Speaker 1: Hello, and welcome to another episode of the Odd Blots podcast.
Speaker 2: I'm Tracy Alloway and I'm Joe Wisenthal.
Speaker 1: Joe, have you ever heard of something called the tablet
Speaker 1: of a Naser? I'm going to mispronounce that because my
Speaker 1: ancient Mesopotamian isn't up to scratch, but the tablet of
Speaker 1: a Nasser?
Speaker 3: No.
Speaker 2: Never.
Speaker 1: This became like a big internet meme. There were lots
Speaker 1: of jokes about it, but it was basically this tablet,
Speaker 1: this old Mesopotamian tablet I think it was like four
Speaker 1: thousand years old with cuneiform written on it. People sometimes
Speaker 1: talk about it as the world's oldest business complaint.
Speaker 2: You know, not only have I never heard of this tablet,
Speaker 2: I'm actually struggling to like figure out what the next
Speaker 2: thing you're going to say is that connects it to
Speaker 2: this episode that's coming up.
Speaker 1: This is the most random intro to.
Speaker 4: What I like.
Speaker 2: I like this one. I like where you're going.
Speaker 1: I'm trying, I'm trying to bring historic context. But okay,
Speaker 1: So written on this tablet was a business complaint against
Speaker 1: this guy, a Nasser, who was a copper trader in
Speaker 1: ancient Mesopotamia and his customer had written a complaint basically saying,
Speaker 1: you promised me a certain amount and type of copper,
Speaker 1: you gave me lesser quality copper, and I am upset
Speaker 1: and you have to do something about that.
Speaker 2: So I get this is okay. Now I get how
Speaker 2: this makes sense. And I guess this is like a
Speaker 2: phenomenon throughout history that if you're buying actual physical stuff,
Speaker 2: there is a question of you enter into a contract,
Speaker 2: did you actually get the stuff? Is the stuff that
Speaker 2: the stuff that the person said they were going to
Speaker 2: give you? Is it actually what it is? Is it real?
Speaker 5: That's exactly it?
Speaker 1: And how do you check beforehand to see whether or
Speaker 1: not the stuff that you're going to be getting is
Speaker 1: the stuff that was promised to you. These are ancient,
Speaker 1: ancient problems. And the weird thing is it seems like
Speaker 1: the commodities world hasn't actually progressed that much from cuneiform
Speaker 1: tablets written on stone to what we use today, which
Speaker 1: is mostly paperwork.
Speaker 2: I remember an episode we did with Dan Davies several
Speaker 2: years ago, and we talked about the salad oil scandal.
Speaker 2: The fame is one where the guy like filled up
Speaker 2: those tanks filled with water and then put a thin
Speaker 2: layer of oil, and they came and they checked and
Speaker 2: they're like, oh, these tanks are oil, and he was
Speaker 2: able to borrow against them. Warren Buffett made a bunch
Speaker 2: in the crash of all the entities that were associated
Speaker 2: with it. But this stuff always fascinates me because I
Speaker 2: think these are the stories where there's something different between
Speaker 2: just the lines we see on the chart, these abstracted
Speaker 2: version of commodities versus like the actual handling of the
Speaker 2: real thing.
Speaker 1: Right, there's the financialized commodity, the line that you see
Speaker 1: on an electronic screen, and then the actual commodity. The
Speaker 1: two are supposed to match or relate, but they're not
Speaker 1: one way or another. But they're definitely not the same thing.
Speaker 1: And recently, one of the reasons we wanted to do
Speaker 1: this episode is there have been a series of scandals
Speaker 1: in commodities land that have to do with collateral management.
Speaker 1: So the big one that springs to mind is Elemy
Speaker 1: discovering that it had a bunch of rocks instead of
Speaker 1: nickel backing some of its content, and this kind of
Speaker 1: was a major talking point in commodities world.
Speaker 2: Yeah, we recently did that interview with us CME chief
Speaker 2: Terry Duffy, and he seemed to acknowledge that there's like
Speaker 2: something about Nichols specifically that makes it susceptible to this
Speaker 2: sort of deception. But we didn't really get into the details.
Speaker 2: But this is just so fascinating that involves like heists
Speaker 2: and scams and deceptions on the fraud and it's just
Speaker 2: as you say, it's throughout history. So I'd love to
Speaker 2: learn more about how this business works.
Speaker 1: Yeah, why does the commodities world seem so sort of
Speaker 1: ripe for these types of scandals. I'm very pleased to
Speaker 1: say that we have truly the perfect guests. We are
Speaker 1: going to be speaking with multi time, a lots guests
Speaker 1: at the moment. Mercury Group CEO Anton Posner and Mercury
Speaker 1: Group Coooh, Margo Brock, thank you so much for coming
Speaker 1: back on all thoughts.
Speaker 5: Thanks for having us.
Speaker 3: Thank you great to be here.
Speaker 1: So the last time we talked, I think we were
Speaker 1: talking about the barge business and what was going on
Speaker 1: in the Mississippi River. But walk us through your approach
Speaker 1: to collateral management because this is a space that you
Speaker 1: play in. I think you do some business for major
Speaker 1: players such as the big banks, but what exactly do
Speaker 1: you guys do in the field of collateral management.
Speaker 3: Sure, yeah, I'll take the lead on that one trace. Again, First,
Speaker 3: I'd just like to say, as that canneiform reference you made,
Speaker 3: they're still fighting it out in court and Athens. Their
Speaker 3: errors are still has not been resolved, so it's still
Speaker 3: going on.
Speaker 1: We can litigate it right now.
Speaker 3: Yeah, exactly, it's continuing. So yeah, that's why I have
Speaker 3: conneiform keyboard on my iPhone. So what we do We,
Speaker 3: as you mentioned, we work for several major banks that
Speaker 3: are involved in physical commodity finance and trade. In addition
Speaker 3: to trading companies and producers and commodities, a certainly a
Speaker 3: strong focus on metals and steel and raw materials that
Speaker 3: go along with it. On the collateral management front, we
Speaker 3: perform audits and inspections at facilities for banks and financiers
Speaker 3: that are financing physical commodities to do some initial vetting work,
Speaker 3: finding out the procedures, diving into the everything from the
Speaker 3: ownership and the procedures and the personnel that are involved
Speaker 3: in issuance of documentation to who's going to be the
Speaker 3: primary point of communication, how are they keeping track of
Speaker 3: who owns what? And so forth. That is the pre
Speaker 3: work that's done preliminary ahead of a finance deal. And
Speaker 3: then once there are physical commodities in place, we're doing
Speaker 3: jobs like having auditors go out and count physical metal
Speaker 3: accounting bundles of aluminum, ingots and warehouse for banks to
Speaker 3: verify what's there. And even to the point where we have,
Speaker 3: through our subcontract or partners, flying drones to measure the
Speaker 3: heights an angle of repose of stockpiles of coal, for example,
Speaker 3: to verify approximately how many tons are in stockpile for
Speaker 3: banks that are financing drybulk commodities like that.
