0:00

Sam Bankman freed, shouldn't they call

0:02

him Sam Bankman captured? Oh no.

0:05

No, I don't think that's actually very good. Not

0:07

good. I hope you're not, you didn't say

0:10

that to me with a distant hope that I'd be

0:12

like, no, it is good. Yeah, I did say that

0:14

for you. But I

0:16

can't figure out how to make it in a

0:18

like, all I know is kind of

0:20

phrasing. Okay, let's try it.

0:22

Let's do it. Okay.

0:24

Michael. Peter. What

0:26

do you know about going infinite? All I know is

0:28

that I'm skeptical that this episode is

0:31

going to teach me that running a

0:33

years long financial scam is harder than

0:35

administering a 10 person polycule. What

0:51

do you know about this book? Because

0:53

this is the most recent book we've

0:55

ever done. This dropped in October, 2023.

0:59

I know that I in general like Michael Lewis

1:01

and have read like many of his books and

1:03

found them good. And what

1:05

I remember from the discourse when

1:07

going infinite came out, this

1:10

was a book about like

1:12

the rise and fall of Sam Bankman

1:14

freed that was like weirdly sympathetic to

1:16

him. Yeah, I mean, that's a pretty good

1:18

overview. I will say that I also wanted

1:21

to preface this episode by saying

1:23

that I'm a big Michael Lewis fan. I

1:25

love it. Flash boys. I

1:28

love the big short. I'm a straight man

1:30

who follows sports but is still fundamentally a

1:32

nerd, which means that money ball is like

1:34

very important to me. This book

1:36

actually kind of rules. Oh, yeah. The

1:39

sole problem is that he is unable

1:41

to see his subject, Sam Bankman freed

1:44

for who he actually is. Kind

1:48

of a big problem when you put it

1:51

like that, but still it is a big

1:53

problem. It's frustrating and fascinating at the same

1:55

time because Bankman freed is sort of a

1:57

con artist and you are sort of watching

1:59

Michael Lewis. get conned over the

2:01

course of the book. In short,

2:04

Michael Lewis wanted to chronicle Sam

2:06

Beckman-Fried. He spends a year

2:08

shadowing him, learning about this young prodigy,

2:11

trying to understand his cool new

2:13

business, all while writing one of

2:15

his classic, informative, yet

2:17

entertaining and accessible nonfiction

2:20

books. And the twist

2:22

comes when in the midst of

2:24

all of this, Sam Beckman-Fried is

2:26

revealed to have committed massive multi-billion

2:28

dollar fraud. His company FTX

2:31

collapses. The SEC alleges

2:33

that he committed securities

2:35

fraud. The DOJ brings

2:37

a criminal case. And

2:40

the story of this brilliant prodigy that

2:42

Michael Lewis was writing suddenly doesn't really

2:44

make much sense. But on the other

2:46

hand, there's now another

2:49

arguably more interesting story to tell about

2:52

this con artist who not only

2:54

tricked investors and customers, but also

2:56

the author himself. Yeah.

2:58

And Michael Lewis is still out

3:00

there to this day, sort

3:03

of defending the kid. He's joined the

3:05

polycule in Barbados.

3:07

I hate to disappoint, but Michael Lewis

3:10

doesn't actually cover the polycule situation going

3:12

on. I'm so mad. It is outrageous

3:14

and it makes me wonder, if

3:17

you didn't notice the molecule, then

3:20

why do you think that you were really

3:22

on top of things? His whole thing is

3:24

writing about color and like having these

3:26

kind of human and personal details. I

3:28

feel like a 10 person molecule in

3:31

like a tropical location, like should have been

3:33

your opening anecdote, something along those lines. It

3:35

should have been like a three chapter arc.

3:37

I don't really get it. All

3:40

right. So what do you

3:42

know about FTX? Oh God,

3:45

dude, I've listened to, I swear to God, like

3:47

seven different podcasts about this. Like, okay, I'm gonna

3:50

understand. I'm gonna figure out what actually went

3:52

on. And every single one of them just

3:54

goes in one side of my brain and goes

3:56

out the other. I cannot hold on to information.

3:58

Something, something crypto. What I realized

4:00

very quickly is that you don't

4:02

actually need to understand anything about

4:04

how crypto works to understand the

4:07

basics of what SBF did wrong

4:09

here. Oh, God, thank God. Sam

4:11

Bankman-Fried, SBF, as we will occasionally

4:13

call him, ran FTX, a cryptocurrency

4:15

exchange platform. That

4:17

just means it's a place where people

4:19

can trade cryptocurrency, right? He also ran

4:21

Alameda Research. Just like a

4:23

regular hedge fund invests in stocks, they invest in

4:25

crypto. The fundamental fraud

4:28

here was that Sam took customers'

4:30

money from FTX and illegally

4:32

funneled it to Alameda Research and a bunch

4:34

of other corporate entities where they used it

4:37

to make trades, buy things, make massive political

4:39

donations, shit like that. Okay, so he said,

4:41

we're going to take your money, put it

4:43

in like a lock box, and then give

4:46

it back to you, whereas actually he's using

4:48

it as a slush fund for various other

4:50

things that he wants to do. Not just

4:52

that, but he was making

4:54

untruthful disclosures to banks,

4:57

investors, et cetera. I

5:00

think that the fact that this is crypto makes

5:03

people assume that it's complex. There

5:06

are complexities that are related to

5:08

crypto, but big picture, it's

5:10

fraud and embezzlement, right? That's

5:12

what's happening here. I remember an interview that I did

5:14

with a guy who wrote a book on Enron when

5:16

we did a You're Wrong About episode about that. He

5:19

said this whole construction of white

5:21

collar crime as like, oh, it's so complex. It's

5:24

like kind of a thing that just serves

5:26

to protect rich people. Like most of

5:28

what Enron did, he said, was just like lying and

5:30

stealing. And that's exactly what happened at

5:32

FTX. So I'm going

5:35

to tell the story that Michael Lewis

5:37

tells, which is a good story in

5:39

many respects. In the opening chapter, we're

5:41

looking at Sam Bankman Fried

5:44

shortly after he becomes mega

5:46

rich from the perspective of

5:48

Natalie Tien, his young and

5:50

inexperienced head of PR. For

5:53

the record, everyone around him was young and

5:55

inexperienced. So what Lewis wants you to

5:57

take away from the early parts of the book is that he's

5:59

a that Sam is like

6:01

an enigmatic Wunderkind genius, right?

6:04

He's a very odd guy,

6:06

and behind every little quirk,

6:09

Michael Lewis sees hints of

6:12

brilliance. So he talks about

6:14

how Sam is hard to manage because he

6:16

doesn't keep a regular sleep schedule and wanders

6:18

off without telling anyone. He

6:20

posts on social media haphazardly. He

6:22

will talk to journalists very freely

6:25

for very long periods of time.

6:27

He would play video games and

6:29

tweet during live TV interviews and

6:32

important phone calls. I checked Grindr

6:34

when we were recording. Nobody calls

6:36

me a genius. There's

6:38

a vignette where he's talking to Anna Wintour

6:41

on Zoom while he's playing a video game,

6:44

and you can tell that Michael Lewis

6:46

is just captivated. But it's weird that

6:48

people see this as evidence of his being

6:50

a Wunderkind, as opposed to just he's not

6:52

listening very closely. Yeah. Is there evidence he's

6:54

actually good on these calls? It's like anyone

6:56

could play video games while

6:58

they're pretending to do something else. That's like the easiest thing

7:00

in the world to do. The thing is that he's

7:02

very, very rich for most of this. And

7:05

so like, I don't know, people want to talk to him,

7:08

and he doesn't want to talk to them. He

7:10

would always flake on his commitments. With

7:13

Anna Wintour, he agrees to go to the Met Gala, and

7:16

then backs out the night before. Here

7:19

is how Michael Lewis explains this.

