00:00:25.620What do you know about going infinite?
00:00:27.560All I know is that I'm skeptical that this episode is going to teach me that running a years-long financial scam is harder than administering a 10-person polycule.
00:01:25.200I loved Flash Boys. I loved The Big Short. I'm a straight man who follows sports but is still fundamentally a nerd, which means that Moneyball is, like, very important to me.
00:03:59.120What I realized very quickly is that you don't actually need to understand anything about how crypto works to understand the basics of what SBF did wrong here.
00:08:24.620You've made commitments to people and then you're like, eh, I don't really feel like it.1.00
00:08:28.480The dude is just kind of a bit of an asshole.0.99
00:08:30.400He's careless with other people's time and he has accumulated enough money and influence that everyone around him more or less has to accommodate him anyway.1.00
00:14:22.480What? The Bayesian priors aren't very favorable.
00:14:26.400Oh, God. So Bayesian priors are like the likelihood of something happening before introducing new variables.
00:14:33.000So all he's saying is like before anything else, just take into account how few literate people were on the planet during Shakespeare's time.
00:14:40.680And it's unlikely that the best writer ever would come from that era.
00:14:44.620There's so many like comprehensive misunderstandings of like literature in this that it's hard to pick them apart.
00:14:51.500Right. Because you could say there's a fraction of the scientists around back then that there are now. So like, what are the chances that somebody would come up with this foundational theory of evolution? It doesn't make sense statistically. But like, that isn't how like literature and science work.
00:15:08.260Have you ever heard the term engineer's disease?
00:15:12.280No, but I know where you're going with this.
00:15:14.960This is something that has like bounced around the internet for a bit to describe how engineers and other STEM types think that their technical knowledge allows them to like solve various problems across different fields.
00:15:27.680I think what's happening here is that like you're very good at solving problems and your sense of your value as a person is tied up in your ability to solve problems.
00:15:36.020And when you are confronted with problems that cannot be readily solved that require some subjective input or another, your brain rebels and you try to turn it into a problem that can be solved.
00:15:49.580Your brain is like a hammer and so every problem must be a nail.
00:15:53.040Otherwise, you are forced to confront the limitations of your intelligence.
00:15:57.520Yeah. So Sam pretends that all of these complex subjective elements of human existence can be reduced to a math problem because he's good at math problems. Yeah. And then he can solve it and his ego can rest easy. Right. This is late stage stem brain.
00:16:12.400This is also I think these kinds of arguments are meant to appeal to a particular kind of dude, which potentially Michael Lewis is. Right. Because he sounds like he's making this kind of objective argument. But like, I mean, nobody who knows anything about Shakespeare would find this convincing. Right.
00:16:27.460Like, I think whether Shakespeare is good or not, you can just read the works and decide that.
00:16:33.240Well, he can't because he doesn't know how to analyze literature, right?
00:16:48.180And then two was when we read Shakespeare and I realized that I am below average at figuring out what is going on in a Shakespeare play.
00:16:55.800and this actually applies to like any sort of book with old timey language yeah you know at any sort
00:17:03.080of old english i am fucked this is why i never finished elden ring i'm not trying to read item0.55
00:17:07.660descriptions that is we i'll i'll do a separate episode if you want to debate elden ring which0.89
00:17:12.220ruled what you know about elden ring i thought this was gonna be one of my little video game0.98
00:17:15.820comments that you just ignore are you fucking kidding me i played the shit out of elden ring0.99
00:17:20.040When I got fired, I got held in a ring. And look, if you want to talk about a bleed build, I got a killer one, a killer one. So Sam gets into MIT majoring in physics, minoring in math. Lewis again portrays this as a situation where he is so much smarter than the people around him at MIT that it's basically a waste of time.0.99
00:17:44.260Lewis says, quote, during college lectures, Sam experienced a boredom that had the intensity of physical pain.
00:17:50.700He had no ability to listen to a canned talk.
00:18:15.760And it wasn't because I knew all of the European history that the professor was talking about.0.63
00:18:21.180You also think about, like, what would, like, a poor kid, like, how would we respond if it was, like, a poor black kid who, like, couldn't pay attention to lectures and, like, hated Shakespeare?
