Trump, Bankman-Fried And OverDue Process

The Sam Bankman-Fried saga poses a dilemma for me. It’s a similar dilemma to that posed by Donald Trump.

By now, I think (I hope) that most serious market participants consider cryptocurrencies to be every bit the joke critics long insisted they were. Centralized exchanges were always walking contractions (one key promise of crypto is to get rid of centralization), and although assurances from Coinbase and other relatively reputable platforms regarding customer deposits are helpful (and believable), fraud isn’t the only risk. As for decentralized exchanges, the ecosystem is rife with activity that looks, to many, like Ponzi dynamics. Finally, scores of well-meaning investors and highly-respected venture capital firms were rechristened naive fools by events like the Terra-Luna debacle and, more poignantly, the collapse of Bankman-Fried’s “empire,” which continues to ripple across both centralized and decentralized exchanges.

There’s a sense in which the Bankman-Fried story has morphed into a legal drama, much as Trump’s daily life now revolves almost entirely around litigation. That, in turn, suggests Bankman-Fried news is beyond my purview, as is most Trump news. But it’s hard for me to accept that on most days. Crypto may be, as Jamie Dimon put it this week, a “sideshow,” but a lot of people still think it’s the main attraction. And talking about crypto means talking about Bankman-Fried. Similarly, Trump’s nascent 2024 White House bid is, for now anyway, a sideshow in American politics, but a lot of people (including and especially Trump) think it’s the main attraction.

Hence the quandary for a site like this one: Devote tabloid-style coverage to Bankman-Fried and Trump on the (in my opinion flimsy) excuse that their day-to-day personal drama is relevant, or ignore these elephants looming in two corners of the room?

I’m dedicated to covering stories that matter for my readership — documenting the storylines “you need,” while avoiding the ones you don’t. That entails daily judgment calls, and it also entails a kind of benign paternalism. Internet-based media businesses are traffic-maximization machines. That’s how the bills get paid. Fortunately for netizens, there’s a lot of natural overlap between what’s interesting and conducive to clicks, and what’s important and relevant. So, on most days, media outlets needn’t sell out their readership in order to keep the lights on.

On other days, though, that connection breaks down, particularly for portals dedicated to a particular kind of news as opposed to all news (e.g., Bloomberg versus The New York Times). What, for example, is Bloomberg to do on a day when Alex Jones loses a court battle and, say, the latest Fed data shows revolving credit rose sharply among US consumers the prior month (incidentally, October’s US consumer credit data, released on Wednesday, was disappointingly benign)? Plainly, the rise in revolving credit is more relevant for investors than Jones’s latest legal setback. But even for a site dedicated to market coverage, running an update about a macro metric that isn’t nonfarm payrolls above a big, national interest story is arguably derelict from a business perspective.

Fortunately (and contrary to popular belief), I don’t run a media business, and therefore I’m wholly unconcerned with maximizing web traffic. Rather, I hew assiduously to an editorial commitment that revolves around the idea that if I publish it, it’s i) at least incrementally useful for understanding the evolving socioeconomic-macro-market narrative, or ii) a unique, fact-based opinion piece that draws on my own cross-disciplinary experience.

When it comes to macroeconomic data, that’s actually a pretty low editorial bar. ISM manufacturing, for example, always gets covered because even when it’s boring, it’s incrementally useful for the US macro narrative. The same goes for Chinese trade data or European inflation prints (those haven’t been boring lately for obvious reasons, but I’d cover them even if they were).

When it comes to something other than scheduled data releases from major economies, mine is a very high editorial bar. Take, for example, Thursday’s announced prisoner exchange wherein the US secured the release of Brittney Griner for notorious arms dealer Viktor Bout. That was mostly assuredly a “top political story,” to employ the language I use to describe what falls within my coverage sphere. But is it relevant for traders and investors? No. Is it relevant for the geopolitical narrative? Yes, but the Griner-Bout exchange is most interesting as told by experts on Viktor Bout, which means it’s really a story about history and his place in it. Longtime readers would doubtlessly be interested in my take, if I had one. New readers, by contrast, would doubtlessly question my capacity to fold the story into the above-mentioned socioeconomic-macro-market narrative.

This daily balancing act is somewhat vexing when it comes to Trump and, now, Bankman-Fried. Obviously, Trump news is relevant for America’s ongoing social crisis, but I’d argue that even for media outlets which employ legal experts, there’s very little value to be had from parsing every twist and turn along the seven circles of Trump’s legal hell.

You wouldn’t know it from the headlines I pen (I generally avoid bombastic references to the former president), but I cover Trumpism all the time, both directly (see “The Paradox Of The 2022 Midterms“) and especially tangentially, via laments for the fraying of America’s social fabric (see “Burning City On A Hill“).

