If Books Could Kill - "Going Infinite": Michael Lewis Takes On Sam Bankman-Fried

Episode Date: May 2, 2024

Peter and Michael discuss Michael Lewis’s bestselling book about the rise and fall of Sam Bankman-Fried, a young prodigy whose only flaw was that he dreamed too big.Where to find us: Peter's other podcast, 5-4Mike's other podcast, Maintenance PhaseSources:Michael Lewis Is Buying What Sam Bankman-Fried Is Selling Michael Lewis Likens Critics of His New Book on Sam Bankman-Fried to a 'Mob'The SBF trial is a reminder that crypto is a rotten businessReview: Michael Lewis's Going InfiniteThe Curious Case of FTX’s ‘Company Therapist’ (vice.com)FTX’s Collapse Was a Crime, Not an AccidentGoing Infinite by Michael Lewis review – falling for the antiheroThe Second FTX Asset Recovery Report Is Packed With BombshellsTakeaways From a New Book on Sam Bankman-FriedCaroline Ellison Testifies Against Sam Bankman-Fried, Blaming Him for Crimes  Thanks to Mindseye for our theme song!

Sam Bankman, Freed, shouldn't they call him Sam Bankman Captured? Oh, no. I don't think that's actually very good. Not good. I hope you're not, you didn't say that to me with a distant hope that I'd be like, no, it is good. Yeah, I did say that for you. But I can't, I can't figure out how to like make it in a like, all I know is kind of phrasing. Okay, let's, let's try it. Let's do it. Let's do it.

Okay. Michael. Peter. Michael. Peter. What do you know about going infinite? All I know is that I'm skeptical that this episode is going to teach me that running a years long financial scam is harder than administering a 10 person polycule. What do you know about this book?

Because this is the most recent book we've ever done. This dropped in October 2023. I know that I in general like Michael Lewis and have read like many of his books and found them good. And what I remember from the discourse when Going Infinite came out, this was a book about like the rise and fall of Sam Bankman Fried that was like weirdly sympathetic to him. Yeah, I mean, that's a pretty good overview.

I will say that I also wanted to preface this episode by saying that I'm a big Michael Lewis fan. Yeah. I love Flash Boys. I love the big short. I'm a straight man who follows sports but is still fundamentally a nerd, which means that Moneyball is like very important to me. This book actually kind of rules.

Oh, yeah? The sole problem is that he is unable to see his subject, Sam Bachman Fried, for who he actually is. — Kind of a big problem when you put it like that, but still. — It is a big problem. It's frustrating and fascinating at the same time because Bachman Fried is sort of a con artist and you are sort of watching Michael Lewis get conned over the course of the book. In short, Michael Lewis wanted to chronicle Sam Beckman Fried. He spends a year shadowing him,

learning about this young prodigy, trying to understand his cool new business, all while writing one of his classic, informative, yet entertaining and accessible non-fiction books. And the twist comes when, in the midst of all of this, Sam Beckman Fried is revealed to have committed massive multi-billion dollar fraud. His company FTX collapses, the SEC alleges that he committed securities fraud, the DOJ

brings a criminal case and the story of this brilliant prodigy that Michael Lewis was writing suddenly doesn't really make much sense. But on the other hand, there's now another arguably more interesting story to tell about this con artist who not only tricked investors and customers, but also the author himself. And Michael Lewis is still out there to this day sort of defending the kid. He's joined the polycule. He's in Barbados. I hate to disappoint, but Michael Lewis doesn't actually cover the polycule situation going

on. I'm so mad. It is outrageous and it makes you wonder if you didn't notice the polycule, then why do you think that you were really on top of things? His whole thing is writing about color and having these kind of human and personal details. I feel like a 10 person molecule in a tropical location should have been your opening anecdote, something along those lines. It should have been a three chapter arc.

I don't really get it. All right, so what do you know about FTX? Oh, God. Dude, I've listened to, I swear to God, like seven different podcasts about this. Like, okay, I'm going to understand. I'm going to figure out what actually went on. And every single one of them just goes in one side of my brain and goes out the other. I cannot hold on to information.

Something, something crypto. What I realized very quickly is that you don't actually need to understand anything about how crypto works to understand the basics of what SBF did wrong here. Oh, God, thank God. Sam Bankman Fried, SBF, as we will occasionally call him, ran FTX, a cryptocurrency exchange platform. That just means it's a place where people can trade cryptocurrency, right? He also ran Alameda Research.

Just like a regular hedge fund invests in stocks, they invest in crypto. The fundamental fraud here was that Sam took customers' money from FTX and illegally funneled it to Alameda Research and a bunch of other corporate entities where they used it to make trades, buy things, make massive political donations, shit like that. Okay, so he said we're gonna take your money, put it in like a lockbox, and then give it back to you, whereas actually he's using it as a slush fund for various other things that he wants to do. Not just that, but he was making untruthful disclosures to banks, investors, etc. I think that the fact that this is crypto makes people assume that it's complex and there are complexities that are related to crypto But big picture it's fraud and embezzlement, right? That's what's happening here

I remember a interview that I did with a guy who wrote a book on Enron when we did a you're wrong about Episode about that and he said this whole construction of white-collar crime as like oh, it's so complex It's like kind of a thing that just serves to protect rich people. Like most of what Enron did, he said, was just like lying and stealing. And that's exactly what happened at FTX. So I'm gonna tell the story that Michael Lewis tells,

which is a good story in many respects. In the opening chapter, we're looking at Sam Bankman Fried shortly after he becomes mega rich from the perspective of Natalie Tien, his young and inexperienced head of PR. For the record, everyone around him was young and inexperienced. What Lewis wants you to take away from the early parts of the book is that Sam is like an enigmatic wunderkind genius, right? He's a very odd guy, and behind every little quirk, Michael Lewis sees hints of brilliance. So he talks about how Sam is hard to manage

because he doesn't keep a regular sleep schedule and wanders off without telling anyone. He posts on social media haphazardly. He will talk to journalists very freely for very long periods of time He would play video games and tweet during live TV interviews and important phone calls I check Grindr when we're recording. Nobody calls me a genius there's a vignette where he's talking to Anna Wintour on zoom while he's playing a video game and You can tell that Michael Lewis is just like captivated.

But it's weird that people see this as evidence of his like being a wonder kind, as opposed to just like, he's not listening very closely. Yeah. Like, is there evidence he's actually good on these calls? It's like anyone can play video games while they're pretending to do something else. That's like the easiest thing in the world to do.

The thing is that he's very, very rich for most of this. And so like, I don't know, people want to talk to him and he doesn't want to talk to do. The thing is that he's very, very rich for most of this. And so, like, I don't know. People want to talk to him, and he doesn't want to talk to them. He would always flake on his commitments. With Anna Wintour, he agrees to go to the Met Gala and then backs out the night before. Here is how Michael Lewis explains this.

Give me one moment. It says, when people asked Sam for his time, they assumed they'd posed a yes or no question and the noises Sam made always sounded more like yes than like no. They didn't know that inside Sam's mind was a dial, with zero on one end and 100 on the other. All he had done when he said yes was to assign some non-zero probability to the proposed use of his time. The dial would swing wildly as he calculated and recalculated the expected value of each commitment

right up until the moment he honored it or didn't. Okay, so he's just like kind of flaky. Yeah. This is like 80% of the people I knew in my 20s. I'm not a professional psychologist, and I'm gonna repeatedly say that throughout this episode, but I can say with 100% confidence that that is not what's happening in Sam Bagman friend's mind When he schedules an appointment, yeah, what's happening in his brain is that he doesn't particularly care about this shit Yeah, so he agrees to it without thinking much and then he blows it off without thinking much Yeah, that's not like the manifestation of like an algorithm in his brain I mean another way to cast this is like kind of selfish behavior

Yeah, you've made commitments to people and then you're like, eh, I really feel like it. The dude is just kind of a bit of an asshole. He's careless with other people's time and he has accumulated enough money and influence that everyone around him more or less has to accommodate him anyway. Right. But yeah, Michael Lewis sees this and he's like, wow, he's doing fucking calculus in his brain. It's like, no, he's doing fucking calculus in his brain. It's like, no, he doesn't want to go to the Met Gala. Yeah.

