Michael Lewis doesn’t write stories about people he doesn’t like, and he most definitely doesn’t write takedowns. Unsurprisingly, he wants us to believe that Sam Bankman-Fried (SBF) committed no crime and further was driven by the very best of intentions: to save humanity from pandemics, global warming, and Donald Trump, to whom he considered offering $5 billion to drop out of the 2024 presidential race. Alas, those good intentions paved the road to one of history’s most spectacular financial blowups.
As usual, Lewis has written a rollicking page turner. Although SBF was promiscuous with media access, no other journalist matches Lewis’s hundreds of hours of interviews and weeks of tagging along with his subject from location to location, a rapport so close that SBF’s parents would ask Lewis exactly what their son thought about the world.
Lewis has come in for no small amount of criticism, some of it well earned, for failing to suss out the sudden FTX/Alameda crack up – more on that in a bit. But in an interview with The New York Times, Lewis makes the credible defense that his accusers, having spent orders of magnitude less time with SBF, should be careful in their condemnations of both the author’s competence and his subject’s character.
Point well taken; although Lewis doesn’t use the term, a thoughtful observer of human frailty avoids what psychologists call the “fundamental attribution error”: ascribing the actions of others exclusively to defects in character and without regard to the surrounding circumstances.
In Lewis’s telling, SBF comes across as an honest and moral adherent of the “effective altruism” (EA) movement, a utilitarian ideology that seeks to optimize an individual’s estimated value (EV) to the rest of humanity and subscribed to by nearly all the dramatis personae in the FTX/Alameda affair. His supposed honesty, however, runs time and again into Lewis’s recounting of SBF’s almost pathological inability to honor commitments, which led to, as long ago as 2018, the departure of several principals in his nascent enterprise.
The main thing the reader learns about SBF’s financial ability is that while not a great mathematician or coder, he was possessed of preternatural game theory skills that made him into a nonpareil trader, particularly the ability to calculate probabilities and form useful judgments in the face of incomplete information.
More importantly, Lewis’s detailed description of SBF’s behavior provides a unique window into his personality, best summarized as “humane, but not human” (as Benjamin Graham was once described by his third wife, Estelle), with no joy taken from food, travel, and especially human company. Not until adulthood did he train himself to mechanically smile or nod in agreement while conversing with others.
This reviewer found it difficult to put down Going Infinite, and future financial historians will consult it for its portrait of the evolving mechanics of the FTX/Alameda blowup. But it is woefully incomplete, rather like a canvas that Rembrandt inexplicably left half blank, for the book elides three major questions.
First, there is something seriously psychologically wrong with Mr. Bankman-Fried, whose skill sets could be fearsomely effective in some domains, such as game theory, and utterly absent in others, particularly administrative competence and risk control. Just before FTX blew up, the $8.8 billion of customer funds FTX had lent to Alameda seemed trivial to SBF since, as he told Lewis, “It felt to us that Alameda had infinity dollars.”
Lewis tells us that SBF took medicine for ADHD, but there was surely more going on than this. FTX employed a full-time psychiatrist, who seemed disturbingly happy to discuss with Lewis the attachment issues of SBF’s on-again off-again girlfriend, Caroline Ellison, but remarkably offered no psychiatric opinion about SBF’s obvious psychopathology. Given his unusually uneven skill set and anhedonia, most readers will wonder about Asperger syndrome, and those with psychiatric training might also wonder about schizoaffective disorder.
The second question left unanswered by Lewis is how SBF missed the looming disaster, which in Lewis’ telling arrived wholly unexpectedly in the first week of November 2022. Zeke Faux’s more broadly ranging history of cryptocurrency history, Number Go Up, describes how at a Bahamas conference Lewis rhapsodized to the audience how SBF was “breaking land speed records. And I don’t think people are really noticing what’s happened, just how dramatic the revolution has become . . . You look at the existing financial system, then you look at what’s been built outside the existing financial system by crypto, and the crypto version is better.” In an interview with The New York Times, Lewis accused Faux of jealously trying to torpedo his more successful Going Infinite, but he didn’t deny uttering this credulous piffle. (Even worse: asked by an acquaintance whether he should trade shares in his enterprise with SBF, Lewis tells him, “Do whatever he wants to do! What could possibly go wrong?”)
