Grubstakers - (Patreon Unlocked) Episode 198: Lex Greensill feat. Riley from TRASHFUTURE

Episode Date: November 4, 2020

This week we cover the lifestyles of Lex Greensill the Australian airplane obsessed nerd who figured out how to make billions from a process called “Supply Chain Financing” or “Reverse Factoring” It’s honestly very confusing, and convoluted so we are graciously joined by Riley from the podcast Trashfuture. It’s a wild ride that doesn’t have enough drops of Fosters beer. Check out their podcast Trashfuture and follow the hosts of that show on twitter. @raaleh, @HKesvani, @milo_edwards, @inthesedeserts and @aliceavizandum Enjoy!

We find people that basically can't make enough to eat before they go into the fields. I don't believe that. I think that you're looking at other places that are not Central Romana. People actually who focus on and who like getting an orgasm never get one. Pull up your socks and figure out what you're going to do. Any chance we'll ever get to be a complete red state? Oh, yeah. Well, the future's always uncertain. But more uncertain now.

Listen, Blue Ivy is six years old. Beyonce, she tried to outbid me on a painting. Everybody in Atlanta right now at the Louis Vuitton store, if you black, don't go to Louis Vuitton today. In five, four, three, two today in five that's why you need to take a meeting with Kanye West Bernard Arnault hello and welcome back to grub stakers the podcast about billionaires my name is Sean P McCarthy and I'm joined today by my good friends Steve Jeffers Yogi Paywall and so today we're going to return to one of our common themes on this podcast

which is you know speculation about what is finally going to blow up this goddamn stock market. We've done a previous episode about Masayoshi Son and SoftBank and their role in inflating much of this tech bubble we see now, where Elon Musk is worth $100 billion and all this stuff. We're going to follow this up by today discussing another lesser-known Soft soft bank investment, Greensill, and its billionaire founder, Lex Greensill. And Greensill is a pioneer in an exciting new financial practice. And by exciting, I, of course, mean unregulated, which is called supply chain financing or reverse factoring.

And to discuss this, we are joined today by an expert on the practice, Riley from the podcast Trash Future. Riley, thank you for being with us today. Hey, thank you for having me on to discuss the thing that I cannot stop boring people at parties about, supply chain financing. Greensill is like, once you learn about Greensill, then you just want to keep going. You just want to keep digging. And if you learn too much about Greensill, you'll find yourself in my situation, which is where you have like PDFs of reports of Credit Suisse funds open in front of you so you can just marvel at what this guy has enabled. But thank you very much for having me to discuss, yes, this, my favorite thing. Yeah, and I think that's a good place to start, which was just, you're the one who suggested Lex Greensill to us, and I started to look into

Greensill. And you're right, it does have my favorite aspect of finance in general, which is newspaper reports that are written to make it as boring as possible. But if you read enough of them, you realize a massive fraud scheme is going on somewhere here. But I guess that would be a good place to start would just be what drew you to Lex Greensill and what made you interested in this company, Greensill? Yeah. So, okay. One of the things I think that makes Lex Greensill very interesting and makes Greensill interesting is, in fact, that there isn't any fraud going on at all. It's completely legal, but it's also totally fucked. And that's, I think, what makes it doubly interesting.

Anyone can be a fraudster, but what Greensill does is he manages to sort of benefit in the same way, but he sort of is very good at making it legal. So he's not actually committing any crimes. He's just that we know of. It's just he's found a way to kind of take advantage of this, of the way that financial regulation works to sort of to circumvent a lot of regulations that were sort of dreamed up in the aftermath of the financial crisis. But how I became interested in Green Silk was that I'm, like yourselves, I'm also an avid SoftBank watcher. And I thought it was very interesting that SoftBank took a stake in this company because this is really not their normal kind of thing. This is not something that's sort of promising to say, you know, and their kind of

thing is Zoom, you know, the robotic pizza truck that they gave, you know, billions of dollars to to become the Amazon of food that invented a round pizza box and then went out of business that's a much more soft bank type investment or like zymergen which is a an innovative materials company that created uh in its 12 years of existence and across hundreds of millions of dollars in funding one uh kind of uh film uh that's it you know that's much more soft bank whereas greensill is a very boring company that is, on the surface anyway, that is not their usual profile. It's a boring financial services company. And what really piqued my interest was when I noticed that Greensill was the introducer, so that was they, and we'll explain what all this means. But they were running the

client acquisition for a Credit Suisse supply chain finance fund while they were a soft bank investment. And they were then introducing other soft bank invested companies to that fund. And if you know about supply chain finance and different technicalities around that, you'll know that that is incredibly fucked. And he has, for reasons we'll explain, and he has a history of, let's say, ethical gray area behavior around sort of, let's say, inflating the values of companies that he's working with or finding ways to like privatize public subsidies and so on and so on uh and so all of these things together sort of suggested to me like these my thesis right or the pot the trash future podcast thesis generally on the um on on say what's going to crash the stock market next as you, is that the current wild west, the current sort of source of risk is its corporate debt. Because the 2007 was a crisis of largely personal debt. It's not saying that the people involved were at fault, but more like that's just who was holding the debt that was unsustainable. And so that has now all been much more tightly regulated.

However, the corporate lending, lending to businesses, businesses raising debt and so on, is where all of the banks that were hungry for yield went. And so the less regulation there, the better. And if you want to know what the picture is right now, I was looking at an investment- uh corporate bond etf the other day um and it's considered investment grade so it's considered to be very safe and upwards of 50 of the securities contained in this bond were rated triple b which is like the lowest rating you can have yeah you know how bad you have to fuck up to get a

triple b rating like you're just not bribing the right people. Precisely. So it's like I see companies and the difference is there were with the 2007 crisis, there were many, many, many many many borrowers many many many many lenders and they're all engaging in shady financing of one another using different vehicles of which supply chain finance is one so it's not necessary so it's like i see this as more of an example case as to how this particular billionaire is going to um you know fly to fly the economy into the Twin Towers, essentially. Well, it is interesting on what you said earlier about how it's not really fraud because it's all been legalized. It's like my favorite fact about how the United States always shows up near the

bottom of the global corruption index because we've changed the word bribery to lobbying and we've made it legal. So there's actually no corruption here and there's nothing illegal going on whatsoever. But I guess we mentioned this thing at the top, reverse factoring or supply chain finance. It's a little complicated, but we should, I guess, start by, if you could, give us your best college triad, explaining to the listeners what exactly that is and what Greensill does. Of course.

And this is what's so interesting because it's basically just mafia shit. So when, basically, if I'm a company, so let's say I'm Vodafone, right? I have my suppliers and my customers. My suppliers, let's say they sell me my handsets, I sell them on to customers. I'm Vodafone and I've agreed to pay my handset supplier, I don't know, let's say 100 pounds, just for simplicity, in 90 days. Greensill says, hey, you can get paid 98 pounds today right and so what happens essentially is that they accept a a for a

shorter uh payment period of repayment they accept a smaller amount of money and then what happens is that um it is essentially like vodafone then never has to keep money on hand to pay its suppliers it owes all of its money to the factor, the person who is essentially paying the suppliers on their behalf. And what makes that, I think, very interesting. So this is the company that handles its accounts payable via a third party rather than paying its suppliers directly. Suppliers accept a cut, but get paid today rather than in the future and what they say and essentially then what greensill does how they how they pay all of vodafone's bills without also having vodafone's business is that they will create a bond so they will securitize that and then they will sell it on

um so essentially you can turn your supply chain into a bank uh that you can just borrow that you can borrow from you no longer need to have the the money you make no longer get spent on the on running your business you now that has now been financialized that has now been that basically you get to pay your suppliers on the expectation that you will keep trading at your current level or higher more or less. And the thing that makes this most interesting, well, there are like 20 things that make this interesting, but the killer thing that makes it most interesting is that when you raise debt in this way,

it's not recorded as debt on your balance sheet. So it's just operating expenses. So you look like a very healthy company for a very long time if you have a reverse factored supply chain. Because the way that bonds, say, get low rated, for example, is how much debt you have as a ratio of your equity or your revenue or what have you. So if you use reverse factoring, you can kind of keep the appearances up of being a very healthy company while in fact being dog shit, effectively.

