Party’s past is storied with electoral troubles; the party was reincar-

ruption. Not only is the current party a recreation of Thaksin’s original TRT party, but current Prime Minister Yingluck is the younger sister of Thaksin, who now lives as a billionaire in exile. In 2013, Thailand tied Panama, Moldova, and Ecuador for 102nd place on the Corruption Perception Index, placing it below nations with globally notorious corruption such as Colombia and India.

PROTESTS TURN VIOLENT

Protesters have been working since November to reverse what they see as a continued trend towards corruption. So far, there have been eight protest-related deaths and more than 470 injuries. To these casualties the Thai government has reacted strongly. Of course, the protesters are not oblivious to the closing of Bangkok’s commercial industries and have consequently stormed into the army’s headquarters. Regardless, parliament has been dissolved and the prime minister has proposed new elections. Yingluck has offered to meet with senior protest leaders to discuss their demands.

ence between these previous democratic uprisings and the Thai protests. The Thai do not want more democracy; they want less. One protester’s plans includes replacing parliament with a “people’s council” – democratic in name, but not in practice. Members of the council would not be elected, but would be selected from a variety of professions. While the current prime minister has offered new elections, that is not what the protesters want. Therefore, the people of Thailand have taken to the streets to delay the election process.

A TALE OF TWO CITIES

The movement excludes the lower classes. Protest leaders largely come from the upper class. Individuals in rural Thailand mostly support the current government. The protest represents the 1 percent against the 99 percent; it is an inverted Occupy Wall Street movement. The powerful old elites frustrated with their recent losing streak in elections and unable to influence politics

“The protest represents the 1 percent against the 99 percent; it is an inverted Occupy Wall Street movement.” nated as the People’s Power Party (PPP), which was dissolved in 2008 by the Constitutional Court of Thailand after the party chairman was convicted of fraud. The PPP itself was an incarnation of the Thai Rak Thai (TRT) party, created in 1998 by Prime Minister Thaksin Shinawatra and dissolved after a 2006 military coup unseated the party and TRT party officials were subsequently found in violation of election laws. The current protests call to rid Thailand of Prime Minister Thaksin’s influence. Critics of Thaksin have pointed to corruption levels in the country, questionable electioneering tactics, restriction of press freedoms, and policies that directly benefit companies owned by his friends and family members. Protesters today believe that these policies reflect cor-

It is easy see these as markers of success. While they may indicate a certain success for the protesters, they do not indicate success for the country overall. That is, they are unlikely to lead to an increased representation of minorities or a thriving democracy. The protests resemble the now-infamous Arab Spring in which waves of people took to the streets, calling on their governments to root out corruption and create policies that represent the real will of the people. It happened in the Middle East, Egypt, Turkey, and Brazil. Now, it appears the people of Thailand have embraced the method.

LESS DEMOCRACY, FEWER PROBLEMS?

However, there is one primary differ-

through their conventional means, have taken to the streets. The government’s rapid response to the protest represents an action that reflects upon the Arab Spring that the world has seen, albeit slowly, since its dawn in 2010: governments are scared of uprisings. The American vision of democratically-run elections as the outlet for domestic distress and major changes has not materialized. Instead, street violence is increasingly common and increasingly simple. The protest mechanisms utilized may have a democratizing effect, an ability to provide information to the masses and incite a reaction to unjust policies. Yet, Thailand’s protests demonstrate that these tools can indeed be corrupted and manipulated by the elite.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

THE DUBAI MODEL UNVEILED BY TUNG NGUYEN Dubai’s police force has two Ferraris, a Bentley, a Lamborghini, a Mercedes, an Aston Martin, and a $1.4 million dollar Bugatti Veyron. With a combined price of $4 million dollars, this supercar patrol fleet is the most opulent, ostentatious, and wasteful police force in the world. The Dubai model for modernization, the fairy tale of ultrarich in hypercapitalism, has nearly doomed itself in recent bankruptcy

