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Greed on Wall Street

道,领导也。一个领导要不断呼唤以及教导其下属。下属的错与过,皆因领导懒惰。

 
 
 
 
 

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24 interesting findings on how Wall Street destroyed itself.

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US FED policies were all set on wrong macro-economic theories - part 4  

来自浪里行舟   2011-10-08 13:21:04|  分类: The veiled US FED |举报 |字号 订阅

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When Professor Milton Friedman, father of modern macro-economic first used statistics to prove the direct link between the gradual increase in money supply and the GDP growth, he did not explain the true story behind it. If he did, that would demystify macro-economic right at its birth.

Here are the naked truths.

‘The rich get richer; the poor get poorer’ is a fact supported by concrete statistics. The Gini’s coefficient – a measure of income distribution of between zero and one – increased from 0.468 in 2005 to 0.472 in 2006 in Singapore. Even for a short one year difference, the income gap is widening. This is really alarming.

Now, I am going to share with you why this hypothesis is a reality. It is associated with the psychology of the businessmen and especially, the marketing managers.

“To increase revenue, drop the price to increase the demand,” the economists said. But this is a no-brainer. It may not necessary lead to increase in profitability. General Motors and Ford Corporation have been dishing out US$1,500 discount on most of the cars that they sold in the North America market since 2004. However, their bottom line has been in the red for several years. In early 2009, they asked Congress for tens of billions of dollars to save them from bankruptcy.

A good marketing manager seeks to increase price and its demand as well. This is what marketing is all about. In his mind, “Money in your wallet is not for you to keep. It is mine”. Following are a list of magnificent strategies.

Oral-B is a brand name for toothbrush and other dental care products (such as dental floss) manufactured by Procter & Gamble who acquired Gillette in 2005. Gillette claims that Oral-B toothbrushes are "used by more dentists and consumers than any other brand in the U.S. and in many international markets."

More than thirty years ago, Oral-B came strong with a marketing blitz saying that its toothbrush was artistically designed and was claimed to brush better. Do you know what was behind that advertisement blitz? It costs me two dollars more. The old-fashioned toothbrush that I have been using for decades costs me only 60 cents a piece. Today, you can’t see an out-dated design, cheap toothbrush. Who says, outdated products cannot be re-packaged to fetch good profits?

William Shepphard first patented liquid soap on August 22, 1865. In 1980, the Minnetonka Corporation introduced the first modern liquid soap called SOFT SOAP. Minnetonka cornered the liquid soap market by buying up the entire supply of the plastic pumps needed for the liquid soap dispensers. In 1987, the Colgate Company acquired the liquid soap business from Minnetonka.

I have no idea if solid bar soap cleans better than liquid soap or the other way round. But there are two obvious differences. One, a piece of solid bar soap can last me months but a bottle of liquid soap can’t go half that period. Two, a bar of soap costs me less than 50 cents. But a bottle of liquid soap costs me several dollars. This is my choice of classroom case study for the marketing concept, ‘increase price and increase demand.”

Thirty years ago, a hamburger weighed one-third less than what it is now. To get more money from you, the hamburger was upsized to make you feel that it is a good deal – although McDonald’s inconspicuously increases the price too. When the waiter asks if you want to upsize your drink, McDonalds is thinking to get more money from your wallet. Do you really need the one-third bigger burger or the additional up-size of 50 cc soft drinks? Certainly, your waistline is telling you, you don’t need them.

To date, McDonald's has sold over 100 billion hamburgers. According to the McDonald's philosophy in the 1970s, in 3 out of 4 families, it's the children who decide where to eat. Pleased the child and you would capture the entire family. That idea certainly worked. The McDonald's burger has not only spread from coast to coast in the U.S., it has also multiplied globally. As of 2007, there were more than 31,000 McDonald's restaurants throughout the world. Sadly, wherever McDonald’s has set its foothold at, more than half of the population (including the children) there is either obese or over-weight.

What was the most brilliant idea to increase the sales of MSG – monosodium glutamate that goes into your soup and food? Increase the hole-size of the MSG screw cap bottle, so that more of it will fall onto your bowl or plate in every shake. Do you really need more MSG on your plate? The answer is no. But the marketing people say, “That is a brilliant solution to take more money from your wallet.”

In 1990, I went to a Denver steakhouse and ordered a set meal for dinner. When it came, I exclaimed, “My goodness! I can hardly finish half of the main dish.” My local colleague told me, “Here, the restaurant will pack what remains unfinished on your plate and you can take it home.”

I shook my head in disbelief and said, “Is that the way to take more money out of my wallet? I agree that larger portion goes with higher price. But certainly not so large that I had to take two meals to finish it.”

For decades I have been eating bread. My favorite was Gardenia bread. A loaf costs S$1.45. Today, everybody seems to stream to BreadTalk – a high-end bread franchise. It costs you as least five times more to fill your stomach for breakfast. Breads sold in BreadTalk are in much greater variety, tastier, and have better presentation. This is a great strategy to take a lot more money out of your wallet.

In just over six years, BreadTalk has become a distinctive Singapore brand that has left its unmistakable mark on the world stage. Since serving up its first creations in 2000, BreakTalk has evolved into an award-winning boutique boasting over 500 different breads, buns, and cakes, each with its own unique name, personality and flavor.

