Everything Is Bullshit: The Greatest Scams on Earth Revealed (22 page)

20.

WHAT HAPPENS

TO STOLEN BICYCLES?

A
t
Priceonomics,
we are fascinated by stolen bicycles
.
Put simply, why the heck do so many bicycles get stolen? It seems like a crime
with very limited financial upside for the thief, and yet bicycle theft is
rampant in cities across the United States. What is the economic incentive for
bike
thieves that underpins
the pervasiveness of bike
theft? Is this actually an efficient way for criminals to make money?

It seems as if stealing bikes shouldn’t be a lucrative form of
criminal activity. Used bikes aren’t particularly liquid or in demand compared
to other things one could steal (phones, electronics, drugs,
etc
). And yet, bikes continue to get stolen, so they must
be generating sufficient income for thieves. What happens to these stolen
bikes, and how do they get turned into criminal income?

The Depth
of the Problem

In
San Francisco (where Priceonomics is located), if you ever leave your bike
unlocked, it will be stolen. If you use a cable lock to secure your bike, it
will be stolen at some point. Unless you lock your bike with medieval-
esque
u-locks, your bike will be stolen from the streets of
most American cities. Even if you take these strong precautions, your bike may
still get stolen.

According the National Bike Registry and FBI, $350 million in
bicycles are stolen in the United States each year. Beyond the financial cost
of the crime, it’s heartbreaking to find out someone stole your bike; bikers
love their bikes.

As one mom wrote in an open letter to the thief who pinched her
twelve year old son’s bike:

“It took CJ three weeks to finally decide on his bike. We looked
at a brown bike at Costco, even brought it home to return it the next day, and
a blue one at Target. But his heart was set on the green and black Trek he saw
at Libertyville
Cyclery
. CJ knew it was more than we
wanted to spend but the boy had never asked for anything before. You see, CJ
had to live through his dad being unemployed for 18 months and knew money was
tight. Besides, he’s just an all around thoughtful kid.

CJ didn’t ride his bike to school if there was rain in the
forecast and he always locked it up. You probably noticed that it doesn’t have
a scratch on it. CJ treated his bike really well and always used the
kick-stand
.

You should know that CJ has cried about the bike and is still
very sad. He had to learn a life lesson a little earlier than I had liked
— that there are some people in the world who are just plain mean. Now
you know a little about my really awesome son and the story behind his green and
black Trek 3500, 16-inch mountain bike.”

An
Economic Theory of Bike Crime

In
1968, Chicago economist Gary Becker introduced the notion that criminal
behavior could be modeled using conventional economic theories. Criminals were
just rational actors engaged in a careful cost-benefit analysis of whether to
commit a crime. Is the potential revenue from the crime greater than the
probability adjusted weight of getting caught? Or, as the antagonist in the
movie
The Girl Next Door
puts it, “Is the juice worth the squeeze?”

Criminal activity (especially crime with a clear economic incentive
like theft) could therefore be modeled like any financial decision on a risk
reward curve. If you are going to take a big criminal risk, you need to expect
a large financial reward. Crimes that generate more reward than the
probability weighted
cost of getting caught create expected
value for the criminal. Criminals try to find “free lunches” where they can
generate revenue with little risk. The government should respond by increasing
the penalty for that activity so that the market equilibrates and there is an
“optimal” amount of crime.

For some thefts, the consequences of getting caught are quite
severe. If you steal a person (kidnapping), you’re risking going away to jail
for a very long time. If you rob a bank, ditto. Even stealing a car is a felony
that can result in jail time. Each of these crimes has a sufficiently high
“risk” to at least somewhat counterbalance the “reward.”

Using this risk-return framework for crime, it begins to be
clear why there is so much bike theft. For all practical purposes, stealing a
bike is risk-free crime. It turns out there is a near zero chance you will be
caught stealing a bike and if you are, the consequences are minimal.

Police officer Joe
McKolsky
of the San
Francisco Police Department (SFPD) tells one journalist whose bike is stolen:

"We
make it easy for them. The DA doesn’t do tough prosecutions. All the thieves
we’ve busted have got probation. They treat it like a petty crime. You can’t
take six people off a murder to investigate a bike theft.”

Bike thievery is essentially a risk-free crime, according to the
police officer responsible for preventing bike theft in San Francisco. If you
were a criminal, that might just strike your fancy. If Goldman Sachs didn’t
have more profitable market inefficiencies to exploit, they might be out there
arbitraging stolen bikes.

