Going Infinite by Michael Lewis

The wild, truly unbelievable story of the rise and fall of Sam Bankman-Fried and FTX, Michael Lewis digs deep into the account of how one man created a multi-billion empire and saw it crumble due to his astonishing business ineptitude and the blind faith of the followers that worshipped at his feet. I’ve read numerous Lewis books — Flash Boys, Moneyball, The Premonition, The Fifth Risk, The Big Short, etc. — and I don’t know if there is a writer out there that can explain complex terminologies and concepts like crypto currency, high frequency trading, effective altruism, and data analytics so that a novice like myself can even try to understand it. In Going Infinite, Lewis portrays Bankman-Fried as a savant of probabilities and risk and also the current figurehead of the “effective altruism” movement, one that encourages high-earners to “earn to give” by making as much money as they can and then spend the rest of their lives giving it away. Bankman-Fried really does come off as some sort of goofy, disheveled prophet — at least in the minds of those in his orbit and those that work for him — and it’s pretty hard to believe that so many smart people could be duped by one man, but then again, history is littered with scenarios and situations where one person is so magnetic and brilliant that others just fall in line. The shame and sadness of this story is of all of the people — co-workers, investors, celebrities, friends, family members, etc. — that really, truly believed in SBF and lost everything, and one can only hope that there are lessons to be learned from his rapid rise and sharp fall. Then again, if history is any indication, this will most certainly happen again — and probably, sometime soon.

• struck by how few of the people who worked in crypto could explain what bitcoin was
• often, on liveTV, Sam would not only play a video game, but respond to messages, edit documents, and tweet
• inside of three years, SBF appeared to have created a business that his share of it implied that he was not the richest person in the world under the age of 30
• richest self made newcomer to the Forbes list, ever
• Sam had agreed to bay Brady 55M and Gisele another 19.8M, for twenty hours of their time each
• Sam figured out who he was by thinking about certain things for himself, without a whole lot of concern for the thoughts of others
• effective altruism, Oxford philosophers called a new movement
• earn to give
• adverse selection at Jane Street, meant that the person most eager to make a bet with you is the person you should be most worried about betting against
• when people wanted to bet, or trade with you, there was usually a reason: they knew something you did not
• 2014, financial institutions at the center of the markets, not the old investment banks but opaque high frequency trading firms, like Jane Street
• sums of money made by the people who ran these places were orders of magnitude greater than what the people who ran the big investments banks had ever made
• people didn’t trade directly with people
• people programmed computers to trade with other computers
• trades to happen faster and more frequently than ever before
• ETFs, exchange traded funds pooled assets (stocks, bonds, commodities) that might otherwise be difficult for investors to buy on their own
• any investment idea you could dream up could be expressed in the form of an ETF and sold to the investing public
• role of the Jane Street trader, keep the prices of all these ETFs in line with the assets inside of them
• ETF trades weren’t riskless
• high frequency trading firms, faster picture of the stock market for themselves than others were able to
• wanted computer programmers who could speed their machines more than traders who could make risk decisions
• Virtu and Citadel were playing the speed game — Jane Street was playing a brain game
• data had fully replaced feel
• you needed to be able to explain why you were making money
• in the weeks leading up to the election, there had been a pattern: stock markets everywhere tanked on good news for Trump, and rose on good news for Clinton
• had better info than the market
• saw the Florida Panhandle before John King saw it
• sitting on the single most profitable trade in Jane Street history, but markets in the U.S. had actually rallied, and most of Jane Street had bet against the US stock market
• three hundred billion dollar profit was not a 300M loss
• retrospect, bet on the damage to small foreign markets being greater than the damage to US markets
• 2017 crypto, value of all crypto boomed, from 15B to 760B
• Alameda Research, called the new firm, a vessel to save some vast number of lives (effective altruism)
• late 2017, Berkeley had replaced Oxford as the financial capital of effective altruism
• Crypto trading never closed
• his access to a pool of willing effective altruists was his secret weapon
• Sam knew next to nothing about crypto, but he did know how easy it was to steal it
• all sorts of people with no experience of trading, and no particular interest in money, began to turn up and offer their services
• there were laws that in theory governed money, and then there was what people actually did with that money
• the law is what happens, not what is written
