IFJ April Edition

Marketing to the Brain:Science or Scam?by Julia Verbrugge, page 20

inflation and deflation in the eurozone

by Christopher Dederick, page 10

More than your problem:The Dangers of credit card debt

by Christian Ackmann, page 26

internship-less freshmen: how to stay ahead of the gameby Claire Su, page 32

Is there a bubble brewing in the craft beer business?

by Matthew Janigian, page 4

intercollegiate finance journal

The

APRIL 2014

The

IFJ T

eam Executive Board

Alex Drechsler – Co-PresidentBrice Gumpel – Co-PresidentMax Deutsch – Co-Head of Business Matthew Ostrow – Co-Head of Business Steven Adler – Head of ContentAlexandra Nuttbrown – Head of StyleStephanie Hennings – Head of Design & LayoutFelicia Iyamu – Head of DistributionMichele Narbonne – Head of RecruitmentLauren Tsai – Head of OperationsYuta Inumaru – Head of Web & Social Media Emily Law – creative founder

Editorial BoardSteven Adler – Head of ContentAlon Galor – Markets & InvestingAlex Lloyd George – Markets & InvestingThomas Pesce – Political EconomyEric Han – Political EconomyCarter Johnson – Business & StartupsSiavash Naderi – Business & StartupsChristian Ackmann – Personal FinanceSarah Park – Personal FinanceAndrea Wistuba Behrens – Careers & InternshipsClaire Su – Careers & InternshipsCaroline Vexler – Interviews & Other Content

Senior Staff WritersJasmine Bala, Tiffany Chang, Christopher Dederick, Miguel Ferreira, Michael Golz, Matthew Janigian, Kaden Lee, Ebony McCaskill, Camila McHugh, Tung Nguyen, Ana Rosenstein, Radhika Singhal, Elizabeth Studlick, Lauren Sukin, Angela Marie Bernadette Teng, Julia Verbrugge, Caroline Vexler, Amanda Yao

Staff WritersAlexander Behnke, Shreya Bhargava, Rachel Binder, Frances Chen, Noah Elbot, Perry Feldman, Miguel Ferreira, Alexandra Garcia, Peter Hix, Kristina Hu, Nathan Johnson, Joanne Low, Lehm Maguire, Giuliano Marostica, Thee Meensuk, Wesley Meyer, Alisa Owens, Kiera Peltz, Christian Petroske, Ignacio Perez-Pozuelo, Graham Rotenberg, Jordan Schochet, Kelsey Sherman, Kjetil Stiansen, Carolyn Stichnoth, Mark Valdez, Jonathan Vu, Carolyn Westphal, Jonathan White, Samantha Wong

business teamMax Deutsch – Co-Head of BusinessMatthew Ostrow – Co-Head of BusinessLauren Tsai – Head of OperationsAmanda Beaudoin, Christine Blandhol, Paul Cichocki, Sara Hartse, Christopher Heo, Quinn Herrera, Yuta Inumaru, Madelyn Metz, Amy Yao Meng, Connor Lynch, Arielle Schacter, Pranav Sharma, Destin Sisemore, Wenjie Zheng

blog teamJulia Verbrugge – Blog EditorPaul Cichocki, Maria Jose Herrera, Eric Hu, Shiying Luo, Masahiro Nakanishi, Angelo Nakos, Patrick Rosanelli

Copy editorsMaria Jose Hererra, Nathan Johnson, Lisa Opdycke, Duncan Weinstein, Francesca Whitehead

fact checkersEric Hu, Arielle Schacter, Scott Schubert, Ella Warshauer, Francesca Whitehead

Layout & Design teamStephanie Hennings – Head of LayoutChandelle Heffner – graphic designer Madeleine Johnson – Head Illustrator Charlie Benson, Israel Carrete, Linda Navon Chetrit, Quinn Herrera, Jie Hao Kwa, Kaden Lee, Shiying Luo, Kimberly Meilun, Amy Yao Meng, Nicholas Pucel, Lorraine Salim, Mili Sanwalka, Claire Su, Sirena Turner, Kayla Tyrrell

web & Social Media teamYuta Inumaru – Head of Web & Social MediaSara Hartse – Head of technologyMichelle Watt – Head of Social MediaKarthik Harihar Reddy Battula, Chien Teng Chia, Jenna Chuck, Sara Hartse, An Truong, Amanda Yao, Raymond Zeng, Wenjie Zheng, Joshua Wang

2 The IFJ Team The Intercollegiate Finance Journal April 2014

Markets & InvestingIs There A Bubble Brewing in the Craft Beer Business? by Matthew Janigian 4

National “Fine” League by Wesley Meyer & Rachel Binder 6The Price of Being a Food Trend Chaser by Ana Rosenstein 7High Frequency Trading and the Flash Crash of 2010by Matthew Janigian 8

Political economyInflation and Deflation in the Eurozone: the Lady or the Tiger? by Christopher Dederick

10

Also: Mundell’s Optimum Currency Area: Theories in Action by Christopher Dederick

Top Ten Freest Economies of the World - 2014 by Tung Nguyen 13The Real Cost of Your T-Shirt by Sarah Park 14Rethinking Venezuela by Miguel Ferreira 16North vs. South Korea by Eric Han 17Ready for the Big Bucks by Lauren Sukin 18

Business & StartupsMarketing to the Brain: Science or Scam? by Julia Verbrugge 203D Printing: Sci-Fi Brought to Life by Samantha Wong 22Under the Radar: Is There an Advantage to Keeing Your Startup Secret? by Michael Golz

24

Candy “Crash” Saga: King Games’ IPO is the Real Puzzle by Elizabeth Studlick 25

Personal financeMore Than Your Problem: The Dangers of Credit Card Debt by Christian Ackmann 26

The Low Down on Financial Aid by Sarah Park 28Also: Store as Showroom: Threat or Resource? by Carolyn Stichnoth

University Finances: An Interview with Brown’s CFO by Alex Drechsler 30

Let’s Get Digital: The Future of Wallets by Tiffany Chang 31

Careers & InternshipsInternship-less Freshman: How to Stay Ahead of the Game by Claire Su 32

Unpaid Internships: Will They Affect Your Career? by Amanda Yao 34

The Creative Economy: South Korea’s Transformation by Caroline Vexler 35

The Creative Economy: Entrepreneurship at Brown by Caroline Vexler 36

Student Spotlight: Bill Weber by Caroline Vexler 38

The IFJ Online www.theifj.com

The BlogThe Blockbuster Dealby Angelo NakosThree Protests, Three Countries, Three Continentsby Paul CichockiUber: Taking on the Taxi Industry in Styleby Shiying LuoAutomating Your Financial Lifeby Patrick RosanelliCareer of the Week: Investment Bankingby Masahiro Nakanishi

archivesPrinciples of College Savings: Amazon PrimeThe International Monetary FundCheap-On-Investing: 5 Affordable Stocks for College StudentsBrown Market Shares

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Volume I Issue IV

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at your fingertips!”

On the cover...

Marketing to the Brain: Science or Scam?

By appealing to the deeper levels of human respon-siveness in order to understand what drives con-sumers, neuromarketers stand at the frontier of a rapidly developing field. As more and more market researchers use neuroimaging techniques like fMRI, EEG, and eye-tracking, more and more questions are asked of neuromarketers. Can the subconscious mind of the consumer be accurately tapped in order to generate greater profits? Should it be?

3 The Intercollegiate Finance Journal April 2014 Contents

Markets & Investing The Intercollegiate Finance Journal April 20144

MARKETS & INVESTING

ver the past several years, the craft beer business has been booming. Growth has been tremendous; between

2006 and 2012, the volume of craft beer produced rose 71 per-cent and hasn’t stopped since. In fact, there are now over 2,500 breweries open in the United States, and more keep popping up. For the uninitiated, the distinction between a “craft beer” and normal beer might seem like a blurry one. The Brewer’s Association defines a craft beer producer as “small, indepen-dent and traditional.” For the quantitatively minded, this means an annual production of less than six million barrels and an alcoholic beverage member ownership of less than 25 percent. Finally, a majority of a craft brewery’s produce must have “fla-vor [that] derives from traditional or innovative brewing ingre-dients and their fermentation.”

Big Producers Take NoticeAlthough many of the new offerings are from local breweries, the big producers haven’t been sitting on the sidelines: many of the large producers have developed craft-like products. Miller-Coors is the parent company of the well-known Blue Moon Belgian White—a beer that is marketed as “handcrafted” in an effort to appear craft-like. Many would be quick to say that beers like Blue Moon or Shock Top (made by Anheuser-Busch InBev) distinguish themselves from the more bland “everyday” beers and BeerAdvocate does indeed give them above average

ratings. What started out as a movement led by small, inde-pendent breweries has gained popularity at a rapid pace that doesn’t seem to be slowing.

The Bubble BuildsWith such growth, it might be wise to ask if the industry is get-ting ahead of itself. Indeed, there are many breweries that are opening up without sufficient capital. Only a few are able to re-ally ride the foamy wave of success, while others are left drown-ing after an initial, fleeting burst of popularity. Some brewery owners have even gone so far as to call the craze “irrational exuberance,” hinting that the popularity of craft beer might be inflated. To answer whether the craft beer industry is in the midst of a speculative bubble, one ought to consider what it means to experience a bubble. The term “bubble” is typically assigned to a class of assets or a sector in which the prices of the products are unjustifiably high. For example, in the tech bub-ble of the early 2000s, there were many Internet startups with no potential sources of revenue and unreliable business plans, yet their stock prices rose to high levels. During the housing bubble, property costs rose dramatically even though people weren’t buying houses nearly as fast as houses were being built, thus leading to an overinflation of real estate prices. The craft beer industry has grown rapidly over the past decade, indicat-ing that perhaps it is becoming overheated. Indeed, more and

6 National “Fine” League

7 The Price of Being a Food Trend Chaser

8 High Frequency Trading and the Flash Crash of 2010

Visit theifj.com for these articles:• Shock in Silicon Valley: Explaining the

Facebook-Whatsapp Deal• Career of the Week: Investment Banking• Shadow Banking: How an Abstract Financial

Chain Nearly Brought Down the System• E-Cigarettes: Smoke in our Eyes or Shock to the

Industry?

Also In This Section

Is There A Bubble Brewing in the Craft Beer Business?by Matthew Janigian

o

The Intercollegiate Finance Journal April 2014 Markets & Investing 5

more breweries are opening without suf-ficient capital and struggling to survive as a result.

Worries OverblownIt might be tempting to call the craft beer boom a bubble, but this would be inaccu-rate. While there are some breweries that simply cannot stay solvent and are undercapitalized, the price of craft beer is not unjustifiably high: By nature, craft beer takes more effort to brew, so it makes sense that a can or bottle of craft beer would be more expen-sive than a typical mass-mar-ket beer. Furthermore, the increasing number of brew-eries will also likely put pres-sure on existing breweries to keep their prices competitive.

The Brew to BeatBased in Waterbury, VT, The Alchemist Brewery has achieved celebrity status in the beer world for its desirable brews. BeerAdvocate gives its signature brew “Heady Topper” a perfect 100 rating. Despite its popularity and despite the in-credible demand for the beer (the brew-ery limits how much a single customer can purchase), the Alchemist refuses to raise the price of Heady Topper above $3 per can. While there are certainly craft

breweries that charge upwards of $7 per can or bottle, the fact that there is a high demand for the beers shows that prices are justified.

The Pull of the ProductCraft beer is a food item. In order for beer to sell and for businesses to con-

tinue to stock the beer, consumers have to like the product. Consumers have tak-en a liking to craft beer as many buyers seek out independent labels. If the beers were not selling off the shelves in liquor stores, supermarkets, and restaurants, retailers would not carry them. Since retailers who sell beers are consistently selling craft beers, the growth in the craft beer industry is being sustained by the matched demand.

One should consider the fact that the craft beer industry is a peculiar case since supply tends to drive demand. People have a relatively steep learning curve with

craft beers: once consumers try them and realize they like the beers, they continue to buy them; once they learn what beer can be, they seek out that balanced, tasty bubbliness that they can’t find in regu-lar beers. The explosion in the industry has contributed to the growth of craft breweries like the Boston Beer Company

(parent company of Sam Ad-ams), one of the largest craft breweries. It currently has control of nearly 20 percent of the craft beer market. D.G. Yuengling & Son also pro-duces large volumes of craft beer each year. The growth in these companies isn’t specu-lative: there is real demand for the drinks.

Forever Blowing BubblesAs a final point, it’s worth considering that the craft beer movement is not an anomaly. In fact, it lags significantly be-hind a parallel movement in organic and local foods. The local food movement has been growing for years, especially since Alice Waters popularized it when she opened Chez Panisse in California in 1971. Since then, the local food move-ment has experienced incredible growth, from farm-to-table restaurants, to the ex-pansion of Whole Foods. The craft beer movement is only in a young stage, and its growth isn’t likely to fizzle out soon.

"The craft beer industry has exhibited rapid growth over

the past decade, indicating that it is becoming overheated."

10cra ft breweries

States with the Most Craft Breweries:

126-Year Brewery Count(1887 – 2013)

2,500

2,000

1,500

1,000

500

0 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Num

ber

of B

rew

erie

s

(188

7)

(Jun

e 20

13)

(Prohibition)

2,0112,538

1,179

703

89

6 Markets & Investing The Intercollegiate Finance Journal April 2014

hen it comes to economics and the NFL, exorbitant salaries and

high-demand ad slots might be the first ideas to come to mind. What might not be so obvious is the financial incentives in place to keep players safe. Over time, these financial deterrents have become more prevalent and stringent. Most like-ly a response to recent advancements in concussion research, fines have placed pressure on players to reduce unneces-sary roughness in games. However, fining players also raise important questions of efficiency and equality in the NFL.

NFL fines have been in place since the late 1980s, but have increased over time and have received more media coverage in the last few decades. Taking a look at some surprising examples illustrates a clear pattern of high fines for risky activ-ities. Ed Reed, a safety for the Baltimore Ravens, tackled another player in “the head and neck area” and consequently received a $55,000 fine for this reckless behavior. Similarly, Ryan Clark, a safe-ty for the Pittsburgh Steelers, was fined $40,000 for a “helmet-to-helmet” on-field hit. Clark was fined $15,000 for previous violations. Despite Reed’s $1 million sal-ary and Clark’s $3 million salary, given the split-second nature of these decision, these fines are substantial.

Thinking With FinesThe NFL standards not only generate fi-nancial incentives, but also change the way the players play the game. Rather than simply defending their ground, safe-ties now also have to consider their level of force when defending said ground. Will players view these fines as merely unavoidable inconveniences, a cost to be accepted for the good of the team? Attain-ing that last touchdown may be more im-portant to players than the money spent on fines. They may go for the game-sav-ing tackle even if it means incurring fines.

A Ransom for ReputationMedical professionals applaud the NFL for their seemingly altruistic steps toward con-cussion prevention, though a closer look reveals that the NFL has implemented a myr-iad of other fines aimed merely at protecting the NFL’s image. Players are now being held accountable, even financially, for their behavior off the field.