Also, so much of this stuff is like this weird Clever Hans thing where if somebody is rich, you project all this competence onto them and you interpret every action as if it's evidence of their genius. You are right there with me. Let's drill down into this. So there's this like trope in some of these profiles and stories of like ostensible geniuses. The genius in question is confronted with a game that normal people think is complex,

but he thinks it's too simple. The first time I noticed this was a couple of years ago, Elon Musk tweeted about chess. Oh yeah. He quote, found it to be too simple to be useful in real life. A mere 8x8 grid. No fog of war.

No technology tree. No random map or spawn position. Only two players, both sides exact same pieces, etc. Dude, I love that you're using this to like play out your spite as like a chess guy that you maligned the game of chess of chess look that is part of it It is annoying to see someone and be like this is too simple and yeah Why isn't it more like Starcraft or whatever the fuck? Shut the fuck up? Don't bring Starcraft into this. Oh

Look whose games being attacked now I'm playing spacecraft right now Well, I feel like what's happening in these situations is that these guys believe in their hearts that they are like unparalleled geniuses They know that something like chess is something that geniuses are supposed to do that right so when they aren't Immediately good at it. They need to explain it away in order to preserve their ego right? There There's no fog of war, unlike my polycule. I really wish that you hadn't learned about the polycule situation. I'm just going to keep doing polycule jokes the whole time. I'm going to send you an anecdote from Michael Lewis.

This is from Sam Beckman Fried's time as a youth at Math Camp. It says, by Math Camp standards, he was only mediocre at puzzles and games. But he also suspected that the sorts of games they played at Math Camp were too regular for his mind. The place I am strongest is the place where you have to do things other people would find shocking, he said. He still had no idea where in the world, if anywhere, he might find such a place, or if it existed.

How badly do you have to get your ass kicked at like Settlers of Catan? Just say some shit like this The games that I'm good at are would be too shocking for your brain to comprehend Look, none of us can figure out the scoring at the end of ticket to ride Sam. It's fine What the fuck is going on in this fucking quote? He's not as good at games and puzzles as the other kids and he's like, that's because they're too regular. The thing is, I'm also bad at games

but I think it's because I'm kind of dumb. Don't other people just have enough self-loathing to not like externalize this kind of thing? Lewis backs up a bit to like Sam's childhood. Sam does not have strong memories of his childhood. He didn't seem to have many friends, if any friends. His parents are sort of weirdos. It's very clear.

They're both professors. His mom is a law professor at Stanford. There's a very clear sense in the stories about his parents that they are not particularly attuned to the lives of their children. They're very aloof. Sam could have used some early interventions, and I feel like history vindicates that take.

But then I assume that he was like legitimately smart at like one or two things. Absolutely. He's in a lot of respects a good example of like the limitations of genius, you know what I mean? Yeah. One of the themes of Sam's like later childhood is that he very quickly starts to feel like he is smarter than the people around him. But I do think that you can say like the, the kid was a genius, for sure.

He is a genius. It's just that genius is this very narrow thing. Right. And then people project genius into all these other domains where he might actually not be all that smart. Speaking of, here's a quote. You're going to say, speaking of, how was your week? Oh, it's me.

It's not me. Okay. It says, in elementary school, he'd read the Harry Potter books over and over. By the eighth grade, he had stopped reading books altogether. You start to associate it with a negative feeling and you stop liking it, he said. I started to associate books with a thing I didn't like. He kept his thoughts about the literary industrial establishment to himself through middle school, but by high school, they began to leak out of him.

I objected to the fundamental reality of the entire class, said Sam of English. All of a sudden I was being told I was wrong about a thing it was impossible to be wrong about. The thing that offended me is that it wasn't honest with itself. It was subjectivity framed as objectivity. All the grading was arbitrary. I don't even know how you grade it. I disagreed with the implicit factual claims behind the thing that got good grades.

Ooh, this sounds like me. This sounds like me as like a little libertarian. Right. This is like early onset stem brain. He goes on to explain, and this is Sam now, explaining why he thinks statistics show that Shakespeare wasn't as good as people say. Wait, really? I'm sending you his quote.

Okay. I was going to follow up on the thing where he says, like, books aren't good. He says, I could go on and on about the failings of Shakespeare, but really I shouldn't need to. The Bayesian priors are pretty damning. About half the people born since 1600 have been born in the past hundred years, but it gets much worse than that. When Shakespeare wrote, almost all Europeans were busy farming and very few people attended

university. Few people were even literate, probably even as low as 10 million people. By contrast, there are now upwards of a billion literate people in the western sphere. What are the odds that the greatest writer would have been born in 1564? The Bayesian Priors aren't very favorable. What? The Bayesian Priors aren't very favorable. What? The Bayesian priors aren't very favorable. Oh, god.

So Bayesian priors are like the likelihood of something happening before introducing new variables. So all he's saying is like, before anything else, just take into account how few literate people were on the planet during Shakespeare's time. And it's unlikely that the best writer ever would come from that era. There's so many like comprehensive misunderstandings of like literature in this that it's hard

to pick them apart. Right, because you could say there's a fraction of the scientists around back then that there are now. So like what are the chances that somebody would come up with this foundational theory of evolution? It doesn't make sense statistically, but that isn't how literature and science work. Have you ever heard the term engineer's disease? No, but I know where you're going with this.

This is something that has bounced around the internet for a bit to describe how engineers and other STEM types think that their technical knowledge allows them to like solve various problems across different fields. I think what's happening here is that like you're very good at solving problems and your sense of your value as a person is tied up in your ability to solve problems. And when you are confronted with problems that cannot be readily solved, that require some subjective input or another, your brain rebels and you try to turn it into a problem that can be solved, right? Your brain is like a hammer and so every problem

must be a nail, otherwise you are forced to confront the limitations of your intelligence. So Sam pretends that all of these complex subjective elements of human existence can be reduced to a math problem because he's good at math problems and then he can solve it and his ego can rest easy, right? This is late stage stem brain. This is also, I think these kinds of arguments are meant to appeal to a particular kind of

dude which potentially Michael Lewis is, right? Because he sounds like he's making this kind of objective argument, but like, I mean, nobody who knows anything about Shakespeare would find this convincing right? Like I think whether Shakespeare is good or not you can just read the works and decide that well He can't because he doesn't know how to analyze Literature right right? Yeah, that's what drives him nuts and look I I don't like Shakespeare There were two times in my schooling when I realized that I was not like an all-around smart kid. One was when we hit calc. Yeah, same, same, same.

And then two was when we read Shakespeare and I realized that I am below average at figuring out what is going on in a Shakespeare play. And this actually applies to like any sort of book with old timey language. You know, any sort of old English, I am fucked. This is why I never finished Elden Ring I'm not gonna read item descriptions that is we I'll do a separate episode if you want to debate Elden Ring which ruled What you know about Elden Ring? I thought this was gonna be one of my little video game comments that you just ignore Are you fucking kidding me? I played this shit out of Elden Ring really when I got fired When I got fired I got Elden Ring and look if you want to talk about a bleed build I got fired. When I got fired, I got held in a ring.

