Now I Know
Page 18
BONUS FACT
The official Twitter account of Sweden (@sweden, naturally) is run by a different Swedish citizen each week.
PORK PROJECT
CHINA’S NATIONAL PORK RESERVES
As we said, governments often stockpile items (garbage, as noted) for strategic, often economic purposes. The United States has a Strategic Petroleum Reserve (SPR), for example—a stockpile of oil, worth, as of December 21, 2012, well over $60 billion. The purpose of the SPR is to prevent foreign entities from causing economic harm to the United States by refusing to sell petroleum to America. The SPR was formed after the 1973 oil crisis and now has nearly 700 million barrels of oil. That’s enough to mitigate potential embargoes for months. Given American (and international) reliance on petroleum, the SPR makes a lot of sense.
America isn’t alone here. Most other developed nations also have strategic oil reserves; China, for example, has 100 million barrels under lock and key, with plans for another 375 million to be added. Nothing out of the ordinary.
But the Chinese don’t stop there. They also have a strategic reserve of something else: pork.
Pork has become a staple in China. According to the Earth Policy Institute, China consumed only 8 million tons of meat in 1978—that’s about one-third of what Americans consumed in the same year. But by 2010, China consumed 71 million tons, double the United States’s amount. About three-quarters of that was pork. Given the growing demand for pork products, keeping prices stable became a problem. So in 2007, per The New York Times, the Chinese government created a “national pork reserve.” When prices spike, China is able to add to the pork supply, nudging the price back down.
Kind of. Unfortunately, unlike petroleum, frozen pork has a relatively short shelf life—the Times puts it at four months—and live pigs have an ongoing upkeep cost. In 2011, when China considered opening the pork reserves’ doors in order to keep up with demand, the 200,000 metric tons it had available were not enough to make a meaningful difference in price.
On the other hand, the pork reserve has another use—and an easily accomplished one at that. When prices fall, the government can simply purchase more, stocking up while simultaneously inflating prices. This is especially important when corn prices stay high, as pigs are fed cornmeal and if the price of feeding them outweighs their value, the supply of pork can, somewhat paradoxically, crash suddenly. For this reason, in the spring of 2013, the Chinese government began buying up surplus pork, specifically in an effort to rally the price.
BONUS FACT
Almost all of Saudi Arabia’s radio and television programs are broadcast by a government entity known as BSKSA. BSKSA censors programs to make sure that their content is consistent with the tenets of Islam, and, therefore, BSKSA disallows references to pork.
THE GREAT SYRUP CAPER
THAT TIME WHEN A WHOLE LOT OF MAPLE SYRUP WAS STOLEN FROM CANADA’S MAPLE SYRUP RESERVES
Another odd strategic reserve? Canada has one for maple syrup. Or, more accurately, in 2000 a group of maple syrup producers in Quebec created one, in hopes of keeping maple syrup prices constant from year to year. The length of “tapping season”—The New York Times defined it as “the narrow window of freezing nights and daytime temperatures over 40 degrees needed to convert starch to sugar and get sap flowing”—is fickle, dependent on the weather. Some seasons provide for a lot of maple syrup, which is bad for producers because high supplies force the price down. Other seasons provide for very little maple syrup, which is bad for some producers because they don’t have the volumes needed to keep business going profitably. The good news is that unopened maple syrup has a shelf life of years and doesn’t require any refrigeration. So “strategic reserves” help stabilize prices.
Until they go missing.
The market for maple syrup in Quebec is tightly controlled. You can’t simply plant a sugar maple and tap your tree; you must either acquire land from someone who has a license, or request one from the Federation of Quebec Maple Syrup Producers (really). But the latter route is a slow, cumbersome process—as of early 2013, there were well over 1,000 names on that waiting list. The Federation monitors the output of licensees, in hopes of preventing them from stashing some syrup on the side and selling it directly. Yes, there’s a black market for maple syrup. And its motive is not just profit: Plenty of people out there ideologically frown on the Federation’s objectives and act against it.