For example, Leodis McKelvin of the Buffalo Bills was fined $75 for refusing to follow crew-members’ instructions while aboard a flight. Here, we see the NFL equat-ing their players with public officials to the extent that players are held accountable for actions that could reflect poorly on the NFL even when they are conducted in a non-athletic sphere. Even though McKelvin’s fine may seem small, it could be seen as an encroachment upon the player’s personal liberties.

These fines demonstrate the ways in which the NFL views its players as ambassa-dors of its reputation. It would be interesting to consider whether the NFL truly ex-pects the players’ behavior to change as a result of these financial deterrents. Perhaps, the NFL hopes that over time the players will eventually refrain from such inappro-priate behavior in order to show a greater respect for the league. Or, more cynically, perhaps the NFL simply wishes to pay lip service to civility.

Not So Fine and Dandy?Health and safety fines also have a complex effect on the split-second decisions that the players face during the course of a game. This then raises questions of equality be-cause certain players, depending on their position, are more likely to incur these fines due to the nature of their on-field responsibilities. For example, a defensive player whose job it is to tackle the opponent is more likely to incur a fine than the quarter-back who rarely finds himself in such a situation.

Should we then expect this system of fines to result in higher compensation for players who play “riskier” positions, just as the risks associated with Alaskan salm-on-fishing lead to higher pay for the fisherman? As the frequency of fines increases, this may be a question that the NFL is required to answer.

NATIONAL “FINE” LEAGUE

by Wesley Meyer & Rachel Binder

Year Total # of Fines Most Fined Team Most Fined Player

2011 $1,040,000 79 Steelers (9) Ryan Clark (PIT, $40,000)2012 $2,825,321 193 Ravens (16) Ed Reed (BAL, $55,000)2013

(6 weeks)$1,611,160 100 Lions (10) Dashon Goldson

(TB, $100,000)

Fines Per League Year

2008 2009 2010 20112003 2004 2005 2006 20072002

year

0

0.5

1

1.5

2

2.5

3

fine

s (p

er m

illi

on)

2012

w

7 The Intercollegiate Finance Journal April 2014 Markets & Investing

ale, brussel sprouts, quinoa. Apart from their designation as “super

foods,” these foods all boast another similarity. They have been trends — that is, foods that have risen to the forefront of the foodie scene as the “it” items to order on a menu. Recent food trends have been largely nutritious — the issue at hand is not of a caloric nature. The real concern is the price one must pay to hop on the latest bandwagon.

Gluten SpreeOne recent food trend, however, does not advocate incorporating a specific food into one’s diet but rather banning a food category in its entirety. Up till now, gluten-free diets have been followed by various nutritionists and by those diag-nosed with celiac disease or gluten intol-erance. Now, the gluten-free industry is worth a staggering $6.3 billion.

The prices of gluten-free foods sub-stantially exceed those of their glu-ten-containing counterparts. To compare the cost of food items in each camp, we looked at the prices listed on Peapod, an online grocery delivery service operating in many US cities. A loaf of Udi’s White Sandwich Bread, a widely distributed gluten-free brand, costs $5.99 whereas the most expensive regular white bread, Country Kitchen, was $4.69 and the least expensive white bread, Stop&Shop Bread White Round Top, was a mere $0.99.

Despite this considerable markup, gluten-free is growing. As of November 2013, gluten-free manufacturers Udi’s and Glutino saw a 53 percent growth in net sales for the quarter. CEO of Boulder Brands, parent company of the afore-mentioned gluten-free brands, revealed to Food Navigator-USA, “In the third quarter, Udi’s net sales grew 74% year-

food by Ana Rosenstein

The Price of Being A

trend chaser

over-year. Glutino net sales grew 29%. Combined, our gluten-free brands in-creased net sales 53%. Udi’s and Glutino now average 19.3 items in retail, up from 15.4 last year.”

Gluten-Free, Gluten FallWith the rise of a food trend comes its in-evitable fall from grace. If producers fail to lower the prices on these foods, their decline will only be accelerated. Custom-ers may be health-conscious, but not at such a high cost. However, as a food be-comes trendy, touted by celebrities, nu-tritionists, and restaurateurs alike, basic economics tells us that the asking price for the respective foods will increase. Once more producers enter the market and cause an influx of new gluten-free products, the prices will level out.

While this would benefit those follow-ing a gluten-free diet, another problem may emerge as a result of the market’s rise in popularity. Celiac.com, “an invalu-able resource to people worldwide who seek information about celiac disease and related disorders,” has examined the projected growth in the gluten-free mar-ket. Their study noted that gluten-free products often cost as much as 30 per-cent more than those containing gluten.

Gluten FadThe problem that begins to emerge, however, is that increased production of gluten-free products will decrease the quality of the products on the market. In order to lower prices and cater to the new demand, gluten-free food manufac-turers may be forced to forfeit some of the nutritional value of their products. Furthermore, even as prices deflate, glu-ten-free items could remain significantly more expensive than those containing gluten. Gluten-free diets are certainly not purely a fad – they are a medical ne-cessity for many. What is a fad, however, are the hoards of people choosing to be gluten-free as part of a quest toward a healthier lifestyle.

Ultimately, for those who must avoid gluten for dietary or health reasons, the recent upswing in accessibility of glu-ten-free food items appears to be a bless-ing but is at risk of becoming a curse. The items will burn a much larger hole in the pockets of those who are simply riding the gluten-free train as a fad, since these food items will never be priced lower than traditional foods. If the nutritional value is compromised as a result of high-er demand, is the cost of gluten-free food worth it?

Despite its markup,

Gluten is growing.

k

8 Markets & Investing The Intercollegiate Finance Journal April 2014

High Frequency Trading and the Flash Crash of 2010by Matthew Janigian

n May 6, 2010, the Dow Industri-al average experienced a 1010.14

point swing and an intraday decline of 998.5 points, closing 348 points down. For a few fleeting minutes, approximately $1 trillion vanished from the entire econ-omy. Following this event, which became known as the “Flash Crash,” regulators and investors alike are questioning the role and practices of the high frequency traders who have received a substantial portion of the blame for the crash.

Advent of the High FrequencyNowadays, exchanges are electronic. Buy and sell orders are placed with brokers or dealers, and the trades are then executed electronically. If, for example, a stock was traded on the New York Stock Exchange (NYSE) and a separate stock exchange, it might trade at different prices since the two exchanges weren’t connected.

However, through a series of regu-lations and technological innovations, markets have become more connected. With the passage of Regulation National Market System (“Reg NMS” as it is affec-tionately known), markets and exchang-es have become even further connected. Reg NMS consolidates the markets and it requires that orders be executed at the best price for consumers so that there are no price discrepancies among exchang-es. In theory, it should lower the bid-ask spread, thus increasing liquidity.

The Millisecond MarketHigh frequency traders (HFTs) operate by using sophisticated computer algorithms to place and cancel orders. This occurs in the space of a few milliseconds; a high frequency trader can execute millions of trades each day. High frequency trading firms only make up two percent of the

nearly 20,000 firms that trade securities and yet they are responsible for 73 per-cent of all US equity volume in addition to 35 percent of futures volume.

Since HFTs are constantly placing or-ders to buy and sell securities, they are sometimes seen as liquidity providers for the market. Rather than generating liquidity in the market in the leadup to the Flash Crash, HFTs liquidated their positions, which essentially turned them into liquidity consumers rather than pro-viders. In just a short period of time, li-quidity quickly evaporated as algorithms flooded the market with sell orders.

Flash CrashFollowing the Flash Crash, a joint Securi-ties and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) report concluded that the cause of the crash was an automated execution of a large sell order in E-mini S&P 500 Futures — futures contracts designed to track the S&P 500 index. A large insti-tutional investor—Waddell and Reed—placed a sell order of 75,000 futures con-tracts, which amounted to roughly $4.1 billion. This type of transaction wasn’t unusual for the company. However, the trade was executed in a mere 20 minutes as opposed to being spread out over the course of hours, which is more common for a trade of that magnitude. As the fu-tures were sold, their price plummeted. HFTs, who were likely purchasing many of the contracts, began to sell their con-tracts while the large trade was still being executed. This created a sort of feedback loop that increased the selling speed of Waddell and Reed’s transaction, thus leading to a rapid decrease in prices, which spilled over into the market for individual stocks.

Upon further examination, it be-comes clear that there is more to the story than the execution of this sell or-der. In fact, there were signs of a crash in the hours and days leading up to the event. While HFTs may not have caused the Flash Crash—their trading behavior remained consistent before, during and after—their actions certainly exacerbated it. However, HFTs could not have pre-vented the crash unless they completely changed their trading strategies by main-taining positions in the futures contracts that were being traded. The rapid drop in prices rebounded within minutes.

Upon examining trade imbalance, one can see that at the time of the crash, HFTs exhibited an incredibly high sell im-balance. However, shortly after the prices plummeted, the trade imbalance moved toward a high buy imbalance; prices were so low that traders took advantage of them by rapidly placing buy orders. While the market didn’t completely erase its losses on the day, the crash was, as the name suggests, a short-lived liquidity event. Signs of the Flash Crash started to manifest themselves prior to the actual sell off of E-Mini contracts.

One metric used to gauge uncertainty in the market is the volume-synchronized probability of informed trading (VPIN.) VPIN can be used to estimate order flow toxicity, which is the expected loss from trading with a better-informed counter-party. By examining the VPIN prior to the crash, it becomes clear that there was al-ready a good deal of uncertainty through-out the market prior to the crash. One must wonder if the cause of the Flash Crash was an errant order, or if it was the manifestation of structural changes in the market due to the growth in high frequency trading.

10:00 AM 11:00 AM 12:00 pM

DJI 9869.6209^2:47 PM EDT:

O

9 The Intercollegiate Finance Journal April 2014 Markets & Investing

1:00 pM 2:00 pM 3:00 pM

1

2 3

4

5

6 - 8

9

2:47 PM:$9869.62

The Fear IndexCurrently, the most commonly looked at measure of uncertainty or “fear” in the market is the VIX index (the Chi-cago Board Options Exchange Market Volatility Index). As is evident from the chart, VIX lags market movements. This is not surprising, though, since VIX re-lies on changes in prices, which must be observed, not predicted. While VPIN can gauge market uncertainty, it is not a perfect measure. The theoretical calcu-lation behind it requires knowledge of order flow (whether a trade was a buy or a sell), which isn’t directly observable, but can be predicted with certain proba-bility-based algorithms. However, despite this imperfection, empirical data have shown that the VPIN metric is telling of uncertainty in the market before signifi-cant liquidity events occur.

Flash to FinishSince the Flash Crash, high frequen-cy trading has been subject to greater scrutiny. Regulations have been put in place to make sure that the trading en-vironment remains fair. While it may ap-pear that high frequency traders have an obvious advantage over regular traders, it might be worth drawing a parallel to the advantage that a tall trader had over a shorter person on the NYSE trading floor a century ago. The goal in making mar-kets fair is to make sure no single entity has an unfair advantage over another and to make sure that there is some access to whatever advantages one might have over others (i.e. the opportunity to pur-chase information).

Moving forward, regulators will have to adapt rules to account for the new advances in trading technology. What started out as an agreement among 24 stockbrokers under a buttonwood tree in 1792 has evolved into a complex sys-tem of wires, electronics, and soon, la-sers. The Flash Crash will likely be one of many short-lived significant market liquidity events, but regulators can pre-vent or at least reduce the magnitude of these events by more carefully examining market turmoil and uncertainty.

1. 2:00 PM:Protests in Greece turn violent; the euro falls sharply.

2. 2:23 PM:Nasdaq begins issuing alerts about unusual price move-ments.

3. 2:30 PM:S&P volatility index up 22.5% and the DJI was down 2.5%.

4. 2:32 PM:A large sell order was execut-ed using an algorithm to sell 75,000 E-Mini contracts—a $4.1 billion value. HFTs started to absorb the trades.

5. 2:41 PM - 2:44PM:HFTs start selling, making the algorithm speed up the rate at which it sends the sell orders into the market. The price of E-Minis falls 3% in four minutes.

6. 2:45 PM:Automated trading systems temporarily pause in response to sudden price declines.

7. 2:45:13 PM - 2:45:27 PM:HFTs quickly buy and resell contracts creating a “hot potato” effect. In total, 27,000 contracts were traded by HFTs, but only 200 contracts were actually bought and held.

8. 2:45:28 PM:Trading in E-Mini futures is paused for 5 seconds to stop steep decline in prices.

9. 2:51 PM:The algorithm stops executing its order.

12 Mundell’s Optimum Currency Area: Theories in Practice

13 Top Ten Freest Economies of the World - 2014

14 The Real Cost of Your T-Shirt16 Rethinking Venezuela17 North vs. South Korea18 Ready for the Big Bucks

Visit theifj.com for these articles:• Obama and the 2015 Budget• News from Ukraine• 3 Protests, 3 Countries, 3 Continents• The Global Economy: An Update


by Christopher Dederick

in the eurozoneINFLATION and deflation

The lady or the tiger?


POLITICAL ECONOMY

he Lady or the Tiger is an allegor-ical no-win situation. Regrettably,

it is also a telling metaphor for the Eu-rozone’s ongoing economic troubles. A man, facing trial at the hands of a barbar-ic king, must enter through one of two doors. Behind one is a woman, whom he must immediately marry; behind the other is a starved tiger. Watching from the crowd, the man’s lover will either see him marry another or be mauled by the en-raged beast. The Eurozone likewise faces a choice between the lesser of two evils. In this case, the starved and incensed ti-ger goes by the name “deflation.”

Reductionist narratives about the ori-gins of the Eurozone crisis pin the blame on prodigal governments and wasteful welfare states. In reality, Europe’s eco-nomic woes are manifold, as are the sources of its public debt burden. At the end of the day though, the greatest chal-lenge for the Eurozone’s beleaguered southern states is not debt, but a chronic lack of trade competitiveness.

Under the Maastricht Treaty, Euro-zone members agreed to limits on public deficits and debt of three percent and six-ty percent of GDP respectively. The PIGS countries (Portugal, Ireland, Greece,

and Spain) have been somewhat unfairly blamed for violating these restrictions, earning this unlucky acronym in the pro-cess. It may come as a surprise to many that Germany was actually the first coun-try to violate these limits at a time of fi-nancial necessity.

That is not to say that government profligacy was not a factor. The spread on Greek government bonds narrowed dras-tically after it joined the Eurozone, low-ering government borrowing costs and encouraging the accumulation of debt. Greece’s public debt levels were hidden from public view for years, but in the past

T

The Intercollegiate Finance Journal April 2014 Political Economy 11

Map of the Eurozone countries

few years reached levels close to 200 per-cent of GDP. However, Ireland entered the crisis with a fairly sound fiscal posi-tion. That changed when its overgrown financial sector collapsed, forcing the government to guarantee deposits and bailout the country’s banks to prevent a credit crunch that would have frozen economic activity. Spain’s debt-to-GDP levels were well below the 60 percent criteria. Instead, Spain suffered from a massive speculative construction boom, followed by a bust that left it with some of Europe’s worst unemployment. The resulting collapse in tax revenues has caused deficits to skyrocket, as its debt figures continue to creep upward. Simi-larly, Portugal’s debt grew out of falling tax revenues and fiscal expansion efforts meant to stem the tide of the crisis.

