by Peter H Frank | Apr 11, 2013 | Business |
This almost reads as a parody of what we saw in 2007. A parody because, certainly, we wouldn’t let it happen again. This has to be a joke. Right? And it might even be funny – if it wasn’t true.
Here are a few excerpts from The New York Times website this morning [full text, here]:
“Banks have been shedding risky assets to show regulators that they are not as vulnerable as they were during the financial crisis. In some cases, however, the assets don’t actually move — the bank just shifts the risk to another institution….
“Citigroup, Credit Suisse and UBS have recently completed such trades. Rather than selling the assets, potentially at a loss, the banks transfer a slice of the risk associated with the assets, usually loans. The buyers are typically hedge funds, whose investors are often pensions that manage the life savings of schoolteachers and city workers.”
Sound familiar? Here’s the first truly scary part:
Known as capital relief trades or regulatory capital trades, “most of these trades are structured as credit default swaps, a derivative that resembles insurance. These kinds of swaps pushed the insurance giant American International Group to the brink of collapse in September 2008.”
And then here’s the kicker (I recommend you sit down for this). To paraphrase, in part:
One of the consultants advising a pension fund in New Mexico that invested in one of these trades said that his deal “has a little flavor of that” (meaning AIG-type swaps) but that this time, the investors did their homework (unlike AIG) and this time they have a better understanding of the risks. So, you see, it’s ok.
I say: RUN! Run for the hills! Anyone who will tell you that “this time, we really understand the risks” is either suffering from pathological hubris or simply didn’t read a newspaper in the past six years.
The fact is modeling the risks for many of these derivative products is about as accurate as most economists’ long-term predictions or today’s weather map for Christmas. There are too many variables. Too many possibilities in the future that are completely impossible until they become possible when they actually happen.
That fact is no secret. It was a completely impossible event – a nationwide blip in US housing defaults – that exploded exponentially through these derivative products, which rendered them impossible to value, that led to the recent crisis. (Remember that one?) AIG insurance did not help. It did not have enough money. Suddenly the banks were holding momentarily valueless paper. And that was enough…the financial industry went into cardiac arrest…and the crisis began.
And now the regulators, powerless they say, are watching and lamenting as it happens again. Why is it so impossibly hard to understand that if children cannot be controlled on a giant playground, you don’t just throw up your hands, you take away some toys and restrict what they’re doing? I wouldn’t care if it’s just some investors losing money. But these guys are tied up, inextricably, to our retail banks.
None of this is new. The danger has been evident for decades. People whose job it is to safeguard our money should not be the ones to tell us what it’s worth.
I first learned this lesson – and trust me, so did the regulators – more than 20 years ago. I was covering the insurance industry in Maryland (insurance is state-regulated in the US), and at that time, a huge insurance company named SunAmerica (ironically bought by AIG some 10 years later), moved its place of incorporation from Maryland to Nevada.
Regulators in Maryland were relieved. It seems SunAmerica had started investing some of its customers’ money in something new back then called derivatives, some of which were related to the founder’s other company, a giant homebuilder in the west. How these investments worked, what the underlying investments were, and how much they were worth was all unclear to this small state agency in charge of ensuring the company was financially stable. So when the company left, despite the state taxes it paid, everyone breathed a bit easier.
(And just so you see how old some of these games are, the reason the company picked Nevada was generally believed to be because the top insurance regulator there was elected. And regulatory oversight was loose. In Maryland, the top regulator was appointed. How much better to be somewhere you can actually – and legally – give money to the person at election time whose job it is to watch you.)
To the regulators’ credit, what they did understand about these investments was that virtually no one understood them.
For those of you unschooled in (or just bored by) the fine art of derivatives, let me explain briefly. There is nothing inherently new in the idea. There is nothing inherently wrong or dangerous about them. It’s just thanks to computers, and some highly paid “quants,” that disaster is now possible.
