Knowledge at Wharton

How will the U.S. pay for its plans to prop up the financial sector? Answer: by borrowing -- raising worries about how the country’s ballooning annual budget deficits and aggregating debt will affect the economy and financial markets. Some guidelines such as interest rates and the ratio of debt and deficits to gross domestic product suggest the new debt will be digested easily. But some experts think those guidelines are misleading warning that obligations are piling up like tinder on a forest floor.

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With stock markets in free fall U.S. Treasury Secretary Henry Paulson announced on Tuesday that the government’s effort to unlock credit markets would include direct investments of $250 billion in bank equities. He also warned bankers not to hoard the money but to use it to make the loans that lubricate the nation’s economy. In separate interviews Wharton finance professors Richard Marston and Jeremy Siegel tell Knowledge at Wharton that while the investment is not without risk it appears to be the best hope for restoring confidence in credit and stock markets -- and reducing the severity of a recession that is all but certain to come.

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Despite the rash of bad economic news the recent 11th annual Wharton Investment Management Conference offered its audience some hope for relief or at least a few possible bargains in selected industries. And while no one -- including keynote speaker David McCormick undersecretary of the U.S. Treasury -- felt the crisis would be over anytime soon some still found reasons to be optimistic. Said one conference panelist: Eventually ”people will get bored with being afraid.”

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Nancy Mahon doesn’t consider herself a glamour girl but she believes in the power of lipstick -- Viva Glam shades 5 and 6 in particular. Mahon is a senior vice president of MAC Cosmetics and executive director of the MAC AIDS fund which last year donated $20 million to programs in 57 countries. During a recent Wharton Leadership Lecture Mahon offered her perspective on what it takes to launch and sustain a successful corporate social responsibility program.

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As officials worldwide scrambled to contain the spreading financial virus hopes are rising that the latest government plans to purchase equity stakes in banks may finally offer the right medicine. And with the patient showing intermittent signs of improving thoughts turn towards next steps including new restrictions on the markets. In addition expect individuals and business to have a tougher time getting loans for years -- not just months. And watch for authorities to prescribe greater transparency stricter capital requirements to reduce leveraging and more standardized financial contracts to push opaque securities into the sunlight.

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Executives who hone their skills at the helm of private companies tend to be more driven more bottom line-oriented and have much more flexibility than CEOs at publicly owned companies who are constrained by their need to balance multiple objectives in a corporate ecosystem. That was the consensus of four panelists who discussed the management challenges at private equity-backed firms during the recent Wharton General Management Conference.

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European wind-power firms see an opportunity in the United States’ increasing interest in alternative energy. Indeed the inroads that electricity-generating wind turbine technology has made in the U.S. are due in large part to the efforts of companies based in Europe. Gamesa Siemens and others ply their expertise in a country where public policy has not consistently encouraged domestic investment.

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Is water the new oil? The answer is yes according to a number of economists business leaders scientists and geopolitical strategists who argue that it’s time to stop taking for granted the substance that covers 70% of the planet and makes up a similar proportion of the human body. Just as the late 20th century saw an oil shock the early 21st century may feature a water shock where scarcity leads to a sharp price hike on a resource that has always been plentiful and cheap. Such a scenario could have an even bigger impact than peak oil transforming markets governments and ecosystems alike.

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Here’s a piece of advice: Don’t read this story if you have just had a fight with your spouse or a co-worker. You will probably ignore it despite its grounding in solid academic research. At least that’s what Maurice Schweitzer a Wharton professor of operations and information management would suggest. In a recent co-authored paper he shows that emotions not only influence people’s receptiveness to advice but they do so even when the emotions have no link to the advice or the adviser.

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Dreamworks Animation CEO Jeffrey Katzenberg called the latest 3D movie technology ”the greatest innovation to occur in the movie business in 70 years.” A bevy of theater chains are exploring or installing digital cinema and 3D systems in the second half of 2008 into 2009. Intel and others are creating tools for companies to make a new generation of 3D animation films. Experts at Wharton say 3D movies are back in vogue but it’s unclear whether the latest greatest technology can give theaters a sustainable competitive advantage over other forms of entertainment.

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