00:18:30.760It's like this stuff gets processed in a completely different way.0.50
00:18:34.000And frankly, I think the real takeaway from these opening anecdotes is that Sam struggles to put energy into things he doesn't care about.
00:18:42.360Yeah. Sam himself seems to rationalize this away as those things being too simple or unimportant. Right. Like he says that his disinterest in college came from realizing that academics weren't doing much to change the world. Oh. But that criticism is coming from someone who spends huge percentages of his free time playing video games. Right.
00:19:04.740I would have hoped that Lewis would prod at that a little bit, but he seems to take Sam's own characterizations at face value.
00:19:12.660It's also funny looking at, like, if we want to be retrospective, you can also look at it through the lens of the crime.
00:19:19.000This is somebody who's like, it seems like kind of cut corners and had a lot of it seems like contempt for things that are outside of his realm of interest.
00:20:43.940It has this weird thing where it's like, well, we figured out objectively what the
00:20:48.900effective development interventions are.
00:20:51.560And all we have to do is scale those up everywhere, right?
00:20:54.800Which as somebody who worked in development for 11 years, that's not really something
00:20:57.740that exists, right? You can't say that something quote-unquote works or quote-unquote doesn't work
00:21:01.860and people without any relevant expertise in the local context coming in and saying,
00:21:08.560no, no, no, this is science. We've done this. We're going to impose this on everybody in this
00:21:12.280like standardized way is a concept with a very long and very diabolical history in international
00:21:18.480development. That's an interesting history because I think this is like a very specific
00:21:22.620manifestation of this movement among these ultra rich guys yeah with respect to sam himself i think
00:21:28.400it's likely that it interests him again because it presents humanity as a problem that can be
00:21:33.560rationally solved right i think one of the things that charmed michael lewis is that he believes
00:21:39.340that sam bankman freed is in fact truly invested in the well-being of humanity and like figuring
00:21:43.680out these big problems and i don't see any specific reason to believe that sam is being
00:21:49.940dishonest about this. I just think that he's probably more interested in the effective part
00:21:54.960than the altruism part. A little later in the book, Lewis talks about the sort of mission creep
00:21:59.740in this community. And to oversimplify a bit, one way to look at this was like,
00:22:04.020what are some very cost-effective altruistic interventions? Mosquito nets, right? Cheap,
00:22:10.160effective, great use of money. But a lot of people in the movement, Sam included,
00:22:14.520start to think more about what the largest threats to humanity are yeah so instead of focusing on
00:22:20.840cost-effective ways to prevent like hunger and disease they spend their time trying to pinpoint
00:22:24.940the biggest existential threats right like sam believes it's ai you know you can't let these0.97
00:22:31.800fucking nerds be in charge of anything it all circles back to ai at the end of the day the0.99
00:22:36.220thing is like there's no like smart or dumb way to predict what is going to happen in 5 000 years0.99
00:22:42.020Yeah. So it's just like, again, it's like this overconfidence in your own ability to reason through these like extremely complex social problems using like Excel spreadsheets.
00:22:53.380There's actually a really good example of like the limitations of what they can do. So Sam's at Jane Street doing great, finding success with various types of trading arbitrage. In 2016, they bet billions that a Trump win would tank the markets.
00:23:11.100They sort of figure out that the markets are moving at the speed of CNN.
00:23:15.560So if you can sort of look at the data and beat CNN to the punch, they can make a bunch
00:23:39.800Yes, they are, in fact, very good at the math side.0.98
00:23:43.660They can look at all this data and figure the shit out.0.95
00:23:45.820What they couldn't figure out was the subjective, much more complex problem of whether the markets would actually like Donald Trump to win.1.00
00:23:52.580That's such a fascinating example because it is both sophisticated and very dumb at the same time.0.97
00:24:00.240Michael Lewis makes it easy with his accessible prose and free, you know, nicely flowing narratives.
00:24:06.680Use affiliate code Mike and Peter at checkout.
00:24:09.080for 10% off. This is the only book that I've done where I would sort of recommend it. I'm like,
00:24:15.100this is a fun read. You have to go in understanding what he gets wrong. But the actual
00:24:20.520experience of reading the book is like, cool. This is cool. I can't believe it's not the secret.