The fact is even an IOU is a simple derivative. It’s a piece of paper whose value is derived from something else. Now let’s see how, if you’re clever and paid to create games with no substance, this might work:
I sell my bicycle to my friend A for $100. He doesn’t have the money so he will pay me $10 a month for 11 months (to pay interest). But I want all my money now, so I sell that IOU to friend B for $101. I made a quick one dollar profit and my friend B is now due to receive a total of $109 over the next 11 months (deducting the one dollar he gave me). If A does not pay the money, then B loses out. But B will take the chance because he knows I trust A and that if I fooled him, he will never buy from me again.
I now have my $100 back. And so I do this again. I buy a new bike – I sell it to C – I then sell the IOU to D – and I make another one dollar.
I like this game. And now here’s where it gets good. I call one thousand friends and sell each of them a bike. I take all the IOUs and I put them in a box. Instead of selling them each for one dollar, I sell the whole box to a rich friend for $1,000. I use $200 to buy insurance to protect my rich friend against possible losses if people don’t repay. He now will collect lots of monthly payments and by the end of it all, he’s made a profit of $9,000 (remember, he paid me $1,000). And I do this again, and again, and again.
My friend likes this game. He finds 1,000 people like me and he looks to buy 1,000 boxes. But for that he needs to borrow some money. It’s a lot of money so he needs lots of investors. Ok, he admits, some of these bike owners might not pay. So to some group of investors, he says, he’ll pay them back first. They won’t profit as much because there’s less risk. To another group, he says, he’ll pay them back second, or maybe third, and they’ll make a nicer profit but they have more risk. And just in case he’s wrong about being paid back, he’ll buy other insurance or trade some of his paper with somebody else’s paper in a way that will help insure all the payments. And he does this again, and again, and again.
And the investors like this. So they take their pieces of paper and they sell them, or pieces of them, to still other investors to raise still more money so they can invest in these more.
Now you tell me, what is that one last piece of paper really worth? And just what will happen when a million bicycle friends stop paying?
But who cares? Right? That box full of IOUs has suddenly transformed.
“The loans then look less worrisome — at least to the bank and its regulator,” The New York Times story explains. “As a result, the bank does not need to hold as much capital, potentially improving profitability.”
And how does it end? Like any terrifying movie, there’s always the promise of a sequel.
“These trades allow the banks to go to regulators and say the risk is gone,” said Anat R. Admati, a professor of finance at Stanford University, according to The Times. “But it’s not gone at all; it’s just been pushed into a murky corner of the market.”
[Update: A new NYTimes story, here.]
by Peter H Frank | Apr 5, 2013 | Business, Media |
I am against child abuse. You should be, too. But I’m not sure you are. Not enough anyway.
And I want you to care. So to get you to care, I will soon publish photos. Photos of children with disfigured faces, beaten until they are bloodied, swollen and broken. Children with limbs that are twisted and snapped. Children with burns and unthinkable scars across their bare bodies. Children who’ve been tortured, maybe a few who are dead.
And if that doesn’t do it, I’ll tell you they deserved it. They misbehaved and spoke back. They were messy or noisy or they just didn’t listen. And I say that’s what you do to children like that.
Are you with me so far? Did I get your attention? Now do you care?
Ok, don’t be too worried. The photos aren’t real. I created them on my computer. But I’m not going to tell you that. Because I want you to care. I need you to care. And so you can care, I first need your attention.
Here’s the best part:
Now that I’ve done that, now I want you to trust me. Because I’m here to be trusted. I came here to help. I want you to call me. Maybe give me some money. Of course, you can trust me. Why wouldn’t you trust me?
Sure, I just tricked you. Falsely provoked your emotions. Manipulated your feelings. (Oh, that was so easy.) But wasn’t it worth it? It was for a good cause. My intentions were good. And now that it’s done and I have your attention, I promise you can trust me. (Until maybe, that is, I do it again. But only if I need to. Because I want you to care. And I’m not sure that you do.)
For those of you who missed it, this is, in essence, what the Sensiblu Foundation did a month ago on March 8, Women’s Day. Except the issue was not children, but violence against women. Domestic violence. A serious, heinous, and unacceptable crime and one that happens all too often everywhere.
To get your attention, to get you to care, it seems the foundation hired a bunch of misguided (to put it kindly) advertising people who came up with the idea of arranging (secretly) to have a couple guys call Radio Guerrilla during a program (that the agency set up) on domestic violence and fake their support for beating up women, saying things like women needed it, or sometimes deserved it. (Can’t you almost hear the giggling in the background?)