What
Happens to the Stolen Bikes?

Just
because the risk of a crime is zero, that doesn’t mean that a criminal will
engage in that crime. If that were the case, thieves would go about stealing
dandelions and day-old newspapers. There has to be customer demand and a liquid
market for the product in order for the criminal to turn their contraband into
revenue. So, how exactly does a criminal go about converting a stolen bicycle
to cash?

Amateur
Bike Thieves

Amateur
bike thieves sell their stolen goods at local fencing spots and are typically
drug addicts or down on their luck homeless.

Sgt. Joe
McKolsky
of the SFPD
estimates that
the overwhelming majority of bike thefts are
driven by drug addicts who sell stolen bikes on the street for 5 to 10 cents on
the dollar
. Any bike will do, whether it’s a $50 beater or a $2,000 road
bike. These thieves are amateurs just opportunistically stealing unsecured
bikes to get some quick cash. “Bikes are one of the four commodities of the
street: cash, drugs, sex, and bikes,” says Victor
Veysey
,
a longtime San Francisco bike mechanic, “and you can virtually exchange one for
another."

In San Francisco, these bikes stolen by amateurs end up on the
street at the intersection of 7th Street and Market Street in front of the
Carl’s
Jr
restaurant. We chatted with Brian Smith,
co-owner of
HuckleBerry
Bicycles, which is located
across the street from this fencing joint. He confirmed it’s fairly common for
people to come into the shop having just purchased a $50 bike across the street
or with obviously stolen bikes they’re trying to sell.

Professional
Thieves

On
the other end of the spectrum are professional bike thieves. Instead of
opportunistically targeting poorly locked bicycles, these thieves target
expensive bicycles. They have the tools that can cut through u-locks and aim to
resell stolen bikes at a price near their “fair market value.” These thieves
acquire the bicycles from the streets, but then resell them on online markets
to maximize the selling price.

We asked Aubrey
Hoermann
, owner of
used bicycle shop Refried Cycles in the Mission, about professional bike
thieves and where they sell their merchandise:

“It has to end up somewhere where you can sell it in another
city. My feeling is that people steal enough bikes to make it worth taking a
trip to somewhere like LA to sell them there on Craigslist. If you have about
10 stolen bikes, it’s probably worth the trip.”

Another bike shop proprietor who asked not to be named added:

“Most of these guys are drug addicts, but a lot of them are
professionals. You can cut through a u-lock in a minute and a half with the
right tools. Steal three bikes and sell them in LA for $1500 a piece and you’re
making money.”

These thieves essentially are maximizing their revenue per van
trip to a market in which they can sell the bicycle. In the past they might’ve
been able to resell it locally, but according to Aubrey
Hoermann
,
this opportunity is fading:

“You can’t just steal a bike and sell it on Craigslist in San
Francisco anymore. It’s too well known that that’s where it would be and it’s
too much work to change it to make it look different. I used to be a bike
messenger and if your bike
was
stolen you’d go check
at 7th and Market. Now that’s too well known to just sell a bike.”

Increasingly when a bicycle is stolen, the victims know where to
check locally (Craigslist, 7th and Market, or the Oakland Flea Market if your
bike is stolen in the Bay Area) so that makes it hard to sell the bikes there.
Because bikes aren’t even that popular in the first place, it’s just not worth
the effort to customize and disguise them for local sale.

Because of this dynamic,
Hoermann
concludes that professional bike theft is replacing amateur theft as the
predominant form of bike theft. While the police may not penalize bicycle
thieves, it’s becoming easier for the person whose bike was stolen to
investigate the bike theft
themselves
. This is making
it harder for the amateur thief to casually flip a stolen bike.

Is There
at Keyser
Söze
of the Bike Underworld?

Bike
theft is rampant and increasingly the province of professionals. Is there any
evidence that a “criminal mastermind” exists behind this network where bikes
are stolen in one city, transported to another and then resold? Ultimately,
there is no evidence that a bike kingpin exists.

The largest bike theft arrests ever recorded are rather mundane
actually. In San Francisco, recently a local teen was arrested with hundreds of
stolen bikes found in his storage locker. Did these bicycles end up in some
exotic fencing ring? Nope. They were being resold at an Oakland flea market.

In Toronto, a mentally imbalanced bike shop owner was found
hoarding 2,700 stolen bikes. Mostly, he was just letting them rust.

