The Bizaro Worldview of Sam Bankman Fried
November 21, 2022
This past summer, I interviewed Sam Bankman Fried and focussed much of the 30 minutes on how exchanges SHOULD handle risk. The sad, but clear conclusion, is that SBF should have listened to his own words, since, had he done so, the world today would be very different. In fact, he did the opposite of his own first instinct in almost every important way. Unlike George Costanza in Seinfeld, however, it did not turn out so well…
The entirety of the interview can be found here:
For those of you that dont want to watch the entire interview, which is FILLED with statements made by SBF that he was either ignoring already or about to violate, I have attempted below to select the some of the most egregious statements or reactions. To be honest, I still have a hard time.
As of now, the best information we have is that early in the summer, Alameda lost money and needed to be bailed out, or it would have been in danger of liquidation. At that time, if the rumour is true, FTX would have been fine, but a large chunk of SBF’s fortune would have been vaporized. In our interview, we talked about that potential situation, the example of Long Term Capital Management and, prophetically, how most of the time the positions continue to spiral.
It is clear that SBF did not listen to his own advice, as the information now coming to light suggests that he continued to pour more and more capital, likely from customer deposits, into Alameda. This, despite the obvious, that he was not reducing risk by doing so.
Sadly, he didn't just hope things would get better, but rather he raided his own clearinghouse. The juxtaposition of his actions with what he says about how a derivative clearing firm like FTX SHOULD be managed and how transparent it should be is astounding:
So, he clearly managed FTX in the exact opposite manner than he said he should and lobbied for. Even worse, he knows that, once a situation gets out of control, it is unlikely to come back.
In the end, the most important statement from the interview SHOULD have been this:
Unfortunately, he did the opposite…