Trade IssuesFundamentally, what these countries all share is a serious lack of competitiveness in trade. For years, they ran large current

account deficits, importing far more than they exported. Capital inflows financed these deficits, in the form of foreign di-rect investment as well as investments in financial assets, such as government debt. Current account deficits are not necessarily a sign of weakness, as long as capital is invested productively, so that it generates the GDP growth necessary to pay the interest on accumulated debt. Unfortunately, this was not the case. In-stead, capital often flooded into dubious investments and speculative construc-tion projects.

Unit labor costs, which measure com-petitiveness by wages and productivity, simultaneously rose across the board in the periphery. Countries such as Germa-ny meanwhile kept wages stable, even as their productivity improved. The result has been a large intra-European trade im-balance, with Germany overtaking China as the world’s largest surplus country, and the South falling further into trade deficit. Government austerity can reduce

public deficits, but it cannot address fall-ing GDP and the existing debt burden. In fact, spending cuts can exacerbate these issues by reducing aggregate demand and actually shrinking GDP. Sustainable GDP growth is ultimately the only way these countries can ensure the tax rev-enue necessary to pay their debts, as well as regain the confidence of capital markets and foreign investors. However, Keynesian fiscal expansion is unworkable with existing debt levels.

Traditionally, countries allow their currencies to depreciate in times of cri-sis, boosting exports and GDP. Under a common currency, the Eurozone lacks the means to adjust exchange rates be-tween member states to remedy trade imbalances. Even if the European Cen-tral Bank (ECB) were to use foreign exchange operations in an attempt to devalue the Euro, it would not address the heart of the issue, which is the real exchange rate – the price of a basket of goods in one country versus another.

Mundell's Optimum currency area: Theories in Practice

obert Mundell once modeled and established criteria for an optimal currency area: a geographic region with single

currency, organized to maximize economic efficiency. The Eu-rozone, the only real case of a multinational currency union, is ironically the oft-cited example of a joint currency area – ironic, because the Eurozone fails almost every one of the model’s cri-teria. The Eurozone’s deficiencies as a currency area highlight that it is above all a political project, not an economic one.

Similar Business CyclesEconomies in an optimal currency area will have similar busi-ness cycles. When one economy is growing, the others are likely to be growing as well. These economies are also likely to ex-perience downturns concurrently. When business cycles corre-spond, the currency area’s central bank can use expansionary monetary policy (lowering interest rates and quantitative eas-ing) when the economy experiences a recession, and raise rates when the economy faces inflationary risks. The Eurozone’s busi-ness cycles are idiosyncratic, roughly divided between northern states that are currently growing and a periphery experiencing recessions. Monetary expansion could help combat deflation-ary fears in the South and ease credit conditions to encourage lending and investment, thereby counteracting insufficient ag-gregate demand. However, the North is growing, and expansion would likely cause undesired inflation. When business cycles diverge, appropriate monetary policy at any given time also di-verges between what is optimal for each economy.

Capital MobilityWith well-developed financial institutions and freedom of movement for physical and financial assets, mobility of capital is the only criteria the Eurozone actually possesses. Mobility al-lows for capital to flow to where investment opportunities are greatest and where it will be most efficiently allocated.

Labor MobilityMobility essentially allows people to move from where there is unemployment to where job opportunities exist. The Eurozone has formal labor mobility: citizens can move freely and work anywhere in the bloc. However, barriers of language and cul-ture still divide the Eurozone.

Risk Sharing SystemsAn optimal currency area will have mechanisms in place to counteract economic shocks that could cause recessions. A cen-tral government is the sole fiscal authority with jurisdiction over a country. If a region experiences a recession, the government can target spending to create employment opportunities and fill gaps in aggregate demand. The Eurozone lacks an estab-lished fiscal transfer authority. Member states have transferred fiscal funds to one another, mostly in the form of bailouts from Germany. However, the politics of the US federal government spending in different regions of the country are far less com-plicated than the politics of German taxpayers bailing out the Greek government.

by Christopher Dederick

Political Economy The Intercollegiate Finance Journal April 201412

The cost of goods produced in Greece or Portugal is simply higher than the same basket produced in Germany, and argu-ably less desirable.

Deflation or Inflation?Restoring competitiveness to Europe’s ailing economies can thus only be ac-complished in one of two ways: defla-tion or inflation. Ireland has successfully pursued the former. Ireland managed to bring unions, business leaders, and op-position parties to agree to reforms and wage cuts. Doing so reduced the price of goods produced in Ireland, which now enjoys a current account surplus and renewed access to international capital markets. However, such draconian wage cuts come at great social cost; the past few years have been beset with protests and strikes, and standards of living in Ire-land have fallen dramatically.

Why can this process not be repeated elsewhere? Crucially, Ireland enjoyed the cooperation of all major stakeholders in achieving reforms – a social mandate to

make these tough decisions. This is a lux-ury few other Eurozone members enjoy. Where Ireland saw protests, others have experienced protracted strikes. Ireland managed to form a coalition with opposi-tion parties to achieve important reforms; elsewhere, politicians continue pointing the finger. Karl Polanyi, a political econo-

mist, once described people as “fictitious commodities.” Unlike commodities, hu-man beings cannot be expected to react with ambivalence when their wages and livelihoods are at stake. The social costs to pursuing deflation throughout Europe would be immense. Already austerity has fueled the rise of extremist parties across

by Linda Navon Chetrit

R


the continent, and social instability is a threat in itself to economic recoveries.

From an economic and social stand-point, inflation may be the silver bullet that Europe needs. Monetary expansion by the ECB to intentionally create mod-erate levels of inflation would address the Eurozone’s debt and competitiveness issues. It would counteract Europe’s trade imbalance by making German ex-ports more expensive relative to south-ern exports. In such a scenario, southern European countries would only need to hold wages at current levels to keep pric-es down and make their exports more competitive, while wages and prices rise in the North. Socially speaking, keeping wages at existing levels during a crisis is easier to achieve than outright wage cuts. Inflation would also erode the real value of existing stocks of debt, thereby reduc-ing an additional burden. Unfortunately, economically and socially judicious poli-cies may be politically untenable.

Germany, the Eurozone’s largest economy, has a deep aversion to infla-tion. Conceivably informed by its histor-ical experiences with hyperinflation, the Maastricht Treaty codified this aversion, charging the ECB with a strict mandate to pursue price stability. More impor-tantly, Germany would see its export-led growth model suffer if the price of its goods started to rise. As the Eurozone’s most powerful member, and a country that already feels it is unfairly paying for others’ mistakes in the form of bailouts, it is difficult to imagine inflation as a politi-cally acceptable solution for the German electorate. In this sense, Europe faces so-cial and economic necessities that are at odds with political realities.

Still, maintaining the status quo could prove disastrous. It would likely require at least a partial default on Greek government debt. A default could force Greece to leave the Eurozone and cause contagion throughout southern Europe, driving up rates on sovereign bonds and leaving other Eurozone members incapa-ble of paying the interest on their debt. Since German banks have invested heav-ily in southern European government bonds, Germany may find itself having to bailout its own financial system. Eco-nomic arguments aside, while history may offer a guide to the dangers of infla-tion, it was austerity, deflation, and the Great Depression that facilitated the rise of fascism in Europe. The political costs of inflation may be high, but a failure to act could be far costlier. European poli-cymakers thus have a crucial decision to make. The question is, will it be the lady, or the tiger?

very year, the Heritage Foundation and the Wall Street Journal make a list of the freest economies of the world based on the following criteria: the rule

of law, the limits of the government, regulatory efficiency, and market openness. Each of these categories is rated on a score of 1-100. The higher the score in each category’s subsections, the more free the economy. Here is the rundown for 2014:

1. Hong Kong - Score 90.1“Small Government, Low Taxes, and Light Regulation.”Let’s highlight Hong Kong’s 20-year history as the consistent #1 for the past 20 years. Hong Kong is part of the People’s Republic of China, but is governed as a commercial oasis under more liberal laws than those extended to Mainland China.

Market openness is high as “trade freedom, investment freedom, and financial freedom [have] been complemented by a transparent regulatory environment and competitive tax regime.” Hong Kong has a “highly motivated workforce and a high level of labor freedom,” adding to its “economic dynamism and resilience.”

2. Singapore - Score 89.4“High levels of trade freedom and regulatory efficiency.”Similar to that of Hong Kong’s basic descriptions, Singapore emphasizes more strength in its regulatory efficiency, as “a strong tradition of minimum tolerance for corruption is institutionalized in an efficient judicial framework, sustaining the rule of law in the dynamic economy.”

3. Australia - Score 82 7. Chile - Score 78.74. Switzerland - Score 81.6 8. Mauritius - Score 76.55. New Zealand - Score 81.2 9. Ireland. Score 76.26. Canada - Score 80.2 10. Denmark. Score 76.1

The Heritage site cites economist Friedrich Hayek, “To be controlled in our eco-nomic pursuits means to be always controlled.” In this sense, the Heritage Founda-tion defines economic freedom to be as essential as political freedom.

where is the usa?Why is the United States not in the top ten? It was last year as #10, but now it has been downgraded to #12. The Heritage Foundation asserts that to be economical-ly free is to be conduct business without the overbearing interference of govern-ment regulations. According to the report, because of the “substantial expansion in the size and scope of government, including through new and costly regulations in areas like finance and healthcare,” the US is experiencing an “erosion of U.S. economic freedom.”

by Tung Nguyen

Top Ten Freest Economies of the World - 2014e

The Real Cost of Your T-Shirt

by Sarah Park


he $20 billion garment industry in Bangladesh has grown tremen-

dously over the past several years. Low wages and a massive workforce have at-tracted the business of many international retailers, and ready-made garments now make up 80 percent of Bangladesh’s total exports. In fact, after China, Bangladesh is by some measures the world’s largest exporter of readymade gar-ments and the industry seems poised for even more growth in the future. While retailers have benefited from the low costs associated with having their products manufactured in Bangladesh and the owners of the factories have benefited from large profits, these mon-etary advantages have come at the expense of the lives of the factory workers themselves.

A Crisis of GovernanceBecause of the country’s economic de-pendence on the garment industry, the main players of the industry wield signif-icant influence among all political parties and have been able to successfully cir-cumvent or ignore regulations on factory conditions and the treatment of workers.

Further exacerbating the issue is the fact that there is a significant shortage of inspectors able to hold the factories ac-countable. Most factories in Bangladesh are lacking basic safety features, such as fire extinguishers, or are filled with safety equipment that is outdated or in-sufficient. The workers themselves are treated poorly, barely paid, and have no guaranteed rights. The majority of the workers are women — whose rights in the country pale in comparison to those of men. Workers are also stripped of any

The Damaged State of Bangladesh's Garment Industrybargaining power because factory own-ers do not give them contracts and own-ers are able to fire workers arbitrarily.

The Path to ChangeFollowing the collapse of the Rana Pla-za factory complex last April that killed approximately 1,100 workers and a fire at another factory soon after, the govern-

ment finally agreed to investigate factory conditions and establish stronger regu-lations for its nearly 4,500 factories that employ over four million people.

In addition, international retailers agreed to invest in and help finance saf-er factory conditions. In late February, five global clothing retailers — El Corte Inglés, Inditex, Loblaw, Mango, and Mas-cot — announced contributions to a $40 million fund for the victims of the Rana Plaza tragedy. The funds will be distrib-uted to the roughly 4,000 victims who include survivors and family members of the deceased. The funds are intended to cover expenses such as lost wages and medical bills.

An International Dispute150 retailers from around the world

have joined the Bangladesh Accord, which mandates inspections of 1,600 of

the country’s factories and requires them to meet certain standards in order to con-tinue operations. Although inspections began at the end of February, due to po-litical and labor unrest, they most likely won’t be completed until September.

Further complicating matters are dis-agreements between members of the Ac-cord and Bangladesh’s government and

garment industry over what standards should be used. Members of the industry and government argue that the standards are too high to be met without significant finan-cial assistance from outside sources. According to the in-ternational operations director of the Accord, Alan Roberts, ev-ery one of the factories being inspected will need to make some changes if they want to

remain in business. Factory owners who are against the

new standards contend that they will only increase operating costs, which will in turn force them to increase the rates they charge to retailers. Although the exact effect that these increased costs would have on the garment industry overall is unclear, the government and factory owners fear that the higher costs will detract from business and encourage retailers to take their orders elsewhere.

The road ahead for factories in Ban-gladesh is sure to be mired with problems as the government strives to improve conditions for its workers. While Bangla-desh has been able to enjoy growth and economic prosperity as a result of its gar-ment industry thus far, it has come at the cost of the well-being of its citizens, and the government must now learn to bal-ance the two in order to move forward.

$37 a month

Garment Workers' minimum wage


"Most factories in Bangladesh are lacking

basic safety features, such as fire extinguishers."

t

Bangladesh's Export Income

80%Garmentexports

20%other

exports

Gender of garment industry workers

90%female

10%male

n Venezuela, protesters and oppo-nents of the government have de-

manded change, as a result of what they call a mismanagement of the country’s wealth. For some time now, the Vene-zuelan people have observed a decline in their country’s status as one of South America’s most promising emerging economies. With a breakout in violent street protests, the fabric of the Venezu-elan socialist government appears to be tearing, and its fragility is now exposed.

Venezuela is home to one of the few remaining legacies of the socialist movements that swept South America in the twentieth century, and until now it seemed like the Chavist governance system would outlast its leader. The death of Hugo Chavez in March of 2013 left behind a nation under immense struggle. The continuous rise in infla-tion evidenced one of its major problems, along with supply shocks that would motivate masses to join the opposition.

A history of turbulenceVenezuela is one of South America’s most naturally endowed nations, with an oil reserve that once placed it in the spot-light of international trade. Venezuela’s political history is filled with stories of revolution and social unrest, its people are well acquainted with the need to voice their opinions in light of a better future. Venezuela was colonized by Spain until the nineteenth century and gained its independence short after, but its ear-ly political endeavors resulted mostly in military dictatorships. In fact, its most iconic political moments occurred only in 1998 with the Bolivian Revolution. This revolution came about as a product of the heavily corrupt government be-fore Chavez and the economic instability that persisted at the time. Hugo Chavez was elected into power and promised a rigorous economic revival of Venezue-la, through policy changes that would change the course of the nation for the next 15 years.

As a result of its political history, tur-bulence is a term to which Venezuelans

are well acquainted. The scars left behind by attempts at coups, revolutions and general social unrest are still felt among most of the people. But recent history – almost synchronized with protests in Kiev – has proven that the opposition of the Chavist government is still present, and is prepared to make its voice heard. There is however, a question as to why the opposition has decided to act so abruptly, in such a short period of time?

The answer lies on the country’s dis-appointing economic circumstances over the past few years. Venezuela has been troubled with general instability in their domestic industries and a soaring infla-tion rate (56 percent) that is rapidly do-

ing away with locals’ purchasing power. High inflation rates usually imply a prob-lem in adjustment of wages and prices themselves, because people cannot ad-just to the rising price levels. In addition to these sudden changes in the markets for goods and services, opposition has also spoken about the recent shortages in essential goods. Stores’ shelves have been emptied due to a lack in supply from foreign countries. Current Presi-dent Maduro calls this the result of an on-going economic war, but opposition has been quick to reject this and attributes it to the government’s inability to impose sustainable economic policy.