Lewis’s excuses are lame. Financial history is replete with massive frauds, and SBF’s pre-blowup history exhibited the three classic fraudster hallmarks: world-class charisma, fawning media coverage, and grandiosity. To name just a few examples, over three centuries ago, John Blunt, the director of the South Sea Company, became the archetypical fraud promoter and was followed in turn in the nineteenth century by English railroad magnate George Hudson, in the twentieth by electrical utility entrepreneur Samuel Insull, and in the twenty-first by Elizabeth Holmes, all of whom exhibited this classic triad.
Admittedly, SBF’s charisma – his ability, for example, to play video games while addressing the august and prestigious Economic Club of New York – is unconventional. One needs to look no further than Lewis’s fascination with his subject to gauge the intensity of SBF’s media coverage, and it’s hard to come up with greater grandiosity than his self-image as world savior.
Most readers will have heard the famous, and likely apocryphal, story of how Joseph P. Kennedy saw the 1929 crash coming when shoeshine boys started to offer him stock tips. (More likely, this story originated from a comment by Bernard Baruch about how he heard narrations of market action while getting his footwear cleaned.) These days, it’s not out of the ordinary to hear from one’s Uber driver about their adventures on Coinbase.
Those desirous of a better description of just what went wrong will have to look beyond Lewis’s character study. Other reviewers have given the nod to Faux’s tour d’horizon which, despite SBF’s cover image, assigned the FTX/Alameda saga a relatively minor role in what will likely evolve into a far larger catastrophe. This reviewer heartily concurs; if you have time for only one book about cryptocurrency, it should be Faux’s.
But both Lewis and Faux elide the third, far deeper, issue in the FTX/Alameda blowup, which applies not only to SBF, but to other perpetrators of massive frauds, from John Blunt through Hudson, Insull, and Holmes: just how do these frauds begin? For the answer to that question, I cannot recommend highly enough Harvard Business School professor Eugene Sotles’s précis of financial fraud, the appropriately titled Why They Do It.
Soltes deftly describes how few perpetrators start out planning fraud. Like SBF, most begin with good intentions, much like the proverbial parishioner who borrows $10 from the collection plate to take to the racetrack and then replace it the next week along with an extra $5 of winnings, only to wind up progressively deeper in the hole on each successive Sunday – in SBF’s case, $8.8 billion in the hole. The Soltes book is crammed with similar perpetrators, nary one of whom began with fraudulent intent. The book’s piece de resistance details Bernie Madoff’s impressive history as a pioneering over-the-counter market maker whose advisory service produced options-based excess returns until they got annihilated by the appearance of Black-Scholes-powered handheld calculators.
Like most fraudsters, rather than fess up, he covered up.
As with nearly all other large financial frauds, SBF likely began with good intentions before getting into the cryptocurrency collection plate; in Lewis’ telling, SBF and his FTX/Alameda colleagues constituted a dedicated corps of EA true believers who envisioned a collection plate big enough to save the world, and consequently left a commensurately big hole when their bets turned sour. Most of the book’s readers, however, are going to agree with the more considered interpretation arrived at by the jurors on the 26th floor of Manhattan’s U.S. Courthouse last week.
William J. Bernstein is a neurologist, co-founder of Efficient Frontier Advisors, an investment management firm, and has written several titles on finance and economic history. He has contributed to the peer-reviewed finance literature and has written for several national publications, including Money Magazine and The Wall Street Journal. He has produced several finance titles, and four volumes of history, The Birth of Plenty, A Splendid Exchange, Masters of the Word, and The Delusions of Crowds about, respectively, the economic growth inflection of the early 19th century, the history of world trade, the effects of access to technology on human relations and politics, and financial and religious mass manias. He was also the 2017 winner of the James R. Vertin Award from the CFA Institute.
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Michael Lewis doesn’t write stories about people he doesn’t like, and he most definitely doesn’t write takedowns. Unsurprisingly, he wants us to believe that Sam Bankman-Fried (SBF) committed no crime and further was driven by the very best of intentions: to save humanity from pandemics, global warming, and Donald Trump, to whom he considered offering $5 billion to drop out of the 2024 presidential race. Alas, those good intentions paved the road to one of history’s most spectacular financial blowups.