SEEMINGLY PICTURE-PERFECT PARADISE

Dubai creates a facade for worldwide media, in which it is the pinnacle of luxury and success. Dubai boasts the world’s tallest building, the Burj Khalifa, standing almost twice the size of the Empire State Building. The Burj Khalifa is a luxury hotel shaped like a sailboat with two thousand dollar per night rooms, an artificial archipelago with house villas, and an in-your-face gateway structure of Atlantis Resort. Dubai, within merely twenty years, has transformed from a dusty desert town to an international metropolis for finance, luxury real estate, and tourism. According to HSBC’s chief Middle East economist, “The key to [Dubai’s] success has been both its readiness to take risks and its capacity to deliver. Things are changing in Qatar and Saudi Arabia, but for now Dubai still has no peer within a thousand miles.” Dubai strives to be the Middle Eastern business hub equivalent to Singapore and Hong Kong, while adding luxury entertainment similar to Las Vegas and Monte Carlo. But Dubai works to shield the world from the truth: merely four years ago Dubai was effectively bankrupt, hav-

ing fallen with the tide of the Wall Street banking crisis of 2008. Bankrupted by its hypercapitalistic dependence on the Western world, Dubai serves as a prime example of rapid economic growth that is unchecked, unregulated, and driven by monetary greed.

POLARITY OF REALITY

In general, the media portrays Dubai as a Middle Eastern commercial utopia, not based on oil but commerce. Emerging as its own model of modernization, often referred to as the “Dubai model” in Middle East studies, Dubai placed itself in a volatile situation with a near apocalyptic financial collapse without any liquid funds to its 80 billion dollar debt. In essence, Dubai went bankrupt due to lack of regulatory infrastructure and unstable economic planning. As Dubai caters to foreigners without an identity of its own, the Emirati in Dubai compose less than 10 percent of the city-state while the populace’s majority remains largely foreign. With 500,000 Indian construction workers living in slum-like conditions building more and more superstructures, Dubai’s downfall in 2009 left architectural proj-

POLITICAL ECONOMY ects, such as the Palm Jebel Ali islands, abandoned. The global demand for ultraluxury real estate, tourism, and finance diminished.

HOW DID DUBAI GET HERE?

In context, the Middle East has been mired in war, civil war, and social turmoil, from terrorism to the Arab Spring to Syrian oppression. However, the United Arab Emirates (UAE) and Dubai have maintained political stability and national security. Its desirability has rocketed the city’s status as a business oasis governed by English common law, rather than the UAE’s stringent Islamic sharia law that bars Western financial practices and tourist entertainment, such as casinos. The United Arab Emirates gained independence from the United Kingdom in 1971 and then formed the UAE alliance, composed of seven near-autonomous emirates, each ruled by an emir. A combination Persian Gulf location well as British colonial infrastructure (i.e. electrical, airport, and communications) and liberal trading policies attracted commerce to the Dubai emirate.

grew sevenfold between 1968-1973. During this time, the Middle East played a key role in Dubai’s exponential growth. 1. The OPEC oil embargo strengthened wealth throughout the MiddleEast. 2. Lebanon, a banking, finance, tourism center, fell into civil war by 1975. 3. Islamists took over Iran in 1979. 4. Iraq and Iran engulfed in war in 1980. 5. The USSR invaded Afghanistan from 1979 to the end of the 1980s. While the Middle East was falling apart, the UAE was at peace and focused on developing its internal economy based on oil. Crown Prince bin Rashid Al Maktoum transformed the oil-state of Dubai into to an international commerce hub in the 1990s. He has succeeded in winning the hearts and minds of foreigners and Emiratis alike. His Dubai Model diverged from the Abu Dhabi oil model and focused on prime real estate. By 2001, the Jebel Ali industrial district, also known as the Dubai Internet City, housed 2,000 western companies, including Microsoft, Dell, Reuters, and BBC. Today 2,000

“The key to [Dubai’s] success has been both its readiness to take risks and its capacity to deliver.”. RISE TO THE ROARING 2000’S

In 1958, the Abu Dhabi emirate, the ruling emirate and capital of UAE, discovered oil; Dubai then discovered oil in 1969. By 1971, the UAE nationalized the oil industry, and Dubai’s economy

Chinese companies accompany these western companies. This commercial expansion has created immense demand for consumption and tourism. Evading the Western industrialization archetype, Dubai emerged with

a service-oriented economy with little focus on oil and other hydrocarbons. But when the 2000s came to an end and Wall Street then collapsed, Dubai attempted to dispel panic in its $80 billion dollar debt announcement. However, international media did not buy that Dubai’s $85 billion dollar sovereign wealth could be liquidated. Abu Dhabi’s ironically strong oil riches bailed Dubai out of default with a $10 billion dollar five year bond in 2009.

THE MODEL RECAPPED

The city-state of Dubai has rebuilt its financial stability within four years. But the near disaster in 2008 was a dire warning about the flaws of the rapid growth Dubai Model. With its overdependence on other countries’ economies and now increasing awareness of its human rights abuses on foreign workers, Dubai has many steps to take before it can fully assume its place as a modern nation.

