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Does Bankman-Fried Deserve A Bail Out?
Predictably, my coverage of Sam Bankman-Fried's self-described "f--k up" elicited several irritated
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Great post. Law and order is the new slavery in sheep’s clothes.
IMHO, crypto should be illegal and drugs should be legal 🙂
There is a reality TV concept in here somewhere
Chappelle already did it.
One might argue that Big Dollas will actually spend more of his booty into the general economy.. vs the average ‘gifted high net worth on paper’ holder.
Big Dolla is a pillar of his community. On weekends.
H-Man, my youngest (age 35) told me this was a crypto buying opportunity. I just shook my head, wished him the best, and told him we he could talk about it when he can explain how it works and how it is priced.
I’d rather buy Bitcoin at $50,000 had this not happened than buy it at $15,000 knowing it did happen. This was very bad for the space.
Really good post here. Hit on a lot of strong notes.
Walt – The comparison of SBF the crypto dealer to Chicago drug dealers reminded me of W. Adler’s book “Land of Opportunity” about the Chamber’s brothers Detroit crack operation in the 1980s. They took the opportunity they had and built a business empire. Unfortunately, selling actual crack cocaine is illegal and landed the Chambers brothers in jail.
I guess Milken spent some time in jail too ???
I see renewed calls for crypto to be regulated and made safer. My question is, why encourage broader participation in crypto by ostensibly making it safer?
Depending on who got burnt Sam might actually be going to jail. I suspect he managed to trap a few well connected clients.
I did find it curious that he bailed out Voyager; any diligence in that deal would have uncovered its impending bankruptcy. After seeing this implosion, I suspect Sam bailed so many firms out because he had no option, given how intertwined all these businesses were.
Alameda started off as an arbitrageur, and at some point became the casino where FTX Customers’ funds were gambled. Maybe Alameda’s funds were lost by some of the bailed-out firms and it isn’t until now that the situation became unmanageable and impossible to hide.
My hope is that this grants the excuse politicians were looking for to regulate crypto to the point coins become just like gift cards redeemable in video games.
Excellent read as usual and your uncomfortable question to readers is one we should consider as a society more often. Even as a crypto proponent and believer, which I still am, watching this drama unfold has been surprising. I’ll be the first to admit there are a lot os smoke and mirrors as well as rampant speculation in cryptosphere, but there are also opportunities and promises for innovation that might bring societal good, we’ll see. This will certainly set back adoption and may cause over reaction from regulators, but my loses from the debacle have been deminimis so far from funds I forgot I had at BlockFi (now seemingly defunct also), I realize that had I lost real money I might feel differently. Avarice, greed and human incompetence will cause growing pains like this in any new industry, the history of banking and finance is littered with equivalent episodes, not even great human minds like Issac Newton could escape the FTX of his time, anybody can read how at the time citizens clamored for outlawing stock trading after the South Sea fiasco. Humans tend to learn the hard way, I feel for those who will not recover or lost meaningful funds on this debacle, some are close friends. I still believe there are ways to be in crypto and be safe, I’ve done it and so have others, hopefully this leads to progress and to some folks landing in prison, something we did not see when it was bankers negligence and greed collapsing the financial system in 2008.
Yeah, I mean, with apologies to anyone who might’ve been offended by my comparison here, the fact is, “Here are some dangerous drugs that you, me and everyone in the world knows are dangerous” is not the same sales pitch as “Here are cryptocurrencies, if you’re unfamiliar, they’re great and wonderful, and many people believe they represent a quantum leap in economic liberty.”
Addiction is addiction, and it’s bad. But it’s impossible to argue that anyone over the age of 18 doesn’t understand that picking up hard drugs poses considerable risks. Sure, people do it anyway, but people also drive 75 mph down curvy roads knowing full well that it’s dangerous. In both cases, they’ve weighed the danger versus the fun and decided the latter outweighs the former.
By contrast, it’s entirely possible to argue that many (most, even) people who get into cryptocurrencies have no idea that it poses considerable risks, of if they do, they don’t have any conception whatsoever about the nature and character of those risks. It goes well beyond the risk associated with traditional assets. It’s much more dangerous than betting on meme stocks, for example.
So, people can’t do the “math,” so to speak. “I like to drive fast. I know driving fast is dangerous. But, rightly or wrongly, I judge the odds of me dying on this curvy road at 75 mph to be low enough that the experience is worth taking the risk.” People can’t do that “math” with crypto. Because they don’t have enough information.
H and others, a question.
What sort of regulations, auditing, enforcement, and expense, either US or global, would be required to make crypto “safe” enough?
Aside from the challenges of regulation and enforcement of something that exists online, with only a small and easily moved physical presence, how do you audit an asset that has no intrinsic value at all?
I fear that regulators will just get sucked into a hopeless financial version of the War On Drugs, chasing slippery URLs and shape-shifting balance sheets around the world while being undercut in Congress by crypto lobbying and influence-buying.
I worry that the imprimatur of government regulation and approval will encourage participation by more can’t-do-math ordinary people. Losses will grow, from twenty-somethings losing thousands to families losing everything, risks will become systemic, and government bailouts unavoidable.
I question why we (society, govt, US, etc) should devote all this effort and start down this slippery slope, to make better and “safer” a thing with no societal value.
A couple of points here. As a professional techie, I’ve always felt the comparison to the war on drugs is apt. Trying to regulate crypto is a silly battle against a shapeshifting specter, probably being designed by people who have a better grip on justifying their budgets and mollifying their constituents than on anything about the crypto space. Technologically, I don’t see how regulation can be accomplished on a practical level. I mean, yeah, last week they finally caught that guy who bilked the Silk Road for bitcoin in 2012… after 10 years and how many man-hours of work just to catch a single guy?
Where I disagree with you is on the “no societal value”. The potential value of decentralized computing, if they overcome the current technological hurdles, is huge, and there needs to be an incentive mechanism to get people to contribute CPU cycles to running the network. That’s where crypto’s actual use case will eventually arise.
At that time, regulation will make more sense, too, because then you’ll have an Uber or an Ebay running serverlessly, code executing on the monetary network itself, but it will intersect with the real world in terms of delivering services or products and that’s a handle governments can use to regulate it. “You swindle grandma on your crypto token, we don’t let you run your cars on our streets.” But right now, without a “handle” to apply real-world leverage, attempts at regulation are tilting at windmills.
I wonder if “decentralized” can really be applied to cryptocurrency? Coins like Luna, Terra, FTT, Tether, etc seem very centralized, their viability depends on a single issuing/backing entity. Even coins like BTC, Ether seem highly exposed to a few large exchanges.
I’m of a time and a place. In the fall of 1982, I took a new job. As a result, I began to read Grant’s Interest Rate Review, the Bank Credit Analyst, the Economist and the FT. So I ask Moral Hazard? Who pays for Heads I win, tails you lose with a fallback position of heads I win, tails I break even? Add to this the lie that can’t learn from other countries’ experience, and the prevalence of Everybody’s always liked my work amongst the elites….I say let this asset class go to zero-I’d rather have the learning experience create that type of risk aversion as opposed to an unhealthy fear of stocks, bonds etc….The tide rolled out and there are many naked swimmers…
“I’m done mincing words when it comes to crypto, and also with being polite about this situation in particular. On some days, I run fresh out of patience with a world that systematically, as a matter of course, treats possible white collar malfeasance allegedly committed by the already rich and privileged differently than blue collar crime allegedly committed by people who weren’t rich until they broke the law and were never privileged.”
100% with you on that one.