Speaker 2: I have a question before we get into like the
Speaker 2: various frauds and deceptions, why do we take like a
Speaker 2: very sort of simple, sort of vanilla instance of how
Speaker 2: trade would work. Like suppose Tracy has a bunch of
Speaker 2: oil and she wants to pledge it borrow some money
Speaker 2: from me, and I would need to make sure that
Speaker 2: she actually has the oil and she actually.
Speaker 4: Oil.
Speaker 3: Is the old story, right.
Speaker 2: Yeah, Tracy is coal. She doesn't want she wants to
Speaker 2: borrow against it, get some liquidity for it. I say, yeah,
Speaker 2: I want to. I'm happy to lend against your coal. Tracy,
Speaker 2: but I need some proof that it's there. She goes
Speaker 2: to you, what's like the basic steps of the process.
Speaker 2: What do you produce for me?
Speaker 3: Sure the you know, initially, and we work with our clients,
Speaker 3: with our bank and trading clients to determine what level
Speaker 3: they want to go down, how far they want to
Speaker 3: go down the rabbit hole in terms of analyzing, okay,
Speaker 3: I mean you could could be the point of sending
Speaker 3: a survey or out taking samples, sending it to a
Speaker 3: pre agreed laboratory that expertise in that particular commodity to
Speaker 3: verify the quality that's there. Of course, the quantity inspection
Speaker 3: is important, right, verifying that the quantity matches what Tracy's
Speaker 3: declaring to the bank or the financier. So verifying the
Speaker 3: quality the volume, and then also verifying and working to
Speaker 3: ensure that the facility that it's being stored at Tracy's
Speaker 3: house in Connecticut may may not past monster in terms
Speaker 3: of a secure collateral.
Speaker 1: Squirrels that have made exactly within.
Speaker 3: The exactly the biomass that's mixed in exactly right, So
Speaker 3: so ensuring that right. And we have clients that sometimes
Speaker 3: don't want us to go that deep. Sometimes it's just volume.
Speaker 3: But we're not taking samples for qualities and so forth.
Speaker 3: So we're our initial approach with a one of our
Speaker 3: clients that hire us for collateral management services is determining
Speaker 3: how far how far down they want to go.
Speaker 1: I was going to ask how much of this depends
Speaker 1: on the sample size, because it seems like an easy
Speaker 1: thing for me to do if I was worried about
Speaker 1: the quality of my coal is I don't know, I
Speaker 1: would get a really nice piece of anthracite from somewhere
Speaker 1: else and say here, here's a sample of my coal.
Speaker 3: Sure.
Speaker 4: Yeah, Well, most importantly, if you're going to draw samples,
Speaker 4: it's going to be randomized, and you're going to have
Speaker 4: a certain percentage of the cargo that has to be sampled.
Speaker 4: If it's quite a large stockpile of coal, you know
Speaker 4: you're going to want a lot of representative samples from
Speaker 4: different sides, different angles, top bottoms, and quite so people
Speaker 4: can't pick the most attractive piece of anthracites run out there.
Speaker 4: So it really does depend on the parcel size that
Speaker 4: you're talking about.
Speaker 1: I mean, you've just laid out how it's supposed to
Speaker 1: go in the theory, and yet what we've seen recently
Speaker 1: is numerous examples of people fooling the auditors, people fooling
Speaker 1: the inspectors, sometimes in kind of amusing ways with painted
Speaker 1: rocks and things like that. So what's going on there?
Speaker 3: Uh? I mean there's a lot of opportunity for fraud
Speaker 3: at all levels, at all all the facets right that
Speaker 3: of this process. As you said, going back you know
Speaker 3: to the Phoenicians right in there in their complaints. So
Speaker 3: there's no nothing, nothing much has changed except the methods
Speaker 3: of which communication has. But you know the things that
Speaker 3: could go wrong where you had the recent traffic Aura
Speaker 3: mess uh there with a thousand containers of what appears
Speaker 3: to be steel discs or fake nickel. And then there
Speaker 3: was other other examples that Henleyong scandal in Singapore for example,
Speaker 3: where you had the warehousemen that was storing the petroleum
Speaker 3: oil in this case was issuing issuing documentation to multiple
Speaker 3: financiers for the same exact stocks. You had a that's
Speaker 3: a situation where it wasn't the supplier that was the problem,
Speaker 3: but rather the facility that was doing the storage, which
Speaker 3: which has been a problem.
Speaker 2: Well, so I was going to ask and it's the
Speaker 2: sort of perfect your answer, because I was going to
Speaker 2: add on to Tracy's like, do entities become vulnerable when
Speaker 2: they work with the same counterparties over and over again
Speaker 2: and just sort of like drop their guard essentially, like, oh,
Speaker 2: this is the way we've always done it. There's the
Speaker 2: way we've always done it. And then someone figures out
Speaker 2: how to enter into that relationship that's existed for a
Speaker 2: long time. Like maybe the first time Tracy pledges are
Speaker 2: called to me, like I do a big inspection, but
Speaker 2: by the tenth time, like, yeah, I know you're good
Speaker 2: for it. But is that when fraud starts?
Speaker 4: Absolutely, because you get complacent and you let your guard down,
Speaker 4: like anything else in life. So these long standing relationships
Speaker 4: that have always just run on autopilot, and someday some
Speaker 4: guy has a great idea of how he's going to
Speaker 4: fool the system and make money. So yeah, I think
Speaker 4: you have to keep the guard up. You have to
Speaker 4: have your checks and balances in place from the beginning
Speaker 4: of that relationship straight through to the end.
Speaker 5: That's why they exist.
Speaker 4: Once you drop your checks and balances, that's when you
Speaker 4: stop being a.
Speaker 1: Of all use that you know, looking at what you have,
Speaker 1: so Here's a really basic question because I you know,
Speaker 1: we all read a little bit about the traffic Era
Speaker 1: and LME scandal, but everyone was focused on those very
Speaker 1: big names for obvious reasons. But what happened to the
Speaker 1: alleged fraudster? Do they just disappear with the money? I
Speaker 1: imagine their business of commodity shipping and producing is pretty
Speaker 1: moot at that point, right.