Criminal masterminds have to value their time and resources, and
bike theft isn’t really that profitable. The transportation costs and low value
density ratio (bikes take up a lot of space in a transport van) of the product
likely kill the economics of the stolen bike trade. The bike shop proprietor we
interviewed (who requested anonymity) concluded:

“You’d be in the prostitution or drugs business if you were
running a criminal ring to make money. There just isn’t that much money in
bikes. These people who steal bikes are professionals but small time operators.
Or, they’re just assholes.”

Ultimately, that’s the point everyone seems to agree on —
bike thieves are assholes. For everything else there is little consensus,
though a few factors explain why bike theft occurs so often.

It’s dead simple to steal a bike and the consequences are near
zero. You can resell stolen bikes, but if you want to get a good price for a
stolen bicycle, it requires a decent amount of work. That amount of work is
what limits the bike theft trade from really flourishing. Criminal masterminds
have an opportunity cost for their time; they can’t be messing around lugging
heavy pieces of metal and rubber that are only in limited demand.

So, if your bike ever gets stolen, you can at least take solace
in the fact that the illicit bike trade isn’t a very easy way to make a lot of
money. That probably won’t make you feel any better though.

CITATIONS

Introduction: The Big Lie

Big
Lie (Wikipedia): http://en.wikipedia.org/wiki/Big_lie

The
Big Lie (Wikipedia): http://en.wikipedia.org/wiki/The_Big_Lie

Part I: Status Symbols

Diamonds Are Bullshit

Intrinsic value (finance) – Wikipedia:
http://en.wikipedia.org/wiki/Intrinsic_value_(finance)

Gold as an investment – Wikipedia: http://en.wikipedia.org/wiki/Gold_as_an_investment

How to Invest in Gold - The Street:
http://www.thestreet.com/story/10389829/1/how-to-invest-in-gold.html

"Top 10 Retail Markups" –
HowStuffWorks
:

http://money.howstuffworks.com/personal-finance/budgeting/5-retail-markups.htm#page=2

Diamonds as an investment – Wikipedia:
http://en.wikipedia.org/wiki/Diamonds_as_an_investment

Have You Ever Tried to Sell a Diamond? - The Atlantic:
http://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-to-sell-a-diamond/304575/

N. W. Ayer & Son - Wikipedia:
http://en.wikipedia.org/wiki/N._W._Ayer_%26_Son

Engagement rings: good or bad? - Slate:
http://www.slate.com/articles/news_and_politics/weddings/2007/06/diamonds_are_a_girls_worst_friend.html

Cecil Rhodes - Wikipedia:
http://en.wikipedia.org/wiki/Cecil_Rhodes

De Beers - Wikipedia: http://en.wikipedia.org/wiki/De_Beers

The De Beers Story (CNN):
http://money.cnn.com/magazines/fortune/fortune_archive/2001/02/19/296863/index.htm

Campaign group pulls out of 'blood diamond' scheme - CNN:
http://www.cnn.com/2011/12/05/world/africa/south-africa-blood-diamonds

Diamonds: Betting on De Beers - The Economist:
http://www.economist.com/node/21538145

Jack
Donaghy
20 Life Lessons -
ETonline
: http://www.etonline.com/dailyfirst/129834_Jack_Donaghy_20_Life_Lessons/index.html

Blood diamond - Wikipedia:
http://en.wikipedia.org/wiki/Blood_diamond

The Seal Clubbing Business

Seal Timeline (Canadian Geographic):

http://www.canadiangeographic.ca/magazine/jf00/sealtimeline.asp

Death on the Ice (CBC News):

http://www.cbc.ca/news/canada/newfoundland-labrador/furlong-death-on-the-ice-time-to-pull-the-plug-on-the-seal-hunt-1.1154606

China Gives Canada
Its
Approval (The
Star):

http://www.thestar.com/news/world/2010/01/13/china_gives_canada_its_approval_of_seal.html

Q+A (Fisheries and Oceans Canada):

http://www.dfo-mpo.gc.ca/media/back-fiche/2011/2011-01-12-eng.html

Films and Documentaries (ACPIM): http://www.chasseursdephoques.com/movies.html

Terry
Audla
(The Huffington Post):

http://webcache.googleusercontent.com/search
?q
=cache:http://www.huffingtonpost.ca/terry-audla/sealing_b_5214956.html

Seat Hunt (Liberation BC):
http://liberationbc.org/issues/seal_hunt

Always In
Vogue:
https://www.facebook.com/groups/94115954892/

Seal Harvest: http://www.sealharvest.ca/site/?page_id=1587

Veteran Seal Hunter Tells His Experiences (PEI Canada):

http://peicanada.com/past_alan_macrae/columns_opinions/veteran_seal_hunter_tells_his_experiences_william_case_sailed_newf