And look, if you want to talk about a bleed build, I got a killer one, a killer one. So Sam gets into MIT majoring in physics, minoring in math. Lewis, again, portrays this as a situation where he is so much smarter than the people around him at MIT that it's basically a waste of time. Lewis says, quote, during college lectures, Sam experienced a boredom that had the intensity

of physical pain. He had no ability to listen to a canned talk. A canned talk? A lecture? Again, Lewis reads this as like, this guy's brain is so powerful that even MIT professors cannot stimulate it. And like, again, not to play armchair psychiatrist, but I really think Lewis would have benefited from cruising the Wikipedia for ADHD.

Yeah. I, too, was bored in lectures, and it wasn't because I knew all of the European history that the professor was talking about. You also think about like, what would like a a poor kid Like how would we respond if it was like a poor black kid who like couldn't pay attention lectures and like hated Shakespeare It's like this stuff gets processed in a completely different way and frankly I think the real takeaway from these opening anecdotes is that Sam struggles to put energy into things He doesn't care about right Sam himself seems to rationalize this away as those things being too simple or unimportant.

He says that his disinterest in college came from realizing that academics weren't doing much to change the world. But that criticism is coming from someone who spends huge percentages of his free time playing video games. Right. I would have hoped that Lewis would prod at that a little bit, but he seems to take Sam's own characterizations at face value.

It's also funny looking at, like, if we want to be retrospective, you could also look at it through the lens of the crime. This is somebody who's, like, it seems like kind of cut corners and had a lot of, it seems like contempt for things that are outside of his realm of interest. That's sort of a dick move, not necessarily a genius move. You can say, oh, I'm not that into Shakespeare in a way that doesn't denigrate Shakespeare. It just doesn't click with you for whatever reason. So we're now in 2014.

He goes to work for Jane Street, a highly selective, prestigious trading firm. This is also about where Sam gets into the effective altruism movement. I imagine that you know something about this. This feels very like Hobbes. Somebody in my book club has introduced me to the concept of ranch triggers, like things that people say that you're like, okay, I need like three minutes to like talk at you about this. Like if it comes up in any, in any context, you're like, just to warn you, here it comes. That's how I am with effective altruism.

You're on the clock. Okay. Three minutes. Basically, this is a movement that came about because a lot of the things that were going on international development were extremely arbitrary And then there was this movement to start to measure Quantitative results and to focus on the most effective development interventions Which sounds great and was a huge improvement over what was going on at the time But then over time it kind of started to adopt all of the problems that it had originally been a response to it has This weird thing where it's like, well, we figured out objectively

what the effective development interventions are. And all we have to do is scale those up everywhere, right? Which as somebody who worked in development for 11 years, that's not really something that exists, right? You can't say that something quote unquote works or quote unquote doesn't work. And people without any relevant expertise in the local context coming in and saying, no, no, no, this is science.

We've done this. We're going to impose this on everybody in this like standardized way is a concept with a very long and very diabolical history and international development. That's an interesting history because I think this is like a very specific manifestation of this movement among these ultra rich guys. With respect to Sam himself, I think it's likely that it interests him again because it presents humanity as a problem that can be rationally solved, right?

I think one of the things that charmed Michael Lewis is that he believes that Sam Backman Fried is in fact truly invested in the well-being of humanity and like figuring out these big problems. And I don't see any specific reason to believe that Sam is being dishonest about this. I just think that he's probably more interested in the effective part than the altruism part. A little later in the book, Lewis talks about

the sort of mission creep in this community. And to oversimplify a bit, one way to look at this was like, what are some very cost-effective altruistic interventions? Yeah, that's fine. Mosquito nets, right? Cheap, effective, great use of money. But a lot of people in the movement, Sam included,

start to think more about what the largest threats to humanity are. So instead of focusing on cost-effective ways to prevent hunger and disease, they spend their time trying to pinpoint the biggest existential threats. Sam believes it's AI. You can't let these fucking nerds be in charge of anything. It all circles back to AI at the end of the day.

That's the thing is there's no smart or dumb way to predict what is going to happen in 5,000 years. Yeah. So it's just like, again, it's like this overconfidence in your own ability to reason through these like extremely complex social problems using like Excel spreadsheets. There's actually a really good example

of like the limitations of what they can do. So Sam's at Jane Street, doing great, finding success with various types of trading arbitrage. In 2016, they bet billions that a Trump win would tank the markets. They sort of figure out that the markets are moving at the speed of CNN. So if you can sort of look at the data and beat CNN to the punch, they can make a bunch of money. They do that.

They are able to develop this system that can beat CNN to the punch. But they lose a ton of money because the markets didn't tank when Trump won. The markets went down and then overnight popped right back up, which really sort of highlights the point. Yes, they are in fact very good at the math side. They can look at all this data and figure the shit out what they couldn't figure out was the Subjective much more complex problem of whether the markets would actually like Donald Trump to win That's such a fascinating example because it is both sophisticated and very dumb at the same time, right? Sample greater good poll that was relevant Michael Lewis makes it easy with his accessible Free, you know nicely flowing narratives use affiliate code Mike and Peter at checkout for 10% off

This is this is the only book that I've done where I would sort of recommend it I'm like, yeah, this is a fun read, you know, you know in Understanding what he gets wrong. Yeah, the actual experience of reading the book is like cool. This is cool. I can't leave it's not the secret That's the one that's helped me the most. So in 2017, Sam leaves Jane Street to found Alamada Research, his crypto trading firm. He had been a little bit disillusioned, just hadn't been quite as happy as he wanted at Jane Street,

and he realizes that crypto is like the next big thing. He starts recruiting his friends and acquaintances including Caroline Ellison who would become his on-and-off girlfriend and the CEO of Alameda. Oh, I think you're gonna say of the Polycule. She plays a big role in the Polycule as well. Okay. A lot of his recruits come from the effective altruism community. Right off the bat, alienates a bunch of people with his off-putting management

style. And I've sent you an excerpt. It says, he was demanding and expecting everyone to work 18-hour days and give up anything like a normal life while he would not show up for meetings, not shower for weeks, have a mess all around him with old food everywhere, and fall asleep at his desk, said Tara Mack Allay, a young Australian mathematician who was, in theory, running the company with Sam. He did zero management and thought that if people

had any questions, they should just ask him. Then, in his one-on-ones with people, he'd play video games. But what was his build? But what was his build? I'm sending you another one. It crossed his mind, now that he was starting his own business, that he should read up on how to manage people

But every time he flipped through books or articles on management or leadership He had roughly the same reaction he'd had to English class one expert said X the other said the opposite of X It was all bullshit. He said this man doesn't know about one book theory This is a real problem. It's very funny that he's like, there's subjectivity. No, it's not real. I'm sorry, but you have to, I don't care which style it is, you gotta pick one of them and just go for it, because you suck. This also just seems like he's not great at

just kind of like human complexity or like things that don't have a quantitative solution. Absolutely. I mean, most human relationships, there's not like one formula for like how to be a good friend. And also the thing about not showing up for meetings and like playing video games, it seems like an inability to understand how his actions will be perceived by other people. Rationally, you should understand that five percent of my attention is very valuable.

But it's also funny because rationally, you should know that even if you think you're good at listening to people while you're playing video games, it's going to seem off-putting to other people. No, no you have to understand that rationality always leads you to Whatever the most selfish thing to do in any given moment Generally speaking this firm is doing well. There's a lot of inefficiency in crypto markets at this time So there's a lot of opportunity for arbitrage, and that's how they make their early money. At one point, the traders cannot locate about $4 million worth of a cryptocurrency called Ripple. People are freaking out, and many senior management folks, to the extent that they exist at Alameda

Research, suggest that they should inform investors. Sam does not want to do that. I'm going to send you a little excerpt. Sam continued to insist that the missing ripple was no big deal. He didn't actually believe that it was lost or that they should account for it as lost. He told his fellow managers that in his estimation there was an 80% chance that it would eventually turn up.