00:24:25.500That's the one that's helped me the most. So in 2017, Sam leaves Jane Street to found
00:24:32.720Alameda Research, his crypto trading firm. He had been a little bit disillusioned, just hadn't been
00:24:38.960quite as happy as he wanted at Jane Street. And he realizes that crypto is like the next big thing.
00:24:44.480He starts recruiting his friends and acquaintances, including Caroline Ellison,
00:24:48.620who would become his on and off girlfriend and the CEO of Alameda.
00:24:53.580Oh, I thought you were going to say of the Polycule.0.96
00:24:55.180She plays a big role in the Polycule as well. A lot of his recruits come from the
00:24:59.680effective altruism community. Right off the bat, alienates a bunch of people
00:25:03.760with his off-putting management style. And I sent you an excerpt.
00:25:07.980It says he was demanding and expecting everyone to work 18-hour days and give up anything like a normal life while he would not show up for meetings, not shower for weeks, have a mess all around him with old food everywhere, and fall asleep at his desk, said Terramac Allay, a young Australian mathematician who was, in theory, running the company with Sam.
00:25:27.620He did zero management and thought that if people had any questions, they should just ask him.
00:25:32.120Then in his one-on-ones with people, he'd play video games.
00:25:34.800but what was his build but what was sending you another one it crossed his mind now that he was
00:25:43.280starting his own business that he should read up on how to manage people but every time he flipped
00:25:47.820through books or articles on management or leadership he had roughly the same reaction0.99
00:25:51.780he'd had to english class one expert said x the other said the opposite of x it was all bullshit0.90
00:25:57.080he said this man doesn't know about one book theory this is a real problem it's very funny0.91
00:28:15.860Yeah, I mean, this is similar to the scheduling stuff.
00:28:18.520It's something that Lewis really seems to believe, that SPF's decisions are all made
00:28:23.280by assigning everything a probability and acting accordingly, and that he's very frustrated
00:28:28.480by other people who don't see the world this way because he thinks that they are irrational.
00:28:32.760But Lewis isn't seeing the pretty obvious obfuscation here because if Sam really thought
00:28:39.320that this was no big deal, he shouldn't have a problem telling investors, right?
00:28:43.760The argument he's having with his colleagues is not about the probabilities and calculating
00:28:49.580how much ripple they really have it's about transparency right lewis i'm not sure that lewis
00:28:54.580knows that he's foreshadowing when he tells this story also there's something funny about this as
00:28:59.640a quote-unquote math analysis because the 80 chance that it would turn up is made up why is
00:29:04.800there an 80 chance that it'll turn up why not 50 why not 90 are you a genius math genius no you
00:29:09.500don't know the probability you can't make up a number and then pretend that you're doing math
00:29:13.520So between the whole, like, missing money debacle and his general shitty behavior, Sam alienates a bunch of the effective altruist types that he brought in, and they attempt to oust him.
00:31:50.120The decentralization that crypto provides creates precarity of various types.
00:31:56.800That's why the space is like rife with scams and criminals, right?
00:32:01.620Lewis sort of bounces back and forth, it feels like, between buying the hype that crypto can solve the problems of the financial system and also understanding that like in practice it creates a ton of new problems.
00:34:35.460No, the problem was the game was too simple for me, for my incredible brain.0.98
00:34:41.400The thing is, I will say that, like, the one use case for crypto that actually makes perfect sense to me is, like, buying illegal shit online.0.97
00:34:48.920I have my bucks and I have my crime bucks.0.84
00:34:50.860That's why Bitcoin is not worth zero dollars.
00:34:53.480It's worth whatever the value of Bitcoin crime is.
00:34:57.440So after the Alameda defections, Sam is looking for new ways to expand his business and make
00:36:13.660He's like waiting four days to call them back.
00:36:15.240This is Sam accidentally being a pickup artist for investors.
00:36:19.920On top of that, his willingness to talk to the press like at length and very straightforwardly, it comes across as a sort of like unconventional forthright type of guy.
00:36:30.680This was John McCain cracked this code, too.
00:36:32.660If you give people access and seem like, oh, we're just like talking off the record and like seem chill, you will get the most like hand jobical coverage from the media.