Seal Skin Ban (Urban Native):
http://urbannativemag.com/sealskinban/

Seal Hunter Takes Aim At Ellen (Business Insider):

http://www.businessinsider.com/seal-hunters-ellen-degeneres-selfie-2014-4#ixzz34STjZlxQ

Humane Society Says It Doesn’t Oppose Inuit Hunt (CBC News):

http://www.cbc.ca/news/canada/north/humane-society-says-it-doesn-t-oppose-inuit-seal-hunt-1.2603306

Seal Pelt Market Softer (The Telegram):

http://www.thetelegram.com/News/Local/2014-04-21/article-3696342/Seal-pelt-market-softer
,-
ice-conditions-harder%3A-sealer/1

Sealers Testimony (Global Action Network):
http://www.gan.ca/media/factsheets/index.en.html

Activists rally in Halifax… (Metro News):

http://metronews.ca/news/halifax/972962/activists-rally-in-halifax-to-call-for-an-end-to-canadas-commercial-seal-hunt/

20,000
Species Are Near Extinction (National Geographic):

http://news.nationalgeographic.com/news/2013/12/131216-conservation-environment-animals-science-endangered-species/

Canada
Aims to Ease Whale Protection (Reuters):

http://www.reuters.com/article/2014/04/22/us-environment-whales-idUSBREA3L1ZI20140422

Why is Art Expensive?

Lawsuits Claim
Knoedler
Made Huge
Profits on Fakes (New York Times):
http://www.nytimes.com/2012/10/22/arts/design/knoedler-made-huge-profits-on-fake-rothko-lawsuit-claims.html

Art Dealer Admits to Role in Fraud (New York Times): http://www.nytimes.com/2013/09/17/arts/design/art-dealer-admits-role-in-selling-fake-works.html

Christie’s $745 Million Contemporary Art Sale is Most Expensive
Single Auction in History (
Gallerist
):
http://galleristny.com/2014/05/christies-745-million-contemporary-art-sale-is-most-expensive-single-auction-in-history/

The Supermodel and the
Brillo
Box (Don
Thompson):
http://books.google.com/books/about/The_Supermodel_and_the_Brillo_Box.html
?id
=3wRtAwAAQBAJ

‘The Supermodel and the
Brillo
Box’,
by Don Thompson (Financial Times):
http://www.ft.com/intl/cms/s/2/9644894c-e66a-11e3-9a20-00144feabdc0.html#axzz33SV3fec0

artnet.com
(Art
Market Technology):
http://artmarkettechnology.com/category/directory/online-auctions-directory/

The (Auction) House Doesn’t Always Win (New York Times):
http://www.nytimes.com/2014/01/16/arts/design/christies-and-sothebys-woo-big-sellers-with-a-cut.html

Seven Days in the Art World (Sarah Thornton):
http://books.google.com/books/about/Seven_Days_in_the_Art_World.html
?id
=GAnseuV1PbkC

Why The Mona Lisa Stands Out (Intelligent Life):
http://moreintelligentlife.com/content/ideas/ian-leslie/overexposed-works-art

Mere Exposure, Reproduction, and the Impressionist Canon (James
Cutting): http://www.researchgate.net/publication/237065501_Mere_exposure_reproduction_and_the_Impressionist_canon

Rogue Urinals (The Economist):
http://www.economist.com/node/15766467

Mere Exposure to Bad Art (British Journal of Aesthetics):
http://bjaesthetics.oxfordjournals.org/content/53/2/139

High-end art is one of the most manipulated markets in the world
(Quartz):
http://qz.com/103091/high-end-art-is-one-of-the-most-manipulated-markets-in-the-world/

The Top-Selling Living Artist (Wall Street Journal):
http://online.wsj.com/news/articles/SB10001424052970204781804577267770169368462

As Art Values Rise, So Do Concerns About Market’s Oversight (New
York Times):
http://www.nytimes.com/2013/01/28/arts/design/as-art-market-rise-so-do-questions-of-oversight.html

How to Charge $1,000 for Absolutely Nothing

iReview
, I Am Rich
(iReviewApps99):

https://www.youtube.com/watch?v=G60OLcdajXo

Apple Removes Featureless iPhone Application (LA Times):

http://latimesblogs.latimes.com/technology/2008/08/iphone-i-am-ric.html

Guy Buys $999 I’m Rich App… (
Gizmodo
):

http://gizmodo.com/5034122/guy-buys-999-im-rich-app-discovers-hes-just-dumb

Who Would Pay $1,000 for an iPhone Application? (ABC News):

http://abcnews.go.com/blogs/technology/2008/08/who-would-pay-1/

Is Wine Bullshit?