Thus, they should count themselves as still having 80% of it. To which one of his fellow managers replied, After the fact, if we never get any of the ripple back, no one is going to say it's reasonable for us to have said we have 80% of the ripple. Everyone is just going to say we lied to them. We'll be accused by our investors of fraud. That sort of argument just bugged the hell out of Sam. He hated the way inherently probabilistic situations would be interpreted after the

fact as having been black and white, or and bad or right and wrong. So much of what made his approach to life different from most people's was his willingness to assign probabilities and act on them. Yeah, that's deranged. Yeah, I mean, this is similar to the scheduling stuff. It's something that Lewis really seems to believe that SBF's decisions are all made by assigning everything a probability and acting accordingly. And that he's like very frustrated by other people who don't see the world this way because he thinks that they are irrational.

But Lewis isn't seeing the pretty obvious obfuscation here because if Sam really thought that this was no big deal, he shouldn't have a problem telling investors, right? The argument he's having with his colleagues is not about the probabilities and calculating how much ripple they really have, it's about transparency. I'm not sure that Lewis knows that he's foreshadowing when he tells this story. Yeah, yeah, yeah. Also, there's something funny about this as a quote unquote math analysis because the 80% chance that it would turn up is made up. Why is there an 80% chance that it'll turn up? Why not 50? Why not 90?

Are you a gene math genius? No, you don't know the probability You can't make up a number and then pretend that you're doing math So between the whole like missing money debacle and his general shitty behavior Sam alienates a bunch of the effective altruist types that he brought in and they attempt to oust him Oh really from his own? From his own company? From his own company. I'm going to send you an excerpt. It says, Like everything else about Alameda Research, this bid by the firm's other managers to get rid of Sam proved complicated. For a start, Sam owned the entire company. He'd

structured it so that no one else had equity, only promises of equity down the road. In a tense meeting, the others offered to buy him out, but at a fraction of what Sam thought the firm to be worth, and the offer came with diabolical fine print. Sam would remain liable for all taxes on any future Alameda profits. At least some of his fellow effective altruists aimed to bankrupt Sam, almost as a service to humanity, so that he might never be allowed to trade again. I'm behind it. I'm into it. Yeah, I wanted to flag this to note that, like,

this doesn't make sense. I assume that this is what Sam relayed to Michael Lewis about what happened here, but no person on Earth would agree to be liable on all future taxes for an operation like this. Also aiming to bankrupt him sounds like maybe his depiction of events too? Right. That does sound like maybe a characterization that Sam is giving to Michael Lewis. But who knows? Maybe they hated him and also suck at negotiations.

Yeah. So at the end of it all, in early 2018, his entire management team and half of his employees leave the company Wait, did they ever find the ripple? They found the ripple. Yeah, it was just a software software glitch So did come back Sam was wrong. There was a hundred percent chance You do know math Peter that's math, baby So before we talk about FTX I want to pause briefly to discuss how Michael Lewis describes cryptocurrency.

I'm going to send you something. He says, how Bitcoin worked was interesting chiefly to technologists. What it might do was interesting to a much broader audience. It might allow ordinary people to exit the existing financial system and never again rely on the integrity of their fellow human financial Beings what so this is a weird thing to say if you know anything about cryptocurrency It's true that cryptocurrency eliminates certain gatekeeping Institutions like banks I guess not true that it allows you to never again rely on the integrity of your financial Or human fellow financial human beings or whatever, right? Yeah, the decentralization

That crypto provides creates precarity of various types That's why the space is like a rife with scams and criminals, right? Yeah, Lewis sort of bounces back and forth It feels like between buying the hype that crypto can solve the problems of the financial system and also understanding that, like, in practice, it creates a ton of new problems. Yeah. He never seems to resolve it in a way that made me feel like he had his arms around it. Well, I've never understood this thing of, like, it frees you from the vicissitudes of

financial institutions or whatever. Like, it's like you're just trading one set of arbitrary institutions for another I agree with that I think that the I don't want I don't want to have to explain blockchains Mike. Don't make me do it. Oh god I know I don't want to have to understand blockchains I think what people mean when they say this is that when there are two parties who want to do a transaction in Crypto you press the button and the blockchain records the transaction. You don't have a bank as an intermediary.

You don't need escrow. Of course, the lack of intermediaries is what creates danger in various other regards, right? It's what allows cryptocurrencies to be stolen so readily, it's what allows scams to be so effective because once the transaction happens, it's done. I guess you can say that it solves some problems. In my mind, it creates so many fucking more that it's not even worth considering, but whatever. Also, I feel like so much of the stuff about crypto is kind of irrelevant in that the way that it actually functions is as like a Kind of random commodity that has like grown and crashed like you mentioned baseball cards on one of our previous episodes

You're like there was a thing where video games like old Nintendo games were going for like $500,000 That was like a weird bubble, right? It's just like people investing in something because they think it's gonna go up. There are like smart tech people I read who seem to see some value in crypto. Yeah. And I don't, but I also don't know that I'm smart enough to know that they're wrong. Did you have any crypto, Peter? Were you a crypto guy?

Not when it was worth getting, you know, not when it was smart. Well, I had a weird experience with crypto. I used to play poker, like back when I was in college, and I had a couple of acquaintances who kept going in online poker and did well, and I never kept up with it. But about a decade ago, it wasn't uncommon for poker sites to utilize Bitcoin because poker is illegal in many jurisdictions across the world, online poker, right? So a lot of these kids just ended up sitting on a bunch of Bitcoin when it rocketed up and got rich. So my experience of Bitcoin is just pure misery.

Yeah, FOMO. Some part of my brain is like, well, what if, what if I had kept going with poker? Would I have been good? No, the problem was the game was too simple for me, for my incredible brain. The thing is, I will say that like the one use case for crypto that actually makes perfect sense to me is buying illegal shit online. I have my bucks and I have my crime bucks. That's why Bitcoin is not worth zero dollars.

It's worth whatever the value of Bitcoin crime is. So after the Alameda defections, Sam is looking for new ways to expand his business and make a you know a ton of money and he creates FTX which is of course just a platform for people to trade crypto and crypto futures. He funds it through seeking investment, but also by issuing a cryptocurrency FTT token which guarantees owners a percentage of FTX profits. It's basically stock and FTX. They get the ball rolling in 2019. They start doing serious numbers in 2020. In 2021, they steadily become a household name in the crypto world.

By early 2021, they are raising money at a $20 billion valuation. Oh, wow. Sam is very talented at pitching VCs. This is for a couple of reasons. One is he just has a good pitch because FTX has a pretty good platform. Two, the VCs aren't that interested in the business. One of the themes of Lewis's section on them is that they don't really understand the basics of crypto or FTX. They're just sort of impressed with Sam. His disinterest in other people actually appeals to them because it makes it look like he doesn't

really need their money and that makes them sort of desperate, right? It is one book because this is basically the rules. That's right. He's like waiting four days to call them back. This is Sam accidentally being a pickup artist for investors. On top of that, his willingness to talk to the press, like at length and very straightforwardly, it comes across as a sort of like unconventional forthright type of guy. This was John McCain cracked this code too.

