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The Wall Street Journal Quiz
Covering front-page articles from Sept 6 – Sept 9, 2005
Professor Guide with Summaries Fall 2005 Issue #3
Developed by: Scott R. Homan Ph.D., Purdue University
Economy Shows Resilience in Face Of Massive Jolt
By JON E. HILSENRATH and GREG IP
September 6, 2005; Page A1
http://online.wsj.com/article/0,,SB112597341782532399,00.html
The U.S. economy's shock absorbers kicked in within days of one of the worst natural disasters in its history,
offering hope that the massive jolt to the country's energy and transportation systems won't produce a longlived, serious economic contraction. The release of emergency oil and gasoline from global stockpiles,
created in the 1970s to counter supply interruptions, sent crude-oil prices down to about pre-hurricane levels
in European trading. Long-term interest rates fell despite the prospect of higher inflation, cushioning home
buyers and businesses. Temporary-help agencies began to place some workers displaced by the storm. New
Orleans's main newspaper, the Times-Picayune, kept publishing on the Internet when printing on paper was
impossible. Computerized logistics enabled railroad CSX Corp. to reroute freight normally exchanged with
Western railroads at New Orleans to be sent north. Hurricane Katrina is the biggest test in years of the
economy's resilience. But recent history offers encouraging, though by no means definitive evidence of the
U.S. economy's ability to bounce back from shocks. Economic growth has become significantly less volatile
during the past two decades, a trend some economists dub "the Great Moderation." The past five years have
witnessed a burst stock bubble, terrorist attacks, corporate scandals, wars in Afghanistan and Iraq, and a
doubling in crude oil prices. Yet the economy, after a mild recession in 2001, has embarked on a solid
expansion with little inflation. Katrina came at a time when the economy was in solid shape. In August, the
unemployment rate fell to 4.9%, a four-year low, from 5% in July, and nonfarm payrolls grew a respectable
169,000, the Labor Department said Friday. "We expect the trend in growth will prove more resilient than is
now widely feared," UBS Securities analysts told clients Friday. Employment and output are likely to take a
sizable hit in the next few months; the question is the duration and severity of the blow. Economists
surveyed last week by Macroeconomic Advisers LLC, a St. Louis forecasting firm, said the storm would
result in growth of only about 3.5%, at an annual rate, in the second half of the year, down from pre-storm
expectations of 4%. It grew 3.6% in the first half. And the economy does have some worrisome
vulnerabilities. The storm hit when world oil producers and U.S. refiners were operating near capacity and
they remain highly sensitive to any loss of supply. Higher gasoline prices will act like a tax on consumers
who are already stretched: In July their saving rate turned negative as spending exceeded income. Spending
might be further hurt if consumer confidence erodes. As a result, some analysts still believe the economic
impact might be severe. "What we're witnessing now is going to turn out to be a really huge shock," said
Stephen Cecchetti, an economist at Brandeis University. Businesses may also find it hard to adapt to shifts in
spending caused by higher energy prices, much as Detroit found it hard to shift to smaller cars in the 1970s.
But there are several factors in the economy's favor. It's more energy-efficient: The gross domestic product
has more than doubled since 1979, but petroleum consumption has risen just 9%, according to the Energy
Department. Policy makers have reduced, rather than increased, regulatory constraints on supply. In the
1970s, gasoline price caps and other regulations created shortages and waiting lines. Last week, the federal
government temporarily eased environmental and transportation regulations so existing gasoline inventories
could reach U.S. customers more easily. The release of oil and gasoline from the U.S. Strategic Petroleum
Reserve and similar stockpiles in Europe has helped contain the rise in oil prices. Benchmark Brent crude oil
for October delivery fell $1.22 in London yesterday to $64.84, around where it stood before Katrina. U.S.
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WSJ Quiz: Page 1 of 15
markets were closed for Labor Day. Wholesale gasoline prices fell sharply Friday from midweek peaks
though they remain well above pre-storm levels due to Gulf Coast refinery closures.
1) The past five years have witnessed a burst stock bubble, terrorist attacks, corporate scandals, wars in
Afghanistan and Iraq, and a doubling in crude oil prices. Yet the economy, after a
____________________________ in 2001, has embarked on a solid expansion with little inflation..
a) mild expansion
b) mild recession Correct
c) major expansion
d) major recession
2) In August, the U.S. unemployment rate fell to _______________%, a four-year low.
a) 2.7
b) 4.9 Correct
c) 6.8
d) 7.6
As Japan Votes, Aid to Countryside Hangs in Balance
By SEBASTIAN MOFFETT and GINNY PARKER WOODS
September 7, 2005; Page A1
http://online.wsj.com/article/0,,SB112603889772233072,00.html
HIWA, Japan -- In elections this Sunday, Prime Minister Junichiro Koizumi is betting he can win a mandate
to engineer a shift no other Japanese leader has ever dared. His goal: To cut off the decades-long tradition of
propping up Japan's declining countryside, and channel resources into the nation's successful cities and
industries instead. To achieve that vision, Mr. Koizumi plans to dismantle one of the countryside's biggest
crutches, the huge and unusual post office, which in addition to selling stamps also acts as a bank and
insurer. It is a vast network of 26,000 offices with 280,000 public employees, plus $3 trillion in savings and
life-insurance deposits. The deposits are typically funneled into public-spending projects that have boosted
rural economies. That system has long been a boon to remote villages like Hiwa in the mountains of western
Japan. Hiwa's 600 residents are mainly elderly and get around on electric wheelchairs. Its only industry is
rice farming. Hiwa has benefited from many public-works projects through the post office, such as a new
tunnel and a smooth road partly connecting the village to a neighboring town -- even though there's hardly
any traffic. When the weather is bad, the local postmaster helps residents by withdrawing their cash from the
post-office bank and delivering it to their doors. "It would be tough if the post office went away," says 88year-old Shizue Miura, who walked 20 minutes to the post office recently to withdraw money. Without the
branch, Ms. Miura says she would have to travel more than six miles to the next village to get her money
from a different branch. Mr. Koizumi says bitter medicine is the only way for Japan to survive. The
country's central government stoked rural economies for more than three decades with road and bridge
projects, trying to haul up the countryside to city levels of prosperity. But the attempt to invigorate the rural
economies failed. The spending added to snowballing national debt, which is now 163% of gross domestic
product, the highest level among major industrialized nations. In the U.S., national debt is 66% of GDP,
according to the Organization for Economic Cooperation and Development. So Mr. Koizumi is withdrawing
support for villages like Hiwa. Since taking office in 2001, he has promoted a small-government recipe for
Japan, slashing subsidies to the regions. "They said there's no money anymore," says Katsumasa Miyake,
who leads policy planning for the prefecture government of Shimane, where Hiwa is located. "Part of the
process of putting the national finances right is that the regions have to suffer." Mr. Koizumi is betting
Japan's future on proven successes. That means big cities like the capital Tokyo, which is emerging from the
nation's "lost decade" of economic gloom and is bustling with new office and shopping developments. It also
includes private corporations, many of which have reported record profits over the past two years, spurred
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WSJ Quiz: Page 2 of 15
by deregulation and lowered corporate taxes that Mr. Koizumi put in place. Mr. Koizumi's attempt to
overhaul Japan is crucial to the world's second-largest economy. The country entered a long slump in the
early 1990s after its stock and property bubbles burst. When Mr. Koizumi took office, prices of land,
industrial products and consumer goods were falling steadily in the economy-shrinking phenomenon known
as deflation. Japan's financial system was also jammed with bad loans made during the bubble era. Since
2003, the economy has brightened, fueled by corporate cost cutting and surging exports to China's roaring
manufacturing sector. Mr. Koizumi's policies have also helped. Following a bank-cleanup package in 2002,
bad loans are now less than half their 2002 total of $480 billion. Unemployment has fallen to 4.4% from a
2002 peak of 5.5%. The economy grew 2% in 2003 and 1.9% in 2004, and economists are expecting similar
growth this year.