7:21

Give me one moment. It says, when people

7:23

ask Sam for his time, they assume they'd post

7:26

a yes or no question, and

7:28

the noises Sam made always sounded more like yes than

7:30

like no. They didn't know that inside Sam's mind

7:33

was a dial, with zero on

7:35

one end and 100 on the other. All

7:37

he had done when he said yes was to

7:40

assign some non-zero probability to the proposed

7:42

use of his time. The dial

7:44

would swing wildly as he calculated and

7:46

recalculated the expected value of each commitment right

7:49

up until the moment he honored it or

7:51

didn't. Okay, so he's just like kind of

7:53

flaky. Yeah. This is like 80% of the people I knew in my 20s. A

7:56

professional psychologist, and I'm gonna repeatedly say

7:58

that throughout this episode. But I

8:00

can say with 100% confidence that that is

8:03

not what's happening in Sam Bagman friend of

8:05

mine When he schedules an

8:07

appointment. Yeah, what's happening in his brain is

8:09

that he doesn't particularly care about this shit

8:12

Yeah, he agrees to it without thinking much

8:14

and then he blows it off without thinking

8:16

much. Yeah, that's not like the manifestation Of

8:19

like an algorithm in his brain. I mean

8:21

another way to cast this is like kind of selfish behavior

8:24

Yeah, you've made commitments to people and then you're

8:26

like, eh, I don't really feel like it The

8:28

dude is just kind of a bit

8:30

of an asshole He's careless with other

8:32

people's time and he has accumulated enough

8:34

money and influence that everyone around him

8:37

more or less has to Accommodate him

8:39

anyway, right? But yeah, Michael Lewis sees

8:41

this and he's like, wow, he's doing

8:43

fucking calculus in his brain It's

8:45

like no he doesn't want to go to the Met Gala

8:47

Yeah Also, so much of this stuff is like this weird

8:50

clever Hans thing where if somebody is

8:52

rich You project all this competence onto

8:54

them and you interpret every action as

8:56

if it's evidence of their genius You are

8:58

right there with me. Let's drill down into this

9:01

So there's this like trope

9:03

in some of these profiles and stories

9:05

of like ostensible geniuses The

9:08

genius in question is confronted with

9:10

a game that normal people think

9:12

is complex But he thinks it's

9:14

too simple. The first time I

9:16

noticed this was a couple of years ago. Elon Musk tweeted

9:19

about chess He

9:21

quote found it to be too simple

9:24

to be useful in real life a

9:26

mere eight by eight grid No fog

9:28

of war no technology

9:30

free no random map

9:32

or spawn position Only two

9:34

players both sides exact same

9:36

pieces, etc. Dude. I love that

9:38

You're using this to like play out your

9:40

spite as like a chess guy I That

9:46

is part of it Is

9:48

annoying to see someone and be like this

9:50

is too simple and yeah Why

9:52

isn't it more like Starcraft or whatever

9:54

the fuck shut the fuck up? Don't

9:57

bring Starcraft into this Oh Look

10:00

whose game is being attacked now I'm

10:03

playing not crafter right now Well,

10:06

I feel like what's happening in these situations is

10:09

that these guys believe in their hearts that they

10:11

are like unparalleled geniuses They know

10:13

that something like chess is something that geniuses

10:15

are supposed to yeah, right? So when they

10:17

aren't Immediately good at it. They

10:20

need to explain it away in order

10:22

to preserve their ego, right? There's no

10:24

fog of war unlike my polycule. I

10:26

really wish that you hadn't learned about the polycule the

10:30

whole time I'm

10:32

going to send you An

10:34

anecdote from Michael Lewis. This is from

10:37

Sam Beckman Fried's time as a youth

10:40

at math camp It says by

10:42

math camp standards. He was only mediocre

10:44

at puzzles and games But

10:46

he also suspected that the sorts of games they

10:48

played at math camp were too regular for his

10:50

mind The place I am

10:52

strongest is the place where you have to do things

10:55

other people would find shocking He said he

10:57

still had no idea where in the world if

10:59

anywhere he might find such a place or

11:01

if it existed How badly do you have to

11:04

get your ass kicked at like settlers of Catan

11:06

to say some shit like this? The

11:10

games that I'm good at would be too shocking

11:12

for your brain to comprehend Look, none of us

11:14

can figure out the scoring at the end of

11:16

ticket to ride Sam. It's fine What

11:19

the fuck is going on in this fucking

11:21

quote? He's not as good

11:23

at games and puzzles as the other kids

11:25

and he's like that's because they're too regular

11:30

The thing is I'm also bad at games, but I think

11:32

it's because I'm kind of dumb don't other

11:34

people just have enough self loathing Lewis

11:39

backs up a bit to like Sam's

11:41

childhood. Sam does not have strong memories

11:43

of his childhood He didn't seem to

11:45

have many friends if any friends his

11:47

parents are sort of weirdos. It's very

11:49

clear They're both professors his mom is

11:51

a law professor at Stanford There's

11:54

a very clear sense in the stories about

11:56

his parents that they are not particularly attuned

11:58

to the lives of their children. They're very Louvre,

12:00

Sam could have used some early interventions

12:02

and I feel like history vindicates that

12:05

take. But then I assume that he

12:07

was legitimately smart at one or two

12:09

things. Absolutely. He's in a lot of respects

12:11

a good example of the limitations of genius,

12:13

you know what I mean? Yeah.

12:17

One of the themes of Sam's later childhood is

12:19

that he very quickly starts to feel like he is

12:21

smarter than the people around him. But

12:23

I do think that you can say the kid was

12:25

a genius for sure, is a genius,

12:27

and it's just that genius is this very

12:29

narrow thing. Right. And then

12:31

people project genius into all these other domains

12:33

where he might actually not be all that

12:35

smart. Speaking of, here's a quote. Are they

12:38

going to say, speaking of, how was your week? He's

12:40

like, oh, it's me. Okay.

12:43

It says, in elementary school,

12:45

he'd read the Harry Potter books over and

12:47

over. By the eighth grade, he had stopped

12:49

reading books altogether. You start to

12:51

associate it with a negative feeling and you

12:53

stop liking it, he said. I started to

12:55

associate books with a thing I didn't like.

12:57

He kept his thoughts about the literary industrial

12:59

establishment to himself through middle school, but by

13:01

high school, they began to leak out of

13:03

him. I objected to the fundamental reality of

13:05

the entire class, said Sam of English. All of

13:07

a sudden, I was being told I was wrong

13:09

about a thing it was impossible to be wrong

13:12

about. The thing that offended

13:14

me is that it wasn't honest with itself.

13:16

It was subjectivity framed as objectivity. All the

13:18

grading was arbitrary. I don't even know how

13:21

you grade it. I disagreed with the implicit

13:23

factual claims behind the thing that got

13:25

good grades. Ooh, this sounds like me. This

13:28

sounds like me as like a little libertarian. Right. This

13:30

is like early onset STEM brain. He

13:33

goes on to explain, and this

13:35

is Sam now, explaining why he

13:37

thinks statistics show that Shakespeare

13:40

wasn't as good as people say. Wait,

13:42

really? I'm sending you his quote. Okay.

13:45

I was going to follow up on the thing where he says like, books aren't good. He

13:48

says, I could go on and on about

13:50

the failings of Shakespeare, but really, I shouldn't

13:52

need to. The median priors

13:54

are pretty damning. About half the

13:56

people born since 1600 have been born in the

13:58

past hundred years, but he. Get much worse

14:00

than that when Shakespeare. Wrote: almost all

14:03

Europeans were busy farming and very

14:05

few people attended university. Few. People

14:07

were even literate, probably even as low as

14:09

ten million people. By contrast, there are now

14:12

upwards of a billion literate. People in the

14:14

western sphere, what are the odds with? The greatest

14:16

writer would have been born in. Fifteen Sixty

14:18

Four, The Basie And prayers. Aren't

14:20

very favorable. Was.

14:23

A baby and prayers are very. Good

14:27

at the so busy and friars are

14:29

like the likelihood of something happening before

14:31

introducing new variables. All he saying is

14:34

like before anything else. Just take into

14:36

account how few litter people were on

14:38

the planet during six years time and

14:40

it's unlikely that the best writer ever

14:43

would come from that era. There's so

14:45

many like a comprehensive misunderstandings guy like

14:47

a literature in this that it's hard

14:50

to pick them apart. Practice you could

14:52

say. There's a fraction of the

14:54

scientists around back then that there are

14:56

now to like. What are the chances

14:58

that somebody would come up with this

15:01

foundational theory of evolution? It doesn't

15:03

make sense statistically public. that isn't

15:05

how like. Literature and Science

15:07

work. Have you ever heard

15:09

the term Engineers? Disease? Know,

15:12

but I know where you're going with

15:14

this the isn't This is something that

15:17

has bounced around the internet for a

15:19

bit to describe how engineers and other

15:21

stem types think that their technical knowledge

15:23

allows them trying to solve various problems

15:25

across different fields. Think what's happening here

15:27

is that like you're very good at

15:29

solving problems, and your sense of your

15:32

value as a person is tied up

15:34

in your ability to solve problems. And

15:36

when you are confronted with problems

15:39

I cannot be readily solved. That.

15:41

Require some subjective input or another, Your

15:43

brain rebels and you try to turn

15:46

it into a problem that can be

15:48

solved rest. Your brain is like a

15:50

hammer and so every problem must be

15:52

a nail otherwise. You. are

15:54

forced to confront the limitations

15:56

of your intelligence yeah so

15:58

sam pretend that of these complex

16:01

subjective elements of human existence can be reduced

16:03

to a math problem because he's good at

16:05

math problems and then he can solve it

16:07

and his ego can rest easy. This

16:10

is late stage STEM brain. This is

16:13

also, I think these kinds of arguments are

16:15

meant to appeal to a particular kind

16:17

of dude which potentially Michael Lewis

16:19

is because he sounds like he's

16:21

making this kind of objective argument. But like,

16:23

I mean, nobody who knows anything about Shakespeare

16:26

would find this convincing. Like I

16:28

think whether Shakespeare is good or not, you

16:30

can just read the works and decide

16:32

that. Well, he can't because he

16:34

doesn't know how to analyze literature, right?

16:36

Right, yeah. And that's what drives him nuts.

16:38

And look, I don't like Shakespeare. There were

16:40

two times in my schooling when I realized

16:42

that I was not like an all around

16:45

smart kid. One was when we

16:47

hit Calc. Yeah, same, same, same. And then

16:49

two was when we read Shakespeare and I

16:51

realized that I am below average at figuring

16:53

out what is going on in a Shakespeare

16:55

play. This

16:57

actually applies to like any sort of book

17:00

with old timey language. Yeah. You

17:02

know, any sort of old English, I am fucked.

17:04

This is why I never finished Elvin Ring. I'm

17:06

not going to read item descriptions. I'll

17:09

do a separate episode if you want to debate Elvin

17:11

Ring which ruled. What you know about Elvin Ring?

17:14

I thought this was going to be one of my little video game

17:16

comments that you just ignore. Are you fucking kidding

17:18

me? I played the shit out of Elvin Ring.

17:20

Really? When I got fired. When

17:23

I got fired, I got Elvin Ring. Look,

17:26

if you want to talk about a bleed build, I got a killer

17:28

one. A killer one. So

17:31

Sam gets into MIT majoring in

17:33

physics, minoring in math. Lewis again

17:35

portrays this as a situation where

17:37

he is so much smarter than

17:39

the people around him at MIT

17:41

that it's basically a waste of time. Lewis

17:44

says, quote, during college lectures, Sam experienced

17:46

a boredom that had the intensity of

17:48

physical pain. He had no ability to

17:51

listen to a canned talk. A canned

17:53

talk? A lecture? Lewis reads

17:55

this as like, this guy's brain is

17:58

so powerful that even MIT. Professor

18:00

is cannot stimulate it and like.

18:03

Again, not the play arms here psychiatry

18:05

as but I really think Louis would

18:07

have benefited from cruising the Wikipedia for

18:10

a D H D. Yeah I'll I

18:12

too was bored and lectures and it

18:14

wasn't because I knew all of the

18:16

European history that the professor I was

18:19

talking about. You ever think about like

18:21

what would like a poor kid. Like.

18:24

How would we respond if it was like

18:26

a poor black kid who like couldn't pay

18:28

attention lectures and like hated Shakespeare? It's like

18:30

this: This stuff gets process in the completely.