The opposition has marched through the street of Caracas and demands change: the need for a reformulation of the government’s structure. Leopol-do López leads the opposition and has been charged for conspiring against the government and inciting violence in the capital. Leopoldo López is a Harvard-ed-ucated politician, who is a well-known political figure among the Venezuelan community. He has given himself up to the authorities, but did not go silent – delivering a speech to a multitude of his supporters through a megaphone.

Casualties of the ProtestsViolence in Venezuela appears to be in-evitable over the short run, by now the death-count has risen above 50- and Mad-uro has made it clear that the blood of these men and women is on the opposi-tion’s hands. Other sources have stated that the National Guard alone had mur-dered 15 of the protesters as a result of the clashes between the opposition and the police force. These accusations have placed the Venezuelan president and his government, in a vulnerable position, which could inevitably damage the popu-larity of the socialist party.

Amidst the violence, there is little doubt that the Venezuelan protests will

persist, but the question is whether it is time for a new generation of politics. For as many supporters López has behind him, the socialist gov-ernment has very good ties with the Venezuelan people and has had plenty of backing

in the past few weeks. However, López’s arrest and the increasing violence have had a lot of media coverage from abroad, which could revert in a bargaining chip for the opposition.

Nonetheless, the protesters are deter-mined to bring change to economic and social policy in the country. Clearly, from an economic standpoint, the government must re-think its approach to foreign and trade policies in order to reduce the shortages in basic goods, as well as re-en-gineer their inflationary policies. If this persists to an extreme, this could signify a period of hyperinflation in the future that could leave immeasurable dents in the economy. The problem here consists on the type of government that is exer-cised in Venezuela: their socialist-leaning approaches tend to result in inflexible policy-making. Otherwise, there is a big chance that Venezuela will be facing a series of episodes of political instability.

Through the violence of the crowded streets of Caracas, the turbulent political history of Venezuela repeats itself. But now more than ever, the socialist system is being put into question and Lopez’s supporters are not giving up on their cause so leniently.

Clashes between the opposition and the government in Venezuela have prompted a change in the political system, but after weeks of protests and increasing violence on the streets the future looks grim for the South American nation.by Miguel Ferreira

"Amidst the violence, there is little doubt that the

Venezuelan protests will persist."

Rethinking Venezuela Political Economy The Intercollegiate Finance Journal April 201416

i

History of KoreaIn June 1950, a political schism led to in-ner turmoil in Korea, resulting in a civil war that concluded in division along the thirty-eighth parallel. By 1953, the coun-try that once shared 1,300 years of cultur-al history as a united country was divided into two. The North, led by Kim Il-Sung, undertook a communist government while the South, led by Syngman Rhee, undertook a right-wing government. The two Koreas ultimately served as two of the greatest economic models of govern-mental impact on economic growth.

At the end of the Korean War, South and North Korea were virtually identical. They shared a common culture as well as similar amounts of natural resources, ed-ucation, and income per capita. The only facet that largely differed was the govern-ment and its economic policies.

North Korea decided to undergo

central planning and economic isolation from the rest of the world, while South Korea had a relatively free market and preference for international trade. Al-though South Korea’s rise to democracy was slow and gradual, after two success-ful military coups in 1961 and 1980, South Korea fully accepted democracy towards the end of the twentieth centu-ry. The starkly different paths of the two Koreas resulted in vastly different levels of economic growth and prosperity in the decades that followed.

Respective Economic GrowthsThe two Koreas followed very similar economic growth until 1971. This is surprising as many deduced that South Korea would immediately explode past North Korea with its democratic eco-nomic policies. Many economists spec-ulate that centrally planned economies

north vs. southby Eric Han

perform better in their first few decades. Additionally, with revolutionary fervor and aid from the Soviet Union, North Ko-rea was able to keep their citizens well fed until 1972. In the beginning stages of North Korea’s post-war economy, the country grew from brute capital ac-cumulation by forcing citizens to labor, producing military hardware and steel production, etc. However, this age of economic growth came to a halt and be-gan to stagnate as the economy ran out of steam, as shown in figure above. Due to their economic isolation, the Democratic People’s Republic of Korea (DPRK) has largely ceased developing and has hence left many citizens starving today.

On the other hand, South Korea de-veloped a strong sense of democracy and free international trade. History has shown time and time again, that interna-tional trade and open-mindedness allows for shared technologies, goods, and ideas that ultimately speed up the economic growth of a country, especially in those that were trailing economically, such as South Korea in the 1950s. In the decades that followed, South Korea showed rapid industrial growth and therefore, became known as one of the East Asian Tigers. As one of fastest growing countries in eco-nomic history, South Korea left North Korea behind as their distant econom-ically poor cousin. By 2003, South Ko-rea’s income per capita exceeded that of North Korea by more than a factor of twelve. This strongly suggests that gov-ernment plays an extremely influential role in economic growth, as suggested by the difference in the South and North Korean economics.

KOREA


North Korea South Korea

$1,800

24.72 m 48.96 m

$32,400

POPULATION JULY 2013, ESTIMATED



<

0.1 81.5Internet users per 100 people

Life expectancy at birth, total population

26.21 4.08North Korea South Korea

Infant mortality rate 2012per 1,000 live births

79.369.2Years OldYears Old

GDP Per Capita


t’s two years before the 2016 Election, and already Dem-ocrats are clamoring for Hillary Clinton, donating funds

through the Super PAC “Ready for Hillary.” The existence of this super PAC points to an eagerness for Clinton to campaign even before the former sec-retary of state has announced an interest in running. Despite this political readiness, how-ever, the question remains: is Hillary ready financially to run for President? To what extent does campaign financing affect the outcome of a nationwide election?

Preparing for PrimariesThe PAC’s mission is to lay groundwork for a possible Clinton campaign, generating interest, support, and finances to make campaign mobilization easier. The group is also urging Clinton to actually declare her candidacy – even though the election is still years away.

Get ready for a rough ride if you live in Iowa. Campaigning in the state has inched earlier with each presidential year, but Ready for Hillary has already made the leap. In January, orga-nizers for the PAC initiated early efforts aimed at putting Clin-ton on the ballot. PAC leaders met with key Iowa Democrats, and the group is beginning grassroots efforts as well. Ready for Hillary has also organized in the early primary states of New Hampshire and South Carolina as well as initiatives in major cities across the country.

It is a bit ironic that Ready for Hillary is raising money by targeting young voters, throwing parties, and branding Hillary

as “cool” and “tough.” Her Twitter has functionally gone viral, and she has a quasi-pop star status from the abundance of early media attention that she has received. It is a far cry from her depiction during her primary run against Obama.

If you were worried about campaign financing before, this incredibly early campaign start should make those worries worse. Campaign funding generally increases over time, assuming a candi-date makes it through pre-liminary hoops, such as winning in early primary states (or, in this case, ac-tually declaring a candi-dacy), which means that fundraising’s impor-tance in this election is going to be amplified.

The group, Ready for Hillary, was cre-ated in January of 2013, making it over a year old. In 2013, three years before the election date, Ready for Hillary raised $4 million

from 33,361 donors. The group has continued to raise funds in the early months of 2014.

$4 million may seem like a lot – and for this early in the cycle, it is – but it is a drop in the bucket compared to overall campaign spending. In 2012, Romney spent $992 million for his campaign while Obama spent $985.6 million for his. This shows the extent and amount of revenue that is truly needed for a successful campaign.

ready for the

by Lauren Sukin

Big BucksClinton is coming for the 2016 candidacy, and Ready for Hillary is bringing on the fundraising.


"What early campaign fundraising for Clinton

really means is that any potential

Democratic contender who wants to go

head-to-head with this political Goliath is at a

big disadvantage."

i

Lessons from 2012However, most of the money raised by candidates is not actually from super PACs. Obama’s main PAC, Priorities USA, contributed seven percent of Obama’s campaign funding, while Romney’s main PAC, Restore Our Future, contributed 16 percent. A variety of other PACs came into play as well. Ready for Hillary will

not necessarily be Clinton’s biggest PAC, but it will certainly be one that makes the earliest dent in her fundraising plans.

Campaign spending is not all about the numbers, either. As evidenced by Obama’s receipts, spending more mon-ey is not always the best option – it is about spending money prudently, using well-targeted and well-timed advertising as well as voter-mobilization techniques. Additionally, hiring the best campaign managers and creating the best strate-

gies should also be a priority. Without those, no amount of money will buy a golden ticket.

Early funding does not mat-ter solely for Hillary’s ability to beat Republican candidates on the main stage. The as-

sumption that Clinton will win the democratic prima-ry is just that – an assump-tion. There are still other potential candidates that she will compete with. Still, having money will give Hillary a competitive edge in the upcoming election.

How does this spend-ing compare to Hillary’s previous campaign? In 2008, Clinton raised approximately $229.4 million for her primary

campaign, which con-cluded in the spring

of 2008. Unfortu-


nately for Clinton, she spent more mon-ey in losing a primary than any previous Democratic candidate. However, we shall see if history will repeat itself.

What early campaign fundraising for Clinton really means is that any potential Democratic contender who wants to go head-to-head with this political goliath is at a giant disadvantage. Not only will Clinton have an abundance of name-rec-ognition, but early, well-funded, and active grassroots movements, like Ready for Hillary, have given her a quite liter-al head start on campaigning. For a new candidate to reach Hillary’s level of rec-ognition or to deflate her reputation as the next Democratic presidential candi-date will be no small feat.

to p or ga ni zati on sIncludes contributions from the employees of the organizations, their family members, andtheir political action committees.

Goldman SachsMerrill LynchMorgan StanleyKleiner, Perkins et al.Lehman BrothersBear StearnsChicago Mercantile ExchangeCredit Suisse First BostonFidelity InvestmentsPaloma Partners

Individuals PAC

$37,902,328$16,939,809

$13,313,535$10,317,942

$8,999,443$8,593,217

$7,910,858$7,391,457

$6,840,985$6,698,350

republicans vs.democr ats

Republicans (48%)Democrats (45%)Other (7%)

State VS. Federal

Federal (76%)State (24%)

Campaign Finance, 1898 - 2010 $1,188,664,055 given

by Charlie Benson


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t this very moment, over 90 neuromarketing consulting firms in the United States are trying to figure out what

you want before you even realize that you want it. Neuromarketing, a term which came into vogue with connoisseurs of marketing research in 2002, has no firm definition. In business, it is often understood more narrowly as a business tool with which market-ers sell products by applying neu-roimaging techniques.

The field has generated a great deal of controversy, espe-cially in the media. Critics warn of the threat of marketers finding the mythical “buy button in the brain” and deem the field “creepy science,” “mindreading,” and the “misuse of scientific knowl-edge.” On the other hand, might neuromarketing prove benefi-cial by allowing marketers to tailor their products more exactly to consumer’s tastes? In order to provide answers and decide

Marketing to the Brain:Science or Scam?by Julia Verbrugge

"a wealth of recent research supports neuro-

marketers' hopes that neuroimaging provides

hidden information about the consumer experience."

whether neuromarketing is a legitimate meeting point between marketing and neuroscience, the underexplored field must re-

ceive more scientific and less sensationalized attention.

Inside the Black BoxAs neuromarketing firms con-stantly note, up to 95 percent of the decision-making process takes place below the conscious level. This means that when making decisions, consumers rely on both conscious and subconscious processes, also known as “system 1” (automat-ic) and “system 2” (deliberative) thinking. In the past, marketers understood the human mind as

a largely impenetrable “black box,” and relied on empirical ob-servations in order to understand consumer decision-making. Now, with the help of neuroimaging techniques such as EEG, fMRI, and eye-tracking, neuromarketers can probe the “black

a

The Intercollegiate Finance Journal April 2014 Business & Startups 21

box” of the consumer mind and uncover the subconscious driv-ers of purchasing behavior. Though these technologies remain far from ideal, researchers note that they currently offer the best evidence regarding how the brain processes information linked to buying decisions.

Not So Easy Neuromarketing faces considerable technological roadblocks. Concrete interpretations cannot be made using fMRI or EEG data, so researchers must take caution and continue to explore the specific relationships between thoughts, emotions and specific neuronal activities. This means that the cognitive processes associated with consumer decision-mak-ing cannot be reduced to a single area of activation. Put simply, it means you don’t need to worry about marketers finding a “buy button” in your brain. For now, the technologies remain im-precise, expensive to use and limited.

For instance, when neuromar-keters hook up research participants to EEGs and record their brain activ-ity as they watch various advertise-ments, there are various limitations involved. The primary issue is that EEGs reveal whether the partic-ipant is paying attention, but not the specific details of his or her engagement. Though the technology can tell re-searchers whether the participant’s emotional response is positive or negative, it cannot make the distinction between specific pos-itive responses such as amusement or awe.

Exploiting the ImplicitDespite its limitations, advocates ar-gue that neuromarketing has the po-tential to further the effectiveness of market research techniques. They point to the issue that conventional market re-search methods rely on the explicit ver-bal responses of consumers, which can leave blind spots regarding thoughts, feelings and behavior. Neurologically, this implies an over-reliance on the conscious, which could cause market researchers to miss crucial data occurring below their “radar screen.” Given that neuroimaging holds the potential to directly record consumers’ thoughts and actions in an implicit rather than explicit manner, neuromarketing offers a potential solution.

It’s not just neuromarketing firms that defend the emerging field, however. Within the academic sphere, a wealth of recent research supports neuromarketers’ hopes that neuroimaging provides hidden information about the consumer experience. Within the business world the field also finds support, and com-panies like Google use such marketing methods to test con-sumer impressions. These methods have even gained traction in politics, though politicians are understandably more hesitant

to reveal their use of neuro-marketing techniques.

Neuromarketing is at a crucial point in its develop-ment. While the emerging field does provide valuable information about the consumer mind, it does not give marketers a “window into the subconscious” or access to a con-sumer “buy button.” Rather, it is a valu-able new tool for market researchers, and definitely one to watch.

On line Shopping

-

42% 52%Power words

60% of consumers feel at ease and are more likely

to buy when the word “guaranteed” is associated

with the product.

52% of customers are more likely to enter a store if there is a sale sign in the window.

60% 52%

When marketing new products it is crucial to consider that consumers place visual appearance and color above all other factors.

Color & Mark etin g

93% visual appearanc e6% texture1% soun d/smell

85% of shoppers place color as a primary reason for why they buy a particular product.

85% color15% other

Color & brandin g

80% in crease in brand recogn itio n

Color increases brand recognition by 80%. Brand recogni-

42% of shoppers base their opinion of a website on

overall design alone.

52% of shoppers did not re-turn to the website because

of overall design.

Tip #2Wait before

making a decision to purchase

Psychologists found that people reduce their perceived val-ue of a reward when the amount of time before receiving the reward is increased. Delaying access to a reward actually reduces the brain’s response to the reward.

Tip #1Don’t go shopping feeling sad

Research subjects offered to pay 4x more for an item after watching a “sad” emotional video compared to those who viewed a “neutral”nature video.

Business & Startups The Intercollegiate Finance Journal April 201422

D printing has the “potential to revolutionize the way we make almost everything,” said President Barack Obama

during his State of the Union address. While President Obama was referring to 3D print-ing in manufacturing in-dustries, 3D printing may revolutionize the health-care sector as well.