Speaker 3: Yeah, the producer in India, and on the Nickel situation,
Speaker 3: I'm sure is untouchable at this point in terms of
Speaker 3: ability to transact with other anyone else really at this point.
Speaker 4: He also but he also got half a billion dollars,
Speaker 4: so he's fine.
Speaker 2: Yeah, And there's no like real obvious recourse against.
Speaker 3: The trafficker is pursuing. You know, we don't certainly don't
Speaker 3: know the ins and outs of right, We're not we're
Speaker 3: not involved in that, so be clear on that. Right.
Speaker 3: So we're we're reading what transpired from news reports, right,
Speaker 3: but we you know, it looks like they're pursuing legal
Speaker 3: avenues to to to go after them, but that's going
Speaker 3: to be long and drawn out.
Speaker 2: It just to be clear on Nickel, and I think
Speaker 2: this is something Terry Duffy when we talk to him,
Speaker 2: he's like, there's something about nickel. It's that it's in bags, right,
Speaker 2: Like some metal is like stacked you see it, and
Speaker 2: so everything what would be an ideal form of auditing.
Speaker 2: I can't imagine open every bag, but what.
Speaker 5: Is opening some bags?
Speaker 3: Okay?
Speaker 4: Yeah, again it becomes that randomized audit, that randomized sampling,
Speaker 4: and you do have to you have to look and
Speaker 4: you have to go in and say, let's you know,
Speaker 4: it's all stacked in the warehouse, let's break some down,
Speaker 4: Let's pull it out, and let's just at a minimum
Speaker 4: open the top of the bags and look in.
Speaker 3: Also is going to say two Nickel is a much
Speaker 3: more higher value metal versus aluminum, let's say, or zinc.
Speaker 3: So it's like counterfeiting. If you're going to counterfeit bills,
Speaker 3: you can probably counterfeit if taking the time to do
Speaker 3: what you're going to be doing one hundred dollars bills, right,
Speaker 3: rather than focusing on counterfeiting on dollar bills.
Speaker 2: Nickel so in bags high value.
Speaker 4: And there's really been two different types of fraud on it,
Speaker 4: and one is the Indian one that traffic Goor is
Speaker 4: involved in is during shipment. So by the time it
Speaker 4: lands where it's headed, the last containers are already afloat
Speaker 4: and everything, all the documents are presented and everyone's been paid,
Speaker 4: so they haven't had the opportunity to open doors on
Speaker 4: that very first container that's shipped to even look and
Speaker 4: find their fraud. So that fraud you have to really
Speaker 4: concentrate on combating at load.
Speaker 5: And then there's the fraud of the rocks that were.
Speaker 4: In the nickel bags, and that was in warehouse for
Speaker 4: years and years, but again nobody.
Speaker 5: Opened up the bags there.
Speaker 4: So there's you know, like Anton said, it's a system
Speaker 4: as old as time, and there's so many points within
Speaker 4: that system where fraud can happen and theft happens and
Speaker 4: the opportunities present themselves.
Speaker 1: So just on this note, I mean, my impression is
Speaker 1: that one of the issues here and one of the
Speaker 1: reasons why the commodities world is susceptible to this type
Speaker 1: of fraud is, you know, not just that you can
Speaker 1: fake nickel by using some rocks put in a bag,
Speaker 1: but also so much of it relies on paperwork and
Speaker 1: you know, invoices and trade receivables and things like that.
Speaker 1: Can you talk a little bit about why that is
Speaker 1: and how endemic it is in your line of business.
Speaker 3: Sure on the paper referring to the paperwork side rate paperwork.
Speaker 3: The documents that go along with a shimment are fairly
Speaker 3: easy to forge, right, So the quality certificates that went
Speaker 3: along with that nickel coming out of India, or the
Speaker 3: the paperwork. Let's take the Henleyong situation, right, the documentation,
Speaker 3: the warehouse receipts, the holding certificates that went to the
Speaker 3: to the banks to show that that there was ownership, right,
Speaker 3: can are just printed off off a computer, signed and stamped.
Speaker 3: It's fairly easy to to make these documents and send
Speaker 3: them along, So it's the doc The paperwork is only
Speaker 3: as good as the counter party that's that's drawing it up.
Speaker 3: So it's the old trust. But verify premise, as Margo said, right,
Speaker 3: taking representative samples, not just you know the paperwork really
Speaker 3: really is to go along with a but it has
Speaker 3: to be part of a part of the bigger process.
Speaker 2: Right. So obviously one way of fighting fraud is, as
Speaker 2: you say, go in the bags, rip open a bunch,
Speaker 2: do samples. The other way to engage in fraud that
Speaker 2: you've sort of hinted up and haven't talked about as much.
Speaker 2: Is Tracy comes to me asks for money against her call,
Speaker 2: but also does it for like six or seven entities
Speaker 2: over pledges. So what are some of the checks that
Speaker 2: you do or that a party should do to avoid
Speaker 2: or prevent multiple pledged collateral.
Speaker 3: Yeah, and this is a it's a tougher one. Yeah,
Speaker 3: because let's go back to the to the ching Dao
Speaker 3: scandal in China ten plus years ago. I believe where
Speaker 3: the Western warehousing companies LM warehousing companies in China doesn't
Speaker 3: have Linda Metal Exchange warehouses. So these are the same
Speaker 3: companies that had subcontracted warehouses in ching Dao storing copper
Speaker 3: and other metals, and the warehouse been there. There was
Speaker 3: a couple of warehouses in ching Dao that were subcontracted
Speaker 3: by the LEM warehousing companies and they were in cahoots
Speaker 3: with some of the local traders there to double triple,
Speaker 3: quadruple pledge these of copper to multiple banks. So they'd say, right,
Speaker 3: you got a ten thousand tons of copper cathodes sitting
Speaker 3: in there, and the local warehouse ban was issuing warehouse
Speaker 3: receipt to multiple multiple banks. And financing entities for that
Speaker 3: same stack of copper, unbeknownst to the warehousing company that
Speaker 3: was contracting contracting with them. So they thought the western
Speaker 3: warehousing companies or the large lumy wareusing companies thought that
Speaker 3: they were that their Chinese subcontractor was doing the right
Speaker 3: thing and being honorable, but was really handing out paper
Speaker 3: left and right right for the same stack of metal.
Speaker 4: And I would say, if Joe was looking to finance
Speaker 4: Tracy's coal, you don't want to do it on Tracy's
Speaker 4: property because Tracy retains retains control of it.
Speaker 5: And that's going to be Yeah, that's going to be
Speaker 5: step number one.
Speaker 4: I want your call somewhere where I have a trusted
Speaker 4: third party controlling it and hopefully issuing only one warehouse
Speaker 4: receipt on it, so.