18:33

Different way. And frankly, I think

18:35

the real take away from these

18:37

opening anecdotes is that Sam struggles

18:39

to put energy into things he

18:41

doesn't care about. Press Sam himself

18:43

seems to rationalize this away. As

18:46

those things being too simple are

18:48

unimportant. Rak. Like he says that

18:50

his disinterest in college came from

18:52

realizing that academics weren't doing much

18:54

to change the world. Oh, but

18:57

that criticism is coming from someone

18:59

who spends suge percentages of his

19:01

free time playing video games, but

19:03

I would. I would have hoped

19:05

that Louis would product that a

19:07

little bit, but he seems to

19:10

take Sam's own characterizations as face

19:12

value. Funny looking at like if

19:14

we want to be retrospective you have a

19:16

look at it through the lens of the

19:18

crime of the this is somebody who's like

19:20

it seems like kind of cut corners and

19:22

had a lot of it, simply contempt for

19:24

things that are outside. Of his realm

19:26

of interest. Yep, that's sort of

19:28

a dick move, right? Not necessarily a

19:31

genius move like you can say, oh I don't

19:33

really. Ah, I'm not that into Shakespeare. In a

19:35

way that doesn't denigrate Shakespeare, it just like doesn't

19:37

click with you for whatever. Reason: So we're

19:39

now in two thousand and fourteen

19:42

he goes to work for Jane

19:44

Street, a highly selective prestigious trading

19:46

from. This is also about where

19:49

Sam gets into the effective altruism

19:51

movements. I imagine the you know

19:53

something about this is feel very

19:55

manning Hobbes. somebody might have club

19:58

has introduced me to the. concept

20:00

of ranch triggers, like things that people

20:02

say that you're like, okay, I need

20:04

like three minutes to like talk at

20:07

you about this. Like if

20:09

it comes up in any context,

20:11

you're like just to warn you, here

20:13

it comes. That's how I am

20:16

with effective altruism. You're on the clock. Okay.

20:18

Three minutes. Basically, this is a movement

20:21

that came about because a lot of

20:23

the things that were going on in

20:25

international development were extremely arbitrary and then

20:27

there was this movement to start to

20:29

measure quantitative results and to focus on

20:31

the most effective development interventions, which

20:33

sounds great and was a huge improvement over what was

20:35

going on at the time. But then

20:37

over time, it kind of started to

20:39

adopt all of the problems that it

20:41

had originally been a response to. It

20:44

has this weird thing where it's

20:46

like, well, we figured out objectively

20:48

what the effective development

20:50

interventions are and all we have to do

20:52

is scale those up everywhere, right? Which

20:55

as somebody who worked in development for 11 years, that's not

20:57

really something that exists, right? You can't say that something quote

20:59

unquote works or quote unquote doesn't

21:01

work and people without any relevant

21:04

expertise in the local context

21:07

coming in and saying, no, no, no, this is science.

21:10

We've done this. We're going to impose

21:12

this on everybody in this like standardized

21:14

way is a concept with a very

21:16

long and very diabolical history in international

21:18

development. That's an interesting history because

21:20

I think this is like a

21:22

very specific manifestation of this movement

21:24

among these ultra rich guys. With

21:27

respect to Sam himself, I think it's

21:29

likely that it interests him again because

21:31

it presents humanity as a problem that

21:33

can be rationally solved, right? I

21:35

think one of the things that charmed Michael

21:38

Lewis is that he believes that Sam Beckman

21:40

Fried is in fact truly invested in the

21:42

well-being of humanity and like figuring out these

21:44

big problems. And I don't

21:46

see any specific reason to believe that

21:49

Sam is being dishonest about this.

21:51

I just think that he's probably more interested

21:53

in the effective part than the altruism part.

21:56

A little later in the book, Lewis talks

21:58

about the sort of mission creep. in this

22:00

community. And to oversimplify a bit, one

22:02

way to look at this was like, what

22:04

are some very cost-effective, altruistic interventions?

22:07

Yeah, that's fine. Mesidones, right? Cheap,

22:09

effective, great use of money. But

22:12

a lot of people in the movement,

22:14

Sam included, start to think more about

22:16

what the largest threats to humanity are.

22:19

So instead of focusing on cost-effective

22:21

ways to prevent hunger and disease,

22:23

they spend their time trying to

22:26

pinpoint the biggest existential threats. Like

22:28

Sam believes it's AI. You

22:31

can't let these fucking nerds be in charge of

22:33

anything. It all circles back to AI at the

22:35

end of the day. The thing is, there's no

22:37

smart or dumb way to predict what is going

22:40

to happen in 5,000 years. So

22:43

again, it's like this overconfidence

22:46

in your own ability to

22:48

reason through these extremely complex

22:50

social problems using Excel spreadsheets.

22:52

There's actually a really good

22:54

example of the limitations of

22:56

what they can do. So

22:59

Sam's at Jane Street doing great,

23:01

finding success with various types of

23:03

trading arbitrage. In

23:05

2016, they bet billions

23:08

that a Trump win would tank

23:10

the markets. They figure out

23:12

that the markets are moving at the speed

23:14

of CNN. So if you can look

23:16

at the data and beat CNN to

23:18

the punch, they can make a bunch of

23:20

money. They do that.

23:22

They are able to develop this system

23:25

that can beat CNN to the punch.

23:28

But they lose a ton of

23:30

money because the markets didn't tank when

23:32

Trump won. The markets went down and

23:35

then overnight popped right back up, which

23:37

really sort of highlights the point. Yes,

23:39

they are, in fact, very good at

23:41

the math side. They can look at

23:43

all this data and figure this shit

23:45

out. What they couldn't figure out was

23:47

the subjective, much more complex problem of

23:49

whether the markets would actually like Donald

23:51

Trump to win. That's such a fascinating

23:53

example, is both sophisticated and very dumb

23:55

at the same time. Right. Right. Very

23:58

simple, Peter. Good poll. That was relevant. Michael

24:00

Lewis makes it easy with his accessible prose

24:03

and free, you know, nicely

24:05

flowing narratives. Use affiliate code

24:07

MikeAndPeter at checkout for 10% off. This

24:10

is the only book that I've done where

24:13

I would sort of recommend it. I'm like,

24:15

this is a fun read, you know. You

24:17

should go in understanding what he gets wrong,

24:19

but the actual experience of reading the

24:21

book is like, cool, this is cool. I can't believe it's not

24:23

the secret. That's

24:25

the one that's helped me the most. So

24:28

in 2017, Sam leaves Jane

24:30

Street to found Alameda Research,

24:32

his crypto trading firm. He

24:34

had been a little

24:37

bit disillusioned, just hadn't been quite as happy

24:39

as he wanted at Jane Street, and he

24:41

realizes that crypto is like the next big

24:43

thing. He starts recruiting his

24:45

friends and acquaintances, including Caroline Ellison,

24:48

who would become his on and

24:50

off girlfriend and the CEO

24:52

of Alameda. Oh, I thought you were going

24:54

to say of the Polycule. She's a big, she plays a big role

24:56

in the Polycule as well. A lot

24:58

of his recruits come from the effective altruism

25:00

community. Right off the bat, alienates a bunch

25:03

of people with his off-putting

25:05

management style. And I sent you an

25:07

excerpt. It says, he was demanding

25:09

and expecting everyone to work 18-hour days and

25:12

give up anything like a normal life while

25:15

he would not show up for meetings, not

25:17

shower for weeks, have a mess all around

25:19

him with old food everywhere, and fall asleep

25:21

at his desk, said Terramac Alay, a young

25:24

Australian mathematician who was, in theory, running the

25:26

company with Sam. He did zero management

25:28

and thought that if people had any questions, they

25:30

should just ask him. Then, in

25:32

his one-on-ones with people, he'd play video games. But

25:38

what was his build? They're sending you another

25:41

one? It crossed his mind, now that

25:43

he was starting his own business, that he should

25:45

read up on how to manage people. But every

25:47

time he flipped through books or articles on management

25:49

or leadership, he had roughly the same reaction he'd

25:51

had to English class. One expert said X, the

25:54

other said the opposite of X. It

25:56

was all bullshit, he said. This man doesn't know

25:58

about one book theory. This

26:01

is a real problem. It's very funny that

26:03

he's like, there's subjectivity. No, it's not real.

26:06

I'm sorry, but you have to, I don't care which style it is,

26:08

you got to pick one of them and just go for it because

26:10

you suck. This also just seems like he's

26:12

not great at just kind of like human

26:14

complexity or like things that don't have a

26:16

quantitative solution. Absolutely. For me,

26:19

no human relationship, there's not like one formula for

26:21

like how to be a good friend. Yeah.

26:24

And also the thing about not showing up for meetings and like

26:26

playing video games, it seems like

26:29

an inability to understand how his actions will

26:31

be perceived by other people. Rationally

26:34

you should understand that 5% of my attention is

26:36

very valuable. But

26:39

it's also funny because rationally you should know that

26:42

even if you think you're good at listening to

26:44

people while you're playing video games, it's going

26:46

to seem off-putting to other people. No, no,

26:48

you have to understand that rationality always leads

26:50

you to whatever the most

26:52

selfish thing to do in any given

26:54

moment. Really speaking,

26:56

this firm is doing well. There's

26:59

a lot of inefficiency in crypto markets at

27:01

this time, so there's a lot of opportunity

27:03

for arbitrage and that's how they make their

27:05

early money. At one point,

27:07

the traders cannot locate about $4

27:10

million worth of a cryptocurrency called

27:12

Ripple. People are freaking

27:14

out and many senior

27:17

management folks to the extent they existed at

27:19

Alameda Research suggest that they

27:21

should inform investors. Sam does

27:24

not want to do that. I'm going to send you a

27:26

little excerpt. Sam continued to insist

27:28

that the missing Ripple was no big deal.

27:31

He didn't actually believe that it was lost

27:33

or that they should account for it as lost. He

27:35

told his fellow managers that in his estimation there was

27:37

an 80% chance that it would eventually

27:39

turn up. Thus, they should count themselves

27:41

as still having 80% of it, to

27:44

which one of his fellow managers replied, after the

27:46

fact if we never get any of the Ripple

27:48

back, no one is going to say it's reasonable

27:50

for us to have said we have 80% of the Ripple. Someone

27:54

is just going to say we lied to them. We'll

27:56

be accused by our investors of fraud. That

27:58

sort of argument just bugged the hell out. out

28:01

of Sam. He hated the way inherently probabilistic situations

28:03

would be interpreted after the fact as

28:05

having been black and white or good and bad or

28:07

right and wrong. So much of what made

28:09

his approach to life different from most people's

28:11

was his willingness to assign probabilities and act

28:13

on them. Yeah, that's deranged. Yeah,

28:15

I mean, this is similar to the scheduling

28:18

stuff. It's something that Lewis really seems to

28:20

believe that SBS decisions are

28:22

all made by assigning everything a probability

28:24

and acting accordingly. And that he's like

28:26

very frustrated by other people who don't

28:28

see the world this way because he

28:31

thinks that they are irrational. But Lewis

28:33

isn't seeing the pretty obvious

28:35

obfuscation here, because if

28:38

Sam really thought that this was no

28:40

big deal, he shouldn't have a problem

28:43

telling investors, right? Right. The argument he's

28:45

having with his colleagues is not about

28:47

the probabilities and calculating how much ripple

28:49

they really have. It's about transparency. Right.