Also known as additive manufacturing, 3D print-ing is the use of successive layers of material to print out three-dimensional ob-jects. This allows manu-facturers to create a wider variety of products without building expensive molds for each one, as entailed by more ‘standard’ manu-facturing processes. Instead, a 3D printer reads a design file and builds the product from the bottom-up by stacking materials on top of each other, rather than pouring materials into a mold’s hollow space. While this may seem like a form of futuristic tech-

3D Printing: by Samantha Wong

Sci-Fi Brought to lifenology straight out of a sci-fi movie, 3D printers have actually existed since the 1980’s. Since then, 3D printing has grown into a multi-billion dollar industry, with many recent advancements

coming in biotechnology.

Printing Ears and Kidneys During a 2011 TED Talk, Dr. Anthony Atala pre-sented the exoskeleton of a human kidney print-ed using bio-ink and cells that replicated kidney tissue. This exoskeleton would not be functional inside an actual human body, as it was missing the intricate inner struc-ture of a kidney that en-

ables the organ to filter blood. What Atala did present however, was the early stages of 3D printing organs.

While the prospect of being able to deliver organs to those on the extensive transplant list is still decades away, 3D print-

"Scientists from all over the world are continuously

researching and developing new innovative ways to improve

lives using 3D printers."

3

1980s 1990s 2000s

1984 - The Birth of 3D PrintingCharles Hull invents stereolithography, a printing process that enables a tangible 3D object to be created from digital data. The technology is used to create a 3D model from a picture and allows users to test a design before investing in a larger manufacturing program.

1992 - BUILDING PARTS, LAYER BY LAYER The first SLA (stereolithographic apparatus) machine is produced by 3D Systems. The machine’s process involves a UV laser solidi-fying photopolymer, a liquid with the viscosity and color of honey that makes three-dimensional parts layer by layer. Although imper-fect, the machine proves that highly complex parts can be manu-factured overnight.

1999 - ENGINEERED ORGANS BRINGNEW ADVANCES TO MEDICINE

The first lab-grown organ is implanted in humans when young patients undergo urinary bladder augmentation using a 3-D synthetic scaffold coated with their own cells. The technology, developed by scientists at the Wake Forest Institute for Regenerative Medicine, opened the door to developing other strategies for engineering organs, including printing them. Because they are made with a patient’s own cells, there is little to no risk of rejection.

2002 - A WORKING 3D KIDNEYScientists engineer a miniature functional kidney that is able to filter blood and produce diluted urine in an animal. The development led to re-search at the Wake Forest Institute for Regenerative Medicine that aims to “print” organs and tissues using 3D printing technology.

2006 - SLS LEADS TO MASS CUSTOMIZATION

The first SLS (selective laser sintering) machine becomes viable. This type of machine uses a laser to fuse materials into 3D products. This breakthrough opens the door to mass customization and on-de-mand manufacturing of industrial parts, and later, prostheses.

a b

rief

his

tory

of 3

d pr

inti

ng


ing’s current application to medicine is still an extremely valu-able tool. Just last year, Cornell biomedical engineers unveiled the first 3D printed human ear. This artificial ear had the ap-pearance and function of a natural human ear. For children suffering from microtia, a congential deformity that can cause auditory loss, this advancement can help restore their hearing. Scientists from all over the world are continuously researching and developing new innovative ways to improve lives using 3D printers. This has led to the development of 3D printed pros-thetics, medical implants, blood vessels, skin, and even eyes.

Drug Tests on Printed OrgansOn Jan. 29, Organovo’s CEO Keith Murphy announced that the firm had reached a huge milestone in the research and devel-

opment of human liver tissue models. Organovo, a San Diego based biotech company, hopes it can commercialize 3D human livers for drug testing by next year. The company hopes its product can improve testing results at other pharma-ceutical and biotech firms. Currently, companies typically use cells grown in petri dishes or animals to test their drugs. These methods of testing are flawed, as the actual human body reacts to drugs in a much more complex manner than indi-vidual, cultivated cells. With 3D models, R&D results can more accurately repre-sent how drug tests or cancer treatments will affect an actual human. Many drugs seeking approval from the FDA fail phase 3, clinical testing on humans, and Or-ganovo hopes its technology can save billions of dollars on research.

The Future Printing LifeLike the pharmaceutical companies it hopes to serve, Organovo has discovered that creating new medical technology is an expensive and risky task. Like most biotechnology companies, Organovo

has nearly no source of revenue and requires huge amounts of funding for R&D. This comes mostly from grants and de-velopment collaborations. To raise capital to further research in their own company, Organovo has sold more shares, dilut-ing its share price and scaring off many investors. Yet finances are not Organovo’s only issue: There is also an issue with the printing itself because certain materials, such as human cells, can become useless upon being placed in the printer. Solving this technical challenge is a major obstacle to printing organ transplants. Organovo is also competing with other 3D printing companies, such as China’s Regenovo, that have similar busi-ness models and perhaps better technology. These factors may lead some investors to remain skeptical of Organovo’s ability to advance research and product development.

How 3D Printing Works

3D printers work like inkjet printers. Instead of ink, 3D printers deposit the desired material in successive layers to create a physical object from a digital file.

1

2

3

4

5

Laser source

material

layered parts

vat

elevator

1. A laser source sends a laser beam to solidify the material.

2. The elevator raises and lowers the platform to help lay the layers.

3. The vat contains the material used to create the 3D object.

4. The 3D object is created as parts are layered on top of each other.

5. Advanced 3D printers use one or more materials, including plastic, resin, titanium, polymers, and even gold and silver.

2010s

2020

s

2008 - MAJOR BREAKTHROUGH FOR PROSTHETICS

The first person walks on a 3D-printed prosthetic leg, with all parts — knee, foot, socket, etc. — printed in the same complex structure without any assembly. The development guides the creation of Bespoke Innovations, a manufacturer of prosthet-ic devices which makes customized coverings that surround prosthetic legs.

2009 - FROM CELLS TO BLOOD VESSELSBioprinting innovator Or-ganovo, relying on Dr. Gabor Forgacs’s technology, uses a 3D bioprinter to print the first blood vessel.

2011 - WORLD'S FIRST 3D-PRINTED CARKor Ecologic unveils Urbee, a sleek, environmentally friendly prototype car with a complete 3D-printed body at the TEDxWin-nipeg conference in Canada. Designed to be fuel-efficient and inexpensive, Urbee gets 200 mpg highway and 100 mpg city. It is estimated to retail for $10,000 to $50,000 if it becomes com-mercially viable.

2012 - 3D-PRINTED PROSTHETIC JAW IS IMPLANTED

Doctors and engineers in the Netherlands use a 3D printer made by LayerWise to print a customized three-dimensional prosthetic lower jaw, which is subsequently implanted into an 83-year old woman suffering from a chronic bone infection. This technology is currently being explored to promote the growth of new bone tissue.

2011 - 3D PRINTING IN GOLD AND SILVER

i.materialise becomes the first 3D printing service worldwide to offer 14K gold and sterling silver as mate-rials — potentially opening a new and less expensive manufacturing option for jewelry designers.

2011 - WORLD'S FIRST 3D-PRINTED ROBOTIC AIRCRAFT

Engineers at the University of Southampton design and fly the world’s first 3D-printed aircraft. This unmanned aircraft is built in seven days for a budget of £5,000. 3D printing al-lows the plane to be built with elliptical wings, a normally expensive feature that helps improve aerodynamic efficiency and minimizes induced drag.

Business & Startups The Intercollegiate Finance Journal April 201424

is that it was ultimately, not rival companies that caused the company’s failure. The downfall was in the founders’ inability to provide a product to match the hype they had generated after releasing their low-power processors. Though Intel and AMD could not initially match the lower energy consumption of the Crusoe, their devices translated into actual battery-life exten-sion rather than theoretically superior power saving. It was not necessarily a question of entrepreneurial espionage, but rather just one firm failing to achieve at the level of its competitors. With the everyday consumer seeking visible enhancements in tech usage, Transmeta underestimated the need for highly de-monstrable improvements.

Should You Take Off the Invisibility Cloak?Any company seriously considering secretive operations to develop their product may be approaching entrepreneurship from the wrong angle. In the end, the first-mover principle is not nearly as important as learning about consumer preferenc-es. If any enterprise fails to recognize what the market is truly demanding, or cannot present a product to sufficiently meet that demand, it has no chance of success. Entrepreneurship is not usually a question of protecting an idea from firms with bet-ter resources. An entrepreneur should not actively seek to avoid the input and support that comes with open product develop-ment. The fundamental concern is not in hiding your ideas un-til they are ready but rather having the wherewithal to adjust to the market and respond to peer criticism and competition in a way that ensures your final product is realistically adapted to the current environment.

n an era of primetime spy series and rapid innovation, the idea of stealth brings to mind military drones and (not-so) covert NSA operations. However, more than just a govern-

ment tool for spying, stealth is oftentimes a fundamental strat-egy in technology startups. For many aspiring entrepreneurs, avoiding public attention until product completion is a more strategic and safer route to take.

Why So Secretive?The world of technology development is cutthroat. Unfortu-nately, simply having a good idea is often not enough: Founders must also execute on that vision by raising funds and quickly getting to market, where they can receive input from consum-ers. In fear of more well-established and better-funded com-panies, however, entrepreneurs sometimes resort to secrecy to preserve their first-mover advantage. They seek the right to say, “We created this first, we started this market,” and with any luck, set the groundwork for a strong share in the market that will surely expand beyond their own firm very quickly once a new concept is unveiled. Yet this decision can hold the product back when it finally is unveiled, depending on the circumstanc-es of the covert operations.

The Case of Transmeta Meet Transmeta: the quintessential exam-ple of a stealth startup. Set up in 1995 in Santa Clara, California, Transmeta hoped to revolutionize the semiconductor in-dustry by introducing a low power micro-processor. The company’s official public

launch did not occur until January of 2000, nearly five years after its inception.

To achieve such furtiveness, founders Bob Cmelik and Dave Ditzel were not only working to perfect their product, but also, through non-disclosure agreements, ensuring that their idea would not become public. Non-disclosure agree-ments, or NDAs, of which Transmeta had nearly 2,000, are signed between parties to prevent basic but necessary business partnerships from allowing confidential informa-tion to slip out. Whoever was computing the company’s payroll or supplying Transmeta with basic materials had to promise to keep contractual information secret.

In Transmeta’s case, the stealthy development phase did not pay off in the long run. After a series of cryp-tic online announcements, they finally released their low-power Crusoe processor. However, the company succumbed to financial losses by 2005 after rival firms, namely Intel and AMD, pro-duced higher-performance hardware. In the end, Transmeta’s product failed to match the founders’ promises for improved overall per-formance and user experience.

All for NoughtFor many critics of covert enterprise, the crucial point regarding Transmeta

by Michael Golz

iIs there an Advanatage to Keeping Your Startup Secret?


cash flow and reserves ($708 million and $409 million, respectively, in 2013.) King has plenty of games in the pipeline, all of which it has claimed have been more successful than Candy Crush had been at that same point in its life. King calls its process “unique, repeatable, [and] scalable,” as represented by the Saga designation across most of its titles. But the mobile gaming industry is far from secure, making King an unreliable invest-

ment; repeating Candy Crush’s success is far from a scientific process. And for iOS games, success is often all or nothing: your app either rises to the top of the charts or languishes in obscurity.

King CopyKing has recently drawn ire from the game development community over copyright claims. King’s trademark ap-plication for the word “candy” was filed with the US Patent and Trademark office in January. Though it would be on King to prove in a court of law that any other candy-themed game infringes on their copyright to the point of confusion in the marketplace, the trademark would allow them to send threatening cease-and-de-sist letters to developers. Independent developers, unequipped to fight these battles, are likely to roll over. After cases were publicized, the indie game commu-nity launched CandyJam, a site dedicated to the creation of games with “candy” and “saga” in their name, many of which ridiculed King. At the end of February, King withdrew its trademark application.

In addition to the copyright saga, King has also been accused of copying other games. While the mobile game industry is heavily derivative, King’s cloning of other games is egregious. For example, Candy Crush Saga’s gameplay is highly similar to that of Bejeweled, and several of its other games have sim-ilar parallels. However, there’s an even

Candy "Crash" Saga:by Elizabeth Studlick

ublin-based King Games, the mak-ers of popular mobile game Candy

Crush Saga, filed for an initial public of-fering on the in mid-February. Looking to raise about $500 million in equity, King’s story may seem like an obvious one: a social game company looking to cash out. But the details of the IPO may surprise you.

As those familiar with the addictive game can tell you, Candy Crush doesn’t make money through advertising. King stopped selling outside ads last year, but even before that, advertising accounted for 10 percent of revenue in 2012 and only one percent in 2013. It doesn’t charge for its games, either. In-stead, King makes money through selling consumable in-game items, helping users move up levels. Despite what may seem like a ridiculous strategy, King has annual revenue of $1.88 billion and a profit of $568 million, 80 percent of which comes from Candy Crush. As a February Atlantic article entitled Candy Crush: Addictive Game, Incredible Business, Horrible Investment put into perspective, King made more than a quarter of Amazon’s lifetime earnings in just a year.

Not-So-Sweet DealAlthough the IPO is predicted to raise $500 million and King has been cash flow positive since 2005, most financial writ-ers are bearish on King. They point out the “one-trick pony” nature of the game company, whose second-most popular game draws only 15 million daily users in comparison to Candy Crush’s 93 mil-lion. Many investors fear that King could be the next Zynga. The other social game company, which was reliant on the Face-book game FarmVille, released a much-hyped IPO in late 2011, which performed strongly initially but later declined from a high of $15 a share to a low of $2.12. Though the price has rebounded slightly, many point to Zynga as the most recent ultimate overhyped tech stock.

King does have a strong financial position, with no debt and both strong

d

King Games' IPO is the Real Puzzleclearer case of copying. In 2009, King talked to game developer Matthew Cox about licensing his Flash game Scamper-ghost. After the deal fell through, King launched a game called Pac-Avoid that was almost identical in gameplay and visuals. Though King claimed that they merely sponsored a similar game, the replacement developer revealed to Cox that he was approached by King and told to “clone the game very quickly” with a

goal of “[beating] the release of the original game.” After these allegations came for-ward in light of the “candy” trademarking this January, King took down Pac-Avoid and released a statement that they don’t clone games. In recent weeks, similar claims have come up in reference to

other games offered by the company.

A Puzzling IPOComplicating the picture is that it’s not clear why King is filing for an IPO. The company doesn’t need to raise cash— it has no debt and a comfortable amount of reserves, and recently paid $504 million in dividends to its initial investors, about the same amount it is offering as stock in the IPO. Under “Why we’re going public” in the SEC filing, King CEO and co-found-er Riccardo Zacconi offered only, “Going public creates a liquid market for our current and future employees and equity holders and will give us greater flexibility to act on strategic opportunities if they arise in the future” - which is true of any IPO and doesn’t say much of anything. “Use of Proceeds” lays it out even further: “We have not allocated any specific por-tion of the net proceeds to any particular purpose, and our management will have the discretion to allocate the proceeds as it determines.” King doesn’t have a plan for the cash other than plowing it back into development.