CAREERS & INTERNSHIPS

ALSO IN THIS SECTION (p.26) So, You Want to Work for Google (p.27) STUDENT SPOTLIGHT: Natalie Roe (p.28) APPLYING FROM AFAR: Tips on Finding a Job or Internship While Abroad

(p.29) THE SOCIOLOGY OF YOUR POWER SUIT: Why “Dressing to Impress” is a Thing That Exists

get connected

(p.29) WHAT IS BLOOMBERG: A Guide to the Financial Markets Platform

WHAT CAN LINKEDIN DO FOR YOU?

LinkedIn is the world’s largest professional network and having a fully fleshed out profile puts you within reach of thousands of recruiters looking for potential full-time hires and interns. According to LinkedIn’s third quarter financial reports for 2013, revenue from the website’s Talent Solutions products have increased by 62 percent since last year, making up a whopping 56 percent of the total revenue from the third quarter. As recruiters rely more and more heavily on social media, here is how you can stay ahead of the curve:

GET YOURSELF

PROFILE The nuances of an interactive resume

BY CLAIRE SU

94% 43%

of recruiters surveyed are on LinkedIn Jobvite social recruiting survey 2013

of college students surveyed are on LinkedIn

PHOTO: Your profile is both a more extensive online resume and an online marketing tool and you should treat it as such. Keep your target employers in mind when selecting your profile picture. You might opt for a different style photo depending on the type of employer you are aiming to attract. If you are applying to a diverse range of firms or to companies that value professionalism and formality, keep it simple with a clean, professional headshot of yourself, preferably with a solid color background. If you have a more specific target audience, like small startups looking for quirky, fun-loving interns, find a photo that showcases

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014 that aspect of your personal brand. If you are applying to an architectural firm, take a photo in front of your favorite piece of local architecture to add a personal, artistic touch. HEADLINE: Your headline should do two things: 1. Help your target employers find you 2. Get them interested in you When creating your 120-character headline, stop to consider what a recruiter might type into the search box when looking for someone like you. An effective headline might include a position title and organization you work with that is relevant to the job you are looking for, a few words conveying what strengths you bring to the table, and if you have enough space, what type of job you are seeking. SUMMARY STATEMENT This is the section that stumps people the most, partly because there are so many ways to go about writing it. While there is no formula for the perfect summary statement, your summary should at least answer the following questions: 1.Who are you and what do you do? 2.What types of opportunities are you looking for? 3.What relevant experiences have you had? 4.What have you done that makes you unique? 5. What is the best way to contact you?

TAKE YOUR NEWFOUND PROFESSIONAL NETWORK OFFLINE! As wonderful and convenient as online networking can be, the strength of the relationships you build online will never beat those you can build in person. Once you have connected on LinkedIn and built a relationship through emails or phone calls, set up an informational interview at a cafĂŠ so you can converse in person.

For question number four, consider writing one or two sentences about a challenge you faced, how you solved it, and the results you achieved. If you have a portfolio, include a link to it at the bottom of your summary. You can also upload media files and documents to your summary section as well as other parts of your profile so they are immediately visible to viewers.

CONNECTING AND EXPANDING YOUR NETWORK

Most of the people you connect with should be people you would be comfortable asking for introductions from. These are your first-degree connections, and this is where LinkedIn magic comes in. When you connect with someone, all of their first-degree connections become your second-degree connections. The second group of people you may want to reach out to are speakers you happened to meet when they visited campus or other professionals you may not know personally. When connecting with these people, do not use the default message LinkedIn automatically generates for you. The default message looks like spam mail and suggests laziness, especially to recruiters and established professionals who already have hundreds of connections. Always give a reason for why you would like to connect with the person. It shows sincerity and personality. The person you are connecting with is much more likely to help you out when your connection request reads something as follows:

OTHER TIPS:

Customize your LinkedIn URL. This will allow you to add a professional looking link to your profile page in your email signature and business cards. Once you log into LinkedIn, go to your profile and click the edit button on the section with your heading edit your profile. For example, my unique URL is www.linkedin.com/in/clairesu. Ask for recommendations from previous employers, professors, and/or clients. Testimonials from others about your work ethic and out-of-this -world creativity boost your credibility an tell a more personal story than a resume. The fact that someone took the time out of their schedule to rave about how you basically ran the show at your last internship or volunteer job say a lot to recruiters who may be skimming your profile.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

SO, YOU WANT TO WORK FOR GOOGLE? BY JULIA VERBRUGGE

Google, a company consistently at the top of “best places to work” rankings, is one of the most difficult companies from which to get a job. To stand out and make the best first impression, keep in mind the following tips from Google employees and recruiters:

1. DO YOUR RESEARCH:

Google gets thousands of applications each year, so stand out! Make sure you mention more than the free gourmet food and in-house massages when asked why you want to work for Google.