In the summer of 2012, during what The Wall Street Journal called a “routine inventory check” at a maple syrup storage facility, an inspector found something wrong. Barrels that should have contained a million pounds of syrup were in fact filled with water. In total, 10 million pounds of syrup—valued at about $3 U.S. per pound—were gone. Officials did not think that the theft would harm the global supply of maple syrup (Quebec produces about three-quarters of it); there was enough supply to go around. But of course, the thieves would have to sell the stolen syrup (a person can only eat so many pancakes), which isn’t good for suppliers who are now competing against their own, stolen product.
Eventually, two-thirds of the stolen syrup was recovered. The alleged culprit mastermind was, per Bloomberg Businessweek, an “unauthorized middlemen who had run afoul of the Federation in the past and paid thousands of dollars in fines.” The contraband syrup ended up in a warehouse in New Brunswick whose proprietor regularly purchased syrup not authorized for release by the Federation—that business, as it is not in Quebec, isn’t subject to the Federation’s reach. The recipient was charged with intentionally receiving stolen property, but denied any knowledge as to the origins of the syrup.
BONUS FACT
Making maple syrup can get you in trouble in other ways. In February 2013, drug enforcement agents raided the Union County, Illinois, home of Laura Benson and her family. Their neighbors had called authorities, accusing the Bensons of running a meth lab out of their house. But police found no meth—only maple syrup. The family had a homemade syrup lab up and running. They took the raid in stride, giving some syrup to the police—not as evidence but for their breakfasts.
OIL BARON
HOW TO USE SALAD OIL TO DEFRAUD YOUR CUSTOMERS
When we think of oil barons, we think of people who make a living and then some in the petroleum business. But in 1955, Tino De Angelis decided that another oil was worth his investment: vegetable oil. It made him a lot of money—and, eventually, also led him to prison.
In 1954, the United States enacted a law called the Agricultural Trade Development Assistance Act, which would lead to the creation of the Food for Peace program. The program provided an avenue for the sale of surplus goods to friendly nations, at that time typically European ones. De Angelis created a company called the Allied Crude Vegetable Oil Refining Corporation, which took advantage of the program by creating and exporting huge amounts of vegetable shortening and vegetable oil to allies in Europe, much of it substandard.
De Angelis’s company took off and, over the next few years, became a major player in the vegetable oil market. In 1962, he made a successful attempt to corner the market, buying massive amounts of vegetable oil from other vendors. With his inventory now large enough to dictate the price of the oil, De Angelis had another idea: buy vegetable oil futures, which were still trading for cheap (but would soon be worth much, much more), cornering the market on the oil used in salad dressing. To finance this, De Angelis took out loans with his stock of vegetable oil as collateral.
However, to get the requisite amount of money loaned, De Angelis needed a lot more vegetable oil than Allied owned, even after the company bought the stores of other vendors. De Angelis turned to fraud (later dubbed the “salad oil scandal”), claiming to own much more vegetable oil than he did—in fact, the amount he stated he had was more than the Department of Agriculture believed was in the United States as a whole. Nevertheless, De Angelis invited his chief creditor, American Express, to inspect his warehouse and oil tanks (as they would have in the normal course of busines
s anyway), and American Express dipped into the oil tanks, determined that there was, indeed, vegetable oil in them, and concluded that everything was on the up and up. Unbeknownst to AmEx, De Angelis had filled most of the tanks with water, but included enough oil that it, being less dense, would float to the top and mask the contents of the liquid lying below.
After a while, AmEx’s inspectors were tipped off to the fraud, confirming it in a surprise inspection. Suddenly, the house of cards crumbled, setting off a catastrophic shockwave. The futures market for vegetable oil crashed, as did American Express’s stock price—by a ridiculous 50 percent. De Angelis’s company declared bankruptcy, and De Angelis himself served seven years in prison for his fraudulent dealings.