28:51

Lewis, I'm not sure that Lewis knows

28:54

that he's foreshadowing when he tells the

28:56

story. Yes. Also, there's something funny about

28:58

this as a quote unquote math analysis,

29:00

because the 80 percent chance that it

29:02

would turn up is made up. Why is there

29:05

an 80 percent chance that it'll turn up? Why not 50? Why not 90? Are

29:07

you a math genius? No, you don't know

29:09

the probability. You can't make up a number

29:11

and then pretend that you're doing math. So

29:14

between the whole like missing money

29:16

debacle and his general shitty behavior,

29:18

Sam alienates a bunch of the

29:20

effective altruist types that he brought

29:22

in and they attempt to

29:24

oust him. Oh, really? From his own

29:26

company? From his own company. I'm going

29:28

to send you an excerpt. It says,

29:30

like everything else about Alameda research, this

29:32

bid by the firm's other managers to

29:34

get rid of Sam proved complicated. For

29:36

a start, Sam owned the entire company.

29:39

He'd structured it so that no one else

29:41

had equity, only promises of equity down the

29:43

road. In a tense meeting, the others offered

29:45

to buy him out, but at a fraction

29:47

of what Sam thought the firm to be

29:49

worth. And the offer came with diabolical fine

29:51

print. Sam would remain liable for

29:53

all taxes on any future Alameda profits.

29:56

At least some of his fellow

29:58

effective altruists aimed to bankrupt. Sam

30:00

almost as a service to humanity so that

30:02

he might never be allowed to trade again.

30:05

I'm behind it. I'm into it. Yeah,

30:08

I wanted to flag this to note

30:10

that like, this doesn't make sense. I

30:12

assume that this is what Sam relayed

30:14

to Michael Lewis about what happened here,

30:17

but no person on Earth would

30:19

agree to be liable on all

30:21

future taxes for an operation like

30:23

this. Also aiming to bankrupt him

30:25

sounds like maybe his depiction of

30:27

events too? Right. That does sound

30:29

like maybe a characterization that Sam

30:32

is giving to Michael Lewis.

30:34

But who knows? Maybe they

30:36

hated him and also suck

30:38

at negotiation. Yeah. So

30:40

at the end of it all, in early 2018, his

30:42

entire management team and half of his employees

30:45

leave the company. Wait, did they ever find

30:47

the ripple? They found the ripple, yeah. It

30:49

was just a software glitch. So did you

30:51

come back? Sam was wrong. There was a

30:53

hundred percent chance they were going to find

30:55

it. You do

30:57

know math, Peter. That's math, baby. So

31:00

before we talk about FTX,

31:02

I want to pause briefly

31:04

to discuss how Michael Lewis

31:07

describes cryptocurrency.

31:09

I'm going to send you something.

31:12

He says, how Bitcoin worked

31:14

was interesting chiefly to

31:16

technologists. What it might do

31:18

was interesting to a much broader audience. It

31:20

might allow ordinary people to exit the

31:22

existing financial system and never again

31:25

rely on the integrity of their fellow

31:27

human financial beings. What? So

31:29

this is a weird thing to

31:32

say if you know anything

31:34

about cryptocurrency. It's true that

31:36

cryptocurrency eliminates certain gatekeeping institutions

31:38

like banks. I guess. Not

31:40

true that it allows you

31:42

to never again rely on

31:44

the integrity of your financial,

31:47

human fellow financial human beings or whatever, right?

31:49

Yeah. The decentralization

31:52

that crypto provides creates precarity

31:54

of various types. That's why

31:56

this space is like a

31:58

rife with scams and. criminals,

32:00

right? Yeah. Lewis sort

32:02

of bounces back and forth, it feels like,

32:04

between buying the hype that crypto can solve

32:06

the problems of the financial system and also

32:09

understanding that, like, in practice it creates a

32:11

ton of new problems. He

32:13

never seems to resolve it in a way

32:15

that made me feel like he had his

32:17

arms around it. Well, I've never

32:20

understood this thing of, like, it frees

32:22

you from the vicissitudes of financial institutions

32:24

or whatever. Like, it's

32:26

like you're just trading one set of arbitrary

32:29

institutions for another. I agree with that.

32:31

I think that the... Ugh, I don't

32:33

want to have to explain blockchains, Mike. Don't make me do

32:35

it. Oh, God, I know. I don't want to

32:37

have to understand blockchains. I think what people mean when they say this is

32:40

that when there are two parties who want to

32:42

do a transaction in crypto, you

32:44

press the button and

32:46

the blockchain records the transaction. You

32:48

don't have a bank as an

32:51

intermediary. You don't need escrow.

32:54

Of course, the lack of intermediaries

32:57

is what creates danger in

32:59

various other regards, right? It's

33:02

what allows cryptocurrencies to be stolen

33:04

so readily. It's what allows scams

33:06

to be so effective because once

33:08

the transaction happens, it's done. Yeah.

33:12

I guess you can say that it solves some

33:14

problems. In my mind, it creates so many fucking

33:16

more that it's not even worth considering, but whatever.

33:19

Also, I feel like so much of the stuff about crypto

33:21

is kind of irrelevant in the way that it

33:23

actually functions is as a

33:25

kind of random

33:27

commodity that has grown and crashed.

33:29

You mentioned baseball cards on one of our

33:32

previous episodes. There was a thing

33:34

where video games, like old Nintendo games, were going for $500,000. That

33:37

was a weird bubble. It's just people

33:39

investing in something because they think it's going to

33:41

go up. There are smart tech people I read

33:43

who seem to see some value in crypto. I

33:48

don't, but I also don't know that I'm smart

33:50

enough to know that they're wrong. Did you have

33:52

any crypto, Peter? Were you a crypto guy? Not

33:55

when it was worth getting, not when it was

33:57

smart. Well, I had a weird experience with

33:59

crypto. I used to play poker

34:01

back when I was in college and I

34:03

had a couple of acquaintances who kept going

34:05

in online poker and did well and I

34:07

never kept up with it. But

34:10

about a decade ago, it wasn't

34:12

uncommon for poker sites

34:14

to utilize Bitcoin because poker is

34:17

illegal in many jurisdictions across the

34:19

world, online poker. So

34:21

a lot of these kids just ended up sitting

34:23

on a bunch of Bitcoin when it rocketed up

34:25

and got rich. So

34:27

my experience of Bitcoin is just pure

34:29

misery. Yeah, FOMO. Yeah. Some

34:32

part of my brain is like, well, what if? What if I had kept going with

34:34

poker? Would I have been good? No, the problem was

34:36

the game was too simple for me, for my incredible

34:39

brain. The

34:41

thing is, I will say that the one

34:44

use case for crypto that actually makes perfect

34:46

sense to me is buying illegal shit online.

34:49

I have my bucks and I have my

34:51

crime bucks. That's why Bitcoin is not worth

34:53

zero dollars. It's worth whatever the value of

34:55

Bitcoin crime is. So

34:58

after the Alameda defections, Sam is

35:00

looking for new ways to expand

35:03

his business and make a

35:05

ton of money and he creates FTX, which

35:07

is, of course, just a platform for people

35:10

to trade crypto and crypto futures. He

35:12

funds it through seeking investment,

35:15

but also by issuing a

35:17

cryptocurrency, FTT token, which

35:19

guarantees owners a percentage

35:21

of FTX profits. It's

35:24

basically stock and FTX. They

35:26

get the ball rolling in 2019. They

35:28

start doing serious numbers in 2020. In

35:31

2021, they steadily become a household

35:33

name in the crypto world. By

35:36

early 2021, they are raising money at a $20 billion valuation.

35:40

Oh, wow. Sam is very talented

35:43

at pitching VCs. This is

35:45

for a couple of reasons. One is he just has

35:47

a good pitch because FTX has a pretty good platform.

35:50

Two, the VCs aren't

35:53

that interested in the business. One

35:55

of the themes of Lewis's section on them

35:57

is that they don't really

35:59

understand understand the basics of crypto or FTX, they're

36:01

just sort of impressed with Sam. His disinterest in

36:04

other people actually appeals to them because it makes

36:06

it look like he doesn't really need their money

36:08

and that makes them sort of desperate, right? It

36:10

is one book because this is basically the rules.

