You've got a friend in the Diamond Business (Part 2)


Posted On: Friday - August 11th 2017 7:38AM MST
In Topics: 
  Salesmen  Global Financial Stupidity  Economics

(Continued from last post.)

This is more on the diamond business, a century-old scam that probably is still in the lead over "Social Security" and "Global Climate DisruptionTM (coming hard around the bend), though still all behind the scam of Socialism.

While skimming the book/website that this and Part 1 are based on, I decided a few excerpts would be in order after all to illustrate the 3 basic points (a,b,c yesterday) and a few other things that I already wrote about. Again, it's great reading, and I'll emphasize this one more time at the end. For each excerpt pasted here in Peak Stupdity, I will link to the chapter (single web page) in Mr. Epstein's book (out of the 24, incl. Prologue and End Notes) and post the chapter number.

I could either edit the last post or put this here, as it's about the difference between value placed by people in precious metals based on true scarcity vs. value said to be "inherent" in diamonds. How about here, in this post, then:
HAVE YOU EVER TRIED TO SELL A DIAMOND? (Chap. 20)
De Beers' advertising slogan, "A Diamond Is Forever," embodied an essential concept of the diamond invention. It suggested that the value of a diamond never diminishes and that therefore a diamond never need be sold or exchanged. This precept, of course, is self-fulfilling: As long as no one attempts to sell his diamonds, they retain their value ( assuming the cartel controls the supply of new diamonds). When, however, an individual is forced to defy this principle by attempting to sell diamonds, the results can prove illuminating. Consider, for example, the case of Rifkin's Russian diamonds. ...
(Go to the source for more.)

Also in Part 1, I mentioned the subject of man-made diamonds. I had definitely forgotten a lot by the time of last night's post, but read this about GE's manufacturing of diamonds back in the 1970's:
INFRINGEMENTS (Chap. 15)
To be sure, General Electric recognized that it would be possible to develop catalysts that would accelerate the time needed to produce gems and to engineer more efficient presses that would allow more diamonds to be grown in the same cycle. However, even if it were possible to mass-produce gem diamonds at costs comparable to those of industrial diamonds, there would be a more serious problem. If the public realized that diamonds could be manufactured in unlimited quantities in a factory, the entire market for diamonds might suddenly collapse. A senior General Electric executive who was involved in the decision not to manufacture gem diamonds explained to me, "We would be destroyed by the success of our own invention. The more diamonds that we made, the cheaper they would become. Then the mystique would be gone, and the price would drop to next to nothing." General Electric decided not to invest hundreds of millions of dollars in presses to produce gem diamonds. Although their chief rivals had decided not to go ahead with manufacturing, it now became a war against time for the De Beers cartel. The science and technology that made it possible to manufacture real diamonds threatened to create a supply of diamonds that was beyond the control of De Beers.

Now, the main 3 basic points of this diamond scam were listed in the previous post, so, I will include excerpts for each. The book is not organized exactly this way, but it's basically in order of the flow of rocks-from-under-the-ground to money.

a) The control of, and production in, the diamond mines, corresponding directly to Chapters 1 - 5. About the diamond mines, almost all in Africa, Mr. Epstein writes:
THE DESERT VENTURE (Chap. 2)
Diamond mines, unlike most other kinds of mining operations, could not measure, or even reasonably estimate the value of their own product. Gold mines can calculate how many ounces they produce each day, and copper mines can estimate their tonnage, but the Orapa mine could not immediately determine whether its production of gem diamonds that day was worth $ioo,ooo or a million dollars. Both the diamond mine and the Botswana government had to await the outcome of the official evaluation by the De Beers-trained appraisers.
Note that there is a comparison with gold and other mining. The diamond business is, let's say, "different".

b) The wholesale marketing/distribution of diamonds, corresponding to Chapters 6 - 13. I can only quote so much, so as a summary, what goes on is the supply of diamonds from the ONE monopoly mining company DeBeers is funneled to diamond cutters in Antwerp, Belgium (OK, this was the late 1970's, so it may have changed a bit!) and previously Amsterdam, Holland. All the trading is done in London, England. It's nothing resembling an open market. The wholesale and maybe some retail merchants may be invited to London for a "sight". This "sight" entails a viewing of a box of diamonds that is not negotiable. The buyer can buy it or not, but won't be invited back often if he decides not to. Good luck getting the diamonds elsewhere. I believe it was just a yearly thing, but I'm sure things have changed in the details, but not in this crazy monopoly control. This is a lot of the way prices are kept high. Nobody knows what "stones" are existing back in South Africa or in some big-wig's stash. Without the control, prices could go all willy-nilly - that'd be bad for the jewelry stores, though it'd be good for bride-grooms everywhere. From Epstein, on some of the details, back in the day:
THE RULES OF THE GAME (Chap. 6)
After a brief wait, a guard delivers a small cardboard box to each room, weighs the contents on the scale and then leaves. Inside the box are a number of paper envelopes containing uncut diamonds that look like bits of broken glass. The type, quality, and exact weight of each diamond is marked on the outside of the envelope. On a sheet of paper accompanying the box is the price of the diamonds. The price of a diamond is heavily dependent on its quality. A discolored flat diamond weighing one carat may be worth no more than $50; but a flawless, colorless and octahedron diamond of the same weight may be worth $10,000. The price tag for the entire box may vary between $1 million and $25 million.