If you give people access and seem like, oh, we're just like talking off the record and like seem chill, you will get the most like hand jobbical coverage from the media. There are times when he sort of like says stuff that makes you think that maybe there are scams going on here. Okay. He appears very famously on the Odd Lots podcast where he is explaining a certain type of crypto operation and he basically just describes a Ponzi scheme. Oh really? People put money into a certain type of coin which he just describes as a box.

People put money into a box and then more people put money into the box which of coin, which he just describes as a box. People put money into a box, and then more people put money into the box, which makes the box more valuable. He explains this at length. I'm not gonna send you his explanation. What I am going to do is send you the timestamp for the host's reaction to his explanation. Okay, good, good, good, good, okay.

I think of myself as like a fairly cynical person and that was so much more cynical. You're just like, well, I'm in the Ponzi business and it's pretty good. Did any of this require any sort of like economic cases? Just like other people put money in the box and so I'm going to too and then it's more valuable so I got to put more money in and at no point in the cycle did it's just like other people put money in the box, and so I'm going to too. And then it's more valuable, so they're going to put more money in. And at no point in the cycle did it seem to describe any sort of economic purpose. So on the one hand, I think that's a pretty reasonable response. But let me play around with this a little bit, because that's one framing of this.

And I think there's a depressing amount of validity. So you've got things, boxes kind of dumb, but like what's the end game, right? This box is worth zero, obviously. And like that, you know, you can't like keep this market cap or something. On the other hand, if everyone kind of now thinks that this box token is worth about a billion dollar market cap, that's what people are pricing it at and sort of has that market cap. In fact, you can even finance this. You put X token in a borrow lending protocol and borrow dollars with it. If you think it's worth less than two thirds of that, you could even just put some in there, take the dollars out and never give the dollars back. You'll see it liquidated eventually. And it is real monetizable stuff in some senses. And, you know, at some point, like,

if the world never decides that we were wrong about this in like a coordinated way, right? Like you're kind of the guy calling bullshit and saying, no, this thing's actually worthless. But in what sense are you right? Wait, what? He seems to be saying that like, yes, it's a Ponzi scheme, but if everybody believes in it, including banks, then you can borrow against it and get real money out of it.

But that doesn't make it not a Ponzi scheme. That's precisely the cynicism that Donald Sutherland is pointing out. It's not producing any real value. It's more just like financial group think. Right, I mean that is basically the answer he ultimately gives, except you can already sort of see that he doesn't answer questions very directly. He's very good at these sort of question dodging responses

where he nonetheless appears to be giving a somewhat sophisticated response. Dude, that's such a skill. It really is. To make people think that you're being forthright, but actually you're obfuscating. By the end of 2021, 10% of all crypto trading happens on FTX. Oh, wow. They are still a fraction of the size of Binance, the largest exchange, so they're still looking to grow.

Lewis says Sam's goal is to, quote, establish FTX as the world's most regulated, most law-abiding, most rule-following crypto exchange. What? To acquire as many licenses to allow him to operate legally and openly in as many countries as he could, to make a bet on the rule of law shaping the lawless crypto markets. Why would you believe him when he says that? I think that he was telling the truth in a sense that that was what his PR strategy for FTX was.

In other words, he's betting on crypto becoming absorbed into the financial regulatory apparatus rather than remaining somewhat outside of it. But also it's funny that Lewis categorizes this as like, he's like wanting to be the rule of law guy when it seems like for most of his life, he's someone who thinks the rules don't apply to him. I think that Sam Bankman Fried understood that this was a smart strategy,

but had no actual interest in abiding by the law. Yeah. They combine this with a huge PR effort targeting the US. They buy the naming rights to the Miami Heat arena for 20 years for 155 million dollars they run that fucking Super Bowl ad with Larry David. Oh, that was an FTX ad Yep, the ironic thing is that I can't think about that ad now without the curb your enthusiasm music playing in my head He made a sponsorship deal with Tom Brady

for $55 million. I don't know who that is. I'm kidding, I'm kidding, I'm kidding. That's like the one person I'm doing I don't know who that is. Don't. All right, I'm gonna send you a rundown of some of their other marketing expenditures.

It says three year deals each with the Coachella Music Festival, Steph Curry, another person I know by the way, and Mercedes' Formula One team for, respectively, $25 million, $31.5 million, and $79 million. The five year deal with Major League Baseball for $162.5 million, a seven year deal with the video game developer Riot Games for $105 million, $17.5 million to Shark Tank's Kevin O'Leary for 20 service hours, 20 social posts, one virtual lunch,

and 50 autographs. This business is pulling in a ton of revenue at this point, something in the realm of $400 and change million dollars a year. But these expenditures are wild. Yeah. Right? It's almost as if they have a source of funds that is not strictly their revenue. What the fuck is a virtual lunch? Like a fucking zoom lunch with Shark Tank's Kevin O'Leary. The third most famous guy on Shark Tank.

For 16 million. Although that might have been worth it because Kevin O'Leary was on TV defending Sam Beckman Fried when this all went down. So maybe not the worst investment of the bunch. Look, you say this guy did crimes, but his checks cleared. So who can say?

Now, worth noting that Sam was putting a ton of money into politics. He was very anti-Trump. He was publicly a big supporter of Democrats. Behind the scenes, he was funding Republicans as well. He was planning to hand tens of millions to Mitch McConnell to support establishment conservatives against the MAGA wing.

One of the funniest adventures in the story is his attempt to pour millions into a race for a congressional district in Oregon because like some effective altruist weirdo he liked was running and this sort of like backfires because the massive amount of money immediately draws tons of attention and people look into it and are like why is this guy being bankrolled by a crypto billionaire? Why is he promising to give mosquito nets to everybody and bend? This is a little weird. At some point in late 2021, they also moved from Hong Kong to the Bahamas.

There's a very good, very Michael Lewis chapter that covers the building of the new compound in the Bahamas, which is a total circus because Sam hires these architects but gives them almost no guidance. The only specific thing he says is that he wants three badminton courts. They should have called it the polytechnic campus. Now, before we talk about how this all falls apart, I want to take a detour further into the psychology of Sam Backman Fried as described by Michael Lewis. Backman Fried essentially self-diagnoses as something like a psychopath and a lot of Lewis's characterizations back that up.

At one point, Sam and Caroline Ellison are on the rocks. She's basically in love with him. He very obviously does not feel the same way. They hash it out by exchanging bullet pointed memos. This is an excerpt from one of his memos to Caroline Ellison. Oh my god, okay. Imagine somebody reading your breakup texts. Imagine someone reading your relationship memos.

It says, in a lot of ways, I don't really have a soul. This is a lot more obvious in some contexts than others, but in the end, there's a pretty decent argument that my empathy is fake. My feelings are fake. My facial reactions are fake. I don't feel happiness. What's the point in dating someone who you physically can't make happy? Oh, he's telling her what's the point of dating me?

He's doing the nerdiest, it's not you. It's me in history This is echoed by others Constance Wang his COO says quote He has absolutely zero empathy in a journal entry. He wrote quote. I don't feel anything or at least anything good I don't feel pleasure or love or pride or devotion I feel the awkwardness of the moment enclosing on me the pressure to react appropriately I feel the awkwardness of the moment enclosing on me the pressure to react appropriately To show that I love them back and I don't because I can't he has a therapist He likes George Lerner and he brings him to be an in-house coach at FTX Essentially meaning that he functions as a therapist for the whole company. Oh, here's a passage about when Sam found this guy it says Sam had been in the market for a new therapist.