2. GET INVOLVED:

There are many ways to get your foot in the door at Google, including the Student Ambassador Program, AdCamp, or any of their other student programs. Having Google on your resume will make recruiters look twice.

3. MAKE CONNECTIONS: Reach out to alumni at Google to gain insight into what working there is like and ask them for guidance in the application process. Connections will not land you a position, but they will make you more a more knowledgeable applicant.

4. BE “GOOGLEY”:

Recruiters always emphasize this, and in simple terms, it means that your application should demonstrate that you would fit with the company culture. Showcase your uniqueness, quirkiness, and inventiveness. For example, recruiters recommend making a separate resume with your more creative skills and hobbies.

5. KEEP TRYING:

One of recruiters’ top suggestions for interested students is to be persistent. If you don’t get an internship, apply again the following year. If you don’t get a full-time position, check their job postings regularly and keep applying because it shows them your high interest level.

CAREERS AND INTERNSHIPS

STUDENT SPOTLIGHT Last summer, Natalie Roe ’17 (computer science concentrator) got on a plane in Australia after a family vacation. When she landed back in the United States, she had a summer internship at Google as a software engineer. Read about how she did it, and more about the successful Brown freshman with big dreams.

BY CAROLINE VEXLER

EXTRACURRICULARS

I do karate, I sing, and I’m working on an app called “DrinkGuage” (not currently on the market). It’s an app that tells you how high your level of alcohol is based on the number of drinks you’ve had and the amount of time in between each of those drinks. It changes color and goes to varying degrees of red depending on how intoxicated you are. We’re going to input a feature so that you can call a friend or a cab.

THE STORY

I was coming back from Australia on a summer vacation and I sat next to one of the hiring managers for the student-internship program at Google. I was next to the window and he was in the middle. We started talking about where I was going to school in the fall and what I wanted to concentrate in. It got into where he worked and how I was really interested in cyber security and my background in the subject. All of a sudden he gave me his card and told me to call him if I wanted an internship, and I did!

WHY PLANES?

It’s always planes! I don’t know why it’s always planes. On the plane coming back from winter break I, again, struck up a conversation with some other person who was not really a hiring manager but a high-up employee for this company called Valin, which is in the oil and gas industry. They needed someone to help secure their website too. I started talking to him and ended up getting a part time job this semester.

WORK AT GOOGLE

A cyber security related topic. I’ll probably be helping them enforce security on parts of their website like some the web applications they have,like Google Docs and other such things.

PAST EXPERIENCE

The past two summers, 2012 and 2013, I worked at Sandia National Laboratories in Livermore, CA as a cyber security intern working on national security problems for the government.

DREAM JOB

A mentor once suggested that even after I get a job at some company or with the government I should branch off and have my own cyber insurance company. I think that would actually be the dream: working for myself doing cyber security for private business.

NETWORKING TIPS

Of course, strike up a conversation with the person next to you. Everyone has something interesting to say about themselves. You’re there to learn about the other person, whether they can do something for you or not. And if you find out they’re in a field that you’re interested in, tell them that, tell them if you have any experience, and convey a lot of enthusiasm.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

APPLYING

FROM AFAR TIPS ON FINDING A JOB OR INTERNSHIP WHILE ABROAD BY ANDREA WISTUBA BEHRENS

For many students, finding a job or internship while in college is frustrating enough. For the many students who study abroad each academic year, the process can seem even more daunting. With hundreds or thousands of miles between themselves and campus, students worry about missing recruiting events, being unable to conduct interviews, and ultimately ending up without an offer. So whether you are just returning from a semester abroad, are abroad now, or are considering going abroad in the future, check out these tips on how to continue the search while away. 1) Stay in Touch: Whether in Hong Kong, Buenos Aires, or London, you can stay up to date on your career center’s events and reach out to the office with any questions. If you are worried about missing information sessions or recruiting events, keep an eye on newsletters and your career center website. When you see an event of interest, contact your career office and ask for the email address of the company representative who will be on campus. This way, you can reach out to the recruiter directly, convey your interest, and explain your absence. The Career Lab can also review resumes and cover letters while you are abroad and assist you via email or phone.