Does All Wine Taste the Same? - The New Yorker: http://www.newyorker.com/online/blogs/frontal-cortex/2012/06/wine-taste.html

Why Wine Ratings Are Badly Flawed - WSJ.com:
http://online.wsj.com/article/SB10001424052748703683804574533840282653628.html

Wine tasting is bullshit. Here's why: http://io9.com/wine-tasting-is-bullshit-heres-why-496098276

Watch What Happens When Wine "Connoisseurs" Are Given
the Same Glass Of Wine Over and Over -
PolicyMic
:
http://www.policymic.com/articles/50547/guess-what-happens-when-wine-connoisseurs-are-given-the-same-glass-of-wine-over-and-over

Taste - Wikipedia: http://en.wikipedia.org/wiki/Taste

Does The Way We See Food Affect Its Taste? (Huffington Post):
http://www.huffingtonpost.com/Menuism/does-the-way-we-see-food-affect-taste_b_1872204.html

Can a food's brand affect your perceptions of taste? - Griffith
Hack:
http://www.griffithhack.com.au/mediacentre-Canafoodsbrandaffectyourperceptionsoftaste

Does a Price Tag Have a Taste? - Psychology Today:
http://www.psychologytoday.com/blog/evolved-primate/201002/does-price-tag-have-taste

You Drink What You Think - Psychology Today:
http://www.psychologytoday.com/blog/sensory-superpowers/200908/you-drink-what-you-think

Horsemeat Scandal Spreads to Ikea Swedish Meatballs - TIME.com:
http://world.time.com/2013/02/26/horsemeat-scandal-spreads-to-ikea-swedish-meatballs/

The Billionaire's Vinegar (Benjamin Wallace):

http://www.amazon.com/Billionaires-Vinegar-Mystery-Worlds-Expensive/dp/0307338789

Bordeaux 2011:
http://www.decanter.com/bordeaux-2011/en-primeur-coverage/529916/bordeaux-2011-new-releases-but-lafite-dominating-early-sales-say-merchants

Select Bordeaux:
http://www.selectbordeaux.com/newscontent.php?nid=25%20

Do More Expensive Wines Taste Better? (
Freakonomics
):

http://www.freakonomics.com/2010/12/16/freakonomics-radio-do-more-expensive-wines-taste-better/"

What makes wine great? - Salon.com:
http://www.salon.com/2010/06/02/how_soil_affects_wine_ext2010/

George
Osumi
, Cellar Employee,
Allegedly Replaced $3 Million-Worth Of Wine With Trader Joe's Two Buck Chuck
(Huffington Post):
http://www.huffingtonpost.com/2012/10/11/george-osumi-wine-theft-two-buck-chuck_n_1958151.html

Discount Dynasty - SF Weekly:
http://www.sfweekly.com/2005-08-24/news/discount-dynasty/full/%20

California, Wine; Rural Migration News - Migration Dialogue:
http://migration.ucdavis.edu/rmn/more.php?id=826_0_5_0

Cheap Wine: Fred
Franzia's
Two Buck
Chuck Turns Wine Industry On Its Head - ABC News:
http://abcnews.go.com/Business/story?id=8311451&page=1#.UVXD-1sjqp0%20

Motorcycle Wineries: http://motorcyclewineries.com/

RESEARCH | Wine Market Council:
http://winemarketcouncil.com/?page_id=35

[Yellow Tail] Tales (The Wine Economist):
http://wineeconomist.com/2008/02/26/the-yellow-tail-tale/

The Million-Dollar Nose (The Atlantic):
http://www.theatlantic.com/past/docs/issues/2000/12/langewiesche2.htm

Ten tips for successful investments in the wine market - GQ:
http://www.gq-magazine.co.uk/comment/articles/2013-01/10/how-to-invest-in-wine-ten-tips/viewall

China surpasses one million millionaires - Financial Post:
http://business.financialpost.com/2012/08/01/meet-the-average-chinese-millionaire-39-plays-golf-and-owns-an-ipad/

The Shadowy Residents of One Hyde Park - Vanity Fair:
http://www.vanityfair.com/society/2013/04/mysterious-residents-one-hyde-park-london