Here’s a good FTX summary
For anyone still scratching his or her head about what on earth FTX was supposed to do and what it actually did, here’s a good summary entitled “What You Need to Know about the Colossal Mess of FTX”.
Some excerpts follow. First, the promise and the supposed structure:
Back in 2017, Sam Bankman-Fried noticed that Bitcoin was bought and sold at significantly different prices in different countries’ markets — sometimes 60 percent more than the lowest priced markets. He bought Bitcoin in the markets where it was the cheapest, and then resold it in South Korean markets at a much higher price, what he nicknamed “the Kimchi Premium.” After a month, he launched his own trading house, Alameda Research.
Bankman-Fried founded FTX, which is short for “Futures Exchange,” in 2019. “In creating FTX, I wanted to build a platform for professional traders like me, while also bringing crypto trading to the mass market and first-time users,” he later said…
As a cryptocurrency exchange, FTX allowed customers to trade cryptocurrencies for other assets, such as conventional — some would say, “real”– money or other cryptocurrencies.
The article goes into the manner in which Bankman-Fried was lauded as a veritable financial genius, and lots of other things with which you may be familiar. But it’s well worth reading even if you know; as I said, I think it’s a good overview that’s not too long. It also has details on how the unraveling occurred.
There’s also this news, which you may have missed (it includes a link to another article):
Apparently, there’s no proof to the rumor that the Ukrainian government invested heavily in FTX, with some folks on social media spinning a conspiracy theory that the Ukrainians gave to FTX, Sam Bankman-Fried gave money to Democrats, and Democrats and the Biden administration sent U.S. aid to Ukraine. FTX was a partner in helping the Ukrainian government convert donated cryptocurrencies to fiat money.
But the story is bad enough as is…It is believed that more than a million people have lost the money they invested in FTX, an estimated $8 billion or so.
I haven’t read articles about FTX in the regular MSM, but I hear it alleged that Bankman-Fried’s enormous donations to the Democrats are mostly not mentioned – or, if mentioned, it’s in the context of a misleading statement that he “donated to both parties.” His donations to Republicans were actually to a few RINOs like Romney, and they were extremely paltry compared to what he gave to Democrats.
No one seems to have done due diligence concerning FTX and Bankman-Fried. It is shocking to learn that a company can be such an empty house of cards, and yet no one seemed to catch on for such a long time. Among others, the MSM itself was responsible for lauding Bankman-Fried and the company to the skies, helping to give him and FTX the patina of reliability.
I wouldn’t buy crypto, not least because I don’t understand how it has any value. Around 12 years ago I was offered/given some free bitcoins for open source work, and regret that I didn’t have/find them a few years ago when their value was ridiculous. But I wouldn’t knowingly invest in crypto.
His parents are far left Stanford professors so he came by his left wing views honestly. He was smart enough to buy protection from Democrats who are mostly ignorant about finance and economics. Trump would have seen through this kid as fast as he saw through Epstein.
Not everyone believes the spin around the supposed lack of evidence for a “Ukrainian connection” (Troy Nehls, R-Texas, is certainly concerned, and what is initially “debunked” by AP and the MSM generally turns out several months later to have been true all along). It is also curious that the NYT recently announced an event (DealBook Summit, scheduled for 30 November) featuring SBF, Zelensky, Zuckerberg, and Yellen. On the general topic of Ukraine, Maurice Richards just posted a fascinating piece at AmericanGreatness entitled “It is Time To Speak the Truth About Ukraine.”
so again, where did he get the money to buy crypto in bulk, there are so many gaps in this story, and when they assure us something doesn’t happen, i’m skeptical
yes there are parallels with epstein, the latter earned a physics degree, epstein was a mathematician, they both hung out on shadowy islands, their financing was equally suspect, we’re not really clear what he did for his partners,
Apparently FTX was actually audited by a mid-level US CPA firm, which did not look at internal controls. I find that a contradiction in terms.
that is called ‘air guitar’ auditing, they were paid off, how do operations like hsbc, deutsche, banamex avoid criminal prosecution,
i’m reminded of a line from french connection 2, the caid (corsican kingpin) tells his american partner, ’80 cops wanted to talk to me, 50 wanted to talk to my money,’
j e:
The anti-Ukrainian wing loves the FTX narrative that implicates Ukraine and I doubt that group will be giving it up no matter what. I don’t know if that particular guy is in that wing, but quite a few people on the right are, certainly in the blogosphere and podcast world.
I found another long and detailed piece on the entire affair at https://thezvi.substack.com/p/sadly-ftx . Pack a snack before reading — it’s LONG.
The last 30 minutes of this video are amazing.
https://app.hedgeye.com/insights/122943-marc-cohodes-ftx-is-dirty-rotten-to-the-core-hedgeye-investing-s?
Cohodes on FTX
The curmudgeon Cohodes, talking a month before the implosion, ends up saying that he would not trust the FTX people to run a lemonade stand, much less an exchange.
is there any legit outfit within a parsec
https://twitter.com/SilvermanJacob/status/1593948949190156288
I’ll be surprised if they are around in a year.
The CPA’s:
Armanino, one of the 20 largest accounting companies in the nation by sales
Prager Metis, which bills itself as the first accounting company to open a headquarters in the metaverse, had audited its 2021 financial reports.
https://www.fxmag.com/crypto/ftx-crash-causing-its-auditors-to-come-into-question
And supposedly the were audited and met Gaap?
https://blockworks.co/news/ftx-joins-coinbase-kraken-with-us-gaap-audit-pass
FTX’s FTT token is an important factor in all this. What is an FTT token?