BONUS FACT
American Express got its start in Albany, New York, in 1850—well before the advent of credit cards (which developed in earnest in the 1920s and 1930s). In fact, it did not start out as a financial institution at all. Rather, AmEx’s first business was in shipping—literally, “express mail.” The company did not enter the financial services sector until 1882, when it branched out, slightly, into a money order business.
ONION RING
WHY YOU CAN’T TRADE ONION FUTURES IN THE USA
If you have seen the classic Eddie Murphy/Dan Aykroyd/Jamie Lee Curtis movie Trading Places—or, if you are simply knowledgeable about commodities trading—you probably know what “futures” and “shorting” are. If not, a “future” is a contract to buy a certain commodity at a preset date in the future at a price set today. The buyer of this contract hopes that the commodity’s price will go up during the interim, whereas the contract’s seller hopes it will go down. “Shorting” (or “short selling”) happens when a seller of a stock or, in this case, of a futures contract, does not yet own what he or she is selling. Instead, the seller borrows the commodity futures from its owner, sells it, and then buys it back later. The short seller hopes that the price of the commodity will go down between when he or she borrows it and when he or she repurchases it, thereby making a pretty penny on the difference.
In the movie, Aykroyd and Murphy are trading futures of pork bellies and frozen concentrated orange juice. In fact, futures of almost all commodities can be purchased on public markets. Almost all, because in the United States at least, onion futures are prohibited from trade—thanks to Dwight Eisenhower, Gerald Ford, and a pair of traders who gamed the system and walked away millionaires.
In 1955, onions made up 20 percent of the commodities traded at the Chicago Mercantile Exchange. Two traders, Sam Seigel and Vincent Kosuga, saw an opportunity. The pair began buying onions and onion futures in huge amounts, cornering the market. By that fall, they ended up with roughly 98 percent of all the onions in Chicago, totaling roughly 30 million pounds of the vegetable.
Soon after, Seigel and Kosuga started to short sell onion futures, effectively betting that the price of onions was about to drop precipitously. This was not a blind gamble, however. The pair began to sell their stockpiled onions, causing a glut of supply, and forcing the price of onions down—way down. In August 1955, a fifty-pound bag of onions in Chicago cost about $2.75. By March 1956 (when onion season ended), due to Seigel and Kosuga’s market manipulation, the going rate in Chicago for the same amount of onions was a mere 10 cents. The pair walked away millionaires and left the onion market in shambles—worthless in Chicago and impossible to find everywhere else. The onion producers were going out of business, and they turned to Congress.
Gerald Ford, then a Congressman from Michigan, sponsored a bill outlawing the trade of onion futures—a very specific bill aimed at preventing this type of endeavor. The commodities trading lobby, of course, opposed the bill, threatening litigation if it were signed into law. President Eisenhower called their bluff, signing the Onion Futures Act in the summer of 1958. The Mercantile Exchange sued and lost. The trading of onion futures is banned in the United States to this day.
But the movie industry, at least, is better off for it. Because the Onions Future Act robbed the Mercantile Exchange of a robust market—and therefore, profit center—its leadership needed to expand the offerings in order to maintain a healthy business. The two most notable additions: pork bellies and frozen concentrated orange juice, the two key items traded in Trading Places.
BONUS FACT
In Trading Places, Aykroyd and Murphy’s characters make their killing by engaging in insider trading—they are privy to an advance version of the orange crop report. One would think that, had they been caught, they would go to prison, but this is not the case. As of 2010, insider trading was not, generally speaking, illegal in commodities markets. In fact, that year, the head of the U.S. Commodity Futures Trading Commission testified in front of Congress arguing that this should be changed, and in his testimony, he cited the scheme pulled off in Trading Places.
LIFT OFF
WHEN CHICAGO RAISED ITS BUILDINGS
The city of Chicago was founded in 1833 on the coast of Lake Michigan and within the Mississippi River watershed. Its location—near rivers that lead south and adjacent to a conduit eastward—facilitated the city’s rapid growth. Only 200 people were living in Chicago at its founding on August 12, 1833, but by 1840, well over 4,000 people lived there. By 1860, Chicago had 112,000 residents.