36:13

That's right. He's like waiting

36:15

four days to call them back. Sam accidentally

36:17

being a pickup artist for investors. On

36:20

top of that, his willingness to talk to the

36:22

press like at length and very straightforwardly,

36:26

it comes across as a sort of like

36:28

unconventional forthright type of guy. This was John

36:30

McCain cracked this code too. If you give

36:32

people access and seem like, oh, we're just

36:34

like talking off the record and like seem

36:37

chill, you will get the most like hand

36:39

jobical coverage from the media. There are times

36:41

when he sort of like says stuff that

36:43

makes you think that maybe there are scams

36:45

going on here. He appears

36:48

very famously on the Odd Lots

36:50

podcast where he is

36:52

explaining a certain type of

36:54

crypto operation and he basically

36:57

just describes a Ponzi scheme. People

37:00

put money into a certain type of coin which

37:02

he just describes it as a box. People put

37:04

money into a box and more

37:06

people put money into the box which makes

37:08

the box more valuable. He

37:10

explains this at length. I'm not going to send you

37:12

his explanation. What I am going to do is send

37:15

you the timestamp for the host's reaction

37:18

to his explanation. Okay, good, good, good,

37:20

good. I

37:23

think of myself as like a fairly cynical

37:25

person and that was so

37:27

much more cynical. Yeah, I can. I

37:30

would have described farming. You're just like, well,

37:32

I'm in the Ponzi business and it's pretty

37:34

good. At some point, did any of this

37:36

require any sort of like economic case? It's

37:38

just like other people put money in the

37:40

box and so I'm going to too and

37:42

then it's more valuable so I got to

37:44

put more money in. At no point in

37:46

the cycle did it seem to like describe

37:49

any sort of like economic purpose. So

37:51

on the one hand, I think that's a

37:53

pretty reasonable response but let me play around

37:55

with this a little bit because that's one

37:58

framing of this and I think there's It's

38:00

a depressing amount of validity. Okay,

38:03

so you've got saying this box is kind

38:05

of dumb, but what's the

38:07

end game? This box is worth zero,

38:09

obviously. And you can't keep

38:12

this market cap or something. The

38:14

other hand, if everyone kind of now thinks that

38:16

this box token is worth about a billion dollar

38:18

market cap, that's what people are pricing it at

38:20

and sort of has that market cap. In

38:23

fact, you can even finance this. You can put

38:25

X token in a borrow lending protocol and borrow

38:27

dollars with it. If you think it's worth less

38:30

than two thirds of that, you

38:32

could even just put some in there, take the

38:34

dollars out and never give the dollars back and

38:36

see it liquidated eventually. And it is sort

38:39

of like real monetizable in some

38:42

senses. And

38:46

at some point, if the world never decides that

38:48

we are wrong about this in

38:51

a coordinated way, you're

38:53

kind of the guy calling bullshit and saying, no,

38:55

this thing's actually worthless, but in what sense are

38:57

you right? Wait,

39:00

what? He seems

39:02

to be saying that yes, it's a

39:05

Ponzi scheme, but if everybody believes

39:07

in it, including banks, then you

39:09

can borrow against it and get

39:11

real money out of it. But

39:14

that doesn't make it not

39:16

a Ponzi scheme. That's precisely

39:18

the cynicism that Donald Sutherland

39:21

is pointing out. It's not

39:23

producing any real value. It's

39:25

more just like financial group think. Right, I

39:27

mean, that is basically the answer he ultimately

39:30

gives, except you can already sort of see

39:32

that he doesn't answer

39:34

questions very directly. He's

39:37

very good at these sort

39:39

of question dodging responses

39:42

where he nonetheless appears

39:44

to be giving a

39:47

somewhat sophisticated response. Dude, that's such a

39:49

skill. It really is. To make people

39:51

think that you're being forthright, but actually

39:53

you're obfuscating. By the end of 2021,

39:57

10% of all crypto trading happens on FTX.

40:00

Oh, wow. They are still a

40:02

fraction of the size of Binance,

40:04

the largest exchange, so they're still

40:06

looking to grow. Lewis has Sam's

40:08

goal is to, quote, establish FTX

40:10

as the world's most regulated, most

40:12

law-abiding, most rule-following crypto exchange. What?

40:15

To acquire as many licenses to allow him

40:18

to operate legally and openly in as many

40:20

countries as he could, to make a bet

40:22

on the rule of law shaping the lawless

40:24

crypto markets. Why would you believe him when he

40:26

says that? I think that he was telling the

40:29

truth in a sense that that was what his PR

40:32

strategy for FTX was. In

40:34

other words, he's betting on crypto

40:36

becoming absorbed into the financial regulatory

40:39

apparatus rather than remaining somewhat outside

40:41

of it. But also, it's funny

40:43

that Lewis categorizes this as like

40:45

he's wanting to be the rule of

40:47

law guy when it seems like for most

40:49

of his life, he's someone who thinks the rules

40:52

don't apply to him. I think that Sam Bankman-Fried

40:54

understood that this was a smart strategy, but

40:56

had no actual interest in abiding

40:58

by the law. They combine this with

41:01

a huge PR effort targeting the US.

41:03

They buy the naming rights to the

41:05

Miami Heat arena for 20 years for

41:08

$155 million. They

41:13

run that fucking Superball ad with Larry

41:15

David. Oh, that was an FTX ad?

41:18

The ironic thing is that I can't think about that ad now

41:20

without the Curb Your Enthusiasm music playing in my

41:22

head. He made a sponsorship deal with Tom Brady

41:24

for $55 million. I don't know who that is.

41:28

I'm kidding. I'm kidding. I'm kidding.

41:31

I'm kidding. That's a one person on YouTube. Do you know

41:33

who that is? Don't. All right.

41:36

I'm going to send you a rundown

41:38

of some of their other marketing expenditures.

41:40

It says three year deals each

41:43

with the Coachella Music Festival, Steph Curry,

41:45

another person I know, by the way,

41:47

and Mercedes's Formula One team

41:49

for, respectively, $25 million, $30

41:52

million, $31.5 million, and $79 million. The

41:55

five year deal with Major League Baseball for $162.5 million.

42:00

A seven-year deal with the video

42:02

game developer Riot Games for $105 million, $17.5

42:07

million to Shark Tank's Kevin O'Leary,

42:10

for 20 service hours, 20 social

42:13

posts, one virtual

42:15

lunch, and 50 autographs.

42:17

This business is pulling in a ton

42:19

of revenue at this point, something

42:21

in the realm of $400 and change

42:24

million a year. But

42:27

these expenditures are

42:30

wild, right? It's almost

42:32

as if they have a source

42:34

of funds that is not strictly their

42:37

revenue. What the fuck is a virtual

42:39

lunch? Like a fucking Zoom lunch with

42:41

Shark Tank's Kevin O'Leary, like

42:43

the third most famous guy on

42:46

Shark Tank. For $16 million. Although

42:49

that might have been worth it because Kevin O'Leary

42:51

was on TV defending Sam Beckman Fried when

42:54

this all went down. So

42:56

maybe not the worst investment of the bunch. Look,

42:58

you say this guy did crimes, but his checks

43:00

cleared. So who can say? Now,

43:04

worth noting that Sam was putting

43:06

a ton of money into politics.

43:08

He was very anti-Trump. He

43:10

was publicly a big supporter of Democrats. Behind

43:13

the scenes, he was funding Republicans as

43:15

well. He was planning to hand tens

43:17

of millions to Mitch McConnell to support

43:19

establishment conservatives against, like, the MAGA wing.

43:23

One of the funniest adventures in the

43:25

story is his attempt to pour millions

43:27

into a race for a congressional district

43:29

in Oregon, because, like, some effective

43:32

altruist weirdo he liked was running.

43:35

And this sort of, like, backfires because the massive

43:37

amount of money immediately draws tons of attention and

43:39

people look into it and are like, why

43:42

is this guy being bankrolled by a

43:44

crypto billionaire? Why is he promising to

43:46

give mosquito nets to everybody in Bend?

43:49

This is weird. But at

43:51

some point in late 2021, they also

43:53

moved from Hong Kong to the Bahamas.

43:56

There's a very good, very Michael

43:58

Lewis chapter that covers... the building of

44:01

the new compound in the Bahamas, which

44:03

is a total circus because Sam hires

44:05

these architects but gives them almost no

44:08

guidance. The only specific thing he says

44:10

is that he wants three badminton courts.

44:12

They should have called it the polytechnic

44:14

campus. Now before we talk about how

44:17

this all falls apart, I want to

44:19

take a detour further into

44:21

the psychology of Sam Backman-Fried

44:23

as described by Michael Lewis.

44:26

Backman-Fried essentially self-diagnoses as

44:28

something like a psychopath.

44:31

And a lot of Lewis's characterizations

44:33

back that up. At one

44:35

point, Sam and Caroline Ellison are on the

44:38

rocks. She's basically in love with him. He

44:40

very obviously does not feel the same way. They

44:43

hash it out by exchanging bullet-pointed

44:45

memos. This is

44:48

an excerpt from one of

44:50

his memos to Caroline Ellison. Oh

44:52

my god, okay. Imagine somebody reading

44:54

your like breakup texts. Imagine someone

44:56

reading your relationship memos. It

45:01

says, in a lot of ways, I don't really have a

45:03

soul. This is a lot more obvious in some contexts

45:05

than others, but in the end, there's

45:07

a pretty decent argument that my empathy

45:10

is fake. My feelings are fake. My

45:12

facial reactions are fake. I don't feel

45:14

happiness. What's the point in

45:16

dating someone who you physically can't make

45:18

happy? Oh, he's telling her what's

45:20

the point of dating me? He's doing the

45:22

nerdiest, it's not you, it's me in history.

45:26

This is echoed by others. Constance Wang,

45:28

his COO, says, quote, he has absolutely

45:30

zero empathy. In a journal entry, he

45:32

wrote, quote, I don't feel anything or

45:35

at least anything good. I don't feel

45:37

pleasure or love or pride or devotion.

45:39

I feel the awkwardness of the moment

45:42

enclosing on me, the pressure to react

45:44

appropriately to show that I love them

45:46

back and I don't because I can't.

45:48

He has a therapist he likes, George

45:51

Lerner, and he brings them to be

45:53

an in-house coach at FDX, essentially meaning

45:55

that he functions as a therapist for

45:57

the whole company. Here's a

45:59

passage. about when Sam

46:01

found this guy. It says, Sam

46:04

had been in the market for a new therapist.

46:06

The previous therapists were incredulous about various parts

46:08

of me, he said. He'd explained,

46:10

for example, what he thought of as his

46:13

perfectly rational decision made at a surprisingly young

46:15

age to never have children. Or he'd

46:17

tell them of his absence of feeling or how

46:19

he had never felt pleasure. They had a term

46:21

for it, anhedonia. Amazing drag name. They'd

46:24

sort of nod for a bit, but then

46:26

mistrust his self-diagnosis. It was like, what

46:29

about me? Are you disputing? said Sam. There was

46:31

not any clear way to break through with them.

46:33

I know that there are things that are unusual

46:35

about me. They wouldn't just accept them and move

46:38

on. So therapists couldn't accept the

46:40

fact that he was kind of

46:42

like detached or like didn't have any

46:44

emotions. Yeah, therapists might not generally be

46:46

willing to move on from someone who

46:48

is talking about like symptoms of severe

46:51

psychological dysfunction. Yeah. He's like they mistrust

46:53

his self-diagnosis. Yeah, that's a good thing

46:55

for a therapist to do. You don't

46:57

when someone's just like, hey, here's my

46:59

psychological problem. The therapist isn't there to

47:01

be like, oh, OK, cool. Yeah, I

47:03

know that. Let's move on. Right. The

47:05

therapist is there to peel

47:07

that apart for you. Or like if you're just like, oh,

47:10

I don't care about anybody. I don't feel pleasure.

47:12

That's also something that therapists would presumably be working on.

