RARE THE LEXUS LS 500. LIVE IN THE NEW.

The LS 500 redefines what a luxury sedan can be. With intense styling like the F SPORT
bolstered 28-way power front seats featuring leather trim with an exclusive perforated

FORM L-motif design. The LS 500 is also powered by exhilarating twin turbochargers, delivering
416 horsepower1 with a thrilling 4.6-second 0–60 time.1,2 And the Lexus Multistage Hybrid
system in the LS 500h delivers seamless acceleration and torque, without requiring a charge.
This level of craftsmanship isn’t just rare. It’s simply beyond measure. lexus.com/LS | #LexusLS

LS 500 F SPORT shown with options. 1. Ratings achieved using the required premium unleaded gasoline with an octane rating of 91 or higher. If premium fuel is not used, performance will decrease.
2. Performance figures are for comparison only and were obtained with prototype vehicles by professional drivers using special safety equipment and procedures. Do not attempt. ©2018 Lexus
○ Toyota’s driverless-ish future 62 ○ Al Gore shares his solutions 46 ○ Belt and Road’s master builder 14

The Fed prepares for another

rate hike—and pushback from
the Tweeter-in-Chief 41
September 24, 2018

Protect T h i s H o u s e
THE 8

Exclusively Distributed by BMW of North America, LLC.

©2018 BMW of North America, LLC. The BMW name, model names and logo are registered trademarks.
 September 24, 2018

⊳ A U.S. Marine sets

up a homemade device
to defend against an
“attack” at California’s
Camp Pendleton

1
PHOTOGRAPH BY THOMAS PRIOR FOR BLOOMBERG BUSINESSWEEK

 DEBRIEF 46 Al Gore is still optimistic about saving the planet

FEATURES 50 The Few, the Proud, the Makers

U.S. Marines get lifesaving lessons in improvisation

56 A Missed Opportunity for Miss America

New boss Gretchen Carlson isn’t winning any popularity contests

62 Toyota’s Autonomish Vision

The carmaker sees a driverless future that isn’t quite driverless
  CONTENTS Bloomberg Businessweek September 24, 2018

 IN BRIEF 5 New shots in the U.S.-China trade war; Audi’s Tesla killer How to Contact
Bloomberg
 AGENDA 6 The UN General Assembly meets; more Fear is coming Businessweek
 VIEW 6 The EU’s plan to stop dirty money misses the mark
Editorial
212 617-8120
 REMARKS 10 The corporate push for diversity ends at the C-suite Ad Sales
212 617-2900
731 Lexington Ave.,
BUSINESS 14 The cloud around Belt and Road’s biggest builder New York, NY 10022
1 18 VC pioneer Kleiner Perkins ponders life after Meeker
Email
bwreader
@bloomberg.net
Fax
TECHNOLOGY 23 Old and in the way at IBM?
2 25 The inequitable gap in equity for Silicon Valley women
212 617-9065
Subscription Customer
Service URL
26 Helping driverless cars navigate all kinds of weather businessweekmag
.com/service
Reprints/Permissions
FINANCE 28 A tribal-owned mortgage provider raises eyebrows
3 31 Can CEO Christian Sewing patch up Deutsche Bank?
800 290-5460 x100
or email
businessweekreprints
@theygsgroup.com
ECONOMICS 35 Macron’s EU agenda fades as his star falls at home
Letters to the Editor
37 The China hawk behind Trump’s trade strategy can be sent by email,
fax, or regular mail.
They should include
POLITICS 41 Jay Powell’s success may rest on his political skills the sender’s address,
phone number(s),
and email address if
available. Connections
with the subject of
the letter should be
disclosed. We reserve
the right to edit for
sense, style, and space.
2
Follow us on
social media

Facebook
facebook.com/
bloomberg
businessweek/
Twitter
@BW
Instagram
@bloomberg
businessweek

PHOTOGRAPH BY JEREMY M. LANGE FOR BLOOMBERG BUSINESSWEEK

44 Charlotte was prepared for flooding long before Florence

 PURSUITS 67 Dying villages find new life as hospitality hubs

72 The Czechs’ long-forgotten answer to Vespa rides again
73 Sobrasada (no, not soppressata) spices up U.S. menus
74 Finding comfort inside the minds of past presidents Cover:
75 Art cred meets street cred in a Yayoi Kusama skateboard Photo Illustration by
Jaci Kessler Lubliner;
Photo: Courtesy Federal
 LAST THING 76 Why the Fed is afraid of a risk-free bank Reserve
 Enjoy your own

PRIVATE ESCAPE

EMIRATES FIRST
Because a lile “me” time goes a long way, escape to your very own First Class Private Suite to
indulge in gourmet dining and a premium selection of wines, champagne, and spirits. It’s everything
you need to arrive refreshed and ready to impress. Find out more at emirates.com/us
The Ultimate Escape
 You could scour the
Internet for valuable
trade research.
But you know better.

FREE THIRD-PARTY INTEL BUILT INTO YOUR PLATFORM.

commission-free online trades

PLUS
EARN
500 for two years
Welcome to the r place for traders.

schwab.com/trading

Enroll in the offer and make a qualifying net deposit of $100,000 to earn 500 commission-free online trades. Limited to one account per client.
Trades are good for two years and include only base equity, ETF, and options commissions and option per contract fees up to 20 contracts. Restrictions apply.
See schwab.com/trading or call us for terms and conditions. Offer may be changed or terminated at any time without notice.
©2018 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (1017-70FG)
  IN BRIEF
Bloomberg Businessweek September 24, 2018

By Kyle Stock

○ The Trump ○ Even before U.S. ○ Thomas Borgen, CEO ○ Volkswagen’s

sanctions on Iranian oil of Denmark’s
administration kick in, the country’s largest lender, Audi brand
levied tarifs on exports have dipped. Danske Bank, unveiled an all-
an additional Barrels a day to … resigned after a probe electric SUV
 China  India  Japan into Russia-linked money
$200 billion of  South Korea
laundering by the bank. at a lavish party
Chinese goods. 1.5m Danske said a “large in the Bay Area
part” of the $234 billion on Sept. 17.
1.0 funneled through its tiny
A day later, China retaliated with duties
on $60 billion of U.S. exports. Chinese Estonian branch could be
oicials had previously signaled that 0.5
they’d reject further trade talks if
classified as “suspicious.”
the U.S. applied new trade penalties. Borgen says he regrets that
Trump said the rate would increase 0 The vehicle, squarely aimed at Tesla’s
from 10 percent to 25 percent unless
Danske Bank “failed to live market, will arrive at U.S. dealerships in
China makes concessions. 1/2016 9/2018 up to its responsibility.”  6 the second quarter of next year.

○ European regulators
○ “I live opened an informal probe
into how Amazon.com
with a treats small sellers in its
marketplace, intending

beginner’s to review the data Amazon

gathers and whether
it uses that to gain
mind. competitive advantage.
5
I didn’t
realize two ○ French vintners celebrated a bountiful and unseasonably early grape harvest.
After a miserable 2017, the country’s wine industry expects its output to increase

weeks ○ Visa and Mastercard

25 percent this year, to 46.1 million hectoliters (1.2 billion gallons).

○ Tesla confirmed on
○ Coca-Cola said
ago I was agreed to pay as much as Sept. 18 that it handed
FROM TOP: FREYA INGRID MORALES/BLOOMBERG. CHARLES PLATIAU/REUTERS. DATA: BLOOMBERG TANKER TRACKING DATA

it’s considering over documents to the U.S.

going to
buy Time.”
Salesforce CEO Marc Beniof
referred to Zen wisdom in an
interview with the New York Times
about his decision to buy the storied
news magazine. Zen master Shunryu
Suzuki spoke about the virtues of
approaching life as a “beginner”
who can see “many possibilities.”
$6.2b
to settle a long-running
price-fixing case over fees
they charge stores for
each credit card swipe.
U.S. merchants spend
about $90 billion a year
on such fees.
making new drinks
with CBD, the
Department of Justice,
which is investigating the
company over founder
nonpsychoactive
ingredient in
Elon Musk’s Aug. 7 tweet
that he intended to take
marijuana. the company private and
had “funding secured.”

○ On Sept. 19 shares of cannabis-extract maker Tilray shot up 94 percent and down 49 percent before ending up 40 percent.
○ The U.S. said it will admit no more than 30,000 foreign refugees in 2019, down from 110,000 in Trump’s first year in oice.
○ Tyson CEO Tom Hayes will step down for personal reasons, he says; he’ll be replaced by Tyson veteran Noel White.
○ RV giant Thor Industries agreed to buy German rival Erwin Hymer Group in a deal valuing the company at $2.5 billion.
  AGENDA
Bloomberg Businessweek September 24, 2018

⊲ U.S. Attorney General ⊲ Central bankers in the

Jef Sessions meets with
state attorneys general
on Sept. 25 on a potential
investigation into bias at
social media companies.
Philippines are expected
to take action to curb
runaway inflation at their
Sept. 27 meeting.

⊲ China’s top hot pot ⊲ Amazon.com customers

restaurant chain, Haidilao
International Holding,
will attempt to raise
$963 million in an initial
public ofering on Sept. 26.
⊲ Meetings Within Meetings ⊲ President Trump has
The United Nations begins its annual General Assembly indicated he may not sign
on Sept. 25. During the nine-day session, South Korea’s a funding bill before the
Moon Jae-in will hold private conversations to try to end of the fiscal year on
salvage denuclearization talks, and parties to the Iran deal Sept. 30 unless it includes
intend to map their own way forward without the U.S. money for a border wall.
will get their next crack at
Bob Woodward’s hit book
Fear on Sept. 26. It sold out
on the site just hours after
its Sept. 11 release.
⊲ The 18th annual Grace
Hopper Celebration, the
self-proclaimed “world’s
largest gathering of women
technologists,” opens in
Houston on Sept. 26.

 THE BLOOMBERG VIEW

that Malta’s regulator had “failed to conduct an efective super-

6
The European Union’s
Dirty Money Problem
○ Leaving national supervisors in charge of going after
money laundering is a mistake. It’s time for a common
cross-border agency
After a string of scandals, the European Commission has
unveiled plans to crack down on money laundering. It’s right
to take this problem seriously—but these proposals are weak.
Instead of setting up an agency equipped to do the job, Europe
plans to keep relying on national authorities, some of which
aren’t up to the task.
Banks in Denmark, Latvia, Malta, and the Netherlands
have been linked to criminal inlows from countries including
Russia and North Korea. On Sept. 19, Danske Bank, the larg-
est in Denmark, said $234 billion had lowed through its unit
in Estonia over nine years—nine times the Baltic country’s
gross domestic product. Danske’s chief executive announced
his resignation. The European Union has moved to centralize
vision” of Pilatus Bank Plc, a lender with links to Iran.
In principle, there’s nothing wrong with national regula-
tion of international inancial crime. The U.S. Treasury’s Oice
of Terrorism and Financial Intelligence deals with money
laundering. But some EU governments, concerned about the
reputation of their respective banks, have taken an unduly lax
approach. A common EU agency would be less susceptible to
local pressure. Furthermore, EU banks can set up branches
across the union on preferential terms thanks to its so-called
passporting system—so EU banking is intrinsically cross-border,
strengthening the case for more centralized supervision.
Brussels wants to give additional powers to the EBA so the
agency can tell national supervisors to investigate cases and
consider possible sanctions. This is a step in the right direc-
tion. But the EBA isn’t equipped for the job. The London-based
agency is mainly responsible for designing stress tests and over-
seeing prudential rules. Some aspects of money laundering fall
under its supervision, but it has only two oicials assigned to
the task. The EU wants to add 10 more. That isn’t enough—
based on the number of recent episodes.
And despite its desire to beef up the EBA in London, the EU
wants domestic regulators to stay in charge of cases involving
their banking systems. It would have been better to harmonize
ILLUSTRATION BY CRISTINA DAURA

banking supervision, but going after money laundering has
remained a national responsibility. It was the U.S. Department
of the Treasury that found out that ABLV Bank AS, a Latvian
lender, was involved in “institutionalized money laundering,”
prompting EU authorities to withdraw its banking license. And
a report by the European Banking Authority (EBA) concluded
the rules, create one agency, and give it lead responsibility for
investigating ofenders. The EU has missed an opportunity to
move to a better system and improve its reputation for sound
inancial supervision.
For more commentary, go to bloomberg.com/opinion
Going Places
SM
 ®
Mastercard Black Card TM

Black-PVD-Coated Metal Card

Apply now at luxurycard.com or call 844.LUX.CARD.

  REMARKS
10
When Ursula Burns, Indra Nooyi, and Ken Chenault took
over as the chief executive oicers of Xerox, PepsiCo, and
American Express, respectively, they also set new expecta-
tions for what women and people of color could achieve in
21st century corporate America. Their departures show how
ickle progress can be.
The occupants of corner oices are a stunningly homoge-
neous bunch. There are now just three black CEOs running
Fortune 500 companies, down from a height of eight three
years ago. The number of women serving as CEOs was down
to 24 as of May, a 25 percent drop since June 2017.
It’s not for a lack of promises from the corporations them-
selves. Nearly every large U.S. company has publicly stated its
commitment to diversity. Hundreds have signed pledges to
achieve gender parity, close the gender pay gap, and make a
larger efort to hire black and Latino workers. Big tech com-
panies have touted their on-campus recruiting programs
at historically black colleges and universities. Wall Street’s
biggest banks—Goldman Sachs, Bank of America, Wells Fargo,
Morgan Stanley—increasingly boast about the diversity in
their summer intern classes. It’s not unusual to see people
of color make up a little more than half of those groups and
women more than 40 percent.
And still, executive ranks and upper management remain
persistently, stubbornly white and male—even more so than
they were a few years ago. What gives?
“Lots of companies are making genuine, serious eforts to
increase diversity,” says Kabrina Chang, an associate profes-
sor at the Questrom School of Business at Boston University.
“But I wonder how many of them understand it’s an ongoing
thing. It’s not just, ‘we hired two women,’ or ‘we have a black
president, so we’re done.’ ”
If companies are getting better at hiring underrepresented
groups, they haven’t made commensurate strides in keep-
ing them. In fact, the opposite is true: Women and black and
Latino people are more likely to quit their jobs than white men.
  REMARKS Bloomberg Businessweek
In addition, the longer you’ve worked at a job, the less likely
you are to quit. Taken together, that doesn’t bode well for com-
panies pinning their diversity eforts on interns and new hires.
People leave jobs for an array of reasons. But researchers
ind some broad trends. One Cornell University study of 25,000
PHOTO ILLUSTRATION BY 731: BURNS: DENIS BALIBOUSE/REUTERS; NOOYI:
workers in the hospitality industry found that hourly workers
and poor performers were likely to quit for better pay and ben-
MARK PETERSON/REDUX; CHENAULT: MARY ALTAFFER/AP PHOTO
eits. Professional employees and high performers were likely
to quit for what academics call “relational reasons”—they didn’t
feel fairly treated or see opportunities to advance.
Layer race and gender on top of that, and it’s easy to imag-
ine why women and black and Latino people quit at higher
rates. Treated fairly? Not really. The persistent gender and
racial pay gaps relect some outright discrimination—yes, it’s
illegal, but yes, it still happens—as well as a lack of advance-
ment into better-paying roles. In a wide-ranging study from
Arizona State and Columbia on who quits and why, researchers
report that “successful minority male executives experienced
September 24, 2018
With the departure of
three prominent chief executive
es,
C-suites are more white—
and male—than ever
By Jef Green, Jordyn Holman
n,
and Janet Paskin
11
slower career progress than did white male executives during
their early years in a corporation, such that two groups tend
to follow diferent career trajectories.”
It’s a vicious cycle: Companies may succeed in hiring
women and people of color, but once those employees get
to work, they don’t see a path to advancement. So they look
elsewhere for those opportunities, and the company that
hired them in the irst place becomes more homogeneous.
“Middle management is where diversity goes to die,”
Sallie Krawcheck said on a recent episode of Bloomberg’s
The Pay Check podcast. Krawcheck was once one of Wall
Street’s highest-ranking female executives. Now she runs
Ellevest, which focuses on inancial services for women, and
she’s been outspoken about the importance of diversity in
her own shop. “We’re all about women, and we’re all about
diversity, and I still ind that members of the team come
back and say, ‘I’m going to hire this person like myself,’ ”
she says. “And I say, ‘No, you’re not.’ … I will not let us
  REMARKS Bloomberg Businessweek
talk ourselves into becoming a homogeneous company.”
Bigger companies than Krawcheck’s also seem increas-
ingly willing to take those kinds of explicit measures. After
seeing black diversity backslide for eight straight years,
Citigroup Inc. in August sent an internal memo describing
new targets designed to reverse the trend. Over the next
three years, the bank says, it will increase the presence of
black people in management to 8 percent from 6 percent.
Over the same period, the percentage of women in manage-
ment will grow to 40 percent from 37 percent. Those small
percentage-point increases mask big changes in a workforce
that includes 209,000 people around the world. If Citigroup
hits its goals, it will propel thousands of women around the
world and African Americans in the U.S. into management.
Progress on reaching those numbers will be part of the per-
formance scorecards of the bank’s senior leaders.
Another company with a stated public commitment to
diversity and a massive global workforce, Ernst & Young, is
also tackling racial attrition head-on. Every year since 2011,
the company has convened its new black and Latino employ-
ees for a two-day, of-site retreat with networking and coach-
ing led by the company’s more senior people of color. The
advice isn’t groundbreaking—“everyone struggles,” “go to
the Christmas party,” “get a mentor”—but it’s designed to
improve those “relational” factors that encourage high
12 performers to stick around.
The program was so well received that EY quickly followed
up with a separate version designed for its Asian American
new hires. Asian Americans confound the typical corpo-
rate storyline on diversity. There’s no “pipeline problem.”
A broad demographic group that includes people whose
origins stretch from Pakistan to the Paciic Islands, they’re
the best-educated racial group in the U.S. They’re over-
represented, relative to the population, in entry-level and
middle-management jobs. They’re less likely to quit and more
likely, according to the Pew Research Center, to say they’re
doing well inancially.
With that proile, it would seem that Asian Americans
should have been able to change the demographics of the
C-suite by now. Yet fewer than a dozen Asian CEOs are in
the Fortune 500, which suggests that retention, like hiring,
accounts for only part of the whiteness and maleness of
America’s corporate leadership.
What’s left? Stereotypes and conirmation bias, mostly.
You’ve heard the riddle about the man and his son who are
rushed to the emergency room after a car crash, and the sur-
geon on duty says, “I can’t operate on this boy: He’s my son.”
When we hear “surgeon,” we assume he’s a man, just as when
we picture an executive (typically a white one).
In one experiment, researchers from the University of
Arizona asked audiences to evaluate recorded speeches from
both men and women who had suggestions about the com-
pany’s future. Male speakers were more highly respected,
and their ideas were considered better (and more likely to
get them promoted) than the women’s—even though the
September 24, 2018
researchers had given the speakers the exact same script.
“Women don’t get the same beneit for speaking up with ideas
for change,” says Elizabeth McClean, one of the researchers
who ran the experiment. “People have diferent expectations
for men and women in the workplace. Speaking up is more
in line with what you expect of men.”
One of the best ways to undo the biases baked into those
expectations, McClean says, is to expose employees to a wider
range of people in positions of authority, reinforcing a reality
that leadership can be manifest in myriad styles and people.
But that doesn’t solve the immediate problem of getting difer-
ent kinds of folks into those positions in the irst place.
“Part of it is, just frigging do it,” Krawcheck says. “Quit
with all these ways to glance of the problem. Just say, it is
important enough for us to have a diverse company, we’re
just going to do it. Now.”
The “business case” for diversity isn’t a new idea. Nor is
Krawcheck’s position that elevating women and underrepre-
sented minorities into leadership takes willful efort. We’re
more than 75 years into an evolving national commitment to
what John F. Kennedy called “airmative action,” the idea
that deeply ingrained prejudices, stereotypes, and discrimi-
nation don’t go away by themselves.
For most of our history, this efort has had bipartisan sup-
port. The Nixon administration created the requirement for
federal contractors to have an airmative-action plan—a time-
table for making sure the demographics of the workforce
mirrored the surrounding area. Eventually, the private sec-
tor also came around. In 2003, 65 companies, from 3M and
Abbott Laboratories to Whirlpool and Xerox, encouraged the
U.S. Supreme Court to uphold the airmative-action policy at
the University of Michigan Law School. (It did.)
“The skills and training needed to succeed in business today
demand exposure to widely diverse people, cultures, ideas and
viewpoints,” the companies wrote in an amicus—friend-of-the-
court—brief. “For each of the amici, diversity is an increasingly
critical component of their business, culture and planning.”
That was 15 years ago. And here we still are. “The most
diplomatic description of the obstacle could be described as
inertia,” says Cameron Snaith, whose company, Bleeker, helps
employers link promising executives from underrepresented
groups with outside mentors. In some cases, he adds, there’s
also a relexive protection of the way things are.
Companies so often want it both ways. They want a newly
diverse workforce to appear as if by magic, bringing with it
the documented business beneits, but in action, they’re less
courageous than Kennedy or Nixon. So we see baby steps, a
tinkering around the edges. The number of “diversity and
inclusion” postings on Indeed, a job search site, rose 35 per-
cent from February 2016 to February 2018. Training designed
to raise awareness of the stereotypes we use to reinforce the
status quo—what’s called implicit bias—has become all the
rage. Academics are mixed on whether those programs work,
and it’s probably too soon to tell anyway.
We’ll just have to check back with those interns. 
When you need someone
to talk to about your retirement
plan, it’s good to actually have
a person.
Add more value to your retirement plan with personalized services and support. Call us at 1-866-954-4321.