2) Take Advantage of Technology: You don’t need to be on your campus to network with alumni, submit online applications, or even conduct interviews. While abroad, take advantage of the opportunities to connect with potential employers online. Use LinkedIn, job and internship boards, a career center website, or employer websites. This will get your foot in the door, but when it comes to the next step of interviews, the process becomes more difficult. Many employers offer the option of conducting a Skype interview, but if they do not, work with them to figure out a solution, like a Google Voice call. 3) Make Plans While on Campus: If you are going abroad in the spring, do the best you can to reach out to potential employers in the fall. While this may be challenging for summer internships in that employers do not yet know their summer staffing needs, it allows you to develop in-person relationships before departing. If you are abroad in the fall, focus more on the internship search upon your return in the spring. While some recruiting events—especially for investment banking and consulting—occur in the fall, most application deadlines are in the spring, allowing returning students to participate in the process. One tip here: make it clear that you were abroad by including it on your resume and by mentioning it in your cover letter. 4) Market Yourself with the Experience: International experience can be invaluable in the job search. Employers are looking for candidates who can adapt to any environment and work with people of varied backgrounds, two qualities that students can market through their experiences abroad. When speaking about your experience abroad, highlight the relevant skills you developed and how you could apply them to the workplace. Companies look favorably at candidates with cross-cultural competencies, so use your experience abroad to your advantage by framing it in the appropriate way.

CAREERS AND INTERNSHIPS

THE SOCIOLOGY OF YOUR

POWER SUIT

WHY “DRESSING TO IMPRESS” IS A THING THAT EXISTS BY ANDREA WISTUBA BEHRENS

You showered (I hope), got dressed, and put on nice shoes— why, for whom, and for what? Because you know that your blazer, shoes, and blouse amount to more than just professional dress attire; but ask yourself, of what is this indicative? The way you dress undoubtedly says something about you. Assuming that certain clothes carry certain attributes, style does speak to the way people perceive themselves. What an article of clothing does not do, however, is assign itself a meaning. Instead, it is society that imposes these meanings on them. Tailored, composed attire that shows little fuss is considered professional, but it is not that a power suit holds the meanings of professionalism: you hold the power to attach meanings. So, let’s talk about that job interview and that power suit you just put on. Sociologist Ervin Goffman, author of The Presentation of Self in Everyday Life, dedicated his work to

“The way you dress undoubtedly says something about you.” observing people through their interactions; he coined this view of social interactions as a “dramaturgical analysis,” one in which people present themselves to convey certain meanings. The following analysis comes from the paradigm that looks at people as the relative makers of meaning within situations. Therefore, Hillary Clinton puts on a power suit for talks, and you consider buying one for that Bain Capital interview, all because of the shared interactions related to wearing suits. You are not purchasing that suit because you look like a Hugo Boss model; you are purchasing it because people attach the meaning of power to someone who dresses the part. For the first time at college, you can answer the question of “why,” with the response “because we say so.” Society – pause and take a deep breath – has constructed these scenarios for maximum efficiency, or so that we can enter a social interaction with some understanding of what you are about to do. When we speak of job interviews, we immediately associate an intimidating boss drilling one with questions. Any other scenario would be out of the ordinary, it would be the exception, and it would seem weird. Similarly, “dressing the part” – or rocking your power suit – is a way to aid in distinguishing the meaning of social interactions. Without it, maybe I could wear my lion onesie daily... Until then: dress to impress because we collectively seem to think you should (but also because I think you look like a Hugo Boss model.)

WHAT IS BLOOMBERG? A GUIDE TO THE FINANCIAL MARKETS PLATFORM BY THOMAS PESCE

If you plan on a career at an investment bank, money management fund, or any other financial services company, chances are you will come across the Bloomberg Professional Service. The Bloomberg terminal is the main computer platform for financial markets. When you see traders watching many different numbers and graphs over several screens, they are probably using Bloomberg. Bloomberg provides up to date data on prices and news on financial markets. In a world where a one-second delay on information can be costly, this real time information is invaluable. Bloomberg also provides a database of historical information, which allows a user to look for any trends in prices or indices. If you intern at a company that uses Bloomberg, your day will likely revolve around it. Once you turn your computer on at the beginning of the day, you will immediately open up your Bloomberg Terminal. You will be welcomed with a Launchpad, which is a set of tables, graphs, and other data that is customized to what you focus on. For example, a currency trader will see the spot prices for all the major trading currencies. You will also be welcomed with the Bloomberg Chat, which is the base for all communications between traders. Similar to any Instant Messaging service, the Bloomberg Chat connects traders from a money management fund to their sellers at the major banks. Taking the currency example, our trader may buy 50 million Euros as fast as she can type, “50 mine.” Once again, the speed at which these conversations on the Bloomberg Chat take place is crucial for these traders, as it may mean the difference between earning or losing money. There are also some basic commands you will use to quickly look at information on the Bloomberg Terminal. Imagine instead of hastily shifting through the many news sources to stay on top of daily events, using the terminal you can simply type the letter “N” and instantly see the top ten news stories of the day. Similarly, you can type in “WEI”, and all the major World Equity Indices will appear. Another useful command is “ECST,” which will put current and historical statistics for all the world economies right at your fingertips. Now imagine having the ability to run all these commands at the same time. With Bloomberg you can look through all of these applications in a matter of seconds and look at them side by side.