Regardless of potential scandals and lack of strategic planning, this is the ide-al time to issue an IPO, as their viral hit begins to cool and King looks to invest in future games. While not exactly a solid investment, King Games’ sheer amount of revenue makes it a hard stock to ig-nore. But despite King’s sweet offering, investors just might not bite.

"King makes money through selling consumable in-game items, helping

users move up levels. Despite what may seem like a ridiculous strategy, King

has annual revenue of $1.88 billion."


PERSONALFINANCE

28 The Low Down on Financial Aid

29 Store as Showroom: Threat or Resource?

30University Finances: An Interview with Brown’s Chief Investment Officer

31 Let’s Get Digital: The Future of Wallets


• Principles of College Savings

• Cheap-On-Investing: Five Affordable Stocks for College Students


More Than Your Problem:

The Dangers of Credit Card Debtby Christian Ackmann

illions of Americans receive cred-it card applications in the mail

each year. You have probably received several letters from banks advertising special credit cards with exclusive offers for students. Banks will often send these letters regardless of your financial situ-ation or credit score. As a result, many subprime borrowers are able to easily ob-tain credit. Access to credit can increase consumer spending and cause economic growth, but irresponsible usage of credit has the opposite effect. The recent trend of marketing credit cards to subprime

consumers is often predatory and can negatively impact the macroeconomy.

Subprime TargetsIf you have been in an airport in the past few years, you have likely seen a kiosk of-fering free t-shirts to everyone who signs up for a Southwest Rapid Rewards Card. Most people who walk by these stands were not considering applying for a new credit card before they arrived at the air-port, but many people impulsively fill out the application. Similarly, the Chase Sapphire Preferred Card offers 40,000

bonus points if you spend $3,000 with-in the first three months of signing up. Banks offer enticing sign-up bonuses to lure consumers to credit cards that they may not need.

While there is nothing inherently im-moral in the marketing of credit cards, the temptation of easily accessible cred-it and gimmicky incentives is alluring to less financially literate consumers. The people who are the least financially liter-ate – and therefore least likely to be able to pay credit card bills on time – are sent countless credit card applications. This

m

The Intercollegiate Finance Journal April 2014 Personal Finance 27

is especially dangerous when consumers apply for new credit cards to make pay-ments on the debt of old cards. It is not uncommon for a person who has cred-it card debt at a certain bank to be sent another credit card application from the same bank.

Therefore, a problem arises when issuers focus disproportionately on sub-prime and low-income borrowers. Bor-rowers are typically considered subprime if they have credit scores below 660, and these borrowers frequently accumulate consumer debt. Consumer debt is com-prised of credit card debt and debt from alternative consumer financing, such as payday loans.

Regulatory groups, such as the Con-sumer Financial Protection Bureau (CFPB), exist to prevent predatory lending and deceptive marketing tac-tics among credit card issuers. In 2012, Capital One was fined $60 million and required to refund $150 million to over 2 million customers who were persuaded to buy add-on products – such as pay-ment protection and credit monitoring – they did not understand and could not use. The CFPB suspects that similar de-ceptive activity is common among many other issuing banks. While the Capital One settlement was successful, the CFPB can only prevent explicitly illegal lending activity, so subtler forms of deceptive marketing may be unavoidable.

Macroeconomic ImpactWhen credit is used responsibly, consum-er spending and output will increase. Lending standards are loosened as con-fidence in the economy grows, giving more people access to credit. However,

banks that give credit cards to unreliable customers are assuming risks similar to the subprime mortgage lenders in 2008. Since subprime consumers are the most likely to accumulate credit card debt, lowered lending standards can increase national consumer debt. For instance, banks in Turkey have recently marketed credit cards specifically to low-income consumers, resulting in $131 billion of consumer debt.

Massive consumer debt causes con-sumption and output to decrease be-cause people must allocate their dispos-able income to paying back their debt, rather than spending on other goods and services. During the Great Recession,

the decrease in consumer spending trig-gered many layoffs and unemployment increased. To make consumers start spending, the government can reduce taxes on low-income families or use oth-er conventional economic stimulus poli-cy, but then the household debt will just be transferred to public debt.

So how can we limit the negative ef-fects of lending to subprime borrowers? One potential solution is to regulate the marketing strategies of credit card issuers using organizations like the CFPB. Per-haps a more effective long-term solution is to improve financial literacy. Accord-ing to the Council for Economic Educa-tion, only five states currently require a stand-alone course in personal finance for graduation. Fewer than 20 percent of teachers report feeling competent to teach personal finance topics. If financial education is improved, subprime bor-rowers will use credit more responsibly and many of the dangers of predatory lending will be removed.

"Banks that give credit cards to unreliable customers are assuming

risks similar to the subprime mortgage lenders in 2008."

Plastic In Numbers

Average total debt per American household

$10,423.37$18,642.81Average total debt per

American over 18

300 M

100 M

200 M

0

credit card circulation by brand:

Visa MasterCard American Express

Discover

average credit card debt by demographic:

18 to 29

30 to 39

40 to 49

50 to 59

60 to 69

70+

$5K $10K $15K $20K

Total credit cards in circulation:

576.4 million

Personal Finance The Intercollegiate Finance Journal April 201428

he first case of financial aid occurred in 1643 when Lady Ann Radcliffe Mowlson donated 100 pounds to Harvard

College to help support students who could not afford the tu-ition. However, it was not until the Higher Education Act of 1965 that the federal govern-ment began to take on a signif-icant role in the administration of financial aid. The law autho-rized the creation of several fed-eral financial aid programs and provided greater funding for colleges and universities. Since then, financial aid has grown exponentially in size and mag-nitude. In just a decade from 2001 to 2011, federal grant aid nearly tripled, and the Ameri-can Recovery and Reinvestment Act of 2009 provided an addi-tional $200 million in federal work-study funding.

With college tuitions rising faster than inflation and debt becoming a larger issue for many students, financial aid is in-creasingly becoming a greater factor in not only which college students choose, but if they are able to attend at all. According to the National Center for Education Statistics, the percentage of first-time, full-time undergraduate students at four-year insti-tutions receiving financial aid increased from 75 to 85 percent from 2006 to 2010, with the largest increase at private institu-tions. Student debt in the U.S., adjusted for inflation, rose 110

percent from 2005 to 2012 to almost $1 trillion dollars. While there are many types of financial aid, most college

students receive the bulk of assistance from either the federal government or the college or university they are attending.

Federal AidAid from the federal govern-ment is administered through the Department of Education, and covers costs such as tuition, room and board, books and supplies, and transportation. The amount of aid you receive depends on demonstrated need, which is determined by a formula that takes into account things like income, family size, and other assets. Most financial aid packages include a combi-nation of the following: grants, which do not need to be re-

paid; loans, borrowed money that must be repaid with interest; or work-study, which is a paid job or program that helps pay for tuition.

However, just because you are eligible for financial aid does not mean that it will be given to you automatically. If you wish to receive federal financial aid, or even see if you qualify, you must apply using the Free Application for Federal Student Aid (more commonly known as FAFSA). It is recommended that you fill out the FAFSA even if you do not think you qualify for aid.

The Low Down on

financial aidby Sarah Park

t

$13,218average financial aidper student

"With college tuitions rising faster than inflation and debt becoming

a larger issue for many students, financial aid is increasingly

becoming a greater factor in not only which college students

choose, but if they are able to attend at all."


In addition, you must re-apply every year for financial aid.

University Aid Almost all colleges and universities to-day—both public and private— offer fi-nancial aid to eligible students. However, schools differ in their approaches to ad-ministering financial aid. Certain schools have adopted a need-blind admissions policy, which essentially means that a stu-dent’s ability to pay for tuition will not be a factor in his or her admission decision. Need-blind admissions policies have be-come increasingly prevalent in order to encourage students to apply for financial aid without having to fear that it will have an adverse effect on their admission.

Unlike the Department of Education, which utilizes a formula to determine how much financial aid a student re-ceives, it is unclear how colleges decide who gets aid and how much they receive. Increasingly colleges are practicing what is being called “financial aid leverag-ing”— giving more aid to high-achieving students in order to gain their enroll-ment. In order to increase transparency and provide students and their families with more information, the Obama ad-ministration has recently released some new consumer tools that are designed to make information more accessible and comparable, such as a model financial aid award letter and a net price calculator to provide students with individualized cost estimates.

ScholarshipsIn addition to aid from colleges and the government, which is solely based on demonstrated financial need, many char-

itable foundations, businesses, and other organizations offer scholarships. While some scholarships are only available to moderate to low-income individuals, the majority are merit-based, which means that they are awarded based on special skills, talents, or academic achievement.

Furthermore, scholarships do not need to be repaid.

Although the world of financial aid may be daunting, as its role in students’ lives increases, it is imperative that stu-dents understand what it is and how to apply for it.

howrooming occurs when consumers enter physical

stores to browse merchandise, but purchase from another retailer on-line. Online retailers like Amazon do not pay overhead that comes with operating a physical store, and so of-ten sell goods at a discounted price.

Smartphones play a key role in showrooming by providing an easy way to look up more information, explore similar products, and com-pare prices. In 2011, of those who used smartphones while shopping, 43 percent visited that same store’s website, 40 percent viewed other stores’ websites, and 38 percent used price comparison apps.

Stores see showrooming as a blessing and a curse. The threat of losing sales to online retailers is real, but consumers using smartphones while shopping provides an oppor-tunity to create a seamless store-and-online experience. Retailers see showrooming as an opportunity to increase foot traffic in stores and convert online shoppers to in-store buyers. Target, for instance, has in-

stalled free WiFi in many stores. Best Buy actually encouraged

shoppers to use their store as a showroom during the 2013 holiday season, with many commercials touting Best Buy as “your ultimate holiday showroom.” Best Buy hoped that this would increase traffic to their stores, and once there, shop-pers would be impressed enough by prices and customer service.

Best Buy also implemented a price-matching policy that applies online or otherwise. Sometimes, this means selling products – espe-cially electronics – at a loss. Often, however, the difference is recouped through sales of associated accesso-ries. Only 10 percent of shoppers actually take advantage of Best Buy’s price-match policy, and so the ben-efits of the policy – improved trust and sales – overshadow any risks.

The crux of the matter now is that companies are faced with an im-portant decision: to follow Best Buy in seeking to exploit the changes in shopper behavior, or take measures to discourage the practice.

sStore as Showroom: Threat or Resource?by Carolyn Stichnoth

. trillion

College Debt In The USA 44%

of aid came from the federal

government

57% growth in aid

per student

Personal Finance The Intercollegiate Finance Journal April 201430

University FinancesAn Interview with Brown's Chief Investment Officerby Alex Drechsler

an you explain the mission of the Investment Office?The mission of the Brown Invest-

ment Office is to guard and enhance the endowment, as it is an enduring asset that shapes the character of Brown as an institution, ensures the University’s permanence, and supports the many en-deavors of Brown’s faculty and students. More specifically, the endowment con-tributes 16 percent of the University’s annual operating budget ($16,000 per student) that supports the faculty, stu-dent body, and the University’s academic infrastructure. To ensure that the Office can continue to support the University at this rate and in perpetuity the Investment Office targets a 8.5 percent annual return that is 5.5 percent (the high end of the University’s 4.5 to 5.5 percent annual spending rate) plus 3 percent (the twen-ty-year average rate of HEPI (the Higher Education Price Index which is an infla-tion-adjusted index of the cost of higher education).) In calendar year 2013, the endowment returned 14.9 percent ($401 million) and contributed $141 million to the University.

What types of investments does your office make?The endowment is primarily invested

in investment managers and passive index-es that fit into several prima-ry asset class-es including: Public Equity, E q u i t y - L i k e

Credit, Hedged Strategies, Private Equity, Real Assets (Real Estate, Commodities, Energy), Fixed Income, and Cash.

Joseph Dowling is the Chief Investment Officer of Brown University and is responsible for overseeing the portfolio in which the University’s endowment is invested. Prior to coming to Brown, Dowling found-ed Narragansett Asset Management, an investment

management firm. Dowling discusses the ways in which Brown’s endowment is invested, how stu-dents and other members of the community can influence this investment, and how Brown com-pares to other institutions.

moral responsibility in the investment policies of Brown University. Committee members include students, faculty, staff, and alumni of the University. ACCRIP ad-vises the President on areas where they believe Brown and its governing body, the Brown Corporation, should divest. The Brown Investment Office coordi-nates with ACCRIP to implement policies adopted by the Corporation. In 1984 Brown University divested from firms doing business in apartheid South Afri-ca at the recommendation from ACCRIP. In 2003 the University divested from direct investments in companies that manufacture tobacco products. In 2006, in response to the humanitarian crisis in Darfur, the University joined several peer institutions divesting from compa-nies that supported the Sudanese gov-ernment and its sponsorship of human rights violations in Darfur.

How is Brown’s investment process different from other schools?Traditional endowments set asset class ranges and keep investments sized with-in those ranges. They follow the “En-dowment Model” made famous by David Swenson at Yale. The Brown Investment Office does not follow this model. We fo-cus much more on finding value, being opportunistic and contrarian. We do not look at what other Universities are do-ing or mimic their investment style. We set wider asset allocation ranges to shift the focus to investments that provide the most value and capture the best risk-ad-justed returns.

c

Asset Class Market Value($ in millions)

% of Endowment

Public Equity $854 28%

Equity-Like Credit 169 6%

Hedged Strategies 838 27%

Private Equity 587 19%

Real Assets 310 10%

Fixed Income 20 1%

Tail Hedges 5 0%

Cash 273 9%

total endowment

$3,057 100%

Brown university's Asset Allocation

How do decisions about divestment get made and implemented?The Advisory Committee on Corporate Responsibility in Investment Policies (ACCRIP) considers issues of ethical and


let's get digital

hat do you look for when choosing the perfect wallet? If you are like most consumers, security, convenience,

and style are among your biggest considerations. A few other factors, such as the number of card slots or tri-fold versus bi-fold may cross your mind. All in all, finding a wallet that suits your needs can be a frustrating process. This is where technol-ogy swoops in to the rescue. For smartphone users, here is a rundown on a few tech-forward products that can ease your wallet-searching woes.

Square WalletBy now you have probably heard of Google Wallet. With its usage of Near Field Communication (NFC) technology, payments are as simple as tapping your phone against a special sensor at payment terminals. However, a major problem for

Google Wallet is its narrow market. Due to hardware limitations, its signature “Tap and Pay” feature is only available on Android devic-es. Also, merchants need to have NFC payment termi-nals installed.

Enter Square Wallet, an application from Twitter co-founder Jack Dorsey’s startup Square, Inc. Square Wallet does not use NFC, so it is both iPhone and An-droid compatible, and over 200,000 businesses accept it. It works by having users enter payment card, loyalty card, and personal information into the application. Then, users only need to open the application and check in to the store (hint: set up automatic check-in for an even faster experience). Simply tell the cashier your name and your card is automatically charged. The best part? It is com-pletely free.

LoopLoop is another technology that allows shop-pers to use their mobile phones as a method of payment. Loop consists of a small device — retailing for $39 — that attaches to your smartphone and an application in which card

information is entered and stored. The device emits a magnet-ic signal that simulates swiping your payment or loyalty cards through the terminal, just by holding it nearby. The benefit of Loop is that it is compatible with over 90 percent of current

Point of Sale terminals, so there is no need for merchants to in-stall NFC terminals or set up a new payment acceptance meth-ods. The application hit the Apple App Store late February, and is set to launch for Android this April. The company is also re-leasing a battery phone case version of the device which charges your iPhone 5 or 5S for $99.