Mutual of America® and Mutual of America Your Retirement Company® are registered service marks of Mutual of America Life Insurance Company,
a registered Broker/Dealer. 320 Park Avenue, New York, NY 10022-6839.
 Bloomberg Businessweek September 24, 2018

B
U
S
I
N
14
E
S The Chinese Company

Edited by
Cristina Lindblad and
Dimitra Kessenides
  BUSINESS Bloomberg Businessweek September 24, 2018

15

Reshaping the World ○ CCCC, Belt and Road’s

biggest builder, is besieged
by allegations of corruption
and environmental damage

Christopher Fernando knows the price of rapacious

development. It has eaten his kitchen.
Only the sink remains along what was once
an outer wall of Fernando’s seafront home near
Negombo, about 20 miles north of Colombo, Sri
Lanka’s capital. Part of the thatched-roof house
where the 55-year-old fisherman has lived for
decades suddenly washed away last year. He blames
the dredger, like a mythological sea monster cease-
lessly devouring the seabed, visible in the distance as
he speaks. Waves used to wash sand in, he says, but
now they only wash it out. “From the taking of sand,”
Fernando says, “everything is being destroyed.”
The sand is being dumped along the coast next
to Colombo’s business district, where it’s become
an expanse of land the size of 500 American foot-
ball ields. It’s the foundation for a development
CHEC/XINHUA/ZUMA PRESS

known as Port City Colombo, being built by China

Communications Construction Co., or CCCC. Plans
envision a inancial center between Singapore and
⊳ Dredgers fill in
Port City Colombo
Dubai—plus a marina, artiicial beach, hospital,
in April 2018 malls, and 90-story luxury towers. The project
  BUSINESS Bloomberg Businessweek September 24, 2018

Building the Belt and Road

Chinese construction company CCCC has infrastructure projects across Asia, Africa, and Latin America
Project type:  Rail  Port  Roads  Building construction  Other

$3.3b
Port
construction $4.8b
in Algeria Highway
construction
in Australia

$300k
School $3.8b
building in Railway between
Angola Mombasa and
Nairobi, Kenya

$300m
Satellite
tracking station
16 in Argentina

DATA COMPILED BY RWR ADVISORY GROUP, A WASHINGTON-BASED RESEARCH FIRM THAT TRACKS CHINESE INVESTMENTS ABROAD BASED ON MEDIA REPORTS, CORPORATE DISCLOSURES, REGULATORY FILINGS, AND IN-COUNTRY
SOURCES. CCCC PROJECTS, REPRESENTED BY CIRCLES ON THIS MAP, ARE SIZED BY DOLLAR VALUE. THEY INCLUDE ONLY PROJECTS THAT HAVE BEEN COMPLETED OR INITIATED OUTSIDE CHINA SINCE 2012 FOR WHICH A PROJECT
VALUE COULD BE ASCERTAINED. IN CERTAIN CASES, THESE VALUES MAY REFLECT AWARDS TO GROUPS OF COMPANIES OR JOINT VENTURES IN WHICH CCCC WAS A PART. CANCELED OR PENDING TRANSACTIONS AREN’T INCLUDED.
AS RWR RESEARCH REFLECTS ONLY WHAT HAS BEEN PUBLICLY REPORTED, ERRORS AND OMISSIONS ARE POSSIBLE.

is part of China’s “Belt and Road” initiative to
build an estimated $1 trillion of infrastructure to
support increased trade and economic ties that
further China’s interests around the globe.
State-owned CCCC—one of the world’s larg-
est companies, with revenue exceeding that
of Procter & Gamble Co.—says its portfolio of
700 projects in more than 100 countries has a
value of more than $100 billion. That makes it the
largest Belt and Road contractor, according to
RWR Advisory Group in Washington, which tracks
Chinese investment abroad.
It’s also one of the most vexed. CCCC and two
of its subsidiaries, China Harbour Engineering Co.
and China Road and Bridge Corp., have left a trail
of controversy around the world. The company
was blacklisted by the World Bank for eight years
for alleged fraudulent practices in the Philippines,
charges CCCC denied. Malaysia halted two rail proj-
ects this year amid corruption investigations. There
are allegations of mistreatment of railway workers
in Kenya and bribery in Bangladesh. In Canada,
CCCC was blocked from acquiring a construction
company on national security grounds. And there
have been calls in the U.S. Congress to sanction
CCCC over its alleged role in building Chinese mil-
itary bases in the disputed South China Sea—an
issue that scuttled the company’s plans in 2015 to
raise $1 billion by spinning of its dredging unit in a
public ofering in Hong Kong.
The Colombo project has drawn protests over
environmental issues. It’s also dogged by concerns
about its governance under a legal structure sepa-
rate from the rest of the country and the types of
business it will attract.
There’s no shortage of companies, including
American ones, that have been accused of brib-
ery and environmental damage when operating
abroad. Yet the number and scope of the allega-
tions against CCCC set it apart. “CCCC seems to
be constantly pressing the envelope of how coun-
tries feel about having a foreign state-owned entity
involved in their most strategic assets and critical
infrastructure projects,” says Andrew Davenport,
RWR Advisory’s chief operating oicer.
In a Bloomberg TV interview in August, CCCC
Chairman Liu Qitao said his company complies with
all local laws and environmental regulations and fol-
lows internal guidelines. “We do not allow, nor is
there any, corrupt behavior related to any oicial,
 BUSINESS
because we know that this kind of corrupt behav-
ior is not going to help with the company’s sustain-
able development,” the 61-year-old Liu said. “If there
is corrupt behavior, then the company is inished.”
In Sri Lanka, authorities are investigating
$8.1 million in fund transfers, including payments
from CCCC, to then-President Mahinda Rajapaksa’s
staf during his 2015 reelection campaign. While for-
eign contributions aren’t prohibited and Rajapaksa
has denied wrongdoing, CCCC dismissed charges
that it helped fund his campaign as “speculation.”
The Chinese company was awarded a con-
tract in 2010 to build a port in Rajapaksa’s home
district of Hambantota, and a few years later his
government enlisted it for the Colombo project.
When a new government assumed power in 2015, it
halted both projects for less than a year before tap-
ping China Merchants Port Holdings to inish the
work at Hambantota and renegotiating the terms
for Port City. As compensation, CCCC got a tenta-
tive commitment to develop 15,000 acres around
the Hambantota port as an industrial zone. The
new Port City terms gave CCCC a 99-year lease
instead of ownership and increased the land area
by 15 percent.
Port City aims to stop the brain drain caused
by the failure of Sri Lanka’s $90 billion econ-
omy to generate enough employment. Marketing
plans tout 80,000 new jobs as well as top-quality
schools and health care. Luxury beachfront villas
are intended to lure the wealthy of Delhi, Dhaka,
Karachi, and Mumbai—and rich Chinese, too.
“We lost our opportunity to Dubai and
Singapore, and now we are trying to catch up,”
says Champika Ranawaka, who heads Sri Lanka’s
Ministry of Megapolis and Western Development,
one of two government bodies that approved the
project. He says CCCC is putting up all $1.4 billion
for the initial phase of construction, which the
company says is 70 percent funded by loans from
Chinese banks. That, plus the $800 million the
Chinese company is spending to build connecting
roads, gives it the right to develop most of the land
to recoup its investment, Ranawaka says. “They’re
taking a risk, so they have to somehow earn their
money,” he says. “Their success creates a lot of
other opportunities for Sri Lanka.”
The government intends to ring-fence Port City
from Sri Lanka’s legal system to facilitate currency
movements and create tax and investment incen-
tives. “This must be a top-10 city for doing busi-
ness in the world, otherwise what’s the point?” says
Harsha de Silva, a state minister helping to draft the
separate legal structure.
Port City’s opponents say the project could turn
Bloomberg Businessweek September 24, 2018
Sri Lanka into a haven where hidden assets such as
India’s “black money” can be stashed to avoid taxes.
They fear casinos will move in and create the only
gambling hub in South Asia. They’re worried about
rising pollution and how Port City will get enough
water and power. And they question whether the
project, which has no committed investors, is a pie-
in-the-sky vision that won’t materialize.
“The whole deal is rotten to the core,” says Feizal
Mansoor, a member of the People’s Movement
Against the Port City, a group of environmentalists,
ishermen, clergy, and other opponents. The sand
and quarried rock used for the landill is 100 years’
worth of construction resources being used up at
once, he says, and the Chinese should be paying for
it. “They’re going to make a 100 percent proit on
their capital investment, and we’re going to make
a 1,000 percent loss,” he says.
The biggest cost so far is the environmental dam-
age along the coast and its impact on 80,000 house-
holds that make a living from the sea. Sri Lanka’s
Environmental Foundation warned that building
Port City would have a “severe and highly detrimen-
tal” impact, causing erosion and afecting marine
biodiversity, ishery stocks, and breeding sites.
Government oicials issued an environmental 17
impact assessment before the project was restarted
in 2016, stating that studies “clearly establish”
that it won’t cause erosion. The report conceded
that dredging would temporarily disrupt ishing
grounds and directed CCCC to pay $3.2 million for
community projects.
A hunger strike by ishermen in 2016 resulted
in an agreement forcing the dredgers farther of-
shore. But that’s barely helped, according to ish-
ermen, who say there’s been a 20 percent decline
in catch. “This is destroying the coast and the coral ○ Where CCCC is
reefs, and the sea erosion is very serious,” says changing Sri Lanka
Herman Kumara, head of the National Fisheries
Solidarity Movement in Negombo, the center of
the ishing industry.
On Christopher Fernando’s stretch of beach,
his neighbor, W. Mary Johanna, laments the
loss of two coconut trees and 700 square feet of
Negombo
her property that washed out to sea. Since she Colombo
was born here 52 years ago, she says, she never
had a problem with erosion—until the dredgers
Hambantota
showed up. “It’s diicult to push against the gov-
ernment; they won’t admit they’re causing this,”
she says. “What else can we do, apart from die?”
—Sheridan Prasso, with Anusha Ondaatjie, Dong
Lyu, John Liu, and Cathy Chan
THE BOTTOM LINE Port City Colombo, a massive Sri Lanka
project spearheaded by China’s CCCC, promises 80,000 new jobs,
but local fishermen say it’s costing them their livelihood.
  BUSINESS
Kleiner
Perkins
In Crisis
○ As star partner Mary Meeker departs,
the Silicon Valley VC pioneer ponders a
smaller-is-better future
Late last year the exterior of one of the most storied
oices on Silicon Valley’s venture capital-studded
Sand Hill Road got a makeover. But employees
at Kleiner Perkins Cauield & Byers are having a
hard time putting a fresh face forward. Marred by
a gender-discrimination lawsuit, bad bets on envi-
ronmental technology, and perhaps most alarming,
dwindling relevance, the irm has been attempting
to reinvent itself as it confronts the most severe crisis
in its 46-year history.
18 That challenge became more urgent in mid-
September when Kleiner lost high-wattage part-
ner Mary Meeker—aka the Queen of the Internet
for her early calls on transformative web trends
such as search and e-commerce. She and her team
announced they were leaving to raise their own
fund and bankroll late-stage tech companies in
China and other global hot spots. The split leaves
Kleiner and its heir apparent, Mamoon Hamid, to
focus on the early-stage bets that made it famous
but without the division that was responsible for
most of its more recent hits, including Uber, Snap,
Spotify, Instacart, and DocuSign.
“This puts them in a tough spot,” says one person
who invests across more than a dozen venture funds,
not including Kleiner, and requested anonymity to
protect sensitive relationships. “Who knows? Maybe
being a smaller irm will help them focus.”
It’s not just Kleiner that’s bent on reinvention.
Even as Silicon Valley continues churning out hits,
traditional VCs ind that their place in the industry
they created is no longer guaranteed. Competition
to bankroll companies is steeper, startups are rais-
ing more money and delaying initial public oferings,
and the rise of #MeToo has led to a shift in oice cul-
ture the VC world has been slow to embrace.
By most accounts, Meeker’s split from Kleiner
was amicable. Sources close to the irm say her
growth investing strategy—which handed $30 mil-
lion to $100 million checks to mature companies
Bloomberg Businessweek September 24, 2018
and looked for returns of three to ive times within
three to ive years—was simply too diferent from
that of the irm’s venture group. Investing more on
potential, rather than predictable performance,
the venture group wrote a larger number of checks
for smaller amounts. Its sweet spot was $2 million
to $10 million, aiming for a return of 5 to 10 times
within a decade. Geography was also an issue.
Meeker’s team increasingly pursued deals out-
side the U.S. and had explored opening an oice in
China. In contrast, Kleiner’s venture group raised a
$218 million China fund in 2011 but has backed few
companies outside the U.S. in recent years.
The gap between the groups often caused confu-
sion and sometimes led to missed opportunities. For ○ Value of investments
raised by venture
example, the irm passed on the chance to get into capital-backed
personal-inance startup Robinhood Markets Inc. at companies
a $1 billion valuation, then later invested at $5 billion,  U.S. companies
according to a person with knowledge of the deal.  Non-U.S. companies
“If you don’t have the synergy, why force it? It
ends up suboptimizing what each of us do,” says $100b
Ted Schlein, a general partner at Kleiner for more
than two decades who helped recruit Meeker and
launch the growth strategy. “The venture land-
scape has changed.” Meeker declined to comment. 50
Venture capital has evolved since the inancial
crisis. New rules governing public companies have
made IPOs less appealing to startups, and the pool
of potential investors has grown, making it easier 0
for private companies to fund themselves with- 2012 2017
out going public. The venture industry doled out
$164 billion worldwide last year, a level not seen
○ Financing deals made
since the go-go days of the late-1990s, according to with venture capital-
industry research group CB Insights. That increase backed companies
has been driven by nontraditional venture inves- U.S. companies
tors, including sovereign wealth funds such as Non-U.S. companies
Saudi Arabia’s Public Investment Fund. The Saudi
fund also backs SoftBank Group Corp.’s hulking 6k
$100 billion Vision Fund, the industry’s largest. And
corporate investors have returned to the market at
levels of the dot-com heyday.
At the same time, very-early-stage startups, with 4
the help of cheap web hosting from Amazon.com
Inc., and developer resources like GitHub Inc. are
able to build companies more quickly and cheaply
than their predecessors. They build, test, and 2
DATA: PRICEWATERHOUSECOOPERS, CB INSIGHTS
launch—and acquire users—faster than ever before. 2012 2017
Early venture investors writing smaller checks are
being pushed to develop deep knowledge of niche
businesses while also investing globally, since the
next hot company can emerge from anywhere.
Unlike during the dot-com boom, which was
concentrated in the U.S., roughly half the startup
deals completed in 2017 were done outside the
U.S., with Asia-based companies attracting nearly
So powerful, it’s a phone
and a PC in one

ADVERTISEMENT
Offloading
the Pension
Problem
Markets are fluctuating and
retirees are living longer, making
the long-term liability of pension
plans more daunting than ever
before. A glance at companies
in the S&P 500 shows that many
are ill-equipped to meet the
obligations of their defined-
benefit pension plans:
$391B
Amount of corporate pension
underfunding for companies in
the S&P 500
81%
Percent of every dollar owed to
those pensioners that is actually
funded
2007
The last year in which corporate
pensions were fully funded
However, forward-looking
companies have the option
to de-risk with Athene, which
generated nearly $2.5 billion
covering 45,000 participants
in PRT transactions in 2017.
Athene can be a strong partner
to your company, allowing you
to cut through—or just ignore—
the red tape so that you can do
what you do best: focus on
improving business.
Bloomberg Businessweek September 24, 2018
half the total cash, according to CB Insights.
Not every longstanding firm has struggled.
Sequoia Capital, founded the same year as Kleiner,
has funds dedicated to China and India, venture,
and growth. But while Sequoia has gotten larger,
inalizing a massive $8 billion investment vehicle
this spring, Kleiner has retrenched.
After missing most of the social media revolu-
tion and a disastrous attempt to invest in green
tech, Kleiner began paring back its ambitions. It
launched a fund to support companies developing
iPhone apps, another to bankroll social media start-
ups, and an initiative to back Google Glass develop-
ers. All three have ceased operations. Kleiner also ○ Meeker
shuttered a seed investment program for very-early-
stage businesses last year when three stafers lead-
ing it left to become startup founders.
A slimmer Kleiner is returning to the riskier—but
potentially more lucrative—style of VC investing that
led to its reputation-making stakes in Genentech,
Netscape, Amazon, and Google while they were in
their infancies. “The new Kleiner is the old Kleiner
in a way,” says Schlein, who is now mentoring
Hamid, 40, to take the irm’s managing reins from
legendary tech VC and Kleiner Chairman John Doerr.
In many ways, Hamid represents the new face
Kleiner would like to put forward. Born in Pakistan,
raised in Frankfurt, and educated at Stanford and
Harvard, Hamid was an early investor in breakout
successes including Box Inc. and Slack Technologies
Inc. Since he joined Kleiner last year, Hamid has
been coaching existing companies and recruiting
partners to join the team. He said one or two women
investors could join in the next few months. The
partner roster at Kleiner, like those at three-quarters
of all U.S. venture irms, is now all male.
So far this year, the irm has made more than
two dozen new venture investments. Most are
early- and mid-stage bets mainly on U.S.-based
startups, though several have engineering teams
in Israel and elsewhere. It may take as long as a
decade to determine the success of those bets.
Endowments, pension funds, and others that
invest in venture funds use multiyear track records
when deciding whether to reinvest. Kleiner’s 14th
and 15th funds still rank in the top 25 percent of all
venture funds of the same year; its next two funds,
raised more recently, are too young to show results.
Still, when it begins raising its 18th fund next year,
MICHAEL KOVAC/GETTY IMAGES
Kleiner is likely to trumpet a smaller-is-better strat-
egy as the best way forward. For now at least, it
doesn’t have much choice. —Lizette Chapman
THE BOTTOM LINE Trailblazing Silicon Valley venture capital firm
Kleiner Perkins faces a challenging future, given the departure of a
star dealmaker and heightened competition.
 It’s time to break free
from conventional thinking.
In a world where financial institutions do things the same old way, Athene pairs
innovation with experience and wisdom, providing unparalleled advantages for you.
See how we can do more for you at Athene.com/free.

ANNUITIES • REINSURANCE • INSTITUTIONAL PRODUCTS

This material is provided by Athene Annuity and Life Company (61689) headquartered in West Des Moines, Iowa, which issues annuities in 49 states (including MA) and D.C., and Athene
Annuity & Life Assurance Company of New York (68039) headquartered in Pearl River, New York, which issues annuities only in New York.
21641 (8/18) 2218823-0723318 Athene ©2018
Trade options like you went to school for it.
Options trading doesn’t have to be intimidating. TD Ameritrade provides educational courses,
expert trading support, and online coaching to help you learn to trade with confidence.

Get up to $600 when you open and fund an account.

Visit tdameritrade.com/tradeoptions to learn more.

Options trading is subject to significant risks and is not suitable for all investors. Options trading privileges subject to TD Ameritrade review
and approval. Before trading options, carefully read Characteristics and Risks of Standardized Options. Contact TD Ameritrade at 800-669-3900 for
a copy.

See tdameritrade.com/600offer for offer details and restrictions. This is not an offer or solicitation in any jurisdiction where we are not authorized to do
business. TD Ameritrade, Inc., member FINRA/SIPC. © 2017 TD Ameritrade.
 Bloomberg Businessweek
IBM’s
Retirement Plan
○ In a new lawsuit, former
workers say Big Blue targeted
their gray hair
Edvin Rusis spent more than 15 years at IBM before
the head-choppers found him. During that time, the
technical specialist had seen lots of co-workers dis-
appear in one restructuring or another, but his work
training sales reps for ield duty always seemed to
be in high demand. So when Rusis was told in March
that, despite years of solid performance reviews,
he had three months left at the company, he was
expecting at least a spiel about some changes in pri-
orities or shifting personnel overseas. Instead, his
GETTY IMAGES
managers, at best, alluded vaguely to his skills being
out of date, even though he’d kept up to date on his
training. Oh, and by the way, he could either give
September 24, 2018
T
E
C
H
N
O 23
L
O
up his right to contest his iring in court in exchange
for one month’s severance pay, or get no severance
G
Y
at all. “I was pretty bitterly shocked,” says Rusis.
He concluded that the company’s real problem was
that he was 59.
On Sept. 17, Rusis and two similarly fired
colleagues sued International Business Machines
Corp. for age discrimination in federal court in
Manhattan. “Over the last several years, IBM has
been in the process of systematically laying of
older employees in order to build a younger work-
force,” the suit claims. Their attorney, Shannon Liss-
Riordan, is seeking class-action status.
IBM says its managers are emphasizing
diferent needs to make the company more com-
petitive and that its U.S. workforce isn’t getting
any younger. “Changes in our workforce are about
skills, not age,” spokesman Ed Barbini said in an Edited by
emailed statement. The company’s priorities Jef Muskus
  TECHNOLOGY
have certainly shifted since Rusis was brought in
with the $2.1 billion acquisition in 2003 of Rational
Software Corp., where he worked. IBM missed the
rise of mobile devices and has struggled to difer-
entiate itself from the leaders in cloud comput-
ing, which has eaten into its old-line hardware and
consulting businesses.
During the past decade, IBM has moved thou-
sands of jobs overseas, and age has been a recur-
ring theme. In March, investigative news nonproit
ProPublica published a damning report showing
how the company systematically broke age dis-
crimination rules. IBM said in response that it’s
always complied with the law. Although govern-
ment regulators have taken no formal action
against the company, the U.S. Equal Employment
Opportunity Commission has consolidated a
series of complaints it’s received against IBM into
a single, targeted investigation, according to a
person familiar with the matter. An EEOC spokes-
woman declined to comment.
“A lot is at stake for IBM. How they’re going
about making these decisions for their workforce
really needs to be addressed and reassessed,” says
Liss-Riordan, a partner at Lichten & Liss-Riordan in
24 Boston. “It will be in the thousands of people who
will be afected. We think IBM should pay these
employees.” If she’s successful, the company may
be on the hook for hundreds of millions of dollars
in damages to workers let go in recent years.
IBM is hardly the only big company that’s ired
people or spun of businesses in an efort at reinven-
tion. (Hello, GE and HP.) But it’s hard to tell just how
far IBM has gone, because in 2010 it stopped disclos-
ing its total U.S. head count. While the company says
it’s still hiring, it’s ofered little evidence that it’s ill-
ing the positions listed on its job boards.
In interviews, more than a dozen recently dis-
missed employees say they witnessed a near-
constant stream of irings in recent years, and the
atmosphere of confusion and fear hit older work-
ers particularly hard. Former managers say they
had to spend signiicant amounts of time igur-
ing out whom to let go next. Other workers talk of
constantly swapping gossip about which division
could be hit next and trying to transfer to a more
favored group to avoid getting cut.
As Rusis experienced, IBM notiies U.S. employ-
ees they’re being ired three months before their
last day. IBM has also made its severance pack-
ages much less generous over time, to the point
where the one month’s pay Rusis considered an
insult is standard, according to the more than a
dozen former employees, most of whom spoke
on condition of anonymity for fear of professional
Bloomberg Businessweek September 24, 2018
repercussions. These are the people Liss-Riordan  Kromer signed away
her right to sue IBM in
is counting on. “IBM was ofering people that it’s exchange for a 401(k)
been letting go a very, very stingy severance,” match for her final
year there
she says. “We expect there are many others who
didn’t think that was adequate.”
Liss-Riordan has become the go-to lawyer for
employees left behind by powerful tech compa-
nies, including Uber Technologies, Amazon.com,
and Google. Yet her highest-profile victory so
far—a $100 million settlement she negotiated with
Uber on behalf of drivers seeking recognition as
employees—was subsequently blocked by a fed-
eral judge. She’s still going after Uber, including il-
ing a separate lawsuit against co-founders Travis
Kalanick and Garrett Camp.
Age discrimination is an especially tough issue
on which to hang a class action. Liss-Riordan will
need to show that age discrimination afected all
the employees in the suit, says Michael Willemin, ○ Severance
in months now
an employment lawyer with Wigdor LLP who isn’t considered
PHOTOGRAPH BY CARY FAGAN FOR BLOOMBERG BUSINESSWEEK; ILLUSTRATION BY ROSE WONG
involved in any IBM-related cases. standard at IBM
Liss-Riordan says the evidence is there. The
ProPublica story surveyed more than 1,000 work- 1
ers and cited internal IBM documents that, among
other strategies, mentioned one of “correcting
seniority mix.” The company also ired people it
said lacked the necessary skills for their work, then
rehired them as worse-of contractors in similar
roles, according to ProPublica.
Any restitution Liss-Riordan can win will be
too late for thousands of workers like Belinda
Kromer, who signed away her right to sue IBM
in exchange for a 401(k) match for her inal year
there. The 65-year-old spent 17 years crisscrossing
the American Southwest to sell IBM mainframe
software, helping put her son through college.
Then last year, shortly after a glowing review from
  TECHNOLOGY
her manager and a week after her father died, IBM
told Kromer her skills were no longer relevant.
Still supporting her son, she’d planned to work
until age 70 and is struggling to ind a new job.
In August she applied for a sales job at her local
Lowe’s home improvement store, she says. “They
told me I was overqualiied.” —Gerrit De Vynck
THE BOTTOM LINE If Liss-Riordan’s suit receives class-action
certification, IBM could be facing hundreds of millions of dollars in
damages on claims it unfairly dismissed older workers.
Half as
Many
Options
○ For women in Silicon Valley, the pay gap is
bad, but the equity gap looks worse
The young woman was excited to get an ofer at Lyft
Inc., one of Silicon Valley’s biggest venture-backed
private companies—until she compared notes with
one of her friends. He’d received about the same
salary for the same software engineering job she’d
been ofered at the same experience level, but he
got twice as many company stock options. When
the young woman asked for additional equity,
her recruiter said the ofer was standard and non-
DATA: CARTA
negotiable, so she took the job. A few months in, she
asked some colleagues hired at the same level about
Bloomberg Businessweek September 24, 2018
their options grants, and all of the dozen or so men ○ Proportion of women
in the workplace, by
she surveyed had double her equity, too. When she company size
asked her manager for an increase, she quickly got it.
“I felt really undervalued,” says the woman, 11-20 people
29%
who spoke on condition of anonymity for fear
of reprisal. “I felt this sense of injustice and frus- 101-200
35
tration. Although I didn’t have the information I
needed to get this number changed, someone else 301-400
36
did, and someone should have raised a red lag.”
Spokesman Adrian Durbin said in a statement that 500+
44
Lyft is committed to equal pay and urges employ-
ees to voice concerns.
In Silicon Valley, the salaries are high, and equity
in a risky startup most often ends up worth zero.
But when a startup goes public or gets bought, that
equity can end up being worth way more than all
the biweekly paychecks. The big successes mint a
new class of angel investors and startup founders,
along with the occasional billionaire. And accord-
ing to a study released on Sept. 18, the employee
and founder stock that can make tech workers silly
rich is disproportionately concentrated among
men. Equity management platform Carta crunched
data from almost 180,000 employees at more than
6,000 companies. The indings: Women hold only
47¢ for every dollar of equity men do. 25
It’s not simply that there are more men than
women working at and founding these com-
panies. Women make up 35 percent of equity-
holding employees but hold only 20 percent of the
employee equity, the Carta survey found. Women
are 13 percent of founders but hold 6 percent of
founder equity. (The 47¢ igure, however, does not
control for employees’ positions.)
That American women are underrepresented
and underpaid is a well-established phenomenon
across the highest-paying industries, including
technology. But the gender pay gap—the fact that
women make, on average, 80¢ for every dollar that
men do—is dwarfed by the potential wealth gap that
can be created by stock options. “When you factor
in stock, your compensation can double or triple,”
says Jackie Luo, a 23-year-old software engineer at
Square who encourages tech workers to send her
their compensation details and posts them anon-
ymously on Twitter. “It makes a huge diference.
Most of the people I know who have purchased
homes have done it by selling their stock.”
The disparity results from a host of intercon-
nected factors. Startups’ irst employees often get
much more equity than those who join later, and
younger companies tend to have a smaller pro-
portion of women. The Carta study found that, on
average, women make up 44 percent of employ-
ees at companies with more than 500 people but
  TECHNOLOGY
only 29 percent of employees at companies with
10 people or fewer. Most startup founders are male;
female founders, who tend to hire more women, are
less likely to get funding. Only 2.2 percent of venture
funding in 2017 went to women. So female founders
may need to sell higher amounts of equity to raise
money, which further dilutes their ownership.
The study was prompted by a blog post in
March from the #Angels, a group of six women
who took on angel investing as a sideline after
meeting at Twitter Inc. (Only one is still at
Twitter.) As they invested in companies, they got
the sense that the real power—the kinds of pay-
days that enable recipients to start companies,
invest in others, or take a more active interest in
politics—were disproportionately going to men.
Now, they have the data to prove it. “This isn’t
just about wealth creation,” says Chloe Sladden,
the #Angel who used to oversee Twitter’s media
partnerships. “This is about the ability to inlu-
ence Silicon Valley, the products, and the people
who, more and more, are shaping the world.”
Sladden, one of Twitter’s irst 40 employees,
knows irsthand the power of a good equity pack-
26
age. She negotiated a strong one, she says, using
knowledge from business school, her experience
as a management consultant, and the guidance of
mentors, who helped her ask the right questions.
“That has now changed my life and allowed me to
think about what companies I want to fund and
what Silicon Valley I want to live in,” she says.
Freada Kapor Klein, a venture investor and diver-
sity advocate at Kapor Capital, says she’s intrigued
by the study but eager for a look at how equity is
skewed across race and other categories, not just
gender. “If we’re talking about equity, we have to
ask, ‘Who can aford to forgo salary and maximize
equity?’ ” she says. Henry Ward, Carta’s chief exec-
utive oicer, says the plan is to keep gathering data
to do further analysis.
Equity adds another layer of opacity to the sal-
ary negotiation process. “It’s information asymme-
try squared,” says Mary Russell, a lawyer in Palo Alto
who helps workers negotiate compensation. “You
have to have the conidence to put the responsibil-
ity on the company to give you enough informa-
tion.” Equity varies much more widely than salaries,
including when grants of stock are used as bonuses.
And companies often try to get away with ofering a
prospective hire the kind of equity package meant
for a person in a much lower position, Russell says.
A system that puts the onus on the individ-
ual to ask can disproportionately hurt women. A
study published in the Harvard Business Review in
June found, counter to conventional wisdom, that
Bloomberg Businessweek September 24, 2018
women ask for raises as often as men do—they’re
just much less likely to get them.
The challenges of nailing down hazy compen-
sation standards are familiar to Luo, the engineer
who posts salaries on Twitter. At a previous job, she
was ofered stock as part of her pay, but she had to
press for information as to how much it was worth
and what percentage of the company she would
own. “It felt taboo,” she says. “It was deinitely an
eye-opening experience, to realize this is not infor-
mation people talk about freely. You have this expec-
tation in this [tech] culture that industrywide,
transparency is superimportant, open conversations
are better than secret ones, knowledge should be
free. But it really hits a wall when it comes to talking
about equity. You don’t know if you’re getting short-
changed.” —Rebecca Greenield and Ellen Huet
THE BOTTOM LINE Women appear to hold 47¢ for every dollar of
equity men have, and a web of challenges suggest it’ll take a while
to meaningfully improve that number.
Helping Driverless
Fog
○ Startup WaveSense says its radar system can solve one of
the more serious—and mundane—self-driving problems
As things stand today, the driverless car of the “Figuring out
future, a robot that’s supposed to navigate complex that it was
traic scenarios, can’t handle more than a light dust- possible wasn’t
ing of snow. In Boston, where autonomous test vehi- unique. But it
cles have been on the road since last year, snow has was something
emerged as one of the biggest obstacles, rivaled only that no one had
by the swarms of local seagulls. To get the birds to ever been able
make way, engineers programmed a little forward to do”
move that seems to startle them. Snow days have
proven tougher to deal with. “Snow not only alters
the vehicle’s traction but also changes how the
vehicle’s cameras and sensors perceive the street,”
concluded a recent report by the World Economic
Forum and the Boston Consulting Group (BCG).
Even the best self-driving machines still struggle
with inclement weather, be it sleet, rain, even fog.
WaveSense Inc., a Boston startup that began at
  TECHNOLOGY
the Massachusetts Institute of Technology, says it
has a solution: a radar system to scan what’s under
the road. The cluster of sensors, bolted underneath
a chassis like a skid plate, can scan 10 feet beneath
the surface, mapping soil, water, roots, and rocks—
objects that are part of the road but aren’t obscured
by atmospheric disturbances. WaveSense’s soft-
ware uses these maps to locate the car to within
a couple of inches and make sure it stays on a
weather-obscured road that other cars might have
trouble “seeing.” (Other sensors watch for pedes-
trians, traic, and stoplights.) Although archaeol-
ogists and land surveyors use ground-penetrating
radar all the time, WaveSense says nobody else is
using it to steer a car at 65 mph.
“The sector to date has been really focused on
replicating how humans drive,” says WaveSense
Chief Executive Oicer Tarik Bolat. “You actually
should start from a clean piece of paper.”
Driverless cars struggle with weather because it
sidelines cameras and lidar, two of their four kinds
of sensors: Cameras are useless in heavy snow and
fog, and the lasers that emanate from lidar careen
wildly of snowlakes and raindrops. The other
two, GPS and radar, are ill-equipped to distinguish
obstacles, let alone with urgency. Is that a panel
truck or a billboard?
“What’s evolving for everybody is basically the
algorithms that understand what is being looked at,”
says Mike Ramsey, an analyst at researcher Gartner
Inc. “This is a big part of the intellectual property
of these companies right now.” Google’s Waymo,
the early self-driving leader, says it’s made progress
teaching its software to better ilter out “noise” from
precipitation, while testing its technology in 25 cit-
ies, including snowy Detroit and rainy Seattle. Still,
the company’s robotic taxis are taking passengers
only in the suburbs of sunny Phoenix.
WaveSense is trying to position itself at the end
of a widening money pipeline. Last year inves-
tors poured some $350 million into lidar develop-
ment alone. While Waymo tests 600 vehicles, it
has deals to buy an additional 82,000 from Fiat-
Chrysler Automobiles NV and Jaguar Land Rover
Automotive Plc and kit them out with its own sen-
sors. Ford Motor Co. has promised to spend $4 bil-
lion on autonomous vehicles over the next ive
years. WaveSense says its advantage is relative
portability. Its box of sensors and other electron-
ics currently measures 5 feet long, 2 feet wide, and
3 inches high, but WaveSense says those dimen-
COURTESY WAVESENSE
sions will be radically smaller within months.
The company was hatched from MIT’s Lincoln
Laboratory, a federally funded center that conducts
research for the Pentagon, including on the use of
Bloomberg Businessweek September 24, 2018
ground-penetrating radar to detect land mines.
Around 2009, WaveSense Chief Technology Oicer
Byron Stanley, then an MIT researcher, igured that
such a system might be useful in the self-driving rig
he was developing for armored trucks. His team
showed the military a working prototype in 2012;
a year later it was in Afghanistan, jutting from the
bumpers of 9-ton trucks as they barreled through
remote areas where the roads looked remarkably
like not-roads. The Registan Desert, it turns out,
has a lot in common with Detroit’s Eight Mile in
December. “Figuring out that it was possible wasn’t
unique,” Stanley says. “But it was something that
no one had ever been able to do.”
On Aug. 23, the four-employee company, which
spun out of MIT nine months earlier, raised $3 mil-
lion in a round of seed funding led by Rhapsody
Venture Partners. “I don’t know if FOMO is the
right word, but there’s this incredible anxiety in the
space right now,” says Rhapsody managing part- ○ Bolat
ner Carsten Boers. “This could be a winner-take-all
market.” WaveSense says it’s signed on two custom-
ers to test the sensor on self-driving vehicles but
wouldn’t name them.
WaveSense projects that it will be on the market
for only about $100 once the system gains traction 27
and attracts a few big orders from major automakers
and technology partners. Xavier Mosquet, senior
partner at BCG, says it will be at least two more
years before even an elite player like Waymo is able
to code a car brain that can consistently handle the
meteorological challenges of Boston or New York.
For now, some companies say, they have higher
priorities. Nuro Inc., a maker of self-driving deliv-
ery vehicles, had to halt its testing in Phoenix in
July during a desert dust storm, highlighting how
weather can paralyze the autonomous world even in
warmer climes. Co-founder Dave Ferguson says he’s
most interested in programming Nuro’s sensors to
accommodate the vertical hills of San Francisco and
making sure that, if things go wrong, his vehicles’
front end will crumple correctly on impact.
As for weather? “We have a lot of conidence that
with our sensor suite we can solve these problems,
but no one has really done it yet,” Ferguson says.
“And until it’s done, it’s not done.”
WaveSense, meanwhile, is busy driving its
ground-piercing gadget near its Boston headquar-
ters. It’s hoping for a winter full of snow and perhaps
the occasional seagull. “Eventually,” Bolat says, “we
expect this to be something that’s on every vehicle
that drives autonomously.” —Kyle Stock
THE BOTTOM LINE WaveSense seems to have figured out how
to keep driverless cars rolling through snowstorms, but a more
complete weather-handling system may be much further of.
 Bloomberg Businessweek September 24, 2018