The previous therapists were incredulous about various parts of me, he said. He'd explain, for example, what he thought of as his perfectly rational decision made at a surprisingly young age to never have children. Or he'd tell them of his absence of feeling or how he had never felt pleasure. They had a term for it, anhedonia. Amazing drag name. They'd sort of nod for a bit, but then mistrust his self-diagnosis. It was like, what about me are you disputing? said Sam. There was not any clear way to break through with them. I know that there are things that are unusual about me. They wouldn't just accept them and move on. So therapists couldn't

accept the fact that he was kind of like detached or like didn't have any emotions. Yeah, a therapist might not generally be willing to move on from someone who is talking about like symptoms of severe psychological dysfunction. Yeah. He's like, they mistrust his self-diagnosis. Yeah, that's a good thing for a therapist to do. You don't, when someone's just like,

hey, here's my psychological problem, the therapist isn't there to be like, oh, okay, cool. Now I know that, let's move on, right? The therapist is there to peel that apart for you. Or like if you're just like, hey, here's my psychological problem. The therapist isn't there to be like, oh, OK, cool. Now I know that. Let's move on. Right? The therapist is there to peel that apart for you. Or if you're just like, oh, I don't care about anybody. I don't feel pleasure.

That's also something that therapists would presumably be working on. Right. Anadone is like a symptom of depression. Right, right. So Lewis writes that, quote, what Sam liked about George was that George simply took him as he was and actually didn't seem all that interested in engaging in pointless conversations about his feelings. Therapy? Isn't that what therapy is? I do, I, again,

I have concerns about a therapist that does not talk about feelings. We don't just like sit around and he asks like how do you feel about that? We don't waste time with that shit. He's my therapist. George Lerner is like another guy who seems a little bit shady But Lewis is like not particularly skeptical of okay vice did some reporting where it was revealed that Lerner was trying to find Potential dating options for FTX employees, okay Which he claims was like to keep them in the Bahamas like to give them things to do in the Bahamas That's something that reads a little different when you know that there was like a bizarre executive level polycule.

There were also like reports from former employees that he was overprescribing Adderall. I'm a little torn on all of this because a writer in Lewis's position probably shouldn't be doing too much armchair psychology, right? But it is sort of like emblematic of Lewis's blind spots that throughout the book, SBF is like, I'm a literal psychopath. And Lewis is like not catching it. Yeah, because there's like a neurodivergent story that could be told here, but it also sounds like there wasn't a formal diagnosis and like also that should be handled with like some amount of care like talking to experts

I really think that Lewis is like, yeah his brain only does math. It doesn't do feelings. It's like I mean again, I am NOT here Mike to do armchair psychology about these people, but I do have thoughts We are now at the part of the story where FTX starts to collapse. In the middle of 2022, crypto prices start to tank. Until this point, a lot of FTX's success was the result of like not just Sam's strategy and marketing, but also the fact that the crypto boom was happening at the same time. Right. They had gotten a ton of customers because there was a ton of money

flowing into the crypto market and therefore to FTX When the prices collapse money starts to flow back out right at the beginning of a bubble It's really easy to run a successful financial firm, right? I I think that there were aspects of FTX's design that appear to be sort of top of the industry But they also came in at the perfect time. Lewis says that as late as October 2022, you could not tell that anything was amiss at FTX. We now know from Caroline Ellison's testimony that in summer 2022, when crypto prices declined, FTX's lenders started calling in their loans and FTX began to pay them back with what they knew was customer money. Oh, wow. In early November, Louis takes a week-long break

from hanging out at the Bahamas headquarters. When he left, FTX appeared to be fully functional. When he returned, a week later, the company had filed for bankruptcy. No way. Remember earlier I mentioned the FTT token, which was like the in-house cryptocurrency that basically functioned like a stock in the company.

CoinDesk, a cryptocurrency news site, had been sent what appeared to be a leaked FTX balance sheet that showed a lot of FTX's assets were held in the form of that token. Binance, FTX's chief rival, was a major holder of that token. Shortly after the leak, they announced that they will be unwinding their position, hinting that they had concerns about it. This leads investors to unload their positions, which sort of functions like a run on the bank for FTX. Right, so everybody comes looking for their money, but there is no money because they've

already given it away to people who've already tried to pull their money out. That's right. It quickly becomes apparent that they do not have the liquidity to cover the withdrawals. There is a shortfall of some $8 billion and change. The money had been commingled with Alameda Research and other entities where it was presumably traded, invested, used to buy shit, et cetera, et cetera. But the thing is there's an 80% chance that they'll get it back. So it's actually okay to say.

That is the story of the collapse of FDX in short, right? There's a run on customer funds, which leaves Sam and his buddies exposed with their hands in the cookie jar and no more cookies left, right? The story that Sam Bankman-Free tells about all of this and that Michael Lewis appears to at least sort of buy is that he was not aware of any of this. He claims that he only became aware that Alameda had used the customer money in October 2022,

right before everything falls apart. Sam claims to have never moved the money and Lewis says that this is quote Irritatingly difficult to disprove. This is the story that same advances at his trial He claims that he was a terrible manager who was so hands-off that he did not Realize that eight billion dollars was missing the most obviously shady part of this story that he's telling is That in his words in his story Sam found out about part of this story that he's telling is that in his words, in his story, Sam found out about all of this right before everyone else did.

He's saying, oh, I only learned about this in October 2022. The coin desk piece drops on November 2nd. If his story involved any other timeline, he would have had to explain why he didn't do anything to locate or replace the money, right? Right, right. He tells a story like, oh, I found out and then everyone else found out right after. I had no time to do anything. Multiple people testified that senior players at FTX, Sam included, were aware of the missing

money at least several months earlier. Wouldn't they simply like have to be? Unless people are like doing this behind his back I believe that this is a story that you don't need to think about that hard When someone is like, oh, I didn't know Can you very easily prove that they knew maybe not? Do you need to kid yourself? Yeah, definitely not Definitely not of course course he fucking knew.

That the literal CEO would not have any idea that this was happening is like really implausible. This is where Lewis starts to go off the rails. He says, I had a question. It preoccupied me from the moment of the collapse. Where had the money gone? It was not obvious what had happened to it. He does some very admittedly crude back of the napkin math and figures that FTX and Alameda had 23 billion go in and 14 billion go out, plus it had 3 billion on hand. That

left 6 billion unaccounted for. I'm going to send you some thing. It says, the most hand-wavy story just then being bandied about was that the collapse in crypto prices somehow sucked all the money out of Sam's world. And it was true that Sam's massive holdings of Solana and FTT and other tokens

of even more dubious value had crashed. They'd gone from being theoretically worth a hundred billion at the end of 2021 to being worth practically zero in November of 2022. But Sam had paid next to nothing for these tokens. They had always been more like found money than an investment he'd forked over actual dollars to acquire.

He'd minted FTT himself for free. For his entire haul of Solana tokens, he'd paid no more than $100 million. His fleece cloud fortune had evaporated, but that didn't explain where all those dollars had gone. I didn't understand any of this paragraph. What he is saying is like, well, sure, they might have lost a ton in crypto, but they didn't pay much for the crypto. So it's sort of a wash.

They're not taking a loss, right? My response to that is like, what do you think was happening inside Alameda, a crypto hedge fund that we all know had almost no risk controls, right? He assumes that they were just trading with the crypto that they had already received. They were not. They were borrowing capital and making highly leveraged bets on crypto going up. And they were losing those bets because crypto

went down. Michael Lewis should understand this. Also, it's not like some big mystery. Bankman Fried actually seems like the kind of guy who's like throughout his entire life has been overconfident in his own intellectual abilities. It actually makes sense that a guy like that would look at these extremely risky assets and be like, ah, I got it figured out they're not risky at all.