3) In elections this Sunday, Japan’s Prime Minister Junichiro Koizumi, is betting he can win a mandate to
engineer a shift no other Japanese leader has ever dared. His goal: To cut off the decades-long tradition of
propping up Japan's declining ____________, and channel resources into the nation's successful cities and
industries instead.
a) auto industry
b) Class 3 cities
c) countryside Correct
d) bowling industry
4) To achieve that vision, Mr. Koizumi plans to dismantle one of the countryside's biggest crutches, the
huge and unusual ______________________, which acts as a bank and insurer. It is a vast network of
26,000 offices with 280,000 public employees, plus $3 trillion in savings and life-insurance deposits.
a) public library
b) post office Correct
c) Tokyo Red Cross
d) Sony Alumni Club
A Massive Repair Job Begins To Fix Gulf's Broken Oil Network
By SUSAN WARREN and RUSSELL GOLD
September 8, 2005; Page A1
http://online.wsj.com/article/0,,SB112614371553734843,00.html
In the days after Hurricane Katrina tore through the Gulf Coast last week, the oil industry put in motion a
massive effort to assess the damage left behind and restart its most important assets. El Paso Corp. converted
a barge into a floating helicopter-refueling station. Enbridge Inc. installed satellite links for its network of
natural-gas pipelines to keep them running from afar. Exxon Mobil Corp. sent workers across Louisiana to
operate pipelines manually. And Colonial Pipeline Co. -- needing to bring in giant generators to repower its
gasoline pipeline -- pulled strings to make sure trucks carrying them wouldn't be stopped by highway weight
limits. The push to restart the energy patch appears to be yielding results this week, especially in refining.
While power outages, flooding and battered pipelines will keep many refineries in the area from returning to
full operations for days or weeks, and in some cases for months, it now appears that half of the lost refinery
output in the region will be restored soon. That should mean averting a worst-case shock to the economy.
Production of oil and gas in the Gulf of Mexico is a tougher case, with many facilities, especially underwater
pipelines, still not fully assessed. The Gulf accounts for about 29% of domestic oil production and 21% of
domestic gas production. In all, the global fossil-fuel system is likely to remain stretched for months as a
result of Katrina. As the hurricane spun north out of Louisiana and Mississippi, the U.S. slid perilously close
to an energy crisis. The ability of one city-sized refinery in Baton Rouge to keep churning out gasoline amid
the unfolding chaos stood in the way of that crisis. The Exxon complex, the second-largest in the U.S. after
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WSJ Quiz: Page 3 of 15
Exxon's refinery in Baytown, Texas, can handle 500,000 barrels of crude a day. It proved far enough away
from the brunt of the storm to avoid direct damage. Even as it escaped, its ability to keep operating was
imperiled by the severe crimp in the supply of crude oil. Some ingenious moves, including getting a legal
waiver that permitted a foreign-owned tanker to ferry in crude, helped keep it going. The hurricane has
underlined one of America's energy vulnerabilities: concentration. A quarter-century ago, dozens of small
refineries dotted the nation. Today, a handful of giant facilities dominate oil refining. The day before Katrina
hit, eight nearby refineries had completely shut down, and more than 10% of the nation's refinery capacity
was idled, sending gasoline prices above $3 a gallon. In the Gulf, the storm destroyed at least 29 drilling
platforms and hobbled four deep-water ones that pump about 10% of the Gulf's output. It is likely that a
maze of underwater pipelines was scrambled as well, since last year's lesser hurricane, Ivan, tied some of
them in knots. While the Gulf's oil and gas production is back to about 52% of normal, according to the
federal Minerals Management Service, some of the rest will be time-consuming to restore because it will
require repairing the complex facilities. BP PLC expects the pipelines that move oil from several of its deepwater platforms to be out of commission for weeks. It is considering using tankers to move oil ashore, such
as one special tanker that's now positioned near Newfoundland, Canada. Exxon came through better than
some other oil companies. Company moves both before and after the huge storm show how the industry is
trying to get things back to normal as quickly as possible.
5) While power outages, flooding and battered pipelines will keep many refineries from returning to full
operations for days or weeks, and in some cases for months, it now appears that _______ of the lost refinery
output in the region will be restored soon.
a) 25%
b) 30%
c) 50 % Correct
d) 100 %
6) Facilities in the Gulf of Mexico accounts for about _______ of U.S. domestic oil production and 21% of
domestic U.S. gas production.
a) 10 %
b) 29 % Correct
c) 69 %
d) 80 %
Inside Pentagon, A Scholar Shapes Views of China
By NEIL KING JR.
September 8, 2005; Page A1
http://online.wsj.com/article/0,,SB112613947626134749,00.html
WASHINGTON -- Michael Pillsbury, influential Pentagon adviser and former China lover, believes most
Americans have China all wrong. They think of the place as an inherently gentle country intent on economic
prosperity. In that camp he lumps the lower ranks of the State Department, the Central Intelligence Agency,
most U.S. investors and the majority of American China scholars, whom he chides as "panda huggers." Mr.