3
How an American Indian
F Tribe Got Into Mortgages
I The Cedar Band of Paiutes is making
no-money-down loans across the U.S.

N Richard Ferguson considers himself the friend

of struggling homebuyers everywhere. The Utah
“tribal providers” for potential new regulation,
according to a government iling. Ferguson says

A
mortgage man will make families’ down payments
for them. That way they can qualify for loans
backed by the Federal Housing Administration.
And they are—in droves, borrowing as much as
his organization, one of the biggest down pay-
ment assistance programs in the U.S., is the only
American Indian-owned provider ofering loans to
nontribal borrowers.

N
$100 million a month.
Ferguson runs the Chenoa Fund, which is
owned by American Indians, Utah’s Cedar Band
of Paiutes. “Chenoa” is thought to be a native
After the 2008 housing crash, Congress pro-
hibited down payment assistance from any party
with a inancial interest in a transaction. But the
FHA’s ban didn’t apply to federal, state, and local

C
American word for peace, but operations like
Ferguson’s are raising concerns in the industry and
in Washington. That’s because he’s running a com-
28 pany with a dual role, not only providing the down
government programs, which now make up the
majority of the 2,500 U.S. down payment assis-
tance outits. “The rationale is that state and local
housing inance agencies have a commitment to

E
payments for borrowers across the country but also
proiting from making the loans by charging above-
market rates and fees. Some members of the tribe
say they’ve seen little or no beneit from the busi-
ness and question where the money is going.
In the 2000s, Ferguson ran a similar program,
which allowed home sellers to in essence fund buy-
ers’ down payments. Congress later banned such
operations, which ended up costing the FHA’s
insurance fund $17 billion when borrowers got
in trouble. “When things went south in the last
downturn, those folks were riskier—they defaulted
at much higher rates,” says Joe Gyourko, a real
estate and inance professor at the University of
Pennsylvania’s Wharton School. “Ultimately, we
forget and go back and make the same errors.”
Ferguson’s resurgence is part of a broader prolif-
their own citizens, so they wouldn’t want to over-
charge them,” says Meg Burns, former director of
single-family program development at the FHA and
now a senior vice president at the Housing Policy
Council, a mortgage-industry trade group. Burns
says the Chenoa Fund might run afoul of the FHA.
Buyers Look for Help
① More homebuyers are ② Buyers participating in
participating in government such programs are more likely
programs to help them with to be seriously delinquent in
their down payments. their payments.
Share of FHA mortgage Share of mortgages
originations using government originated in 1Q ’11 that are
down payment assistance more than 90 days past due
PHOTOGRAPH BY LINDSAY D’ADDATO FOR BLOOMBERG BUSINESSWEEK

eration of down payment programs, which is rais- 12%

ing questions about the health of the $1.2 trillion 13.1%

With
government-backed FHA loan portfolio. Borrowers government
help on down
pay fees toward a fund insuring the mortgages, but payment
in 2013 taxpayers had to bail out the FHA. Down 6

payment help—including from relatives—now

enables 4 in 10 FHA loans. Borrowers who get such 5.1%
assistance from government programs become Without down
payment help
delinquent at about twice the rate of those who 0

put up their own cash. 1Q ’11 1Q ’18

Edited by
Pat Regnier
This fall the FHA is taking a hard look at
DATA: U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
and David Rocks some down payment programs, singling out
 FINANCE Bloomberg Businessweek September 24, 2018

Ferguson says he complies with all FHA rules. the place of a down payment. Customers have the
He points to one from 2007 that exempted tribes option of paying a market rate on the irst mort-
from the ban along with other government enti- gage and a higher one on the second. Only one-
ties. Those regulations were set aside by a court. third choose to do so, Ferguson says.
Newer ones don’t speciically mention tribes, but To lower the risk of such loans, Chenoa ofers
Ferguson says the 2007 language shows tribes are a year of counseling and monitoring, he says. In
meant to be exempt. addition, the loans meet stringent government
Ferguson operates the program from an oice guidelines, and two independent parties review
building with a stone facade in South Jordan, a them. A second-loan forgiveness plan rewards
town about a 20-minute drive south of Salt Lake some customers who make three years of on-time
City that’s framed by the violet-hued Wasatch payments, he says.
Mountains. He grew up in Utah and earned an eco- Nancy LeMessurier, a loan adviser with American
nomics degree from Brigham Young University. Paciic Mortgage Corp. in Gig Harbor, Wash., says
On a recent weekday morning, he pulled up to she was surprised when she looked into Chenoa
Chenoa Fund’s headquarters in a purple Lincoln for a buyer in March. The Chenoa rate at the time
sedan. A backpack slung over his shoulder, he was was more than 6 percent, so she found her client a
 Cedar Band member
dressed casually in a red polo shirt and jeans. cheaper option. “The price to obtain the loan out- Elvis Wall is skeptical of
Ferguson says he’s offering families access weighs the amount of the down payment,” she the mortgage business
to homeownership as rising home prices put
the American dream out of reach for all but the
wealthy. Many can’t aford even the modest FHA
down payment, 3.5 percent of a home’s price—or
if they can, it would wipe out their savings for a
rainy day. African Americans make up 20 percent
of Chenoa Fund borrowers, and Latinos 28 per-
cent, he says. “We need to get qualiied people into 29
homes sooner so they can enjoy that appreciation,”
he says. Some of the fastest-growing U.S. mortgage
lenders, including California-based LoanDepot
Inc., have worked with the Chenoa Fund, solicit-
ing customers and putting together deals.
More than ive years ago, Ferguson and his
team met with Thomas Sawyer, who then over-
saw the Cedar Band’s business operations, and
suggested a new down payment assistance pro-
gram. The band’s other ventures, operating
through a company called Cedar Band Corp.,
include an information technology company and
a wine company.
Ferguson and his management team collect
a cut of the gross proceeds of the Cedar Band’s
mortgage business, says Sawyer, a former Indian
afairs adviser to four U.S. presidents. Ferguson
has been making a hard sell. He just celebrated
completing 10,000 loans in three years. “You no
longer have to wait for a down payment to buy
your home,” reads a Chenoa lyer made to look
like a $10,000 bill. “Start building wealth today—
home prices are increasing monthly.”
As is typical of many government down payment
programs, borrowers pay higher interest rates and
fees than standard market fare. That allows the
organization to resell the loan to investors at a pre-
mium and generate revenue for its operations. The
Chenoa Fund holds a second mortgage that takes
  FINANCE
says. Some Chenoa programs give customers a
better rate than the one LeMessurier is referring to.
Borrower Miguel Benitez says Chenoa met his
needs. A maintenance worker married to a hos-
pital housekeeper, he has no savings, $50,000 in
family income, and a poor credit score after a bank-
ruptcy. The Chenoa Fund helped him buy a home
for $130,000 in April. “We live check to check,” he
says. “I didn’t care how high or low the rate was.
The point was we needed a house, and we got the
house we wanted.”
30
Ferguson is using the playbook he pioneered at
the Buyer’s Fund Inc., a nonproit founded in 1999.
It grew to be one of the largest down payment pro-
grams in the country, bringing in $167 million in rev-
enue with 31,000 loans in 2004. The fund gave down
payment money to buyers that was funded by fees
from sellers. (At Chenoa, sellers don’t fund down
payments.) Neighborhood Gold, a for-proit com-
pany of which Ferguson was a minority owner, was
paid as much as $12 million a year to market the pro-
gram. Ferguson left the Buyer’s Fund in 2002 and
sold his stake in Neighborhood Gold in 2004.
In 2006 the Internal Revenue Service called
Bloomberg Businessweek September 24, 2018
some ostensible down payment charities “scams,”
saying they were “self-serving, circular-inancing
arrangements” designed to circumvent the prohi-
bition against seller funding. It later revoked the
Buyer’s Fund’s tax-exempt status. Ferguson dis-
putes the IRS characterization of such programs,
saying the agency had initially blessed them.
In a 2005 lawsuit, a former president of the
charity accused Ferguson and other partners of
diverting millions of dollars for their own beneit.
The money included church tithes. They denied
the allegation. Ferguson says he and a partner  Critics such as
PHOTOGRAPH BY LINDSAY D’ADDATO FOR BLOOMBERG BUSINESSWEEK
Delice Tom want more
asked that some money due them go instead to information about the
the church. He says two reviews commissioned company they own
by an independent board found that the money
his company received represented fair compen-
sation, though another said the cost was too high.
Ferguson reached a private settlement after a
district court judge dismissed most of the claims,
saying the plaintif lacked standing in the case
because he wasn’t a director of the Buyer’s Fund at
the time of the suit. “I have always sought to gov-
ern my life with honesty and integrity,” Ferguson
says. “As the resolution of this matter ultimately
 FINANCE
showed, any errors made were due not to lapses
in judgment, but rather from a young man’s lack
of understanding of the complex nature of the
business world.”
On his LinkedIn page, Paul Terry, Cedar Band
Corp.’s chief executive oicer, said revenue for all
the Cedar Band company’s businesses jumped to
$52 million last year, from $3.4 million in 2014,
the year after the Chenoa Fund was founded.
Terry cited a $14.3 million proit, up from a loss of
$1 million three years earlier. Ferguson says the
Cedar Band has received millions of dollars from
Chenoa. Along with small per capita payouts on
holidays, he says, the money will fund expenses
such as health care, education, and job training.
Ferguson won’t disclose his pay or details of his
company’s inances, but says he isn’t getting rich.
But some of the roughly 287 members of the
band say they’re in the dark about the success of
its businesses. On a recent afternoon, the Paiute
reservation, which stretches beneath red clifs
on land scattered with sagebrush, was hardly
abounding in fresh riches. Near Cedar Band
Corp.’s headquarters, Delice Tom, a tribe member
who’s married to a retired railroad worker, points
to a series of mobile homes in various degrees of
disrepair. Tom and other critics say they’ve been
stonewalled by the corporation they own for more
than ive years as they seek information about
its inances.
A Plan to Mend
Deutsche Bank
○ CEO Sewing knows how to cut costs, but some say he lacks a grand plan for the troubled company
As chief of Deutsche Bank AG’s retail division,
Christian Sewing earned a reputation as an
unapologetic cost-cutter who closed hundreds
of branches, reduced staf by 7 percent—3,100
positions—over two years, and sold operations
in Poland and Portugal. Today, as the company’s
chief executive officer, he’s following a simi-
lar playbook. But there’s far more at stake as he
faces restive shareholders dismayed by more
Bloomberg Businessweek September 24, 2018
Tensions have split her family apart. She says
she often ights with siblings, nieces, and neph-
ews who serve on the band’s governing council.
“We’re not seeing any of the money,” she says. “I’d
rather have these businesses shut down so at least
there’s no arguments among us.”
Tom drives 15 minutes to her one-story brick
house, one of about seven government-built
homes on reservation land on the outskirts of
Cedar City (population 32,000). On the way, she
passes billboards for gas stations and hotels,
which for years were the main revenue source for
the band. The Cedar Band smoke shop sells tax-
free cigarettes and chewing tobacco, ireworks,
and groceries. The band owns 2,200 acres, most
of it hilly and unsuitable for development.
Another member, Elvis Wall, lives in a 50-year-
old single-wide trailer that he’s repairing. A
U.S. Navy veteran, the retired Bureau of Land
Management worker is the son of farm labor-
ers. He’s skeptical about how the money is being
used. “They’re using our last resource for their
economic ambitions—our sovereign rights,” Wall
says. Members do get dividends in the form of
Christmas bonuses from the mortgage company
and other businesses. The most recent sum: $100. 31
—Prashant Gopal
THE BOTTOM LINE Down payment assistance programs can
make it easier for people to access home loans. But conflicts can
arise when the company ofering help also makes the loan.
than $10 billion in losses over the last three years. ○ Over the last three
years, the bank’s losses
Since April, when he was appointed CEO of the have exceeded
battered bank, Sewing has cut an additional 1,700
jobs, told bankers they can no longer buy irst-class
train tickets, eliminated daily oice fruit bowls, and
$10b
is planning to shrink the New York oice 30 per-
cent and move away from Wall Street. It’s part of a
pledge Sewing made to trim overhead at least 8 per-
cent by 2019. “We’ll have to make progress on
  FINANCE
costs,” he said at an August banking conference
in Frankfurt. “It’s about what we can control our-
selves: making the business proitable.”
Sewing’s hardest task will be convincing inves-
tors and employees that he can break out of the
bank’s cycle of serial disappointments. Revenue
has fallen 21 percent in the last two years and is
on track to drop again in 2018, to its lowest level
in a decade. The investment bank is losing mar-
ket share, the asset management division has been
unable to stem outlows, and the stock has plunged
to near-record lows since Sewing took over. The
CEO has acknowledged that he has little more than
a year to mend the bank’s shattered credibility. “If
Sewing next year says they’ll continue to miss tar-
gets, that would be a big problem,” says Daniel
Regli, an analyst with brokerage MainFirst.
There are persistent rumors that Deutsche Bank
is considering a merger as a way out, most likely a
tieup with crosstown rival Commerzbank AG. But
at a strategy conclave in Hamburg on Sept. 14-15,
the supervisory board and top managers exam-
ined potential combinations with partners in
Germany and abroad and decided the time isn’t
right for such a deal. Sewing has told people
32 around him that the company must irst better
integrate Postbank, the inancial arm of the coun-
try’s postal service that Deutsche Bank bought in
2010 but never managed to bring under one roof
with its own operations.
The new CEO contrasts sharply with his pred-
ecessors John Cryan and Anshu Jain, Brits who
joined Deutsche Bank after rising to execu-
tive roles at rival investment banks. Sewing is a
German who’s spent almost his entire career at
the company, starting as a trainee at a branch in
his hometown of Bielefeld and climbing the lad-
der in Frankfurt and abroad. He earned recogni-
tion from regulators for his work leading Deutsche
Bank’s investigation into its role in allowing suspi-
cious money transfers out of Russia—for which the
bank was ined almost $700 million last year. In
2010 he joined senior management as chief credit
oicer, and he’s since served as deputy chief risk
oicer and audit boss.
Sewing commutes home most weekends to
see his wife and four children near Bielefeld, a
four-hour drive north of Frankfurt headquar-
ters, and his deep roots in Germany have helped
him cultivate strong ties with the country’s eco-
nomic and political elite. He can be seen quaf-
ing beers with bigwigs from Germany’s blue
chip companies and has shared the stage with
Finance Minister Olaf Scholz at industry confer-
ences. “Sewing, a homegrown talent from the very
Bloomberg Businessweek September 24, 2018
beginning, represents the classic bank business in
the European tradition,” says Michael Seufert, an
analyst with NordLB.
Beitting the irst German to run the bank as
sole CEO in more than a decade, Sewing aims to
shift away from Asia and the U.S., instead empha-
sizing Europe and especially Germany. The ques-
tion is whether he has the charisma and vision
to lead a sprawling operation with 100,000
employees spread across ive continents. While
his track record suggests that Sewing is good at
increasing eiciency, his plan consists mainly of
cutting expenses.
Deutsche Bank has gone through three other ○ Sewing
turnaround plans since 2015, and insiders fret that
Sewing’s retrenchment will end up eliminating
many global outposts. An investor who recently
talked to Sewing said the CEO failed to adequately
answer any questions that extended beyond his
2019 targets. And one top manager says Sewing
rejected an argument that job cuts posed a risk
to the unit’s efectiveness. “I don’t see Sewing as
a visionary,” says Michael Hünseler, a fund man-
ager at Assenagon Asset Management. “He’s a
rational, adaptable CEO, but he doesn’t seem to
like to make big bets.” ○ Deutsche Bank net
In April he ordered a review of the investment revenue, year-over-year
change
bank—meaning job cuts—which unsettled interna-
tional clients and employees alike. Indeed, most of 15%
the positions eliminated in the second quarter were
at the investment bank, and he’s dismantled teams
doing equity research or strategic advisory work
in Brazil, Dubai, and Japan. With many top stafers 0
jumping ship, Sewing has sought to quash uncer-
tainty by traveling the world—since becoming CEO
he’s made ive trips to the U.S. and three to Asia—
to underscore the bank’s commitment to a global -15
footprint. And he’s instituted get-togethers the 2010 2017
company calls the “Hour of Truth,” where workers
from all levels are encouraged to ask him questions.
His aim is to restore credibility and a sense
of pride to an institution that’s become a sym-
bol of failed expectations. Having witnessed the
brutal defenestration of Cryan—whose tenure
was marked by conlict with Supervisory Board
Chairman Paul Achleitner and, ultimately, a fail-
ALEX KRAUS/BLOOMBERG; DATA: DEUTSCHE BANK
ure to cut expenses—Sewing is trying to avoid
what he’s called the bank’s “pattern of negative
surprises” in fourth-quarter costs. “We’ve gone
through a diicult phase,” Sewing said at the
Frankfurt conference. “We need to reawaken our
pride.” —Steven Arons, with Nicholas Comfort
THE BOTTOM LINE With revenue down 21 percent since 2016
and shares near all-time lows, Deutsche Bank’s new CEO is aiming
to trim expenses and focus on Europe to fix the battered company.
 PURE BENCHMARK