47:14

Right. And it only is like a symptom

47:17

of depression. Right. Right. So Lewis writes

47:19

that, quote, What Sam liked about George

47:21

was that George simply took him as

47:24

he was and actually didn't seem all

47:26

that interested in engaging in pointless conversations

47:28

about his feelings. Therapy? Isn't that what

47:30

therapy is? I do. I again, I

47:33

have concerns about a therapist that does

47:35

not talk about feelings. We

47:38

don't just like sit around and he asked, like, how do you

47:41

feel about that? We don't waste time

47:43

with that shit. He's my therapist. George

47:45

Lerner is like another guy who seems a

47:47

little bit shady, but Lewis is like

47:49

not particularly skeptical of. Okay. Vice did some

47:51

reporting where it was revealed that Lerner was

47:53

trying to find potential dating options for

47:55

FTX employees. Okay. Which he claims was like

47:58

to keep them in the Bahamas. like to

48:00

give them things to do in the Bahamas. That's

48:03

something that reads a little different when you

48:05

know that there was like a bizarre executive

48:08

level polycule. There

48:11

were also like reports from

48:13

former employees that he was

48:15

over prescribing Adderall. I'm

48:17

a little torn on all of this because

48:19

a writer in Lewis's position probably

48:21

shouldn't be doing too much armchair

48:24

psychology, right? Yeah. But it is

48:26

sort of like emblematic of Lewis's

48:28

blind spots that throughout

48:31

the book, S.B.F. is like, I'm

48:33

a literal psychopath. And Lewis

48:35

is like not catching it. Yeah, because there's like a

48:37

neurodivergent story that could be told here, but it

48:39

also sounds like there wasn't a formal

48:41

diagnosis and like also that should

48:44

be handled with like some amount of

48:46

care, like talking to experts. I really

48:48

think that Lewis is like, yeah, his brain

48:50

only does math. It doesn't do feelings. It's

48:52

like, uh, I mean, again,

48:56

I am not here, Mike, to do armchair

48:58

psychology about these people, but I do have

49:00

thoughts. All right. We are now at

49:03

the part of the story where FTX starts

49:05

to collapse. In the middle of

49:07

2022, crypto prices start to

49:10

tank. Until this point, a lot of

49:12

FTX's success was the result of like

49:14

not just Sam's strategy and marketing, but

49:16

also the fact that the crypto boom

49:18

was happening at the same time, right?

49:21

They had gotten a ton of, uh, customers

49:23

because there was a ton of money flowing

49:25

into the crypto market and therefore to FTX

49:28

when the prices collapse, money starts to flow

49:30

back out. Right. At the beginning of a

49:32

bubble, it's really easy to run a successful

49:34

financial firm. Right. I, I think that there

49:37

were aspects of FTX's design that appear

49:39

to be sort of top of

49:41

the industry, but they also came in at the

49:43

perfect time. Yeah. Lewis says that as late as

49:45

October, 2022, you could not tell that anything

49:48

was amiss at FTX. We

49:51

now know from Caroline Ellison's testimony that

49:53

in summer 2022, when crypto

49:55

prices declined, FTX's lenders

49:57

started calling in their loans. and

50:00

FTX began to pay them back with what

50:02

they knew was customer money. Oh, wow. In

50:05

early November, Lewis takes a

50:07

week-long break from hanging out at the

50:09

Bahamas headquarters. When he left,

50:12

FTX appeared to be fully functional.

50:14

When he returned, a week later,

50:16

the company had filed for bankruptcy.

50:18

No way. I remember earlier I

50:21

mentioned the FTT token, which was

50:23

like the in-house cryptocurrency that basically

50:25

functioned like a stock in the

50:27

company. CoinDesk, a cryptocurrency news site,

50:30

had been sent what appeared to

50:32

be a leaked FTX balance sheet

50:34

that showed a lot of FTX's

50:36

assets were held in the form of

50:39

that token. Finance, FTX's

50:41

chief rival, was a major holder

50:43

of that token. Shortly after the

50:46

leak, they announced that they

50:48

will be unwinding their position, hinting that

50:50

they had concerns about it. This

50:52

leads investors to unload their positions, which sort of

50:54

functions like a run on the bank for FTX.

50:56

Right. So everybody comes looking for their money, but

50:58

there is no money because they've already given it

51:00

away to people who've already tried to pull their

51:02

money out. That's right. It quickly

51:05

becomes apparent that they do not have the

51:07

liquidity to cover the withdrawals. There

51:09

is a shortfall of some $8 billion

51:12

and change. The

51:15

money had been commingled with Alameda

51:17

research and other entities where it

51:19

was presumably traded, invested, used to

51:21

buy shit, et cetera, et cetera.

51:24

I think there's an 80% chance that they'll get it

51:26

back. So it's actually OK to say. That

51:28

is the story of the collapse of FTX

51:30

in short. There is a

51:32

run on customer funds, which leaves

51:34

Sam and his buddies exposed with

51:37

their hands in the cookie jar

51:39

and no more cookies left. The

51:42

story that Sam Bankman Freed tells about all

51:44

of this and that Michael Lewis

51:46

appears to at least sort of buy is

51:49

that he was not aware of any of this. He

51:52

claims that he only became aware

51:54

that Alameda had used the

51:56

customer money in October 2020.

52:00

too, right, before everything falls apart.

52:02

Sam claims to have never moved

52:04

the money, and Lewis says that

52:06

this is, quote, irritatingly difficult to

52:08

disprove. This is the story

52:11

that Sam advances at his trial. He claims

52:13

that he was a terrible manager who was

52:15

so hands-off that he did not

52:17

realize that $8 billion was missing.

52:20

The most obviously shady part of this

52:22

story that he's telling is that in

52:24

his words, in his story, Sam found

52:26

out about all of this right

52:29

before everyone else did, right? He's saying, oh,

52:31

I only learned about this in October 2022.

52:34

The Coin Desk piece drops on November

52:36

2nd, right? If his story involved any

52:39

other timeline, he would have had to

52:41

explain why he didn't do anything to

52:43

locate or replace the money, right? He

52:46

tells a story like, oh, I found out, and

52:48

then everyone else found out right after. I had

52:51

no time to do anything. Multiple

52:53

people testified that senior players at

52:55

FTX, Sam included, were aware of

52:57

the missing money at least several

52:59

months earlier. Wouldn't they simply have

53:01

to be? Unless people are

53:04

doing this behind his back. I believe

53:06

that this is a story that you don't

53:08

need to think about that hard. When

53:11

someone is like, oh, I didn't

53:13

know. Can you very

53:15

easily prove that they knew? Maybe

53:18

not. Do you need

53:21

to kid yourself? Definitely not. Definitely

53:23

not. Of course he fucking knew.

53:25

That the literal CEO would not

53:27

have any idea that this was

53:29

happening. It's like really implausible. This

53:31

is where Louis starts

53:33

to go off the rails. He

53:37

says, I had a question. It preoccupied me

53:39

from the moment of the collapse. Where

53:41

had the money gone? It was not obvious what

53:44

had happened to it. He

53:46

does some very admittedly crude back

53:48

of the napkin math and figures

53:50

that FTX and Alameda had 23

53:52

billion go in and 14 billion

53:54

go out. Plus

53:57

it had 3 billion on hand. left

54:00

$6 billion unaccounted for. It

54:05

says, the most hand-wavy story, just

54:07

then being bandied about, was that the

54:09

collapse in crypto prices somehow sucked all

54:11

the money out of Sam's world. And

54:14

it was true that Sam's massive holdings of

54:16

Solana and FTT and other tokens of even

54:18

more dubious value had crashed. They'd

54:20

gone from being theoretically worth $100 billion at

54:22

the end of 2021 to being worth

54:25

practically zero in November of 2022.

54:27

But Sam had paid next to nothing for

54:30

these tokens. They had always been more like

54:32

found money than an investment he'd forked over

54:34

actual dollars to acquire. He'd minted FTT himself

54:37

for free. For his entire haul of

54:39

Solana tokens, he'd paid no more than

54:41

$100 million. His fleece cloud

54:43

fortune had evaporated, but that

54:45

didn't explain where all those dollars had gone.

54:48

I didn't understand any of this paragraph. What

54:50

he is saying is like, well sure, they

54:52

might have lost a ton in crypto, but

54:54

they didn't pay much for the crypto. So

54:56

it's sort of a wash. They're not taking

54:58

a loss. My response to that

55:01

is like, what do you think

55:03

was happening inside Alameda, a crypto

55:06

hedge fund that we all know

55:08

had almost no risk controls? He

55:11

assumes that they were just trading

55:13

with the crypto that they had

55:15

already received. They were not. They

55:17

were borrowing capital and making

55:19

highly leveraged bets on crypto going

55:22

up. And they were losing those

55:24

bets because crypto went down. Michael

55:27

Lewis should understand this. Also, it's not

55:29

like some big mystery. Bankman

55:31

Fried actually seems like the kind of guy who's like

55:34

throughout his entire life has been overconfident in

55:36

his own intellectual abilities. And

55:39

it actually makes sense that a guy like that

55:41

would look at these extremely risky assets. I mean,

55:43

like, ah, I got to figure it out. They're

55:45

not risky at all. And maybe he would

55:47

borrow against a bunch of money that he

55:49

doesn't have. Like the nature of the criminality

55:51

actually seems totally in keeping with everything else

55:54

we know about Bankman Fried. Absolutely. And we

55:56

also know that he had a massive appetite

55:58

for risk. That's something like Lewis. talks about

56:00

in the early chapters, he doesn't

56:03

feel the stress of risk in the

56:05

same way that most people do. Right.

56:08

So, Lewis is trying to solve the mystery

56:10

of where this money went. He

56:12

repeatedly asked Sam the question. One

56:15

explanation Sam gives is hackers.

56:17

Okay. Sending

56:19

you another excerpt. It

56:23

says, the biggest hacks occurred in March and

56:25

April 2021. A

56:27

lone trader had opened an account on FTX

56:29

and cornered the market in two thinly

56:31

traded tokens, BitMax and Mobilecoin.

56:35

His purchases drove up the prices of the two

56:37

tokens wildly. The price of Mobilecoin went from $2.50

56:39

to $54 in just a few weeks. He'd

56:43

found a flaw in FTX's risk management

56:45

software. FTX allowed traders to borrow Bitcoin

56:47

and other easily sellable crypto against

56:49

the value of their Mobilecoin and BitMax

56:52

holdings. The trader had inflated the

56:54

value of Mobilecoin and BitMax so that

56:56

he might borrow actually valuable crypto against

56:58

them from FTX. Once he

57:00

had it, he vanished, leaving FTX with a

57:02

collapsing pile of tokens and a loss of

57:05

$600 million worth of crypto. I mean,

57:07

props to this guy. I mean, this

57:09

dude rules. So to be clear, this

57:12

guy artificially inflated the prices of some

57:14

random crypto that was actually worthless. Yeah.

57:16

Then he borrowed Bitcoin, which is not

57:19

worthless, against that. Then he

57:21

just walked off with the Bitcoin,

57:23

leaving FTX with the worthless collateral. This

57:26

is not a hack? Yeah, no, this is just like

57:28

a loophole in your business model.