CoinIf the idea of completely forgoing cards is too big of a change, try Coin instead — $50 if you pre-or-der before the summer release. Fret no longer over the availability of card slots in your wallet: Coin has the dimensions of any standard card, but it smoothly integrates all your cards into one.

It has a button which you toggle to switch between cards and swipes just like any card. To store a payment or loyalty card’s information in Coin, you simply need to swipe the card through

an apparatus that plugs into your iPhone or Android and take a photo of it. You can then remove the apparatus, and your card is instantly usable through Coin. For additional security, Coin will send a notification to your phone if you accidentally leave it behind, and users have the option to set their Coin to automatically deac-tivate if it is geographically apart from their phone for too long. Coin promises to

reach the wallets of consumers by this summer.

Off to a Slow StartDespite the promised convenience of these payment technol-ogies, there is one major obstacle keeping consumers from adopting these digital options: fear. According to a 2012 study commissioned by American Express, 83 percent of surveyed consumers listed security as their primary concern when asked about payment methods utilizing new technology.

Another obstacle is price — while credit cards are free, Loop and Coin will take a bite out of your wallet. These options are also only available to owners of smartphones. Other problems include merchant reluctance to comply — there is no guarantee that they will accept Square Wallet or an atypical card like Coin, so consumers may find themselves still reaching for their tradi-tional wallets. Nevertheless, new technology presents a prom-ising way to improve the consumer’s payment experience and leave your wallet a little lighter (in a good way.)

the future of walletswby Tiffany Chang

"Fret no longer over the availability of card slots in

your wallet: Coin has the dimensions of any standard

card, but it smoothly integrates all your cards into one."


CAREERS & INTERNSHIPS

34 Unpaid Internships: Will They Affect Your Career?

35 The Creative Economy: South Korea’s Transformation

36 The Creative Economy: Entrepreneurship at Brown

38 Student Spotlight: Bill Weber


• Career of the Week: Investment Banking

• Career of the Week: Consulting

• Career of the Week: Accounting

• Career of the Week: Actuaries


Internship-less Freshmen:How to Stay Ahead of the Gameby Claire Su

ost internship programs are built for the purpose of seeking new hires in the upcoming years. Freshmen,

many of whom are still unsure about what they want to major in – let alone what industry they want to work in – just don’t fit the bill. Here are some ways freshmen can stay productive during their summer, even without a set internship program.

Monetize your interests and skillsIf existing companies and institutions are not looking for ap-plicants like you, why not hire yourself? Figuring out a way to monetize your skills and interests shows that you are a pro-active worker and creative thinker, traits that will help you on your internship search for following summers. For example, one Brown junior who loves cooking, creating visually appeal-ing space, and finance decided to open up a takeout restaurant the summer after her freshman year.

VolunteerWhile many companies are unwilling to pay freshmen to work for them over the summer, non-profit organizations are always looking for more volunteers to spread awareness for their cause. Volunteer for an organization that supports a cause that is important to you and that demonstrates interest in the field you hope to work in during upcoming summers.

Take Classes or do Research on CampusAnother reliable option is to take more specialized classes, which will help you pursue a wider range of opportunities for the following school year and summer. If you are interested in economics or finance but have not taken many classes in those fields, consider taking some more technical classes online or at a nearby university, especially if you currently attend a liberal arts school. Also consider reaching out to a professor before the end of spring semester to ask if you can help them with research while you are on campus over the summer.

Get a Summer JobWorking close to home as a camp counselor, a lifeguard, or a tutor is another way to add to your resume -- even if you are re-turning to the same summer job you had in high school. Having a low stress job the summer of your freshman year also leaves you with plenty of time to network and build quantitative or computer skills that can help you stay competitive during the next round of internship applications. Spend Your Extra Time NetworkingAs a freshman, you have one advantage over everyone else in the game: time! Spend your extra time conducting information-al interviews with professionals and alumni in your area. If you are interested in a specific company, find an alumni or friend’s parent who works there and see if you can shadow them for a day at work. If you can shadow or interview at least one individ-ual every other week, you will be way ahead of the game by the time sophomore year rolls around!

The key point is to make sure that you do something pro-ductive over the course of the summer that builds on your per-sonal brand. You should be able to talk about the skills you learned through whatever you choose to do and turn your sum-mer experience into a story that demonstrates interest in the field you want to work in.

M

The Intercollegiate Finance Journal April 2014 Careers & Internships 33

What Other Students Have Done the Summer After Their Freshman Year

During the summer after my freshman year, I decided to open up my own takeout restaurant. I did everything from painting the walls, to creating the menu, to looking over the finances for ingredients and food preparation costs. Even though I didn’t participate in an established internship program, I felt like I was still able to develop all the skills that interns would learn through a formal program. The summer after sophomore year, I worked at a hedge fund and this upcoming summer, I will be work-ing in the investment banking division at Goldman Sachs.

My freshman year summer definitely helped me in my internship search. It seemed to be all people wanted to talk about. People at investment banks and other finance firms get bored of hearing about the typical hedge fund internship and want to hear about a risky and creative venture, which is why the takeout restaurant was such a popular topic in interviews. I got asked more questions about that than I did about my hedge fund internship.

Stephanie H.Brown University ’15 Economics & Architectural Studies

I basically chilled at home and worked on managing my band — I don’t play in it, I just volunteered as manager. I interned at Viacom this past summer in New York and my band managing experience was a topic of discussion in the interview. The skills I learned from managing the band definitely did translate to the Viacom internship.

Tim othy p.Brown University ’15 Applied Math-Economics

I didn’t realize that I was interested in economics until late second semester of freshman year. I decided to take macroeconomics classes over the summer so I could start taking courses with prerequisites in sophomore year. This kept me on track with people who had decided upon con-centrating in economics earlier than I did. The summer of my junior year, I ended up getting a research opportunity on campus.

Kathleen H.Brown University ‘14Applied Math-Economics

After my freshman year I spent the summer working at a sports day camp as a counselor and lifeguard and this upcoming summer I am interning at an investment bank in Boston. My freshman year experience did not directly help me get my internship this year but it was something I could talk about during interviews.

Jason H.Brown University ‘16Economics

advice from upperclassmen and career advisors

“Do something where you have responsibilities. It does not have to directly relate to the field of finance. The advantage of this will be experiences you can talk about during future internship interviews. And overall, some-thing is better than nothing.”

— Jason H. Brown University

“There are plenty of people who didn’t do formal intern-ships freshman year but have solid ones now. I know someone who did an SAT tutoring program where you manage your own “branch” and basically run your own business. Some people created their own startups or trav-eled and taught English in some cool places around the world. A lot of people just got normal jobs in retail or something because it can help a lot to say you worked in sales and developed professional skills.

“It’s honestly fine for people interested in finance to just say you spent your summer working on your hobbies, volunteering and teaching yourself quantitative, excel and/or computer science skills.”

— Angel S. University of Chicago

“Freshman should try to create their own summer project! If they are going home, they should be doing networking to try to arrange something. Local offices are often willing to take on summer interns, especially if they don’t need to be paid. Many first years go home and do a job they had in high school. They should think about classes to take next year, and of course, student groups to join. They should be learning from their peers about opportunities ”

— Rachel B.University of Pennsylvania

“Internships are a great way to learn about careers and build experience, and there are many other things a stu-dent can do to advance his/her career development as well. These include short term shadowing, volunteering, and networking with alumni or others in the field. The lat-ter is particularly important. Experts in the field can offer advice and guidance, and also introduce you to others. Many jobs never appear on a job board — they are dis-covered through the process of talking with and meeting people in the field.

“Before leaving for the summer, I encourage first-year students to talk with one of our advisors about their near and long-terms plans. They can help students develop a personal plan of action.

“Many students at the end of the first year are still not sure what direction to follow, and that’s fine as long as you have a plan to explore options. Through this process of exploration, students will learn about what’s required for entry into various professional fields. Many will want to see hands-on experience, though the timing and quan-tity will vary.

Overall, first year students should not panic if they don’t have an internship right away.”

— CareerLABBrown University

Careers & Internships The Intercollegiate Finance Journal April 201434

unpaid internshipsby Amanda Yao

ith the Spring semester well underway, many college students are wrapping up the search for summer in-

ternships. There seems to be a collective understanding that the only way to be successful after graduation is to land the perfect internship. According to a study done by Millennial Branding, 91 percent of employers expect ap-plicants to have had one or two internships in college. For most, “perfect internship” entails a paid, prestigious program at a large, well-known firm. Unpaid internships are often seen as sec-ond rate, a last minute effort to get something on your resume if all else fails. Many people over-look the fact that if you are selec-tive and know what to look for, you can actually gain invaluable experience and connections that will help you out for many years to come.

Gaining ExperienceRather than exchanging time and effort for cash, unpaid interns exchange time and effort for invaluable skills, experiences, and net-working opportunities. Not only can students work in a collaborative environment, apply classroom knowledge to real-life situations, and learn to handle work conflicts, they can also make lasting professional connections. Such an expe-rience can also give students a better perspective on the indus-try and whether or not it would make a good career choice.

That being said, there are sev-eral points that you should keep in mind when browsing through unpaid internship opportunities.

after Graduation ?Be careful and selective when looking for unpaid opportuni-ties. Unpaid interns are not pro-tected by labor laws and aren’t offered key legal protections. Poorly coordinated programs may undervalue an intern’s time and feel more akin to unpaid labor than a valuable learning

experience. By being too unselective when looking at unpaid internships, are we are setting ourselves up to be more easily exploited? According to the New York Times, this has created a

“permanent intern underclass: ed-ucated members of the millennial generation who are locked out of the traditional career ladder and having to settle for two, three and sometimes more internships after graduating college.” Instead of internships being solely reserved for college students, they have started to replace entry-level jobs for recent college graduates. Al-though the employment rate fell to 6.6 percent last month, the rate for recent college graduates is still about 8 percent, according to the Bureau of Labor Statistics. We have to wonder if we are contrib-

uting to this “permanent intern underclass” by accepting these internships so loosely.

"Good" vs. "Bad" Fortunately, mistreated in-terns are starting to speak up

in recent lawsuits, and lawmakers are investigating the legality of unpaid internships. Meanwhile, it’s important to know that intern-ships still matter and some may still be very beneficial. Until there is more uniformity in the quality of internships, you just need to be careful where you apply. Many good internship programs pair up interns with a mentor within the company; this allows interns to learn more about the organiza-tion’s culture and to form a sol-id relationship with at least one person in the company. Other characteristics of good intern-ships include ones that provide exposure to the field and ones that allow you to meet a large number of professionals work-ing in that field, which provides a good opportunity to make profes-sional connections. Be cautious if you’ve heard of any mistreatment of interns at the company, or if

the company doesn’t seem to give work to or trust their interns. Some signs of “bad” internships are lack of training, and lack of clear goals or responsibilities.

So let's break down the statistics:The largest demographic of students who re-ceived jobs right out of college were students who had had paid internships (63.1 percent),

likely because many paid internship programs are paths to full-time job offers. The second largest demographic of students were those who had unpaid internships (37 percent.) While only a small portion of these students had exclusively

unpaid internships (1.7 percent), the fact that 35.3 percent of students had both paid and un-

paid internships suggests that unpaid internships may be a gateway to getting paid internships. Form-ing relationships with co-workers in an unpaid in-

ternship can help you find new job opportunities, get great recommendation letters, and guide you through your job search.

On the other hand, even though nearly two-thirds of students who re-ceived job offers straight out of col-lege had some kind of internship, al-most a third of students did not. This shows that internships are not the only way to land a job offer. It is like-ly that many of the students who had no internships found other ways to stand out through volunteer work, summer jobs, or research positions.

Survey of students who got job offers straight out of college:

27.8%Paid

Internships Only

1.7%Unpaid

Internships Only

35.3%Both Paid &

Unpaid

35.2% No Internships At All

w


The Economy: south korea's transformationby Caroline Vexler

t the World Economic Forum An-nual Meeting, Park reiterated her

objective of building a creative economy. Her goal is a significant change in the job market to encourage economic growth. She claims that since the Industrial Rev-olution, material divide marked quality of life. Now in the modern era, technol-ogy marks the divide. In the future, she posits, creativity will be a divide. The financial crisis has brought to light eco-nomic, environmental, and sustainability issues that have existed for years but are only now being dealt with. Innovation is the key to solving the world’s issues. Park notes that the global economy “con-tinues to experience slow growth, high unemployment is weighing economies down, and income inequality continues to linger.” She affirms that we “must make growth sustainable.” This is where the creative economy comes into play.

What is a Creative Economy?“Creative economies seek to tap into the creativity of the human mind,” says Park. A creative economy places emphasis on innovation, technology, and entrepre-neurship. “Creativity begets innovative ideas, [and] entrepreneurship puts inno-vation into action.”

Park & South KoreaPark’s plans for South Korea will remove barriers to entrepreneurship via financial policies. For startups and entrepreneur-ship to thrive, entrepreneurs cannot be afraid of failure. Research and new ideas need to be constantly evolving; there-fore, financial policies need to enable en-trepreneurs to fall down and get back up again. Park expressed her concern that it is currently very difficult for early-stage startups to raise funds. She plans to transform how startups finance capital, shifting the emphasis toward investment capital and angel investors, in addition to tax-breaks for entrepreneurs and increased credit restoration. Park will

relax reg-u l a t i o n s to promote risk-taking, keep-ing only that which is absolutely neces-sary. In addition, she is making govern-ment data more accessible to the public.

Park is in the process of building creative economy centers across Korea. These centers will pair entrepreneurs with expert mentoring, government agencies, and venture companies. Park predicts that the creative economy will resolve the increasing income gap. Imag-ination and creativity are independent of race, religion, nationality, and education. Anyone and everyone has the potential to innovate. This in turn will both di-versify and expand the job market. She expects “to see some 12,000 jobs created by 2017.”

Entrepreneurship will be “the driving force of sustainable, inclusive growth.” Creativity is a renewable resource that will power the economy and connect the nations of the world. Park hopes that her investment in creativity will yield new markets and new jobs. More important-ly, Park aspires for her vision to improve the human condition as a whole, using science and technology. The eyes of the world will be on South Korea as it transi-tions towards the creative economy and Park’s entrepreneurial challenge.

Park's Creative Economy In light of this new economic model, the question for world leaders to ask them-selves is: is Park’s vision an optimistic oversimplification of the world’s eco-nomic issues, or an ingenious solution vested in the power of the human mind? In either case, Park is certainly correct in observing that “the global economy is charting a new course.” If entrepreneur-ship is the key to the future, employment in the world may soon change dramat-ically to accommodate “an ecosystem where entrepreneurship can flourish.”

“The power to imagine and think of ideas is universal.”

ark Geun-hye, the current president of South Korea,

spoke at the 44th World Econom-ic Forum Annual Meeting this past January where she advocated for a paradigm-shifting vision of the future: the creative economy. President Park’s proposal would reform the job market, shift eco-nomic focus, and be a potential source of sustainable growth.

