Brand Extension -- What Wall Street Borrowed From Madison Avenue

Reading the history of Joe Cassano's stewardship of AIG Financial Products, one thing -- aside from the frequent lying about the lack of risk in the bets AIGFP was laying on -- stands out: The entire unit's strategy rested on one principle -- leveraging the AAA rating of the original AIG insurance business.

Of course, leveraging was threaded through the AIGFP business model, but without that gold-plated credit rating for the parent company, none of the rest of the shenanigans would have been possible. And, at first glance, this seems like a quintessentially Wall Street maneuver.

Which is why first glances are often wrong. What Joe Cassano was doing was built on two decades of Madison Avenue-bred practice: brand extension. What's brand extension? We see it all around us. You liked Colgate dental cream -- the original toothpaste? What about Colgate Whitening Formula toothpaste? You liked V-8 juice once upon a time? What about V-8 soups? Starbucks coffee got you going, so why not Starbucks ice cream? Or Starbucks Music?

Brand extension was the primary impetus for new stuff during the last twenty years -- taking a popular brand name and extending it to a new product, or range of products, or services, so that the latter could borrow, trade upon, the "brand equity" -- or consumer approval -- of the former.

All Joe Cassano was doing was brand extension, with a twist -- he took not only the equity of the AIG name, but the credit rating that went with it. A lot of what Wall Street did began and ended there, but brand extension was born on Madison Avenue, and lives -- it would appear -- through the meltdown. How else explain the TV commercials for GMAC bank?

Comments

[Social Construct]

That is indeed one tip of an iceberg with a seemingly unlimited supply of tips. Using a known and respected brand to reap untold amounts of wealth from little more than, in a very real sense, thin air belies at the root an unholy marriage between government and the capital marketplace. Deregulation, ignorance, incompetence and the Reagan-esque belief that the best government is the one that does not meddle in the affairs of the financial class of a society got us here. Now, regulation, attention, scrutiny and a new sense of unity between the people and government to work towards the general welfare is what it will take to right this ship of state.

[peterg76]

Also known, less charitably, as "bait and switch."

[Question Othority]

Many strong business entities have used the idea of re-branding to great effect. But plenty have run the brand of the original franchise into the ground. One group that comes quickly to mind are former second string writers from Saturday Night Live.

[Harry Shearer - Huffpost Blogger]

Your ad hominems are getting repetitive. Maybe reading something besides military manuals would give you other, more adult, tools for argument.

[Question Othority]

A bit thinned skinned are we? I was being snarky in much the same way as someone who feigns indignation at a typo mis-spelling his name. Not an ad hominem at all. My background includes a BA - Art History '78 from Lafayette College and a MArch '03 from U. Cincinnati with my military service in between. And I know what a fool's errand it is to merely question veracity in the face of winning argument.

[CSE]

Better to read the following link.

Here are some ticklers...

"The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century... and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his d__k bigger."

"That guy - the Patient Zero of the global economic meltdown - was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. "

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print

[RepugsOut08]

Maybe one of the most bizzare forms of brand extension ever, came after The Beatles split up. John and Paul told us that if we really loved them, we'd be crazy about their wives. ;)

[breakingpoint]

branding up comes from the spin off.
which is part of the franchise
which becomes Amway
which is a cult
which has leaders
which are followed by sheep
which is served with mint jelly
which tastes delicious
IF you're not a vegetarian

[ld]

Very interesting and accurate way to look at what the CEO types did!

[Stuart]

New Orleans Mayor Ray Nagin, bless his heart, tried to take advantage of this practice when he responded to news of his city's record-breaking murder statistics as "keeping the New Orleans brand out there."

That was the political equivalent of intercepting the ball and running for the wrong goal line.

[Bienville]

Rather like the Corps of Engineers' work on the Mississippi River levees.

Those had protected City for a century and a half. Surely, the same excellence of skill and care would be applied to the hurricane protection levees.

But, alas, no.

[twofish]

Brand extension -- a form of magic. A stands next to B, therefore B takes on attributes of A. If I buy and eat cereal with a champion athlete's picture on the box, I will take on his prowess...

Another article about Cassano and his shenanigans appeared in Rolling Stone, available here:
http://www.truthout.org/032309M