And no one can stop Greensill from doing this because it's not a bank, it's a tech company. So everything they do is perfectly legal. Yeah, as soon as you say the word securitization, I just see Leo in Wolf of Wall Street throwing midgets down the hallway and doing coke off prostitutes' rear ends and these sorts of things. But yeah, it's crazy that essentially the way that I've understood it is suppliers can just turn their accounts payable

department into a securitized revenue stream or a securitized money stream that can in turn be insured and sold off and uh create a giant debt bubble effective effectively yeah i mean once again it's one of these things where it has a perfectly legitimate or legitimate within the logic of this system it has a perfectly legitimate use which is just you can if you want to like get access to working capital quickly for doing something or whatever you can fine but the fact is like that the fact that but the problem with this kind of speculation is it always comes down to this core core contradiction which is that eventually which is that you they it assumes that everything always grows forever as soon as it doesn't grow the more financialized you are the more the more layers of

finance you've put on yourself the harder you fall down and the harder you take everyone else down with you and and the other thing right is and this is just this is in the vodafone example let's say you're a voter you're a blue chip company that will definitely come up with 100 pounds in the 90 days. But your supplier agreement used to be that you'd pay invoices in 30 days. But then Greensill comes along and says, hey, extend the payment term so long that you'll put other companies almost out of business because you'll just won't pay them and you have enough power to compel them to sign it uh and then we'll say we'll come in as the good cop and say hey if you accept 98 of the bill then it'll be one day so that's what they do they the green still comes in says hey extend your payment terms massively uh then we'll be the good cop um and then votaphone is able to is it's is able to invest in the financial instrument that owns its supply chain debt.

This is not an example. This is real. This happened. And if you want to know sort of how Vodafone got so cozy with Greensill, not only did Greensill sort of basically claim to have invented this practice for them in 2009 or 10. But then Vodafone's treasury director joined Greensill as the CFO in 2019. Cool. That's awesome. Yeah, so basically it's for these big blue chip companies that just want to access working capital. And the idea that Vodafone isn't going to pay its bill is unthinkable. And of course, it's unthinkable until it happens. But additionally,

what then he does is then he says, okay, well, now that I've got Vodafone in my stable, this fund now has this stable income. So now i can go seek out high return very very risky investments uh and so that's just sort of a bunch of like you know famous debacles of again companies that turn out to not do anything or that aren't trading or whatever that he just puts into the um that he just like just reverse factors and then creates all this risk around them and then creates massive problems when they when they blow up and blow up they do and many of them have blown up recently this kind of reminds me of the we did an episode on your the euro dollar market where they're obviously they're legitimate uses for euro dollars of countries trying to get needed imports when they don't have access to dollar swap lines and whatnot.

But the modern implications of that is that it's used to fund extremely highly leveraged lending in international finance for companies like Greensill. That's precise. It's why Eurofinance is so skeezy. It's because it's basically just like different guys from Euro, different Eurodollar guys just like investing in one another's sort of like shitty black boxes that they use to raise debt against and then use for coke and Mayfair. It's like, well, Jeremy Corbyn didn't want the UK to become just a tax haven for shell companies to do this type of thing and that's it.

Or rather, like Airstrip One, basically, or something. Refueling station for other empires. Effectively. Yeah. or something. A refueling station for other empires. Effectively. The city of London is just notorious for this behavior in particular. It totally makes sense that reverse factoring would take off

there specifically. Was it you who mentioned earlier in the chat before the episode was that supply chain finance was invented in England not not by lex greensill but for sheep farmers uh it was invented oh factoring which i guess is the reverse of reverse fact factoring um try to explain that is uh uh that was invented in the 14th century apparently according to uh economics journal that i can link to this episode in the wool industry.

And it was a way for the royals to intermediate industries and add to their estates. And little has changed. Yeah. But just to talk about how much money there is in all this on paper. And I emphasize the on paper, and I emphasize the on paper part, according to ValueWalk.com, Greensill is one of the most valuable fintech companies in all of Europe. Again, quoting from ValueWalk.com, in 2015, McKinsey estimated the volume of financeable,

highly secure payables globally to be about US $2 trillion annually. For intermediaries, they estimated that could be worth up to $20 billion US dollars annually. So there's a lot of all these accounts payable revenue streams going on. And so if you can financialize and securitize that you can make a pretty penny and this is how lex green still has become for now a billionaire yeah well he does some weird shit with his billions too um he's an obsessive collector of private planes um and obsessive he but he makes a lot of strange short flights too. He is an obsessive collector of private planes. He also bought a bunch of land near his home in Cheshire in the UK

to turn into a nature park, which we cannot say he's hunting the most dangerous game there. We cannot legally say that. But also, their own estimates of the size of this market is $5 trillion. But, like, you know, it's a company's estimate of its own market. So, you know, take that as with a grain of salt. But, like, the prevalence of this practice is enormous. Every major company use it.

And most of them use so and greensill is like the face of it and it's certainly like the most well-known but there are a lot of them are just like little fly-by-night enterprises that are sort of like companies that exist like financing companies that exist to service sort of one or two uh other companies. But like Boeing, Nissan, Coca-Cola, Kellogg, if you can think of like a famous name, it's reverse factored. And if you want to think about, and one of the reasons that,

and think about like how many industries are vulnerable to say COVID-related pandemics in say, I don't know, plane construction or what have you, are going to suddenly have some very difficult questions to answer about their ongoing solvency and what if all of that happens at once um and then you're sort of asking yourself like what what if we did 2007 but for every company not not just the banks. So with the housing crash of 2007 and 2008, we had to talk about what's the contagion.

So it's like the mortgage-backed security bundles eventually stopped getting income, and that spread to other riskier assets in the stock market and what have you. So I guess on the other side of Greensill's balance sheet, the risky assets, what types of things were they getting into, I guess? I think for me, it'll hit the rest of the economy in a couple of ways. A lot of the supply chain, a lot of the other sides of the balance sheets are supply chain finance funds that are then invested in by many companies that are themselves supply chain financed and SoftBank and such as well. I see this less as supply chain finance being necessarily the systemic risk as the indicator of the systemic risk which is loose conditions on corporate borrowing and a sort of a wave of corporate bond defaults that essentially cause that cause and then a wave of failures of non-bank companies that

essentially cause mass unemployment among the people who expect to be going to work at Boeing the next day. So I see it as sort of precipitating a kind of unemployment crisis in that way, that we're essentially using all this cheap credit, whether it's driven out through supply chain finance or other sort of symptoms of the zero interest rate problem, is that ultimately what we're doing is, in keeping going in the current way, by continuing to prop up these companies, what essentially is happening is there is a pent up and growing shockwave that will come. And that the longer we hold off of it through things like SCF, the worse it will be.

So it's a different kind of contagion entirely, in my opinion. I could also be entirely wrong, but that's sort of the way I envision it happening. Okay. I was just looking up some stats on the global supply chain finance market. And so it may not be $5 trillion trillion but it's still in the trillions and it has like it's estimated by the world supply chain finance report of 2018 which is apparently a thing is uh about to be about 1.3 trillion so that's including both factoring and reverse factoring factoring is also going on, I guess. We're not just reversing it.