Pillsbury says his mission is to assure that the Defense Department doesn't fall into the same trap. "Beijing
sees the U.S. as an inevitable foe, and is planning accordingly," warns the 60-year-old China expert. "We'd
be remiss not to take that into account." Mr. Pillsbury's 35-year China odyssey, from fondness to suspicion,
parallels Washington's own hot and cold relations with Beijing -- from the diplomatic warming of the 1970s,
through the shock and disillusionment of the post-Tiananmen Square era, to today's growing economic and
political tensions. That's hardly a coincidence: Whether in public or in the policy-making shadows, Mr.
Pillsbury has been a persistent force in shaping official American perceptions of a nation increasingly seen
as the world's fastest-rising power.
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WSJ Quiz: Page 4 of 15
Washington these days is a welter of emotions on China, many of them heightened by the recent furor over
Cnooc Ltd.'s failed bid to buy American oil company Unocal Corp. President Bush came to office calling
China a "strategic competitor." He now calls relations with China "good" but "complex." Secretary of State
Condoleezza Rice has lately taken a dimmer view of China than her predecessor, Colin Powell, saying it
remains unclear whether China will play a positive role in the world. Thanks in part to Mr. Pillsbury's
nudging, the Pentagon has staked out a particularly wary view of Beijing's global intentions. "We must start
with the acknowledgement, at least, that we are unprepared to understand Chinese thinking," Mr. Pillsbury
says. "And then we must acknowledge that we are facing in China what may become the largest challenge in
our nation's history." A lanky patrician with bright blue eyes, combed-back gray hair and a ready laugh, Mr.
Pillsbury is known around the Pentagon as the Sphinx. Independently wealthy, he spends most days working
in his two-story brownstone near the Capitol. He appears on no public Defense Department roster, and top
officials decline to speak on the record about his work, noting that he is merely one of hundreds of paid
consultants. Yet Mr. Pillsbury, a fluent Mandarin speaker and author of three esoteric books on Chinese
military strategy, has become one of the Pentagon's most influential advisers on China, with a direct line to
many of Defense Secretary Donald Rumsfeld's top aides. After decades spent nurturing contacts within
China's military, Mr. Pillsbury has amassed mounds of Chinese-language military texts and interviewed their
authors to get a grip on China's long-term military aims. His conclusion has rattled many in Washington:
China sees the U.S. as a military rival. "Mike's core insight has been to plumb the subterranean antiAmerican feelings within China's military," says Daniel Blumenthal, a China specialist at the Defense
Department until late last year and now a scholar at the conservative American Enterprise Institute. "He
takes the Chinese at their word, and that has given him real influence within the Pentagon." Mr. Rumsfeld
has sharpened his posture on China in recent months. In June, he ruffled feathers in Asia when he used an
annual security forum in Singapore to charge that China's military buildup could upset the region's delicate
security balance. The Pentagon then upped the ante with a report warning that the Chinese military nurtures
ambitions well beyond defending its historical claim to Taiwan. The report laid out five "pathways" that
could lead China to develop "more assertive foreign and security policies" or even provoke small wars to
secure its growing energy needs. U.S. China experts noted that these and other passages seemed lifted
straight from Mr. Pillsbury's scholarly work. The Chinese government disputes Mr. Pillsbury's assessments,
as well as the Pentagon's assertion that Beijing is dramatically increasing its military spending. Asked to
comment on Mr. Pillsbury, the Chinese Embassy in Washington said in a statement that "any words or
actions that fabricate and drum up China's military threat are detrimental to regional peace and stability."
Mr. Pillsbury's numerous critics call him a charming but combative China hawk whose work has overblown
the thoughts and writings of a small cadre of Chinese military officials. Even admirers note the intensity
with which he defends his views. "Michael has played a singularly important role in surfacing Chinese
attitudes toward the U.S.," says Kurt Campbell, the Pentagon's top Asia hand during the Clinton
administration. "But as with all brilliance, there is also a touch of madness." Chu Shulong, a leading scholar
on U.S.-China relations at Tsinghua University's Institute of Strategic Studies in Beijing, questions Mr.
Pillsbury's conclusions. "All these ideas of the rising power and inevitable conflict, I'm afraid, are very out
of date," he says, asserting that China is above all intent on assuring its economic well-being. Mr. Pillsbury,
who has nurtured ties with the Chinese military since the early 1970s, insists he remains open-minded. "My
core doctrine is that the Chinese think differently than we think they do and that it's imperative we
understand what motivates them," he says. Chinese writings, Mr. Pillsbury says, show a military
establishment obsessed with the inevitable decline of the U.S. and China's commensurate rise. On the
economic front, he cautions that Americans shouldn't be taken in by the profusion of fast-food restaurants in
China or other signs that make China look like the West. Beneath the growing trade ties with U.S., he says,
runs a nationalistic fervor that could take American investors by surprise. Mr. Pillsbury got the China bug as
an undergraduate in the early 1960s, and later spent two years in Taiwan while earning a doctorate in
Chinese studies from Columbia University. In late 1972, just months after President Nixon's famous trip to
China, Mr. Pillsbury joined Rand Corp. as a 27-year-old China scholar. At the think tank, he began to do
classified work for the U.S. government.