Speaker 2: It would be the warehouse. So in the process of
Speaker 2: getting that confirmation, it would be the warehouse sort of
Speaker 2: vouching for it, and then it would be on them.
Speaker 2: It would be on the warehouse, like would be the
Speaker 2: one breaking the law, being complicit and breaking the law
Speaker 2: if they were sending.
Speaker 5: It out to right, which is what happened in Chindawn
Speaker 5: got it.
Speaker 3: And Marker brings up a really good point, and often
Speaker 3: we've had multiple conversations over the years about providing collateral
Speaker 3: management services for stock retained at a customers or at
Speaker 3: a at a facility that's controlled by the entity that's
Speaker 3: getting that's benefiting from the financing. Right. So, as Margo said,
Speaker 3: with that's always a more complicated collateral management approach. Then
Speaker 3: you have to have regular inspections verify that when the
Speaker 3: inspector is not there, is that material being taken being
Speaker 3: being taken out right? We were We did a a
Speaker 3: similar project for inbound steel slab going into a rolling
Speaker 3: mill in Ohio. This and the bank that we were
Speaker 3: working for on that one was financing the steel slab,
Speaker 3: but it was on the property of the rolling mill,
Speaker 3: and then the bank would would have possession of the
Speaker 3: slab but also the coils steel coils that were rolled
Speaker 3: from that slab afterward. That meant we had to send
Speaker 3: in Mercury or predecessor predecessor company. We had to send
Speaker 3: in inspectors regularly to verify what was there. Did they
Speaker 3: did the mill take more slabs than they were supposed
Speaker 3: to from the stock that was that was dedicated to
Speaker 3: that particular bank And in one case, Margo uncovered interesting situation.
Speaker 4: Fraud and it was only detected simply because we were
Speaker 4: working on behalf of both banks that were financing the
Speaker 4: slab and the ultimate hot rolled coil that were coming
Speaker 4: out of the slab. So at the end of each
Speaker 4: day there was a pledge list of you know, we've
Speaker 4: we've removed this much slab from your inventory by you know,
Speaker 4: specific piece number, and to balance out the value, you
Speaker 4: now have this stack of coils and these are the
Speaker 4: numbers of your coils. And this happens on a daily basis,
Speaker 4: and all those reports came to us and basically it
Speaker 4: was a simple overlay of reports and we started identifying
Speaker 4: coils that were double pledged.
Speaker 2: Sorry explain that an overlay of reports? What does that mean?
Speaker 4: Just taking both inventory reports, both daily declarations to each
Speaker 4: of each of the banks, oh and doing them side
Speaker 4: by side to look and start realizing that we had
Speaker 4: a handful of coils that were pledged to both banks.
Speaker 1: So out of curiosity, how much was that slab and
Speaker 1: the coils worth? And the reason I ask is because
Speaker 1: this seems like a lot of work and very granular risk, right,
Speaker 1: granular high risk, and I kind of wonder, I wonder
Speaker 1: about the incentive structure here. If there are commodities dealers
Speaker 1: out there who basically say, this is a risk we're
Speaker 1: willing to take. We're going to find someone, you know,
Speaker 1: a warehouse or whoever with the least amount of paper work,
Speaker 1: the least bureaucratic process to go through. Because this all
Speaker 1: seems like quite a lot.
Speaker 3: Yeah. This the value of the slabs a few hundred
Speaker 3: bucks a ton, and then they were when they were
Speaker 3: rolled in. The coils were added value at that point,
Speaker 3: So add on another one hundred bucks a ton. I'm
Speaker 3: certainly not a steel pricing expert, right, but but that
Speaker 3: was just just to give you approximate value. But Tracy,
Speaker 3: were seeing just on your question, right, We're seeing banks
Speaker 3: that bailed out of commodity trade finance because of these problems.
Speaker 3: Ab an Amorro being Paraba a couple of years ago
Speaker 3: announced that they were getting out of a lot, some
Speaker 3: significant portion of their physical commodity trade. It's left a
Speaker 3: smaller group of trader of banks that are willing to
Speaker 3: get involved in this at this point, which has opened
Speaker 3: up the door to some of the some of the
Speaker 3: less scrupulous ones take the Green Cell disaster right using
Speaker 3: their disaster.
Speaker 2: There, Yeah, because I don't think of that in the
Speaker 2: same category. So yeah, different yea, So how is green
Speaker 2: all fit into the story?
Speaker 3: And Green still pretty basically it boils down for the
Speaker 3: most part to an entity Green Seal Capital, that that
Speaker 3: was too close with one of the steel steel producers.
Speaker 3: They were financing trades uh that were that involved the
Speaker 3: steel producer. The bank that the steel producer owned was
Speaker 3: was heavily involved in uh.
Speaker 4: In trade receivable, trade receivable, but also future sales.
Speaker 5: Yeah, so you don't even have anything to secure.
Speaker 3: That set right, So and fake invoices that were presented
Speaker 3: to Green Salt to finance, and Green Salt was backed
Speaker 3: by Credit Swee and we know where Credit sweez is
Speaker 3: at these days, so none of this worked out well.
Speaker 2: For the number of credit stepped over the exactly.
Speaker 3: I mean, this was one of you know, massive uh
Speaker 3: you know, massive strike against against the bank. And of
Speaker 3: course now look where they are, right and it's merged
Speaker 3: into ubs. But you know, this was the situations Marko
Speaker 3: mentioned the future receivables which was never made clear to
Speaker 3: Credit Sweee and they are investors in the funds that
Speaker 3: were backing Green sell that they weren't financing physical sales,
Speaker 3: they were financing theoretical sales. I mean when you read
Speaker 3: what transpired there, you know, I think, you know, our
Speaker 3: teenage kids could have figured out that this was a
Speaker 3: bad deal.
Speaker 2: So it's one thing to be a future receivable, and
Speaker 2: a future sale may one day become a receivable, but
Speaker 2: it's clearly not the same thing by an exactly you
Speaker 2: mentioned the banks have gotten out of this business. So
Speaker 2: this is not just like that's interesting to me because
Speaker 2: that implies it's not just the occasional idiosyncratic thing that
Speaker 2: pops up on the news and becomes a scandal that
Speaker 2: we talked about once every years, that it must be
Speaker 2: like a big enough challenge for the industry that some
Speaker 2: banks like this is not do you talk about like
Speaker 2: how big are we talking about here?