Some readers understandably want my opinion on the soap opera that is Trump’s daily life, particularly given his 2024 White House bid. I generally avoid that, mostly because every day is just another appeal: Either he’s appealing an unfavorable court ruling against him, or someone else is appealing a ruling in his favor. It never ends and for those able to keep track of it, the incremental value of analysis centered on each court decision is questionable even in the broader context of national news. There’s nothing incremental about that soap opera for the socioeconomic-macro-market narrative.

For what it’s worth, my opinion is that Trump should be in jail. Not necessarily “because tax fraud” or “because documents” or “because collusion” or “because obstruction” or “because insurrection.” But because the balance of evidence as well as his own words and actions taken together suggest he may be an ongoing threat to the public or to national security. In addition to what we’ve all seen, read and heard with our own eyes and ears, some of the allegations against the former president are serious. I don’t care a thing about any tax fraud, but being something of a character myself, I’m uncomfortable with the idea of another character storing documents detailing national secrets at his home, for example.

For me (and I’d gently suggest that all of us should think along the same lines on this point), the main problem is the juxtaposition between the mountain of evidence against Trump relating to all manner of allegations and the fact that he’s not only still free, but running for president and holding rallies in support of his candidacy. Love him, hate him or indifferent, that juxtaposition suggests the rule of law has suffered severe, and possibly irreparable, damage in the US over the past half-dozen years.

Just yesterday, Trump’s attorneys argued that even if he’d told his supporters to “burn Congress down” in January of 2021, he’d still be immune. It wasn’t the first time his lawyers have made such claims. In 2019, attorneys for Trump told a court that his infamous contention that he could “shoot someone in the middle of Fifth Avenue” could be taken literally — that he could, if he chose, gun down random civilians in the street and not be prosecuted.

There has to be a threshold beyond which he’s held to account — or, perhaps more aptly, held without bond. I’ve been very clear in these pages over the years that I harbor no malice towards citizen Donald Trump. No malice whatsoever. It makes no difference in the world to me whether he skirted his tax obligations, whether he’s in over his head with any Russians and so on. What matters to me is the message that the Biden administration (and Congress and anyone else vested with the power to take steps towards detaining him) is sending to the body politic by continually accusing him of wrongdoing, presenting copious evidence in support of such accusations, but never moving to arrest him.

I’ve been told, by a friend who’s an attorney and who writes regularly about Trump’s legal troubles for several websites, that everything is being conducted according to due process, and so on. I don’t doubt that. But to a public not trained in the law, it looks a lot like Trump’s claims to blanket immunity (from everything, forever), are being tacitly abided. That’s a problem. It’s not that I “want” to see Trump in jail. It’s that I fear not jailing him eventually will set a precedent that could lead to the country’s demise, one way or another.

In my opinion, the former president’s supporters should be completely forgiven for persisting in the suspension of disbelief. All they see when they turn on the news are accusations and, finally, a tax fraud conviction, which they doubtlessly believe is a partisan charade. What they never see is an authority figure brave enough to face the public and tell the truth which, with sincere apologies to anyone offended, is this hypothetical quote from either the current president or his attorney general: “Much as we all wish this weren’t the case, the former president has engaged in a pattern of behavior which, were he any other citizen, would almost surely lead to his arrest. As such, the former president is now in custody on charges that run the gamut from misdemeanors to felonies to treason.” Instead, Trump’s supporters hear weak-willed pleas from the White House about respecting democracy and living up to the vision of the Founders. Suffice to say they aren’t convinced. And I don’t blame them. Nobody will tell them the unvarnished truth. It’s always an appeal to ideals, some of which Trump claims to embody himself, others his supporters don’t care about anyway.

Meanwhile, the same administration continues to tread carefully when it comes to crypto, despite voluminous evidence that, as noted here at the outset, the space is rife with fraud. Yes, there have been enforcement actions, just like there are a lot of lawsuits against Trump, but just as Trump continues to indoctrinate the faithful unconcerned with actual incarceration, crypto rolls along, looking every bit like a parallel system of money or, less generously, a $1 trillion collection of spreadsheet-based counterfeit currency.

Wednesday’s headlines from the cryptoverse included, from CNBC, “Cryptocurrency firms need to ‘come into compliance’ with existing rules, SEC Chair Gary Gensler says,” and, from The New York Times, “FTX Founder Sam Bankman-Fried Is Said to Face Market Manipulation Inquiry.”