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WSJ Quiz: Page 5 of 15
By then, Mr. Pillsbury had already made his first contacts with the Chinese military through a friendship
with a People's Liberation Army general, Zhang Wutang, who was posted at the United Nations. He used the
contact to understand PLA aspirations, and then passed along his conclusions to the Pentagon and the CIA in
a series of secret memos. "I was giddy with the Confucian classics and all the magnificence of Chinese
culture," he says. He earned his first acclaim -- and a handwritten letter from then California Gov. Ronald
Reagan -- with a 1975 essay in Foreign Policy magazine urging the U.S. to deter Moscow by establishing
military and intelligence ties with China. At the time, that idea was almost scandalous. Later, under
Presidents Carter and Reagan, such liaisons became a standard part of U.S.-China relations. Mr. Pillsbury
came slowly to what he calls his epiphany on China. Through the Reagan and first Bush administrations, he
hopped between jobs at the Pentagon and the Senate, working to enhance military and intelligence
cooperation with Beijing. In the 1980s, the U.S. began selling China powerful new torpedoes, upgrades for
its jet fighters and advanced electronics for artillery -- arms sales that officials say Mr. Pillsbury helped
push. Then in early May 1989, Mr. Pillsbury flew to Beijing for a low-key military mission, arriving just as
the Tiananmen protests picked up steam. He was unsettled by the ruthless crackdown that ensued, and also
by how Chinese authorities blamed the U.S. for helping foment the dissent. "I was stunned," he says. "Even
some friends in the Chinese military that I'd known for years began to describe us as a mortal enemy, an evil
force." Following Tiananmen, Mr. Pillsbury's conclusions on China became notably darker. In one 1993
study, he noted: "China has the advantage that many experts on Chinese affairs...testify soothingly that
China today is a satisfied power which deeply desires a peaceful environment in which to develop its
economy. They put the burden of proof on others, defying pessimists to prove that China may ever become
hypernationalistic or aggressive." An inveterate free-lancer, Mr. Pillsbury has never had to worry about
steady employment. He's a member of the Pillsbury flour family, and his wealth has allowed him to pursue
his research despite a knack for championing unpopular causes and for landing in political scrapes. Once,
while helping funnel weapons to anti-Soviet forces in Afghanistan and Angola in the 1980s, he lost and
regained his security clearance amid allegations of leaking secret information to the press. Mr. Pillsbury has
also avidly collected high-level protectors, counting Utah Sen. Orrin Hatch and retired North Carolina Sen.
Jesse Helms among his patrons. His long-time mentor and current employer is the Pentagon's Andrew
Marshall, a mercurial figure who at 83 still runs the department's long-term planning shop, the Office of Net
Assessment. In early 1995, Mr. Marshall sent Mr. Pillsbury to Beijing to gather Chinese military writings.
The Pentagon by then was promoting a new generation of heavily computerized military hardware, and Mr.
Marshall wanted to see what the Chinese made of this so-called revolution in military affairs. Mr. Pillsbury
interviewed dozens of authors, and returned after several trips with crates of books and journals, more than
500 volumes in all. The haul formed the core of his first two books, both published by the Pentagon's
National Defense University. Hardly light reading, the books got glowing reviews from several
neoconservative thinkers, including Paul Wolfowitz, Mr. Rumsfeld's former top aide and now president of
the World Bank. In his 1997 "Chinese Views of Future Warfare," Mr. Pillsbury portrays a military hierarchy
fascinated with information warfare and the need for weapons systems to deliver "acupuncture" strikes and
take out satellites. A particular obsession: what he claims to be the Chinese pursuit of "shashoujian," or a
secret "assassin's weapon" that China can use to surprise a more powerful opponent. "Mike can make a good
case that the Chinese are developing submarines to sink our aircraft carriers or missiles to take out our
satellites," says James Lilly, a former CIA station chief who served as ambassador to China in the early
1990s. "His whole point is, 'Pay attention. Listen to what they are saying.'" China's long-term strategy, Mr.
Pillsbury argues, is to amass its strengths while attracting as little attention as possible. He is increasingly
convinced that China's military thinkers and strategists derive much of their guidance and inspiration from
China's Warring States period, an era of pre-unification strife about 2,300 years ago. This is the thesis of his
latest book, "The Future of China's Ancient Strategy," which the Pentagon plans to publish this fall. Its core
assertion is that China's history and culture posit the existence of a "hegemon" -- these days, the United
States -- that must be defeated over time. After President Bush took office in 2001, officials in the Defense
Department were quick to embrace Mr. Pillsbury's warnings on China. His prominence became abundantly
clear when China's then-vice president, Hu Jintao, stopped by the Pentagon in May 2002 to visit Secretary
Rumsfeld.
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WSJ Quiz: Page 6 of 15
The State Department had opposed the meeting, arguing that the Defense Department was not the proper
place for the visit of a soon-to-be president of China. When Mr. Hu's party arrived, Mr. Rumsfeld dismissed
the State Department interpreter and had Mr. Pillsbury do the job instead. Defense Department officials,
while declining to elaborate, say that Mr. Pillsbury is now being considered for a full-time post at the
Pentagon. Chinese officials are also keeping tabs on Mr. Pillsbury. In June the Communist Party's People's
Daily tagged the China expert as the main force behind the Pentagon's recent report on the Chinese military.
"Mike Pillsbury always sits beside Secretary of Defense Donald Rumsfeld," at policy sessions on China, the
story said.
7) Mr. Michael Pillsbury, a fluent Mandarin speaker and author of three esoteric books on Chinese military
strategy, has become one of the Pentagon's most influential advisers on China, with a direct line to many of
Defense Secretary Donald Rumsfeld's top aides. After decades spent nurturing contacts within China's
military, Mr. Pillsbury has amassed mounds of Chinese-language military texts and interviewed their authors
to get a grip on China's long-term military aims. His conclusion has rattled many in Washington: China sees
the U.S. as _______________________.
a) an economic rival
b) a military rival Correct
c) an economic model
d) a military model
8) Thanks in part to Mr. Michael Pillsbury's nudging, the Pentagon has staked out a particularly wary view
of Beijing's global intentions. "We must start with the acknowledgement, at least, that we are unprepared to
understand Chinese ______________," Mr. Pillsbury says. "And then we must acknowledge that we are
facing in China what may become the largest challenge in our nation's history."
a) thinking Correct
b) work ethic
c) global ambition
d) leadership
Honda, in a Funk, Tries to Revive The Civic's Virtues
By NORIHIKO SHIROUZU
September 9, 2005; Page A1
http://online.wsj.com/article/0,,SB112622962617036144,00.html
For years, the cornerstone of Honda Motor Co.'s success around the world was the Civic. During the 1980s
and '90s, the iconic compact car was prized by young enthusiasts for its easily souped-up engine, sporty
looks and low price. But as Civic sales grew, so did pressure to make the car appeal to the mass market.
Plush seats and new safety technology started dictating the car's design, killing its trademark low-slung look.
As the Civic became more civilized, loyal buyers fled. Despite profit-sapping discounts, Civic sales are off
8% since their 1998 peak. Now, Honda is plunging into a high-stakes mission to snap the Civic out of its
midlife crisis and recapture its allure as a feisty alternative to Detroit's mainstream brands. The eighth
version, due out in the middle of the month, harks back to the model's better days with steeply raked
windshield and a wide body. Its success is crucial to Chief Executive Takeo Fukui's broader attempt to reenergize Honda. Although the auto maker, the world's eighth largest, has broadened its lineup into SUVs and
even a pickup truck, the Civic still accounts for nearly one-fifth of its 3.2 million global vehicle sales.
