Magazine

BOP Theory Makes The Grade


"I am finding this Fed attitude of 'What, me worry?' to be a bit tiresome."—Jim Capra, head of Capra Asset Management, as reported by The Wall Street Journal

Here's a scary thought: That man you spotted scrutinizing a bridge through binoculars may be a transportation inspector. Even now, in the wake of the Minneapolis disaster, this critical task relies on fallible human eyes.

There are better ways to do it. Companies such as Material Technologies and Physical Acoustics are commercializing wireless sensors an inspector can slap on a bridge to diagnose cracks and stresses long before they become dangerous.

With these artificial eyes and ears, inspectors can see cracks beneath paint or rust and listen to the groans of an ailing bridge, much as a physician puts a stethoscope to a patient's chest. Coaster-sized sensors can monitor vibration, temperature, and corrosion, and relay data to the appropriate Transportation Dept.

Los Angeles-based Material Technologies places sensors between metal sections of a bridge. The company then drives a heavy truck over that area while a computer monitors the emitted signals, watching for that one crack out of many thousands that could cause havoc. "In 10 minutes we get a readout that's equivalent to an electrocardiogram for your heart," says CEO Bob Bernstein. A system like this can test a typical 100-foot bridge for as little $8,000. Installing sensors on just a fraction of bridges classified by authorities as "deficient" could save hundreds of thousands of dollars--and avert a catastrophe.

Sensors from a number of startups are now used on bridges in over 20 states.Physical Acoustics, based in Princeton, N.J., offers a sound-based approach. For fees starting at about $35,000, it will install a sensor to listen to creaks from fissures or the popping of steel-cable fibers, sounds that could be heard months before any flaws are visible to the man with the binoculars.

Experts who can analyze such data are still in short supply. But their ranks are bound to grow, if only because traditional inspection techniques are so inadequate. In a 2001 study by the Federal Highway Administration, visual inspections correctly identified fatigue cracks only 4% of the time.

Toledo's Glass City Skyway is quite a looker, with its tower covered in lights programmed to change color. But the real innovation in the 8,800-foot-long cable-stay bridge is invisible to nonengineers. The bridge uses a new technology that makes it far simpler for inspectors to determine whether it's safe. Traditional cable-stay bridges have cables that attach to the tower and to the roadway on either side. The Toledo bridge uses continuous cables that rise from the roadway through tower "sleeves" and down to the bridge's other side. This makes repair easier because the cable strands, kept separate within the sleeves, can be slipped out individually for inspection or replacement without closing the bridge.

Pattern-recognition technology has been an important tool for law enforcement, from profiling facial tics to flagging credit-card use that might indicate a wallet has been lifted. The latest application: nailing mortgage fraudsters.

BasePoint Analytics, a Carlsbad (Calif.) software startup, has created a pattern-recognition model to rank the loans in mortgage pools by fraud risk. Bundled by Wall Street, such loans are sold to investors and hedge funds.

BasePoint's model draws on data from 4 million mortgages and 30,000 fraud characteristics--exaggerated income and property values, for instance. Since the model was launched in March, BasePoint has signed five top Wall Street banks as customers, it says, and flagged some $900 million in suspect loans--$300 million of which proved to be fraudulent. Given the current mortgage market meltdown, Wall Street is itching for ways to unload problem loans. Says BasePoint CEO Tim Grace, a 10-year veteran in fraud detection with credit-scoring company Fair Isaac: "I wish we had entered the industry five years ago." So do a lot of investors.

Call it Facebook for the fabulous: an online social networking site with an invitation-only membership of just 250,000 in 200 countries. Launched in 2004, A Small World is a "high-end Zagat's and Monster Jobs rolled into one," says its founder, former Lehman Brothers (LEH) banker (and Swedish count) Erik Wachtmeister. Word is still spreading, he says. Membership has doubled over the past year. (The site now plans to open a second office, in London.)

Among the site's members: high-profile types such as Ivanka Trump, Naomi Campbell, Tiger Woods, and Microsoft (MSFT) co-founder Paul Allen, along with people--some 45,000--who identify themselves as investment bankers, consultants, or fund managers. What sort of networking goes on? A visitor given access to the site for reporting purposes found a recent post inviting others to a political fund-raising barbecue in the Hamptons. In another discussion, members offered advice on financing a private-jet venture.

