Who’s Gonna Play Sam Bankman-Fried in the FTX Movie?
Ethics in finance matter. Let me tell you the ways.
OK, bear with me, this is not a riddle:
One of my best friends in New York has a best friend in LA, who’s not me. When I walked into my friend’s friend’s Echo Park bungalow a few years ago, I knew we were going to be best friends the moment I saw the giant art print of The Clash hanging in his living room. I love The Clash. They are possibly the best band that ever existed. They played punk music like life depended on it. All of life, not just their lives. That passion meant that “No Future” – the rallying cry of the Punk Generation – was to be taken as a rejection of nihilism, not an embrace of it. Nobody sings with this much heart if they believe in nothing. And that takes me to the issue of ethics and morality in the world of finance, a world I have been a part of for two decades. This is a world where believing in something goes a long way.
The Big Short
Forget “Greed is Good,” which lends itself to caricature. “Greed is Good” forces people to have silly conversations about whether they are “for” or “against” capitalism, as if our assessment of a fundamental part of our society could come down to a multiple-choice question: good or bad, you choose. Capitalism is better than good. It’s awesome. And it’s also flawed. It’s flawed not because the “system” is inherently imperfect – though you call me when you come across a perfect system anywhere – but because humans are deeply flawed. And there is always some joker – a real punk, as the previous generation would have called them – trying to turn the whole operation into a Get-Rich-Quick scheme, even though “the whole operation” works a lot better when we’re long-term greedy, as Gus Levy put it. Business innovators know this. Senior executives know this. Real success is not overnight success, and when it appears to be, business leaders will tell you like clockwork: “Our overnight success was twenty years in the making.” Yep. That’s how that works.
Get-Rich-Quick schemes get us in trouble, every time. I was reminded of that when we watched “The Big Short” on TV as a family this past weekend. It’s a powerful and entertaining movie, which tells the story of the Great Financial Crisis fairly accurately, if you ask me (I worked at an elite family office on Park Avenue in New York City when it all went down). Here is my version of it. A financing system was put in place that allowed “normal people” to buy one, two, or five homes that they couldn’t afford. They were told, “yeah, you can’t afford those homes long-term, but you can turn up a huge profit if you hold ‘em just long enough to sell ‘em to the next guy for a whole bunch more.” This is a game of Hot Potato with borrowed money, and it never ends well. In the meantime, a whole class of Wall Street insiders and “insider-adjacent” types – i.e., mortgage slicers-and-dicers – made fat fees and huge bonus checks until it ended in tears and in mass foreclosures.
One of the most compelling characters in the Big Short may well be Brad Pitt’s character, a wealthy “ex-trader” who’s walked away from it all. At one point, he’s just helped two young hedge-fund types put on a position that will make them rich when the subprime mortgage charade comes crashing down. The young guys are excited, they’re high-fiving each other, and Brad Pitt chastises them for being thrilled at the prospect of making a fortune when their neighbor will likely be out of a job and his family out on the street. That moment highlights why ethics and morality are crucial in the midst of self-interest.
Aligning ethics, morality, and self-interest in finance is crucial because that’s how you get real change and real alternatives for the benefit of clients. You get John Bogle launching the “passive revolution” at Vanguard, saving investors (big and small) literal fortunes in fees. You get people like my former colleagues at Research Affiliates starting every conversation by asking “How do we make this a win-win-win?” And you get Treussard Capital Management, whose mission is to “rescue people and organizations from the Wealth Management Industrial Complex,” an ecosystem where they are all too often treated like the product, not the client.
Dumb Money
For all the good that people like John Bogle have done, the overall record still isn’t great for Wall Street insiders and the “big guys.” As result, occasionally and understandably, the “little guys” go for revenge with things like the Meme Stock mania of 2021 (A mob-induced buying frenzy of tiny stocks like Gamestop). The simple version is, if you don’t want to go see Dumb Money: It’s Covid, people are home and they’re bored, and some of them take to social media to pump each other up (and pump up stock prices) in an effort to get rich quick and “stick it to the big guys” (Not an actual quote. My guess is actual quotes from the so-called Wall Street Bets crowd are infinitely more violent and disturbing).
I hope the movie is good. Either way, the Meme Stock mania was bad. First and foremost, you can count me out the moment it comes to throwing bombs, even if you’re throwing them in the form of coordinated stock trades to mess with wealthy hedge-fund elite types. That’s too nihilistic for my taste. Second, as is too often the case, the little guys ended up losing money overall, duped and manipulated by the so-called “finfluencers” who proved out to have “anti-skills” (I can’t believe I just typed the words “finfluencers” and “anti-skills”). That’s just way too predictable and depressing.
No Future: The Story of FTX and Crypto’s Ponzinomics
And then, there is Sam Bankman-Fried (aka SBF) and his sociopathic crypto ponzi-empire called FTX. FTX is now defunct and SBF is sitting in jail. I am sure there is a movie being made about the rise and fall of SBF. I vote for its title to be “No Future.” If you can’t wait for the movie to come out, the story boils to four simple words: “No ethics. No morals.” If you’re wondering what I mean, read the excerpt below from this article. Then again, if you like your sanity, maybe skip it.
“A day before the start of the Bahamas conference, Bankman-Fried had all but admitted that much of his industry was built on bullshit. During an interview on Bloomberg’s Odd Lots podcast, the columnist Matt Levine asked a straightforward question about a practice called yield farming. As Bankman-Fried attempted to explain how it worked, he more or less laid out the how-to of running a crypto pyramid scheme.
“You start with a company that builds a box,” Bankman-Fried said. “They probably dress it up to look like a life-changing, you know, world-altering protocol that’s gonna replace all the big banks in 38 days or whatever. Maybe for now actually ignore what it does — or pretend it does literally nothing.”
Bankman-Fried explained that it would take very little effort for this box to issue a token that would share in the profits from the box. “Of course, so far, we haven’t exactly given a compelling reason for why there ever would be any proceeds from this box, but I don’t know, you know, maybe there will be,” Bankman-Fried said.
Levine said that the box and its “Box Token” should be worth zero. Bankman-Fried didn’t disagree. But he said, “In the world that we’re in, if you do this, everyone’s gonna be like, ‘Ooh, Box Token. Maybe it’s cool.’” Curious people would start buying Box Token. And the box could start giving out free Box Token to anyone who put money inside, just as Axie had rewarded players with Smooth Love Potions. Crypto investors would see they could earn a higher yield by putting their money in the box than in a bank. Before long, Bankman-Fried said, the box would be stuffed with hundreds of millions of dollars, and the price of Box Token would be rising. “This is a pretty cool box, right? Like, this is a valuable box, as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they’re wrong about that?” Sophisticated players would put more and more money in the box, Bankman-Fried said, “and then it goes to infinity. And then everyone makes money.”
After a moment of contemplation, Levine said, “I think of myself as, like, a fairly cynical person. And that was so much more cynical than how I would’ve described farming. You’re just like, ‘Well, I’m in the Ponzi business and it’s pretty good.’”
Bankman-Fried said that was a reasonable response. “I think there’s like a sort of depressing amount of validity …” he said, trailing off.”
Bottom line: I hope there is literally no future for Sam Bankman-Fried and his gang of crypto crooks. Beyond that, I can’t wait to find out what the future holds. And no matter what happens, I look forward to helping clients achieve long-term success.