Without a strong Civic, Honda is vulnerable to archrival Toyota Motor Corp.'s new Scion brand in wooing
younger consumers looking for small, fuel-efficient vehicles. The Civic's bumpy ride also highlights a
fundamental problem faced by many industries: How can maturing companies continue to grow without
watering down the allure that made them successful in the first place? "We lost that performance halo...that
illuminated the whole Civic lineup for years," says John Mendel, a former Ford Motor Co. executive
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 7 of 15
recently named senior vice president of auto operations at Honda's American sales unit in Torrance, Calif. In
1998, the Civic's peak year, Honda sold 335,000 Civics in the U.S. Sales were 309,000 in 2004. Partly
because Honda has been discounting the Civic to stem the slide, Honda's North American second-quarter
operating profit fell 9.8% to $658 million from a year earlier. That caused a 3.1% slide in overall net profit
to $1 billion. In the early 1970s, Honda was exporting mostly motorcycles to the U.S., and until the 1973
launch of the Civic, its cars weren't much known outside Japan. The Civic was an instant, if accidental, hit.
It was boxy and clunky and a front-wheel drive at a time when rear-wheel-drive cars ruled. But amid an
energy crisis, its 30 miles-per-gallon was a big lure. The car left a lasting impression on baby boomers who
continued to buy Hondas even when they outgrew the Civic. Honda, one of the first foreign auto makers to
set up shop in the U.S., was unlike Detroit's staid manufacturers. Then-CEO Kiyoshi Kawashima counseled
executives to escape the office and live the "American life" to better understand the "joy" and "despair" of
the U.S., recalls Honda's retired design chief, Norimoto Otsuka. 'Embarrassingly Ugly' The Civic truly
blossomed in the mid-1980s as Honda changed the look of its cars in the U.S. Japanese cars, including the
Civic, were initially designed for narrow city streets and Mr. Otsuka thought they looked "embarrassingly
ugly" on California's expansive highways. He sent designers in Japan pictures of Palos Verdes and other
tony communities in southern California to convince them that Honda cars should appear low and wide to fit
the American landscape. A blown-up version covered the wall of a design studio in Japan.
9) In 1973 Honda launched the ______________ model of automobile into the American market. It was an
instant, if accidental, hit in part due to its easily souped-up engine, sporty looks, low price, and high gas
mileage.
a) Civic Correct
b) Accord
c) B210
d) Mustang
10) Honda CEO Mr. Fukui, who took over in 2003, is trying to rid the company of its conservatism. He says
in an interview that Honda was afflicted by "____________________" in the way it develops technology,
conducts product-planning and markets its vehicles.
a) big-company disease Correct
b) small-company disease
c) poor leadership
d) stale thinking
How You Can Make A Smooth Entry Past a Revolving Door
By JOANN S. LUBLIN
September 6, 2005; Page A19 (Typically section B)
http://online.wsj.com/article_print/0,,SB112595128157631907,00.html
Does an office with a revolving door mean a risky career move or a golden opportunity?
As takeover activity quickens and investors' tolerance for poor corporate performance shrinks, more people
are being offered jobs with high recent turnover. This summer, global ad-holding giant Interpublic Group
hired its fourth chief financial officer in three years. Delta Air Lines tapped its fifth finance chief in seven
years. And Symbol Technologies named its fifth chief executive officer in less than four years. Churn is
chancy. But don't run for cover. An extensive appraisal of yourself and the proffered post will improve your
odds of walking through that revolving door with your eyes open -- and outlasting the short-lived
predecessors. Your self-assessment should weigh whether you tolerate risk well, whether your talents match
the position and whether the corporate culture suits your temperament. "If there has been a lot of turnover,
you'll want to understand the fit very well," says Greg Brenneman, who last year became Burger King's
ninth CEO in 15 years. He suggests you also ask, "Can I make a real contribution to the business?" Before
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 8 of 15
you accept the offer, "do as much due diligence about a company as the company does about you," urges Ed
Dunn, president of a human-resources consulting and search firm in St. Joseph, Mich. As part of this effort,
pose tough questions to key players inside and outside your potential employer: For how long has this job
experienced high turnover? Why? Does the top brass accept certain responsibility for the heavy exodus?
What made past job holders a poor fit? What other problems plague the organization? Who will have the
greatest impact on my success there? Contradictory answers "raise a red flag that you have to pursue
further," warns Pete Warshaw, a vice president of executive-coaching firm RHR International in Wood Dale,
Ill. Search firms may supply fuller explanations than a hiring manager. Six months ago, Heidrick &
Struggles International recruiter Kelvin Thompson landed a search for a chief information officer who
would be a U.S. consumer-technology concern's fourth in five years. The prior three information chiefs told
Mr. Thompson they largely blamed their departures on the chief executive. "He micromanages everybody,"
especially technology staffers because he feels passionate about technology, the recruiter recalls. Mr.
Thompson negotiated a solution. The newly hired information officer agreed to meet with the CEO every
week during his first 100 days and to submit progress reports a day before they were discussed. The
arrangement worked, the recruiter reports. You should glean frank insights from predecessors, although be
prepared for obstacles. Severance pacts often forbid individuals from making disparaging remarks about
their former employer. Be diplomatic. To learn whether your boss-to-be meddles too much, for example,
ask, "On a scale of one to 10, how much autonomy did you get?" Also, look for hints of discomfort in the
prior incumbents' answers. "Pay attention to the pauses and where they have to think slowly about the
question," advises Laurence J. Stybel, co-founder of Stybel Peabody & Lincolnshire, a Boston careermanagement firm.