President Park assumed of-fice in February 2013 after being elected the first female President of South Korea. Bereft of both her mother and father who were assassinated during her father’s presidency from 1961-1979, Park has striven to leave her own mark on South Korean politics since be-coming first lady of South Korea in 1974. Park supports policies towards economic prosperity in South Korea, including her vision for a creative economy, which she originally unveiled last summer.

p

CREATIVE

a


IFJ: Tell us about your experience with Brown Venture Lab.

GN: It was really well done in terms of the structure of the ex-perience. BVL was a semester-long program and the idea was to make sure that we were adequately prepared for the West Coast Accelerator. It involved a weekly meeting with alums, profes-sors or members of the community who have a good sense of how startups should run. It was nice to meet people who were taking time off from school to pursue their venture full-time. We had drop in hours and Skype hours with mentors who were also budding entrepreneurs. We would bounce our ideas off of them. The whole concept of a minimum viable product (MVP) is essentially: you don’t create a Facebook in a day. You throw something up and see how people respond to it. If a lot of peo-ple like the site, then you start adding more things. If people hate it, you change it and throw something else up. That con-cept was really driven home. Everyone has a different take on

Gaurav Nakhare

Gaurav Nakhare ’15 is an Electrical and Computer Engineer-ing concentrator at Brown University. Hailing from the UK and India, he runs the International Mentoring Program, which includes the university pre-orientation program for international students. In addition, Nakhare is a Teaching Assistant for engineering and computer science classes and is on the executive board for the Ivy Council. In the fall of his freshman year, Nakhare participated in the inaugural se-mester of Brown Venture Lab in conjunction with resumed undergraduate student Will Houston where they cultivated their startup “Durgood,” an online product recommenda-tion tool for durable goods.

Entrepreneurship at Brownby Caroline Vexler

it, but the goal is, don’t spend your time on building something no one wants. To that end, EP and Venture Lab were extremely useful and successful.

IFJ: What made you realize there was a real need for Durgood?

GN: Before Will started college he worked at Sears as a sales person. He realized that people go into a shop and look at fifty different types of the same appliance and are completely con-fused. They turn to the Internet and they get even more con-fused. Why not replicate the sales person experience online? Consumers would be able to get a specific set of recommen-dations that they could then take to the store and choose from three as opposed to a hundred different products.

I could relate to this issue because my parents moved from England to India when I was transitioning into high school. The biggest problem they faced in the move was putting together the house. They spent almost seven months picking out kitchen appliances--we had no kitchen for the longest time. In retro-spect it seems really trivial: just pick a fridge! That kind of prob-lem is ingrained in my mind. The entrepreneurship program helped us pitch this idea to so many people. Many students don’t understand because a dorm room fridge costs $50 or $80 and that’s not something we worry about too much. But the demographic 25 and above can definitely relate to that. EP gave us the chance to have a sounding board and remind ourselves that what we’re building might not appeal to a college student crowd but it does appeal to a large number of people out there.

IFJ: How has Durgood developed since you participated in Brown Venture Lab?

GN: We are live at durgood.com. This is the fourth or fifth iter-ation of our minimum viable product. Each successive iteration has been more successful, but not to the point where we want to take time off and pursue it full-time. I think over the summer Will and I will spend more time on it. We’re definitely playing the slow and steady card on this one. Sometimes it’s good to throw something up and gauge progress over two or three months as opposed to a couple of weeks. I think in the long run it will be worthwhile.

IFJ: What is your ultimate goal for Durgood?

GN: We’re identifying a couple of sources of revenue, the most obvious being advertising. There are also some more involved sources which include talking to retailers and manufacturers and trying to develop a business model. That’s definitely very high up on our to-do list. We also want to be able to improve our graphic interface. Right now the website is up and function-al but it’s not nice and smooth. No one wants to look at a bare bones website in 2014. That’s high up on our list. I think we will still play the MVP card, in that we’ll just change one thing and see how people react to it before we cement that change.

The Economy: CREATIVE


IFJ: What is the Brown Entrepreneurship Program?

VB: The mission of the program is to ignite entrepreneurship on College Hill. This includes collaborating with RISD. We think that Brown and RISD are two schools with complementary skills and we therefore see the future of entrepreneurship at Brown as closely connected with RISD. The Brown EP is divided into two tracks, Idea Lab and Venture Lab. In Idea Lab, we try to promote entrepreneurship and make students aware of all of the opportunities it has and inspire people to think about solving problems in entrepreneurial ways. We have a speaker series, a variety of workshops, mixer events with RISD E’Ship, the Program in Innovation Management and Entrepreneurship on campus and other groups interested in entrepreneurship. In BVL we work with startups to help them develop their ideas and become entrepreneurs.

We also organized a program called the West Coast Accel-erator. This January was the second time we had the program. We brought Brown student venture teams to the San Francisco and the Silicon Valley for a variety of sessions and workshops that helped them connect with and obtain advice from Brown alumni entrepreneurs on the West Coast. We also visited a vari-ety of startups like Uber and Hotel Tonight and companies like Facebook, Saleforce and Microsoft. The students also had the opportunity to pitch their ventures to venture capitalists- not di-rectly pitching for funding but rather for feedback. The reviews were really great. It was a huge success.

IFJ: What projects have Brown students been working on?

VB: We work with a variety of ventures. Among the ventures in BVL this semester is the team who won the Brown Hackathon, Hack@Brown, and students working on developing a ginger beer brand. One of the ventures that we had last semester was

Viktoria Belberova

Viktoria Belberova is a junior at Brown University from Bul-garia concentrating in Economics. This spring she is head-ing the Brown Entrepreneurship Program.

Ventfull. They were part of BVL and they were a really hardwork-ing team. They were really passionate about solving the insuf-ficiencies of Brown Morning Mail. We helped them streamline their idea, figure out what the most important aspects were, and how to put customer insights into developing their plat-form. It launched a few weeks ago. They had about 900 views in the first three days and it’s going very well.

Pete Simpson and Joe Stein came to Brown Venture Lab knowing that they weren’t satisfied with Brown Morning Mail. They felt that it wasn’t well-organized or catered to students’ interests. They wanted to create something to help students receive notifications about events they are interested in. They also wanted to create a space where students could learn about what ‘cool’ events are happening. Their site has a voting system where you can “upvote” specific events that you are interested in. The more upvotes an event has, the further on top it will be. It’s a way of getting crowd promoted events.

IFJ: How can students interested in entrepreneurship get in-volved with Brown EP?

VB: If they’re interested in entrepreneurship but don’t have an idea, they should come to some of our speaker series (we brought the founder of Reddit last semester) and network with other students who are interested in entrepreneurship through our mixer events. We are currently working on a fellowship project that we’re going to launch next semester that is going to be an incubation program where we help students with the idea process of what exactly they want to work on.

If they have an idea and they’ve done some research and are passionate about the problem, then Venture Lab is the best place to go. We are also currently working with the Brown ad-ministration to potentially make the incubation project more university-integrated and develop its resources. The school itself is having more developed interest in entrepreneurship. There have been a few successful initiatives already, such as the CV Starr fellowship, which is a social entrepreneurship pro-gram. The student fellows have worked on a variety of social ventures around the world and have made a great impact.

IFJ: Why do you think entrepreneurship is important?

VB: I come from Bulgaria, and I don’t think it’s known for being a very entrepreneurial country. Our education system has a lot of residual elements of the communist one. We didn’t have many extracurricular activities. Students had mostly nowhere to work together on projects and design things. I started a newspaper when I was in school. It’s a different type of entrepreneurship, but it was my first experience in really creating something. The newspaper is still continuing and has become part of the cul-ture of the school. I was really inspired by that. When I came to Brown I really wanted to develop my own interest in ingenuity.

I have a broader idea of what entrepreneurship is. We’re try-ing to give students the tools to approach problems in entrepre-neurial ways and to use those skills whether they’re working on a tech venture or a social venture. Any project has the potential to gain from problem solving and learning by doing. We en-courage students to go out and talk to people, learn about the problems, and even make sure the problems that they are work-ing on actually exist. A lot of students come here with ideas but they don’t realize that the ideas they have don’t actually solve any problems. We encourage the process of really understand-ing where the fit is and iterating and testing hypotheses. These skills can be applied to a lot of things, not just technological or commercial ventures.


student spotlight: Bill Weber

IFJ: Can you describe the process for ap-plying for each of your internships?

BW: They were very different, depending on public versus private sector and the specific department or company I was ap-plying to. It varies in terms of how much networking is required and how formal the process is. The very first internship I did was at the SEC, which was one of many applications that I filled out as a freshman. It was a pretty standard appli-cation and interview process. I applied to work at the White House the summer after my freshman year; I did not get the job. I then reapplied for the fall semester.

After first semester at the White House, at the National Economic Coun-cil, I moved over to the Council of Eco-nomic Advisors. Together, those two offices make up what’s called the White House Economic Team. I switched offic-es to learn more about how economics feeds into the policymaking process. I ended up working at the Justice Depart-ment after sharing an umbrella with an official from the Justice Department at a rained out White House event.

I applied for the job at the hedge fund in Hong Kong because I really wanted a job in the private sector and to see what working in finance was like. I ended up leveraging the Brown network and infor-mation available online about what funds are and looking at financial centers in the US, Europe, Asia, and the Middle East. I really wanted to go abroad. One com-pany happened to get back to me, and I sent them work samples from Brown, went through their interview process, and got lucky. They were all pretty dif-ferent.

IFJ: How was the recruitment process studying abroad?

BW: It’s challenging. That’s something

that I was warned about before studying abroad for a whole year. Not only are you missing the networking, but also the Ox-ford schedule doesn’t really line up with the schedule of Brown. To anyone who is thinking about studying abroad I suggest going to as many networking events as you can as a sophomore. Learn about the different banks, learn about the different cultures, and learn about the different divisions. Your opportunity to do that overseas is much smaller. I was fortunate to end up at Morgan Stanley because of efforts made as a sophomore to get to know the different institutions. It’s not impossible, but it is an obstacle.

IFJ: What did you do as an intern in the White House?

BW: The White House offices were a world in and of themselves. Just to be there, the energy was very intense. Long hours, very exciting work. The Nation-al Economic Council is a small office of about twenty full-time staff and a dozen interns headed up by Gene Sperling. Those interns work one-on-one with a different White House Official covering a different area in the economy. My day-to-day was a combination of short-term and long-term projects.

One of the coolest things that I did was I got to update Gene Sperling and other White House officials, multiple times per day, on the biggest financial markets. Basically, I was taking data from the Bloomberg terminal and pumping it out to make sure that they were con-stantly up to speed with what was going on in financial markets. I put together all of the economic indicators that were released that day like inflation, indexing measures, etc. I’d write up briefs on all the indicators that were released. During the day itself, I could be pulled in any di-rection. The guy who works in manufac-

by Caroline Vexler

Bill Weber is a junior at Brown University studying economics and Arabic language. He is spending this year abroad at Oxford studying economics and politics. While at Brown, he was a Teaching Assistant for the course Financial Accounting and a member of the Alpha Epsilon Pi fraternity. Bill took a year off between his freshman and sophomore years to complete four different internships in both the public and private sector; the summer after his freshman year he worked at the US Securities and Exchange Commis-sion. The following semester he spent as an intern at the White House National Economic Council. During the spring semester he worked at the White House Council of Economic Advisors. That summer he interned at the US Department of Justice. The following summer he went back to the White House Council of Eco-nomic Advisors for three months, and then his remaining two months were spent in Hong Kong working for a multi-strategy hedge fund. During his spring break at Oxford, Bill will be working in Singapore for a venture capital fund. This summer he will be in New York interning at Morgan Stanley.

Bill Weber's Timeline

Freshman YearFall: on campusSpring: on campusSummer: US Securities and Exchange Com-mission

one Year offFall: White House National Economic CouncilSpring: White House Council of Economic AdvisorsSummer: US Dept of Justice

sophomore YearFall: on campusSpring: on campusSummer: White House Council of Economic Advisors (3 months) & Hedge Fund in Hong Kong (2 months)

Junior YearFall: study abroad at Oxford UniversitySpring: study abroad at Oxford UniversitySpring Break: venture capital fund in Singa-poreSummer: Morgan Stanley Global Capital Markets


Crossword Puzzle: European Economies Across

2. This country will vote in May to approve a policy that would implement in the highest minimum wage in any country in the world.4. Leading economists recently predicted that this coun-try’s economy would return to its pre-financial crisis size by Summer 2014.7. Their economy saw unexpected growth of 0.3%, as compared to the predicted growth of 0.1%.9. The newly elected Prime Minister announced recently that he will reduce the income tax by a total of 10 billion euros to increase consumer spending.11. This country’s currency had a striking increase com-pared with the Euro.12. Though this country had a 0.6% GDP increase in the fourth quarter, it simultaneously had its jobless rate in-crease to 15.3%.14. This country could be seriously hurt in the near fu-ture if Western powers vote to impose economic sanc-tions over territorial controversy.15. President Obama recently praised this country’s emergence from a banking crisis at his annual meeting with the country’s leader for St. Patrick’s Day.

Down1. This country’s economic state currently hangs in the balance as around 1/5 of its exports go to the Ukraine and Russia.2. The current Prime Minister is planning a major tax reform overhaul to bolster the job market.3. Reports showed that last year this country’s economy accelerated at the fastest pace in seven years.5. This country achieved its first account surplus last year for the first time in 65 years.6. The princess of this country is leading a mission to establish business relationships with Saudi Arabia.8. This country’s economy is dependent on the export of its oil exports, which may cause problems as investment in oil decreases.10. This country established in February an Economic Senate in conjunction with Serbia.13. This country achieved a slight budget surplus in 2013, for the second year in a row.

by Caroline Vexler1

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turing could be working on some issue that comes up with big manufacturing companies or maybe a federal program related to manufacturing and he needs data or information or analysis on X, Y, Z, right then. You just dive in. The coolest part about it is just being in the office and having the opportunity to see the Trea-sury Secretary, the President, the Vice President, and different very important people on a very frequent basis.

The Council of Economic Advisors, the other office, had a little bit of a differ-ent environment. As opposed to working in a one-on-one relationship with one of the officials, it was more work with other interns and team projects. At the NEC, they advise the president on economic

policy. When they come up with policy there are a hundred different variables that come into the equation in determin-ing what good policy is. Therefore, the type of work that they do is determined by all these constantly changing vari-ables. It’s not just rote economics. Their mission is to provide the president with totally objective economic analysis. It’s all unbiased analytical research. At that office I was working on longer-term proj-ects with other interns and full-time staff.

IFJ: Do you have any advice for students who are interested in getting into either economic policy or finance?

BW: It’s never too early to start. I think

I benefited from working at the SEC af-ter my freshman summer. If you know there’s something you want to do, it’s never too early to pursue it. The more opportunities you pursue, the more you learn about what you do want to do, and what you don’t want to do. In addition to that, I would say that there is no right path. I took a very unorthodox route in the sense that I moved from the pub-lic sector into the private sector, took a whole year off from school, and worked overseas. I think that the more you try to find unique, exciting, interesting ex-periences, the more enriching your own work experiences will be and the more beneficial they’ll be in terms of building into new opportunities.

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