{"text":[[{"start":3.88,"text":"So a long firm is probably the simplest kind of interesting economic crime that you can get because it's simply theft with a time dimension. You promise value at some point in the future in order to get something valuable today. And then you have no intention of keeping your side of that promise."}],[{"start":20.44,"text":"And the thing you're alluding to there is what they call the great salad oil scandal, which, there's a Pulitzer Prize-winning book of that name, which describes how someone ended up stealing almost enough money to knock over American Express by exploiting the properties of salad grade soyabean oil."}],[{"start":20.94,"text":"Unbelievable."}],[{"start":38.72,"text":"That's amazing. OK, tell us more about this. Where does this story start?"}],[{"start":42.6,"text":"Well, huge character, a guy called Tino De Angelis. He was originally a pork butcher."}],[{"start":46.64,"text":"Handy with a knife, not somebody I'd like to mess with."}],[{"start":51.76,"text":"He liked to give the impression, obviously, as an Italian-American who was big and had a big kind of posse around him. He liked to give that impression of links to organised crime. In fact, he didn't have any. But he liked to give that impression because people thought he might have extra sources of cash flow to pay back all the money he kept borrowing."}],[{"start":70.64,"text":"And after having had a good war, basically profiteering in federal food contracts, for which he did get prosecuted, he came out of it as an expert in trading soyabean oil. And by the 1960s, he was one of the biggest soyabean oil traders in the USA. He was a genuine innovator of the soyabean oil industry. He was the first guy to use bulk carrier ships to transport huge tanker load quantities of vegetable oil."}],[{"start":95.56,"text":"But he had this affliction, which often afflicts successful business people, that they get a very strong opinion about prices. And they decide to go into financial speculation. And in the case of Tino, he particularly believed that the USA was going to end a trade embargo with Russia. There would be this huge source of demand for cheap American cooking oil. And the price of soyabean futures was going to go through the roof."}],[{"start":118.16,"text":"And if you've developed that geopolitical opinion, always a really dangerous thing for a CEO to do, then obviously you want to own as much soyabean oil as you can. But also, you want to own as many soyabean oil futures as you can get your hands into. And it seems that Tino had underestimated quite how expensive financial speculation is."}],[{"start":139.12,"text":"So he needed lots of money suddenly and lots of credit, a bit like putting all your chips on red at the casino. So how did he actually get the money to fund those massive positions?"}],[{"start":150.08,"text":"In order to borrow money, particularly if you're someone who's got a reputation like Tino De Angelis did, which was not a good reputation, you need to put up collateral. Luckily, he had a lot of valuable collateral in soyabean oil. This is salad oil, so-called not because it's particularly nice on a salad, but because you can eat it. It's not industrial vegetable oil."}],[{"start":171.4,"text":"No, it's a standard, basically. Salad oil standard means it's high quality."}],[{"start":178.34,"text":"As high quality as Americans will put on their salads. And he kept these things in a massive tank farm in Bayonne, New Jersey, which is just across the Hudson River from New York. And in principle, he can borrow against those. As it happened, American Express at that time had a trade financing division that was looking to expand and make some really aggressive earnings at targets."}],[{"start":199.34,"text":"And they were prepared to lend money collateralised against the salad oil, even though they didn't own an oil tank warehouse to put their collateral in. They were prepared to lend on the basis of having a legal title to the oil in Tino de Angelis's tank farm in Bayonne, New Jersey."}],[{"start":214.96,"text":"And this is where the great bit of the fraud which really makes him go down in history goes, because if you're borrowing money against collateral of salad oil, then someone's going to come out to check that the collateral is there. But oil floats on water. And so it is often quite difficult to tell the difference between a tank that is full of highly-valuable, top grade vegetable oil, and a tank that's got a few gallons of soyabean oil floating on top of mostly seawater."}],[{"start":240.04,"text":"So basically, he could present those tanks, borrow on the back of it, very cleverly. American Express was desperate to lend because, as so often, it was trying to develop a new area of financial innovation. And you had a win-win situation, it seemed, where he needed money, and American Express wanted to lend. Of course, the problem is that he was basically doing all this on the back of phony collateral."}],[{"start":240.54,"text":"Absolutely."