Yeah, but fortunately, if this all blows up, it's only going to be limited to companies that supply goods. So this will be a really contained economic contingent. For us services people, it's fine. I did want to go back to what you mentioned about the private jet, because I found this amusing in a Bloomberg opinion piece. Apparently, the firm Greensill now owns four aircraft. And they got, we mentioned this one and a half billion dollar investment from SoftBank, the Vision Fund, which is, of course, supplied mostly by MBS in Saudi Arabia, gave Masayoshi-san all this money to invest in various companies. So he gets this $1.5 billion investment from SoftBank, and then he immediately goes and buys another private jet. Which, in fairness, if I got my Saudi Arabian blood blood money that's exactly what i would do you know you well you i mean that you need the heated seats to forget about the yemeni children that paid for them well you need basically the key is um you need to you need a private plane to get where you're going and then you need a private plane to continue going on from there you can only go from one airport to one airport so you know if he wants to travel anywhere he needs to use upwards of nine planes but he has also way more than four

planes he has he has like a small airline he's like a small fleet of planes because he has some personally as well um it's uh it's it's it's very cool the loves planes. He loves his nature park. The thing about him, right, is that he's basically a nerd. Oh, yeah. I've spoken with people who know him, and he's just sort of kind of a dork. But if he's friends with you, allegedly, he'll just supply chain finance whatever it is that you're doing. So he would supply chain finance Grubstakers if're doing so like if he would supply chain finance grubstakers if you guys just like cozied up to him you guys get like a 15 million dollar loan yeah i listened to the trash future episode you guys did and you you made the joke about him uh

supply chain financing your patreon revenue but i'm not actually stealing the joke because i'm serious right now i want i want this uh reverse factoring on our patreon revenue um so he's also the he's the subject of like a number of controversies because he just makes these from an investment standpoint bizarre decisions so like for example um uh 15 million dollars went to a company called Special Needs Co., which was a small school for disabled children that was run by his neighbor. His neighbor was called Barnabas Borbleby, which I think is just swell. You know, when I read that piece, it reminded me of the Futurama character Barbados Slim. Like, it's just such ridiculous names. What a name!

Britain is just sort of generally an abject place in many ways, but boy, do we have some good names. But yeah, it's like, what, so they generated $15 million in securitized debt on this small school with 15 students? A million per student. No child left behind. Exactly.

Look, I'm actually an expert in special education, and that's how much it costs. So I don't see anything out of the ordinary here. Mr. Borbleby, have you just bought a play no no that's the that's for the children um look you actually can't teach special needs children unless it takes place on a gulfstream jet that is currently in the air yeah it's they can't focus otherwise yeah the well it's the uh the solar radiation helps them that's right um other other interesting targets of his supply chain finance include a hotel in mogadishu run by a private security company so you know if you want if you want to think about like um uh saudi money

flowing to uh the cia look no further than, I mean, it should be noted a lot of these private security companies have basically been used as cutouts by the CIA, U.S. government, whoever. So if you're a Lex Greensill guy and you're trying to stay close with government regulators, private security companies are a good way to do that. Just be able to do favors for people high up in the national security state. Well, that's the way to do that just uh be be able to do favors for people uh high up in uh the national security state well that that's the way to think about this is that it if you look at the um if you look at the actual like audits of these funds you see all these strange companies like an australian platform for reinventing juice or whatever that gets like 10 million dollars in

supply chain finance just strange things and so you realize oh it could be that he's just doing these his favors i want to be the guy who reinvents juice like all right hear me out instead of sugar what if we use salt like let's just try it and it's called the food revolution group and they say they are an Australian-owned food and beverage manufacturing company. $30 billion, right there. Yeah, that's it. I thought you were doing a bid, but that's the real company. Yeah, it's the real company.

Again, it's one of these things where they export juices and so on, but it's a list of random companies you just wonder how many of these are favors um that is true though if you want to get if you want to get money from masayoshi-san and softbank your investment pitch should sound like you're doing a bit you should be able to like have a killer it would work as a killer five minutes in a comedy club but it would also get you one and a half billion dollars from softbank um and so well the interesting thing right about about the softbank as well is and this is what sort of got him in hot water and has led to supply chain finance itself being a little bit less popular recently uh which is remember i said i've talked about credit suisse quite a bit right

so green seal the company became the exclusive introducer of companies for this Credit Suisse. Hang on, what was it called? I have it in front of me. Oh yeah, Credit Suisse, Nova, and then in parentheses, Lux, supply chain finance, high income fund. There are several, but that's an example of what they're called. Funds are always named after luxury goods um and and so then greensill says okay i'm gonna you i'm gonna i'm then going to supply chain finance four companies um gauzy fair uh what was the other one oyo which is one of my absolute favorites, and Vue, a window manufacturer, all of which were soft bank invested companies. That right there already should strike you as very strange.

If you remember what supply chain finance does, one of the things it allows you to do is disguise debt as revenue. So if you're a soft bank company and you're then introducing four more struggling might i add soft bank companies to your supply chain finance fund and then soft bank invests in the fund all of which is true all of this happened then what happens is you have essentially allowed soft bank to use its capital in those companies to look like revenue rather than debt. Hell yeah. Yeah, like, to talk about what we said up top, which is, you know, reverse factoring is mostly unregulated.

Again, from the Trash Future episode you guys did, I found fascinating that according to European regulators, companies are, quote unquote, encouraged not to report reverse factoring debt as operating expenses. So, you know, again, this kind of voluntary encouragement by regulators to just not completely cook your books is why, you know, SoftBank might want to invest in this because because ValueWalk.com makes a pretty good point on this article that I'll link to, which is basically like, if you're a big, reliable, credible company,

it's actually typically cheaper to borrow from a bank if you don't have intermediaries in your supply chain. And they say, therefore, the primary incentive to use supply chain finance is to make your balance sheet look stronger than it really is, unquote. And like I said, if you're wondering why more companies aren't failing during this sort of protracted demand crisis, where I think unemployment is also probably much higher than it's being reported as,

especially in Europe, then this begins to make more sense that essentially, if you want to take a super macro view of it, what's happening is that money still needs to get to people or else society collapses. But to preserve hierarchy, essentially, that needs to happen via private companies that allegedly do some other thing. In many cases, though, I mean, 21% of British firms are now zombie companies, which means that they don't do anything other than just borrow and then roll over that debt.

They don't make enough of a profit to pay even the interest on it, none of that stuff. What happens, though, is that they exist, from a policy perspective, they exist largely to continue paying their employees. And so it means it's a kind of highly conditionalized UBI or extremely non-universal, extremely basic income where because the government is like central banks are largely lending money at 0%, then it's very easy for banks to then sort of lend that money out, and in many cases, lend it in ways that it lands in, say, something like a supply chain finance fund, or lend it to companies that can borrow directly, or lend it to banks that then lend it to companies, and so on.

And then the executives pay themselves fat salaries and give everyone else sort of kind of what they were getting before. And so you can sort of see this as something that is building up the energy of a coming crisis by holding everything in place as it is now through sort of this just adrenaline shot after adrenaline shot of cheap credit into this economy. And so Greensill, I see, is kind of a symptom of that. It is a mechanism by which this can occur. And so, you know, like I said, you wonder why these companies haven't failed. It's this and then a dozen other reasons, but that all look like this. I do like that we have set up a UBI program for everyone who can successfully answer the question,

where do you see yourself in 10 years? And what are your weaknesses? Yeah. It's essentially, it's UBI for people who can do online math assessments. For people who are good at answering psychometric tests. I feel like companies like Greensill are just like, yeah, sure, it's, it's seemingly legal what they're doing. But they're also just kind of gaslighting regulators into like they like okay try and explain to me why it isn't yeah exactly well it's a it's one of these things where there's no law

against it so i'm gonna do this thing the shape of which is sort of radioactively horrifyingly illegal but that isn't because the way prudential regulation works as you specify certain things that certain named entities can't do so if you are a bank if your name is bank if there's bank written on your building then you have to do certain you have to do or not do certain things you have to keep certain ratios of capital against your against your loans and so on and so on but if you're not called a bank then none of those rules apply and and if you're not say i don't know and if you're not like literally cooking if you're not literally cooking the books if you're not in fact um uh like like falsifying an accountancy statement if you just book something as something else

and then note that you've done that, everything is sort of fine. It's why prudential regulation, sort of represented by like the Elizabeth Warren, Brandeis type, it's never going to be a long-term solution because inevitably something like this will come and find a crack

in it which is exactly what's happened here yeah i'm thinking about legally changing my name to bank don't don't don't don't do that you'll have to follow a lot of rules you should legally change your name to tech company okay that's true uh they do have there is a bank subsidiary within green the green seal organization though and that's even more interesting to me uh because i wrote he was interviewed uh it was an article in um in fn uh a financial news publication where uh he was where well the reporter was like i see you've bought a bank. Why have you done that? And he was like, well, I guess I can't hide that from you. Ah, damn. But yeah, talking about bank, non-bank,

apparently Greensill is the quote-unquote largest non-bank bond issuer in Europe. So it's the same problem with 2008 where you just have a shadow finance system that is completely unregulated and then falls into all these abuses that regulations were supposed to prevent. Yeah. And if you want to think about like your types of billionaires, right, like it's it's really interesting to me. Greensill is like a combination of the two main types of, excluding people who inherit property or whatever. Sure. I sort of see them as either platform monopolists

or people who did really well in finance up until 2008. Like guys like Bill Ackman or whatever, who's like the SPAC king of New York now, or these guys who are just very good at finance. And then the other type is your platform monopolist. And what I find very interesting is that Greensill sort of manages to be both. He's trying to be both. He is essentially someone who is able to provide a financial service that circumvents prudential regulation.