PlanetM is home to Mcity and the American Center for Mobility, North America’s only real-world testing
facilities that allow autonomous and connected vehicles to be researched, validated and certiied under all
road and weather conditions. It’s where you’ll also ind the largest deployment of Vehicle to Infrastructure
(V2I) technology in the country. Which means if you’re looking to make advances in mobility, turn to a state
that invests in its future. Turn to Michigan. To learn more, go to planetm.com
 Bloomberg Businessweek September 24, 2018

Macron’s
Monumental
Challenge

35

The French president’s

popularity is sagging
just as Europe
needs him most
PHOTO ILLUSTRATION BY JUSTIN METZ

Edited by
Cristina Lindblad
  ECONOMICS
Jupiter is inding out how hard it is to make light-
ning strike twice. Emmanuel Macron’s victory in
last year’s French presidential race reverberated
around the world, as he deied the rising tide of
nationalism to strike a blow for Europe. In the
afterglow of success, the political prodigy likened
himself to the Roman king of the gods—shooting
lightning down from the Elysée Palace to impress
mortals with his majesty. But lately his powers are
faltering. With jockeying for next year’s European
elections under way, he aims to show the magic
hasn’t gone for good.
The 40-year-old president promised voters he
would transform their economic fortunes by cut-
ting taxes, tackling problems at money-losing state-
owned giants, and giving companies a freer hand
in negotiations with unions. While he’s managed to
steamroll opposition to push much of that agenda
through, the last few months have seen a string of
setbacks, defeats, and gafes.
Economic growth has slowed, unemployment
has barely budged, and France’s nationalist forces
have revived. The public opposes reforms at home,
while Macron’s plans to bring the 19 European
countries that share the euro currency closer
36 together have loundered. And for all his bonhomie
with Donald Trump, he failed to persuade the U.S.
president to stick with the Iran nuclear agreement
or to spare Europe from steel and aluminum tarifs.
Perhaps worst of all, a breach has opened
between Macron and voters: In the second year
of his presidency, he’s more unpopular than his
hapless predecessor, François Hollande. “His irst
15 months were beyond a honeymoon, he didn’t
have any opposition to speak of,” says Enrico Letta,
the former prime minister of Italy, who advises
Macron on his reform plans. “What we’re seeing
now is a return to reality.”
Macron is fading while the Continent’s estab-
lished leader flexes her muscle once again.
German Chancellor Angela Merkel’s fourth
term got of to a rough start after elections last
September failed to deliver a decisive mandate.
But after months of coalition-building at home,
she’s back on the world stage, discussing Syria and
Ukraine with Russia’s Vladimir Putin in August
and preparing for talks this month with Turkish
President Recep Tayyip Erdogan.
Domestically, Macron is safe, with no presi-
dential or parliamentary elections until 2022. But
the next nine months may determine whether he
can write himself into a new chapter of European
history—or become just a footnote.
The French president has staked his credibil-
ity on May’s elections, when all member states
Bloomberg Businessweek September 24, 2018
will elect their representatives to the European ○ Emmanuel Macron’s
approval rating since
Parliament. Macron has spent the last year criss- his election*
crossing the Continent warning against the corro-
sive efects of the “illiberal” brand of democracy 70%
espoused by Hungarian Prime Minister Viktor First set of
reforms passes
Orban and the anti-immigrant stance adopted
by Matteo Salvini, Italy’s deputy prime minister.
“He has made it his cause,” says Jérôme Fourquet, 50
head of public opinion at pollster Ifop SA. “He has
invested everything in it.”
Fail again, and critics will say voters have no
appetite for Macron’s grand European ambitions 30
to bind the economies of the euro area under a sin- 5/2017 9/2018
gle inance minister, harmonize tax systems, and
make the EU a more prominent actor in foreign pol-
icy with its own military force.
A recent Odoxa poll on voter intentions for the
May elections showed the National Rally party of
Marine Le Pen, who campaigned for the French
presidency on an anti-EU platform, at 21 percent,
just half a percentage point behind Macron’s La
République En Marche! party. That’s a reminder that
substantial numbers of French voters are still push-
ing to take the country down a very diferent path.
Outside France, the sweeping vision of integra-
tion Macron outlined a year ago in Paris has largely
been consigned to a drawer, with his European
allies either weakened, wiped out, or yet to be con-
vinced. Euroskeptics are in power in Italy, while
nationalists grabbed the third-largest number of
votes in Sweden’s Sept. 9 elections. Even Merkel,
who sought to forge a partnership with Macron
at the center of the EU, appears ambivalent, her
caution prevailing as she doubts the practicality of
some of his proposals. Manfred Weber, her party’s
candidate to head the European Commission, the
EU’s top post, is lukewarm on integration. “Weber
is not Macron-compatible,” says Letta.
Macron began his preparations for the European
election campaign convinced that like-minded par-
ties would ditch their existing cross-border alle-
giances to rally around his banner, according to
*POLLING NOT CONDUCTED IN AUGUST 2017 AND AUGUST 2018; DATA: IFOP
one person with knowledge of the negotiations. Not
for the irst time, he underestimated the power of
European party structures and political tribalism.
As it turns out, neither the European People’s
Party, the center-right alliance that commands
the biggest group in the current legislature, nor
the Party of European Socialists, the No. 2 bloc, is
as ripe for disruption as Macron assumed. That’s
why he has set his sights on a more modest goal:
bolting his two-year-old party onto the existing
Alliance of Liberals and Democrats for Europe,
which is the fourth-biggest grouping. The per-
son said he expects a deal to be done, but time is
 ECONOMICS
running short before the potential allies meet in
November in Madrid.
Macron argues that at least part of the reason his
support has fallen is that he moved quickly to intro-
duce some of his toughest reforms. He’s already
eased labor market restrictions, overhauled the
national rail company, and cut taxes for business.
He’s betting that the beneits of those moves will
become clear as the end of his term approaches
and the threat to reelection chances will abate.
“These sort of reforms imply some initial unpop-
ularity, so what we’re seeing now is normal,” says
Nouriel Roubini, chairman of Roubini Global
Economics LLC in New York. “I’m conident we’ll
start to see his reforms pay of.”
Macron’s fundamental problem is that a signif-
icant portion of the French electorate thinks he
doesn’t understand or care about their problems.
In Athens last year, Macron, a former investment
banker, said he wouldn’t let the “lazy” French
stop his reforms. In June he complained about
the “crazy amount of dough” spent on social wel-
fare and scolded a teenager for addressing him
casually. In July it emerged he’d declined to ire
an aide ilmed beating demonstrators at an anti-
government protest. This month he told an unem-
ployed gardener he could ind a job at once if he
really wanted one, since bars and restaurants con-
stantly need staf. “I could cross the road and ind
you one,” Macron said.
America’s New Trade
Doctrine: Lighthizerism
○ Trump’s chief negotiator has spent years preparing to do battle with Beijing
The diorama in the corner of Robert Lighthizer’s
oice looks like any other Revolutionary War scene
until you learn the story behind it. Portrayed
crossing the Delaware ahead of the 1776 Battle of
Trenton is George Lighthizer, the Bavarian-born
ancestor of Donald Trump’s trade czar and a vol-
unteer in George Washington’s Continental Army.
The message to visitors is clear: Patriotism goes
way back in the Lighthizer clan.
Bloomberg Businessweek September 24, 2018
Seventy-one percent of the French see
Macron’s policies as “unjust,” and 74 percent
see him as favoring the rich, according to a July
poll by Odoxa. The president knows there’s a
problem, judging from a shift in his language in
recent weeks. On a trip to Luxembourg in early
September, he repeated more than a dozen times
in a three-minute answer to a reporter that he
was “listening to fellow citizens.” On Sept. 13 he
unveiled a plan to ight poverty, telling an audi-
ence of struggling families he’d grasped how the
system works against them. “Too often we hide
behind the igures, the reports,” he said, “but to
listen, to see you work, all these months, spending
time with various diferent people, I have heard
and I have understood.”
The speech could almost be read as a rebuke
to the clique of smart young graduates from elite
Paris schools that Macron plucked from plum
private-sector jobs to surround him in the Elysée
Palace. A reshule among his team adds to the
sense of urgency. But public perceptions are hard
to shift, and many French people have made up
their minds. “The Macron magic has gone,” says
Fourquet, the pollster. “He’s seen as normal now,
just another president, and it will be a hard road 37
back.” —Helene Fouquet and Gregory Viscusi
THE BOTTOM LINE Macron’s eroding popularity at home is
impeding his eforts to build a unified European coalition as a
bulwark against the spread of nationalism.
“We’ve probably got some horse thieves in
there,” Jim Lighthizer, the U.S. trade representa-
tive’s older brother, says of the family lineage. “But
there’s no traitors.”
Wilbur Ross, the investor and turnaround
king who is secretary of Commerce, and Steven
Mnuchin, the ex-investment banker who heads
the U.S. Department of the Treasury, have been the
TV-friendly generals on the front line of Trump’s
  ECONOMICS
escalating trade war with China. But the oicial
increasingly in charge of translating the president’s
often vague and impulsive protectionism into a
battle plan is his trade representative.
Little known outside Washington trade circles,
the 70-year-old Lighthizer, who declined requests
for an interview, is an ascending figure in the
Trump administration. He’s also a longtime China
hawk who has spent years preparing for an eco-
nomic war with Beijing.
Lighthizer has been working with his peers
in Mexico and Canada on a revised Nafta that’s
getting closer to fruition. He’s also Trump’s top
negotiator in talks with the European Union and
Japan. Most crucially, he is the architect of Trump’s
tarif-driven assault on China, and that’s how he
wants to be remembered. “We clearly have a
chronic problem with China,” he told a Senate
hearing in July.
“He believes strongly that the end game is
China,” says Jim Lighthizer, adding that his brother
isn’t counting on a quick victory. “He believes that
it is going to be a long, long haul with China.”
On Sept. 17, Trump ordered his administration
to levy 10 percent tarifs on about $200 billion in
38 Chinese goods and to increase the rate to 25 per-
cent in January if Beijing refuses to ofer trade con-
cessions. The latest round of duties comes on top
Bloomberg Businessweek September 24, 2018
of a 25 percent tarif already imposed on about “He believes
$50 billion in Chinese goods. that it is going
If Lighthizer is seen to be driving policy on China, to be a long,
it’s because both Ross and Mnuchin have failed to long haul
bring Trump a Beijing deal he can live with—and with China”
for that they’ve been publicly rebuked. Asked what
he had learned about negotiating with the Trump
administration after the U.S. and Mexico announced
an agreement in principle on Nafta in late August,
Mexico’s economy minister, Ildefonso Guajardo,
says: “Any deal where Lighthizer is not responsible
for the architecture doesn’t see the light of the day.”
Lighthizer’s standing is built in part on his exten-
sive experience as a high-stakes negotiator. In the
Reagan administration he served as deputy U.S.
trade representative and led talks with Tokyo geared
at reducing the then large trade deicit with Japan.
After an acrimonious round of Nafta negotiations
in Montreal earlier this year, he recounted how he
had once smoked an entire box of Cuban cigars in a
windowless room to disarm his Soviet interlocutors
during 1980s talks on lifting a grain embargo.
After leaving the Reagan administration,
Lighthizer made a fortune as a swaggering, Porsche-
driving lobbyist-cum-lawyer for the steel industry at
Skadden Arps, Slate, Meagher & Flom LLP. Visitors
to his home in one of Washington’s toniest neighbor-
hoods are greeted by an almost life-size portrait of  Robert Lighthizer
MARY F. CALVERT/REUTERS; DATA: BLOOMBERG ECONOMICS
 ECONOMICS
him. “It’s not a miniature,” Jim Lighthizer says. “You
couldn’t it it in a locket, I’ll tell you that.”
While the portrait sounds Trumpian, one of the
keys to Robert Lighthizer’s success in the adminis-
tration has been his careful avoidance of the spot-
light. In a White House where the internal combat
between protectionists like White House trade
adviser Peter Navarro, the economist and author
of such books as Death by China, and more pro-
business members has produced such high-proile
casualties as Gary Cohn, the irst head of Trump’s
National Economic Council, the U.S. trade repre-
sentative seems to loat above the messy battleield.
In part, that’s because Lighthizer is a veteran
practitioner of Washington politics. He was chief
of staf of the U.S. Senate Committee on Finance in
the late 1970s under future GOP presidential nom-
inee Bob Dole, who remained a mentor and intro-
duced him at his 2017 conirmation hearing.
Throughout his career, Lighthizer has demon-
strated an ability to overcome Washington’s par-
tisan divides and drawn kind words even from
critics. Bill Brock, Reagan’s U.S. trade representa-
tive and a vocal critic of Trump’s trade policies,
calls his former deputy “enormously talented.” He
worries, though, that the administration is spread-
ing him thin. “Bob Lighthizer is an enormously
strong and intelligent person,” Brock says. “But you
can’t be in multiple places simultaneously.”
Almost uniquely in the administration,
Lighthizer has managed to forge alliances with
Democrats. Sherrod Brown, the Ohio senator and
a longtime critic of U.S. trade policy, Nafta, and
Trump, calls him “a great person to lead our trade
policy as we work to crack down on countries like
China that cheat the rules.” It helps that Brown’s
wife, like Lighthizer, grew up in Ashtabula, Ohio, a
blue-collar town near Cleveland, and that the U.S.
trade representative knows enough to quote Bob
Dylan when he and Brown sit down to talk trade.
(Dylan rhymed “Ashtabula” with “Honolula” in
You’re Gonna Make Me Lonesome When You Go.) “Bob
hasn’t forgotten where he comes from,” Brown says.
Lighthizer is less sentimental. “It never seemed like
a good idea to go back to Ashtabula to live,” he told
a Washington audience earlier this year.
If Trump’s attitude toward trade is instinctual,
Lighthizer’s is the result of a forensic reading of
history and years of going against the Republican
grain on the issue. When Trump lirted with a run
for president in 2011, Lighthizer endorsed what
were then seen as the reality TV star’s unortho-
dox views on protectionism. He defended them
as having roots not only in Alexander Hamilton’s
approach to protecting American manufacturing
Bloomberg Businessweek September 24, 2018
but also the policies of more recent conservatives
such as Richard Nixon and Reagan. “Mr. Trump’s
GOP opponents accuse him of wanting to get tough
on China and of being a protectionist,” Lighthizer
wrote in the Washington Times at the time. “Since
when does that mean one is not a conservative?”
In an essay published this summer in Foreign
Policy, Quinn Slobodian, a history professor at
Wellesley College, identiied the emerging doctrine
of “Lighthizerism,” calling it “the economic philoso-
phy most responsible for guiding the Trump admin-
istration” and predicting that it would last for years.
The basis of Lighthizer’s philosophy is a view that
○ Value of Chinese
U.S. trade policy since the 1980s is best described as imports covered
a series of mistakes. He and those close to him argue by tarifs
the U.S. misplayed the Uruguay Round of negoti-  Tarifs of 25%
ations that led to the 1994 creation of the World  Tarifs of 10%
Trade Organization and the birth of a binding dis- From July 6
pute settlement system that can overrule U.S. trade
$50b
moves. Likewise, in a report earlier this year, his
team argued that the U.S. had made a fundamen-
From Sept. 24
tal error in allowing China to join the WTO in 2001.
$250b
Lighthizer also shares Trump’s belief that the
U.S. trade deicit in manufactured goods, which
has grown steadily since 1975, is a symptom of
things having gone very wrong. Yet while Trump 39
has ingered a number of countries as culprits, From Jan. 1, 2019
Lighthizer heaps the blame predominantly on $250b
China, which he accuses of gaming a global trad-
ing system that failed to cope with the nation’s rise.
In congressional testimony in 2010, he laid out
the case for a tougher U.S. approach toward both Threatened tarifs
China and the WTO. He argued that allowing China $517b
to join had delivered none of the promised bene-
its, such as creating a vast new export market for
American companies and workers and binding
China to global trade rules. Instead, the U.S. trade
deicit with the nation soared, “and millions of U.S.
manufacturing jobs have been lost.” China’s political
system is “fundamentally at odds with the American
conception of the ‘rule of law,’ ” he wrote. Moreover,
China has scale. “For much of history, China had the
biggest economy in the world—and it is fully capa-
ble of regaining that title,” he warned.
As a member of Trump’s cabinet, Lighthizer con-
tinues to frame the issue in those epochal terms.
“I’m in it for one reason,” he told the U.S. Chamber
of Commerce in May, pointing to the trade deicit
as a relection of a “paradigm” in need of whole-
sale change. “A big part of that,” he added, “is get-
ting the relationship between the United States and
China right.” —Shawn Donnan
THE BOTTOM LINE Though less visible than other strategists,
Lighthizer is Trump’s leading architect on trade policy. His tough
stance on China has won him friends on both sides of the aisle.
October 11, 2018 | Bali

How do you build a vibrant market environment that global Host Country Partner

investors simply can’t ignore? Find out at our Modern Markets

event, where the biggest names in global business will convene
for an afternoon of candid conversation on the most efective
ways for policy-makers, corporations and tech innovators to
create opportunity across Asia’s rapidly modernizing economies.
Proudly sponsored by

Register at bloomberglive.com/modern-markets
 Bloomberg Businessweek September 24, 2018

5
The P
O
Fed’s L
Man I
T
About I 41

C
S

○ Jay Powell works the halls of Congress to protect the

Town
central bank against a mercurial president

On July 19, Donald Trump broke with decades of
presidential precedent when, in a television inter-
view with CNBC at the White House, he openly crit-
icized the Federal Reserve for raising interest rates,
BLOOMBERG (11); GETTY IMAGES (5)
Powell was fulilling a promise he’d made in an
interview just a few days before on the radio show
Marketplace that he was “going to wear the carpets
of Capitol Hill out by walking those halls and meet-