Speaker 3: Yeah, we've seen, you know, with EB and AMRO and
Speaker 3: BNP Paraba getting out there were two major, two banks
Speaker 3: that were major had a major presence in the physical
Speaker 3: commodity uh physical commodity trade. So it's left the banks
Speaker 3: that are that are left in it. I N G. Rabobank,
Speaker 3: Brown Brothers, Harriman here in New York of course, UH
Speaker 3: JP Morgan Chase and so forth. But it's left a
Speaker 3: dwindling number of banks that have the appetite for getting
Speaker 3: getting involved in physical commodity UH trade finance. And in
Speaker 3: this way, look at what happened with on the Trafficura
Speaker 3: part of this part of the story. And certainly again
Speaker 3: not an expert and exactly what happened, but City Bank
Speaker 3: bailed out of financing those nickel trades with that particular supplier.
Speaker 3: I think it was about a year before, maybe before
Speaker 3: the problem became evident, So there was must have been
Speaker 3: some red flags that were that were coming up, and
Speaker 3: City was was keen enough to be able to extract
Speaker 3: themselves from that prior that left Trafficura in a situation
Speaker 3: where we saw they went to non some non traditional
Speaker 3: secondary finance entities to mitigate their risk. They weren't using
Speaker 3: their own money for purchasing that nickel. They were using
Speaker 3: trade finance trade finance company money that that ended up
Speaker 3: getting caught up in the in the mess at this
Speaker 3: point too. So it leads to the question of if
Speaker 3: a major company like traffic Aura can't get bank level
Speaker 3: interest rates to finance this, and they're going to the
Speaker 3: secondary lenders, right that are much higher cost.
Speaker 1: Why right, Well, I've seen some people draw a not
Speaker 1: very subtle connection between like, Okay, the regulators put in
Speaker 1: additional rules around trade financing because it's a risky business
Speaker 1: for the banks. So a bunch of banks pulled out.
Speaker 1: Now you have a smaller body of players, some of
Speaker 1: varying qualities, and this might be one reason why we're
Speaker 1: seeing more scandals because you don't have as much credit,
Speaker 1: you don't have as big an ecosystem as you did previously.
Speaker 1: Is there any truth to that claim?
Speaker 3: Yeah, yeah, the certainly without with less lenders and less
Speaker 3: participants in the in the field, right, it's it's concentrated
Speaker 3: that risk into a smaller group of entities that are
Speaker 3: willing the banks, the financiers that are that are doing
Speaker 3: this type of this type of business. So I think
Speaker 3: that there's some credence credence to that, but it ultimately
Speaker 3: goes back still to the quality. Right, if we're talking
Speaker 3: about financing aluminum coming out of an Alcoa smelter, it's
Speaker 3: not quite the same as what traffic Goura got got
Speaker 3: hooked into, or the problems with the uh, you know,
Speaker 3: fake copper painted bricks and stuff. This was not this
Speaker 3: metal was not coming out of a out of you know,
Speaker 3: an al Co or Rio tin level of producer and
Speaker 3: counter parties. So the minute you're going getting involved in
Speaker 3: entities that are that may not have quite the level
Speaker 3: of reputation as these major major producers have, you need
Speaker 3: to start ramping up your level of collateral management and
Speaker 3: oversight and uh and risk risk management. And I think
Speaker 3: that's that's really where the problem is, where we see
Speaker 3: regularly not not that desire to go as far as
Speaker 3: they need to.
Speaker 2: Can we talk about gold? The internet loves the occasional
Speaker 2: story about gold theories like all the gold gold, Yeah,
Speaker 2: all the gold that's in Fort Knox is actually a
Speaker 2: brick and if painted, no one is inspected in fifty year.
Speaker 2: You know, you just like see this constantly, constantly, what
Speaker 2: kind of regular inspections are a is there gold? Is
Speaker 2: there gold fraud? Is that a thing that exists in
Speaker 2: terms of this is not gold or something painted or
Speaker 2: that someone moved it out and no one has checked
Speaker 2: the warehouse, and uh, how is gold inspected?
Speaker 3: Yeah? Gold, gold is not something that we get involved.
Speaker 3: We don't get involved in pressure spunels. So caveat. With
Speaker 3: that that being said, uh, what are the inspection companies
Speaker 3: that we that we work closely with? They have they
Speaker 3: fly somebody down to the Cayman Islands every once in
Speaker 3: a while to go into the bank vaults and check
Speaker 3: out the gold, doesn't it. I thought that was fantastic.
Speaker 2: Applying to say, I've never admitted this before. I was
Speaker 2: I did this field trip.
Speaker 1: I thought you were going to say you're a gold bug.
Speaker 2: No. I did this field trip to the New York
Speaker 2: fed when I was in high school. And they brought
Speaker 2: us down to the gold vault and it was pretty cool,
Speaker 2: and they showed us how like often like when one
Speaker 2: entity like the I m F like sells gold to
Speaker 2: another entity, like the gold is put on a palette locker.
Speaker 2: But anyway, I was like standing next to the gold
Speaker 2: and I like sort of scratched a little bit of
Speaker 2: it myself and a couple of pieces of dust like
Speaker 2: fell that like sort of freaked out.
Speaker 5: But then he put it in his pocket.
Speaker 2: No, it didn't turn it on the floor.
Speaker 1: But I was like, oh, like that gold is that
Speaker 1: must be a federal crime.
Speaker 4: Yeah, I was just like, statue of limitations has expired.
Speaker 2: This little pieces of dust fell throughout. I forgot freaked
Speaker 2: out that was even possible. So somewhere there was a
Speaker 2: golden get was just like a little I don't know anyway, Yeah, limitations,
Speaker 2: I freaked out. I didn't take any of that.
Speaker 3: Yeah, they see them pulling movies, right, pulling pulling the
Speaker 3: gold around and these big palettes with these pulleys, and
Speaker 3: not to dive too deep into gold because it's not
Speaker 3: our ear of expertise, right, But same principles, right, if
Speaker 3: you're flying down to the Cayman isons and you're going
Speaker 3: to inspect gold old in this story, in this particular case,
Speaker 3: one of the major global banks that was financing the
Speaker 3: gold there in a vault in the Caymans. I'm not
Speaker 3: sure what level of how far they took they went
Speaker 3: as far as taking samples and setting into a lab
Speaker 3: for analysis and so forth, or if it was just
Speaker 3: a simple counting. But when you get into a simple
Speaker 3: counting of gold bars, then you're just counting them, you're
Speaker 3: not verifying that they're actually gold, and you might end
Speaker 3: up with something you know that like is on that
Speaker 3: table over there.
Speaker 2: I thought we were gonna Yeah, so exactly what what
Speaker 2: what is our takeaway from this problem.