The former piece suggested the SEC is still inclined to ask sternly, rather than tell flatly. Or, more to the point, to demand under threat of fines, rather than threaten under promise of agents at your house tomorrow morning. The latter piece said Manhattan prosecutors are examining a possible link between the implosion of the Terra-Luna ecosystem and Bankman-Fried’s FTX and Alameda. Long story short, federal prosecutors wonder if Bankman-Fried-controlled entities might’ve Plaxico’d themselves. To wit:

The exact causes of the collapse of [TerraUSD and Luna] remain unclear. However, the bulk of the sell orders for TerraUSD appeared to be coming from one place: Sam Bankman-Fried’s cryptocurrency trading firm, which also placed a big bet on the price of Luna falling, according to the person with knowledge of the market activity.

Had the trade gone as expected, the price declines in Luna could have yielded a fat profit. Instead, the bottom fell out of the entire TerraUSD-Luna ecosystem. The collapse caused more trouble in the cryptocurrency industry, sending several prominent companies into bankruptcy and erasing about $1 trillion in value from the crypto market.

The ripple effects from the Luna crash ultimately contributed to the collapse of Mr. Bankman-Fried’s business empire. In November, Caroline Ellison, the chief executive of Alameda, told staff that loans to Alameda were recalled as a result of the market chaos unleashed by the crash, according to a person familiar with the matter. But the funds that Alameda had borrowed were no longer easily available, Ms. Ellison told the staff, so the company used FTX customer funds to make the payments.

As I put it on social media Wednesday, that’s almost too stupid to be true — if you didn’t know anything about crypto.

If, however, you do know something about crypto, and particularly algorithmic stablecoins, and also the extent to which the arrogance that’s pervasive in the space borders perilously on blissful ignorance, it makes total sense.

What makes less sense, though, is that Bankman-Fried would be as cavalier as he might’ve been if prosecutors’ concerns have any merit, about the high odds of a correlation-1 event in crypto. If the cross-holdings and overlapping collateral don’t get you, the sentiment channel surely will in the event a large ecosystem like Terra-Luna implodes. If you’re Bankman-Fried, and you’re running FTX, deliberately torpedoing Terra-Luna is… well, lunacy, if you’ll pardon the bad joke.

I should emphasize that Bankman-Fried hasn’t been charged with manipulation, and in remarks to the Times, he said he’s “not aware of any market manipulation and certainly never intended to engage in market manipulation.” Further, Bankman-Fried said, “all transactions were for investment or for hedging” to the best of his knowledge.

I, more than most people, am studiously careful to avoid even the appearance of suggesting criminality where it hasn’t been established. So, my point isn’t to say that Trump or Bankman-Fried are definitively “guilty” where that means all legal boxes are checked. I’m not even qualified to have an opinion on that, because I’m not an attorney.

The point, rather, is to suggest that both with Trump and with crypto, we’re sending a potentially dangerous message to the public about plausible deniability. Trump is still holding stadium rallies (I don’t know if he’s held rallies at any actual stadiums recently, but you know what I mean). And Bankman-Fried is still being invited to speak at conferences hosted by people like Andrew Ross Sorkin (if only on the unspoken hope that Bankman-Fried might accidentally indict himself). Crypto is still being traded all day, every day.

That, to me, suggests a very long leash. This goes well beyond any double standard for alleged white collar crime committed by the privileged versus blue collar crime allegedly committed by the underprivileged. This borders on the glorification of possible criminality, and looks almost like a government endorsement of the notion that a “Go big or go home” approach to flouting laws or, in Trump’s case, flouting the rule of law, pays off.

I’m not advocating for the adoption of a “guilty until proven innocent” approach to the administration of justice in America. But the never-ending debate over whether Trump and crypto are or aren’t guilty of something, seems to validate the notion that if common sense still plays a role in how we go about conducting business as a body politic, it’s been downgraded several notches.

You could make the same argument with regard to the idea that all speech is free speech, and therefore nothing is out of bounds on social media. Common sense seems to play a very limited role, if it matters to us at all anymore. If respect for the Constitution and due process now means there’s no role for common sense or discretion, and that depending on who (or what) you are, no amount of evidence will ever be sufficient to establish guilt or illegality, then what’s the point? Why not just let everybody do whatever they want and call that “liberty”?

How all of the above fits into the thrice-mentioned socioeconomic-macro-market narrative to which I’ve dedicated my life, is up to readers to discern. And that brings me full circle. I had to address Bankman-Fried anew and Trump directly, but, as noted, doing so in a way that’s consistent with my commitment to adding value and adhering to a consistent, predictable editorial stance, had become challenging. Legal dramas aren’t typically a good fit here, but I felt compelled to make it work.

In a piece published Wednesday, VICE detailed a class action lawsuit against FTX in Florida. The suit cited a blog post by Alameda’s Ellison, who wrote, “How do I signal my genuinely sweet and feminine nature on my dating profile? Should it go before or after the section on wire fraud?”

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