Hangin' With Scrub Daddy

His smiling face is seen in kitchens around the world. He is the television program Shark Tank’s greatest success. He is the number one polymer foam personality in the world today.

Homemakers around the world keep him close at hand. He is … Scrub Daddy.

Scrub Daddy sits back in a leather recliner in his gracious yet comfortable home on Maryland’s Eastern Shore. A Montecristo No. 2 sits in his famous, trademarked smile, which is also good for cleaning knives, forks, and serving pieces of any size. When asked about his success, a contemplative side emerges.

“You have to believe in yourself,” Scrub Daddy says. His perfectly circular eyes, good for inserting fingers when cleaning glasses and jars, seem to widen as he summons up a philosophy that has carried him to the top of the kitchen sink ziggurat. “Sure, I enjoy success, but I never forget what it took to get me to where I am today -- hard work, creativity, versatility. You’ve got to do it all. Look at me. In hot water, I soften, ready to handle the jobs requiring a delicate touch – crystal, chinaware, champagne flutes. But put me in cold water and I’m stiff, unyielding, capable of attacking baked-on grime in chafing dishes, cast iron skillets, coffee pots you left on the burner without turning them off when you went to work that morning. There was a time when you could fill the space under the sink with all the stuff you’d need to handle those different jobs. Now,” he says, his broad smile beaming fixedly, “all you need to do is call Daddy.”

He is the most successful product ever launched on the Fantasy Island of entrepreneurship, Shark Tank. “Oh, that was a special day!” he recollects. “I came out there, I did the cold and hot trick, then I cut through the bottom of a pan that had sat on a dung fire in the Indian Subcontinent like Germany cut through the Low Countries. And when I rinsed off I was good as new. You know, I can do that – rinse me out for the count of three and I’m as cute and yellow as when I escaped from my packaging.” He leans forward in his chair. “Go ahead -- look at me! Is there a line on my face? A divot in my matrix? Not a one! Renee Zellweger wishes she could run her face under cold water for three seconds and look the way she did when she came out of her package!”

And what advice does he give to other kitchen cleaning products who are starting down the path he blazed? “I’ll tell you what the problem is – too many kitchen supplies don’t want success hard enough, if you want to know the truth. They don’t know who they are, what they’re trying to be.” Some would take umbrage at so disparaging a remark, but Scrub Daddy is uncompromising. “It’s true. Look at Chore Boy. What is he? Is he a copper mesh that probably gives you cancer or is he an abrasive shmata, like a rag with impetigo? Let him come back when he’s figured it out. Or look at sponges. What do they do? Absorb water? So did your Aunt Tilly before they put her on diuretics. Ever take a sponge to a day-old casserole of baked ziti you were too drunk to clean after dinner?” Scrub Daddy scoffs, a puff of smoke escaping as he savors his cigar. “Michael Spinks had an easier time with Mike Tyson.

“And then they stick some abrasive felt on the back of a sponge, and suddenly it’s not a sponge, it’s Scotch Brite.” Scrub Daddy harrumphs contemptuously. “That’s not his real name, of course,” Scrub Daddy confides. “His real name is Ian or Angus or something, Scotch Brite is just his nom de nettoyage, I guess you’d say. I might as well glue a sheet of sandpaper to my back and call myself Zitmaster!” Scrub Daddy says, sneering derisively.

It's some serious shade to throw, but others say it’s not just marketing hype – the animosity is real. “I was at the afterparty at the Kitchen and Home Goods Award Dinner as few years ago and saw it first hand,” says Mr. Clean. The earringed icon recalls the moment as he sits on his deck overlooking the Pacific, his shaved head covered in a turban and a floral robe hanging loosely over his trademark white T-shirt and pants. “Everybody’s had a few, and Scotch Brite starts in on Daddy about how he can’t hold his liquor, or any fluids for that matter. So Daddy gets up in his face and calls him a sponge half breed, which raised some eyebrows right there, but Scotch Brite says, ‘At least I’m absorbent,’ kind of snide, so Daddy throws his drink in Scotch Brite’s face and says, ‘Absorb this, bitch.’ We had to break them up, but let me tell you -- when we picked them off the floor, the spot where they were tussling was polished to a fare-thee-well.”