But growth comes with a price, especially in a city that is just five hundred feet or so (182 meters) above sea level. When it rained, the city flooded. Everywhere. Into the 1850s, Chicago did not have a working municipal sewage system. So water just collected and collected. Where water sits, disease brews, as Chicagoans quickly learned. Typhoid fever, dysentery, and cholera struck the city year after year. In 1854, a cholera outbreak killed as much as 6 percent of the city’s population. Fixing the problem, though, presented another problem—how do you build sewers where the buildings already exist?
The solution: raise the buildings.
No, not raze. Raise, as in lift up. If the city could figure out a way to elevate four- and five-story (and larger!) buildings a few feet, they could install new foundations, allowing for the construction of a municipal sewage system. A few years later, they did exactly that. In January 1858, the first building—a four-story brick structure weighing 750 tons—was placed on 250 jackscrews and successfully lifted more than six feet above its original height without damaging it.
Over the next decade, much of central Chicago was similarly lifted so that the sewage system could be constructed. Most impressive, perhaps, was the lifting of a row of buildings 320 feet (nearly 100 meters) long on Lake Street—accomplished by roughly 600 men over the course of five days. In other cases, the city also had to raise the sidewalks, roads, and anything else installed too low for a sewer system to run underneath as well.
In general, the lifting was successful; there are few reports of damage. The city saw the lifting as an opportunity to do something else: It gentrified. Wooden-frame buildings, which were looked at as lesser, poorer structures than the brick-and-iron ones, were lifted—then removed, driven out of the city. As Wikipedia notes, the practice of putting these buildings “on rollers and moving them to the outskirts of town or to the suburbs was so common as to be considered nothing more than routine traffic.”
BONUS FACT
If you’re ever in Chicago, try the garlic and onions. The word “Chicago” comes from a Native American word shikaakwa (say it aloud), which over time became the term we know today. Shikaakwa means either wild garlic or wild onion, both of which were plentiful in the region before settlers of European descent arrived in the area.
SKYSCRAPER CAPER
THE SECRET PLAN TO FIX A NEW YORK CITY SKYSCRAPER
Go to the corner of 53rd Street and Lexington Avenue in Manhattan, look up, and you’ll see the Citigroup Center, a large white building—one of the ten tallest skyscrapers in the city—with its trademark angled roof, sloping at a 45-degree angle. At fifty-nine floors, the tower is home to well over a million square feet of office space, and its sloping top makes
it a distinctive part of the New York City skyline. Construction on the building began in 1974 and was completed in 1977 at the total cost of just under $200 million. The Citigroup Center, like most other buildings, is designed to last for years to come.
Especially once the powers that be surreptitiously fixed the massive engineering mistake that would have otherwise doomed the skyscraper.
The Citigroup Center is, architecturally, different than most buildings. Whereas the typical building has structural support columns at each of the four corners, the Citigroup Center’s columns are in the center of each of the four sides, allowing the building to cantilever over a neighboring church. Doing so required a special type of bracket, which the building’s structural engineer, William LeMessurier, designed for this specific purpose. As designed, the building could sustain a direct, straight-on hit from hurricane-level winds.
Unfortunately, the construction company never tested to see how the building would fare against winds that hit the building at a 45-degree angle, which would cause the winds to hit two of the four outer walls simultaneously. After this concern was brought to LeMessurier’s attention—and well after the building was finished—he tested the theory in a wind tunnel and determined that these “quartering winds” would cause significantly more load than anticipated. But because the building, as drawn up, was padded with a significant level of additional safety measures, this theoretical problem had few if any practical ramifications.
Until, that is, someone mentioned to LeMessurier about a cost savings the builders had found. Instead of welding his special brackets onto the structural columns, the builders bolted them on. Welded brackets are less likely to fall prey to heavy winds. When faced with the same hurricane-level force, bolts have the potential to shear. And no one tested to see if the bolts could handle hurricane-level quartering winds. In theory? They couldn’t.