• in their financial dealings with each other, the EA were more ruthless than Russian oligarchs
• their investors were charging them a rate of interest of 50 percent
• no longer a random assortment of EA, they were a small team who had endured an alarming drama and now trusted Sam
• Alameda Research had righted itself and was consistently profitable
• October 2008, someone calling himself Satoshi Nakamoto published a paper that introduced the idea of Bitcoin
• electronic coin
• if Bitcoin had its way, banks and governments would no longer control money
• financial innovation and social protest
• early Crypto exchange founders weren’t typically financial experts
• joined together by their fear of trust erected a parallel financial system that required more trust from its users
• in crypto finance, founded on a principle of mistrust, people trusted total strangers with vast sums of money
• crypto exchanges were money machines
• casinos that sat in the middle of a world historic speculative frenzy and charged fees for every bet that was placed
• Sam was proposing an exchange that traded only crypto futures contracts
• traders put up collateral only a fraction of the bets made
• to do away with socialized losses
• FTX token was called FTT
• was stock in FTX, arguably even more valuable than the stock
• Sam built a casino that offered gamblers the chance to make bets bigger than their bank accounts justified, at seemingly no risk to the casino or to the other gamblers
• people didn’t identify with companies, they identified with people
• VCs eagerness to buy turned less on your hard numbers than on how excited they became about the story you told
• summer of 2020, sold roughly 6 percent of the company for 2.3B, roughly one hundred fifty different venture capital firms invested
• everything is probabilities, and he’s pull out these probabilities out of thin air, and then he’d change them
• Sam was understood and interpreted by his original investors mostly via Zoom, in the middle of one of the greatest VC booms in history
• Alameda was still a quant trading firm
• never clear where Alameda stopped and FTX started
• legally separate companies, both owned by the same person
• FTX was not the world’s fastest growing crypto exchange, and the casino of choice for big professional traders
• 2021, generate 1B in revenues
• Miami Heat, FTX bought naming rights to arena, 155M over 19 years
• once their name was on an American stadium, no one turned down their money
• everywhere Sam went, people mentioned that they had heard of FTX because of Brady
• exchange’s most important products, crypto futures, were illegal to sell to Americans
• spending a lot of money on a business that might or might not happen
• inside of three years, Sam would deploy roughly 5B on a portfolio of three hundred separate investments, new investment decision roughly every three days
• in Sam’s mind, money wasn’t crypto money
• it was effective altruistic money that he happened to have obtained through crypto
• in a very short time, Sam’s money had bankrolled some of the most spectacular failures in the history of political manipulation
• EA movement had obviously changed
• had become a lot less interested in saving the lives of existing human beings than future ones
• EA was always fueled by a a cool lust for the most logical way to lead a good life
• October 2022, crypto was just a souped up version of an old fashioned financial crisis
• 2008 financial crisis only subsided after governments had agreed to bail out the banks
• instead of governments, Crypto had Sam
• November 11th, FTX into bankruptcy in the U.S.
• at least 8B belonging to crypto traders and meant to be safe and sound inside FTX, had wound up inside Alameda research
• FTX was a futures exchanges, so it leant money to its customers to make bets
• at any given moment, it would not be expected to have all of its customers money immediately on hand
• its chief selling point back in 2019 was that it had found a better way to evaluate the gambles of all the customers to whom it lent money, and it had
• and so it should not have been exposed to losses from its loans to customers
• Bahamas had moved to put FTX into liquidation the day before Sam signed the papers declaring bankruptcy in the U.S.
• more than 10B that was meant to custodied by FTX somehow had ended up inside Sam’s private trading fund
• 3B in liquid assets
• FTX had simply loaned Alameda all of the high frequency traders deposits, for free
• had exempted Alameda from the risk rules that governed all other traders
• most FTX employees had lost their life savings
• some had lost their spouses, their homes, friends, and their good names
• FTX had lost a lot of money to hackers
• 5B the number of unexplained missing dollars
• if the money was hard to find, it was because there was no person in FTX in charge of knowing where it all was
• their lost civilization had been built not on cynicism but on trust
• where did all that money go? nowhere, it was still there
• customers deposits that are supposed to be inside FTX are actually inside Alameda Research
• 90 percent of those accused of crimes by the US government in 2022 had accepted a deal and pleaded guilty, less than half of 1 percent had been acquitted