But that’s just the first step. Then the next day, ProTV broadcast a news story about the controversy that the radio program generated. In the story, it included information from the Sensiblu Foundation about the fact that it offers support and programs for these women who are beaten. (Isn’t it great?)
Finally, the foundation, four days later, admitted the whole thing – including this precious nugget from Sorana Somesan, a senior copywriter at the advertising agency, G2 Romania, that dreamed this up:
“The way we implemented the campaign, live at Guerrilla in the Morning, generated revolted reactions both from listeners and online. That was exactly what we wanted.” (Yes, and of course, they had also considered using photos.)
“Everyone was disturbed. Perfect! This is the first step towards changing the attitude related to this phenomena that is perceived as a sad normality that one chooses to ignore.”
To which, I think, the only appropriate response is: WHAT!? Are you JOKING?! Are we in the eighth grade?! You have committed one of the most egregious examples of a corporate brand manipulating public opinion and then lying and you think that’s great? (Or maybe “super awesome” is a more apt expression here.)
Now, I was not going to write about this. Really. I was going to let it go. It’s been weeks since it happened. I’m not in Hyde Park. I don’t need a soapbox to sermonize and I have no desire to start a movement. I like Sensiblu. I like the stores. The people are nice. The stores are well-stocked. I think they do a good job. I shop there a lot. Well, I did anyway.
Because since this happened, I can’t shake the ugly feeling that this disgusting and ignorant campaign has created in me. Yes, it got my attention. That’s for sure. And now I find there is something about the brand Sensiblu that resonates in me with unease. Now when I see their signs and commercials, lying and trickery are the first words in my head. Yep, that got my attention. It certainly did. And you did change my attitude. And now you know what it is? I don’t want to shop there.
To put it simply: Sensiblu, you owe us all an apology.
Let’s be clear. This is not an issue about a failure in media ethics, using the news to plant a fake story. That’s bad enough.
No, this is a question of failing corporate ethics and a manipulation that, at heart, abuses our trust. You see, at some point companies have to recognize they cannot do whatever they want. They cannot play with us that much. They do indeed have a responsibility. And they are culpable when mistaken. There is, finally, a limit to their games. They can play with us a bit. We allow that. It’s called effective marketing. Messaging. Positioning. We permit that.
But it’s a delicate game. Don’t play with our trust. And all of you involved have gone way too far.
I do understand that A&D Pharma, which owns Sensiblu, might never have been told of this asinine campaign beforehand. But the fact is it’s their name on the door, Sensiblu, whether for the shops or the foundation. It comes back to them. And they have not said a word. I know. I asked.
Indeed, asking just made it worse. I emailed six simple questions to A&D Pharma’s media office in the middle of Tuesday afternoon with a clearly stated deadline of close of business Wednesday. In essence, I wanted to know what the Sensiblu company thought about this.
Within an hour or two, there was evidence the foundation was notified. Yet it was not until well after 6 p.m. the next day, on Wednesday evening, that I received a response – not from the company press office but from Cristina Horia, the executive director of the Sensiblu Foundation. In an email, she thanked me for my interest and asked me a series of questions apparently to understand me better. She wanted, she said, to be certain to give me the “appropriate information” depending on my audience. Oh, and because of the “large number” of questions, they could not meet my stated deadline, which had already passed.
No, I concluded, they don’t understand. I responded Thursday morning that in my opinion the “appropriate information” from them would be “simple, honest answers” and I wasn’t sure how different audiences would affect that. And, I added, six questions, in my many years in journalism and corporate communications, was never considered a large number.
But mostly what I wanted to tell them was that these types of games – waiting past the next day’s deadline and responding to my questions with questions of their own – seemed to be part of the same misguided approach that led to their problems in the first place. By the way, Ms. Horia, given a new deadline Thursday, was never heard from again.
Similarly, an attempt to talk to G2 Romania didn’t fare much better. Reached during a meeting yesterday afternoon, G2’s Creative Director, Mihai Fetcu, assured me he would return the call later. He never did. (Does the press here usually tolerate this stuff?)