11) As takeover activity quickens and investors' tolerance for poor corporate performance shrinks, more
people are being offered jobs with high _______________.
a) recent turnover Correct
b) salaries
c) expectations
d) financial goals
Americans Who Fled Drought In the 1930s Found Little Sympathy
By CYNTHIA CROSSEN
September 7, 2005; Page B1
http://online.wsj.com/article/0,,SB112604823741833279,00.html
In modern political terms, the hundreds of thousands of people left homeless by Hurricane Katrina are
considered "environmental refugees" -- people forced out of their communities not because of a tyrannical
government or violent civil war but because of a natural disaster. The last time Americans saw so many
environmental refugees in their own country was 70 years ago, when drought cast several hundred thousand
people -- known colloquially as "Okies" and "Arkies" -- out of their Great Plains homes. Most were poor
even before they lost their livelihoods; insurance was a luxury for the rich. They couldn't stay on their
foreclosed farms, but most had no skills besides farming. Many, like the Joad family of John Steinbeck's
novel, "The Grapes of Wrath," packed up their few worldly belongings in their jalopies and headed west. No
one expected the federal government to alleviate these people's suffering. The country was in the grip of the
Great Depression, and food stamps, Medicaid and most other large-scale relief programs hadn't been
invented. These unlucky citizens had been dealt a fistful of bad cards. Some would survive the blow, some
wouldn't. A few drifted toward cities, hoping to find factory jobs. Thousands of others fled to California, to
seek work as "fruit tramps," or crop pickers, in the state's burgeoning agricultural industry. Without money
to pay rent (and no chance of getting credit without a job), the migrants set up squatter camps, often called
"Little Oklahomas" or "Hoovervilles," rough-hewn shacks alongside roads or close to towns where they
could get supplies. "They lived in conditions of almost unimaginable filth," wrote a journalist in 1937. "They
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 9 of 15
were festering sores of miserable humanity." Whole families worked in the fields, earning barely enough to
feed themselves. When one crop was harvested, the workers moved on to the next. Most Dust Bowl refugees
were of Anglo-American descent, and they tended to be conservative in both politics and religion, even
though they often were labeled communists. David and Sophie Krause and their 10 children moved from
Idaho to California's San Joaquin Valley in 1934 and began working as seasonal laborers. Although they
lived in abject poverty, they weren't eligible for public assistance because the state required families to live
in one place for at least six months before applying for aid. The Krauses, wrote a social worker, were
"honest, industrious, fundamentally healthy ... potentially useful citizens who are facing starvation, and there
is no machinery to deal with their problems."
12) In modern political terms, the hundreds of thousands of people left homeless by Hurricane Katrina are
considered "_______________________" -- people forced out of their communities not because of a
tyrannical government or violent civil war but because of a natural disaster.
a) environmental refugees Correct
b) weather refugees
c) temporary refugees
d) financial refugees
Can Rebuilding New Orleans Solve Its Old Problems?
By ALEX FRANGOS
September 8, 2005; Page B1
http://online.wsj.com/article/0,,SB112613695220634675,00.html
Pres Kabacoff has a plan to rebuild New Orleans -- one that he helped devise before the flood. Now the New
Orleans real-estate developer hopes that the study produced over the last year, dubbed Operation Rebirth,
will become a road map to create the new New Orleans. The study, which seeks to reinvigorate rundown
stretches of the city, envisions an "Afro-Caribbean Paris," with garden-lined boulevards, an AfricanAmerican cultural district, a modern trolley system and 25,000 revitalized homes -- houses that were left to
rot long before Katrina arrived. Even as fetid water covers half the city and officials demand the evacuation
of the residents who remain, civic leaders, real-estate developers and government officials are quietly
discussing plans to remake the Crescent City into something better than it was before the devastation.
"There's now the possibility of getting substantial federal aid to do what would have been impossible before
Katrina," says Mr. Kabacoff, whose firm, Historic Restoration Inc., is operating from a temporary office in
Houma, La., about 50 miles southwest of New Orleans. With as much as $200 billion in federal aid possible
for the region, much of it aimed at New Orleans, once pie-in-the-sky redevelopment plans suddenly appear
possible. A light-rail system, new schools, a mile-long riverfront park, museums and other cultural facilities
are just some of the ideas that hometown boosters have long promoted as elixirs for the neighborhoods that
remained cut off economically and geographically from the city's tourist and convention-business goldmine.
13) Mr. Kabacoff, whose firm, Historic Restoration Inc., is operating from a temporary office in Houma,
La., about 50 miles southwest of New Orleans hopes that his study produced over the last year, dubbed
Operation Rebirth, will become a road map to create the new New Orleans. The study, which seeks to
reinvigorate rundown stretches of the city, envisions an "____________________________________," with
garden-lined boulevards, an African-American cultural district, a modern trolley system and 25,000
revitalized homes -- houses that were left to rot long before Katrina arrived.
a) Afro-Caribbean Paris Correct
b) Afro-English London
c) Afro-Asian Hong Kong
d) Afro-Australian Sidney
Manufacturer Finds More Than Vacuums At Stake in Recovery
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 10 of 15
By JONATHAN EIG
September 9, 2005; Page B1
http://online.wsj.com/article/0,,SB112622543061136021,00.html
Less than two weeks after Hurricane Katrina knocked out its corporate headquarters in New Orleans and its
only factory in Long Beach, Miss., Oreck Corp. is hoping to begin building vacuum cleaners again today. In
Long Beach, Oreck had no phone service, no electricity, no water. Roads in and out of town were blocked.
Hundreds of employees had lost their homes, and hundreds more were missing. Employees in New Orleans
had been scattered about the country, many of them beyond reach. Yet three days after the hurricane hit,
Tom Oreck, the 54-year-old president and chief executive of the company and the son of its founder,
decided he wanted Oreck up and running again within two weeks. He was determined to notch one of the
first victories in the aftermath of Katrina -- in part to keep the company alive, but also to give its 1,200
employees something to hang onto. Mr. Oreck had evacuated New Orleans with his wife and three children
before the hurricane's Aug. 29 landfall and was in a Houston hotel room when he learned that an employee
had chain-sawed his way into the Long Beach plant. The man said the factory appeared to be undamaged.
Mr. Oreck immediately arranged a conference call and told his executives he wanted to be making vacuum
cleaners again within a week. Two weeks, max.
"The business is not at risk at this point," Mr. Oreck said in a telephone interview shortly after the Sept. 1
conference call. "In a few days we should be able to get our employees into temporary housing. Once they're
sheltered and fed and the plant is turned on ... we'll let the rest of the Gulf Coast catch up to us, in terms of
the basic services that are necessary." Before the storm hit, Oreck had transferred its computer systems and
call-center operations to backup locations in Colorado. If New Orleans got hit, Mr. Oreck's plan was to
move the corporate offices to Long Beach. If Long Beach got hit, production, distribution and the call center
operations would go to New Orleans. He never thought both sites would get hammered.
