Monday, November 14, 2022

@PDXSag on the Sam Bankman-Fried "FTX" Ponzi Scheme

[From our CBS correspondent @PdxSag. We mentioned FTX in our recent batch of Links, but not previously. Once you know that cryptocurrency is bogus, who cares about each individual fraud or Ponzi? But it turns out that this story really has everything: polygamous nerd freaks, regulatory capture, Democrat party and Ukraine money funnels, institutional investors who got suckered.] 

With the spectacular implosion of FTX (Sam Bankman-Fried's cryptocurrency ponzi) raging in the financial headlines, it seemed an excellent, and hopefully instructive, opportunity to visit one of our long-running themes at the CBS blog: Grift Club.

FTX and SBF raised more red flags than a freight-train switching yard, but somehow he was able to donate millions for social (engineering) causes and share the stage with the likes of Tony Blair and Bill Clinton. Not surprisingly once you know the signs to look for, his family has deep connections to Democratic causes and (of course) the WEF. Oh yeah, and there is a Ukraine connection too. (Coincidence Theorists are so mad.) SBF was literally second only to George Soros for Democratic fundraising in the 2022 election.

Early estimates are $8 billion of FTX customers' deposits missing. (This makes Jon Corzine stealing $600 million of customer money at MF Global look like a piker.)

Where did all the money go? It's not cheap running a fraud. They run on social proof and you have to pony up to buy it, and keep buying it. Everybody has their hand out wanting a piece of the action. As you move up the hierarchy of social proof, the only thing that changes is the size of the checks you need to cut.

Imagine gamify-ing social proof. The "Fake it 'til you make it" hack is tacit acknowledgement of the importance of social proof. Less mentioned, indeed unmentionable, is that the easiest, most trivial hack for social proof is to buy it.

Don't confuse easy with cheap. It may be easy to buy, but it doesn't come cheap. Tom Brady, Bill Clinton, MLB... The truth is they are easy, but they are not cheap.

To normal people living in the normal world, cheap and easy are virtually interchangeable; likewise for expensive and hard. Grifters hack this mental model by seeking out expensive endorsements. Normals assume those must be hard. So, by association, whoever has such an endorsement must be skilled and highly competent.

Now imagine a group of OCD, Adderall-abusing, polymaths, with a short-cut to the initial “in” from connected parents to get the ball rolling, treating social proof like a computer game, and where money is virtually unlimited. Well, of course... when (not if) they blow-up it will be with a hilarious dossier of top-tier endorsements. The stadium naming rights might be the most hilarious because it is the most textbook. (On the other hand, a Clinton endorsement is pretty textbook, and hilarious, too.)

Incidentally, this explains why stadium naming rights are such a solid heuristic for frauds right before they blow-up. It is not that the grifter's arrogance gets the best of them and they take their eyes off the ball. It is because they know the walls are closing in and they are desperate to keep up appearances a bit longer and hopefully bring in another round of “investors” so they can keep the ship afloat for a while longer.

As we've said previously, the only thing Lindy about crypto and SBF is that so many dorks have fallen for these dressed-up ponzi schemes before.

Addendum: even more hilarity ensues seeing the reaction from the biggest grifter of them all, Elon Musk. When approached about a $3-5B investment by SFB into Musk's take-private buyout of twitter, Musk's immediate response was, “Does Sam actually have 3 billion liquid?” Of course no one knows better than the world's richest man (on paper) the difference between wealth and liquid wealth.


CP said...

Sad to say that the people of Alaska lost money in this con:

Late Wednesday, Sequoia, a lead investor in FTX, sent a letter to its limited partners saying it was going to mark down the value of its FTX investment to $0. Sequoia owned FTX and in its Global Growth Fund III, although FTX is not one of the top 10 holdings in the fund, and its $150 million in cost basis represented less than 3% of the committed capital of the fund, according to the letter.


In 2018, the $81 billion Alaska Permanent Fund Corp. committed $200 million to Sequoia's Global Growth Fund III, and the $161 billion Washington State Investment Board retirement system approved an allocation of up to $350 million to the same fund.

Sequoia is a "big name". Nobody ever got fired for allocating to Sequoia.

Anonymous said...

Everyone worried there are no "good guys" to go after the Intelligence Agencies/Uniparty/ Deep State, the FTX exposure is proof there are good people watching, this was not a market discovery, just looks that way, too close to the election to be coincidence.

CP said...

Tyler Cowen:

Effective Altruism
A totalizing worldview that has enabled some undesirable weirdness in different places.
Valorizing “scope sensitivity” and expected value leads people violently astray.
Being unmarried (and male) above the age of 30
Being on the cover of magazines
And if you see “the next Buffett”, run.
Appearing with blonde models
Buying Super Bowl ads and sponsoring sports and putting your name on arenas
“Earn to give” as both a concept and a phrase
Mrs. Jellyby
The concept of self-custody
Weird locations for corporate offices
Venture capital
Our ability to see crazes for what they are in the moment
This is not just, or even mainly, about crypto
Adderall and modafinil, perhaps stronger stuff also played a role.
The children of influential faculty
Do they grow up witnessing low-accountability systems and personality behaviors?