Scrub Daddy shakes his head at the retelling. “That’s just what you’d expect Clean to say. That smile, the earring, nobody’s fooled. His original name was Helmut, you know. And who makes him? Proctor and Gamble. Who makes Scotch Brite? 3M. Didn’t they make napalm or something? Who makes Chore Boy? The Comet and Spic and Span people. They’re all in the pocket of Big Clean, all of them ganging up on a little guy like me. My margins are under constant attack – everybody wants a seat on my gravy train. Packaging designers. Distribution and logistics managers. Brand identity consultants. Social influencers. I’m everybody’s meal ticket. And retail – don’t get me started! It used to be you paid some doofus at Acme under the table for your shelf space at the supermarket, but you could still make a living. Now you have to go kiss Amazon’s ass for better positioning on a search, and a year later you’re competing against an Amazon Basics product that looks just like you at a twenty percent discount.”

We’re interrupted by Scrub Mommy, who enters with a pitcher of lemonade for us. She and Daddy regard each other and you can tell their smiles are genuine. But when this reporter accidentally drops his lemonade, Scrub Mommy throws herself to the floor in an instant, and in no time flat the spills is gone. “Yeah, she’s got a layer of ResoFoam that doesn’t quit – six times as absorbent as a regular sponge,” Scrub Daddy says admiringly. “And that crimson color – let’s just say that when I see her, it’s as if I was run under cold water for a while, you get my drift?” Scrub Mommy might have blushed, but being red, it was hard to tell.

A final question. Sure, Scrub Daddy is successful, famous, well-known – all the perks of celebrity accrue to him. But when you get down to it, his job is to smash his face into grease, grime, muck, char, and all of the other detritus of mealtime. It’s, for lack of a euphemism, a disgusting business. Doesn’t that ever wear on him?

Scrub Daddy scoffs. “Let me tell you something,” he snaps. “I look out at the world from the kitchen counter and I see scumbag lawyers defending vile clients, speculators and arbitrageurs profiting while creating nothing of value, people realizing fantastic incomes while the folks who teach kids, fight fires, or empty bedpans scrounge to get by. And then I’m asked if I find it degrading to take carbonized crud off a casserole or a cookie sheet. All I can say is there are some people who do rough jobs and there are other people who are lucky enough to watch them and wonder how it must feel.”

You would expect his smile to disappear and his round eyes to collapse into a steely gaze.

But, of course, they can’t.

The Lesson of GameStop is to Stop the Game

(About five years ago, my friend Michael Mann – not the Miami Vice one -- and I wrote an article for the magazine International Economy entitled Whom Do Today’s Capital Markets Serve? This post is based in large part on the thinking in that piece. You can see it here: http://www.international-economy.com/TIE_F16_EhrlichMann.pdf if you really want to. Or skip it.)

The current imbroglio between a group of hedge funds and a crowd of Reddit-linked insurgents is now the Outrage of the Week, albeit for different reasons to different sides of the subject. The hedge funds see the insurgents as a coordinated herd of malcontents cannibalizing wealth to make a vitriolic point. The insurgents see the hedge funds as pathetic whiners who dislike the taste of their own medicine.

At some level, both are correct. But more vitally, both miss the point completely.

A quick review. A gaggle of relatively skinny-pocketed, web-based market-watchers saw hedge funds "short" shares in video game chain store GameStop, a company that smells uncomfortably like Blockbuster with joysticks. “Short-sellers" believe the price of a stock is about to fall, but they pursue their reward at great risk; they borrow shares and promise to return them in the future when their price drops, which works as a strategy if they were right. (That is, they “borrowed” shares at $5, immediately sold them and kept the $5, then later bought new shares to “return” them at $3, making a profit of $2.) But if they’re wrong, short-sellers get ‘squeezed” – they must replace their borrowed shares with more expensive, not cheaper, ones, (substitute $10 for $3 in the example) and their clock gets cleaned. Folks on the street (financial professionals, that is, not the homeless) tell the joke about the short seller who gets ruined and decides to kill himself, so he jumps out the window and falls up, which works as both a joke and an insight.