14) Less than two weeks after Hurricane Katrina knocked out its corporate headquarters in New Orleans and
its only factory in Long Beach, Miss., ____________ is hoping to begin building vacuum cleaners again
today.
a) Rugby Corp.
b) Maytag Corp.
c) Vac Corp.
d) Oreck Corp. Correct
CEO Says Allstate Adjusts Storm Plan
By THEO FRANCIS
September 6, 2005; Page C1
http://online.wsj.com/article_print/0,,SB112597036939732354,00.html
Damage estimates for Hurricane Katrina have continued to mount, rising to more than $100 billion overall,
with between $14 billion and $35 billion on the insurance industry's tab.For insurance executives like
Edward M. Liddy, chairman and chief executive of Allstate Corp., the extent of the devastation -- and the
still imperfect information about just how much it will cost -- has meant rethinking their response to the
storm. Allstate, the second-biggest home-and-car insurer in the U.S., behind State Farm Insurance Cos.,
insures about 350,000 homes in Louisiana, Mississippi and Alabama. Extensive flooding, particularly in
New Orleans, has complicated disaster planning for Allstate and others. Home insurers rarely cover flood
damage, yet the high water has essentially halted efforts to assess the damage in some areas. Looting and
fires in New Orleans raise the specter of the costs rising even further. In an interview with The Wall Street
Journal on Friday, Mr. Liddy explained how he and Allstate have handled Katrina's aftermath. Excerpts:
WSJ: This had to be one of the most extraordinary weeks ever. How did you spend it? Mr. Liddy: I cleared
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 11 of 15
everything I had on my calendar ... and I have attempted to stay as flexible as possible. You spend some
time thinking ahead: Do we have enough mobile-response units on the way? Do we have enough
telecommunications backups in place? Do we have enough claims adjusters heading down there? Is the
claims department going to have a place for those adjusters to stay? We have people who deal well with
those [matters]. What you're trying to do is keep asking questions, keep getting information so that you can
find out if the response is well thought out and appropriate. And it is. How are you keeping on top of
information? We have very good technology people. We are in communication with our people [in the
field]. ... We're in constant contact with our agencies in the area who, to the extent they can, keep us abreast
of what's going on. The claims people report into our national catastrophe center on a regular basis. And, of
course, we have eight or 10 or 12 TV screens on.
15) Damage estimates for Hurricane Katrina have continued to mount, rising to more than $___ overall, with
between $14 billion and $35 billion on the insurance industry's tab.
a) 40 billion
b) 50 billion
c) 80 billion
d) 100 billion Correct
The Fuel for an Airline Shakeout
By DANIEL MICHAELS and MELANIE TROTTMAN
September 7, 2005; Page C1
http://online.wsj.com/article/0,,SB112605838421433567,00.html
The soaring cost of jet fuel is punishing the airline industry's weaker players -- which could present an
opportunity for investors willing to make risky bets on the stronger ones. Jet-fuel prices have risen faster
than crude-oil prices recently amid strong demand and tight supply. In the aftermath of Hurricane Katrina,
supplies could be pinched further in the U.S., where Gulf Coast refineries have been hobbled by the storm.
The price increases affect all carriers world-wide, but the level of pain varies. Likely winners include budget
leaders Southwest Airlines and Ireland's Ryanair Holdings. Beleaguered carriers such as Delta Air Lines and
Italy's Alitalia, meanwhile, stand poised to suffer even more. Fuel represents a bigger portion of the running
cost on long flights, so big international carriers are more affected than short-haul operators. Airlines with
aging planes, though mostly paid up, spend more on fuel than rivals operating efficient new models. And
some airlines have locked in lower bills with fuel hedges, essentially insurance policies that let a carrier
procure fuel at advantageous prices in the future. Airlines with lots of cash and low debt can ride out the
petroleum-price rise longer than the weaklings, which typically don't have the money to allow for hedging.
Fuel is "a differentiator," said Peter Morris, chief economist at Airclaims, an aviation-consulting firm in
London. "If you're at a major disadvantage" in terms of fleet, hedging or network, Mr. Morris said, "then
you're really going to lose out far more" from soaring prices.
16) Some airlines have locked in lower bills with _________________, essentially insurance policies that let
a carrier procure fuel at advantageous prices in the future.
a) fuel hedges Correct
b) fuel storage tanks
c) fuel storage systems
d) fuel farms
Protection Money
By JUSTIN LAHART
September 8, 2005; Page C1
http://online.wsj.com/article/0,,SB112613026232534480,00.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 12 of 15
Buy to the sound of cannons is the old investing adage. But these days it's hard to even hear the cannons
over the buyers' din. In the days since Katrina struck, the stock market has pushed higher, with the Dow
Jones Industrial Average advancing 236 points to 10633. Even shares of retailers -- the companies whose
earnings could get hurt most by the hurricane and the higher fuel prices it engendered -- have risen.Maybe
stock-market investors are right to think that the economy, though sure to take some lumps in the short term,
will prove resilient. What's odd is that they appear to have done little to protect their portfolios in case
they're wrong. An easy way for investors to insure against stock-market losses is through buying put options,
which allow investors to sell at a set price. (The opposite is a call option, which allows an investor to buy at
a set price.) An investor who is worried that his Dell shares could tumble, but wants to hang onto them
nonetheless, can buy puts near the company's current stock price. If the stock drops, he can sell his Dell
shares at the old, higher price or, more likely, sell the put back to its original seller at a higher price.When
investors get really worried, the ratio of puts to calls jumps higher. But the put/call ratio for stock and index
options listed on the Chicago Options Exchange was higher before Katrina than after it. Another thing that
happens is that the price investors pay for options goes higher. But the CBOE's Volatility Index, which is
based on options prices for the Standard & Poor's 500-stock index, is also below pre-Katrina levels. John
Bollinger of Bollinger Capital Management suggests that investors, having seen the tax relief and interestrate cuts that were put in place after the Sept. 11 attacks, are behaving as though the government has set up a
crash-protection committee for them. "I think that has something to do with the kind of complacency we
have in the market today," says Mr. Bollinger.Low interest rates, which are feeding into a general belief that
investment returns are likely to be subpar in the years to come, may be another factor in the low Volatility
Index. Many professional investors have adopted a strategy of selling options as a way to augment portfolio
performance. When rates fell following the hurricane, these investors may have reacted by selling options
more cheaply.