BUSINESS & STARTUPS

ALSO IN THIS SECTION (p. 32) The Business of Burberry (P.33) BLONDE OR BRUNET: Alumni Who Defy Career Expectations (P.33) Start ups from Brown to You

BY LIZ STUDLICK

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

Stealing from the rich and giving to the poor might be the goal of the mythical Robin Hood, but that is not the only way to build equality in an economy. Robinhood, a Silicon Valley firm whose product is a stock trading app, is leading a populist financial movement with the aim of “allowing everyone to fully share in the fruits of capitalism.” The solution is not just quick, easy trading on mobile devices: it is zero-commission (read: free) trades with no minimum account balances. Licensed by American regulatory authorities, Robinhood has a goal not of redistributing wealth, but of bringing power back to the people by leveling the playing field between amateur investors and financial institutions. Backed by firms including Google Ventures and Andreessen Horowitz, and authorized to trade in 43 states, the company plans to initially use seed funds to cover its relatively lean operating costs, eventually looking to monetize by charging for API, or application programming interface, access, premium services for customers, and margin trading.

to pass savings directly on to the customer. Robinhood’s strategy has been compared by TechCrunch to Amazon: building a large user base and making (eventual) small amounts off each user. However, some critics say the app reeks of lock-in, or luring users to the platform with a populist promise, only to instate fees and restrictions once the user base grows large enough.

THE BEGINNING OF ROBINHOOD

Founded by two Stanford grads with Wall Street algorithmic trading credentials, Robinhood first launched as a stock tracking and prediction-sharing app. Designed to fill the niche of stock-track-

BUSINESS & STARTUPS

just hook up your bank account and start trading with a few taps. Though this may not be game-changing for those with existing brokerage accounts or for high-volume traders, this could be the most disruptive move in the industry for millennials and new investors.

ZERO-COMMISSION COMPETITION

Though certainly exciting, Robinhood isn’t the first commission-free trading firm. Zecco, launched in 2006, was an online brokerage built around the zerocommission promise. However, plagued by technical issues and high customer service overhead costs, it gradually restricted access to free trading, with a minimum qualifying balance raised first to $2,500 and then to $25,000. In 2011, it began charging a fee of $4.95 per trade; in 2012, it merged with TradeKing, another low-cost, high volume online brokerage. Zecco seemed to prove free trading wasn’t profitable, but Robinhood plans to fill the niche first and monetize later.

“The process is easy and accessible for anyone with a smartphone: just hook up your bank account and start trading with a few taps.”

A BREAK FROM TRADITION

Robinhood’s free trades are in sharp contrast to industry-wide fees of anywhere from $7 to $10 a trade. Traditional brokerages actually pay next to nothing to trade; the fees are to cover brick-andmortar costs and analysts’ salaries. Some brokerages offer free trading, but with monthly trade limits and often restrictive minimum balance requirements. With virtually all operations automated and lacking a traditional banking staff, Robinhood’s free trade promise attempts

ing for mobile devices, the original app focused on social investing. Users could follow fellow investors, seeing their track record in predicting rises and falls in stock prices in real time. Robinhood boasted 25 percent of users contributing predictions, an unusually high participation rate that produced a community of investors. The startup briefly pulled its app from the store in November, making its big announcement about opening trading weeks later.

SUITABLE FOR STUDENTS

Aimed at amateur and low volume investors, Robinhood looks like the perfect tool for students. Accounts have no minimum balance or yearly fees. The app, available on iOS and coming soon for Android, is slick and intuitive, with the original app’s tracking features seamlessly built in. The process is easy and accessible for anyone with a smartphone:

RESEARCH ROBINHOOD

Following Silicon Valley growth hacking strategies, Robinhood has avoided traditional advertising, relying largely on tech blog coverage and an aggressive social media campaign. Users currently can only sign up for a waiting list, and the only way to move up that list is through sharing a link through Twitter, Facebook, email, or LinkedIn, with friends’ clicks and referrals bumping up your spot in line. With a waiting list of 125,279 at press time, it will be a while before Robinhood brings free trading to the people.