The Reddit insurgents – call them that, or speculators, or gamblers, but please, not investors – saw this shorting activity and ganged up on it, using their own (and sometimes borrowed) money to bid up the price of shares and forcing the short-sellers to scramble to buy the shares they promised to return, driving prices higher. And the hedge funds speculators, seeing and disdaining the rabble who bid the price up, shorted all over again. After all, they were up against a crowd of social media riffraff, not the sophisticated, algorithm-based, savvy practitioners of finance theory they knew themselves to be. And they got killed all over again. The sin of hubris is not lightly visited -- their losses have been estimated at $20 billion, and some of the leading hedge funds in this battle have lost as much as 30 cents on every dollar of their clients’ money. But at least they can look at their MBAs and homes in Greenwich and retain a feeling of moral superiority.

Who’s entitled to wear a white hat here? Nobody. The Reddit insurgents are right to argue they’re just giving their hedge fund counterparts a taste of their own medicine. And their case never looked better than after grouchy hedge fund titan Leon Cooperman’s recent diatribe that the Reddit crowd was “sitting at home getting their checks from the government” (was one of them the 400 pound Jerseyite lay-a-bed Trump blamed for the DNC hack?) and, while he was at it, taxing the wealth of the rich was “a bullshit concept.” In other words, whiny bitch. (And there’s not enough time, space, or your attention to discuss RobinHood, the Reddit crowd’s favorite trading platform, but let’s just say you should only be able to use Robin Hood’s name with written permission from Pope Francis or the Dalai Lama.)

But the Reddit crowd have for the moment beaten the hedges at their own game, even if they did so using mob tactics instead of computer algorithms. It’s as if the Ethiopians beat Mussolini. But their victory is temporary – there are now lots of owners of GameStop shares priced in the hundreds but likely worth tens or less. (And say this for the hedge funds -- they shorted GameStop because the underlying numbers showed that even tens seemed high. It’s the hedges who are acting “rationally.” The insurgents are simply “getting away with it.”) But Newton had it right – what goes up must go down if there’s nothing to keep it up, and the end of the Reddit crowd’s story is yet to be written. Come back next week, when Wily E Coyote realizes he’s raced off the cliff and there’s nothing but air below him. Cue sound effect.

You could justifiably see all this as being an amusing incident in which $20 billion was lost while some dudes turned $50,000 into $40 million -- whom does Matt Damon play in the movie? After all, there was something schadenfreudishly funny about Enron, right? But this “pick a side” mentality is starting to drive policy proposals, and that makes the matter more serious.

The hedges see the insurgents as a conspiracy of market manipulators and want to attack “market manipulation,” although the real problem is not that the insurgents communicate, but that they do so on Reddit, not through analyst “buy/sell/hold” recommendations, or the Wall Street Journal, or the Motley Fool. The insurgents, on the other hand, see hedges betting that a stock’s price will fall as socially-wasteful gambling, but betting that it will rise is somehow philosophically different, as if betting on Ali was virtuous but betting on Frazier despicable. There are no white hats in this mix. There are only gamblers differentiated by culture and technique and, more importantly, who’s up or down or down at any moment.

And that’s why the GameStop debate misses the point entirely. The point is not to find heroes and villains in what markets are doing. The point is to remember what markets ought to be doing.

Think about it. If you asked virtually any market participant why we have capital markets, whether hedges or insurgents, you’d likely hear something about making money and pursuing the American dream of becoming luridly rich, or exercising our God-given freedoms to do WTF we want, or some other tired platitude. Those answers are wrong. The purpose of capital markets is to direct societal savings towards their best uses. Capitalism lets capitalists keep the profits they make, and capital markets are there to sort out what they do with them. They weren’t set up to give the public an alternative to Lotto or Powerball. But rather, ever since two dozen brokers met under a Wall Street buttonwood tree in 1792 to found the New York Stock Exchange, those markets have existed so that companies seeking to fund productive expansion could find the resources to do so, while letting savers review those companies on a consistent and even-handed basis. If that sounds like Sunday School banality, then you see how far we’ve gotten from that original intent.