00:36:41.320There are times when he sort of like says stuff that makes you think that maybe there
00:40:33.880In other words, he's betting on crypto becoming absorbed into the financial regulatory apparatus
00:40:39.920rather than remaining somewhat outside of it.
00:40:42.320But also it's funny that Lewis categorizes this as like he's like wanting to be the rule of law guy when it seems like for most of his life, he's someone who thinks the rules don't apply to him.
00:40:51.640I think that Sam Bankman-Fried understood that this was a smart strategy but had no actual interest in abiding by the law.
00:41:35.440I'm going to send you a rundown of some of their other marketing expenditures.
00:41:40.240It says three-year deals each with the Coachella Music Festival, Steph Curry, another person I know, by the way, and Mercedes' Formula One team for respectively $25 million, $31.5 million, and $79 million.
00:41:55.080The five-year deal with Major League Baseball for $162.5 million, a seven-year deal with the video game developer Riot Games for $105 million, $17.5 million to Shark Tank's Kevin O'Leary for 20 service hours, 20 social posts, one virtual lunch, and 50 autographs.
00:42:17.640This business is pulling in a ton of revenue at this point, something in the realm of 400 and change million dollars a year.
00:43:09.680He was publicly a big supporter of Democrats.
00:43:12.680Behind the scenes, he was funding Republicans as well.
00:43:15.120He was he was planning to hand tens of millions to Mitch McConnell to support establishment conservatives against like the MAGA wing.
00:43:22.720One of the funniest adventures in the story is his attempt to pour millions into a race for a congressional district in Oregon because like some effective altruist weirdo he liked was running.
00:43:34.560And this sort of like backfires because the massive amount of money immediately draws tons of attention and people look into it and are like, why is this guy being bankrolled by a crypto billionaire?
00:43:46.560Why is he promising to give mosquito nets to everybody in Bend?
00:43:50.380At some point in late 2021, they also moved from Hong Kong to the Bahamas.
00:43:56.400There's a very good, very Michael Lewis chapter that covers the building of the new compound in the Bahamas, which is a total circus because Sam hires these architects but gives them almost no guidance.
00:44:08.720The only specific thing he says is that he wants three badminton courts.
00:44:12.940They should have called it the Polytechnic Campus.
00:44:15.340Now, before we talk about how this all falls apart, I want to take a detour further into the psychology of Sam Bankman-Fried, as described by Michael Lewis.
00:44:26.660Bankman-Fried essentially self-diagnoses as something like a psychopath, and a lot of Lewis's characterizations back that up.
00:44:35.240At one point, Sam and Caroline Allison are on the rocks.
00:46:24.440They'd sort of nod for a bit, but then mistrust his self-diagnosis.
00:46:28.240It was like, what about me are you disputing, said Sam.
00:46:31.260There was not any clear way to break through with them.
00:46:33.980I know that there are things that are unusual about me.
00:46:36.500They wouldn't just accept them and move on.
00:46:38.400So therapists couldn't accept the fact that he was kind of like detached or like didn't have any emotions.
00:46:44.860Yeah. Therapists might not generally be willing to move on from someone who is talking about like symptoms of severe psychological dysfunction.
00:46:53.200Yeah. He's like they mistrust his self-diagnosis. Yeah. That's a good thing for a therapist to do.
00:46:59.360You don't when someone's just like, hey, here's my psychological problem.
00:47:02.200The therapist isn't there to be like, oh, OK, cool. Now I know that. Let's move on.
00:47:06.020Right. The therapist is there to peel that apart for you.0.53
00:47:08.940Or like if you're just like, oh, I don't care about anybody. I don't feel pleasure.
00:47:12.560That's also something that therapists would presumably be working on.
00:47:15.540Anne Hedoni is like a symptom of depression.0.50
00:47:18.200Right. Right. So Lewis writes that, quote, what Sam liked about George was that George simply took him as he was and actually didn't seem all that interested in engaging in pointless conversations about his feelings.1.00
00:47:31.920I do. I again, I have concerns about a therapist that does not talk about feelings.