I found this article which amusingly seems to speak glowingly of it.
My takeaways:
That FTT blew up doesn’t necessarily mean that crypto-coins are worthless. FTT is a leveraged futures trading security tied to crypto coins with some considerable level of indirection.
FTT seems to me to a risk layered on top of another risk, on top of yet another risk. And the cool thing is that traders in it don’t have to mess with margin accounts or futures collateral accounts. Anybody can play even if they don’t have a clue about any of those above risks. That last point reminds me of how Robinhood became insolvent for a time. Democratize these complex and risky market operations down to all the people that don’t understand it and can ill afford to lose sizeable sums of money.
An auditor who did not examine internal controls and yet certified the company in compliance with gaap ought to be out of business, and may soon be.
@Arnold Kling
Thanks for the link. Here is a recent follow up with Cohodes.
Sounds like a Ponzi scheme to me. But then I was never very good at higher math.
(Emphasis mine.)
It hasn’t really ended; the NY Times puff piece/interview that never once mentions ‘fraud’ or any rewordings that could be construed as synonymous. The WaPo piece on Caroline Ellison is a similar level of puffery, more notable for mentioning trolls than anything of substance on its purported subject, Ellison.
Bankman-Fried grew up in that eco-system, and he’s, altruistically I’m sure, spent money to gain and maintain ‘friendships.’ The most obvious one, of course, is that he or one of the other top names at FTX has donated generously to each and every member of the Congressional committee that’s supposed to investigate that boondoggle.
To be fair, that last is almost a requirement in that business space, and if that’s not an indictment (of finance, and of Congress) then I don’t know what is.
FTX is as phony as ‘modern’ art. Money laundering all down the line.
sharksauce @ 4.50 p.mm.
Thanks much.
The cutting edge of scams ALL TIME.
(Till the next one, that is…)
Arnold Kling @ 5:00 p.m.
Thanks much for that.
Simply outrageous segment.
Cohodes called it perfectly.
(Should one wonder how many people who may have saw this interview started pulling their money out immediately…?)
Actually, I also wonder whether there is a connect between FTX and BBB… (Though “Biden” is probably up to “his” eyeballs trying to bail out Democratic-run cities and states…
(Staying solvent is expensive!!)
Oops. Should be @4.59 p.m.
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actually it’s parallel with MMT, so much of something, that means nothing
If there’s no investigation these will remain only allegations, not facts.
If there’s an investigation, then coverage and opinion can be outlawed under “coordinating harm”
See how that works?
“The most obvious one, of course, is that he or one of the other top names at FTX has donated generously to each and every member of the Congressional committee that’s supposed to investigate that boondoggle.”
Yep, the freaks be running the circus.
And, forsooth, it sure looks like the Lover Boy Wonder was ALSO polyamorous with the SEC (in addition to his select gang of moral, etc., preverts)…
googles do nothing, barry
https://tinyurl.com/5fyrbxwv
“…MMT…”
Well perhaps, but I was “wondering”/wandering along the lines of that historically profound statement by “Biden”—whom else?— just over a year ago (IIRC) along the lines that “his” mega-inflationary BBB “policy” could not possibly be an economic burden on anybody (or the country, generally) BECAUSE it would end up paying for itself….
Et voila!, there’s this “endless stream” of ponzi-cash available via FTX (and who knows what other flim/flam outfits running similar schemes/scams??—actually, I exaggerate, it’s not “endless”; maybe “open-ended”, though!)—
(Though to be fair to “Biden”, “he” may have meant that BBB wouldn’t be an economic burden on anybody because “he”‘d just be raising taxes and/or raiding long-term savings accounts/investment instruments and portfolios and/or demanding kickbacks (I mean heart-felt donations) from corporations “of means”…etc/)
And so, BBB (actually, BS-BS-BS) pays for itself…(and then some!..).
Well, at least it pays for SOMETHING…(to someone…).
To be sure, I may not have clearly understood the exquisite subtleties of the operation…so I’ll just think of it as Russiagate (or should that be Nov. 2020?), but in a “financial” context….
File under: The Democrats NEVER fail to impress…
Love that link…
…especially the quote…
“…While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.”
I wonder if the above epitomizes the Japanese sense of humor…i.e., even more so than all those dreadfully hilarious Godzilla flicks….?
(Well, at least someone still has one….)
“patina”
Excellent choice of words.
Since his protection was his cover, Leftists hardly ever investigate Leftists, somehow thinking maybe he and consort will go away eventually that will be the end and nothing else will come of billions disappearing.
Hey it was all for a ‘good’ cause so what’s the harm?
The arbitrage opportunity B-F exploited was well known at the time and frequently discussed. He hadn’t discovered anything nor did he invent arbitrage.
But that appears to be the primary basis of the claims that he’s a ‘financial genius’. The fact that so many in the financial media seemingly don’t understand what arbitrage is or how and when it’s possible is either a testament to their ignorance or mendacity.
And FWIW 60% spreads were likely a one time affair and probably not with bitcoin but one of the other digital currencies. Situations like that require an unusual liquidity event / conditions. What’s more likely is that he was pursuing a high volume of cross-market trades with much smaller spreads and capitalized appropriately to do that profitably.