You can’t blame markets or their practitioners from becoming more sophisticated than the 1793 crowd ever imagined. But as they have, they’ve transformed markets into the beleaguered but valid metaphor of a casino. Derivatives – futures, options, and the like -- stuff that’s derived from the value of some underlying asset – were created to let folks with an interest in the underlying asset manage their risks. For example: a farmer uses futures to lock in the price of the wheat he’s growing; an airline locks in a price for jet fuel for the coming year; a pension fund with big gains can buy an “option” to sell its stocks to you at a fixed price down the line in case their portfolio sags between now and then. That’s all legit stuff, because it helps folks with interests in an asset – wheat, jet fuel, stocks – manage their risks. But what was designed to help the farmer, airline, or pension fund manage their risks is now the $2 window at the track – you can bet on futures or options instead of owning an issue, the diametric opposite of their original intent. And as computers replace abaci and adding machines, program trading has become the dominant motif in the markets, as supercomputers program-trade stocks to capture nanodiscrepancies in prices. All of this activity – derivatives, program trading – is generally thought of by financial theorists as stabilizing, as helping markets find the “true” price of things, as if they created a bigger lake to absorb ripples. But, in reality, they have left us with a world in which the value of what is traded continues to rise in proportion to the underlying value of the actual things on which they’re based, much as, in Dylan’s Leopard-Skin Pill-Box Hat, “a mattress balances on a bottle of wine.”

And so both sides, the hedges and the insurgents, are wrong. Their opponent does not represent a new malfeasance or a novel financial coronavirus. Rather, both sides are symptoms of a larger unmooring of our financial markets, as they once drifted, and now race, away from their original social purpose and become a way to gamble in the world’s largest legal casino.

What is to be done? First, we need to agree the original intent of markets – to guide investment and create economic growth – is the right one. Much as every parent at some point tells their child “just because you can do something doesn’t make it right,” we need to stop thinking that every market strategy that can be implemented, should, despite the inevitable bullshit about people’s economic freedoms. We need to stop thinking about which “side” is a hero or a villain, and instead, which activities make markets less stable or distract them from their purpose. Let’s stop searching for sinners and instead think about what constitutes a sin.

What policies get us there? It’s a long conversation, but here are elements of it: perhaps limits on synthetics divorced from underlying stock ownership, (restricting the $2 dollar window); perhaps limits on program trading, whether minimum durations for holding a stock or a “Tobin Tax” imposed each time a share is traded before it has been held for some period of time; perhaps a sharper time profile of capital gains tax rates to compel a longer-term perspective; perhaps limiting the use of borrowed money in some of these market gambits. All of that needs to be on the table.

But until then, as grimly amusing as the GameStop controversy is, the right response to it is Mercutio’s condemnation of the Montagues and Capulets in Romeo and Juliet – “a plague o’ both your houses.”

Catch-19

(with apologies to Joseph Heller)

Yossarian barged into Doc Daneeka’s medical tent in a state of great agitation. “Doc, you’ve got to ground me! I’m sick! I’ve got the COVID-19!”

“You don’t have anything of the sort,” Doc Daneeka replied exasperatedly. “You’re breathing, you have no fever – you look great.”

“Then I’m asymptomatic!”

“What makes you think so?”

“Because I have no symptoms! I’m as good as gone!”

Doc Daneeka reached into his pocket. “Here,” he said, “have a chocolate. Milo traded it to me for a dose of penicillin.”

Yossarian popped it into his mouth before resuming his complaint. “Hmm, that’s good.”

“There,” Doc Daneeka said triumphantly. “You can still taste things. Now get lost. I’m incredibly busy. There’s a shipment of COVID-19 shots coming and I need to get ready. This COVID-19 is a killer,” Doc Daneeka said, piling boxes of medicines for other diseases that were now less fashionable and remunerative into a corner of his office. He opened his refrigerator and scrutinized its contents.

Yossarian was suddenly given to the thought that not getting COVID-19 would be better than feigning getting COVID-19. “How many shots are they sending you?”

