If you happen to haven’t heard that monetary storyteller extraordinaire Michael Lewis has a brand new guide out, on the rise and fall of crypto change FTX founder and alleged fraudster extraordinaire Sam Bankman-Fried, you then most likely don’t spend an terrible lot of time on the web. Properly achieved you.
These of you who do will know that Lewis has been producing nearly as a lot controversy because the alleged felony himself over the previous week. But it surely wasn’t a lot the guide — the publication of which was timed to coincide with the start of SBF’s trial — that provoked the outrage; it was a clip from an interview Lewis gave on CBS’s 60 Minutes that was actually getting folks riled up. I used to be a kind of folks.
“This isn’t a Ponzi scheme,” he tells host Jon Wertheim within the brief video. “On this case, they really had a fantastic, actual enterprise. If nobody had ever forged aspersions on the enterprise, if there hadn’t been a run on buyer deposits, they’d nonetheless be sitting there making tons of cash.”
Lewis’s take is a horrible one. To name a crypto change that managed to lose $8bn in prospects’ cash — even when this failing was in some way utterly harmless and unintentional — a “nice enterprise” is a weird and unsound evaluation. In case we’ve forgotten: FTX held simply 10 per cent of its liabilities in liquid belongings the day earlier than the change collapsed into chapter 11. It was not allowed to do that; FTX was not a financial institution.
By most accounts — together with one which complained that the response to the video on-line amounted to a “cancelling” of Lewis — the thrust of the interview mirrored the argument made within the guide; even when the guide stops in need of being an SBF hagiography, it’s definitely sympathetic in the direction of him. And certainly, its author struck the identical tone on his personal podcast, Towards the Guidelines with Michael Lewis:
“I . . . thought how curious it was, the pace [FTX] went from [being] this beautiful broadly admired and respected operation to being seen as this huge felony enterprise, with out there being an entire lot of recent information — apart from the very fact the cash was within the incorrect place.”
That remaining clause is doing quite a lot of work there.
That the varieties of people that really admired FTX immediately misplaced religion within the change and its founder as soon as they found that it had misplaced $8bn of different folks’s cash doesn’t strike me as curious. What does, nonetheless, is that Lewis might have so purchased into not simply SBF, however the entire crypto narrative. Bloomberg author Zeke Fake, who additionally has a crypto guide out, quotes Lewis as telling him: “You have a look at the present monetary system . . . and the crypto model is best.”
How did we get right here? Crypto is not only a zero-sum sport, through which one individual solely good points if one other individual loses; its many ethical deficiencies make it a negative-sum game. The concept a store corresponding to FTX — and crypto companies basically — may very well be an enchancment on the present monetary system solely is sensible if we’re to worth that system merely on the idea of how a lot cash is being creamed off on the high.
It is a deeply nihilistic view of the function that monetary markets are supposed to serve, that forgets about essential capabilities corresponding to worth discovery, or facilitating the availability and demand of commodities wanted to maintain the economic system functioning.
However additionally it is one whose roots may be traced again a number of a long time, says Martin Walker, director of banking and finance on the Heart of Proof-Primarily based Administration. “Going again to the Nineties, the concept of ‘the free market is at all times proper’ began to change into the dogma, after which ‘the free market is at all times proper’ changed into ‘the monetary system is at all times proper’,” he tells me.
In some methods, then, it’s no surprise that Lewis — who has spent his profession documenting monetary shenanigans — appears to have change into so cynical concerning the worth of the system he studies on. In any case, a lot of the monetary world does appear to perform like a on line casino, and so-called “monetary innovation”, like crypto itself, is commonly only a sport of regulatory arbitrage — discovering gaps in present guidelines and exploiting them for so long as it takes for the regulators to catch up.
Bankman-Fried — who was 15 when the worldwide monetary disaster hit, wiping trillions of {dollars} from the economic system — strikes me because the apotheosis of a form of monetary nihilism through which nothing actually issues. Certainly, crypto itself grew out of this attitude.
The crypto world is one in every of Monopoly cash, the place canine cash invented as a joke can attain a “market cap” of just about $90bn, and through which digital receipts for pixelated photos can promote for tens of hundreds of thousands of {dollars}. On this pretend Monopoly world, cash is little greater than a bunch of numbers on a display screen. And in that context, why does it matter if there was no $8bn there? There was by no means any “there” in crypto anyway.