00:47:38.360We don't just like sit around and he asked, like, how do you feel about that?0.99
00:47:41.460We don't waste time with that shit. He's my therapist.1.00
00:47:44.000George Lerner is like another guy who seems a little bit shady, but Lewis is like not particularly skeptical of.
00:47:50.020Vice did some reporting where it was revealed that Lerner was trying to find potential dating options for FTX employees.
00:47:56.940OK. Which he claims was like to keep them in the Bahamas, like to give them things to do in the Bahamas. That's something that reads a little different when you know that there was like a bizarre executive level polycule. There were also like reports from former employees that he was overprescribing Adderall. I'm a little torn on all this because a writer in Lewis's position probably shouldn't be doing too much armchair psychology. Right.
00:48:25.000Yeah. But it is sort of like emblematic of Lewis's blind spots that throughout the book,
00:48:31.740SPF is like, I'm a literal psychopath. Yeah. And Lewis is like not catching it.
00:48:36.780Because there's like a neurodivergent story that could be told here. But it also sounds like
00:48:40.580there wasn't a formal diagnosis. And like also that should be handled with like some amount of
00:48:45.760care, like talking to experts. I really think that Lewis is like, yeah, his brain only does
00:48:50.620math it doesn't do feelings it's like it doesn't i don't know i mean again i am not here mike to do
00:48:57.780armchair psychology about these people but i do have thoughts all right we are now at the part
00:49:03.900of the story where ftx starts to collapse in the middle of 2022 crypto prices start to tank
00:49:10.280until this point a lot of ftx's success was the result of like not just sam's strategy and
00:49:16.180marketing, but also the fact that the crypto boom was happening at the same time, right?
00:49:21.080They had gotten a ton of customers because there was a ton of money flowing into the
00:49:35.360I think that there were aspects of FTX's design that appear to be sort of top of the industry,
00:49:42.000but they also came in at the perfect time.
00:49:44.520Lewis says that as late as October 2022, you could not tell that anything was amiss at FTX.
00:49:50.840We now know from Caroline Ellison's testimony that in summer 2022, when crypto prices declined, FTX's lenders started calling in their loans and FTX began to pay them back with what they knew was customer money.
00:50:20.020Remember earlier I mentioned the FTT token, which was like the in-house cryptocurrency
00:50:25.020that basically functioned like a stock in the company.
00:50:27.860Coindesk, a cryptocurrency news site, had been sent what appeared to be a leaked FTX balance sheet that showed a lot of FTX's assets were held in the form of that token.
00:50:40.240Binance, FTX's chief rival, was a major holder of that token.
00:50:45.300Shortly after the leak, they announced that they will be unwinding their position, hinting that they had concerns about it.
00:50:51.760This leads investors to unload their positions, which sort of functions like a run on the bank for FTX.
00:50:58.100Right. So everybody comes looking for their money, but there is no money because they've already given it away to people who've already tried to pull their money out.
00:51:03.320That's right. It quickly becomes apparent that they do not have the liquidity to cover the withdrawals.
00:51:08.580There is a shortfall of some $8 billion and change.
00:51:14.580The money had been commingled with Alameda Research and other entities where it was0.79
00:51:19.640presumably traded, invested, used to buy shit, et cetera, et cetera.
00:51:23.960But the thing is, there's an 80% chance they'll get it back.0.97
00:51:28.920That is the story of the collapse of FTX in short, right?
00:51:31.660There's a run on customer funds, which leaves Sam and his buddies exposed with their hands
00:51:38.240in the cookie jar and no more cookies left, right?
00:51:41.380The story that Sam Bankman-Fried tells about all of this and that Michael Lewis appears to at least sort of buy is that he was not aware of any of this.
00:51:51.780He claims that he only became aware that Alameda had used the customer money in October 2022, right, before everything falls apart.
00:52:02.620Sam claims to have never moved the money, and Lewis says that this is, quote, irritatingly difficult to disprove.
00:52:09.780This is the story that Sam advances at his trial.
00:52:12.100He claims that he was a terrible manager who was so hands-off that he did not realize that $8 billion was missing.
00:52:19.580The most obviously shady part of this story that he's telling is that in his words, in his story, Sam found out about all of this right before everyone else did, right?
00:52:31.220He's saying, oh, I only learned about this in October 2022.