INTERCOLLEGIATE FINANCE JOURNAL: MARCH 2014

THE BUSINESS OF BY CAMILA MCHUGH

As 2014 dawns, Angela Ahrendts, Burberry’s CEO since 2006, has left the company she restored to its former glory as a global luxury brand. She will become Apple’s new head of retail and the first woman in a senior vice president role at the company. Her transition makes for timely reflection upon the dynamic and innovative growth of the Burberry Group over the past five years. Creative director Christopher Bailey will lead the company forward as both chief creative officer and chief executive. Bailey was instrumental in Ahrendts’ campaign to reestablish Burberry’s status as a luxury brand after its trademark pattern was co-opted by the mass market, alienating its wealthy clientele. Burberry is classified as a holding company that designs and sources luxury apparel and accessories, distributing these garments through a diversified global network of retail, digital, wholesale and licensing channels. Ahrendts focused on reinventing Burberry’s image and operations through innovative use of technology, consequently reimagining the Burberry brand as a social enterprise.

AHRENDTS TO APPLE

It seems appropriate that Angela Ahrendts would be leaving Burberry, where she has been CEO since 2006, for Apple. Ahrendts computerized many stages of Burberry’s business model, from sales tracking to social media, leading to substantial growth for the British luxury brand. As she becomes Apple’s new head of retail and the first woman in a senior-vice president role at the company, her colleague, creative director Christopher Bailey, will add her portfolio to his. Bailey was instrumental in Ahrendts’ campaign to reestablish Burberry’s status as a luxury brand after its trademark pattern was coopted by the mass market. Ahrendts focused on reinventing Burberry’s image and operations through innovative use of technology, consequently reimagining the Burberry brand as a social enterprise.

BURBERRY IN THE 21ST CENTURY

Ahrendts’s comprehensive technology strategy used social media networks like Facebook, Twitter, and Instagram but also utilized enterprise software from companies like SAP and Salesforce. To understand the scope of Ahrendts’ feat, it is necessary to look at Burberry’s success qualitatively and quantitatively, particularly because it is difficult to calculate the returns on the resources Burberry spends on technology. Largely due to Ahrendts’s innovation, Burberry’s revenue grew relatively steadily over the past five years. This past year saw revenues of $1.9 billion compared to $1.2 billion in 2009. This growth reflects a dramatic doubling of gross profit and a similar expansion of operating expenses over the same period. Her emphasis on technology is a pioneering approach not only for a traditionally British and somewhat conservative brand, but also for a luxury business as a whole that fears losing its exclusive allure. Of the employees in Burberry’s London headquarters, 70 percent are under 30 and its flagship store on Regent Street is digitally driven, designed to be a material incarnation of the company’s website. According to the consultancy Stylophane, Burberry has more Facebook and Twitter followers than any other luxury brand, comparable to mainstream brands like Adidas or Nike by number of Facebook likes. Burberry’s digital approach to all aspects of its operation is indicative of the retail business model of the future as it continues to explore new possibilities to give the consumer a multimedia experience.

LOOKING FORWARD

Though Christopher Bailey worked closely with Ahrendts throughout her tenure at Burberry, investors and journalists were initially unsettled that a designer would be running this $3 billion luxury company. As this is the first time a designer has stepped into the role of chief executive at Burberry, Bailey’s ascendance is a monumental moment and other executives at Burberry are confident that he will be successful. Ahrendts is the second notable Apple hire from the fashion industry, as former Yves Saint Laurent CEO Paul Deneve joined Apple to oversee product development this summer.

BUSINESS & STARTUPS

ALUMNI WHO DEFY CAREER EXPECTATIONS BY MICHAEL GOLZ

Not all students with an interest in finance go on to work in finance-proper. In fact, many alumni in your own school’s network have probably gone on to pursue their interests in unconventional ways. By reaching out to them and hearing about their experiences, you can learn more about different paths and what options exist. To accomplish this goal, I interviewed prominent Brown graduates about their careers related to innovation and business development.