saying he was “not thrilled” by the policies of his
newly appointed Fed chairman, Jerome Powell.
That same day, Powell was making the rounds on
Capitol Hill, visiting the oices of two Democratic
lawmakers, Senator Ron Wyden of Oregon and
Representative Michael Capuano of Massachusetts.
ing with members.”
So when Trump ired a warning shot across his
bow, the Hill was a itting place to be. Cultivating
Congress, paradoxically, is a cornerstone of Powell’s
strategy to protect the Fed’s freedom to conduct Edited by
monetary policy without political interference. Matthew Philips
  POLITICS
Economists say that independence, granted to the
bank by lawmakers, is key to any modern economy’s
success. It wouldn’t be the last Trump thump: A
month later the president complained to donors in
the Hamptons that Powell was not the cheap-money
central banker he would have liked.
This is a crucial juncture for the 104-year-old cen-
tral bank and its new chair. Not only is Powell hav-
ing to manage the end of a decade of easy money
through a series of rate hikes—a delicate maneuver
that, if done poorly, could tip the country into reces-
sion or risk unleashing rampant inlation—but he’s
also dealing with a mercurial president who is rid-
ing a hot economy and has repeatedly gone pub-
lic with his distaste for high rates. The next scule
could come on Sept. 26, when the Fed is expected to
raise rates again, the sixth hike since Trump became
president but the irst hike since he started grousing.
Trump can’t ire Powell under the law, but he
could try to remove him for cause—a very high bar
that scholars say would have to go way beyond a
mere policy disagreement. A bigger risk is that
Trump’s relentless attacks could erode the Fed’s sup-
port in Congress and spur legislative eforts to hem
it in by hardcore conservatives and populist liber-
42 als already suspicious of its power. It all amounts to
a stress test for Powell, not only as a central banker
but as a politician. “The Fed is in a critical point in
its political history,” says Peter Conti-Brown, a inan-
cial historian at the University of Pennsylvania’s
Wharton School. “Vital to the Fed’s legitimacy is its
mastery of lowercase ‘p’ politics—that is, managing
relationships and staying close to the electoral pro-
cess through the people’s representatives.”
That’s exactly what Powell is doing. In his irst
six months in oice, he’s met or called lawmakers
48 times. Twenty-one of those contacts were with
Democrats and 27 with Republicans. By contrast,
his Democratic predecessor, Janet Yellen, had
just 17 contacts with lawmakers, 13 of them with
Democrats, in her irst six months in the job. Powell
has ordered his eight-person congressional-liaison
staf to redouble its eforts to reach out to both
sides of the aisle. And his fellow Fed board mem-
bers—Randal Quarles and Lael Brainard—have joined
in the charm ofensive. A Democrat who donated
to Hillary Clinton’s campaign, Brainard recently
met Republicans on the House Financial Services
Committee, which oversees the Fed.
Like his two immediate predecessors, Powell
seems to have a skill set perfectly suited for the
moment. Ben Bernanke spent his academic career
studying the causes and aftermath of the Great
Depression, an expertise that came in handy when
he led the Fed during the inancial crisis in 2008 and
Bloomberg Businessweek September 24, 2018
the ive years that followed. As an expert in labor
markets, Yellen had the smarts (and patience) to
nurture a lengthy and still ongoing jobs recovery
during her four years as Fed chair.
While Powell may not be a Ph.D. economist like
Bernanke and Yellen—he’s a lawyer by training—
he is more familiar with the ways of Washington.
He grew up and earned his law degree there and
made a fortune while working at D.C.-based pri-
vate equity powerhouse Carlyle Group. He has
deep connections to Washington’s Republican
establishment. He served in the U.S. Department
of the Treasury under President George H.W. Bush
in the early 1990s and is a member of the city’s
elite Metropolitan Club, located just blocks from
the White House. He also has one trait that may
serve him best of all: an ability to explain diicult
concepts in a way that people who aren’t pointy-
headed economists (i.e., members of Congress)
can understand.
Lawmakers who’ve met with Powell say he’s in a
listening mode. He’s meeting with members of the
two committees that have direct jurisdiction over
the Fed and branching out to other inluential law-
makers, including a half-hour meeting with House ○ Federal funds rate
Majority Whip Steve Scalise in March. That’s a good
strategy, says French Hill, who served at Treasury
with Powell and is now a Republican congressman 6%
from Arkansas. Should a crisis hit, “you don’t want
to be meeting people for the irst time,” he says.
Congressional stafers say Powell has some work
to do in repairing relations. Once revered as the 3
go-to source for economic analysis under Alan
Greenspan, the Fed saw its reputation sufer during
the inancial crisis and slow-motion recovery that
followed. Both Bernanke and Yellen worked to cul- 0
tivate lawmakers, but relationships deteriorated 9/1998 8/2018
during both their tenures. Bernanke was criticized
for veering onto Congress’s turf by propping up the
housing market and rescuing individual inancial
irms. Yellen was seen—by House Republicans—as
a liberal technocrat with too much discretion over
the monetary dials.
On a personal level, Bernanke and Yellen were
more comfortable at economics seminars than in
the rough-and-tumble world of Washington poli-
tics. By contrast, Powell is more at ease in the halls
of power and revels in pressing the lesh. In a way,
he’s approaching the relationship with Congress as
DATA: COMPILED BY BLOOMBERG
a private equity investor might approach a valuable
but beaten-down asset. With new management and
some fresh investment, returns could be stellar.
Powell has also shown an ability to learn on
the job. In his irst monetary policy testimony, in
February, black members of the House Financial
 POLITICS
Services Committee probed him on his concern
about racial inequities. It’s a common test for every
chair, and Powell gave mostly by-the-book answers.
Representative Al Green, a Texas Democrat, asked
him when black unemployment was last around
3.5 percent to 4 percent. “I don’t think it ever has
been,” Powell said. “It hasn’t been since slavery,”
Green shot back. “That’s the last time there was full
employment for black people.”
After the hearing, Powell reached out to many of
those same members, including California’s Maxine
Waters, the committee’s most senior Democrat.
Five of his irst 10 meetings with Democrats were
with black House committee members. “I appre-
ciate him for extending the hand of friendship,”
Green says. “I think that gets us of to a better start.”
Powell is determined to demystify the Fed. Case
in point: He opened his second press conference
in June by noting that monetary policy decisions
afect every American. He then delivered what
he called a “plain English” summation of how the
economy was doing and what the Fed was up to.
And he’s doubling his number of scheduled press
conferences next year to eight.
Powell has kept his cool in the face of the heat
from Trump. Those who know him say he’s not eas-
ily lustered. The chairman knows there’s a limit to
what the president can do. Trump could try to pack
the Fed board with policymakers sympathetic to his
concerns, as Ronald Reagan did in an unsuccessful
challenge to then-Chairman Paul Volcker’s author-
ity. But so far, Trump’s Fed nominees have been
mainstream, including recently conirmed vice
chairman and monetary expert Richard Clarida,
who will cast his irst vote on rates in September.
Powell undoubtedly knows that the tradition of
presidents not commenting publicly on Fed pol-
icy is of recent vintage, instituted at the behest of
Robert Rubin when he was Treasury secretary under
Bill Clinton. Powell was a member of the preceding
administration—serving the senior Bush—which had
overtly and covertly sought to pressure Greenspan to
keep interest rates low in the runup to the 1992 elec-
tion. (There’s no evidence that the future chairman
was himself involved in the efort.) Six years later,
Bush told interviewer David Frost that he blamed
Greenspan for his loss to Clinton. “I reappointed
him, and he disappointed me,” Bush said.
For all that, there’s no doubting the power of
the presidential pulpit. In what could be seen as
an efort to steer clear of providing Trump with
another target, Powell has tried to avoid comment-
ing on the president’s controversial trade and eco-
nomic policies, repeatedly saying the country’s
central bankers should “stay in our lane.”
Bloomberg Businessweek September 24, 2018
Powell is also building relationships with “The Fed is in
members of the Trump administration. As has been a critical point
the custom of past Fed chairs, he regularly meets in its political
with Treasury Secretary Steven Mnuchin to dis- history”
cuss all things economic. Those sessions look to be
paying of. Mnuchin, who played a key role in per-
suading Trump to nominate Powell, told CNBC on
Aug. 28 that the Fed chairman was “phenomenal.”
Perhaps owing to Mnuchin’s inluence, Trump
said two days later that he didn’t regret appoint-
ing Powell to the top job at the Fed. “I put a man
in there who I like and respect,” Trump said in an
interview with Bloomberg News.
Still, Powell can’t aford to take anything for
granted—or expect more shielding from Mnuchin.
Trump’s barbs came as the economy continued to
barrel ahead, on course to rack up its fastest growth
since 2005. What most likely bugged the president
was the impact of the Fed’s rate increases in the
currency markets, pushing up the value of the dol-
lar and making U.S. exports less competitive at
a time when Trump is waging trade battles. The
danger down the line is that Trump’s fusillade will
intensify if growth tails of—something many econ-
omists predict will happen in the 2020 presidential
election year as the beneits of the tax cuts fade and 43
the bite from Powell’s rate hikes deepens.
Given that future threat, Trump’s comments
have already planted seeds that may grow to
undermine the Fed’s stature and its ability to
execute aggressive policies in the next reces-
sion. “Any victory that Powell and the staf will
achieve against an angry, tweeting president will
be Pyrrhic,” says Conti-Brown of Wharton. “The
question isn’t how do you win that battle. It’s how
you minimize losses.”
The Fed’s authority to carry out interest rate
policy free from political interference is a fragile
thing. Its independence is not enshrined in stat-
ute, as it is at many other central banks. (The Fed
and its 12 regional branches owe their existence
to Congress, which created the system in 1913.)
There’s always a risk that lawmakers will chip
away at the bank’s independence, especially if
they’re looking for someone to blame for a weak
economy—something likely not lost on Powell.
In the end, faced with an erratic Tweeter-in-
Chief who’s quick to disparage anyone he dis-
agrees with, Powell knows he has no choice but to
follow the advice of a former mentor to “control the
controllable.” —Rich Miller and Craig Torres, with
Elizabeth Dexheimer, Erik Wasson, and Sarah Foster
THE BOTTOM LINE Ahead of an expected Sept. 26 rate hike,
Fed Chairman Jay Powell is strengthening his relationships with
Congress, insulating the bank against threats from the president.
  POLITICS
Charlotte
○ Florence’s record rains highlight an innovative buyout program that removed the risk to hundreds of flood-prone homes
44
When the remnants of Hurricane Florence settled
over Charlotte during the weekend of Sept. 15,
drenching the lood-prone city with a near-record
amount of rain, Justin Parmenter felt one thing
above all else: relief. A seventh-grade English
teacher with two young children, Parmenter used
to be one of the thousands of people living along
Charlotte’s many creeks, which regularly top their
banks. His house, six miles and a world away from
the gleaming, hill-top towers downtown, stood on a
low patch of land next to Briar Creek, whose waters
constantly reached his property, ruining his appli-
ances and eventually wrecking two of his cars.
“I can recall walking through knee-deep lood-
water, carrying my infant daughter in my arms,
Bloomberg Businessweek September 24, 2018
Its Flood Plain
because we didn’t know how much higher the  The site of one of the
400 flood-prone homes
water was going to get,” Parmenter says of one Charlotte has torn down
morning in 2010 when he had to rush out of
PHOTOGRAPHS BY JEREMY M. LANGE FOR BLOOMBERG BUSINESSWEEK
the house. But he and his family were stuck: As
the years went by and the looding got worse,
nobody would buy their home, at least not for the
$80,000 Parmenter still owed on his mortgage.
Then, something happened that would be
impossible in most U.S. cities: Local oicials agreed
to buy the house, no questions asked, for a fair mar-
ket value of about $100,000—then tear it down and ○ Since 1999 the county
has bought and torn
prohibit anyone from building there again. Now he down 400 vulnerable
and his family live in a two-story on a hill; their big- homes at a cost of
gest worry during Florence was that a branch might
fall in their yard. “I’ve always been so grateful to $68m
 POLITICS
them,” Parmenter says, sitting in his new home. “I
was desperate to get out of that house.”
As Florence pummeled this city of 850,000,
Charlotte had one thing in its favor: It sits in
Mecklenburg County, one of the few places in the
U.S. that’s begun emptying out its lood plain, pull-
ing people and homes from the most vulnerable
neighborhoods. Storm-prone cities from New York
to Houston are rushing to build along the water
despite the growing risk of looding, but Charlotte
is headed in the other direction. Climate experts
call it a blueprint for the country.
“As lood risks continue to worsen throughout
the U.S. because of climate change, you’re going to
see a real need for really novel approaches,” says
Joel Scata, a lawyer with the Natural Resources
Defense Council who focuses on the threats associ-
ated with water and climate change. “The Charlotte-
Mecklenburg approach is a great example of that.”
What Charlotte is doing, a strategy known
as managed retreat, is among the most effec-
tive responses to climate change. Unlike building
levees or seawalls, which can either fail outright
or prove inadequate, tearing down homes is fool-
proof: A house that no longer exists is a house that
can never lood again.
Even so, the practice is controversial. Local oi-
cials often fear that emptying out threatened areas
will cost too much or shrink their tax base. Only a
handful of cities have buyout programs; most rely on
federal money after disasters, which can sometimes
be used to purchase homes that have been damaged.
Those programs struggle with inadequate or unpre-
dictable funding and may take years to complete, by
which time many people who might qualify have
already repaired their home and moved back in.
Charlotte’s approach is better, Scata says,
because it recognizes that having homes continu-
ally lood guarantees residents will sufer—and the
best way to help people leave those areas is to ofer
them money right after a lood or, better still, before
it happens. “For certain areas that repeatedly lood,
that tax base is just going to continue to go down
over time, because those properties will be worth
less and less,” Scata says. His research shows that
the average time it takes the federal government to
buy a lood-damaged house is ive years.
Yet federal disaster policy discourages cities
and states from following Charlotte’s lead, accord-
ing to Larry Larson, senior policy adviser at the
Association of State Floodplain Managers. Allowing
development by the water doesn’t just mean more
tax revenue in the short term; it also increases the
inancial toll of natural disasters, which in turn
increases the odds of federal assistance. “Those
Bloomberg Businessweek September 24, 2018
that do nothing are more apt to get federal dollars,”
Larson says. “That’s a perverse incentive.”
To short-circuit the build-lood-repeat cycle, the
Charlotte-Mecklenburg Storm Water Services utility
adds a $1.25 fee to each customer’s monthly water
bill. That generates enough for the city to spend
about $3 million a year to buy and demolish as many
as two dozen homes. It also funds a “quick-buy” pro-
gram, ofering money for a home right after a lood.
The local buyout program has become a point
of civic pride. Hugh McColl, former chairman and
chief executive oicer of Charlotte-based Bank of
America, cites the program as evidence that the
city has done a good job preparing for events like
Florence. “We’ve done quite a bit of work in buy-
ing up properties,” he says.
Timothy Trautman, who oversees the buyouts
as manager for the engineering and mitigation
program at Charlotte-Mecklenburg Storm Water
Services, says the program reduces demands on
emergency responders rescuing people during
loods and saves money on sheltering victims.
Since 1999, Charlotte has spent $68 million to  Addresses that no
longer have houses
buy and demolish 400 buildings, Trautman says. in Parmenter’s old
He says there are an additional 500 to 1,000 in the neighborhood
lood plain that the county would eventually like to 45
buy. The county doesn’t require that a home loods
a certain number of times before it’s eligible to be
torn down. “We bought some properties where
we’re not sure if they’ve ever looded,” Trautman
says. “But the lood plain maps, the data, tell us
that there’s a signiicant risk there. We trust that
information.” Indeed, no homes in the loodplain
have been lost to Florence, which Trautman attri-
butes to the program’s success.
On Florence’s second day in Charlotte,
Parmenter tours the land his home used to stand
on. The lawn is beneath a growing sheet of water.
Parmenter’s former neighbor, Leslie Connell, calls
out to him: Doesn’t he know not to park so close to
the creek? “That’s going to lood,” she warns him.
Connell and her husband Tom live in one of
the few homes left in the area. When the county
ofered to buy them out, they threw the forms
away. Moving and inding something else they can
aford would be hard. Asked if she worries about
flooding, Leslie pauses. “It’s a fear,” she says.
“Starting over is a bigger fear.” One other reason for
staying: Where else could they ind all this empty
space? “I like it down here with nobody around,”
Tom says. Beyond the edge of his yard, the creek
keeps on rising. —Christopher Flavelle
THE BOTTOM LINE Since 1999, Charlotte has spent $68 million
buying and tearing down 400 homes in flood-prone areas,
reducing the damage from storms like Hurricane Florence.
  DEBRIEF
Al Gore ‘The evening news
Co-founder, Generation
Investment Management every night is like a
nature hike through the
Book of Revelations’
At the Global Action Climate Summit, the former U.S. vice
president talks to Bloomberg Businessweek Editor Joel Weber
about profiting from sustainability—and his optimism in the battle
to save the planet
What are the most ambitious goals you’d like us to see accom-
plish within your lifetime?
I’d like to see us solve the climate crisis and build a
46 healthier, more prosperous, fairer, more just society and
economy in the process. There are only three questions
remaining about the climate process: Must we change? Can
we change? Will we change?
We’re still treating the atmosphere as an open sewer.
We’re putting 110 million tons every day of man-made,
heat-trapping pollution into the sky. And it lingers there
for a long time. The cumulative amount now traps as much
extra heat as would be released by 400,000 Hiroshima-
class bombs exploding every day.
It’s a big planet, but that’s a lot of energy, and that’s why
it gets hotter every year. That’s why the oceans are getting
so hot. That’s why Hurricane Florence intensified so rapidly.
That’s why this supertyphoon that’s even larger was headed
toward southeast China. That’s why the worst fire in the his-
tory of California was one month ago in Mendocino and why
the fire season here in the West is 105 days per year longer
than it used to be. That’s why the drought in the Southwest
is as intense as it is. That’s why there are fish from the ocean
swimming in the streets of Miami at high tide—because of
the melting ice and sea level rise.
The scientists were spot on in warning us about all of
those consequences. Now the evening news every night
is like a nature hike through the Book of Revelations. We
should pay more attention to what the scientific community
is telling us will happen in the future if we continue using the
sky as an open sewer.
I don’t want to have to explain to my grandchildren why
my generation sat around and failed to deal with this. I
would much rather tell them how our generation actually
September 24, 2018
Photograph by
Joe Pugliese
rose to the moral challenge and found a way to do it.
This is a really critical choice that we have to make. We
must change. The second question: Can we change? We
have the ability and the technologies to do it.
The most important is the third question: Will we change?
What we’re seeing these days is great evidence that we will.
The Paris Agreement is equally significant evidence that we
will change. I was worried when President Trump made his
announcement that the U.S. was going to pull out of the
agreement. But no other country in the world followed his
lead. Some doubt that we have the political will, but it’s worth
remembering that political will is itself a renewable resource.
Speaking of the Paris Agreement, what’s the Plan B for the
worst-case scenario?
There’s no Planet B, so there’s no Plan B. But we are still
a nation under law and will remain so. Under the law, the
first day the U.S. could actually withdraw from the Paris
Agreement happens to be Day One after the next presidential
election. If there’s a new president—excuse me for a moment
(he prays)—then a new president could simply give 30 days’
notice, and the U.S. would be right back in the agreement.
But it’s easy to feel disheartened and overwhelmed and even
apathetic. What’s the optimist part of this that we have to keep
in mind?
Some people go straight from denial to despair without
pausing on the intermediate step of actually addressing
and solving the problem. The sustainability revolution is the
largest investing and the largest set of business opportuni-
ties in all of history. Many companies are becoming aware of
the risks of continuing with the fossil fuel economy, with the
exploitative business models that ignore waste, ignore pollu-
tion, ignore the exploitation of communities and workforces.
When companies get with the program and adopt
  DEBRIEF Bloomberg Businessweek
sustainability goals, all kinds of benefits come to them,
including recruitment and retention. The brightest and best
young men and women want to work for companies that
give them a good income but also give them an opportunity
to say to their family and friends that they’re part of some-
thing larger than just making money, that they’re helping to
make the world a better place.
You’ve become a inancial success story because of Generation
Investment Management, which you co-founded in 2004 with
David Blood. You now manage $18 billion?
A little bit more—$20 billion, $21 billion. But what’s $3 bil-
lion among friends?
Using this sustainable inance lens, what do you—as an investor—
look for in business strategies?
We look for companies that don’t borrow from the future,
that help to create a more sustainable and healthier pres-
ent without doing so at the expense of the opportunities
that should be available down the road. We find that com-
panies that really focus on that model are far more likely to
be successful than their competitors in almost every sec-
tor of the marketplace. There’s now voluminous academic
research tending to prove this.
In the investor marketplace, there used to be this out-
dated view that fiduciary responsibility somehow prevented
asset managers from taking the environment and social and
48 governance factors into account. Now that’s been turned
on its head.
Best practice now tells us that asset managers who do
not take these factors fully into account are themselves
violating their fiduciary responsibility. That’s kind of an earth-
quake in the investing marketplace.
But if there’s so much money to be made in sustainable inance,
why haven’t we seen more investors really lock to it?
Anytime there is a significant change, inertia is an
obstacle. It’s just human nature. You know, the QWERTY
keyboard makes no sense anymore. But the transition to a
new design has frustrated all of the keyboard and software
companies. Its the same thing when you ask people or busi-
nesses to make a systemic change to an approach that has
been used for a long time and that people are comfortable
with. Change can be diicult. But once change is embraced,
you feel the wind at your back and you begin to think, “Well,
why haven’t we done this before?”
Talk a little bit more about the results of some of your
investments. Do you have a case study in your portfolio that
you point to as an example that can make a believer out of a
climate skeptic?
We invested in a terrific company called Proterra run by
Ryan Popple. He was an infantry captain in Iraq and then in
the financial operations of Tesla before ending up as CEO
of Proterra. The company makes the best electric bus in the
entire world. I’m a little biased, but you’ll understand that.
But it really is. Zero emissions. No diesel fumes inside the
bus. Wi-Fi. Bespoke design from the get-go. And the com-
pany just completed a test run of their bus—1,000 miles
September 24, 2018
on a single charge. They’re winning most every contract
they compete for. They haven’t been able to build them fast
enough. Now they have a factory in South Carolina, one in
California. They’re gearing up to build more.
I’m inspired by a lot of these entrepreneurs. Another one
is Horace Luke, CEO of Gogoro, a company we invested in
that makes electric scooters in Taipei. There are many more
people who travel on two wheels than four. In Asia, with its
air pollution and climate emissions, scooters and motor-
bikes are a nontrivial factor. Luke’s company has a system
where you can swap batteries out of a network of Gogoro
battery charging stations. All it takes is six seconds, and you
get another day or day-and-a-half of use out of the scooter.
Luke used to run Xbox for Microsoft years ago. He came
to this scooter idea because he wanted to be part of solv-
ing the climate crisis. He was ofered CEO positions in high-
tech digital companies, but he wanted to take this on. He’s
another example of an up-and-coming star.
How much more opportunity do you still see for businesses both
to make a diference and to make a proit?
It’s limitless. Our No. 1 goal is to get the highest return
for our clients, but to do so in a way that invests according
to this sustainability model. And so there’s M-Kopa, an East
African company that installs solar cells on huts and homes
located in areas that mostly have no electricity grids. The
payments are made by a telephone-based payment system
called M-Pesa. Now, they’ve been selling tens of thousands
of direct-current, solar-powered television sets. It’s a great
model for zero-carbon electrification.
I’ll give you another example. We’ve invested in a com-
pany called Toast that takes on food waste. There’s an enor-
mity of food waste in the global economy. I can’t remember
the statistics, but waste would be the equivalent of the third-
or fourth-largest consumer of food in the world. Toast has
created an incredibly eicient, easy-to-use, highly produc-
tive digital system to manage restaurants, to connect the
kitchen to the server, and to eliminate all of the food waste.
You’re no longer an elected oicial. What do you know now that
you wish you would’ve known then?
We all learn as we age and as we have more experience.
I have really enjoyed the business world and Generation
Investment Management. It’s been an absolutely thrilling
experience. The relationship we have with our clients and
with the executive teams and the CEOs that we invest with …
I absolutely love it. And I’ve learned a lot about the business
world. I’ve still got a lot to learn, but it’s been really fascinat-
ing and really fun.
What are you most excited about?
I’m excited that we are beginning to achieve the moment
we need in this world to solve the climate crisis. It’s almost
unimaginably diicult to make the transition that’s now under
way, because we still rely on fossil fuel for 80 percent of the
world’s energy use. But I’m excited because I see people tak-
ing it on every day and succeeding. We are going to win this.
The remaining question is whether we win it in time to
 DEBRIEF Bloomberg Businessweek
avoid crossing some dangerous threshold that would throw
the climate balance out of kilter. We’ve melted so much ice in
the Arctic that the temperature’s going up much faster there,
changing the diferential of temperature at the North Pole
to the equator. And that’s one of the things that defines the
pattern of wind currents and ocean currents to redistribute
that heat. So you get these storms that are just locked in
place for days at a time. That’s one example of dangerous
thresholds we should not risk crossing.
The oceans are another. Acidifying the oceans, making
them boil and the temperatures go up so much, puts at risk
the food chain. I could give you other examples: Coral reefs
are now in really grave danger. So it matters how quickly we
win this. But I’m excited that we’re gaining enough momen-
tum. That the hope is legitimate and real.
A few things haven’t gone according to plan. The Trump
administration has chipped away ceaselessly at environmen-
tal protection. He seems to love coal. And Scott Pruitt took the
Environmental Protection Agency in a diferent direction. He’s
gone, but the acting administrator has continued that agenda.
Since President Trump took oice, the cancellation and
retirement of coal-generating plants has actually acceler-
ated. As for the EPA, somebody said they’ve made it into
the CPA—the Coal Production Agency. The new guy was a
coal lobbyist and accompanied coal CEOs in to lobby the
new administration. As administrator, he’s enacted measures
he was lobbying to get adopted. This is deeply unfortunate.
But we have to keep on moving. Many state governments
are now filling the role that the federal government used to
play. Furthermore, this process of transformation is being
driven by business, by technology, by investors. We could
make the process faster if we had a federal government in
the U.S. that was actually helping to lead this. But California
is doing a lot—and the other states, too.
Governor Jerry Brown of California has made this incredible
pledge, signing into law a bill that by 2045 would make his
state use 100 percent zero-carbon electricity. What can we learn
from California?
‘It’s worth
remembering
that political will
is … a renewable
resource’
September 24, 2018
What other states have learned is that California’s econ-
omy has grown faster than the national economy even as
its emissions reductions have been much larger at the same
time. There is a jobs intensity to the sustainability revolution.
The Bureau of Labor Statistics recently reported that
the single fastest-growing job in the United States is
solar photovoltaic installer. Those jobs are growing nine
times faster than the average job growth in the economy.
The No. 2 fastest-growing job is wind turbine technician.
We can also create tens of millions of new jobs retrofit-
ting buildings with better insulation, better windows, LED
lights, reducing the utility bills of the buildings’ occupiers
and owners, cleaning up the environment.
The jobs can’t be outsourced, because they’re needed
in every community. This is the greatest opportunity for
increasing secular demand for renewable energy by cre-
ating more jobs, and this challenge is one that California
undertook before the rest of the country. The results that
California has achieved—and is achieving—present an object
lesson for all the states.
So what should everyone at this Global Climate Action Summit
do when they leave the room today?
If you have a pension or savings and you’re investing it,
I would urge you to divest from coal and begin to divest
from all fossil fuel stocks. We have a $22 trillion subprime
carbon asset bubble that poses a great financial risk to 49
savings and to pension funds. I would urge you to be a
climate-conscious, environmentally aware consumer. And
when you pick more responsible products, that sends a
signal through the marketplace. It helps you be a part of
the solution.
You say I’m no longer an elected politician. I’m a recover-
ing politician now. But if you’re not registered to vote, don’t
even talk to me about our future. If you’re not, go register to
vote. At one level, this comes down to a question of political
power. Our democracy was hacked by lobbyists long before
the Russians hacked it. But the remedy is for more people
to get more actively involved. And this election on Nov. 6 is
the most consequential of-year vote I’ve ever seen in my
lifetime. We all have a tendency to say every election is the
most important, but this one really is.
If there’s ever been a time to make the checks and bal-
ances in America’s Constitution work, Lord God, this is the
time to have some checks and balances. And everybody can
help to make that diference. I’m serious. In order to solve the
climate crisis, we’ve got to deal with the democracy crisis.
Dealing with it means participating, not just voting. Speak
up. Don’t be intimidated by some climate denier who threat-
ens to go into tantrums if you mention climate. It’s a little like
a dysfunctional family with an alcoholic father who flies into
a rage if the word “alcohol” is mentioned, so everyone tip-
toes around what needs to be discussed. We can’t allow cli-
mate to be like that in our democracy. We have a moral and
spiritual obligation to discharge the duties that our generation
of Americans and human beings has before us right now. 
 Bloomberg Businessweek September 24, 2018

50

America’s fighting forces

get improvisational
Bloomberg Businessweek September 24, 2018

51

BY JOSH DEAN Marines race scrap-

metal “urban canoes”