“I have no idea.” Doc Daneeka replied.

“When do they arrive?”

“No one’s told me.”

“Who gets them?”

“Why are you asking me?” Doc Daneeka said. “It’s up to Colonel Cathcart.”

“Cathcart?” Yossarian blurted contemptuously. “You’re the medical officer. Your job is to save lives and prevent disease.”

“My job is to save lives and prevent disease within the parameters established by my commanding officer,” Doc Daneeka said. He took a bowl of plum tomatoes out of the refrigerator. “Have a plum tomato. I need the space.”

“I don’t want one,” Yossarian said.

“Suit yourself,” Doc Daneeka said as he put the tomatoes aside. “But it’s one of the most impressive scientific feats in the history of mankind, Yossarian.”

“Plum tomatoes?”

“No, the shot. Thousands of scientists around the world collaborated and developed a shot in record time. But after they developed it, they forgot about distributing it. Confusion abounds.”

“The left hand doesn’t know what the right hand is doing?”

“If the left hand saw the right hand approaching, it would cross the street to avoid it. For example, the shots need to be kept at very cold temperatures, which is why I need to clear space in the refrigerator. And I need to set up a socially-distanced waiting area. Nobody can be within six feet of anybody else. Now that you mention it, take two step back, if you don’t mind.”

There was now no doubt in Yossarian’s mind that getting the shot was more important than feigning COVID-19. “I need that shot, Doc.”

“And you'll get one, once you meet the qualifications established by Colonel Cathcart. How old are you?”

“I’m almost 70.”

“That’s good,” Doc Daneeka said, “because Colonel Cathcart says you have to be 65 to get it. Or be in a nursing home. But you’re not in a nursing home.”

“But I could be,” Yossarian said, delighted to have a new angle to avoid flying while still getting the shot. “You could put me in a nursing home and I wouldn’t have to fly anymore.”

“Why do you belong in a nursing home?” Doc Daneeka asked.

“How should I know?” Yossarian protested. “You’re the doctor.”

Doc Daneeka closed the now empty refrigerator. “My advice to you is to come back next week, when I’ll probably have the shot.”

When Yossarian came back a week later, Doc Daneeka’s waiting room was filled with people six feet apart, one of whom was Aarfy.

“Aarfy!” Yossarian exclaimed. “What are you doing here?”

Aarfy took the pipe out of his mouth and regarded Yossarian before answering. “I’m waiting for my shot, Yossarian. Doc says they’ve arrived.”

“Aarfy, you have to be 65 to get the shot. You’re not 65!”

Aarfy put his pipe back in his mouth and chuckled. “Old Aarfy sure is 65, particularly if he needs to be.”

“Aarfy, you can’t lie about your age just to get a shot!”

Aarfy and Yossarian regarded each other as if they were both looking at a lunatic. “I’m just making sure I get the shot. We all need to get the shot to fight this pandemic, and I’m doing my part.”

Yossarian wanted to punch Aarfy in his smug, oblivious nose, but Doc Daneeka called Yossarian in. Yossarian walked in and began rolling up his sleeve.

“Oh, no, don’t bother. You’re not getting a shot,” Doc Daneeka said.

“But the shots are here!”

“Colonel Cathcart has raised the age to get the shot. Now, he says you have to be 70.”

Yossarian pulled back angrily. “You said 65!”

“And it was 65 when I said it. But Colonel Cathcart says you have to be 70 to get the shot, so 70 it is. Let me tell you, there’s only one thing in life better than having the shot in your arm -- it’s deciding who gets the shot in their arm.”

“So, what am I supposed to do?”

“My advice is to come back when you’re 70, if you live that long. When is your birthday?”

“Actually, it’s next Thursday,” Yossarian admitted.

“There! You see?” Doc Daneeka counseled. “Come back next Thursday you’ll get it. Oh, and call Aarfy in for his shot.”

“Aarfy?” Yossarian shouted disbelievingly. “Aarfy isn’t 70!”

“He told me he was, so he’s 70 enough for me.”

Yossarian considered the matter. “You mean if I lied about my age I could get it?”