THE BUSINESS OF BUSINESS DEVELOPMENT I first spoke with Michael Noble ‘97, who studied Biology at Brown. Noble is the founder and CEO of Apruve, a Minneapolis-based company that helps businesses manage expenses through a PayPal-like model. In justifying the purpose for Apruve, Noble described the way businesses process expenditures: “40% of business expenses are on personal cards,” he said, and “70% involve

two or more decision makers. 14 percent involve credit card fraud or illegal employee expenditure.” Of course, this is just Noble’s problem to tackle; each entrepreneur must tackle their own, according to various market needs. If the idea does not add something of value, then it might fail. But by building quick, iterable versions of the product (an MVP, or minimum viable product), you can test out this assumption and keep moving until you find something that works.

ROAD WARRIOR Stowing my cell phone and signing into my Skype account, I took my voice on an 8,600 mile journey to the other side of the planet to speak with John Richards ‘73, an economics major at Brown who now lives in Brisbane, Australia. A quintessential Brown spirit, Richards found himself fed up with the political environment of Vietnam-era America, and upon graduation moved to Australia where he worked on a farm until he landed a job with IBM. That was a career move he recommends for any aspiring business owner. “Become a road warrior,” he said, and seek extensive experience with a company you admire in order to develop the sales, marketing, and people management skills necessary to run your own firm. If you spend five to seven years in an

BY CARTER JOHNSON

same amount of caffeine as a cup of coffee and

Between the freedom of Brown’s open cur-

Founded in 2008, Runa won the Brown Entre-

riculum and the organizations that promote

preneurship Program’s business plan compe-

entrepreneurship on campus, like the Brown

tition in 2009 and launched in U.S stores the

Entrepreneurship Program, it’s no surprise that

following year. Runa LLC has grabbed a foot-

several Brown grads are making waves in the

hold in the consumer market, with 2011 sales

startup game. From tea to teeshirts, their prod-

reaching $330,000.

ucts have successfully grabbed a foothold in an ever-competitive market. And while many students know Nantucket Nectars and our beloved Mama Kim’s both founded by Brown alums and studied in the popular ENGN 0090 class “Management of Industrial and Nonprofit Organizations,” what follows are some ventures that you might not have heard of, yet.

RUNA TEA Tyler Gage and Dan MacCombie traveled to Latin America during their time at Brown, and returned to school with inspiration and an idea: capture the benefits of the Amazonian guayusa plant in tea. The result was a drink that had the

double the antioxidants found in green tea.

TEESPRING

In 2011, Walker Williams and Evan Stites-Clayton founded Teespring, a crowdfunded apparel company. On the Teespring site, t-shirts (and now sweatshirts) are designed by groups or organizations and upon reaching their funding level, sold and distributed (think of it almost like a Kickstarter for custom apparel). Teespring addresses many of the problems facing an apparel industry burdened with enormously difficult barriers of entry.

SONGZA

Songza, a music streaming service created by Elias Roman, Peter Asbill, Elliott Breece, and Eric

organization, he noted, “you’ll know everything the corporate world can teach you by then,” and you will be better-equipped to tackle your own business problems. In conjunction with mentorship and some practical skills, students will have a better sense of what it means to be in a business or startup environment.

THE INDIVIDUAL IDEA Richards had some more advice for students interested in the business and finance world at large: “Stay away from Wall Street.” On this point, I certainly agree with him. It isn’t just the competitive nature or otherworldly lifestyle; don’t fall into the trap of pursuing token wealth or the path that you believe to be the most prolific. There is great value in pursuing your own idea in order to find success. And besides, apart from often promoting a culture of money for money’s sake, the world’s financial situation is precarious. As Richards said, “There is no way out of this debt trap. Be flexible.” Once more, I agree. We must be prepared to tackle our future without begrudgingly holding on to prior expectations. Be willing and able to adapt your skills to meet any new sort of challenge, be that welcoming the help of a development team you never thought would have to crash your startup party, or exercising a little patience before diving into an innovative venture.

Davich, brings consumers music streams in a unique way. What separates Songza from other streaming services like Pandora and Spotify are specific, “curated” playlists broken down by day and time. Looking for a great “Tuesday, Late Morning Playlist”? Try “Keeping Calm and Mellow,” or alternatively search for “Record-Store Clerk” playlists and try “Dance Music That’s Not Assaultive.” No matter the occasion, Songza’s ready with the music.

EXO

Exo, founded by Greg Sewitz and Gabi Lewis, manufactures protein bars with a twist: their main ingredient is dried, ground up crickets, which contain high levels of protein and little fat and carbohydrates. When the duo first released their project on Kickstarter, they reached their $20,000 funding goal in three days. Featured in a New York Times article this January and with their first bars available for retail in February, Exo is poised to make a big splash in the nutritional food market.