In these 200-odd shoe boxes are most of the diamonds that will eventually be sold in engagement rings and other jewelry throughout the world. The determination of who gets which diamonds in their shoe boxes completely shapes and orders the multibillion-dollar diamond business. The man who makes this decision at Number Two Charterhouse Street is E. M. Charles, a tall, gray-haired man whom everyone in the trade calls Monty.

c) The retail marketing long-term scam of the diamond business, corresponding to Chapter 13. This is the tip of the spear. Without the retail marketing part of the scam, the diamond business would be a bust. Nobody seriously hordes these things as money. People who have that much, no matter how stupid they may be personally, have accountants and money managers that know better.

I warn you now, and you can believe me later, this stuff was shocking to me when I read it. I had just figured that Diamonds (had always been) a Girl's Best Friend, stupid as that idea had seemed from the first time I'd heard it. (I'd always though it was silicone!) This retail marketing involved serious collusion between DeBeers and Hollywood. That's not saying it's illegal, just very damn devious.
THE DIAMOND MIND (Chap. 13)
When the Second World War began in Europe, N. W. Ayer fed numerous stories to the press suggesting that the diamond market would not be adversely affected by these developments. Even though the war, in fact, virtually ended the gem diamond business, with mines being shut all over Africa and cutting centers in Europe being abandoned, the planted stories, which were widely circulated by the wire services, carried such optimistic titles as "Diamond, King of Gems, Reigns Supreme Despite War," "Diamond Supply Unhurt by War," "War Gives Impetus to Diamond Cutting," "Marriage Increases Indicated by Rise in Diamond Sales," and "How Diamonds Spark the Wings of War and Peace."

By 1941 the advertising agency reported to its client that it had already achieved impressive results in its campaign to alter the American public's perception of diamonds. Since its inception, the sale of diamonds had soared 55 percent in the United States, reversing the previous downward trend in retail sales. N. W. Ayer stated in the accompanying memorandum to De Beers "the entire structure of your diamond organization for the duration of the war rests upon the ultimate sale of diamonds to consumers in the United States. ... Your problem is to cultivate the desire to purchase diamonds for their own sake." The advertising agency saw no reason to be overly modest in summarizing its own contribution. It noted in the report that its campaign required "the conception of a new form of advertising which has been widely imitated ever since. There was no direct sale to be made. There was no brand name to be impressed on the public mind. There was simply an idea-the eternal emotional value surrounding the diamond." It further claimed that "a new type of art was devised . . . and a new color, diamond blue, was created and used in these campaigns. . .

[snip]

De Beers needed a slogan for diamonds that expressed both the theme of romance and of legitimacy. Then in 1948 a N. W. Ayer copywriter came up with the caption "A Diamond Is Forever," which was scrawled on the bottom of a picture of two young lovers on a honeymoon. Even though diamonds can be in fact shattered, chipped, discolored or incinerated to an ash, the concept of eternity perfectly captured the magical qualities that the advertising agency wanted to impute to diamonds. Within a year, "A Diamond Is Forever" became the official logo of Dc Beers.

In 1951, N. W. Ayer found some resistance to its million dollar publicity blitz. It noted in its annual strategy review: "The millions of brides and brides-to-be are subjected to at least two important pressures that work against the diamond engagement ring. Among the more prosperous, there is the sophisticated urge to be different as a means of being smart.... The lower-income groups would like to show more for the money than they can find in the diamonds they can afford."

To remedy these problems, the advertising agency argued that "it is essential that these pressures be met by the constant publicity to show that only the diamond is everywhere accepted and recognized as the symbol of betrothal."

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After all this promoting of his book, let me state here (should have earlier) that Epstein wrote most of this 35 years back -
(From End Notes)
This book was originally published by Simon&Schuster in 1982 under the title "The Rise and Fall of Diamonds." I am indebted to June Eng for designing the cyber book and thank Rebecca Fraser and Marjorie Kaplan for their research assistance.
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There will be a Part 3 to summarize the Peak Stupidity opinion on this Great Scam, mostly with regard to point (c) above, the marketing to Americans to envelope them in this scam, either later today or on Saturday.

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