}],[{"start":264.44,"text":"And so when did it start falling apart? Would anyone actually go and see there was water beneath the oil?"}],[{"start":270.04,"text":"No one did, ever, really, until it was too late to do anything about it, because he just kept on borrowing more money. He could sell the oil and then still borrow against it, because he was mainly filling the tanks with salt water. It seems that a book of warehouse receipts on someone's desk at American Express fell into his possession. So, by that point, he was able to just write phony warehouse receipts and borrow against those."}],[{"start":270.54,"text":"Wow."}],[{"start":295.04,"text":"And by the end of it, if all of his warehouse receipts had been totalled up, he would have had to have had the entire soyabean production of the United States of America for that year in his thing."}],[{"start":303.72,"text":"It's so classic. It's often the really boring, dull kind of financial transactions, which no one notices because they seem so dull, where this kind of thing happens. But..."}],[{"start":313.64,"text":"And nobody adds up. Nobody literally adds up the numbers and realises that they are divorced from reality."}],[{"start":321.76,"text":"Absolutely, an incredibly common theme."}],[{"start":323.84,"text":"When did people actually notice? What forced them to actually finally realise?"}],[{"start":328.12,"text":"Basically, geopolitical relations worsened. The USA decided it was not going to sign a deal to exempt wheat from the Russian trade embargo. Everyone presumed, well, if they're not doing wheat, they're never going to do soyabeans. And the price of soyabean futures fell."}],[{"start":342.76,"text":"At that point, the brokers in Chicago, who were a little bit more clued up than the warehouse-leasing bankers in New York, got together and realised that there had only been one person buying soyabean futures for the previous month. And they made an immediate cash margin call, which was just too much money for him to raise in a short period of time."}],[{"start":360.44,"text":"At that point, Amex went out to repossess what they believed was this lake of soyabean oil. At that point, the fraud was discovered. He went to prison. Two or three brokers on the Chicago Exchange went bust because he wouldn't cover his losses. It was the equivalent of... it was about $150mn in the 1960s, equivalent of not far off a billion today."}],[{"start":360.94,"text":"Wow."}],[{"start":361.44,"text":"Wow."}],[{"start":383.52,"text":"And of course, that weekend was the weekend that JFK was assassinated, which kind of kept it off the front pages. But it was the biggest single scandal that the commodities futures markets had seen. And that was a record that stayed for a very long time."}],[{"start":396.96,"text":"The brokers in Chicago, they wanted, basically, Tino de Angelis to put up more collateral. That's this cash margin call that you mentioned, that essentially, they say, oh, we worry about your exposure here. You have to pony up more collateral, more cash. And American crew, this company just couldn't get the resources. Is that how it played out?"}],[{"start":417.48,"text":"Absolutely. You can see here that you've got a mechanism here whereby the brokers protect themselves against having to trust someone by demanding that they put up cash collateral. And that works as long as you don't let someone build up too big a position. And it works as long as things don't move too fast in the market. And then it immediately stops working."}],[{"start":434.7,"text":"But the mechanics whereby people went bust over allowing Tino De Angelis to build up big soyabean futures positions, they're exactly the same as what we saw three or four years ago, when Credit Suisse allowed Bill Hwang and Archegos to build up stock futures positions. You trust someone. But you don't necessarily work out how much you're trusting them. And then, suddenly, the market changes. And you realise that, actually, that trust has been misplaced."}],[{"start":459.46,"text":"Or else you put your faith in collateral, which happens so often. And no one really probes into the collateral. And time again, whether it's collateral that was underpinning so much of, say, the mortgage-backed securities problems or anything else like that, turns out to be worthless."}],[{"start":473.9,"text":"So that's fascinating. But I have to admit, I still don't quite understand why you call it the long firm. Why is that?"}],[{"start":479.4,"text":"It's a weird piece of folk etymology. The Anglo-Saxon galang, meaning fake, wrong, fraudulent, and the Italian, firma, for a signature, went into cockney slang and thieves' cant sometime around the 18th century. And ever since then, it's been used mainly in England for the crime of buying goods on credit and then not paying for them. So it's just a generalised version of that, really."}],[{"start":479.9,"text":"Ah, gotcha."}],[{"start":504.98,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790309991_8682.mp3"}