Speaker 3: Yeah, the takeaway is that I can count that as one,
Speaker 3: but it doesn't mean that it's one bar of gold
Speaker 3: one brick of gold, right, So just doing account and
Speaker 3: is is only only one.
Speaker 2: Story actually brought more And so I guess part of
Speaker 2: the story could be.
Speaker 3: This one.
Speaker 2: How common is stuff like that? Because that actually is
Speaker 2: not that different from even conceptually the Celling oil scandal, right,
Speaker 2: which is like you have this layer of something legitimate.
Speaker 2: So talk to us a little bit about like just
Speaker 2: sort of like the way some of this can get
Speaker 2: concealed if like the you know, the top layer or
Speaker 2: something like that is.
Speaker 4: Legit exactly what you said, you make those outer layers
Speaker 4: look to be the right material, and then it's the
Speaker 4: onus is on someone to be responsible and look inside, right, Yeah,
Speaker 4: look inside that stack and see is it what you
Speaker 4: think it is all the way through? Right? And again
Speaker 4: that's just like I said, you know, early on you
Speaker 4: talked about the nickel and maybe you do have to
Speaker 4: get into the warehouse and occasionally say I want that
Speaker 4: lot they're broken down and pull out all of them,
Speaker 4: and I want to look inside the bags in the middle.
Speaker 5: Don't forget that about the middle. That's where we all
Speaker 5: you know, it's like the middle of the mashed potatoes.
Speaker 2: Here your hdge of vegetables as a kid, like a
Speaker 2: movie in which someone is convinced there's a fraud and
Speaker 2: just goes through this like and just tearing bag after
Speaker 2: bag and still like they're all, well, they slowly go
Speaker 2: and sane, they know there's fraud.
Speaker 3: And they finally get carted out for the warehouse but
Speaker 3: has the right to charge for for the labor and
Speaker 3: time to move all that stuff. So and warehouseman doesn't
Speaker 3: carry but certainly whoever is perpetrating that potential fraud. I
Speaker 3: think this goes to what Margo said earlier too about
Speaker 3: the the repetition the comfort. Right if the inspector that
Speaker 3: flies down down to the Cayman Islands to go inspect
Speaker 3: for the bank shows up once a month and he
Speaker 3: does the same thing and doesn't dive too deep, you know,
Speaker 3: potential thief at that point. Could someone that says ulterior
Speaker 3: motives could say, you got to mix it up. We
Speaker 3: know that he's never going to go beyond just the
Speaker 3: first first layer, right.
Speaker 1: So one thing I wanted to ask is how often
Speaker 1: maybe two questions how often does commodities fraud go hand
Speaker 1: in hand with insurance fraud? Because I imagine a lot
Speaker 1: of these dealers must have some insurance in place, although
Speaker 1: I did read about Mercuria, I think, which thought it
Speaker 1: had insurance and then it turned out that that insurance
Speaker 1: was also fraudulent. And then secondly, secondly, just going back
Speaker 1: to your example of the steel slabs, like what happened
Speaker 1: after you discovered that? Do you start talking to the
Speaker 1: counter parties? Do you make a claim for a loss?
Speaker 1: How does it all work?
Speaker 4: Settling that became easy in that we went back to
Speaker 4: the facility. We went back to the steel mill and said,
Speaker 4: you know, we've found a problem and you are double pledged,
Speaker 4: and how are we going to rectify this? And they
Speaker 4: looked at it and they said, okay, we're going to
Speaker 4: rescind that report and republish it. And they said, you know,
Speaker 4: citing it was just a clerical error, which it could
Speaker 4: have been. And they definitely focused on what was the
Speaker 4: more high profile, important bank that you would all know
Speaker 4: favored counterparty, yes, who they really needed to make sure
Speaker 4: they stayed in their good graces.
Speaker 5: They said, don't touch that report and don't tell them anything.
Speaker 5: The bigger one with the bigger line.
Speaker 4: Is who got to keep the double pledged coils, and
Speaker 4: they the secondary bank got a new list. But we
Speaker 4: did have in that instance someone on site so we
Speaker 4: could dispatch them at any point to go out with
Speaker 4: the list and say, I need you to verify these coils.
Speaker 5: And that's what you do.
Speaker 4: You go out and you say to the warehouse owner
Speaker 4: or the facility where it's being stored, this is the cargo.
Speaker 4: I want a spot check. Tell me on your report
Speaker 4: where it is, and now let's go find it.
Speaker 5: And that's what you know. That's a bit of the
Speaker 5: corrective action for the checks and balances.
Speaker 4: Let's make sure there it's where they say it is
Speaker 4: and it truly exists.
Speaker 3: After Margo, it definitely think it might have been the
Speaker 3: second time that it happened, because it wasn't just once
Speaker 3: the larger, larger bank. First time I ever heard the
Speaker 3: phrase the d risking team got involved and they withdrew
Speaker 3: themselves de risking.
Speaker 1: That's when you know you're in trouble.
Speaker 3: Yeah, exactly thought the same thing like Margot, so that
Speaker 3: the de risking team is extracted.
Speaker 1: I imagining like a swat team that just like comes
Speaker 1: through the It's definitely it's a military action, right, and
Speaker 1: it never ends well for you.
Speaker 3: But yeah, they that bank wound down their involvement in
Speaker 3: that trade after Margo's discovery, which was the right thing
Speaker 3: to do. Is just getting sloppy, Uh, you know at
Speaker 3: that point.
Speaker 2: So can you talk a little bit about liquids? I mean,
Speaker 2: just even I started talking about the salad oil scandal,
Speaker 2: did anything change fundamentally after that in terms of how
Speaker 2: inspections are done? Because that was pretty clever. The oil
Speaker 2: floats to the top water underneath. But like, did anything
Speaker 2: fundamentally change? And our liquids still tricky to verify in
Speaker 2: some cases.
Speaker 3: M liquids are not an area that were involved, Yeah,
Speaker 3: were involved in so take it. Take it with a
Speaker 3: grain of salt, right in this case, or a dash
Speaker 3: of olive oil. But yeah, liquid sampling and so forth
Speaker 3: something that we Margo and I were both ship's officers,
Speaker 3: merchant marine officers, so we uh had our time learning
Speaker 3: in school about taking samples in a tanker. Yeah, and
Speaker 3: uh and so worth with so forth. But I don't
Speaker 3: think that there's anything It's still the same basic principles
Speaker 3: of representative samples, not just not just going to the
Speaker 3: top layer, right, but doing a thorough inspection and having
Speaker 3: and also vetting of the facility that's storing it, ensuring
Speaker 3: that the facility is vetted, vetted properly, and that the
Speaker 3: ownership and the management and the procedures are tight and intact,
Speaker 3: and the counter party counterparty risk. But the sampling physical
Speaker 3: sampling of when it comes to liquid commodities, I think
Speaker 3: is something that hasn't changed in the past few thousand years,
Speaker 3: and it's just a matter of how thorough it's done
Speaker 3: and if it's done in the right way.