PHOTOGRAPHS BYTHOMAS PRIOR across a Camp

Pendleton parking lot
 Bloomberg Businessweek
AT A DESK IN A
TRAILER ALONG
a fence behind a garage, America’s
future war ighters are squinting at wid-
gets. If not for the camoulage uniforms,
they could be watchmakers, these eight
Marines, age 20 to 25, all grasping dig-
ital calipers and taking precise mea-
surements of tiny things to put those
measurements into a computer-assisted
design program and build a 3D model
that will be printed in plastic. When
the day began, only a few of these men
had ever worked in CAD or touched a
3D printer, and now they have only one
hour to make a functional multitool.
“The best tool will go on the Wall of
Fame,” says Brad Halsey, a tall, excep-
52 tionally cheerful man in khakis and
sneakers. “The worst tool will also go
on the Wall of … Shame? No, failure isn’t
shame. It’s just another tool. We’ll call it
the Island of Misit Toys.”
Halsey is the lead instructor of this
program, Innovation Boot Camp, as
well as co-founder and chief executive
oicer of Building Momentum LLC, a
startup in Alexandria, Va., that trains
people to leverage certain democ-
ratized technology—such things as
CAD, 3D printing, laser cutting, and
microcontrollers—to solve problems.
That could be academics who’d like to
be more practical, engineers who make
elaborate designs but rely on techs to
actually prototype them, or 20-year-old
Marines who could use these things to
be more efective on base and in combat.
Innovation Boot Camp is just one
program, the Monday-through-Friday
starter kit, under a larger project known
as Marine Maker, which aims to infuse
the basic skills and ethos of rapid proto-
typing throughout the Corps. Halsey says
some of his earliest Marines nicknamed
the program “MacGyver Camp,” after the
inventive 1980s TV character who could
fashion a bomb out of chewing gum and
safety pins, and he was lattered. “He’s
a hero of mine,” Halsey says.
The students in this class at
California’s Camp Pendleton, chosen
from various units within the 1st Marine
Logistics Group, are technically minded.
These are truck mechanics, radio repair-
men, and ground electronics techs. You
can imagine why the ability to rapidly
design and print a mortar-tube bolt or
a Humvee door handle would be useful
to them when the alternative is waiting
for a replacement part from the supply
chain. But previous groups have come
from infantry, combat camera, and
even the vaunted Marine Raiders spe-
cial operations unit. That was always
the idea, Halsey says. The “door kick-
ers,” the front-line ighters, need the
skills every bit as much as the guys who
ix their gear. “Innovation takes place at
the intersection of urgency and neces-
sity,” Halsey says. “Marines basically live
at that intersection.”
And so do the bad guys in today’s
asymmetric wars. “The enemy is using
Amazon Prime to beat us,” he says.
“They’re getting parts literally from
RadioShack. We need to be ighting them
in a more agile way.”
BUILDING
MOMENTUM
began in 2015 in Halsey’s base-
ment and now uses every bit of a
20,000-square-foot warehouse. The
inspiration goes back further, however,
to the days after Halsey left the U.S. Navy
(he received a medical discharge in 2001)
and was working on defense and secu-
rity projects for SRI International. He
oversaw $30 million in mostly classiied
contracts, and the work was interesting
but not entirely satisfying. Modern war-
fare is less about big weapons systems;
today’s enemy ights on a much scrap-
pier level. Halsey felt strongly that sci-
entists like him could help soldiers react
September 24, 2018
Halsey, founder of
Building Momentum
quickly to new problems. “I was a think-
tank geek, frustrated with Death Stars
and lightsabers that couldn’t afect the
battleield,” he says. “I decided to go to
the war zone and make solutions as a
nerd.”
Speciically, Halsey served under con-
tract for a tech consulting irm called
Exponent as what he calls an “embed-
ded geek” for the U.S. Army’s Rapid
Equipping Force. He spent almost a
year on the ground in Iraq making tools
out of military gear combined with
things sourced from junkyards. He once
ordered a bunch of mylar advertising
balloons (the kind that ly over car deal-
erships ofering great deals on Hyundai
Sonatas), kitted them out with fake sen-
sors, and launched them into the air to
confuse militants who were targeting
actual surveillance balloons.
When he got home, Exponent put
him in charge of hiring and preparing
more scientists for the Rapid Equipping
Force. This was an eye-opener. “I found
that most Ph.D.s at Stanford and MIT
don’t like to operate outside their com-
fort zones,” he says. They’re very good
at their particular specialties but not so
good at execution—at translating ideas
into things. Halsey created a Hell Week
to weed out the scientists and engineers
who couldn’t actually contribute in the-
ater and eventually realized there was
a business in this. Thus began Building
Momentum.
The Marines, he says, “stumbled on
Bloomberg Businessweek
us” when he met a brigadier general at
a technology incubator that Building
Momentum has since swallowed. That
general told his superior about Halsey,
and soon after, Lieutenant General
Michael Dana, deputy commandant for
installations and logistics, showed up in
full dress blues for a tour. The general
liked what he saw and told Halsey that
he wanted Building Momentum to bring
this sort of teaching to the Corps.
“It aligned really well with the cul-
ture that we empower our Marines with,
which is to basically hack and modify
and make the mission achievable in any
way possible,” says Captain Chris Wood,
who works under Dana in an oice called
Next Generation Logistics, or NexLog,
which was set up to study and apply new
tech to improve Marine logistics. Wood
is of the opinion that a latent MacGyver
lurks inside many Marines. “Now we can
start to unearth and empower that, using
these new technologies and the training
to create much more well-rounded and
capable individuals,” he says.
Marine Maker was officially born
in 2016, under NexLog. The initial $4 mil-
lion contract was supposed to last three
years, but demand has been so high
that the money is likely to be gone by
the end of Year 2. Halsey is talking with
the Corps about other possible courses,
including programs tailored to particu-
lar problems—explosive ordnance dis-
posal (EOD), for instance, or antidrone
warfare.
Since the first MacGyver Camp at
Pendleton in January 2017, almost 200
Marines have gone through the pro-
gram in California, North Carolina,
Virginia, and Washington, D.C. In
December, Halsey took a container of
gear to Kuwait and did his irst camp for
deployed Marines. The students from a
crisis response unit built and installed
a solar-powered surveillance system
for ammunition supply points in one
day and a GPS tracking system for cars
in two. Typically, a unit would need to
go through the bureaucratic channels
for special gear, and when that special
gear is spooky (in the CIA sense) there’s
an even greater tangle of red tape to
trip over. Now, in Kuwait, they can
just ask the maintenance techs to whip
something together.
When Halsey worked for the Army, he
helped design a mobile lab built in a ship-
ping container. The next step, he says, is
to build smaller, even more portable labs
that can be taken to forward operating
bases deep in the ield. Mission-speciic
kits with motors and microcontrollers
and soldering sets could be carried in
backpacks. There are so many potential
uses, he says, starting with “little parts
that break” on guns, sights, tools, and
vehicles. Or maybe you want to put a
sensor by a house, but you need to hide
it, so you 3D-print a rock that looks like
the local terrain. Dana’s directive, Halsey
says, is clear—“to put these tools into the
hands of the forward war ighter.”
ON AWEDNESDAY
OF INNOVATION
Boot Camp, two men pop by the class.
Even tucked away in a remote corner
of the base, the trailer is a curiosity.
Throughout the week, guests appear
unannounced to snif around, and that’s
the case with these two.
A pair of Marines constructs a solar-powered surveillance system
September 24, 2018
The one who speaks the most is a tow-
ering chief warrant oicer from EOD—
the bomb squad—who had to duck to get
through the door. He asks basic ques-
tions about the program and then some
more speciic ones about sensors and
microcontrollers and the like.
“These tools are available; they’re
cheap,” Halsey says. Today’s adversar-
ies are often broke and poorly equipped,
but they make up for that by being cre-
ative. No one is more aware of that than
the bomb squad. “Their iteration cycle
is fast,” Halsey says and laughs when
someone points out that part of that pro-
cess is a willingness to blow themselves
up. “How do we approximate that?”—
the iteration cycle, he means, not the
self-immolation. “That’s the idea here.”
The oicer nods. Marine EOD guys
have great robots, but there’s always
room for improvement. He can imagine
quick fabrication of replacement parts.
“It sounds like we could make control-
lers for the robots to go and hit some-
thing with a stick,” he adds. 53
An EOD-specific camp would be
great, the Marine says, but making that
happen is certain to be a process. In the
meantime, he says, “I’d have immediate
interest in sending a few of our geniuses
to this program.”
Later that day, after the EOD guys
have gone back to their robots, Halsey
turns his thoughts to drones. A few
 Bloomberg Businessweek September 24, 2018

weeks before the camp, insurgents

in Syria used a drone swarm to attack
a Russian airbase and, according to
some reports, damage or destroy sev-
eral ighter planes. “I hate to say it, but
that’s a perfect advertisement for our
business,” he says.
Drones pose several challenges.
They’re hard to see. They don’t show
up on radar. They’re quiet. And even if
you do spot them, buzzing in low toward
a base and your beautiful F-15s, how do
you shoot them down? That’s going to
require fast response and extremely
accurate fire, probably in the dark.
Halsey has thought about T-shirt can-
nons and net guns. A promising idea, he
thinks, is to load a T-shirt cannon with
twist ties—a cloud of shiny, pliable metal
that should wreak havoc on small, deli-
cate rotors. “But I want these guys to try
it,” he says, looking around at a trailer
of enlisted Marines soldering circuits on
a motherboard. “They’re the ones get-
ting blown up.”
①
54 That afternoon, a white sedan
with “Government Vehicle” on the to hold all four members of a team and
side rolls up and delivers the regi-
ment’s commanding officer, Colonel
Jaime Collazo, and his top aide, a mas-
ter sergeant. Collazo oversees Combat
INNOVATION
INNOVATION
must be powered and steered without
hands or feet touching the ground.
(They have to weld “paddles” for “row-
ing” across the lot—that is, pushing them-

Logistics Regiment 13, which includes
the Ordnance Maintenance Company,
as well as all the other units that fed
Marines into the week’s camp; his mis-
sion is to ensure that deployed Marines
get the parts and supplies they need as
quickly as possible. He asks Halsey to
describe exactly what he’s doing here,
then stands upright, as stif as a lagpole,
while digesting the information.
“This is powerful stuf,” Collazo says.
Several of his units have already begun to
use 3D printers for replacement parts on
trucks. In one case, technicians printed
a metal rotor for an M1 Abrams tank
motor that held up over hours of tests.
“This thing, it is the future,” the colonel
says. “It is how you really revolution-
ize and give us options that would not
be present in the current evolutionary
environment—or that aren’t available in
the supply chain.”
“What items?” Halsey asks.
“All the items,” Collazo replies.
BOOT CAMP
BOOTCAMP
has a frenetic pace, by design. Halsey
wants to show Marines that they can
achieve basic working knowledge of a
variety of technologies rapidly and use
them in combination with a few core
prototyping skills—for instance, welding
and plasma cutting. They CAD and print
a multitool; laser-cut pieces that assem-
ble into a box without glue; cut and weld
a strip of metal into a chalice that must
hold water; and build a circuit to connect
a battery to an LED light. Once they’ve
covered a few skills and are no longer
intimidated, if not yet proicient, they
have to use them all in combination.
The Camp Pendleton Marines are
given two hours to turn a pile of metal—
mostly rounded and squared bars, plus
casters and wheels—into a crude vehi-
cle Halsey calls an “urban canoe.” It has
selves along. It’s slow going even for the
winning team.) Later, they’re given an
afternoon and then the next morning to
build a ighting robot out of wood, moth-
erboards, and sensors.
Having done this program with both
engineers and Marines, Halsey says he’d
take the latter every time. “Engineers
tend to overthink and execute poorly,”
he says, citing a bridge-building chal-
lenge as evidence. At the end of Day 1,
teams of two must quickly CAD and
then print a bridge to span the chasm
between two workbenches; the design
can’t be too complicated or it won’t print
in time. The team whose bridge holds
the most weight is the winner. During
one camp, Halsey stopped a team of
engineers after they’d smugly sent their
design to the printer and were prepar-
ing to leave for the night. He pointed
at the estimated print time: 160 hours.
“Marines do just enough and execute the
hell out of it,” he says.
Bloomberg Businessweek
②
③
① A 2-foot-long 3D-printed bridge made in an Innovation Boot Camp challenge; ② Resistors, the sort of thing
a Marine Maker grad might carry in his pack; ③ A fighting robot with a 3D-printed skull
On Thursday afternoon, follow-
ing the robot war, the Marines take
on their inal task of the week, which
Halsey calls the Capstone Project. This
is something he tends to script on the
ly, factoring in the location and the abil-
ities of the group. The idea is to force
the Marines to use every skill they’ve
learned over the week to address a real-
world wartime scenario. In this case,
the compound that housed the trailer
is tucked against the base of some hills,
and Halsey gives the group a two-part
scenario. “Insurgents” are preparing
an “attack” on the lab. By 9 p.m., the
Marines need to create a sensor and sur-
veillance network to monitor three loca-
tions inside the compound. When they
return to the lab on Friday morning, the
data those sensors will have captured
should reveal clues that provide further
intelligence on the upcoming ambush.
Then they’ll have to react to the new
information.
Halsey says the moments after the
scenario brief can be overwhelming for
the campers, who often sit in silence,
hoping someone will take charge and
assign jobs. To help them feel slightly
less overwhelmed, he gives them an
example from the movie The Martian,
in which Matt Damon plays a man
stranded on Mars with limited supplies.
“Matt Damon doesn’t freak out,”
he says. “He doesn’t think, ‘How do I
survive 500 days?’ It’s, ‘How do I sur-
vive three days? Where do I get water?
How do I grow food?’ Break this out
into digestible chunks.” He pauses for
questions. There are none. “All right,
go prevent attacks. Save America.
We want you to feel like technology
superheroes—to take this stuf you’re
learning into the ield.”
The lone sergeant, a mustachioed
motor pool mechanic from Utah, takes
charge and assigns duties based on
whichever tasks guys feel most com-
fortable handling. They set up the
quickie surveillance system and return
on Friday morning to ind footage that
leads them to a hidden SD memory card
containing details of the attack to come.
To counter, they have to go much
September 24, 2018
bigger. The group will have to moni-
tor and defend both the lab and a large
water tank on a nearby hill, plus install
surveillance gear on high ground to
watch three diferent hilltops that could
be used for mortar attacks. The enemy—
Halsey, his two assistant trainers, and a
couple of volunteer Marines—will try to
“destroy” the tank and the lab. To win,
the Marines have to spot the insurgents
on camera, or via sensors, and call in
fake mortar ire to take them out before
any of them reach the lab.
Two Marines work on “grenades”—
sensors that activate a car horn, telling
an enemy that he’s been blown up—
inside the shop. One of the sensors is
a pressure plate made out of two card-
board squares separated by improvised
cardboard hinges, which the Marine will
bury in the dirt along a trail. Others
write code and wire tiny motors to
microcontrollers so their small cam-
eras can pan across the landscape. “The
hardest thing about placing sensors in
the ield is the batteries,” Halsey says, as 55
he watches the men making homemade
battery packs out of stacked AAAs. “I
think half the rocks in Afghanistan are
mine,” he says, meaning 3D-printed
rocks filled with batteries, dropped
from helicopters.
Later, the panning camera will catch
him bounding toward a solar-power sta-
tion the Marines built and installed on a
stand they created in CAD and welded
using metal from the urban canoes,
which they irst had to cut apart using
plasma cutters. Henry Sullivan, one of
the instructors, will step on the pressure
plate, triggering the car horn, which
startles him so badly that he screams,
in his own estimation, “like a little girl.”
Halsey couldn’t be prouder: This
is the irst group to make a pressure
plate. All week, he’s been dropping
cultural references, most of them lost
on these millennials. But one, 1984’s
Red Dawn, seems especially apt. It’s
the story of young American men who
must repel a Russian invasion using
only their hunting riles and whatever
they can build or steal. Halsey loves
it. “If Red Dawn 2 ever happened,” he
yells, “the nerds would rule!” 
 Bloomberg Businessweek

There

56

Miss America 2018, Cara Mund,

greets London Hibbs, Miss America’s
Outstanding Teen for 2019
 September 24, 2018

She Is
Or should have been.
Inside Miss America’s struggle
to reinvent itself for the
#MeToo era. By Claire Suddath

Photographs
by Caroline Tompkins

57
 Bloomberg Businessweek
On
the first night of this year’s Miss
America competition in Atlantic City,
Nina Davuluri, who held the title in
2014 and now owns a skin care com-
pany, took the stage to introduce a
and-new event. Gone was the old-fashioned evening gown
gment, in which the Miss State winners would parade down
atwalk in floor-length gowns. Instead, this year’s finalists
uld swish down a red carpet and give an eight-second
tch for a charity or cause—in floor-length gowns. That way,
vuluri explained, beauty and brains would be on display.
re you ready?” she asked the audience, who cheered and
waved homemade signs in reply. “All right,” she said. “Let’s
get glamorous and socially conscious!”
For the past year, the 97-year-old Miss America
Organization had been attempting to align itself with
contemporary feminism—and recover from its own sex-
discrimination scandal. In December, emails leaked show-
ing top MAO executives referring to past Miss Americas
as “c--ts,” criticizing their weight, and even wishing one
woman dead. The controversy prompted several resigna-
tions and the appointment of Gretchen Carlson as chair-
woman. Carlson, Miss America 1989, is better known as the
former Fox News host who in 2016 won a $20 million sexual-
harassment settlement from Roger Ailes. “I had no intention
58 of ever having this position,” Carlson proclaimed on Good
Morning America in January. “I plan to make this organiza-
tion 100 percent about empowering women.”
Viewership for the telecast on ABC had been falling precip-
itously, to 5.7 million last year from 8.6 million in 2013, and
the #MeToo movement—which Carlson’s lawsuit portended—
offered the pageant an opportunity to participate in a global
conversation about society’s treatment of women. In June,
Carlson revealed the key to her vision for a feminist-friendly
Miss America: The once-iconic swimsuit competition would
be no more. But while many outside the pageant world
cheered, reaction within the Miss America community was
decidedly more mixed. By the time of the Sept. 9 finals,
46 state pageant leaders had called for Carlson’s resigna-
tion. (Through a representative, Carlson declined to be inter-
viewed for this article.)
The new evening wear competition was part of Miss
America 2.0, as this year’s event was officially known. Miss
Oklahoma walked the red carpet in a black- and gold-beaded
mermaid dress, then turned, smiled, and spent her 8 sec-
onds decrying human trafficking. Miss Tennessee, in white,
said she’d lost four family members to Alzheimer’s and
wanted to find a cure. Miss Connecticut, in red, declared
that “women are powerful sources of creativity,” though her
time ran out before she could clarify what that meant. Over
the course of three preliminary nights before the televised
finals, each of the 51 competitors—one for each state, plus
the District of Columbia—took her turn. The word “empow-
erment” was used almost as often as the word “beautiful.”
On the third morning of the competition, the reigning Miss
September 24, 2018
America, North Dakota’s Cara Mund, called me from her hotel
room at Caesars Atlantic City. Over the past year, she told me,
Carlson and Regina Hopper, Miss America’s new chief execu-
tive officer, had frozen her out of promotional opportunities,
dictated what she could say and how she could dress, publicly
belittled her, and retaliated when she tried to speak out. “I’m
the main product, I’m what the Miss America Organization
has to offer,” Mund said. “I do not feel empowered right now,
by any means.” A few minutes later, a security guard came to
check on her, and she abruptly hung up.
The pageant community is sometimes depicted by its
critics as a bunch of spray-tanned traditionalists who think
women with washboard abs should be admired and not
heard. That’s not what I found while speaking with the
dozens of state executive directors, former board members,
contestants, and former titleholders I interviewed for this
article. They want nothing more than for MAO to become
the kind of woman-led, woman-centric brand they believe
it could be.
Former board directors say they were lied to by Miss
America’s new leadership. State and local officials report
that education scholarships—the pageants’ ultimate prizes—
have been handled improperly. (MAO either ignored or
declined multiple requests to make any of its representa-
tives available for this article.) “It’s not about getting rid of
swimsuit—most of us agreed that was archaic,” says Jennifer
Vaden Barth, a former Miss North Carolina who works at
Google and until June sat on MAO’s board of trustees. “It’s
about Miss America failing to do the one thing it’s supposed
to do: help young women.”
That wasn’t always the aim. Miss America began in 1921
when a group of Atlantic City businessmen, hoping to extend
the summer tourist season, decided to stage a post-Labor
Day “bathing beauty” contest along the beachfront board-
walk. Winners earned Broadway auditions and Hollywood
screen tests until 1945, when the pageant’s first female direc-
tor, Lenora Slaughter, decided that educational scholarships
were more respectable. Her decision gave Miss America two
seemingly incongruous identities—beauty pageant and edu-
cational charity—that have persisted in the decades since.
Donations to beauty pageants aren’t tax-deductible, so
the entity known as Miss America is actually two separate
nonprofits—MAO, which puts on the pageant, and the Miss
America Foundation (MAF), which pays the scholarships.
Feeding into them are the 51 state pageants and hundreds of
local ones, each a separate nonprofit licensed under the Miss
America brand and run entirely by volunteers. Competitions
involve a talent performance, evening wear, and a brief Q&A.
While the idea of crowning a woman “Miss America” may
seem quaint, the organization is one of a very few American
institutions focused on and largely run by women. Its educa-
tional scholarships draw a type of driven, career-minded young
woman not usually associated with beauty pageants—this
year’s competition, for example, featured undergraduates
Bloomberg Businessweek September 24, 2018

Mund crowns Miss

America 2019, New
York’s Nia Franklin;
an audience member
takes a photo onstage
after the 2019 telecast;
finalists on a screen
at Boardwalk Hall
in Atlantic City
59
 Bloomberg Businessweek
in computer science, journalism, and social work; several
law and MBA students; a Microsoft Inc. software developer;
an aspiring commercial airline pilot; and a Harvard graduate
turned neuroscience Ph.D. candidate. At the state level, titles
are increasingly being awarded to women of color.
Meanwhile, the national organization has been in a
financial spiral. In 2009, Miss America reported a modest
$874,000 in net assets; today it’s almost $3 million in the red.
The email scandal didn’t help. MAO lost a number of spon-
sors and partnerships, including Dick Clark Productions
Inc., which promoted its televised pageant. Its three-
year contract with Atlantic City’s Casino Re-Development
Association, which had given MAO about $12 million to
“I do not feel empowered right now,
by any means”
put on the pageant, was up after this year. The 2018 state
winners collectively earned more than $1 million in scholar-
ships before ever stepping foot on the Atlantic City stage, but
Miss America has been offering its winner the same $50,000
for the past 19 years. “Miss America this year is getting the
60 same amount I got when I won in 2004,” says Erika Dunlap,
who’s now a public relations consultant, “Fifteen years later,
and it’s still $50,000? Get the f--- out of here.”
When Carlson assumed her post as chairwoman, state
directors say she talked candidly with them about what she
planned to do. She’d get the financials straightened out. She’d
court new sponsors. She’d hold monthly conference calls.
But after Hopper—who previously ran MAF—was made CEO
in March, it became clear they’d mostly be dealing with her.
Hopper, 59, was Miss Arkansas 1983. More recently, she
headed two Washington lobbying firms in quick succession,
ultimately resigning from each as its revenue plummeted.
Some former colleagues say she’s the kind of bold leader you
bring in when you want to make big changes, but others, who
asked not to be named because they say they’re still afraid of
Hopper, paint a different picture. They describe being regu-
larly yelled at, pitted against each other, and generally mis-
treated. One claimed that Hopper used to supply her favorite
employees with bottled Dasani water and make everyone else
drink from the common water cooler. According to several
former Miss Americas and a December article in the Press of
Atlantic City, Hopper and an MAO employee leaked the offen-
sive emails. (Hopper was among the representatives MAO
refused to make available for comment.)
Mund says she first met Hopper at a Washington hotel in
January. When Hopper asked her what she wanted to do as
Miss America, Mund said she wanted to advocate for afford-
able health care. She explained that she’d already interned
on Capitol Hill and was particularly passionate about
September 24, 2018
making sure elderly patients understand their Medicare
and Medicaid options. “I tell her all this, and Regina looks
at me and says, ‘Wow, you’re a lot smarter than I thought.’ ”
Hopper promised to help her get going in Washington,
Mund says. Instead, she was shuttled to parades and fairs and
baseball games, as if it were still the 1950s. Hopper, through
Mund’s tour manager, approved all her outfits. She was told
never to wear pink—“apparently Regina hates pink,” Mund
says. The rules got more bizarre: “I was told I’m not allowed to
wear the Miss America sash in public at all. If I’m in a parade, I
can wear the sash but only in the car. I can’t get out of the car
without the sash first being taken off.” It sounds like a small
thing, except the sash was how people identified her. When
she showed up to events wearing just a tiara, Mund says, “peo-
ple would say, ‘Oh, is this your bachelorette party?’ ”
Mund didn’t know it yet, but Carlson and Hopper were
working with the powerful New York marketing agency
Young & Rubicam on the largest branding overhaul in Miss
America’s history. The cornerstone, of course, was the elim-
ination of the swimsuit competition, which has been con-
troversial since the pageant’s inception in 1921: Atlantic City
had to suspend a ban against women showing their bare
knees in public for the pageant to go forward.
Almost everyone interviewed for this article recognized
that requiring women to wear bikinis to get an educational
scholarship wasn’t a good idea anymore. “Everyone thinks
we’re upset about swimsuit, but I’m fine with it going away,”
says Leah Summers, executive director of the Miss West
Virginia Scholarship Organization. And yet, even that con-
sensus turned into conflict.
To get rid of the swimsuit competition, Carlson needed
board approval. Multiple board members say that she and
Hopper told them TV executives were refusing to broadcast
Miss America anymore if the swimsuit competition remained.
State directors say they were told the same thing on a con-
ference call. “They said on the call that we had to make a
decision between having swimsuit and being shown on any
network TV,” says Suzi Doland, executive director of the Miss
Colorado Organization. “I said, when did TV suddenly get
a moral compass?” However, ABC, which broadcasts Miss
America, says it never made such a request. When MAO
directors discovered the threat wasn’t real, they confronted
Carlson and Hopper. Vaden Barth, the Google employee, says
the meeting devolved into a shouting match. Some directors
quit in protest; Vaden Barth says she was forced to resign.
The problems within Carlson’s Miss America go beyond
board disputes. Even though the state pageants are separate
nonprofits, they keep some of their funds with MAO, which
Bloomberg Businessweek
pays scholarships on their behalf. Jennifer Bailey, who runs
the Miss Virginia Organization’s scholarship fund, says she’s
twice received frantic calls because students’ tuition wasn’t
paid. The first came from the parents of Casey Shepard, a stu-
dent enrolled at the Richmond School of Ballet who’d won a
$1,000 scholarship. Bailey’s predecessor had submitted a pay-
ment request to MAO in January. When Bailey inquired on the
Shepherds’ behalf in April, she says MAO told her that with
all the leadership changes, no one had check-signing author-
ity. Miss America finally paid the scholarship in May, though
by then the Shepards had already covered the tuition to avoid
late fees. In the second instance, Bailey learned that a $7,000
scholarship was accidentally paid twice, then canceled twice,
jeopardizing a student’s ability to graduate.
Mund says Hopper told her about the swimsuit change
the day before Carlson announced it on Good Morning America
in June. For the most part, Mund played her role dutifully.
“Instead of the outer beauty, we’re focusing on the inner!” she
told TMZ right after the announcement. But she balked at read-
ing a statement she says Carlson and Hopper provided, which
included the sentence, “#MeToo started with a Miss America,
Gretchen Carlson, who has now donated her time to empower
women.” Mund says she told Hopper she didn’t want to say
Carlson started #MeToo, because it wasn’t strictly true. (The
hashtag was started by activist Tarana Burke and popularized
by actress Alyssa Milano.) After that, she says, MAO didn’t send
her on many interviews.
In August, Mund sent a 3,200-word letter to a group of for-
mer Miss Americas detailing the way she’d been treated by
Hopper and Carlson; the letter was quickly leaked. Two days
later, Carlson released a public statement on Twitter deny-
ing the bullying allegations and claiming that Mund’s airing of
grievances had cost the organization $75,000 in sponsorships.
Carlson also said she’d tried to talk to Mund, but she refused to
discuss anything in person or over the phone. Mund disputes
this and says Carlson called her once, late at night, when she
was asleep. “I’ve learned at this point that everything needs
to be in written form,” Mund says.
MAO hired an outside firm, Employment Practice Solutions
Inc., to investigate Mund’s allegations. Over two weeks, EPS
interviewed 14 people associated with Miss America. Mund,
who by then had hired an attorney, told EPS that she would
be in Atlantic City for a good portion of that time fulfilling her
Miss America duties and said she would answer all questions
after the pageant concluded. On Sept. 10, the day after the
Miss America telecast, EPS released a formal report of its find-
ings, a copy of which was obtained by Bloomberg Businessweek.
It absolved MAO and Carlson of any wrongdoing. Mund was
never interviewed.
The final night of Miss America 2.0 opened with a Beyoncé
song. Based on their preliminary scores, the 51 contestants
were whittled down first to 15 and then to 10 finalists,
who danced, sang, and reiterated their charity pitches.
September 24, 2018
The show felt like a well-executed, appropriately inclusive
commercial, though it wasn’t clear what it was selling.
One contestant cut early was 24-year-old Emily Sioma,
whose only on-camera moment came when the women
introduced themselves during the pageant’s opening num-
ber. Sioma’s official platform was sexual-violence awareness.
But she lives in Michigan, where the town of Flint has lead-
poisoned water and Detroit public schools have declared
their drinking fountains unsafe. When the camera panned
to her, with her hands on her hips, she said, “From the state
with 84 percent of the U.S. fresh water but none for its res-
idents to drink, I am Miss Michigan.” What she said had no
effect on her fate in the competition. But these were the
few seconds afforded her, and Sioma took her opportunity.
The moment exposed how superficial the changes to Miss
America really were. If you want to empower women, you
have to let them think and act and speak for themselves in
a way that’s meaningful. Even if you don’t like how they’re
standing or what they have to say.
Only 4.3 million people tuned in to watch Miss America
this year, fewer than the number who watch Big Bang Theory
reruns. At the end of the night, Mund gave up her crown to
New York’s Nia Franklin. But before that, she managed to
sneak in another act of defiance.
One of Miss America’s kitschier traditions is the Show
Us Your Shoes Parade the day before the final, when 61
contestants dress up in state-themed costumes—this year’s
Miss Alabama was a NASA astronaut, Miss Georgia a Coca-
Cola bottle, etc.—and ride on the back of convertibles, kick-
ing bedazzled stilettos (or, in the case of Miss Montana,
hiking boots with plastic bison glued to them) in the air as
high school marching bands follow behind.
The reigning Miss America always rides on the first float,
wearing a long, flowing ball gown. Mund was having none of
that. “I wanted to be Wonder Woman,” she says. Earlier in
the summer, MAO approved the idea and let her work with a
costumer to design the ensemble, she says. After she spoke
out, she was informed that Sherri Hill, a popular pageant
dress designer who’d agreed to sponsor Miss America, was
demanding she wear one of her creations. Mund talked to
Hill, who didn’t remember making any such demand; in fact,
she loved the Wonder Woman idea. Mund, adhering to her
rule about getting things in writing, asked Hill to confirm
her approval in an email. “Go rock it!” Hill wrote.
Minutes before the parade was to start, with the floats lined
up and spectators gathered along the boardwalk, Mund’s tour
manager pulled her aside and asked her to change. “She said
they had a contract with Sherri and she wanted me in a dress,”
says Mund. “I said, ‘Oh, don’t worry. I have verbal and written
communication from Sherri that I can wear this.’ ” Her tour
manager stepped away for a few minutes. When she returned,
Wonder Woman was miraculously approved.
“She told me she was just doing her job,” Mund recalls.
“I said, ‘And so am I.’ ” Then she picked up her superhero
shield and boarded the float. 
 TOYOTA’S
DRIVERLESS
FUTURE
62