But you can see what he's trying to do and what the soft bank strategy is, is to be the platform monopolist like Bezos or whatever of this obscure type of lending that is ridiculously popular. But has become a bit less popular since those revelations I talked about about credit suisse but like the crazy thing is i don't think that's going to have a long-term impact because there was another scandal about him uh that happened like three years previously uh like four sorry three maybe four years previously that was as crazy it was as toxic and nothing happened uh if anything he got more powerful if after as a result of after those two things greensill is still a recognized provider of coronavirus business interruption loans from the government and uh it bought a payday lending platform that it's using to quote give employees access to their money every single day they're paid. So they get paid daily rather than monthly. Called EARND, E-A-R-N-D.

And he's now been allowed to basically use EARND to pay workers at a bunch of NHS trusts in a pilot program to roll it out across the entire state. Right, and to just kind of start talking about Lex Greensill the man a bit more, he was made a commander of the British Empire for his service to the economy. So an honor he shares with the people who engineered the Bengal famine of 1943 and numerous other esteemed luminaries. But, you know, you mentioned he only gets more powerful after this previous kind of scam he was running gets exposed. Well, he was a senior advisor to both David Cameron

and Barack Obama on, quote-unquote, supply chain finance. And David Cameron, former UK Prime Minister, is a board member of Greensill. So you can see why he might get more powerful no matter what. As is Julie Bishop, the former Australian finance minister on the board of Greensill. He collects powerful and influential people quite strategically. A lot of the people who are his counterparties end up getting lucrative jobs from him. A lot of the people who are supposed to regulate him end up on his advisory board. It's part of, I think there's a general sort of liberal consensus, and this was true for Obama, it was true for Cameron, which is that technology is the best vehicle for liberalism to deliver progress. And so anything that calls itself a tech company should essentially have runway cleared for

it politically, relentlessly and constantly. And so basically, even though again, what he's doing is like, oh, 2007 stuff, you know, because it looks and acts like a tech company, because he talks about code and so on and so forth. The sort of regulators, the entity, political entities that are supposed to regulate him end up facilitating him because the only thing they know how what to do the only thing they know how to do when face the technology company is to encourage it because for obama the main way he could tell americans that progress was happening was that there were more apps essentially

yeah and so it's the same thing you it is not in their dna to look at this kind of thing as anything but good it seems to me that the like allure of big tech seems to confuse and scare traditional uh empires into buying the bullshit outright because they are so afraid of being wrong that they're like fuck fuck it, just let them do whatever they want. They're going to take over the world almost. Yeah, I think that's right. There is this sense that I think a lot of people sort of feel as though they missed out on Facebook and Google and so on because they didn't understand them. Because they were, you know, may have been because traditional value investing, you sort of invest in a company on the basis of its, we're sort of going way into theory, but traditional value investing is basically just about investing in a company on the basis of its revenues and your assumptions about its ability

to pay dividends. But that makes a lot of assumptions about things like efficient markets. That makes a lot of assumptions about management, not self-dealing uh and that also assumes that the goal isn't monopoly it's just you know steady revenue generation right and what i think everyone has failed to appreciate is that no one understood this sort of massively valuable sort of platform monopolies that are now like providing what like 80 of the growth of the of the stock market for the last like 12 months no one understood them and so now i think there is a there's a sense that a lot of things people don't understand are going to be the next one of that and so there is this rush to sort of implement and support and sustain and promote things that are just not understood well yeah it's kind of like when

marvel movies started popping off and then everyone was buying superhero concepts because they're like we don't want to be behind in terms of making movies about superheroes and lose the next billion dollar franchise but instead it's dumb tech companies all right so i'm changing my name to bank b-a-n-q and i'm a tech company that bans letters that start with the word q on the internet, and I need millions to do this. Yeah, of course. If you look at these New Deal regulations, they clearly say nothing about banks spelled with a Q. I mean, that's sort of kind of what happened here.

It's just that they put non in front of it. Right. Because, like, Greensill is not a bank because it doesn't take deposits. But it sure does have, what it does effectively is it takes one big in reality it takes big deposits in terms of the funds it represents or it's a and or it funds that are invested in it and then it issues loans but it's not really issuing those loans it's engaging in an invoice facilitation process or whatever so they

just like rubbed out they just they erased all of the stuff that wasn't allowed and then just wrote in synonyms for it there's nothing in the rule book that says dogs aren't allowed to maintain a 40 to 1 leverage ratio that's right air bank i wonder what if you, okay, so, I mean, you're disguising debt as revenue, but what if you just, like, and that's totally fine as far as international accounting is concerned for the federal financial regulators, but what if you were to just undo that and say, no, it really is debt? I wonder what their leverage actually would be. Well, it's not just theirs.

It's every company they deal with. Oh, that's what I meant. Their customers. I think you'd see a lot of doubt. I mean, if that rule were to be changed, I mean, again, because there is sort of no good oversight of how big this market actually is or how much uh funding actually exists in all of these companies it's so frag it's so fragmented um you know it's it could it if it could it could precipitate a mass downgrading of corporate debt and then cause them to be unable to roll it over, or at least unable to roll it over affordably.

Okay, a lot of the A-rated would go to BBB. Again, maybe, because you just don't know what the prevalence is within each particular company. I remember Telstra had 29% of its accounts receivable, of accounts payable, rather, was handled through Greensill, for example. So Telstra being a major Australian telecoms provider. It's really popular in telecoms because of the sort of quite stable nature

of the contracts. But, you know, as soon, if let's say Telstra gets less popular, it can sort of go quite a long time without that being reflected in its balance sheet due to this particular practice i know that but so i i don't know for example um i it's very difficult to say because a lot of that information you it's just not available so it could go down to triple b it could go down not at all it could be that some of these companies have like you know they're using reverse factoring for their like i don't know for some tiny in some one tiny insignificant portion of their supply chain some companies like votaphone

it's quite big you know and because it's obfuscatory you so you don't know what you're going to get until you pull the mask off yeah it's it's it's literally off balance sheet yeah so you could you could if you see a lot but if you see a lot of downgrades to triple b then that that debt gets more expensive and those companies those companies start failing those and then when those companies fail and those people go out of business you can sort of you can see how the contagion would work from there um especially then a lot of a lot of people would lose a lot of savings because a lot of people might own bond ETFs. A lot of those bond ETFs that have sort of, even now, like 50% AAA might go down to, I don't know, it could go down considerably.

And then what's the value of that ETF done? What have your retirement savings done? And then multiply that by everyone. Okay. But to just give kind of a brief biography of Lex Greensill, the man himself, first of all, I think it's interesting to note that he's pretty obscure outside of the financial press. He does not have an English language Wikipedia, though Steve was able to find that he has a German language Wikipedia because he set up a strange little bank in Germany. We'll talk about in a minute. But there's a 2019 profile in FNLondon.com by Duncan Martin. And just to kind of give Lex Greensill's early biography, he quote... Duncan Martin, friend of TF.

Oh, good to know. Lex Greensill, quote, grew up on his parents' sugar cane farm in Bundaberg, a small town north of Brisbane, Australia. And of course, sugar cane farms notorious for their ethical labor practices. And, uh, just always playing it straight with the workers who are never injured and never cut off their eyeballs or, you know, no history there worth looking into. Greensill was trained as a lawyer and started his career at the Queensland Fruit and Vegetable Growers Association. He says he became interested in finance when he, quote, saw firsthand the impact of late payments on small businesses. It's not a small business. It was an agribusiness. That is, that was not true.

It's a very, it's a huge farm even now. Yeah, from this John Deere write-up on the Greensill Farming, it says that he was raised on his father's 30-hectare melon farm. And just to let you guys know, 30 hectares is 75 75 acres so by no means is this a tiny backwoods folk farm it is a gigantic area for agriculture growth and that's just the melons there's also a sugarcane farm yeah it's an agribusiness apparently now it's 3 000 hectares of sweet potato sugarcane and watermelon so this is a gigantic fucking farm there's no sense of thinking he's some sort of country bumpkin and that this is and he's a third

generation farmer for one of the youtube videos featuring him from a woolworth's video so for 75 years they've had farming in their blood right and just to make explicit what i was saying earlier the uh sugar cane harvesting it was a primary driver of the african slave trade and then once that was abolished uh labor conditions got 20 percent better uh so you can just imagine yay incrementalism yes so you know you could just imagine uh how his parents managed to give him all that money uh and how far back that goes and what it goes back to if you inherit a sugarcane farm but sean also wealthy friends gave him the money yes i do like so yes he founds greensill in 2011 and i enjoyed this quote from a Bloomberg opinion piece. Quote, at the time, Greensill Capital depended on friends and family for funding.

Unquote. So just does not get more friends and family LLC than that. Yeah. That's so fun. Yeah, just invent. Yeah, I just used my friends. I'm just a simple country bumpkin who was raised on my parents' agribusiness. And I used money from my friends and family to start my shadow bank.

Rags to riches. It's very funny. I like some of these quotes though because a big thing with greensill is that he's decided that his line uh is i'm democratizing finance right right oh god yeah uh so his line is basically like oh the little guy like you know special needs group or whatever who just happens to be run by my neighbor who has the name of a wizard um you know it's uh it these little guys they can't access capital or it's done at um sort of a wizard um you know it's uh these little guys they can't access capital or it's done at some sort of a very high rate so what we've done is we've sort of invented a way to iron an

inefficiency out of this system so he says it's not about money fuck off it's it's it's a quest to actually make a difference the financial outcome of that is just a byproduct it's a great privilege so why are you a billionaire with like 50 planes it's a great to actually make a difference. The financial outcome of that is just a byproduct. It's a great privilege. So why are you a billionaire with like 50 planes? It's a great privilege to have been able to get where we are today. But the thing that I love is the fact that every day I get to help small companies like Vodafone, Abignoa, and MC Healthcare, Carillion, just other sort of real success stories. A payday lender, Bright House. I get to help small companies like Bright House stories a payday lender bright house i get to help

small companies like bright house a payday lender that preys on the vulnerable who have the same dream that i had we're actually doing good yeah i saw firsthand the impact of late payments on small businesses when my parents seized their property yeah but yeah so green still grows up on his uh parents farm he moves to the uk pursues a career in banking uh right around the time of the 2007-2008 financial crisis he's at morgan stanley at morgan stanley's where he first kind of if not pioneers at least popularizes this uh reverse factoring uh business practice uh he then moves from morgan stanley to city group again in london apparently around the time he's at city group he meets uh david cameron or makes some sort of connection with david cameron and becomes an

advisor to him and then of course david cameron later comes onto the board of greensill uh after he leaves if i can if I can interject briefly, actually. He claims he created the method for reverse factoring that he used on his farm for his parents as part of his quest to make finance fairer for whatever his asinine quest was. And he's, oh, I sent myself to law school while working at a store. And it's like, again, while working as a clerk. And it's like, you grew up in your parents' agribusiness. Shut up.

But he then says he did that. And then when he went to the banks, he sort of tried to set up reverse factoring practices there. So he tried to bring that bit of farm wisdom uh to city bank and his first major client was votaphone actually so that's why so votaphone has been like a major player in this entire thing that's why it's so important where they are but that relation and that relationship with david cameron that ended up creating the uk's national supply chain finance fund so we basically like national we we created our own

investment fund but like for bullshit and um they ended up supply chain financing carillion who is an outsourcing company so it means they basically like massively overcharged the british state for stuff and no bid contracts uh but even they couldn't stay afloat because they kept paying their executives like these fat bundles. And so they used the British state to then supply chain finance them. And they disguised in what poor health they were until they exploded in tremendous fashion last year. So that's where that meeting with David Cameron went. It ended up in the British taxpayer getting fucked at both ends in the Carillion debacle. Jeez.

But yeah, so he leaves Citigroup in 2011. He sets up his own company, Greensill, to kind of continue this reverse factoring that we mentioned. There's a bunch of different descriptions of how he was supported by his family's assets and a handful of wealthy acquaintances. Quoting from the fn london piece uh the group's australian parent company greensill capital was supported by more than australian 90 million in loans from a handful of wealthy board members including lexus former morgan stanley colleagues and david solo the former chief executive of GAM. And GAM is a Swiss

investment company that really his first success is through there. And he does this all based on personal connections where David Solo, again, the former chief executive of it uh goes on to green sales board and then david solo has a long-standing relationship with tim haywood is one of uh gam's most high profile fund managers and uh because of this tim haywood i believe as a fund manager at gam invests something like 25 of all of his capital into Greensill. What is, is this guy a wizard? Like, how does he keep doing, I talk, because basically, like, congratulations, you guys have now all been inducted into, like, a finance journalist sort of, almost like confraternity, or not a fraternity, there are, there are, there are also women.

You have been inducted into a finance journalist guild of people who just learn about a, keep learning about and talking about green cell. So, cause I'm speaking to one of, one of these, one of these people right now, and we're just like trying to work out like what his pitch to GAM would have been,

how he gets these people under his spell, all that stuff. Like what, what is it that he's actually doing because like he what the gam debacle i'm very excited to talk about by the way i i'm very it's one of the most interesting after the gam debacle he still gets in bed with softbank with softbank andisse. Like, he's just, and it's provably, it's provably shit, and it blows up every time, and no one could stop giving him money. Right, and it seems like this is all just based on, you know, personal connections,

but also you scratch my back, I'll scratch your back, you know, getting money to these people. Like, in addition to GAM from the same piece, Lex Greensill was particularly close to Vodafone's treasurer, Neil Garrid. And according to people familiar with the matter, Vodafone's payables soon made up a significant chunk of the underlying assets in the new fund. The new fund being, in 2016, GAM and Greensill launched the Luxembourg domicile GAM Greensill supply chain finance fund. And my understanding of this is they set up these various funds to just stash the bonds or the notes that they get from doing reverse factoring.

Is that correct? Well, it's the funds go to pay the suppliers. Right. So I have a fund. I'm GAM or I'm Credit right? So I have a fund. I'm GAM or I'm Credit Suisse. I have a fund that I need to invest. I need to get a return on it above inflation.

And I say, hey, presto, wow. I can, if I, let's say, I like Vodafone as a company. By supply chain financing it, I can profit from it at both ends, in theory. I can profit when they pay suppliers and i can profit when they're paid by customers essentially um and so you're so you're essentially say i'll take on that risk for you um and and so that that's what that's what that it's against you can you can basically securitize any expectation of income in the future and And so the idea of these funds is that they will get that difference, that 98% where we pay the 98% of the invoice, and then you owe us 100% of the invoice of Vodafone, right?

That 2% feels like guaranteed income. And so I can imagine how the pitch works. I can also, you know, and you can also sort of see how you can see how this would just sort of be seem so much like a sure thing the way they would describe it um and and and you can also sort of see how it's like oh yeah we can we like votaphone we can profit off off of that doubly votaphone can then invest back in itself uh and and and things of that nature uh but gam i think is most interesting because of the relationship between uh lex greensill uh haywood and then sanjeev gupta

that's the most interesting element of it for me because at this point this is when we bring in um uh if you want again we if we if you want to look at green I think, is a worked example of two core failures of liberal approaches to financial management. The first is – or liberal approaches to sort of economic management, rather. The first is that prudential regulation is easily circumvent public behavior, they're going to be vacuumed up by the people who are most capable of vacuuming them up. So Greensill, Sanjeev Gupta, and Tim Haywood basically create this scheme to privatize an enormous amount of um british government funding for uh green energy uh that was subsidies that were given out for uh green energy and sort of rebuilding the steel industry which i think i think is terribly interesting so um what happened if i can launch into this is that uh greensill and gupta and this is from the sunday times uh they devised

this plan to persuade the scottish government to guarantee a steel smelter because the idea was that Sanjeev Gupta was personally going to save the British steel industry by buying it for from Rio Tinto in 2016 so they basically say okay we're going to tell the Scottish government to guarantee a number of my of my smelters power purchases from this hydroelectric plant for the next 25 years so that's essentially a guaranteed purchase agreement for a set amount of time. So because that's an expectation of future money over a certain period of time,

you can securitize that. So what they did was Greensill securitized that power purchase agreement into approximately 360 million pounds worth of bonds, which would have a full value of 575 at maturity uh considering inflation taking inflation into into into amount into account rather um and most of that deal was

then financed by gam and then moody's put them on par with uk government uk government bonds because it was guaranteed by the government uh and then basically this is now how this next thing i'm going to say has to be very carefully legally worded which is that this purchase was the subject of an allegation by reuters that greensill made a false statement about the scottish government guarantee um and that essentially was the idea was to um and we don't know what the false statement was i don't know what the false statement was offhand but so that was this sort of attempt to privatize a privatize the guarantee of this green energy thing but that's very small time the most interesting thing because they realized that there were all these subsidies that were flowing for green energy so what happened

is um there were these if you could burn if you could make green energy this was not scotland at this point this is now the uk you could um receive subsidies down the line for it so what gupta did was he bought a bunch of diesel generators and he put them in shipping containers uh these diesel generators he said we're going to use biodiesel so it's going to be technically green energy and then we're going to run them 24 hours a day 365 days a year which if anyone listening knows anything about about about motors you can't especially not with with um with biodiesel which is very dirty um in terms of like you know clogging up motors and such so he basically just made he and gupta so gupta makes all of these very fanciful statements about how much power he's going to be able to provide with his boxes and government and also be guaranteed subsidies because they are renewable energy.

So then once again, that gets securitized and sold to GAM. But the problem is that this is all a brilliant plan it's a brilliant plan to privatize a public money simply because he wasn't good enough. He wouldn't even run a good enough front business, basically, to make it work. And so basically, he ended up causing this massive scandal at GAM. I believe Tim Haywood had to leave. Yeah, he ended up causing this massive scandal at GAM. I believe Tim Haywood had to leave. Yeah, he did. Tim Haywood then left. But for basically just making this fanciful statement about the future earning potential of these biodiesel generators

on the basis that it would privatize an enormous amount of uk government green energy subsidy and much and the only thing that really you know saved the uk from just handing over a bunch of money more or less directly to gam in switzerland was that the gender none of the generators worked basically and it was after this that softbank and credit Suisse and becoming an official coronavirus lender and being asked to handle the pay of every worker in the NHS over a phased period. This happened after all of that. Incredible. Well, when you're a commander of the British Empire, they let you do anything. But yeah, just to talk about tim haywood just real quick like so yeah gam again this swiss

um investment firm that was uh buddy buddy with greensill uh like we mentioned at peak the invest uh they gam investigated tim haywood uh and found that at one point haywood had invested about a quarter of one of his funds into greensill assets uh they found uh through the investigation that haywood had taken personal flights on greensill's private jets and that he had accepted an invitation from greensill to a buckingham palace garden party um you know and so other such gifts as well yeah right that was the one harvey weinstein and jeffrey epstein were uh but yes so and then they dismissed uh haywood for gross misconduct but after that happened gam's share price tanked and several senior executives left the firm so this like really blew up in green

so in gam's face just how much of their business was invested in this practice. Didn't blow up in Greensill's face, though. Yes. He's doing it. It's just so weird, right? I was telling you guys earlier about this finance guy, a skeevy Eurodollar guy, to be sure, Lars Windhorst. And it's the same thing where it's like,

you don't understand what the fuck are these asset managers doing with these guys? Why do you keep doing business with these people? Because you just look at a trail of illiquid securities, of poorly capitalized plans of like high profile collapses and you're like i can change him it's like yeah there's asset manager uh that's that keeps working with this guy windhorst called

h2o asset management and um windhorst is this guy who's this financial wunderkind in germany who by the way if you guys want to do a full episode about about him as well i'm very happy to do that uh but uh he is yeah it was this financial wunderkind who was like paraded around the world by um by helmet cole and uh because he like started dropped out of school and started like repairing computers or whatever. Became an investor. And then just after the dot-com crash, became then famous for selling illiquid bonds, which is just bonds for which there isn't much of a market to sell because they're really obscure and weird and stuff. And then H2O Asset Management this year, which deals a lot with Lars Windhorst, was like, we are confident he has not sold us any illiquid bonds.

And four days later, it was like, illiquid bond revealed. What? He sold us an illiquid bond? But what are the odds that he would do it a 40th time? But to just talk about Credit Suisse, and then I want to talk about their German bank as well, from valuewalk.com. So after GAM sets up funds with Greensill, Credit Suisse, which is a much more well-known, quote so high that a freeze was put in place because supply of investments couldn't keep pace. Assets grew from U.S. $2 billion to U.S. $9 billion over the course of one year.

The freeze was removed in March 2020, but by then demand had evaporated. The funds assets at the end of June have fallen to U.S. $7.9 billion. And this is partly because of COVID-19 has been a bit of a business problem for Lex Greensill and business suppliers in general. So some of these accounts payable revenue streams have been drying up because of COVID-19 disruptions. That's right. And also just it's part it's partly that and um after the circular financing um uh uh was revealed and credit suisse where like softbank appeared to be financing its own companies um lending to its own companies through uh the supply chain finance fund in greensill uh the supply chain finance business at credit suisse has, I don't know exactly what it is now, but it is less than what it was.

But again, will he face any kind of even a reputational consequence for this? Somehow, no. I don't know how. Basically, a friend of TF, Robert Smith, who covers a lot of this stuff as well, whose articles are incredible in the FT, he noted that there is actually a connection between the Sanjeev Gupta story and the Credit Suisse fund was then put through a company called Liberty Aluminium Holdings Company Limited which is owned by Sanjeev Gupta. These guys are just too good of friends.

They never betray one another. Those are my favorite episodes where I feel like I'm losing at a game of three card Monty. You're at the baseball game and you're trying to remember which one of the cups the ball is under while you're recording um and what i what i think is uh is is very interesting right is that he kept on supply chain financing Liberty Aluminium Holding Company. But such a – that's very interesting because no such company exists.

And so it appears that – what it appears to be is that he basically just kept giving a bunch of money to his friend. But then they said, oh, actually, sorry, that was what we call a system generated truncation which is basically like the dog ate my uh crucial regulatory disclosure uh data point i forget if we already said this but green cell has like 20 something subsidiaries or a whole bunch of different companies within this little russian nesting doll right yeah thereabouts and so it's sometimes it's uh it's it's for different sizes different activities so it has a little a specialist securitization bit and it also has a um a bank as well right uh and the bank is in uh germany uh it is uh if you want to know by the way one of the other ways that this could sort of end up hitting the public finances,

or in Germany, deposit protection is semi-private. But like most things in Germany, it's semi-private but kind of compulsory. That bank is guaranteed, of course. So, good. I do like how people just look at Deutsche Bank and go, well, if they can get away with that shit, we better incorporate our bank in Germany, huh? That's right. But yeah, from valuewalk.com, Greensill, they set up a bank in Germany to act as a warehouse for assets it chooses to keep. The bank was acquired in 2014.

As of the end of May 19, the bank has assets of US $1.47 billion. So he's just kind of stuck a bunch of different assets that we don't really know about and that may be particularly shady just based on everything we've talked about in this little bank in Germany that is notable enough to have its own Wikipedia article on the German Wikipedia, even though he does not have its own Wikipedia article on the German Wikipedia, even though he does not have his own Wikipedia article yet. That's right. Yeah, so why you'd buy a bank is for any number of reasons.

It gives you access to more direct... It allows you to borrow money pretty easily from the ECB or what have you. Also, you can protect yourself by calling on either the state or in Germany, this sort of semi-legal, semi-state entity, sort of private entity, as a lender of last resort like basically have and they also what you can do is if if you want to make one thing look better you can sort of just choose to warehouse uh bad debt on the books of a bank that you own it sort of it it's if he's all it's sort of if he's already uh let's say playing baseball with a cannon um now he's playing t-ball with a cannon in effect yeah so that's uh that's that that so that's it so and that's why i say it's like when he was like i see you bought a bank he's like well i can't hide that from you but so in talking more about this german bank uh it's drawn some scrutiny some late scrutiny from German regulators as of, I believe, August 2020.

Riley, you were saying there's connections to Sanjeev Gupta in that or people don't really know what's in it. What if I told you that up to two thirds of head banks balance sheet is connected to Sanjeev Gupta. And that a lot of the deposits in that bank are basically just the soft bank investment. Right. So it's like Greensill is basically the world's best friend. I mean, it seems like he took his soft bank investment and then everything that he didn't spend on private jets he put directly into his shady German bank.

So it would appear. It was that, yeah, so this ratings report that I was just looking at, yeah, it's that approximately, it has like 500 million euros in it, which I'm pretty sure is mostly SoftBank money. And then two thirds of its assets are related to Sanjeev gupta so don't worry soft bet it's just it's this guy sanjeev gupta is just not going away and the german regulator was like we're concerned that you basically have a bank that lends to one guy with a history of like shady behavior i don't know i do respect sanjeev gupta just as an indian man getting revenge on the british taxpayer that's right justice for yogi's people uh that's exactly right

um so look will will will anything come of that uh hope so you know because uh it just it seems like every time every time that that this company gets looked at some other weird thing comes something else that's just weird and you know by way of kind of of summary right i i tend to think like all financial, financial malfeasance before it blows up just looks weird or things that cause financial crisis before they blow up just look weird. Like the housing crisis before it happened must have just looked very strange. Like, why aren't you recording the incomes of the people who are borrowing, borrowing here? Why? Why do you have, you know, like nine loans against a condo or what have you you know um you're not seem to be working how come people keep giving you money and it's ultimately it's it all of it makes sense in retrospect right once every once you sort of

look at what happened and you know so then the question is all of this behavior from greensill the company is just so weird it's just why does he keep staying connected with this sanjeev gupta character how come he has how come he sort of will will sort of finance sort of these obvious like failing or uh or scammy companies like why does he do it to his friend um how how does he become a billionaire from something that is sort of so strange like there's so much we don't know we don't know sort of who who the favors are all really for you know a lot of that just doesn't make sense um until you kind of until you try to think of it from the perspective that the crisis has already happened until you try to

think of it from the perspective of the future and you sort of you see is sort of you know just um people taking chances and on in one sense with the money of other rich people like who cares right but in the other sense taking chances with the money of other rich people to in what will ultimately be a crisis that is paid for by us you know by people with jobs um and you know by the end of that we'll say ah how do we let you know non-bank corporate finance get so crazy and then the regulators will come in and, you can't be a non-bank anymore. And then, you know, someone who right now is growing up on his parents' agribusiness in Australia is going to invent the way to get around that. Right. Right. They cracked down on banks with a Q.

So now I'm on banks with 4Ks. That's right. But just a couple other loose ends I wanted to get to before we wrap up here. So, SoftBank, of course, we mentioned invests $1.5 billion as of 2019 from ValueWalk.com. I believe their valuation of Greensill at the time was about $4 billion. I've heard as much as $8 billion. I've seen different sources on what they value Greensill at, but it's way out of line with actual revenues from ValueWalk. On paper, only Klarna and Revolut have bigger valuations in the European fintech space than what SoftBank values Greensill at.

And, you know, kind of a thing that this comes out on the heels of SoftBank's notorious blow up with WeWork. It seems not inconceivable that maybe they're interested in Greensill's ability to make their balance sheets look a little more strong than they might actually be. A couple other things from the ValueWork article, the Vodafone, I mentioned earlier, the treasurer of votaphone had a direct relationship with lex greensill um at the end of 2018 votaphone had a 1 billion euro investment in um the fun one of the funds set up by greensill um the votaphone's treasurer later went to work as greensill's cfo so this guy who Vodafone to make this big investment in him later goes to work for him as the CFO. And then we mentioned the internal dealings with regards

to GAM and SoftBank. But I do encourage people to read the entire ValueWalk article because it's like, it's very long and it's very detailed, but it goes through kind of all the telltale signs of trouble at a company. And I wanted to just pick out one that jumped out at me. Greensill's UK holding company, Greensill Capital Securities Limited, has no employees. They are recharged from another group company

and five directors resigned on a single day, January 22nd, 2018. Of the five current directors, there have been appointed, that have been appointed, or sorry, of the five current directors, three have been appointed since December 14th, 2018. And an additional director appointed on the same day

only lasted four weeks. One of the forensic analysis test sequences we explain in our forensic accounting course looks at board compositions. Red flags are directors resigning en masse. It suggests potential for a fundamentalations and these directors coming in and leaving within four weeks uh no uh no smoke no fire here that's right a perfectly it look this is it's a work experience uh thing i was a director intern um yeah i mean why not so you know look it's ultimately right like um it's it's it's still it's still useful uh to capital i think this this particular function uh it certainly is backed by the state so as chaotic as it is it's just going to go on continuing to spread chaos chaotically um which is which is great which is great i love to live in this economy

what a world i get supply chain financed and also apparently greensill has recently fired their auditor and hired new auditors another great sign their their auditors are are Safri Champness, which is apparently kind of a smaller auditor, which is just, you know, weird. But also, according to ValueWalk, the auditor is paid significantly more than typical fees for auditing. Yeah, quote, it's quite unusual for a complex financial firm to be audited by such a small auditor and then they point out that the fees that this auditor is charging are much higher than are typically charged which is you know like generally how you have to get somebody to sign off

on books that are just on fire so my my question when this at the at these things, right, is always the following. What is the legal explanation for it? I mean, no one's stopping them. Like, it seems like anyone that tries to stop them, they either pay off or fire or just hire around somehow. They hire an auditor who doesn't know how to look into their business right right yeah uh this is and that's that's i think is very you know it's right there and all of it's legal all of it is legal but like give me but it's all just like it's like he's great he gets by on every single sort of like technicality or thing that wasn't really anticipated like

with those sort of with the generals or regime of corporate governance by audited audited financial statements and stuff um he just there just no one really anticipated that there you could just be the sole client of one auditor like it's the it's the again i think it's a failure of like of liberal liberal um economic governance which is just assumptions that power doesn't matter and that things are just information exchanges so like that if you're so that the power of the of a company like greensill over the power of a company like safari champness um doesn't really factor into any of those calculations. And in fact, it's why there's sort of a constant slow-rolling scandal about the sort of monopolistic big four auditors around the world.

It's like, oh, right. Ernst & Young was like, our bad. We missed all of the fraud that Wirecard did. Oh, yeah, fuck. You registered, what was it? You booked $1 billion of revenue from what turned out to be a single Filipino fisherman. And the auditor's just like, ah, fuck, we missed it. Damn.

In fairness, that Filipino fisherman owned a special needs school. And we all know how profitable those are. That's right. In fairness, that Filipino fisherman owned a special needs school. And we all know how profitable those are. That's right. But yeah, I mean, like going forward. So we already know you guys talked about this on the Trash Future episode. Some of the different collapses, like I think it was five or so different companies have had sort of Enron style collapses using reverse factoring. Just from ValueWalk, one of them is in 2018,

the UK construction company Carillion collapsed after reverse factoring had allowed it to label almost half a billion pounds of debt as quote-unquote other payables. Other high-profile corporate collapses where the technique has been used include NMC Health, Bright House, and Agritrade. So I guess the worst case scenario would be if this just happens en masse or if it, you know, not inconceivable, happens with really big companies such as Vodafone, you know, and I believe they also do some work with Airbus, if I'm not mistaken. But... Yeah. Airbus if I'm not mistaken but yeah I

mean I again I think the like like I was I was saying I was saying earlier to Andy's question like the the real the risk here it's it's the contagion if you like I think is from Matt from mass corporate failures when the green cell music stops playing. It's not so much... That's how this goes from a problem to a crisis.

