Best-selling author Michael Lewis tells the story of Sam Bankman-Fried, the billionaire who founded the cryptocurrency exchange FTX and the financial trading firm behind it, Alameda Research. It is a fascinating story and gives me some understanding of how cryptocurrency exchanges work.
Sam Bankman-Fried is an autistic, mathematical genius. He started in the financial world working for Jane Street, a high-volume global trading firm. Jane Street executives target MIT/Stanford physics and mathematics students when recruiting for their firm. Lewis described the interview process which basically consisted of solving mathematical probability puzzles. This weeds out only the most astute thinking when it comes to risk and trading. These types of people, including Sam, are successful at this trade and make millions of dollars trading shares, bonds, currencies, etc. on markets around the world. They live an obsessive life of almost constant trading around the clock to take advantage of when different markets open and close globally. It reminded me of the high-speed traders Lewis covered in one of his other books. They do make 6 and 7-figure salaries by doing this however, and not many people starting out in their careers can make that kind of money. Bankman Fried after awhile however got bored and wanted to more to make a difference in people’s lives. He got involved with Effective Alturists and thought he could make more money to give to worthy cause so started his own company
I could see how Bankman-Fried moved into cryptocurrency. It is like another stock exchange but for young males. The digital amounts of money earned and lost are staggering. Lewis roughly calculated FTX took in over $23 billion dollars and spent over $14 billion dollars when the company went bankrupt in November of 2022. That left $9 billion unaccounted for, and Lewis and law enforcement officials had to sort out where the missing $9 billion went. Crazy to be dealing with amounts that most people wouldn’t earn in a thousand lifetimes. Some of the money was stolen by hackers, some was lost when currencies dropped in value, some on real estate. Investigators are probably still trying to find out what happened to the funds.
In some ways, I feel sorry for Bankman-Fried. He was an immature young man with social challenges who got seduced by the thrill of online trading and cryptocurrencies. He wasn’t greedy or evil, but reckless, unsympathetic, and thoughtless, and probably hurt a lot of investors. He needed some adults in the company to put structural systems of customer service, accounting, financial office policy and procedures, etc. It sounds like Sam did know that he was siphoning customer funds, however, from his company (Alemeda Research) inside of FTX. I think he thought that he could use them to earn even more money and later give it back to customers. He is currently serving 25 years in federal prison. He girlfriend got two years, and a couple of other employees go probation or short prison sentences due to their cooperation with authorities in finding funds. Many of the investors got paid back and the employees had to forfeit billions of dollars.
Michael Lewis was criticized by some for his lenient treatment of Sam Bankman Fried in the book. I disagree with that. I think he gave an accurate portrayal of a complex figure and situation.
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