The tricked-out Lexus at the Toyota Research Institute’s MIT garage

Financial commitment? CHECK. By John Lippert, Bryan Gruley, Kae Inoue,

Talent and expertise? CHECK. and Gabrielle Coppola
Belief in self-driving cars? Well … Photograph by M. Scott Brauer
Bloomberg Businessweek
J ohn Leonard strolls up to a drab one-story garage on the
campus of MIT and unlocks the door. The building is
remarkable only for the relective windows, which make it
impossible to peek inside. “If you were driving past in a taxi,”
(
Leonard says, “would you think the future of Toyota is being
designed here?”
Inside squats a silver Lexus LS 600hL sedan. It’s not just any
Lexus—this one is vital to Toyota’s efort to develop driverless
vehicles. Leonard, vice president for automated driving
research at the almost three-year-old Toyota Research Institute,
explains how the Lexus is jury-rigged with radars, video cam-
eras, and lasers that can detect, identify, and react to objects
up to 200 meters (656 feet) away—twice as far as a year ago. His
charges steer the Toyota-built car around Cambridge, Mass., to
capture data that can be used to create digital maps and try to
extrapolate how a vehicle might behave without a human at the
wheel. “It’s sort of like a science project,” Leonard says. “Stay
on the road, don’t hit things, don’t get hit.”
If only it were that simple. Toyota Motor Corp., the world’s
most valuable automaker, with a market capitalization of
$200 billion, is behind in the race to create the vehicles of a
maybe-not-so-distant future. Just four years ago, Akio Toyoda,
the company’s president, was saying his company would pur-
sue self-driving vehicles only after one beat a human driver—
for instance, him—in a marathon road race. He’s not saying
that anymore, because Toyota has too much to lose.
If the company fails to pick up the pace, Toyota could, in one
version of the future, face the humiliation of becoming a mere
steel-box supplier to upstarts such as Waymo and Baidu. Toyoda
himself has singled out tech companies as “our new rivals, with
speed many times greater than our own.” He added: “A life-or-
death battle has begun in a world of unknowns.”
Alphabet Inc.’s Waymo plans to start a ride-hailing service
with driverless taxis in Phoenix as early as this year. General
Motors Co. recently drew a $2.25 billion investment from
SoftBank Group Corp. for a robo-taxi rollout next year. Zoox
Inc. says it will have self-driving cars ready for passengers as
soon as 2020. The frenzy is reminiscent of the early 20th cen-
tury, when hundreds of ledgling carmakers competed until
almost all of them had failed or been consolidated.
As for Toyota, it invested almost $4 billion to start its research
institute, headquartered in Los Altos, Calif., and established
formal research links with MIT, the University of Michigan,
and Stanford University. To advance its knowledge in artiicial
intelligence, robotics, and materials science, it has recruited
self-driving stars such as Leonard, whose core expertise is in
vehicles that steer themselves underwater, and Gill Pratt, who
oversees research at the institute and around the world after
years of running Darpa robot and autonomous vehicle chal-
lenges for the Department of Defense. In June, Toyota invested
$1 billion in Grab Holdings Inc., the Southeast Asian ride-sharing
giant; in August it agreed to invest $500 million in a deal with
Uber Technologies Inc. to jointly create driverless vehicles. It’s
even teaming up with nonautomotive partners to develop leets
of multipurpose driverless vehicles.
September 24, 2018
A paradox underlies these initiatives: Toyota doesn’t neces-
sarily buy the hype about self-driving vehicles quickly taking
control of roads in the U.S. and beyond. Leonard himself isn’t
sold. “Taking me from Cambridge to Logan Airport with no
driver in any Boston weather or traic condition—that might
not be in my lifetime,” he says. On its website, the research
institute describes its goal as to “someday develop a vehicle
that is incapable of causing a crash.” It doesn’t specify whether
this uncrashable car would be driverless.
Toyota’s self-driving vision isn’t really about getting rid of
drivers. Rather, it’s about using autonomous and related tech-
nologies to make cars safer and more user-friendly, chocka-
block with features that help people stay productive while they
remain, for the most part, behind the wheel. Toyoda, who com-
petes regularly in road races and signs of on future vehicle
designs only after personally testing them on a track, is betting
that consumers’ love afair with the automobile is far from over.
The company certainly has the money to pursue whatever
future it believes in—$50 billion in cash as of June 30, more
than twice as much as GM. But autonomous driving technol-
ogy is a distinctly American invention, and Toyota has long
been known less as an innovator than as a superb manufac-
turer that igures out rivals’ inventions and does them better.
That approach might not be tenable in the face of a cultural
shift that Toyota executives say could be as dramatic as the one
it faced in the 1930s, when it went from making weaving looms 63
to building cars. “There’s a business need for us to become
more like IT companies before the IT companies become more
like us,” says Pratt. “The company is very strong now, so now
is the time for us to make sure we are the ones who actually
igure out all the cool stuf.”
S trobe lights pulsed and music blared as a beaming Toyoda
took the stage at CES in Las Vegas earlier this year. “It’s
a great honor for a car guy like me to be here,” said Toyoda,
whose grandfather led the company’s conversion to carmaker
eight decades ago. Soon he was joined onstage by executives
from Amazon.com, Uber, Pizza Hut, Mazda, and the Chinese
ride-hailing company Didi Chuxing.
The six companies are unlikely partners in a product
Toyoda said will be ready for the 2020 Tokyo Olympics and
Paralympics: a bubble-shaped electric delivery van that, not-
withstanding Toyota’s ambivalence about full autonomy, will
be driverless. A leet of “e-Palette business system” vans will
be designed to shuttle people, deliver pizzas and packages,
process credit cards, and convert on a dime into mobile shoe
stores, hotel rooms, or emergency command centers. “Today,
you have to travel to the store,” Toyoda said. “In the future,
with e-Palette, the store will come to you.”
It was the splashiest public manifestation of a shift in
thinking he’d had in 2014. By then, pre-Alphabet, pre-Waymo
Google had hybrids itted with self-driving gear zipping along
California highways without anyone’s hands on the wheel—
including some Prius and Lexus cars that Google had deployed
without Toyota’s involvement.
 Bloomberg Businessweek
Then Toyota joined early planning for the 2020 Olympics
in Tokyo. Toyoda told Automotive News that he was surprised
to learn that Paralympic athletes wanted to drive “cool cars,
not just cars designed for handicapped people.” Autonomous
and semiautonomous vehicles, he realized, could make get-
ting around easier and more fun for the disabled, the elderly,
and others for whom driving poses challenges.
He turned to Shigeki Tomoyama, a high-ranking company
executive in Tokyo and longtime conidant whom Toyoda calls
his “shogun.” Tomoyama is a devotee of kaizen, the core Toyota
philosophy of making small, continual improvements to the
manufacturing process in search of better quality and lower
costs. He’s embraced tech enough that Jef Liker, a University of
Michigan professor and author of several books about Toyota,
calls Tomoyama “Frankenstein”—half-Toyota, half-Silicon Valley.
That probably overstates it. But Tomoyama set up Toyota’s irst
project for connecting cars to the internet almost two decades
ago and says he’s lattered by the Frankenstein comparison
because the monster was “an artiicial construction but has a
heart somewhere.” Virtually alone among Toyota executives,
he posts almost daily on social media—pictures of meals he’s
eaten, factories he’s visited, and ish he’s caught. His portfolio
at the company ranges from big data to motor sports to devel-
oping a Lexus yacht.
Within months of being dispatched to ramp up Toyota’s
64 driverless and driver-assistance endeavors, Tomoyama had
lured Pratt from the U.S. Defense Department and launched
the Toyota Research Institute. A year after founding TRI, he
started Toyota Connected, a U.S. subsidiary that tries to turn
the lood of data from Toyota’s web-connected cars into salable
goods and services. Around the same time, Tomoyama started
talking with Uber about the collaboration that became e-Palette.
The company hasn’t said where or when it will sell
e-Palette vans beyond their Olympic debut. Perhaps that’s no
surprise given Toyota’s ambivalence about the central tech-
nology. “Ninety percent of the consumers still do not expect
autonomous driving,” says Masahiro Nakashima, chief oper-
ating oicer at Toyota Connected. A Gartner Inc. study last
year found that 55 percent of consumers surveyed wouldn’t
ride in a fully autonomous car, but more than 70 percent
would ride in one that was partially autonomous—some of
the very customers Toyota is targeting.
O n a chilly spring morning, a four-wheeled vehicle the size
of a small dog buzzes along a sidewalk on the MIT cam-
pus, dodging backpack-lugging students. Atop its lat chassis is
a silver canister housing rotating lidar sensors that detect trees,
utility poles, and students. A horizontal array of 3D stereo cam-
eras sits where the little car’s windshield might be if it had one.
The TRI minicar steers itself while its gadgetry creates a
high-resolution map of its surroundings. Stephen McGill, an
institute scientist, trails behind with a joystick he uses in case
the car threatens to veer into a pedestrian. Passing students
barely notice, as if it’s routine to have miniature self-driving
prototypes buzzing around campus.
September 24, 2018
The vehicle’s software is working to comprehend unpre-
dictable human behavior based, for instance, on posture and
where people may be looking. McGill will upload data about
the car’s interactions with the environment, then ine-tune
the software so it can propel vehicles more safely through
pedestrians and across streets. In the future, this data will
be used by bigger cars such as that experimental Lexus in
the Cambridge garage.
Today, the minicar winds up in the classroom of McGill’s
boss, Leonard, who’s teach-
ing business management
majors about electronics. A
Mike Myers lookalike who
spends 20 percent of his time
working for MIT and the rest
for the research institute,
Leonard ofers a short tuto-
rial on how the small car
works, then polls the stu-
dents about the future of
fully autonomous vehicles.
Three-quarters expect to
be using them regularly by
2030. Leonard thinks they
might be disappointed.
Leonard It’s one thing to set driver-
LEONARD: PHOTOGRAPH BY M. SCOTT BRAUER FOR BLOOMBERG BUSINESSWEEK; TOMOYAMA: PHOTOGRAPH BY ALBERT BONSFILLS FOR BLOOMBERG BUSINESSWEEK
less vehicles loose on closed-
loop tracks, another to have them navigate cities, as Uber
learned in Arizona in March, when one of its autonomous
cars struck and killed a pedestrian. Busy metropolises pres-
ent obstacles at once mundane and vexing. Clouds of tailpipe
exhaust can appear as solid as an oncoming car during Boston
winters. A FedEx van blocking half of a two-lane side street
in Chicago could bale a vehicle trained not to cross a center
line. “This is really, really hard,” Leonard says.
Toyota is seeking a middle ground with a system it calls
Guardian, which would harness the machine-intelligence and
sensor capabilities that make full self-driving theoretically
possible and bundle them in vehicles designed for human
drivers. These cars and trucks would be able to see much far-
ther ahead and behind, across multiple lanes of traic, than
any human would, and would be more adept at anticipat-
ing the behavior of other cars and pedestrians. Actual peo-
ple would continue to steer and brake, but when Guardian
detected potential danger, it would assume control and
swerve, slow, stop, or otherwise act to avoid the problem.
A video produced by the institute shows Ryan Eustice, TRI’s
senior vice president for automated driving, at the wheel of
a Guardian car on a test track. Eustice lets the vehicle drift as
he pretends to fall asleep. A dashboard camera spies his head
drooping and eyes closing. In an instant, Guardian takes over
and moves the car back into its lane. When Eustice perks up,
he’s asked to tap the brake to resume driving.
This is what excites Leonard, not least because his teenage
son recently learned to drive. “An order-of-magnitude reduction
Bloomberg Businessweek September 24, 2018

LEADING THE PATENT RACE

Companies with more than 50 patent filings related to autonomous vehicles, 2001-16 Volvo Subaru
70 69
Automakers Toyota Renault-Nissan- General Motors Ford Honda Hyundai
481 Mitsubishi 318 303 269 208 184

Auto suppliers Denso Aisin Seiki Magna Intl. Bosch Continental Volkswagen
351 209 201 144 75 56

Tech companies Alphabet Hitachi Here IBM Intelligent Tech Panasonic

342 183 121 117 62 58

DATA: BNEF

in fatalities should be technically possible,” he says. Instead of
40,000 traic deaths a year, the U.S. could have 4,000. “Imagine
if you had the most vigilant and capably trained driver in the
world that could take over in a situation where a teenager took
a curve too fast. Ten years from now, I dream Toyota gets let-
ters from car owners saying, ‘My teenager was driving and did
something stupid, and Guardian intervened. Thank you.’ ”
In Honolulu, Connected has teamed with Servco Paciic
Inc., the owner of Toyota, Lexus, and Subaru dealerships
throughout the Hawaiian Islands, to test a car-sharing busi-
ness called Hui (Hawaiian for “group”). Servco supplies vehi-
cles, while Connected provides apps that let customers unlock
cars with their mobile phones. User data, of course, gets sent to
Connected. Starting at $9.95 an hour or $79.60 a day, customers
can grab a car at one of 25 parking stations with a credit card

Z ack Hicks is one Toyota executive who says driverless tech-

nologies are certainly coming—but he adds they aren’t
really the point. “It’s not the diferentiator when everybody
and smartphone. Servco pays Toyota a monthly fee.
These are small-bore businesses that will grow, or not,
depending on how enthusiastically consumers gravitate from
has it,” says Hicks, chief executive oicer of Toyota Connected private car ownership. Every major automaker is working
North America, based in a cavernous oice in Plano, Texas. on similar technology, which makes up what the industry is
“The diferentiator is the use of data, how you’re connecting calling mobility-as-a-service. A shift to the mobility business
the vehicle with commerce and other vehicles.” “could replace the industry’s traditional emphasis on ‘mov- 65
Hicks and his young crew of programmers in the Connected ing metal’ with new schemes
skunkworks are attempting to create a supersmart web to capture greater proits per
browser on wheels. They can upload data from 500 sensors mile or per trip,” McKinsey
on each of Toyota’s millions of internet-connected cars every & Co. said in a report last
200 milliseconds—for a total of more than 7 million points of October. McKinsey has pre-
data per day from each vehicle. The sensors measure speed, dicted that the global mobil-
location, brake pressure, steering angle, fuel levels, tire pres- ity market could amount to as
sure, and hundreds of other metrics that indicate, for instance, much as $750 billion by 2030.
whether the driver tends to brake harder than most. Toyota could establish a
The information could help Toyota sell cars by making lucrative place in this new
them safer and enhancing customer experiences. Your Camry world with Guardian tech-
notices you forgot your cellphone and asks if you want to nologies applied not just to
retrieve it. You’re late for a meeting, and your RAV4 arranges human-driven vehicles but
for a Skype connection (after you park, of course). You get a also to robo-taxi leets oper-
cellphone alert that the left rear tire on your Corolla needs air, ated by Toyota itself and
along with a map to the nearest service station. Toyota is bet- partners such as Uber. With
ting that such features will keep consumers buying. Tomoyama several years of driverless
The company is seeking ways to turn data into cash. In testing complete and a newly
March, Toyota sold 10,000 web-linked vehicles designed for declared willingness to share technology, Uber could signii-
Avis Budget Group Inc. Data on fuel levels and odometer cantly boost Toyota’s eforts. Tomoyama goes so far as to boast
readings save the car rental company money by expediting that having Uber’s self-driving technology “will probably make
customer returns: Instead of having Avis employees walk for the world’s safest self-driving car.”
parking lots manually scanning vehicles, Connected’s system First, though, Toyota must convince not only itself but its
can take inventory in an instant. Diagnostic codes regularly traditional suppliers and dealers that simply moving metal
zapped to Avis could identify “a $4 repair that prohibits a $40 will no longer suice. “We aren’t giving up on our main
repair from being needed,” says Jef Kaelin, Avis’s vice pres- business, but we can’t vaguely just continue to make cars,”
ident for customer experience and product development. Tomoyama says. “For everyone to share this sense of crisis is
Toyota collects a monthly fee in addition to what it makes still a challenge.”   —With Nao Sano, Kevin Buckland, Eric
from selling Avis the cars. Newcomer, and Craig Trudell
In schools to
encourage healing.
As if dealing with his mom’s death wasn’t hard enough, Sean had to adjust to a new home and new school.
It was a lot to handle, so he struggled emotionally and academically. Lee from Communities In Schools helped
Sean develop coping skills by inding positive outlets for his feelings. As his attitude improved, his grades
followed—going from D’s to B’s. Now, he’s focused on football and a promising future. There are millions of
at-risk kids like Sean who need a caring adult to help them stay in school and succeed in life.
See how we help all kids succeed. | CommunitiesInSchools.org
Civita di Bagnoregio,
in the mountains
north of Rome, is
home to Corte della
Maestà P
U
You Can R
Sleep Here S
U
or Here I
T
S 67

or Here 72
The coolifying of a ’60s
Czech scooter

73
The spicy Spanish
sausage hitting
U.S. shores

74
How does the man
in the White House
sleep at night?

75

or Here
It’s a skateboard.
It’s also art

Remote villages near extinction are

becoming hotels, wooing travelers
with one-of-a-kind rooms and intimate September 24, 2018

restaurants. By Nikki Ekstein Edited by

Chris Rovzar

Photograph by Andrea Frazzetta Businessweek.com

 TRAVEL Bloomberg Pursuits
Roughly 2,500 villages in Italy and almost 3,000
in Spain are at risk of becoming ghost towns.
In Japan, 8 million or so buildings sit vacant.
As better jobs and modern lifestyles lure young
people to cities, what happens to the crumbling
hamlets they leave behind?
A few aspiring hoteliers are ighting brain drain and
rural light by turning abandoned buildings in their
villages into hospitality hubs. The Italians even have a name
for these towns-turned-resorts: alberghi difusi, or “scattered
hotels.”
In Matera, a mountain town in Puglia, one called
Sextantio has almost single-handedly put the region back
on the tourism map. The hotel’s 18 well-appointed rooms,
tucked into cave dwellings that were once part of a sprawling
Benedictine monastery, bring travelers from the world over
to live the medieval life in this once-forgotten spot. Likewise,
entrepreneur John Papadouris has been so successful
resurrecting his hometown of Kalopanayiotis in Cyprus—
68 thanks to his 40-room hotel and spa—that the country’s
September 24, 2018
president asked him to join the
government and do the same for 115
other communities in the area.
A visit to such properties can
feel like a journey to a long-lost,
simpler time, but in reality these
places are a harbinger of the future, a
template for how to save dying towns
all around the world. In Romania, the
owners of Village Hotel Maramures
are attempting to revive Breb, one
of Transylvania’s best-preserved
traditional hamlets, where residents still ride in horse-drawn
carriages. The bed-and-breakfast has rooms in four houses,
near the reported doorstep of Dracula’s castle.
Next year, in the Italian-speaking Ticino region of
Switzerland, the 10 or so remaining residents of Corippo
will complete a transformation of their town into a luxury
hotel, with rooms in once-abandoned stone cottages and
a “lobby” in the main square. The model is really taking
of in Japan, where Sasayama Castle Town Hotel—ive villas
throughout an Edo-era municipality known for its quality
beef—is now the lagship for Nipponia, a budding brand of
village hotels.
Giancarlo Dall’Ara, an Italian hotelier and tourism
marketing professor, set the irst and only standards for
these accommodations in 2012, when he created the
National Association of Alberghi Difusi. He penned a
manifesto identifying their core components: They cannot
occupy new structures, the scattered buildings that
make them up should be no more than 500 meters apart,
and they must contribute to sustainable socioeconomic
development. They must also act more like hotels than
Airbnbs, with clearly marked reception areas, hot
breakfasts, and other amenities. According to Dall’Ara, the
concept should be able to stem depopulation and create
jobs, alleviating the immediate crises facing many of these
fading rural communities. “This is an emergency,” he says.
In some places, entire villages have been put up for sale.
Towns in the Jura region of France or Galicia in Spain can
be had for as little as €150,000 ($175,000), the way of life
there having efectively ended.
Dall’Ara estimates there are roughly 110 alberghi difusi
in Italy, up from about 20 in 2008. The Airbnb revolution
has inadvertently contributed to the rise of this sort of
accommodation. The home-sharing platform has exposed
travelers to of-the-beaten-path destinations where large
hotels have yet to arrive and fueled
At Casale Panayiotis, the rise of so-called authenticity
a stone-walled church seekers. “Thanks to Airbnb and
on the grounds thanks to the fact that travelers
(left) and the spa
care more about sustainability now,
(top right). A guest
room at Nipponia’s this idea of ‘living like a local’ feels
Sasayama location current,” Dall’Ara says.
(bottom right). Here are four to book now.