00:52:34.340The CoinDesk piece drops on November 2nd, right?
00:52:37.540If his story involved any other timeline, he would have had to explain why he didn't do anything to locate or replace the money.
00:53:42.900It was not obvious what had happened to it.
00:53:45.560He does some very admittedly crude back of the napkin math and figures that FTX and Alameda had $23 billion go in and $14 billion go out, plus it had $3 billion on hand.
00:54:05.600The most hand-wavy story just then being bandied about was that the collapse in crypto prices somehow sucked all the money out of Sam's world.
00:54:13.900And it was true that Sam's massive holdings of Solana and FTT and other tokens of even more dubious value had crashed.
00:54:20.480They'd gone from being theoretically worth $100 billion at the end of 2021 to being worth practically zero in November of 2022.
00:54:27.520But Sam had paid next to nothing for these tokens.
00:54:30.460They had always been more like found money than an investment he'd forked over actual
01:00:05.060Even though I wanted to say this bitch empty.0.97
01:00:06.860OK, so and to give you a sense of how off base Lewis is in his read of John Ray, John Ray was ultimately able to trace a massive amount of money located across something like 100 corporate entities, which he was able to successfully map out.0.99
01:00:24.620That's how good John Ray was at his fucking job.0.94
01:00:27.300And Michael Lewis is like, I don't know.0.99
01:00:30.740So, again, what happens as the bankruptcy proceeds is that Ray is able to recover a large percentage of the money owed to investors to the point where now many people believe that investors will be repaid in full.
01:00:45.100This leads Lewis to his ultimate conclusion about what happened here, which I am going to send to you.
01:00:51.580It says, Ray was inching toward an answer to the question I'd been asking from the day of the collapse.
01:07:12.040It's true that there was massive revenue, but that's not a great business if there is a world historic misappropriation of funds happening to that revenue.0.93
01:07:23.000I don't fucking like, what do you think a business is?0.84
01:11:06.060But I think Lewis wants it to be true because he believes that the existing system is hopelessly corrupt.
01:11:11.440Zeke Fox, an author who has his own much better, at the end of the day, book about crypto and FTX called Number Go Up.
01:11:19.540He said that Lewis told him, quote, you look at the existing financial system and the crypto version is better.
01:11:26.340What? I don't want to get into why I think that's wrong. That's wrong.
01:11:30.120What I want to point out about that statement is that it's a very weird thing to say because Lewis in this book basically admits that he doesn't understand Bitcoin at all.
01:11:41.600Yeah. He says, quote, Bitcoin often gets explained, but somehow never stays explained.
01:11:47.100You nod along and think you're getting it, but then wake up the next morning needing to hear the explanation all over again.
01:11:52.760Oh, my God. That's so true and so wise. This is my experience. Absolutely.
01:11:57.140It's absolutely true. But how do you write that and then say that this is better than the existing financial system?
01:12:04.420My answer to that is that this is someone who has so little faith in the existing financial system that he's ready to believe anything.
01:12:12.640What this actually reminds me of is a lot of the health grifting that me and Aubrey talk about a maintenance phase where it always casts itself as an alternative to like Western medicine doesn't want you to know.
01:12:23.160And like this is the way that it's often framed.
01:12:25.000But then what they're doing is they're shunting you to like vitamin supplement companies, which is also big business.
01:12:31.580They're operating on the principle that there's only one actor can be bad and everything outside of it must, because it's an alternative, be better.
01:14:19.320But if you're just willing to peel back that one layer, this guy is obviously selfish,0.99
01:14:26.260admits that he doesn't give a shit about other people.0.93
01:14:28.640He has a very narrowly defined set of skills and used those skills to run up a massive fortune and then lost it because those were the only skills he had.0.98
01:14:41.760You need to be in a mindset where you want to believe that this guy is a savior in order to watch him playing video games during meetings with employees and be like, his brain is just too good.
01:14:56.760The thing is, I mean, that part of that I actually agree with because I know a guy that got fired as a lawyer and then spent months playing Elden Ring.
01:15:08.240Look, I give Sam Bankman a freed credit because I've tried to play video games while on work calls and everyone's like, Peter, are you there?