57:30

This is a failure in FTX's

57:32

risk management system that lost them

57:35

$600 million. FTX

57:38

gave him $600 million. It's

57:41

not like he stole it. He wasn't doing

57:43

fucking back channel hackers shit. This is like

57:46

those people that figured out the game shows

57:48

and just like went on and just like

57:50

cleaned up. That's not a hack. Right. They

57:52

just like figured out the system. It's

57:55

not until the final chapter that Michael

57:57

Lewis claims to solve the mystery of

57:59

where money went. The last chapter

58:01

of the book centers around John Ray,

58:04

who is the expert brought in to

58:06

oversee FTX and bankruptcy. We're

58:09

at the very end of the story.

58:11

You get the very distinct vibe that

58:13

John Ray is the first actual adult

58:15

to enter the room, Michael Lewis included.

58:18

He is immediately suspicious of Sam. He

58:20

calls Caroline Ellison, quote, an obvious complete

58:22

fucking weirdo. Lewis

58:26

seems like skeptical of Ray. He

58:29

says that it, quote, felt like

58:31

an amateur archaeologist had stumbled upon

58:33

a previously unknown civilization. But to

58:36

put this in perspective, Ray is the guy

58:38

who oversaw the recovery of Enron's asset. Yeah.

58:41

Right. This is what he does. And he

58:43

might actually be the best in the world

58:45

at it. The idea

58:47

that like, this is too much for

58:49

him to comprehend. That is bullshit. I

58:52

love the idea of like a basically

58:54

Tommy Lee Jones from the fugitive. That

58:57

just seems like, fuck you, fuck you,

59:00

you're cool. Fuck you. Just immediately within

59:02

10 minutes, being like, everyone here is

59:04

a fucking clown. That's I mean,

59:06

absolutely what happened. He's like, he like talks to

59:08

every single one of them. And he's like, these

59:10

are all a bunch of psychopathic nerds. And

59:13

he gets to work. Right. I think

59:15

what bothers Lewis is that to Ray,

59:18

FTX was not some like brilliant

59:20

pioneering company. It was just a

59:22

poorly run company doing a lot

59:24

of embezzlement. And the people leading

59:26

it were weirdos and freaks. And

59:29

it's like it's writing a trend

59:31

too, right? It's not like it's

59:33

a super advanced business model. It's

59:35

like they're selling, you know, Tamagotchies

59:37

or something. Who says Tamagotchi? Tamagotchi?

59:40

Tamagotchi. Oh, Tamagotchi. What the

59:43

fuck? God,

59:45

you're like half of our fucking inbox. Like, the

59:47

way that Mike pronounced this. Look, I could have

59:49

let it slide. And then everyone would have been

59:51

like, why didn't Peter say anything? How

59:54

are you getting both vowels wrong there? You

59:57

said on our last bonus episode, you said yeet.

1:00:00

Instead of Yates and I stood strong.

1:00:03

I didn't say anything I

1:00:05

wanted to say this bit empty Okay So

1:00:07

and to give you a sense of how

1:00:09

off-base Lewis is in his read

1:00:11

of John Ray John Ray

1:00:14

was ultimately able to trace a

1:00:16

massive amount of money located

1:00:18

across something like 100 corporate

1:00:21

entities, which he was able to successfully

1:00:23

map out That's how good John Ray

1:00:25

was at his fucking job and Michael

1:00:27

Lewis is like, I don't know He

1:00:29

thinks SPF is weird. So

1:00:31

again, what happens as the

1:00:33

bankruptcy proceeds Is that

1:00:35

Ray is able to recover a large percentage

1:00:38

of the money owed to investors to the

1:00:40

point where it right now many people Believe

1:00:42

that investors will be repaid in a full

1:00:45

this leads Lewis to his

1:00:47

ultimate conclusion about what happened here

1:00:50

Which I am going to send to you It says Ray

1:00:52

was inching toward an answer to the question I'd

1:00:54

been asking from the day of the collapse Where

1:00:57

did all that money go? The answer

1:00:59

was nowhere. It was still there. So No,

1:01:03

no That

1:01:06

is an extremely dishonest way to put

1:01:08

it a better way to

1:01:11

understand This is that the money was

1:01:13

gone and John Ray found other money

1:01:15

to replace it. That's what actually happened,

1:01:18

right? John Ray had to

1:01:20

scrape together money from

1:01:22

various entities assets

1:01:24

employees Debtors investors,

1:01:27

etc. Right money

1:01:29

was eventually pulled together But

1:01:32

to say it didn't go anywhere. It

1:01:34

was still there Not

1:01:36

to state the obvious, but if it was

1:01:38

still there FTX would not

1:01:41

have had to declare bankruptcy, right? This

1:01:43

is like if I defrauded you out

1:01:45

of a hundred grand and then I spent

1:01:47

it on Cocaine and then you had

1:01:49

the court seize my house and sell

1:01:51

it to pay you back And

1:01:53

then I was like see the money was

1:01:55

still there It

1:01:58

was not still there find

1:02:00

other money. They had

1:02:02

to sue people who were on

1:02:04

the FTX payroll to get the

1:02:06

money from them. And also the reason it got

1:02:08

hidden in the first place also wasn't some oversight, right?

1:02:11

It doesn't get spread across 100 accounts by

1:02:13

accident. That's the reason that Lewis is wrong

1:02:15

about all of this. The basic

1:02:17

fact that enough money was eventually tracked

1:02:19

down to pay back customers, that

1:02:22

seems to drive Lewis's belief that SPF

1:02:24

is less guilty than he's made

1:02:26

out to be. His general position

1:02:28

seems to be that the money was

1:02:30

sloshed around recklessly, but that it had

1:02:32

not been lost per se. So

1:02:35

this is mismanagement, but it's not

1:02:37

fraudulent conduct. He gives an interview

1:02:40

with Time Magazine where he

1:02:42

says, quote, I

1:02:44

thought how curious it was the speed

1:02:46

FTX went from being this pretty widely

1:02:49

admired and reputable operation to being viewed

1:02:51

as this vast criminal enterprise without

1:02:54

there being a whole lot of new data

1:02:56

except for the fact that the money was

1:02:59

in the wrong place. Well, yeah, except for

1:03:01

that fact, I find it a little suspicious

1:03:03

that everyone's view of Jared from

1:03:06

Subway changed so quickly. The

1:03:08

only thing we learned, the

1:03:10

only new information, one small

1:03:12

fact, he is making it seem

1:03:14

like the crime that Sam Beckman

1:03:16

afraid is accused of is like

1:03:19

insolvency. He's saying, look,

1:03:21

FTX wasn't really insolvent. The money

1:03:23

was somewhere. So it's all good.

1:03:25

That means nothing was stolen. But

1:03:29

that's not the crime that Sam

1:03:31

Beckman freed was accused of. He

1:03:33

was accused of fraud. It

1:03:36

doesn't matter where the money

1:03:38

is. It matters that at various

1:03:40

points, Sam knowingly lied to various

1:03:42

parties from banks to customers in

1:03:45

order to defraud them. Right. In

1:03:48

mid 2022, he directed Caroline

1:03:50

Ellison to create multiple falsified

1:03:53

balance sheets to send to

1:03:55

lenders to hide Alameda's liabilities.

1:03:58

He submitted fraudulent documents to banks

1:04:00

in order to skirt around regulations and

1:04:02

open up accounts that otherwise would not

1:04:04

have been approved. At one point, he

1:04:06

fraudulently backdated a document two years in

1:04:09

order to trick auditors into thinking that

1:04:11

an agreement had been in place for

1:04:13

longer than it had been. And

1:04:15

he signed it by hand instead of

1:04:17

using DocuSign, which he always used otherwise,

1:04:20

to avoid having metadata which would reveal

1:04:22

the actual date. Oh, wow. March

1:04:24

2022, FTX published a

1:04:26

document, FTX's Key

1:04:28

Principles for Ensuring Investor

1:04:30

Protections on Digital Asset Poll

1:04:33

Farms, which said, quote, FTX

1:04:35

regularly reconciles customers' trading balances

1:04:37

against cash and digital assets

1:04:39

held by FTX. Additionally,

1:04:41

as a general principle, FTX

1:04:43

segregates customer assets from its

1:04:45

own assets across our platforms.

1:04:48

Not only is it not true

1:04:51

that FTX regularly reconciled customer funds

1:04:53

against its own assets, there's no

1:04:55

evidence that they ever once reconciled

1:04:57

customer funds against their assets. And

1:05:00

not only did FTX not

1:05:02

segregate customer assets, many customer

1:05:04

assets were being deposited directly

1:05:06

into Alameda Research Bank accounts.

1:05:08

Oh, wow. This is like a

1:05:10

little sample. SBS was caught in

1:05:13

a host of lies about FTX's

1:05:15

risk management and plenty of other

1:05:17

shit. At one point during

1:05:19

the trial, he's being cross-examined

1:05:22

and he's asked whether he actually cared about

1:05:24

regulators or if it was just PR. He

1:05:26

goes, no, I actually cared. Then

1:05:29

the prosecution produced a text message

1:05:31

he sent where he said, quote,

1:05:33

it's just PR, fuck regulators. Smoked,

1:05:36

dude. Absolutely smoked. You got to

1:05:38

know when they're asking you something

1:05:40

like that. They

1:05:46

got some text messages in their back pocket. They

1:05:48

are never going to ask you a question like

1:05:50

that if they are not teeing you up to

1:05:53

get your fucking skull knocked out of the park.

1:05:55

Oh, God. I'm going

1:05:57

to send you a couple of clips from Michael. Lewis's

1:06:00

appearance on 60 Minutes. What's

1:06:05

your response to someone who hears us and says,

1:06:07

it's a fun story and it's crypto in the

1:06:09

Bahamas, but this is the oldest

1:06:11

architecture of a financial collapse that's been

1:06:13

going on for centuries. This isn't a

1:06:15

Ponzi scheme. Like when you think of

1:06:17

a Ponzi scheme, I don't know, Bernie

1:06:19

Madoff, the problem is there's no real

1:06:21

business there. The dollar coming in is

1:06:23

being used to pay the dollar going

1:06:25

out. And in this case,

1:06:27

they actually had a great real business. If

1:06:30

no one had ever cast aspersions on the

1:06:32

business, if there hadn't been a run on

1:06:34

customer deposits, they'd still be sitting there making

1:06:36

tons of money. Well,

1:06:42

first of all, the question was never whether or not

1:06:44

it was a Ponzi scheme. That's like a specific kind

1:06:46

of fraud. Notice how

1:06:49

the guy's like, well, this is a fraud, right? He's like, it's not a

1:06:51

Ponzi scheme. Also, if it wasn't for the run, they

1:06:53

would have been fine. But the whole point of these regulations

1:06:55

is to prevent this outcome when there is a run.

