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Quantumfreakonomics  2yr ago (text post)   Edited 2yr ago   5509 thread views

FTX is Rationalism's Chernobyl

You may be familiar with Curtis Yarvin's idea that Covid is science's Chernobyl. Just as Chernobyl was Communism's Chernobyl, and Covid was science's Chernobyl, the FTX disaster is rationalism's Chernobyl.

The people at FTX were the best of the best, Ivy League graduates from academic families, yet free-thinking enough to see through the most egregious of the Cathedral's lies. Market natives, most of them met on Wall Street. Much has been made of the SBF-Effective Altruism connection, but these people have no doubt read the sequences too. FTX was a glimmer of hope in a doomed world, a place where the nerds were in charge and had the funding to do what had to be done, social desirability bias be damned.

They blew everything.

It will be said that "they weren't really EA," and you can point to precepts of effective altruism they violated, but by that standard no one is really EA. Everyone violates some of the precepts some of the time. These people were EA/rationalist to the core. They might not have been part of the Berkley polycules, but they sure tried to recreate them in Nassau. Here's CEO of Alameda Capital Caroline Ellison's Tumblr page, filled with rationalist shibboleths. She would have fit right in on The Motte.

That leaves the $10 billion dollar question: How did this happen? Perhaps they were intellectual frauds just as they were financial frauds, adopting the language and opinions of those who are truly intelligent. That would be the personally flattering option. It leaves open the possibility that if only someone actually smart were involved the whole catastrophe would have been avoided. But what if they really were smart? What if they are millennial versions of Ted Kaczynski, taking the maximum expected-value path towards acquiring the capital to do a pivotal act? If humanity's chances of survival really are best measured in log odds, maybe the FTX team are the only ones with their eyes on the prize?

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I have no idea what you're talking about and a quick googling only tells me something about a hacked cryptocurrency platform. What does that have to do with rationalism or EA and why should anyone care?

The main person behind the FTX situation is Sam Bankman Fried, a very influential donor and prominent figure within the Effective Altruism movement. His exchange blew open due to his financial crimes and the movement he is tied to is taking heat. He allocated millions into Effective Altruism while embezzling from his exchange. What is currently happening is a Bernie Madoff level collapse. A company that had ads with Larry Davis on the Super Bowl this year is imploding overnight and all it's customers are turbo fucked.

What exactly do you think his crimes were? I haven’t seen anything that says he was operating any differently from a normal bank, except doing it in with much riskier assets.

He gambled with customer's money (by giving lines of credit to his hedge fund, amongst other things), when the terms of the exchange explicitly said it wouldn't.

I thought this video did a pretty good job of explaining it, with some receipts.

https://youtube.com/watch?v=MWfuDeO9thk

I don’t think that’s anything that a modern international bank wouldn’t do? Like, surely JP Morgan Chase extends lines of credits to their own hedge funds, using bank deposits to fund them. (Granted they prolly don’t extend 50% of their assets to them. But I think that’s a difference in appetite for risk than any real ethical boundary)

The terms claiming they wouldn’t do that is dumb. I’m not sure they exactly violated them, since they didn’t loan the assets to FTX trading, they just allowed another client (Alameda) to trade on margin on shitty terms. But they definitely violated the spirit of it. (Though I don’t really know what “title” is supposed to mean in this context)

The terms of service of FTX said that money held in the exchange was backed 1:1 with assets. He was using the customers funds to make bets with his hedge fund, which is illegal.

He also attested to this type of thing in front of congress, and worked frequently with legislators so he may have committed perjury on top of that.

Ahh that would definitely be something if it were true. That said, it seemed to me like a strange thing for a company to put in the TOS, since those things are about protecting the company. So I pulled the FTX TOS from January and don’t see anything in there promising that edit: I was wrong. January was too early to pull the TOS.

You say he made that claim publicly?

Turns out January was too early. They added the section about ownership in May. So I retract what I said before.

He tweeted, "FTX has enough to cover all client holdings. We don't invest client assets."

He then deleted that tweet, as it was a bald-faced lie.

Ah yep. Hadn’t seen that one. That’s idiotic and effed up.

His exchange blew open due to his financial crimes…

Well, his exchange blew open because of unethical dealings that are considered crimes if an American financial institution carries them out. And while a federal probe is starting up, the WSJ has said it’s yet unclear what the charges might be, given crypto is far-less regulated and some of FTX’s legal entities were offshored. Which hints at the reality of the spergy, libertarian dream of deregulating financial markets.

Thanks!

https://youtube.com/watch?v=WHgGSeNY7Dw

Here's a good recap of it so far. There's a lot more that has happened since but it's not settled yet.

I appreciate the breakdown of what happened, and man, Changpeng Zhao is right now living the best life according to Conan:

To crush your enemies, to see them driven before you, and to hear the lamentations of their women.

All the shade he's throwing on FTX and SBF, and now I understand why he first issued and then withdrew that letter of intent about buying/taking over FTX - it was to steady the market before people started a run on Binance, and to point up that Binance was okay, was strong, and had no problems unlike FTX. Smart guy, his strategy seems to be working (so far).

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