So given these responses, or lack thereof, let me attempt to explain this again. I’ll try to keep it simple:
It is wrong to start a fire and create a quick panic all in the name of building support for the fire department.
Understand? Trickery, deceit, alarm – those are the tactics of children and the ignorant. Ms. Somesan at G2, the agency, was further quoted in the press release as saying: “This is the first step towards changing the attitude related to this phenomena…” To this I respond: “No, my dear. You have set back your cause by cheapening it with a tasteless trick and a lie.”
If it was just to raise public awareness, your agency, I would suggest, has a distorted sense of what is justified. Because only marketers who have lost sight of their basic responsibility would do something like this. The agency brief might have said “Get Us Attention!” but the responsibility goes further, always, to safeguard the brand trust. Besides, the irony is we were so gullible to your trick precisely because we DO know it happens and we DO know there are imbeciles and apes who still think it’s ok.
The fact is you could have run naked through the streets with a sign on your head (which, by the way, would have been at about an equal level of sophistication), and you would have received the same momentary gawking attention, but without the long-lasting negative impact on the company and the brand.
But obviously, we disagree. I found this to be a disgusting, easy, adolescent manipulation of people’s emotions on a very serious issue that needs to be dealt with like an adult. You thought it was “perfect.”
So what, I wonder, will some agency or foundation think up next? Pretend, with fake photos and a news story, that there was a horrific car crash so that the issue of safe driving is raised and someone can announce a program for driver safety? How about an urgent report that thousands of children have been suddenly struck with a terrible disease in Bucharest so someone can promote a program of child wellness? Maybe they should go on the radio and talk about the benefits of rape, or perhaps the joy that is found in the organized killing of some minority, or how much fun it is to steal babies. Then their client can come to the rescue and remind people they have a program to stop it.
The simple fact is we did not need you to manufacture some phony controversy to make violence against women important. There is nothing fake about it. There is a very sad and dangerous reality out there of women being beaten. It is indeed a serious problem, a very serious problem, which is all the more reason you do not play with it. No matter what you believe the benefit will be.
So instead of provoking rock-and-roll listeners, you might consider provoking the police, the judges, and the politicians to take this more seriously. Now there is something that might be effective.
I don’t know if that would work. I do know, however, that if you spent a little more time thinking things through and considering the repercussions of your actions, you might come up with a better and more honest way to get our attention. And our help. Because if you want us to care honestly and deeply, then it requires you to be honest and deeply genuine with us. What sort of concern will we have if we are tricked into caring?
You said you wanted to generate “revolted reactions.” But everyone knows it is not difficult to upset people. There are many photos you can fake and lies you can tell to disturb us. We’re easy that way. Thankfully. Our emotions are quick and human and real. The question is have you motivated anyone with your cheap trick? Is that an effective teaching tool? Did your charade truly further your cause?
No, I say you did it a disservice, because the next time there is controversy about the need for public support to fight domestic violence, I among many others, I suppose, will wonder if it was staged, merely and cynically to provoke a response. In other words, I no longer trust you. And by extension, I’m not sure I trust your eponymous supporter.
Because you both might do this again. For another good reason. For another good cause. Maybe something else will need help. How about some quick corporate profit?
So let me repeat: I did not plan to write this. I did not think it was needed. Until I saw the response. And who got the blame? The radio station and agency. Sure, they were to blame in the sense that they were complicit. The agency certainly more so for creating the idea. (One of the radio hosts, to his credit, apologized to listeners.)
But the responsibility is not there. They created ideas. The responsibility, ultimate and clear, is with the foundation and the company for which it is named and by which it is supported.
To digress for a moment: the fact is that much too often in Romania I see the idea of ultimate responsibility painfully misplaced. The lowest employees are blamed for bad decisions. Their pay is cut in a simplistic punishment as if they were children granted a weekly allowance.
Why is it so difficult to recognize that it is the responsibility of the owners and managers to ensure that bad things don’t happen? And when they do (because they always do), these adults then accept the ultimate blame, learn from the mistakes, and work to ensure they don’t happen again. It’s like a disease in Romania, blaming the wrong person.