Speaker 1: So speaking of change, I mean we started this conversation
Speaker 1: talking about that Mesopotamian tablet and the complaint about copper quality.
Speaker 1: It does seem like a lot of this hasn't technologically advanced.
Speaker 1: But talk to us about what is happening on that front.
Speaker 1: Because you mentioned drones surveying coal, I imagine ancient Mesopotamia
Speaker 1: did not have the benefit of drones. I'm certain there
Speaker 1: happened dozens if not hundreds of people on LinkedIn pitching
Speaker 1: blockchain for siles. That must be a thing. But what
Speaker 1: kind of advancements are people talking about?
Speaker 3: As you said, right, certainly the drone. Ability to use
Speaker 3: drones to measure physical dry bulk stockpiles is an advancement.
Speaker 3: It gives a far more accurate picture of what's what's
Speaker 3: there versus a versus an eyeballing an estimation, right, which
Speaker 3: would be another form of doing that or verifying very
Speaker 3: complicated verifying of the weight of everything that's gone into
Speaker 3: that stockpile, but that can change any day. Was materials withdrawn?
Speaker 3: The blockchain UH, and electronic bills of lading right, and
Speaker 3: so forth, it all helps, but still it goes back
Speaker 3: to traffic goura right. All of the paperwork was perfect.
Speaker 3: So the block paperwork, whether it flew h whether it
Speaker 3: moved via blockchain or went via via FedEx, it was
Speaker 3: still perfect. The metal was it right, So blockchain is
Speaker 3: not going to prevent that. It might catch some other problems.
Speaker 2: But garbage and garbage out right, like exactly, you can just.
Speaker 1: Track it better. You can track.
Speaker 3: What about?
Speaker 1: What about even more basic solutions? And I'm sure there's
Speaker 1: a really obvious and simple reason why you couldn't do this,
Speaker 1: But for instance, the nickel in the bags, could you
Speaker 1: like put it in plastic bags or glass jars so
Speaker 1: you could see.
Speaker 3: It, Yeah, something more visible.
Speaker 4: Well, I'm assuming the bags that are used are for longevity.
Speaker 5: Oh, I see right.
Speaker 4: Glass is going to add weight, harder to handle, so
Speaker 4: that's not really too feasible. But different bags.
Speaker 5: I don't know.
Speaker 1: But what are the warehouses saying about this? Are are they,
Speaker 1: you know, making noises about we're going to start doing
Speaker 1: things maybe slightly differently in order to void all right?
Speaker 4: I mean that's where is the liability and who's authenticating
Speaker 4: what that material is? If the warehouseman is merely storing it,
Speaker 4: they're saying their receipts will say said to contain. You know,
Speaker 4: I'm declaring I'm annoyante, right, I'm ware housing this as copper.
Speaker 4: But I'm not a metallurgist. I've not been part of
Speaker 4: the buy and sell on this. I'm merely the guy
Speaker 4: who's building you put this in. So I'm just saying,
Speaker 4: those twenty four stacks are there, and they are purported
Speaker 4: to be this. Maybe we've weighed them and we can
Speaker 4: authenticate the weight of the units, but I can't guarantee
Speaker 4: that it's copper or at a different level, you're saying
Speaker 4: it's you know, a certain quality and it's truly a
Speaker 4: different quality. I certainly can't authenticate that, but there are
Speaker 4: you know, you can certainly hire people to come in
Speaker 4: and do whatever is the right level of scrutiny for
Speaker 4: the commodity. Obviously, all commodities have different different approaches on
Speaker 4: that liquid versus cards versus soft commodities and so forth,
Speaker 4: and the warehouse can play a role in that for
Speaker 4: a hired service, for whatever reliability they're willing to take on.
Speaker 2: Yeah, I was gonna say because you mentioned that earlier,
Speaker 2: So on some level, I imagine there are some commodities
Speaker 2: in which there's not much fraud, probably because it's just
Speaker 2: cheap and bulky and there's not much I don't know,
Speaker 2: there's probably not much point in putting something fake for
Speaker 2: thos like soybeans or corn or something like that would
Speaker 2: be my guest. But I guess for like the ones
Speaker 2: where that are more susceptible to fraud, that take more
Speaker 2: time for someone to go in and do representative samples,
Speaker 2: et cetera. Is there a de facto like, you know,
Speaker 2: higher risk premium that traders in these markets pay. They're
Speaker 2: paying for the warehouse at the time. The warehouse has
Speaker 2: this and you as a participant on one side of
Speaker 2: the trade rents time, I guess for the from the
Speaker 2: warehouse for that inspection. Is that basically how it works,
Speaker 2: and so like to transact into some of these commodities,
Speaker 2: whether it's like a nickel that for reasons because of
Speaker 2: the bags or whatever, they're valuable and not visible, like
Speaker 2: you ultimately like have to pay more to transact in
Speaker 2: these commodities.
Speaker 3: Certainly you know from an insurance standpoint where you're getting
Speaker 3: an all risk cargo insurance which is typical policy when
Speaker 3: you're moving and storing goods and commodities like this, that
Speaker 3: the insurance premiums are going to be significantly higher for
Speaker 3: higher value goods. Goods like that. The facilities themselves will
Speaker 3: often look at the warehousing companies facilities will often look
Speaker 3: at at higher costs for storing higher value The risk
Speaker 3: is higher, the incidents of theft or higher, you know
Speaker 3: with those type of those type of commodities. So yes,
Speaker 3: there's going to be more costs in dealing dealing with
Speaker 3: you know, with that with higher value commodities for sure.
Speaker 1: One thing I wanted to ask before I forget, is
Speaker 1: there a commodity that is particularly well suited to fraud.
Speaker 5: I think I think nickel apparently.
Speaker 3: Yeah, copper also has been a big, big one, right, Yeah.
Speaker 4: Something that's higher value. So that's what peaues interest because
Speaker 4: it's a great thing to steal and resell. Copper can
Speaker 4: go on the secondary market quite fast. Aluminum nobody steals aluminum.
Speaker 5: Nobody cares.
Speaker 4: It's not worth it's not worth enough, and it's really
Speaker 4: big and heavy, so people don't move it.
Speaker 2: Heavy, unwieldly, right, small and expensive is where you want
Speaker 2: to exactly.
Speaker 1: Gold bricks, they're a classic for a reason.