CASALE PANAYIOTIS
Location: One hour west of
Nicosia, the capital of Cyprus
Best room: A Loutraki suite;
the building has the best
valley views and its own
restaurant
The vibe: Hillside retreat
John Papadouris, a civil
engineer by trade, grew up in
Kalopanayiotis, one of the tiny
towns dotting the Troodos
Mountains. Pampering was
the area’s local claim to fame:
Legend held that the Greek
goddess Aphrodite bathed in
natural grottoes in the nearby
Paphos Forest. Kalopanayiotis
itself first emerged as a spa
town, thanks to the curative
properties of its abundant
sulfur springs.
However, it wasn’t a place
where anyone could find
fortune—“there were poor
LEFT, TOP RIGHT: COURTESY CASALE PANAYIOTIS. BOTTOM RIGHT: COURTESY SASAYAMA CASTLE TOWN HOTEL
people and merely well-to-do
people,” Papadouris recalls.
After college, he found
brighter, more profitable
pastures in Dubai, a city
that he helped transform
from sand to skyscrapers
over a long career with the
infrastructure contracting
company Wade Adams.
By the time he revisited his
hometown in the late 1990s,
most everyone had moved to
Nicosia to find employment,
and the cobbled streets were
in disrepair. “The village had
not died completely,” he
says. “But if it originally had a
capacity of 1,500 people, only
200 remained. In another 10,
15 years, it would have been
completely dead.”
In 2000, Papadouris
downgraded his role at
Wade Adams and moved
home. Not long afterward he
became mayor—winning the
election by six votes—on a
campaign promise to bring
the village back
to life.
Papadouris
bought a few
abandoned homes,
envisioning them
as potential Airbnbs. The efort
helped him secure European
Union grants for townwide
historic preservation eforts.
By 2010 his renovations had
morphed into a 13-room hotel,
with a conference center in the
former home of a prosperous
family. He estimates that it
cost $6 million in both private
and public funding, or twice his
initial budget.
In the years since, the
hotel has grown to include an
additional 27 rooms across
multiple buildings and a spa.
Besides therapeutic bath
rituals, it also ofers a mosaic-
tiled Rasul mud chamber (for
mineral-rich scrubs) and a
couples treatment room that
can be booked for candlelit
nighttime massages. Most
recently, Papadouris added a
small vineyard on the village’s
periphery; this summer it
began bearing fruit.
“Nobody was employed
NIPPONIA
Location: 40 miles west
of Kyoto, Japan
Best room: Nokon 801
looks straight onto
Sasayama Castle
The vibe: Minimalist chic
Most village hotels are one-
ofs—but not Sasayama
Castle Town Hotel, which
opened in 2015 and was
expanded this August. It’s
the flagship
of a new
hotel brand,
Nipponia,
which is an
initiative from
a Japanese
historical
preservation
developer.
Set in an
in the village itself when I
started,” says Papadouris;
locals traditionally found work,
agricultural or otherwise,
beyond the town limits. “Now
we must have 100 or 120
people employed, half of them
in my hotel.”
His estimate doesn’t include
the thriving businesses that
have sprung up to support the
village’s newfound tourism
industry—apartment rentals,
tavernas, small grocery stores,
and the like. That’s why last
August, Nicos Anastasiades,
the president of Cyprus,
asked Papadouris to replicate
his tourism scheme across
the entire Troodos region,
covering 115 dying towns
in total.
As for Casale Panayiotis
itself, the hotel is finally
profitable, after almost a
decade of breaking even.
It’s selling out just about
every weekend of the year.
Still, Papadouris cautions,
“You can’t treat a project
like this as an investment.
As a businessman, I would
never do it.” From $134; 69
casalepanayiotis.com
Edo-era trading post, the
property has a cluster of
10 rooms spread across
seven centuries-old homes,
including the landmarked
former residence of a
wealthy banker and a
onetime geisha house.
Walking amid Sasayama’s
ceramic-tiled roofs, mossy
gardens, and traditional
pottery workshops is a
time warp.
In March, Nipponia opened
its second location, Sawara
Merchant Town Hotel, with
rooms occupying 100-year-
old wooden structures in a
sake- and soy-brewing town
some 50 miles east of Tokyo.
Guests use it as a base for
taking boat rides down
Sawara’s willow-lined canals
and enjoying indulgent,
kaiseki-style meals with
many, many courses, often
featuring local shellfish.
From $234; sasayamastay.jp
 TRAVEL
70
CORTE
DELLA
MAESTA
Location: Lazio, a 90-minute
drive north of Rome
Best room: The Writer,
which features a dark, floral
wallpaper reproduced from
Virginia Woolf’s London home
The vibe: Magical realism,
Italian-style
One of the smallest and
most picturesque alberghi
difusi sits on a hilltop
that juts out of the earth
like a divine throne. Corte
della Maestà makes up the
majority of a town called
Civita di Bagnoregio, founded
2,500 years ago by the
Etruscans as a trading post.
Bloomberg Pursuits
Time hasn’t been especially
kind to Civita: Earthquakes
and erosion knocked out
the bridges that once
connected it to neighboring
communities, leaving its
chestnut-lined, cobblestoned
streets and pastel buildings
accessible only by a narrow,
300-meter-long catwalk.
Among Civita’s 10 full-
time residents are poet and
psychiatrist Paolo Crepet
and his wife, Cristiana Melis,
who moved here to raise
their daughter “surrounded
not by richness but by
beauty.” He says that when
a real estate agent ofered
him the grandest building in
town, a towering structure
from the 15th century that
was once the archbishop’s
residence, “I thought she was
crazy—I’m not that type.”
But the original frescoes in
the private chapel, now his
living room, inspired him
to undertake an ambitious
restoration. “The whole thing
took 20 years, and it was just
the beginning,” Crepet says
with a laugh.
Eventually an elderly
neighbor decided to move
closer to the conveniences
only a city could ofer. So the
couple bought her home, too,
with the idea of turning it
into a guesthouse. “Cristiana
and I had space enough,
but we decided, why don’t
we think about it as a place
to welcome somebody?”
he says. Inside the Maestà
Suite, the kitchen walls are
festooned with copper pots
and pans, the living room’s
September 24, 2018
At Corte della Maestà,
dinner service (above) and
the “Wolf’s Lair” (bottom
right), where guests can
curl up with a book. Dining
at Chateau Castigno’s Thai
restaurant and La Petite
Table (top right).
historic stone fireplace
and wood floors have been
refinished, and the bedroom
upstairs is lined with rare
French wallpaper.
The narrative played out
a few more times, and Corte
della Maestà now has five
suites around town, most of
them clustered around the
archbishop’s former garden.
 TRAVEL Bloomberg Pursuits September 24, 2018

CHATEAU CASTIGNO

Location: Southern France, the area has lived here since

40 miles from the
Mediterranean
Best room: The former grape
pickers’ home, Maison de
Famille, has its own pool
The vibe: Oenophile oasis
Assignan, a
tiny town in the
wine-producing
Languedoc region,
is the ideal of
countryside charm.
On any given
morning, you can
stroll its sun-
dappled streets and stop at
its quaint cafes with pastel
flower boxes so impeccably
manicured, you may as well be
in Belle’s village from Beauty
and the Beast. The population
numbers 120, many of whom
are engaged in agriculture
and winemaking. (According
to local lore, the nearby
vineyards are older than the
Roman Empire.) The family
LEFT, BOTTOM RIGHT: PHOTOGRAPHS BY ANDREA FRAZZETTA FOR BLOOMBERG BUSINESSWEEK. TOP RIGHT: COURTESY CHATEAU CASTIGNO (2)
the 10th century.
These days, almost as many
people work at the village’s
hotel, Chateau Castigno,
as in the wine trade. The
resort, which opened in 2016,
employs up to 20 percent
of the town depending on
the season. It occupies a
12th century castle—where
its owners live—plus a dozen
other buildings, all of them
blissfully free of Wi-Fi. Dinner
is at any of the property’s
three restaurants: a fine-
dining spot called La Table;
the Asian bistro Le Thai; and
La Petite Table, a wine bar.
“This might look like
a typical French village,”
says property director Elsa
Manelphe de Wailly. “But
behind the scenes it has 71
nothing to do with a traditional
French village. We speak
Spanish, English, German,
Italian. It’s kind of a laboratory
of hospitality.” From $304;

with the longest connection to villagecastigno.com

Crepet claims that none of

the buildings he owns—or
any of the structures in town,
for that matter—were built
after the 1700s. “There’s no
other village that can say that
in all of Italy,” he adds.
Today he and Melis serve
their guests breakfast in the
garden, send them on olive
oil tastings or horseback
rides during the day, then hire
local women to cook rustic
dinners in the archbishop’s old
canteen before arranging late-
night glasses of wine in the
village square. “It’s not a hotel,”
Crepet says. “It’s part of our
home.” And it’s busy, booking
up with corporate retreats,
families, and honeymooners
from early March through
November. From $350;
cortedellamaesta.com
 DRIVE Bloomberg Pursuits September 24, 2018

Less than a year after V-E Day, the

CEZETA STATS
Italian fighter plane maker Piaggio

The introduced a Jet Age-inspired motor-

bike that quickly won accolades for
its cool design and twitchy engine. It
Motor

Scooter That
11kW/15hp
was called the Vespa, or “wasp,” and it
was a hit in Europe well before Roman Top Speed
Holiday made it a Hollywood icon. 75 mph

Communism About a decade later, across the Iron

Curtain, a motorcycle manufacturer
in Czechoslovakia came up with com-
Range
100 miles

Built munism’s answer to the fast-growing

scooter phenomenon: the Cezeta.
The intent was to create a streamlined
Price
$11,600

design like the Vespa’s, but the bike’s

An electric version of a long-
forgotten Czech bike aims to
recapture the mood of 1960s
Prague. By David Rocks
72
squat proile and porcine snout earned it the nickname
prase, or “pig.”
The Cezeta was produced only from 1957 to 1964, as com-
munist central planners deemed it too frivolous to ply the
byways of the budding workers’ paradise. Only a few hun-
dred of the originals remain roadworthy.
“I saw one and was attracted immediately,” says Neil
Eamonn Smith, founder of a group that’s reviving them. His
Prague-based company is churning out Cezetas, though with an
electric powertrain and starting at a decidedly un-communist
€10,000 ($11,600). “It’s very eccentric, unexpected.”
Smith, an Englishman who’s spent two decades in Prague,
repaired his irst Cezeta in his barn and soon ended up need-
ing a half dozen to provide the parts necessary to keep just
one or two running. The hassles spurred him to rebuild a
vintage Cezeta as an electric. Once he had a working proto-
type, he made a discovery: The original manufacturer went
bankrupt after 1989, and the company that bought its assets
didn’t claim rights to the design or the Cezeta name.
Smith registered the brand himself, and last year he
opened a factory outside Prague where he can make 10
bikes a month, which will climb to roughly 25 in January.
He has contracts to sell almost 50 scooters and has delivered
about two dozen to customers. Next year he aims to start
selling his bikes in the U.S., starting in California, Florida,
and Texas.
The vehicle its into the category of “so ugly it’s beauti-
ful.” At 2 meters (6 feet 6 inches) in length, the Cezeta has a
longer wheelbase than most scooters, giving it a stable ride.
The original design also included a hump between the driv-
er’s legs, which provided Smith with a low-slung spot to put
the 65-pound battery. While it’s not hard to ind Chinese-
made electric scooters for around $2,000, the Cezeta’s speed
COURTESY CEZETA MOTORS ARCHIVE

and size put it into a higher class. One rival will be BMW’s
C Evolution, which costs about $2,000 to $3,000 more but
comes backed by BMW’s reputation and global resources.
Still, Smith thinks his scooter belongs in a class of its own.
“It’s cool, it’s Czech, it’s rare,” he says. “We have an inter-
esting history to sell.” We’ll ind out how interesting soon
enough: Vespa will release its own e-scooter in October. 
 Se tem er 24, 2018

Sobrasada aces one ma or roadblock ompressin roun meat wit sa

on its wa to wor omin n ices to reserve i o res
tion: its name. Ita ian, or presse — ecame prev
The so t brick-red- nt r un e Me terr ne n.
colored sausa e from B the 1600s, sobrasada
M ll rc i s fr was a signature prod
quentl con used ct o Mallorca, one o
ith its better-known e B ric I n
stant It ian cousin ast o Spain.
soppressata, the d imate
salami amiliar to an one ates e a
ho’s ever sampled a cha rie at a
cuterie platte produces.
But sobrasada ans, who ndu a’s
pprec ate ts pun ent sp c ot most o
ness mix with a me -in ondition
ur-mouth richness, believe to han
it wi ecome as ar as h for
its Italian counte art. Che ar . In
a o Tr oc i uses t ion o
a in a ew wa at his el ant llorcan
anish restaurant Del Mar in h
Washin on, D.C. “It’s the next uct, like
nd a,” he s s, referri to the o.
tren y, rea a e or menus
uct r m C ri t c . ture 7
use to unch u sta, ots of La Vara
mussels, and izza. rves it on
br s d is m de r m . Rincon
cured raw rk mixed with uses it as a
sa t, er, an ot i a.
ike ndu , it has the bene t o n ind
so t texture. “It’s more use ul nish Table
than hard saus e,” sa Trabocchi, 99 a ound.
wh stirs it int the b se st ca ’s ’Nd a
duck aella and o ers it at brunch in est comme
a ric tomato sauce on sun -si e- To Fiasche
. His e erred service is as char rasa a out
cuterie, where he takes advant e o sé Andrés’s vaunted
the smooth attiness b servin it table nt Ja eo in Las Ve s.
side rom a warmed s on, so it melts e asche used -o -the-
ever so s t on t e p ate. s an ic smo e
So rasa a ma e re ative “At irst le didn’t know
ew to t e U.S. ut it ates to t e at so rasa a was,” e sa . “N
INSIDER INGREDIENT
Renaissance, when the techni e of it’s hard to kee with demand.” 

Sobrasada, a so t sausa e rom Mallorca,

is spicing up menus across t e U.S. y Kate Kra e
otograp y Danny Kim
 CRITIC Bloomberg Pursuits
Keeping
A Level Head
A book about how previous
presidents handled turbulent
times is strangely comforting
By Kevin Cirilli
How does the occupant of the White House sleep at night?
That was the question at a recent talk among chief exec-
utive oicers and Pulitzer Prize-winning historian Doris
Kearns Goodwin. Abraham Lincoln, prone to depression,
read Shakespeare’s comedies. The ever-anxious Theodore
Roosevelt drafted letters to friends telling them not to worry
about him if he lost reelection. Franklin D. Roosevelt, during
the height of Germany’s occupation of Europe, pictured him-
self as a child, in Hyde Park, sledding.
74 Goodwin’s new book, Leadership:
In Turbulent Times, is a bit of a head
fake: Its title is seemingly tailor-made
for 2018, but her subjects are four
American presidents of bygone times.
The 368-page opus interweaves sto-
ries from the lives of Lincoln, both
Roosevelts, and Lyndon Johnson.
Although Donald Trump is never
mentioned, her examples serve as an
indirect critique of today’s hysterical
political climate.
I like to read before bed. But as the
chief Washington correspondent for
Bloomberg News, it’s impossible for
me to stay up reading a book about
former presidents, because the cur-
rent one is usually tweeting late into
the night across town. And yet the
value of unplugging comes up often: Lincoln frequented
the theater (oof ), Teddy Roosevelt exercised for two hours
every day, and FDR hosted cocktail parties where guests
were told to discuss books, movies, gossip—anything but the
war. Johnson reminds me a little of Trump: LBJ was famously
plugged in, so much so, he kept telephone switchboards on
a loat in a swimming pool at his Texas ranch.
At her best, Goodwin makes these American luminaries
accessible and admirable. She zeroes in on one speciic crisis
each faced: Lincoln’s Emancipation Proclamation, Teddy’s
management of the 1902 Coal Strike, FDR’s irst 100 days
September 24, 2018
(at the height of the Great Depression), and Johnson’s Civil
Rights Act, after the assassination of John F. Kennedy. There
are even self-help-style bullet points that detail leadership
tips for nonpolitical types.
Throughout the book, she steers irmly clear of today’s pol-
itics, which is unfortunate. It’s impossible to read these sto-
ries of former presidents without making inferences about
our current one. (Goodwin has said that she started the book
before Trump won the election.) For example, she spends
a lot of time focusing on the ability of each of her subjects
to control his temper during a crisis. Lincoln was known to
draft “hot letters” when he was angry, then toss the notes
in the trash instead of in the mail. FDR would write several
iterations of his “Fireside Chats,” until he eventually edited
out the criticisms of his political foes. During the Coal Strike,
Teddy Roosevelt’s ability to remain calm in tense meetings
between coal bosses, miners, and J.P. Morgan was vital to
resolving the conlict.
Reading that, I couldn’t help but think of President
Trump’s brash negotiating style and his Twitter attacks
against CEOs and foreign leaders, which send ripples through
the markets and disrupt trade deals. This will surely be the
foundation for how Trump’s communicative style is remem-
bered in books like this; a lack of restraint that, depending
on your political leanings, is either
refreshing or repugnant.
Johnson, likewise, wasn’t afraid
to berate staff in front of others. It
was efective, Goodwin says, mostly
because “he worked harder than any-
body else.” This assessment reminds
me of conversations I had with some
of Trump’s earliest political stafers,
including original campaign manager
Corey Lewandowski, who described
him as a relentless boss who worked
all the time and demanded the same
from his staf. It’s a side of him most
Americans don’t see—one that histori-
ans will have to work to highlight amid
the other noise. And does he have
methods of relaxing other than play-
ing golf? We don’t really know.
The subtext that runs through the
book is that our current president is abnormal, that his lead-
ership is unlike any other president before. But after reading
about the mental health of her subjects—Lincoln was so suicidal
at one point in his early 30s that aides removed scissors from
his bedroom—the idea that there is one kind of temperament
ILLUSTRATION BY BRANDON CELI
or psychological state that is “presidential” simply isn’t true.
In a weird way, I found it comforting to know that previous
occupants of the White House struggled with their own sleep
and assorted emotional issues. Whether Trump will use any
of the tools in this book to keep himself calm in the face of a
real crisis—well, it’s enough to keep a reader up at night.
THE ONE Bloomberg Pursuits September 24, 2018

THE FIELD
• Released in 2017, a
Supreme deck adorned
with Cindy Sherman’s
Untitled #175 (1987) is
available through StockX
for $495.
• A limited-edition deck
from 2012 featuring a
bright-pink-and-green
work by Keith Haring is
listed as new at Chairish
for $340.
Avant-garde artist • The Magritte Foundation
and the Skateroom ofer
Yayoi Kusama lends a $350 deck, limited to
her signature dots 250 pieces, adorned with
surrealist painter René
to the $150 million Magritte’s Son of Man.
global skateboard
THE CASE
market. Photograph These decks are certainly
by Will Anderson grindable on the street,
but they’re better suited
for your walls. Look at the
artist partnerships from
Just as skateboarding Supreme, a cult skate
has long been adjacent brand in its own right that
to mainstream sporting released limited-edition 75
but not quite a part of it, decks with Jef Koons,
Yayoi Kusama, with her Takashi Murakami, Richard
dazzling Infinity Mirror Prince, and Damien Hirst
Rooms and landscapes of for more than a decade.
polka-dotted pumpkins, All the decks quickly
was an art world outsider sold out; in the case of
for many of her early the Hirst skateboards, a
years. Now a collaboration triptych, resale prices have
with the MoMA Design topped $10,000. Kusama’s
Store will allow fans to paintings have garnered
take home a piece of her $7 million at auction, and
idiosyncratic vision—or her Infinity Mirror Room
even ride of on it. The exhibitions consistently
89-year-old Japanese sell out. If you like her
artist has emblazoned work, consider this a route
her beloved dots, in to art cred—and street
vibrant shades of yellow cred—for not a lot of cash.
and black or red and $200; store.moma.org
white, on the decks of
$200 skateboards. The
release is perfectly timed:
Skateboarding makes its
debut at the Olympics in
2020 in Tokyo, Kusama’s
city of residence and the
location of a new museum
dedicated to her work.
  LAST THING
Why the Fed Is Scared
Of This Very Safe Bank
By Matt Levine
The Federal Reserve is, among other
76 things, a bank for banks: They keep
deposits there and earn interest at a rate
currently set at 1.95 percent. Big institu-
tional investors that aren’t banks can
also deposit money at the Fed, but they
use a diferent program with a lower
interest rate: 1.75 percent.
This suggests an obvious trade. An
institution could deposit money with
a bank, which would then turn around
and deposit it with the Fed. The Fed
pays the bank 1.95 percent interest, the
bank collects a fee for its trouble, and the institution gets
the balance—say, 1.9 percent.
In fact, a bank has started up to do exactly this. It’s
called TNB USA Inc., which stands for The Narrow Bank, a
reference to a business model that’s as narrow as can be.
All it would do is take deposits from institutions, plop them
into its Fed account, and pass along the interest earned.
Because its functions would be limited, its costs would be
low. More important, its risks would be low. By putting
its money only in Fed reserves—rather than mortgages or
business loans or securities or derivatives or any of the
other things regular banks get up to—it could do what they
ILLUSTRATION BY GEORGE WYLESOL
can’t: give large institutional customers absolute assurance
they’ll get all their money back.
There’s a hitch in TNB’s plan. When it applied to open
an account with the New York Fed, the Fed said no. Now
TNB is suing, arguing not only that the law requires the Fed
to give it an account but also that the Fed should want to.
With Bloomberg Opinion
Bloomberg Businessweek (USPS 080 900) September 24, 2018 (ISSN 0007-7135) S Issue no. 4585 Published weekly, except one week in January, February, April, June, July, September, and December, by Bloomberg L.P. Periodicals
Mississauga, ON L5T 2N1. E-mail: bwkcustserv@cdsfulfillment.com. QST#1008327064. Registered for GST as Bloomberg L .P. GST #12829 9898 RT0001. Copyright 2018 Bloomberg L .P. All rights reserved. Title registered in
changes to Bloomberg Businessweek, P.O. Box 37528, Boone, IA 50037-0528. Canada Post Publication Mail Agreement Number 41989020. Return undeliverable Canadian addresses to DHL Global Mail, 355 Admiral Blvd., Unit 4,
the U.S. Patent Office. Single Copy Sales: Call 800 298-9867 or e-mail: busweek@nrmsinc.com. Educational Permissions: Copyright Clearance Center at info@copyright.com. Printed in the U.S.A. CPPAP NUMBER 0414N68830
postage paid at New York, N.Y., and at additional mailing offices. Executive, Editorial, Circulation, and Advertising Offices: Bloomberg Businessweek, 731 Lexington Avenue, New York, NY 10022. POSTMASTER: Send address
Institutional investors looking to park
cash somewhere safe tend to skip
smaller banks, preferring the stability
of the too-big-to-fail ones. TNB’s stabil-
ity comes not from its size but from its
narrow business model: It can ofer high
rates and more safety than a big bank,
injecting much-needed competition into
the marketplace.
The Fed hasn’t yet said why it denied
TNB an account. But you can see how
that business model—and that sort of
competition—might worry a central
bank. The point of a banking system is not to be as safe
as possible—or not just that, anyway. The point of banking
is to mobilize capital, to pool society’s wealth so it can be
invested in productive endeavors. “The money’s not here,”
says George Bailey in It’s a Wonderful Life, ilm’s most famous
depiction of banking. “Your money’s in Joe’s house—that’s
right next to yours. And in the Kennedy house, and Mrs.
Macklin’s house, and a hundred others.” That regular banks
take deposits and invest them in mortgages and business
loans makes them risky, but it also makes them useful.
Narrow banking cuts right through all of that. It ofers
institutions big deposits that really are safe but don’t get
put to work in mortgages or business loans or anything
else. They’re just held in reserve at the Fed, safe but ster-
ile, pure abstract money rather than risky but produc-
tive claims on the work of other people. As a trade, it’s as
safe as can be; but as a business model, it’s a little scary.
—Levine is a inance columnist for Bloomberg Opinion
W I L L YO U R
NEXT FINANCIAL
A DV I S O R
B E A R O B OT ?
F i n d o u t a t B l o o m b e rg ’s t e c h n o l o g y
s u m m i t t h i s O c t o b e r i n N YC.

Attend Sooner Than You Think, Bloomberg’s

premier technology event in New York City.
Learn how AI, digital currency and blockchain
technology are reshaping the very near future
of how we spend, save and invest.

O c t o b e r 1 6 , N YC

AT T E N D T H E E V E N T

b l o o m b e rg l i v e .c o m /s o o n e r- t h a n -y o u - t h i n k

Proudly sponsored by: