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The Swiss Steak Heist And How The Central Bank Made It Happen · Trumponomics

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  Speaker 1: The man decided that he would buy cheap meet in France,
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  Speaker 1: smuggle it across the border, and sell it for a
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  Speaker 1: higher price in Switzerland. Now, how did the police get
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  Speaker 1: onto this guy? I mean, was there blood running down
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  Speaker 1: his fender? Welcome to Bloomberg Benchmark, a podcast about the
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  Speaker 1: global economy. I'm Dan Moss, Executive editor for Economics. Joining
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  Speaker 1: me this week in a special one off is Joe Wisenthal,
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  Speaker 1: whom you may recognize as the co host of Odd Lots.
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  Speaker 1: Thanks for having me down. Really excited to our beer,
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  Speaker 1: and we're excited to well, you know, Joe. As you
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  Speaker 1: and I have often discussed, too often, the study of
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  Speaker 1: economics and exchange rates can become very arcane. We find
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  Speaker 1: ourselves asking, well, what does this mean in real life?
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  Speaker 1: What does it mean for the person in the street,
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  Speaker 1: Whereas we find out today the person in the car right?
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  Speaker 1: I mean, often there are some obvious ways that economics
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  Speaker 1: can affect us, whether we have a job or not,
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  Speaker 1: or mortgage. These are sort of the go to examples
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  Speaker 1: that people would site all the time for real world examples,
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  Speaker 1: but there's tons of other ones, and as we'll discuss today,
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  Speaker 1: some very interesting, surprising ramifications that happen due to things
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  Speaker 1: like exchange rates. Right, So this is as much a
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  Speaker 1: story about meat smuggling and about packing all that steak
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  Speaker 1: and chicken and pork into the trunk of your car
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  Speaker 1: and driving across the border as it is about exchange
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  Speaker 1: rates smuggling. That's what modern day smuggling is like in
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  Speaker 1: this era of free floating currencies. It's not a couple
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  Speaker 1: of guys in the basement of the House of Commons
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  Speaker 1: in London with a keg of gunpowder, right. I think
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  Speaker 1: typically want to imagine smuggling. Maybe they think of drug smuggling,
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  Speaker 1: some sort of subterfuge to take in a lead goal
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  Speaker 1: good across a border, or get something out of a
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  Speaker 1: country that's not supposed to leave. But sometimes it's essentially
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  Speaker 1: a form of arbitrage. But this meat smuggling, uh, you know,
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  Speaker 1: is an economic Crimes like it are on the rise,
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  Speaker 1: particularly in Switzerland, and that's a function of monetary policy
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  Speaker 1: and the strength of the Swiss franc I knew it
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  Speaker 1: was strong, but I didn't realize how strong. In the
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  Speaker 1: last ten years it's appreciated against the Euro, which is
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  Speaker 1: a currency that it's neighbors that Switzerland's neighbors share by
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  Speaker 1: more than fifty more than any other major currency, right,
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  Speaker 1: and that that that huge swing is kind of twofold.
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  Speaker 1: I mean, one, the Euro has been exposed to be
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  Speaker 1: deeply flawed over the last several years. The economy really
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  Speaker 1: hasn't gotten going their fundamental questions about its existence. And
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  Speaker 1: then not only that, but Switzerland is this pocket of stability,
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  Speaker 1: not just by European standards, but by global and historical standards.
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  Speaker 1: So at a time when there's so much uncertainty in
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  Speaker 1: the world, people pile into this was Frank when they're nervous,
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  Speaker 1: when they are looking for something to do with their
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  Speaker 1: money that's saved. So you have this extreme divergence between
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  Speaker 1: the strength of the Swiss currency, the frank, and all
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  Speaker 1: of its direct neighbors, and it's rapidly becoming a pocket
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  Speaker 1: of retail economic crime, as our guest colleague, Katherine Boseley,
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  Speaker 1: an economics reporter for Bloomberg and Zurich, is about to
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  Speaker 1: explain to us. So, Katherine, this is a story about
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  Speaker 1: a car the border, a trunk full of mate, and
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  Speaker 1: a confession that this has been going on for fifteen years.
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  Speaker 1: We'll get to the cash in the sunglasses case. Later, Hi, Well,
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  Speaker 1: we've got the case of a man who was arrested
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  Speaker 1: in the French speaking part of Switzerland carrying a kilo
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  Speaker 1: grams of fresh meat a few months ago. Um. And
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  Speaker 1: he was then interrogated by the border officials, and it
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  Speaker 1: turned out that he'd been spiriting meat across the border
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  Speaker 1: for fifteen years, including twenty seven tons of lamb, eighteen
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  Speaker 1: tons of beef and twelve tons of chicken. He now
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  Speaker 1: owes back customs duty of about a million francs, which
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  Speaker 1: is almost a million dollars, and also of course faces
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  Speaker 1: criminal proceedings. Now, Joe, you actually had some barbeca for
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  Speaker 1: breakfast that you've prepared for yourself. What goes through your
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  Speaker 1: mind when you hear this? That's exactly right. I I
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  Speaker 1: had made some barbacoa in my slow cooker, so I've
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  Speaker 1: been eating it for the last three days. So you know,
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  Speaker 1: in France and Switzerland, meat is plenty, plentiful. It's available.
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  Speaker 1: It's not like it's not as cows rising on the hillside.
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  Speaker 1: It's not like there's a shortage of meat in either country.
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  Speaker 1: So what fundamentally makes this an attractive smuggle? Well, and
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  Speaker 1: the prices in Switzerland's are considerably higher even than in France,
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  Speaker 1: and of course, in addition you've got the currency effect.
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  Speaker 1: So obvious, least a man decided that he would buy
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  Speaker 1: cheap meat in France, smuggle it across the border, and
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  Speaker 1: sell it for a higher price in Switzerland. Now, how
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  Speaker 1: did the police get onto this guy? I mean, was
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  Speaker 1: there blood running down his fender? No? There are there
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  Speaker 1: are quite uh strict imports restrictions to Switzerland. You may
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  Speaker 1: bring in three hundred francs worth of items a day,
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  Speaker 1: and for certain food stuff there are additional rules. For example,
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  Speaker 1: I believe for meat it's one kilogram per person per day.
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  Speaker 1: Anything above that has to be declared and you have
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  Speaker 1: to pay customs duty. So there are inspections, snap inspections
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  Speaker 1: all over the place. And it was such an inspection
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  Speaker 1: that nabbed this guy. So it was just pure bad
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  Speaker 1: luck probably, yes, Yeah, And so you mentioned that you
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  Speaker 1: can move one kilogram of meat per day across the
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  Speaker 1: border for personal, non commercial reasons. I actually lived in
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  Speaker 1: Geneva for one semester when I was in college studying abroad,
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  Speaker 1: and I remember I was studying French and I was
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  Speaker 1: with my French teacher and we actually briefly crossed the
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  Speaker 1: border into France and I didn't then my passport with
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  Speaker 1: me that day, but they didn't even bother to check.
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  Speaker 1: So these are pretty loose porous borders typically, right. Indeed,
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  Speaker 1: that's the case, especially in the Geneva area. It's very
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  Speaker 1: one road just continues and suddenly you're in the other country.
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  Speaker 1: So how often do you, meaning is an average representative
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  Speaker 1: of the Swiss population, Not that you're really averaging anything,
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  Speaker 1: but how often does the typical Swiss person go to France,
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  Speaker 1: Germany or Italy to do their shopping? Well, according to
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  Speaker 1: a study by Credit Swiss M, one in ten francs
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  Speaker 1: in retail spending is spent abroad. So that's a pretty
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  Speaker 1: big chunk of people's budgets. So here's my question. You know, theoretically,
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  Speaker 1: from a macro economic standpoint, exchange rates are supposed to adjust, uh,
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  Speaker 1: you know, in a pure sort of free trade uh
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  Speaker 1: sort of framework. The that that shouldn't really happen, that
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  Speaker 1: the price of meat is so different that it's worth
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  Speaker 1: smuggling risking prosecution by the law. It should be the
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  Speaker 1: balancing out effects. So what prevents a balancing out of
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  Speaker 1: the Swiss Franc and the Euros, such as to render
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  Speaker 1: this an uncompelling arbitrage. Well, in the case of the
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  Speaker 1: Swiss Franc, it's also a popular investment for investors who
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  Speaker 1: want a safe place to park their money, especially in
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  Speaker 1: in the Euro area. During the Greek debt crisis, people
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  Speaker 1: wanted to move out of Euros and into assets of
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  Speaker 1: different denomination. So the frank has faced quite a bit
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  Speaker 1: of appreciation pressure, as Dan said earlier in our talk,
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  Speaker 1: and basely the central bank is using a policy of
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  Speaker 1: negative interest rates and currency market interventions to try and
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  Speaker 1: weaken it. But the fact that the Swiss Franc remains
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  Speaker 1: strong over valued, as a central bank says, it means
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  Speaker 1: that this meat arbitrage opportunity remains attractive, and there's an
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  Speaker 1: element of price insensitivity among Frank buyers. They don't really
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  Speaker 1: care that it's expensive, they don't really care that they're
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  Speaker 1: getting negative interest rates. All these people just want to
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  Speaker 1: be assured that their money will still exist there tomorrow,
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  Speaker 1: will still be saved, and so this sort of inherent
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  Speaker 1: overvaluation doesn't go away because they're not really buying it
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  Speaker 1: for valuation reasons. Is that correct? Indeed, that is correct. Yes, Now, Cathy,
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  Speaker 1: the customs official you spoke to after this trunk stake
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  Speaker 1: bust told you that economic crimes like this are on
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  Speaker 1: the rise and they're anticipating more of them. What does
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  Speaker 1: that say about where the Swiss populous thinks the exchange
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  Speaker 1: rate is going. Well, I guess the that would tell
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  Speaker 1: us that we expect the overvaluation of the frank to
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  Speaker 1: continue or even potentially to be exacerbated. Now, the day
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  Speaker 1: after you informed the world of the Swiss steakhist you
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  Speaker 1: also published a story about a missing sunglasses case that
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  Speaker 1: had the equivalent of thirty thou dollars in cash stuffed
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  Speaker 1: into it. And this guy just turns up at a
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  Speaker 1: police station says, oh, yeah, that's mine, and the cops said, well, okay, fine,
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  Speaker 1: it must be yours. What is going on with Switzerland
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  Speaker 1: at the moment talk to us about the sunglasses case. Well,
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  Speaker 1: there was a case of h year old dutch man
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  Speaker 1: apparently found this glasses case stuffed with twenty eight thousand
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  Speaker 1: euros in a pile of snow in in in in
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  Speaker 1: the city of Zurich and correctly turned it into the police.
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  Speaker 1: And they have a ledger at the lost and found
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  Speaker 1: office where you can also report things that are missing,
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  Speaker 1: and sure enough, someone had in fact reported twenty eight
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  Speaker 1: thousand euros missing. They then contacted the claimant and he
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  Speaker 1: was he had to answer some additional questions and but
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  Speaker 1: low and behold, he seems to have been the rightful owner.
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  Speaker 1: Why that's my question too, Why why so much money? Well,
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  Speaker 1: it says, yes, it's a lot of money to stick
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  Speaker 1: into a sunglasses case. And if I read your story correctly,
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  Speaker 1: the cops thought this was completely unremarkable that someone would
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  Speaker 1: then turn up and say, oh, yeah, that that's mine. Okay,
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  Speaker 1: here you go, sign here, sir. I don't think that
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  Speaker 1: they thought it was so very unremarkable, since they did
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  Speaker 1: put a press release out about this UM. But there
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  Speaker 1: was a case a few months ago where six thousand
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  Speaker 1: francs were also found UM and a very similar situation
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  Speaker 1: a pension or turn them in and the rightful owner
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  Speaker 1: was found. Is it just the case that people hold
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  Speaker 1: a lot of cash in Switzerland? Is it a cultural thing?
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  Speaker 1: I mean, what is why I hold so much cash
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  Speaker 1: at all? If that were to happen here in the US,
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  Speaker 1: I think people would be pretty suspicious that they're up
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  Speaker 1: to no good. I mean, there are certainly reasons why
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  Speaker 1: someone might hold cash for whatever reasons, but we have
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  Speaker 1: like a default assumption. I think that if you found
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  Speaker 1: out someone had twenty eight thousand dollars in cash on
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  Speaker 1: their person, that they would probably you might suspect that
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  Speaker 1: they were engaged in some sort of illegal like in
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  Speaker 1: a sunglasses In the sunglasses case especially well, when I
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  Speaker 1: spoke to the police about six thousand francs several months ago,
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  Speaker 1: they did, in fact say that usually the amounts turned
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  Speaker 1: in or much smaller. It is true that the twist
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  Speaker 1: do like to pay with cash, although of course you
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  Speaker 1: can find cards credit card readers everywhere, there is a
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  Speaker 1: certain propensity to pay with cash. M The Swiss National
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  Speaker 1: Bank has a thousand franc note and they have been
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  Speaker 1: quite quite clear that they will not scrap that because
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  Speaker 1: it is part of the part of the culture to
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  Speaker 1: pay with cats. They weren't doing Moody no, but the
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  Speaker 1: eight thousand euros is quite exceptional. So what does all
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  Speaker 1: this say about Swiss society and the sentiment among Swiss
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  Speaker 1: consumers right now? Well, I'm the Swiss economy is um
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  Speaker 1: has found its uh sell ponto more stable footing after
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  Speaker 1: the exchange rate shocks that they had in early twenty
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  Speaker 1: fifteen when the central Bank gave up its cap on
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  Speaker 1: the franc um. Nevertheless, growth is still not as fast
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  Speaker 1: as people would like to see us of course, and
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  Speaker 1: in the pretty killer the retail sector has suffered because
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  Speaker 1: of this, the unfavorable exchange rate, people shopping abroad. Um
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  Speaker 1: all that. I just wanted to ask one question specifically
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  Speaker 1: on that front. So a couple of years ago, uh
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  Speaker 1: or I don't know, it's uh. First, a while Switzerland
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  Speaker 1: had had a essentially a cap on how strong its
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  Speaker 1: currency was going to get against the Euro. Then it
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  Speaker 1: released that cap. But as this example of the meat
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  Speaker 1: smuggling demonstrates, there's still massive overvaluation. It's still a major
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  Speaker 1: issue for the country. How frustrating is this for the
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  Speaker 1: Swiss National Bank? This persistent overvaluation. There's persistent flood of
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  Speaker 1: money into Switzerland from safe haven as safe haven seekers. Like,
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  Speaker 1: how big of a deal is that to the economy
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  Speaker 1: or do they just sort of accept that that's part
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  Speaker 1: of the landscape. Yeah, I think it's a bit of both. Um.
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  Speaker 1: You know, people have gotten used to it and people
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  Speaker 1: are in fact, you know, is for the banking sector.
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  Speaker 1: It can be a positive. It's an asset for the
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  Speaker 1: wealth managers to have such a strong currency. On the
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  Speaker 1: other hand, Um the central banker also says that it's uh,
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  Speaker 1: you know, policy of negative rates is working, but you
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  Speaker 1: know that there are you know, and they're still prepared
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  Speaker 1: to intervene in currency markets. You know. I hate to
• 14:33
  Speaker 1: say it, Joe and Catherine, but this is all food
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  Speaker 1: for thought. Benchmark will be back next week when we'll
• 14:39
  Speaker 1: crack another terrible joke. Until then, you can find us
• 14:43
  Speaker 1: on the Bloomberg Term and on Bloomberg dot com, as
• 14:46
  Speaker 1: well as on iTunes, pocket cast, and Stitcher. Why do
• 14:49
  Speaker 1: they take a minute to rape and review the show?
• 14:52
  Speaker 1: Some more people can find us and let us know
• 14:54
  Speaker 1: what you thought. You can talk to and follow us
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  Speaker 1: on Twitter at mass underscore Ko and you can follow
• 15:01
  Speaker 1: me on Twitter at the Stalwart and Catherine you are
• 15:05
  Speaker 1: at c B Swiss Easy. Thanks for listening. To see
• 15:09
  Speaker 1: you next time.