Doc Daneeka scoffed contemptuously. “Oh, no! ”

“Why not?” Yossarian demanded.

“Because you’ve already told me how old you are, so I’d know you were lying. But Aarfy’s never told me the truth about old he is, so he’s in the clear. Now come back Thursday. And send Aarfy in here,” Doc Daneeka said as he turned to fill a syringe.

Yossarian returned the following Thursday. “OK, I’m 70 now, so I can get the shot,” he said as he rolled up his sleeve.

“Happy birthday,” Doc Daneeka said, then shook his head, “but you can’t have the shot.”

“Why not?” Yossarian shouted.

“Because Colonel Cathcart has raised the age needed to receive the shot to 75.”

Yossarian reeled. “It was supposed to be 70!”

“Well, now it’s 75. Colonel Cathcart’s orders. If you want to see who counts in this world, check to see who’s gotten the shot. But if you want to see who really counts, check to see who authorized them. It’s too bad you couldn’t get the shot when Captain Aardvark did.”

“So what am I supposed to do now?”

“Come back when you’re 75.”

“Are you kidding? I can’t wait until I’m 75, I’ll get COVID-19 and die,” Yossarian said, his eyes wide with terror. “You’ve got to tell me another way.”

Doc Daneeka considered. “Relax, Yossarian. General Dreedle says there are reserves of the shot, and he’s going to release all of them to all squadrons in the division. The age will go down to 65, maybe even 60. General Peckham announced he was going to release his reserves, so General Dreedle had to do it, too. It’s a done deal. In the meantime, Colonel Cathcart says essential workers, like bus drivers and mess hall cooks, can also get it. Too bad you’re just a bombardier in an aircraft. One of you dies, a new one shows up tomorrow -- there’s nothing less essential than that. Your best bet is to hunker down and wait for the new shots to come in. Perhaps you could be a bus driver.”

“Milo runs all the busses.”

“Then you know who to ask,” said Doc Daneeka. “Now leave me alone, I’m busy giving shots. But not to you.”

Yossarian came back a week later. “OK, I’m a bus driver. I want my shot.”

“Sorry, you can’t have it. Colonel Cathcart has rescinded shots for bus drivers. Lieutenant Scheisskopf told him that soldiers participating in his parades need the shots first, so they can march at close quarters. He says it will help morale.”

Yossarian gritted his teeth. “Morale? What about my morale? I made a lousy deal with Milo to get a job driving one of his busses for nothing!” He reached into his pocket. “Want some chocolate-covered cotton?”

“So that’s why he wanted the chocolate,” Doc Daneeka mused. “Well, it doesn’t really matter, because there were no reserves anyway. General Dreedle was lying about having them, so nobody’s getting the shot. Well, except me,” Doc Daneeka confessed. “And Aarfy.”

“I’m going to kill Cathcart!” Yossarian exclaimed, waves of terror coming over him as he realized they were all trying to kill him –Cathcart, Dreedle, Doc Daneeka – no other explanation made sense. “Maybe I could get COVID-19 and give it to him.”

“That won’t do you any good,” Doc Daneeka counseled. “He’s already had the shot, too. Like I said, if you want to know who really counts --”

Yossarian drew his hands into fists and screamed, when Major Danby and the chaplain entered Doc Daneeka’s examining room.

“Have you heard the news?” Major Danby said. “It’s remarkable, really. Orr made it to Sweden!”

“It’s amazing he was able to get that far,” the chaplain added. “Almost a miracle.”

Yossarian gaped at Major Danby and the chaplain and suddenly it all became clear to him. “It’s no miracle!” he cried maniacally. “ Orr planned it, don’t you see? He practiced crashing his plane, he perfected his little stove -- why didn’t I trust him? Why wouldn’t I fly with him? I’d be in Sweden today!”

“Well, hang on, Yossarian,” Major Danby said. “You see, Sweden decided that herd immunity to COVID-19 was better than undergoing economic and social disruption, so they let the virus have its way.”

“And?” Yossarian asked.

The chaplain sighed. “That’s the bad news. Orr’s dead. He caught 19.”