And maybe would borrow against a bunch of money that he doesn't have. The nature of the criminality actually seems totally in keeping with everything else we know about Banker & Freed. Absolutely. And we also know that he had a massive appetite for risk. That's something that Lewis talks about in the early chapters. He doesn't feel the stress of risk in the same way that most people do.

Right. So, Lewis is trying to solve the mystery of where this money went. He repeatedly asked Sam the question. One explanation Sam gives is hackers. Okay. All right. Sending you another excerpt. It says, the biggest hacks occurred in March and April 2021.

A lone trader had opened an account on FTX and cornered the market in two thinly traded tokens, BitMax and Mobilecoin. His purchases drove up the prices of the two tokens wildly. The price of Mobilecoin went from $250 to $54 in just a few weeks. He'd found a flaw in FTX's risk management software. FTX allowed traders to borrow Bitcoin and other easily sellable crypto against the value of their mobile coin and Bitmax holdings. The trader had inflated the value of mobile coin and Bitmax so that he might borrow actually valuable crypto against them from FTX. Once he had it, he vanished, leaving FTX with a collapsing pile of tokens and a loss of $600 million worth of crypto.

I mean, props to this guy. I mean, this dude rules. So to be clear, this guy artificially inflated the prices of some random crypto that was actually worthless. Yeah. Then he borrowed Bitcoin, which is not worthless, against that. Yeah. Then he just walked off with the Bitcoin, leaving FTX with the worthless collateral. This is not a hack Yeah, no, this is just like a loophole in your business model

This is a failure in FTX's risk management system that lost them 600 million dollars FTX gave him 600 million dollars. It's not like he stole it. He wasn't doing fucking back channel hacker shit This is like those people that figured out the game shows and just like went on and just like cleaned up That's not a hack right? They just like figured out the system It's not until the final chapter that Michael Lewis claims to solve the mystery of where the money went The last chapter of the book centers around John ray who is the expert brought in to oversee FTX and bankruptcy. We're at the very end of the story. You get

the very distinct vibe that John Ray is the first actual adult to enter the room, Michael Lewis included. He is immediately suspicious of Sam. He calls Caroline Ellison, quote, an obvious complete fucking weirdo. Lewis seems like skeptical of Ray. He says that it, quote, felt like an amateur archaeologist had stumbled upon a previously unknown civilization. But to put this in perspective, Ray is the guy who oversaw the recovery of Enron's assets, right? This is what he does and he might actually be the best in the world at it.

The idea that this is too much for him to comprehend, that is bullshit. I love the idea of basically Tommy Lee Jones from The Fugitive coming in, and just being like, fuck you, fuck you, you're cool, fuck you. Just immediately within 10 minutes, being like, everyone here is a fucking clown That's I mean absolutely what happened

He'd like he'd like talks to every single one of them and he's like these are all a bunch of psychopathic nerds And he gets to work right I think what bothers Lewis is that to Ray? FTX was not some like brilliant pioneering company Yeah, it was just a poorly run company doing a lot of embezzlement and the people leading it were weirdos and freaks. And it's like it's writing a trend too, right? It's not like it's the super advanced business model. It's like they're selling, you know, Tamagotchis or something. Who says Tamagotchi? Tamagotchi? Tamagotchi? Oh, Tamagotchi. What the fuck?

God, you're like half of our fucking inbox. Like, oh, the way that Mike pronounced this. Look, I could have let it slide and then everyone would have been like, why didn't Peter say anything? How are you getting both vowels wrong there? Dude, you said on our last bonus episode, you said Yeets instead of Yates, and I stood strong.

I didn't say anything. Even though I wanted to say this bitch empty. Okay, so and to give you a sense of how off base Lewis is in his read of John Ray, John Ray was ultimately able to trace a massive amount of money located across something like 100 corporate entities, which he was able to successfully map out. That's how good John Ray was at this fucking job. And Michael Lewis is like, I don't know.

He thinks SPF is weird. So again, what happens as the bankruptcy proceeds is that Ray is able to recover a large percentage of the money owed to investors to the point where right now many people believe that investors will be repaid in full. This leads Lewis to his ultimate conclusion about what happened here, which I am going to send to you. It says, Ray was inching toward an answer to the question I'd been asking from the day of the collapse.

Where did all that money go? The answer was nowhere. It was still there. So no, no That is an extremely dishonest way to put it a better way to understand This is that the money was gone and John ray found other money to replace it That's what actually happened right John ray had to scrape together money from various entities

assets employees debtors, investors, etc. Money was eventually pulled together, but to say it didn't go anywhere, it was still there, not to state the obvious, but if it was still there, FTX would not have had to declare bankruptcy. This is like if I defrauded you out of a hundred grand and then I spent it on cocaine and then you had the court seize my house and sell it to pay you back.

And then I was like, see, the money was still there. No, it was not still there. They had to go find other money. They had to sue people who were on the FTX payroll to get the money from them. And also the reason it got hidden in the first place also wasn't some oversight, right? It doesn't get spread across a hundred accounts by accident. That's the reason that Lewis is wrong about all of this. The basic fact that enough money was eventually tracked down to pay back customers, that seems

to drive Lewis's belief that SBF is less guilty than he's made out to be. His general position seems to be that the money was sloshed around recklessly, but that it had not been lost per se. So this is mismanagement, but it's not fraudulent conduct. He gives an interview with Time Magazine where he says, quote, I thought how curious it was the speed FTX went from being this pretty widely admired and reputable Operation to being viewed as this vast criminal enterprise Without there being a whole lot of new data Except for the fact that the money was in the wrong place. Well, yeah, except for that fact I find it a little suspicious that everyone's view of Jared from subway changed so quickly

Only thing we learned the only new information one small fact He is making it seem like the crime that Sam Bachman Fried is accused of is like Insolvency. He's saying look FTX wasn't really insolvent. The money was somewhere, so it's all good. That means nothing was stolen. But that's not the crime that Sam Bankman Fried was accused of. He was accused of fraud. It doesn't matter where the money is. It matters that at various points, Sam knowingly lied to various parties from banks to customers in order to

defraud them. In mid-2022, he directed Caroline Ellison to create multiple falsified balance sheets to send to lenders to hide Alameda's liabilities. He submitted fraudulent documents to banks in order to skirt around regulations and open up accounts that otherwise would not have been approved. At one point, he fraudulently backdated a document two years in order to trick auditors into thinking that an agreement had been in place for longer than it had been. And he signed it by hand instead of using DocuSign, which he always used otherwise,

to avoid having metadata which would reveal the actual date. Oh, wow. In March, 2022, FTX published a document, FTX's key principles for ensuring investor protections on digital asset platforms, which said, quote, FTX regularly reconciles customers' trading balances against cash and digital assets held by FTX. Additionally, as a general principle, FTX segregates customer assets from its own

assets across our platforms. Not only is it not true that FTX regularly reconciled customer funds against its own assets, there's no evidence that they ever once reconciled customer funds against their assets. And not only did FTX not segregate customer assets, many customer assets were being deposited directly into Alameda Research Bank accounts. Oh, wow. This is like a little sampling. SPF was caught in a host of lies about FTX's risk management and plenty of other shit. At one point during the trial, he's being cross-examined and he's asked whether he actually

cared about regulators or if it was just PR He goes no, I actually cared then the prosecution produced a text message He sent where he said quote. It's just PR fuck regulators Smoked dude absolutely smoked You got to know when they're asking you something like that, they got some text messages in their back pocket. That's fucking brutal. They are never going to ask you a question like that if they are not teeing you up to

get your fucking skull knocked out of the park. Oh god. I'm going to send you a couple of clips from Michael Lewis's appearance on 60 Minutes. What's your response to someone who hears us and says, it's a fun story and it's crypto in the Bahamas, but this is the oldest architecture of a financial collapse that's been going on for centuries. This isn't a Ponzi scheme. Like, when you think of a Ponzi scheme, I don't know, Bernie Madoff, the problem is

it's there's no real business there. The dollar coming in is being used to pay the dollar going out. And in this case, they actually had a great real business. If no one had ever cast aspersions on the business, if there hadn't been a run on customer deposits, they'd still be sitting there making tons of money. Whoa. Well, first of all, the question was never whether or not

it was a Ponzi scheme. That's like a specific kind of fraud. Notice how the guy's like, well, this is a fraud, right? And he's like, it's not a Ponzi scheme. Also, if it wasn't for the run, they would have been fine. But the whole point of these regulations is to prevent this outcome when there is a run. Also, another way for them to be fine would be to have had the customer assets rather than having misappropriated them.