1:06:58

Also, another way for them to be fine would be

1:07:01

to have had the customer assets

1:07:04

rather than having misappropriated them, right? And

1:07:06

lie, yeah. To say that

1:07:08

this was a great real business.

1:07:10

They're Tamagotchis, Michael. It's true that

1:07:13

there was massive revenue, but that's

1:07:15

not a great business if there

1:07:17

is a world historic misappropriation of

1:07:20

money happening to that revenue. I

1:07:23

don't fucking ... What do you think a business is? If

1:07:26

I'm like, hey, I have a business, it

1:07:28

generates 300 million

1:07:30

in revenue, and then I

1:07:32

shoot that out of a cannon into

1:07:34

a furnace to be

1:07:36

like, damn, there's a good business here. No,

1:07:39

no. The cannon is crucial. You have

1:07:41

to focus on the cannon. I'm

1:07:43

going to send you another clip. For some reason, my phone is

1:07:46

not copying this one. I'm just going to put it in the chat. I

1:07:49

could see people watching this saying like, come on,

1:07:52

guys. This is Elizabeth Holmes in Cargo Shorts, and

1:07:54

this is all a ruse. Don't fall for the

1:07:56

shtick. This is a bad actor. It is a

1:07:58

little different, supplying phone. medical

1:08:00

information to people that might kill them. And

1:08:02

in this case, what you're doing is possibly

1:08:05

losing some money that belonged

1:08:07

to crypto speculators in the Bahamas. On

1:08:09

the other hand, this is not

1:08:11

to excuse. He shouldn't have done that. Now,

1:08:16

the idea that it's like crypto speculators

1:08:18

in the Bahamas, what are you talking

1:08:20

about? Just because the headquarters is in

1:08:22

the Bahamas doesn't mean that all the

1:08:24

customers are in the Bahamas. There were

1:08:27

many normal people who lost a

1:08:29

shitload of money when this all

1:08:31

happened. Now, I'm not one to

1:08:33

drum up tons of sympathy for

1:08:35

people who lose their shirt

1:08:37

in the crypto space, but to just

1:08:39

be like, ah, who gives a shit? It's

1:08:42

just crypto speculators. The thing is, I actually

1:08:45

have the least amount of sympathy of

1:08:47

all victims of crime for fucking crypto

1:08:50

speculators. But also, if the

1:08:52

whole thing was just some low rent bullshit that

1:08:54

was scamming a bunch of rubes on

1:08:56

the internet, it means Sam Bankman-Fried

1:08:58

isn't some math genius with a

1:09:00

fundamentally sound business model. He's basically

1:09:03

a used car salesman or like

1:09:05

one of those grifters selling

1:09:07

gold bars to people

1:09:09

half watching Fox News at like two in

1:09:11

the afternoon. That's a totally different story than

1:09:14

the one Michael Lewis has been telling. And he's like,

1:09:16

he's trying to have it both ways. It's so

1:09:18

fucking weird. And Michael

1:09:20

Lewis built his fucking

1:09:23

career. It's weird, dude. Talking about

1:09:25

these financial scams. And here

1:09:27

he is, like defending one.

1:09:29

So what do you think happened with

1:09:31

Lewis? What happened here? I do have

1:09:34

working theories. Okay. My first is that

1:09:36

Lewis Lewis's work as good as it

1:09:38

often is, is fundamentally a little bit

1:09:40

sycophantic. The big short money

1:09:43

ball flash boys, they all have

1:09:45

villainous characters. But they are at

1:09:47

their core books about the heroes,

1:09:49

right? They're about these like brilliant

1:09:51

underdogs who everyone wants to be dismissive

1:09:53

of, but are ultimately proven right. That's

1:09:55

the book Michael Lewis thought he was

1:09:57

going to write. importantly,

1:10:00

maybe it's the kind of book he

1:10:02

writes, generally speaking. He had

1:10:04

painted SBF as a bit of like a

1:10:06

heroic figure in his mind. When

1:10:09

the bad news drops, he couldn't really shake

1:10:11

it, right? I think that's like my first

1:10:13

level theory. My second

1:10:15

level theory is that Michael Lewis has built a

1:10:17

lot of his career on his

1:10:20

skepticism of the existing financial system to

1:10:22

the point where I think he had

1:10:24

some blind faith in

1:10:27

cryptocurrencies as an alternative,

1:10:29

not because he had a reason to believe

1:10:31

that they could be a viable alternative, but

1:10:34

because he wanted it to be. Also, SBF was good

1:10:36

at casting himself as like an outsider to all

1:10:38

of these structures. Yeah. When

1:10:40

slightly similarly to effective altruism, he's actually

1:10:42

like replicated a lot of the problems

1:10:45

with it. If you remember, he describes

1:10:47

crypto as something that could free you

1:10:49

from having to rely on the integrity

1:10:51

of others in the financial system, right?

1:10:53

Yeah. That's obviously not true. It

1:10:55

can't be true. There is no

1:10:58

financial system that frees

1:11:00

you from the need to trust

1:11:02

other human beings. That's

1:11:04

not how it can ever work. But I

1:11:06

think Lewis wants it to be true because he

1:11:08

believes that the existing system is hopelessly corrupt. Yeah.

1:11:12

Zeke Fox, an author who has his own much

1:11:14

better at the end of the day book about

1:11:16

crypto and FTX called The Number Go Up. He

1:11:20

said that Lewis told him, quote, you

1:11:22

look at the existing financial system and

1:11:25

the crypto version is better. What? I

1:11:27

don't want to get into why I think that's wrong. That's

1:11:29

wrong. What I want to point out

1:11:31

about that statement is that it's

1:11:34

a very weird thing to say

1:11:36

because Lewis in this book basically

1:11:38

admits that he doesn't understand Bitcoin

1:11:40

at all. Yeah. He says,

1:11:42

quote, Bitcoin often gets explained, but somehow never

1:11:45

stays explained. You nod along and think you're

1:11:47

getting it, but then wake up the next

1:11:49

morning needing to hear the explanation all over

1:11:52

again. Oh my God, that's so true and

1:11:54

so wise. This is my experience.

1:11:56

Absolutely. It's absolutely true. But how

1:11:58

do you write that? And then

1:12:00

say that this is better than the

1:12:02

existing financial system. My answer to that

1:12:05

is that this is someone who has

1:12:08

so little faith in the existing financial

1:12:10

system that he's ready to believe anything.

1:12:12

What this actually reminds me of is

1:12:14

a lot of the health grifting that me

1:12:16

and Aubrey talk about a maintenance phase where it

1:12:19

always casts itself as an alternative to like,

1:12:21

Western medicine doesn't want you to know. And

1:12:23

like, this is the way that it's often

1:12:25

framed. But then what they're doing is they're

1:12:27

shunting you to like vitamin supplement companies, which

1:12:30

is also big business. They're

1:12:32

operating on the principle that there's only

1:12:34

one actor can be bad and everything

1:12:36

outside of it must, because it's an

1:12:38

alternative, be better. This is Donald Trump

1:12:40

too, right? The appeal

1:12:42

of Donald Trump is like, well,

1:12:44

I hate these existing political institutions

1:12:46

and actors, right? Donald Trump

1:12:49

is outside the establishment. Therefore Donald Trump

1:12:51

is good. It's the same

1:12:53

basic thought process that is very clearly

1:12:55

lacking a step. And you have to

1:12:57

have a more sophisticated analysis of

1:13:00

just, is this part of an existing institution or not? Yes

1:13:02

or no. Right. Lewis hosted

1:13:04

a podcast called Judging Sam, where he

1:13:06

covered the trial. And

1:13:08

I listened to some of it to just confirm

1:13:10

that like, yes, he still seems

1:13:13

to buy the hype. Yeah.

1:13:16

In the very first episode, he sort of questioned the nature of

1:13:18

the charges. He called

1:13:20

Sam very persuasive on

1:13:23

the stand, which is his opinion,

1:13:26

but also probably a very objectively

1:13:28

incorrect because it took a jury

1:13:30

about four hours to find him

1:13:33

guilty on seven fraud charges. And

1:13:35

then he got 25 years in

1:13:37

prison. So persuasive to Michael Lewis,

1:13:39

perhaps. It seems like the

1:13:41

main mistake Lewis made is that

1:13:43

he seems to have never really

1:13:45

entertained the possibility that the

1:13:47

subject of his biography was a fraud.

1:13:50

Just as a person who writes about

1:13:52

American business, you should absolutely be

1:13:54

entertaining that possibility and thinking about it

1:13:57

like at every stage of your book.

1:14:00

It also seems like he didn't really

1:14:02

consider the possibility even after the subject

1:14:05

of his biography was convicted of

1:14:07

fraud. I mean, it's one of those

1:14:09

things where, just like all those anecdotes,

1:14:11

if you are looking at it on the

1:14:14

surface, you might think, wow, this guy is

1:14:16

just a straight up genius. He doesn't think

1:14:18

like normal people. But if

1:14:20

you're just willing to peel back that one

1:14:22

layer, this guy is obviously

1:14:25

selfish, admits that he doesn't give

1:14:27

a shit about other people. He

1:14:29

has a very narrowly defined

1:14:31

set of skills and

1:14:34

used those skills to run up a

1:14:36

massive fortune and then lost

1:14:38

it because those were the only skills he

1:14:41

had. You need to be

1:14:43

in a mindset where you

1:14:45

want to believe that this guy

1:14:47

is a savior in order to

1:14:50

watch him playing video games during

1:14:52

meetings with employees and be like,

1:14:54

his brain is just too good.

1:14:58

Part of that I actually agree with because

1:15:00

I know a guy that got fired as

1:15:02

a lawyer and then spent months playing Elden

1:15:04

Ring. There's nothing he can't do. Look,

1:15:08

I give Sam Backman a free credit because

1:15:11

I've tried to play video games while on

1:15:13

work calls and everyone's like, Peter, are you

1:15:15

there? I'm like, no, I'm sorry. I can't do

1:15:17

both. I can't do both. I've beaten Melania

1:15:19

twice since we started here. Fucking

1:15:22

false. Absolute bullshit. Absolute bullshit.

1:15:24

Melee, Peter. No summons. No

1:15:27

summons? You can't do me when you have summons.

1:15:29

I'm not going to happen.