Wachtmeister says the site--which carries ads from the likes of Moët & Chandon (LVMOY), Tag Heuer (LVMOY), and Diane von Furstenberg--does not solicit members out of the blue. Invitations to join must come from members. Still, it's not clear if there's much site activity behind some of the famous faces. Ivanka Trump has busily accepted 331 "friends" since joining in 2005. But Tiger Woods, who signed up in 2004, has just one. Woods could not be reached for comment, so we asked to be added to his "friend" list. Still waiting to hear.

epicureandealmaker.blogspot.com

Run by an anonymous, self-described investment banker, this blog is all about the art of the deal. It also made some early, insightful calls about the pain that subprime loan defaults and tighter lending rules would inflict on the stock market. The tone here is both smart and snarky: In a recent post, the blog's author displays a faux (and profanity-riddled) "spreadsheet" he pretends is a real document created by Blackstone Group's (BX) Steve Schwarzman to track his company's newly issued shares. In another, he complains about hedge fund art collectors who throw "ludicrous amounts of money" at "second- and third-rate art."

The best place to find women in senior positions, according to a recent study: Washington, which has 45% more top female executives per 100,000 residents than New York does. The Greater Washington Initiative, which analyzed U.S. Census data for the study, says the difference is due to the concentration of

nonprofits and consultants in the capital, along with the federal government. While the feds employ only about 10% of the region’s workers, its equal-opportunity policies may influence other employers.

Buyers of Saturn vehicles beware. If the authors of a new study have their way, banks may one day charge you a higher interest rate on your car loans. Among the findings in the researchers' sample of almost 7,000 loans from a single bank: Although not the worst delinquents, Saturn buyers are 22 times more likely to default on their loans than Toyota (TM) buyers are. In fact, owners of American cars generally are more likely to default than owners of European or Japanese cars.

The research, in a forthcoming book, Household Credit Usage, published by Palgrave Macmillan, shows that default probability isn't only a function of credit history. Brent Ambrose, lead author of the book and the study, says loans secured for European cars are 50% less likely to go into default than loans for American cars. And owners of Japanese cars are 56% less likely to stop paying.

The study looked at auto loans made from January, 1998, to March, 2003--a period when Detroit cranked up its 0% financing deals and offered six- and seven-year paydowns. Foreign automakers and their dealers did far less of this type of lending, which attracts borrowers with poor credit.

Ambrose, a professor at Penn State's Smeal College of Business, argues that loans for American cars "should have significantly higher interest rates to compensate for higher default risk." And to balance the higher risk, carmakers, he says, should raise prices.

That would mean that buyers paying cash would be subsidizing borrowers with poor credit. And the last thing Detroit needs is for its best customers to have to pay a premium to buy American.

As the amount Americans spend on their pets reaches roughly $41 billion (BW--Aug. 6), preppy-clothing king J.Crew (JCG) is preparing to sell duds for dogs. The company has filed an application with the Patent & Trademark Office for Crewmutts, the name it envisions for its canine line--collars, leashes, and accessories expected to hit stores in time for Christmas. Although a spokeswoman downplays the items as "just a few fun things," the application covers sweaters, coats, and even footwear.

It's familiar territory for J.Crew CEO Mickey Drexler, the former head of Gap (GPS), whose Old Navy unit has a small line of puppy products, including T-shirts.

Some on Wall Street see real money in the tonier J.Crew's going to the dogs. Crewmutts might appeal to upscale customers who have an inclination to deck out their pets, notes a report issued by CIBC World Markets (CM). What's more, figures CIBC analyst Roxanne Meyer: "Can't you see your argyle sweater and rain boots on Fido?"

This fall more B-schools than ever will offer course work in "base of the pyramid" theory--the idea that corporations can help eradicate global poverty by turning the poor into micro-consumers and small-scale entrepreneurs. According to Aspen Institute, a Washington nonprofit, it's a sign that BOP theory has gone from buzz to B-school staple.

The institute's recently released biannual survey of 112 business schools in 21 nations found a sharp rise in interest in the subject. In 2005 about 60 schools offered such study, up from 13 in 2001. Final numbers for 2006-07 aren't in, but growth "has been tremendous," says Rich Leimsider, a senior program associate at Aspen.

BOP projects also are on the rise. In rural India, about 35,000 women sell low-priced soaps, shampoos, and laundry detergent to fellow villagers in a program run by Hindustan Unilever, a unit of Unilever (UL). In other initiatives, some with backing from foundations, the poor buy and sell computers or reading glasses.

BOP theory has its skeptics. University of Michigan B-school professor Aneel Karnani says the economic potential of the market is exaggerated and that the poor are helped by becoming producers rather than consumers. But supporters remain enthusiastic. Michigan B-school student Nina Henning, who worked on an Indian project this summer, says she's "eager to get as much exposure as possible" to BOP programs.

By Alison Damast

Edited by Deborah Stead and Hardy Green


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