And again, it's not even just... Like I said earlier, it's not just green cell. I think it's important not to overstate the systemic importance of this one company, but it is rather this loose lending environment generally it's it's musical chairs and we've all played musical chairs and we know the music doesn't stop uh it's that's true of every game of musical chairs is there are no chairs but it's fine because the music doesn't stop um yeah and according to the wall street

journal october 2020 greensill is currently trying to raise money. And this is, we mentioned COVID-19, so they have had some problems with this core business because of COVID-19 supply chain disruptions. Greensill aims to raise funds that could value the company at about $7 billion, which is double the valuation it achieved in a funding round in October 2019. So they've doubled their valuation in a year why not why not why not cool that's fine after what like how many scandals and corporate failures they're just gonna double that valuation it really is just they're just playing fucking calvin ball with the there's no better example of how much just fucking calvin ball is being played with the economy than this company um you can also add climate change to their list of

problems because they're doing a business they're they have they're participating in a program with the u.s export import bank to finance 21 oil and natural gas fields in the u.s okay good do supply chain financing for them um yeah he loves i mean there that's sort of it's similar like um with the with the generators but it's in in the u.s he'll just he'll finance whatever in the uk he was like oh we could also get uh government subsidies against these as well uh But hey, you know, if that becomes a problem, he can always just go back to his agribusiness. I'm sure that'll be fine in a sort of, what, three-degree world, his Australian sugar cane farm.

The country was literally on fire like two years, a year ago. Yeah, that's fine. All of this will be fine. You know, it seems like it was written as if people thought that nobody could spin five plates on a stick at once and this guy was like oh you could just totally do that if you just focus on one plate every now and then and then move to the others very quickly and everyone's like wow look at him go none of those plates are dropping while massive amounts of money is just being funneled from one plate to another that's right that's why you spin the plates is to move

the money that's right exactly uh just from the wall street journal greensill has declined to say how much money it is trying to raise right now according to the company's website it provided 143 billion u.s dollars of financing to companies in 2019. It's according to its own website, take it as you will. But I mentioned earlier their auditor. So another, let's say, smoke coming out of the building signal is their insurer. Because when we talk about parallels to the 2008 financial crisis, of course, everybody thought these mortgage-backed securities were fine because they were insured by companies such as AIG. Well, all these securitized supply chain financing notes are also insured. And just quoting from the Wall Street Journal here,

they set up a Credit Suisse Group AG managed fund, which was about $6 billion in bonds in the fund. The fund is marketed to investors as a secure source of income protected by trade credit insurance. Euler Hermes Group SA was one of the biggest insurance providers to the fund, according to a recent Credit Suisse letter sent to fund investors viewed by the Wall Street Journal. Euler attempted to, This is not a quote, I'm paraphrasing the rest of the article. Euler attempted to raise the equivalent of the deductible for the insurance on this fund. Greensill replaced them as an insurer. So basically, their insurer on this fund was like, yeah, we're going to need more money. There's some risk in here. And they said, no, we're just going to get someone else. Goodbye.

Look, there's a fisherman in the Philippines who's got a lot of interesting things going on right now but you know this is all safe because it's insured do not look at the immediate past for any precedents where that blew up yeah um yeah so and but last thing, you want to know why he's raising money. One answer could probably be that he realized that being in a Credit Suisse fund meant that there were marketing documents and many of his actions were auditable. And so he might just want to raise a ton of money to basically be his own asset manager as the supplier of finance to other firms. Incredible. One last anecdote from Australia. I believe this is from the Sydney Morning Herald or some other Australian paper. Lex Greensill tried to argue that he lived in London to avoid paying Australian capital gains taxes on the $60 million in shares of his company that he sold. But eventually, in April 2020, the federal court in Australia ruled that, no, actually, living in London does not mean you just don't have to pay capital gains taxes anymore. But good try. And I'm sure when he gets more former members of the Australian company on his board, he'll be able to give this technique another shot in the next couple of years,

and maybe he'll get away with it that time. I mean, look, the Scott Morrison people all seem like they're pretty easily bought. I don't think you need to give them a board position. I think you just need to give them an office tour or let them drive one of the tractors on the farm. But I think kind of the long and short of everything we've talked about here is, you know, this reverse factoring is a way, a technique that allows debt to be disguised as operating costs for companies. And it allows them to, let's say, cook the books,

in many cases, perfectly legally. But there's a lot of risk here. And just with kind of the insane valuations we've seen in the stock market, we're all just waiting for the music to stop. And in terms of places where the music might stop i think uh lex greensill is certainly a prominent example um but riley i do want to uh riley from trash future i do want to thank you for joining us and i want to give you an opportunity to just uh plug where people may find you and of course if you have anything else or any other summations you'd like to say that we didn't quite get to? Feel free. Well, you can find me on Twitter. It's at G-R-E-E-N-S-I-L-L. Thank you very much for having me.

I've had a blast talking about this, my favorite subject. And hopefully now some more people's favorite subject as well. I'm also sorry to uh everyone um all of the everyone who knows all the people who are listening to this who are now going to have this uh breathlessly explained to them um lord lord knows everyone i know is tired of hearing about it uh so i do really appreciate the opportunity to come and talk to you guys about it listeners if you guys can explain reverse factoring to somebody at a party without them walking away from you within three minutes just hit us up and you'll get a free patreon subscription to grub stakers that's right

challenge unlocked uh if you uh you can listen to listen to Trash Future. We talk about stuff like this all the time. I guess I'm a bit of a chicken little about the next sort of economic collapse. I'm always trying to sort of figure out where it's coming from. So if you want to hear more of my wild theorizing with me and my friends uh it is uh there that you can find us uh on any fine podcast device item etc you know what i'm talking about you're listening to this podcast already you know what i'm talking about podcasts you've heard of these hey riley before you go do you think peter will eventually get fucked like do you think any of this will ever catch up to him um oh wait oh peter no i think peter's

gonna be fine he's just a simple agribusiness owner lax on the other hand um no i don't think that this is going to ever catch up with him um i think i think someone like lars windhorst uh because basically right the key the key similarity between the two of them this guy i mentioned earlier last windhorse is that they're engaged in issuing profoundly illiquid debt against um against companies that may or may not be performing very well green still has the added benefit of then allowing those companies to look like they're performing much better but at the core of it right like what's actually the sort of important thing is this is these illiquid debt raises and you know it's there are a let's say the wolves the

wolves of perhaps there's something actually illegal going on here that might require legal consequences i get i'm not saying that wind that wind horse asset manager is doing that but i'm saying like he seems to he seems to have a lot more questions to answer in this regard whereas greensill i don't think he'll face any consequences because he's kind of already answered them all and he's answered them all in a way that everything he's doing is you know perfectly legal if also excreble and so you know the quest the only consequences he could really face are reputational and he's already shown himself to be largely immune to them right i mean look you talk a lot about about soft bank and deutsche bank

um but the other thing to remember right is that uh if you want to if you want to think about this though right how how reputation works is rajiv misra was the head of doisha's um uh like basically supply um securitized mortgage uh fund in the early 2000s rajiv misra is now in charge of the softbank vision fund oh really i didn't know that wow that is incredible right like and then he brought all of his like you know doisha friends over with him yeah so like you know if he didn't face any if he's now right he's um as rich and powerful as ever um what what why on earth wouldn't you know uh greensill just end up sort of on a um on a similar trajectory yeah the nice thing reputationally is no matter

how much financial fraud lex greensill does he will always have a better reputation than his sugar cane farmer ancestors uh yeah exactly and with that this has been grubs diggers i'm yogi paywall i'm steve jewall. I'm Steve Jeffries. I'm Sean P. McCarthy. Thanks to our guests. Check out Trash Future. Thank you, Riley, from Trash Future. And thank you, the listener.

Check us out on Patreon. Thanks for your support. Goodbye. Oh, and we'll have you back for Lars, Riley. That would be great. Yeah, please do. Wonderful. All right.

Peace out. All right. Oh, thank you very much for having me i guess i i love talking about this stuff also steve i'm sorry i accidentally called you andy earlier i apologize i'm so sorry yeah fuck i said i'm i'm such a i'm such a fool but no it was really... I also... You guys clearly really, really did your research. And I was very happy to have someone who actually wants to talk about the equity rate, the leverage of Nord Finance Bank AG.