| | | | | |

 

| | | | | | |

 

| | | |

20200520 - making money the old fashioned way

Nigel Morris-Cotterill

The title is a pun. Well, probably not a pun, actually. It's taking a statement that isn't ironic nor sarcastic, an expression that's more term of art than literal, and - because it's English and we can do this kind of thing - twisting it into something with a single-use, throwaway, purpose.

The original expression refers to "that old fashioned look," which means half-way between flirtation and "come-hither." It's not quite an open invitation to a shag but it's travelling in that general direction. Strangely, I haven't had to twist it much.

Recently, an article in a blog called The Margins tells of the owner of a pizzeria which discovered that a food delivery service with which he had no relationship was advertising his restaurants as a source. What was worse was that the delivery company - which is propped up by venture capital and is, at least on the face of it, using predatory pricing to build its business - was advertising his pizzas at USD16. The proper price is USD24.

Of course, he could have got mad. But he didn't - he got even. He and his pals placed orders via the service and made a profit, per order of USD8. It was free money.

Now, of course, there is an argument that this is a fraud but how, and why? The delivery company is advertising a service to purchasers at a price of USD16. So long as it gets its USD16, where is its loss? It was at all times expecting to pay the shop USD24. And the shop isn't paying the delivery service because it has no contract with it.

Anyway - that's what reminded me of several things.

1. internet advertising companies found themselves losing shed loads to companies that bought cheap ads and the companies, such as Google, paid per click. In the old days, before companies got wise to it and in some countries at least the practice was made illegal, there were enterprises, often in India, which had many people sitting doing nothing but clicking on ads. Occasionally they would stuff up and target someone who had not ordered their service - one of our ads was targeted by them. Google wasn't pleased when we refused to pay the per click price due to obvious fraudulent activity. Oddly, none of our ads ever suffered such an attack again - although later we got into another spat with Google and cancelled our contract because they are stupid and we've got better things to do than argue with a dick with a God complex. I digress (because Google have irritated me again with a succession of examples of their supposed artificial intelligence which repeatedly puts out exactly the opposite of notices issued by a government and, if we were to rely on the Google translation, we'd get arrested and fined or jailed). The fact is that the idea of someone clicking on a link and making a secret profit is hardly news.

2. In the VAT fraud known as carousel or "missing trader fraud," the scheme involved the movement within the EU's Value Added Tax area of various items - it started with gold, then computer chips and then mobile phones. Then - after a decade - someone finally tumbled to the fact that the fraud wasn't about the product, it was about documentation. They didn't need to obtain, move and manage inventory. That's the point here: the pizza shop needn't actually make any pizzas for its scheme to work. It can ship empty boxes via the biker. So the profit isn't USD8, it's USD24 less the cost of a box. Or it can just make one pizza at the beginning of the shift and send it back and forth - no one is going to eat it unless the delivery rider takes a slice on the way ( which is not unknown, all across the world).

3. The most "on point" case, however, is that of one major unintended consequence by a central bank. I'm not going to name it because nothing turns on which country was involved. During a financial crisis, there was huge concern over the lack of liquidity in the banking system on the one hand and the lack of borrowing with a view to providing economic stimulus. The Central Bank set the deposit rate so as to provide an attractive level of return; it set the borrowing rate so as to provide an attractive rate of repayment. Are you there yet? The borrowing rate was less than the deposit rate. People borrowed money which they then simply deposited in the bank, making a positive return on their borrowed money and, of course, creating a loss in the banks. What was worse was that the highest deposit rates were in fixed term, fixed rate deposits so that banks were locked into those repayments unless the customer decided to terminate the arrangement. Also, the Central Bank could not rapidly increase the rate on existing loans because some were for actual business purposes and if they did, many companies would be driven into the ground.

Oh, and do yourself a favour: read, carefully, the piece from The Margin. Aside from being very, very funny it's also very, very serious. It demonstrates underhand tactics by food delivery companies and an astonishing set of figures showing how venture capital backed trendy businesses aren't disruptive, they are destructive. And that's before some twat on a delivery bike goes through a red light and totals your car or runs the wrong way up a one way street and causes serious injury to a pedestrian.

See
https://themargins.substack.com/p/doordash-and-pizza-arbitrage

You might also like this about our fight with Google.
https://www.pleasebeinformed.com/publications/ChiefOfficersNetwork_com/g...

 

New - Financial Crime Case Studies

 

 

Introductory price until 31 May 2020.

 

Click for email address