17) An easy way for investors to insure against stock-market losses is through buying
__________________, which allow investors to sell at a set price.
a) put options Correct
b) chip options
c) pitch options
d) wedge options
NYSE Crackdown On Trading Data Draws Brokers' Ire
By SUSANNE CRAIG
September 9, 2005; Page C1
http://online.wsj.com/article/0,,SB112622227660635907,00.html
The New York Stock Exchange's regulatory unit, belittled for years as weak, is trying to flex its muscle -but Wall Street is complaining about regulatory overreach in the NYSE's first industry wide case since an
overhaul of the unit in early 2004. The NYSE's enforcement division has warned more than 20 firms,
including heavyweights like Merrill Lynch & Co. and Morgan Stanley, that they could face fines in excess
of a million dollars for submitting incomplete or inaccurate trading data to regulators. In some cases the
NYSE says firms have submitted sheets lacking information as basic as client names or trade times. The
records in question are known as blue sheets because years ago the information was kept on blue pieces of
paper. The data are critical, the New York Stock Exchange says, because they often form the basis of
enforcement actions. A number of firms, however, argue that the NYSE's complaints don't warrant an
industrywide sanction, but rather could be solved by first working with Wall Street to fix the underlying
problems. An NYSE spokesman said the Big Board doesn't comment on pending enforcement actions. In
early 2004, the NYSE hired Richard Ketchum, previously president of the Nasdaq Stock Market and a
former Securities and Exchange Commission market-regulation director, to lead and revive is regulation
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 13 of 15
division. Not long after, Susan Merrill, a litigation partner at Davis Polk & Wardwell, was brought on board
as director of enforcement.
18) The NYSE's enforcement division has warned more than 20 firms that they could face fines in excess of
a million dollars for submitting incomplete or inaccurate __________________ to regulators.
a) trading data Correct
b) tax data
c) profit reports
d) loss reports
Researching Your Airline's Safety Record
By Scott McCartney
September 6, 2005; Page D1
http://online.wsj.com/article_print/0,,SB112595901018032101,00.html
In the wake of six major airline crashes in the past five weeks, European nations are "blacklisting" carriers
they believe should be avoided by travelers. But there is a better way for travelers to decide whether to fly a
particular carrier: the growing number of resources that track airline safety. The International Air Transport
Association, for instance, has a highly regarded program called "Operational Safety Audit" that
independently evaluates airlines. It's like a Good Housekeeping seal of approval for air carriers, and while it
certainly is no guarantee against a crash, it is a good resource for travelers to help evaluate airlines.
Currently 58 airlines have met the test, which was launched in 2001. An audit is good for only two years -after that, airlines get re-examined. The list is available at www.iata.org/iosa/registry. IATA has designated
six different companies, mostly aviation consultants but including United Airlines, as accredited auditors
who go in and examine an airline -- from mechanics to management, cargo to cabin. Typically a team of six
experts goes in for five days, IATA says. If problems are found, the airline has 12 months to correct them,
and only after that is the airline publicly identified as meeting international standards. "It's an excellent tool,"
says Robert Vandel, executive vice president of the Flight Safety Foundation, based in Alexandria, Va.
"This is stuff we in the aviation industry have agreed on. This is what the standards should be." Until more
airlines -- there are more than 250 carriers in the world -- step up to the plate for auditing, the list isn't as
comprehensive as it needs to be. But as it gets more use from travelers, airlines will feel more pressure to get
on the list. And that should raise safety standards. Evaluating airline safety, ranking carriers or even
predicting crashes is an extremely difficult task. Airline crashes are very rare events -- there's one crash on
average for every three million takeoffs. Since they are largely random events, trying to predict them is
virtually impossible. But not all airlines are alike. Some safety experts believe that airline finances, absent
the careful oversight that carriers in the U.S., Canada and Western Europe get, can be a predictor of possible
trouble. That's been a concern in some of the recent crashes: whether financially struggling airlines scrimped
on maintenance that contributed to a crash.
19) The International Air Transport Association, for instance, has a highly regarded program called
"____________________________" that independently evaluates airlines. It's like a Good Housekeeping
seal of approval for air carriers.
a) Organizational Safety Audit
b) Operational Safety Audit Correct
c) Organizational Process Audit
d) Operational Process Audit
TiVo Slashes Recorder Price In Half, to $50
By NICK WINGFIELD
September 7, 2005; Page D1
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 14 of 15
http://online.wsj.com/article/0,,SB112602988555332896,00.html
Faced with growing competition from powerful rivals with cheaper products, TiVo Inc. sharply cut the
prices on its digital video recorders. The Alviso, Calif., company yesterday dropped to $50 from $100, after
rebates, the price of its entry-level digital video recorder. TiVo is virtually synonymous with DVRs, as they
are also called, having pioneered the devices that record television shows onto hard disks, allowing
consumers to skip commercials and halt live broadcasts. But TiVo's lead in the market is steadily vanishing
as cable- and satellite-television companies offer their own DVRs to their huge base of customers. Even
after TiVo's drastic price cut, the company's device is more expensive than alternatives since most cable and
satellite companies charge their customers little or nothing for DVRs. Those companies can afford to offer
the devices free because of the revenue they garner from television subscription fees.
20) TiVo is synonymous with _______ even though it can perform software driven advanced features not
typically found on units provided by cable companies.
a) VCR
b) DVR Correct
c) TMR
d) CLM
More Schools Lend Directly to Students
By ANNE MARIE CHAKER
September 8, 2005; Page D1
http://online.wsj.com/article/0,,SB112613816482334711,00.html
A growing number of universities are making money a new way. They are lending it to their own students.
While such loans are usually slightly cheaper for students than borrowing from banks, the practice is raising
questions among some educators and lawmakers about possible conflicts of interest. Through so-called
school-as-lender arrangements, universities originate loans to graduate and professional students, including
law and medical students. They eventually sell the debt to a partner bank or other lender for a set
"premium." These premiums typically run anywhere from 2% to 6% of the total value of the loans. For
budget-strapped schools, that can translate to millions of dollars of funding. About 100 schools now
participate in school-as-lender programs, including Tufts University, the University of Arizona and Widener
University in Pennsylvania. That's up from 64 in 2003-04, when schools made more than $1.5 billion in
loans, the last year for which dollar figures are available, according to a Government Accountability Office
report. In 1993-94, only 22 schools participated, making loans totaling one-tenth of that volume. Many
schools say the revenues go directly back to their financial-aid coffers to help needy students. And financialaid officials say the loans are a better deal for borrowers than loans issued by banks or directly from the
government. That is because the schools typically waive certain fees. (The interest rates on these and other
federal student loans are set by the government.)
21) A growing number of universities are making money by lending to their _____________.
a) board of trustees
b) athletic sponsors
c) alumni after graduation
d) own students Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Quiz: Page 15 of 15