The simple fact is, if you don’t identify the right people as responsible – the companies, the owners, the top politicians – then nothing will change. They will continue to do whatever they want.
So yes, in this case, I understand why the agency was blamed. But that is overly simplistic. The responsibility, finally, is with those who have condoned this and have the power to change it. That’s the foundation and the company. Yet for the dozens of comments, angry and upset, that I saw on the internet, not one – not one single one – thought the company was responsible or should be criticized for this.
I disagree. The fact is I’ve worked at foundations and I’ve worked with many charities. We all knew that any repercussions from a mistake would be felt by the individuals or corporations who sponsored, or funded, or placed their name on the door. They were our boss, perhaps unofficial, but very, very real. Because if companies want the benefit of looking to do good, then they have to accept the risk of things going bad.
So Sensiblu, I want you to fix this. I would like to trust you again. I would like to feel good about shopping in your stores. I would like to know that some of the profit, which comes from my pocket, goes to your foundation that is doing good work.
Because the stated purpose of your foundation is admirable. They are all good causes and I have no reason to doubt the foundation works well. But in this case, they messed up and in truth, it raises serious questions to an outsider as to how well they manage or understand their tasks. A simple recognition that this was not an appropriate way to attract public attention would go a long way towards reassuring the public that the foundation does indeed have the maturity and judgment needed to fulfill its mission.
But you’ve not helped yourself. No, not at all.
So have I cut up my card? No. I considered it. But that seemed a bit dramatic. I have, however, taken it out of my wallet. It will now stay at home and the company’s competitors, which are usually next door, can have all my business. Maybe those companies will take domestic violence a bit more seriously – at least seriously enough not to play with it in some childish stunt.
Some related links from the past month:
March 9 – ProTV, here
March 12 – Sensiblu Foundation, here
March 17 – Blogger Simona Tache, here
March 18 – Blog Pagina de Media, here
by Peter H Frank | Mar 4, 2013 | Business, Politics |
The creation of a successful logo is a mix of skill, luck, talent, intuition, and hard work.
The most important rule, of course, (for almost anything) is “first, do no harm.” You don’t necessarily need to find a perfect shape, color or “feel” that intuitively communicates your product appeal and brand value. You can build that message later. But you do want to avoid confusing your audience or inadvertently associating your brand with an entirely wrong idea. (We’ll get to the ARD logo in a minute.)
Oftentimes, a logo has a meaning that only the company can discern. It tangentially reflects the company’s mission. The golden arches of McDonalds, the green mermaid of Starbucks, the swoosh of Nike do not speak intuitively to customers of the product being sold. Their individual logo value to the public was developed over time with the success of the brand and supported through marketing, the quality of the product, the customer experience, etc. Although the color certainly matters, it is the design in these cases that clearly have dominance.
That is not so true for all logos, however. In other industries, it’s a battle for color. The rental car business in the US is well-known for this. Red is Avis. Green is National. Yellow is Hertz.
The goal of any new logo, then, is to combine it all well: visually capture the strength of the name with an evocative shape supported by a font that “speaks” in the right emotional colors. (This of course, does not include Intel’s five-tone audio logo.)
Or just keep it simple. Build the value later with the right strategy and message. Beyond the talent and luck, it’s really not complicated.
So perhaps there’s nothing more instructive than to see it go wrong.
Here are two of my favorite recent examples of what not to do. [And I welcome your suggestions for others I’ve missed.]
The Doughnut Olympics
Perhaps you can see why I got sudden cravings for chocolate glazed doughnuts and a cup of black coffee last year during the Olympics. The BBC repeatedly ran stories under the theme London Calling, prompting a Pavlovian response in every American who was watching the channel.
And my favorite example:
Twilight Sparkle for President!
I realize that few, if any, Romanians will confuse their country’s new political party with small plastic horses with long flowing hair. But regardless, my suggestion is that unless Twilight Sparkle or Pinkie Pie are indeed running for president, the next political party here should look beyond sweet little hearts and the cute and cuddly fuchsia palette (the one meant to attract nine-year-old girls) when deciding on its brand.