As of October 2007, BreadTalk owned and operated 64 (49 BreadTalk, 15 Toastbox) outlets in Singapore, the People's Republic of China (PRC), and Thailand. The BreadTalk brand has also rapidly expanded in the region with 91 franchised outlets across Asia and the Middle East.

Since young, I would drink tea from a big kettle that my mother brewed every morning. If I were to go out, I would fill a bottle with it to quench my thirst throughout the rest of the day. Today, my children tell me, “Dad, nobody drinks the plain old tea that your mum brewed for you. Out there in the food courts or coffee shops, there are more than a hundred different kinds of soft drinks where you can pick and choose. It is a dollar-plus for a can.”

Drinking home-brewed tea is very cheap. But who drinks that now? The soft drinks manufacturers add sugar, carbon dioxide, flavorings, and designed the can so enticingly that you must drink it. That is how money runs out of your wallet.

The food courts are fixed with air-conditioners and are clean unlike the hawker centers where the environment is hot, a little old and run down. The food court operators justify their doubled-price for similar food offered in the hawker centers with “a more conducive and healthy environment to enjoy your meal”. It really is a re-packaging of a hawker center food that enables the operators’ idea, “To take more of your money as their money.” 

The Japanese food packaging industry has refined its art to the highest form. Cookies are nicely packed singly in bright, vibrant, and colorful individual wrapper to make the food more pleasing to the eyes. The aim is to present the cookies as sophisticated or up-market products.

What is the expectation from the whole exercise of packaging the food? Namely, to increase the selling price significantly and its demand at the same time. Beautiful packaging gives the buyers a sense of high value-added products. This is a fine, invisible hand of the Japanese businessmen that takes more money away from your wallet.

The marketing people find all kind of ways to make you eat more and drink more. You are a poor victim of their brilliant idea, “Your money is my money.” You can’t stop that trend. Unless you learn to value your life, you would not stand up and resist their temptations. Read on.

Foie gras is one of the most popular delicacies in French cuisine. The duck or goose is fed a controlled, large amount of corn mash through a tube inserted into its esophagus. Force feeding produces an enlarged more fatty liver. You call this cruel? No, it is your money that the farmer is going after.

The choicest cut of steak comes from cattle which are raised with a special feeding procedure that fattens it. Wagyu (Japanese cattle) is renowned for its flavor, tenderness, and well-marbled texture, qualities enhanced by traditional Kobe beef raising methods. American Kobe Wagyu beef is raised domestically providing customers in North America with a flavor unlike any other breed.

With intense marbling (which describes the clear, alternating layers of fats and lean mean), this unmatched beef has the highest percentage of mono-unsaturated fat of any beef in the U.S., resulting in rich, unparalleled flavor, rivaled only by its intense concentration of juices and tender texture. It is fattened meat and not lean meat that produces juicy steak. Doubling or tripling the price of Wagyu beef will take a lot more money from your wallet. No doubt about it.

All the chefs know more oil, more salt, and more fats are three secrets in cooking delicious dishes. However, these are the potent ingredients that cause high cholesterol and triglycerides or fats in our blood leading to high blood pressure, stroke and diabetes. It has been proven that more oil, salt and fats will cause slow-effect illnesses that will cost you a lot more money for drugs, medical consultation, heart bypass surgeries and etc.

The chefs have only one thing in their mind. It is their duty to satisfy your taste buds as if you are the food connoisseur. Short of that, they cannot take more money out of your wallet with repeat business. Otherwise, they will not get their year-end bonus.

We are all caught in this vicious cycle of business activities all geared towards one simple marketing concept, “Increase price and increase demand.” The price of everything goes up, including the basic necessities. You and I ended up paying more and more. And we certainly spend more because we cannot stop the marketing people who only think about: “Your money is my money.” Naturally, we can’t save. We remain as poor as we were before and certainly, for generations.

Remember, the business people continue to make more and more money out of the simple idea, “Money in your wallet is not for you to keep. It is mine.” They will never be kind to let you keep your money.

Coming back to macro-economic theory that monetary expansion leads to economic growth. Had Professor Milton Friedman ever asked: Where does the monetary expansion come from? Let leave the US Fed pump-priming efforts that were the results of much later and more unsound macro-economic theory.

Let’s go back to basics. All the above stories tell one thing in common. A gradual rise in the price of goods that peddled by the businessmen. A one cent increased in the price of the same commodity that was slightly altered in presentation to a consumer added one cent of profit to the businesses. With the cumulative addition of purchase made by millions of consumers, the additional profit goes into the pocket of the rich. The rich could not spend their additional wealth fast enough, so they let the banks do the lending. The additional money parked with the banks forced the banks to think of many ingenious ways to lend more money to the consuming public through all form of credits. And all form of credits given out by the banks is an organic form of monetary expansion. With more money pumped back to the economy in the form of credit expansion, the consumers increase their spending, hence, economic expansion or a resultant GDP growth.

In other words, the President or the US Federal Reserve or Congress does not have to do anything to boost up the economy. Let the organic expansion in credits do the job.

However, the pool of Professors who continue Professor Milton Friedman work in peddling macro-economic theory gave this bunch of fools more reasons to meddle with the money supply.  Of course, the end result is the top rich getting richer and richer by the day at the expense of the 99%.     

 

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