Right. Yeah, to end my, yeah. To say that this was a great real business. They're Tamagotchi's, Michael. It's true that there was massive revenue, but that's not a great business if there is a world-historic misappropriation of funds happening to that revenue. I don't fucking, like, what do you think a business is? Yeah.

Like if I'm like, hey, I have a business, it generates 300 million in revenue and then I shoot that out of a cannon into a furnace to be like, damn, there's a good business here. Like, no, no. The cannon is crucial. You have to focus on the cannon. Right.

All right, I'm gonna send you another clip. For some reason, my phone is not copying this one, so I'm just have to focus on the canon. Right. All right, I'm going to send you another clip. For some reason, my phone is not copying this one, so I'm just going to put it in the chat. I can see people watching this saying, like, come on, guys, this is Elizabeth Holmes in cargo shorts. And this is all a ruse. Don't fall for this shtick. This is a bad actor. It is a little different supplying phony medical information to people that might kill them.

And in this case, what you're doing is possibly losing some money that Belong to crypto speculators in the Bahamas on the other hand. This is not to excuse he shouldn't have done that Now the idea that it's like crypto speculators in the Bahamas What are you talking about just because the headquarters is in the Bahamas doesn't mean that all of the customers are in the Bahamas. There were many normal people who lost a shitload of money when this all happened. Now I'm not like one to drum up tons of sympathy for people who sort of lose their shirt in the crypto space, but to just be like, ah, who gives a shit?

It's just crypto speculators. The thing is, I actually have like the least amount of sympathy of all victims of crime for fucking crypto speculators But also if the whole thing was just some like low rent Bullshit that was scamming a bunch of rubes on the internet It means Sam Benkman Fried isn't some math genius with a fundamentally sound business model He's basically a used car salesman or like one of those grifters selling gold bars to people half watching Fox News at like two in the afternoon. That's a totally different story than the one Michael Lewis has been telling. And he's trying to have it both ways. It's so fucking weird. And Michael Lewis built his fucking career.

It's weird, dude. Talking about these financial scams. And here he is, like, defending one. So what do you think happened with Lewis? What happened here? I do have working theories. Okay. My first is that Lewis's work, as good as it often is, is fundamentally a little bit sycophantic.

The big short, Moneyball, Flashboys, they all have villainous characters, but they are at their core books about the heroes. They're about these like brilliant underdogs who everyone wants to be dismissive of, but are ultimately proven right. That's the book Michael Lewis thought he was going to write. And more importantly, maybe it's the kind of book he writes, generally speaking. He had painted SBF as a bit of like a heroic figure in his mind. When the bad news drops, he couldn't really shake it, right? I think that's like my first level theory.

My second level theory is that Michael Lewis has built a lot of his career on his skepticism of the existing financial system to the point where I think he had some blind faith in cryptocurrencies as an alternative Not because he had a reason to believe that they could be a viable alternative But because he wanted that to be also SPF was good at casting himself as like an outsider to all of these structures Yeah, when slightly similarly to effective altruism He's actually like replicated a lot of the problems with it. If you remember, he describes crypto as something

that could free you from having to rely on the integrity of others in the financial system, right? That's obviously not true. It can't be true. There is no financial system that frees you from the need to trust other human beings. That's not how it can ever work. But I think Lewis wants it to be true

because he believes that the existing system is hopelessly corrupt. Zeke Fox, an author who has his own much better, at the end of the day, book about crypto and FTX called Number Go Up, he said that Lewis told him, quote, "'You look at the existing financial system "'and the crypto version is better.'" What? I don't wanna get into why I think that's wrong. He said that Lewis told him, quote, you look at the existing financial system

and the crypto version is better. What? I don't want to get into why I think that's wrong. That's wrong. What I want to point out about that statement is that it's a very weird thing to say because Lewis in this book basically admits that he doesn't understand Bitcoin at all.

Yeah. He says, quote, Bitcoin often gets explained but somehow never stays explained. You nod along and think you're getting it, but then wake up the next morning needing to hear the explanation all over again. Oh my god, that's so true and so wise. This is my experience. Absolutely. It's absolutely true. But how do you write that and then say that this is better than the existing financial system? My answer to that is that this is someone who has so little faith in the existing financial

system that he's ready to believe anything. What this actually reminds me of is a lot of the health-grifting that me and Aubrey talk about in maintenance phase where it always casts itself as an alternative to like Western medicine doesn't want you to know. And like, this is the way that it's often framed. But then what they're doing is they're shunting you to like vitamin supplement companies, which is also big business. They're operating on the principle that there's only one actor can be bad and everything outside

of it must because it's an alternative be better. This is Donald Trump too, right? The appeal of Donald Trump is like, well, I hate these existing political institutions and actors, right? Donald Trump is outside the establishment. Therefore, Donald Trump is good. It's the same basic thought process that is very clearly lacking a step.

And you have to have a more sophisticated analysis of just, is this part of an existing institution or not? Yes or no? Louis hosted a podcast called Judging Sam, where he covered the trial, and I listened to some of it to just confirm that like, yes, he still seems to buy the hype. In the very first episode,

he sort of questioned the nature of the charges. He called Sam very persuasive on the stand, which is his opinion, but also probably objectively incorrect because it took a jury about four hours to find him guilty on seven fraud charges and then he got 25 years in prison. So persuasive to Michael Lewis, perhaps.

It seems like the main mistake Lewis made is that he seems to have never really entertained the possibility that the subject of his biography was a fraud. Just as a person who writes about American business, you should absolutely be entertaining that possibility and thinking about it, like, at every stage of your book. But then it also seems like he didn't really consider the possibility even after the subject of his biography was convicted of fraud I mean, it's one of those things where just like all those anecdotes if you are looking at it on the surface You might think wow, this guy is just a straight-up genius. He doesn't think like normal people

But if you're just willing to peel back that one layer, this guy is Obviously selfish admits that he doesn't give a shit about other people. He has a very narrowly defined set of skills and used those skills to run up a massive fortune and then lost it because those were the only skills he had. You need to be in a mindset where you want to believe that this guy is a savior in order to watch him playing video games during meetings with employees and be like, his brain is just too good. The thing is, I mean, that part of that I actually agree with because I know a guy that

got fired as a lawyer and then spent months playing Elden Ring. There's nothing he can't do. I know a guy that got fired as a lawyer and then spent months playing Elden Ring Look I give Sam Bachman Fried credit because I've tried to play video games while on work calls and everyone's like Peter Are you there? I'm sorry. I can't do both. I can't do both. I've beaten millennia twice since we started Absolute bullshit Melee Peter nolee, Peter. No summons. No summons? Don't even fuck with, you can't do me when you know summons

and I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that.

I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that.

I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that. I'm not gonna talk about that.