Speaker 2: Okay, that makes sense.
Speaker 1: So we would be remiss if we didn't also ask you,
Speaker 1: while we have you here, what's going on with the
Speaker 1: Mississippi River and the barges, because the last time we
Speaker 1: spoke to you, I think it was back in August, yeah, September,
Speaker 1: there was a drought. There wasn't enough water in the
Speaker 1: river and so people were having difficulty getting the barges
Speaker 1: where they needed to be. Now we've heard some stories
Speaker 1: that there's too much water. What's going on that?
Speaker 4: I think the last time we spoke, we were we
Speaker 4: weren't even into the belly of the beast jet.
Speaker 5: It got worse before it got better. It was pretty
Speaker 5: epic last year what we saw.
Speaker 4: And it was what most people haven't seen in a
Speaker 4: lifetime of doing river business.
Speaker 5: It's just been that long.
Speaker 4: The river is always cyclical, and we do see drier periods,
Speaker 4: and we do see periods where we get a lot
Speaker 4: of the you know, this time of year, we get
Speaker 4: a lot of runoff from the mountains from snow and
Speaker 4: makes it way its way all the way down the Mississippi.
Speaker 4: And so that is a classic feast or famine, and
Speaker 4: both of them present similar challenges where we have to
Speaker 4: reduce the toe size. Navigation is harder, and as an overall,
Speaker 4: the river just slows down and trade slows down.
Speaker 2: See can you walk through the mechanics of why does
Speaker 2: too much water it reduced to size?
Speaker 4: We end up with the water is moving too fast
Speaker 4: and a lot of instances and they will take down
Speaker 4: the toe sizes just to keep better controls. That's when
Speaker 4: you start seeing toes break apart. Whereas in the fall
Speaker 4: we were on smaller toe sizes because we had to
Speaker 4: the towboats had to navigate little water in so many places.
Speaker 5: They couldn't take the big toes, so.
Speaker 2: They couldn't be filled up as much right, because they
Speaker 2: were right.
Speaker 5: Yeah, we had to have them really really light.
Speaker 3: And a typical tow like on the mainline toe on
Speaker 3: the river would be tugboat pushing spending as like thirty barges.
Speaker 3: So give you a perspective, right, So reducing that from
Speaker 3: a thirty barge.
Speaker 2: Yeah, so we are.
Speaker 4: We're over that hump. Now we're getting back into normal
Speaker 4: flows and more normal water.
Speaker 5: Size and water depths.
Speaker 4: So that puts the river at a better speed and
Speaker 4: we get back to some normal traffic for a bit.
Speaker 3: You mentioned, Tracy, but the high water situation was in
Speaker 3: the upper Misissippi rivers in the north of Saint Louis,
Speaker 3: like up toward through up to Minneapolis. So you know
Speaker 3: that'll get back to normal. But yeahs it's low water.
Speaker 1: Is it ever the what's the perfect level of water
Speaker 1: in the Mississippi for the barge business?
Speaker 3: Oh?
Speaker 5: Yes, I don't know what happens like twice a year.
Speaker 3: I don't know.
Speaker 4: I don't know where a moment that's gonna happen this year?
Speaker 2: Fair enough?
Speaker 1: All right, Well, Anton and Margo, we really appreciate you
Speaker 1: coming back on odlots. Thank you so much. We appreciate
Speaker 1: your thoughts too.
Speaker 3: Always fun.
Speaker 1: Yeah, thanks so much, Thank you so much, guys. So Joe,
Speaker 1: I really enjoyed that conversation. I gotta say, I feel
Speaker 1: like we need to do an odd lots on location
Speaker 1: where we follow the guy flying down to the Cayman
Speaker 1: Islands to check on the gold.
Speaker 2: I love that idea. Yeah, actually do an inspection, you
Speaker 2: know what I was thinking about. And I guess it's
Speaker 2: even goes back to some of our conversations that we
Speaker 2: had with Javier Bloss last year, Like it's sort of
Speaker 2: like commodities seems very unincorporate, yeah, compared to the rest
Speaker 2: of the finance industry, and this is like another reminder of.
Speaker 5: It, totally.
Speaker 1: And it's kind of weird when you think that it's
Speaker 1: the basic building, yes, for so much of our world,
Speaker 1: and yet it still seems to be the sort of
Speaker 1: like I'm going to mix my metaphors here, but swashbuckling, wild.
Speaker 2: West, Yes, piracy, gray areas, all of these things in
Speaker 2: which like you just sort of assumed that like large
Speaker 2: corporations would have like squeezed all that out. Yeah, crime
Speaker 2: is kind of hard in many digital realms at this point,
Speaker 2: but it feels like when there's physical stuff like crime
Speaker 2: finds a way.
Speaker 1: But the other thing I was thinking is it does
Speaker 1: feel like there's a sort of clash of incentives here
Speaker 1: where you want to encourage people to use the best
Speaker 1: counter parties, use warehouses with very stringent risk control measures,
Speaker 1: and yet that also seems extremely time consuming and expensive
Speaker 1: and bureaucratics. You could see why people might want to
Speaker 1: switch to others.
Speaker 2: And I guess that also, like to the original point,
Speaker 2: like a warehouse, like the element, you just don't expect
Speaker 2: it to have any issue, and then that is ultimately
Speaker 2: the mental bias. I suppose that the fraudsters take advantage
Speaker 2: of if you can get in somehow into the most
Speaker 2: reputable entities where people feel like nothing bad is going
Speaker 2: to happen here. So you could see how it's sort
Speaker 2: of like this, like I don't know, cat and mouse game.
Speaker 1: Speaking of mental bias, you need to shift your take
Speaker 1: on the golden Fort Knox and you scratching it and
Speaker 1: say you were you didn't accidentally touch it. You were checking,
Speaker 1: I was checking, checking, check, and we did everyone.
Speaker 2: For everyone that at least one gold bar that was
Speaker 2: in the basement of the New York Fed in nineteen
Speaker 2: ninety eight when I took a field trip, there was
Speaker 2: real gold service.
Speaker 3: I have done my part.
Speaker 2: I have done my parts.
Speaker 3: Thank you for the reframe.
Speaker 1: All right? On that note, shall we leave it there?
Speaker 2: Let's leave it there?
Speaker 5: All right?
Speaker 1: This has been another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me on Twitter
Speaker 2: at the Stalwart. Follow our producers on Twitter Carmen rod
Speaker 2: ree Is at Carmen Arman and dash Ol Bennett at Dashbot.
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Speaker 2: Thanks for joining, Thanks for watching, Thanks for listening.
Speaker 3: Now stood in a