Going Infinite: The Rise and Fall of a New Tycoon by Michael Lewis

(New York: W. W. Norton & Company, 2023-10-03), 312

Preface

He needed infinity dollars because he planned to address the biggest existential risks to life on earth: nuclear war, pandemics far more deadly than Covid, artificial intelligence that turned on mankind and wiped us out, and so on. To the list of problems Sam hoped to tackle he’d recently added the assault on American democracy, which, if successful, would make all of the other big problems far less likely to be solved. One hundred fifty billion was about what was needed to make a dent in at least one of the big problems. (Location: 50)
His ambition was grandiose, but he wasn’t. (Location: 69)

ACT I (Location: 73)

1 YUP

“Everyone called it a scam,” she said, and she worried about that. Once on the inside, she was struck by how few of the people who worked in crypto could explain what a bitcoin was. The businesses themselves didn’t always know what they were doing, or why. They were hiring lots of people because they could afford to, and big headcounts signaled their importance. (Location: 91)
anyone at FTX who tried to live a normal life simply didn’t stick. (Location: 101)
Every decision Sam made involved an expected value calculation. (Location: 191)
He was just moving through the world in the only way he knew how. The cost this implied for others simply never entered his calculations. (Location: 201)
after he’d met privately with President Clinton, and asked him what the United States might do if China invaded Taiwan. Whatever Clinton had told Sam had prompted him to seek her out afterward and suggest that she move her parents out of Taiwan. (Location: 206)
the more important he became in the eyes of the world, the more important these games became to him. Storybook Brawl had everything Sam loved in a game. (Location: 244)
The games Sam loved allowed for only partial knowledge of any situation. Trading crypto was like that. (Location: 254)
He could often occupy two worlds at once and win in both. In this case he clearly stood no chance of winning in one world unless he paid less attention in the other. (Location: 310)
He was Biden’s second- or third-biggest donor, and yet the campaign had never even bothered to call him. (Location: 317)

2 THE SANTA CLAUS PROBLEM

None of what the Bankman-Frieds did was for show; they weren’t that kind of people. They just really thought about what they did before they did it. (Location: 423)
It told you something not just about Sam but about his upbringing that he could live for almost ten years inside the United States of America without realizing that other people believed in God. (Location: 438)
Wait a minute, do you think I’m going to hell? Because that seems like a big deal. If hell exists, why do you, like, care about McDonald’s? Why are we talking about any of this shit, if there is a hell. If it really exists. It’s fucking terrifying, hell.” (Location: 443)
God—or rather the fact that anyone believed in him—rocked Sam’s world. Just sideswiped his view of other people and what was going on inside their minds. (Location: 446)
His parents’ friends were at their dinner table every Sunday, and available for inspection. “I’d ask them, ‘Do you believe in God?’ They’d equivocate—like, say something about a Being that started the Clock of the Universe. And I’d think, Quit fucking around: it’s a binary question. Just yes or no.” (Location: 449)
From the widespread belief in God, and Santa, Sam drew a conclusion: it was possible for almost everyone to be self-evidently wrong about something. “Mass delusions are a property of the world, as it turns out,” he said. (Location: 453)
“I started to associate books with a thing I didn’t like.” (Location: 507)
But even MIT, where he eventually landed, had a humanities requirement. (Location: 530)
When the Bankman-Frieds traveled to Europe, Sam realized that he was just staring at a lot of old buildings for no particular reason. “We did a few trips,” he said. “I basically hated it.” (Location: 538)
In sixth grade Sam heard about a game called Magic: The Gathering. For the next four years it was the only activity that consumed him faster than he could consume it. (Location: 539)
“There should exist within the game a scenario where it is impossible to determine a winning strategy.” (Location: 552)
Sam was good at Magic. Inside the game he interacted more easily with other people than he could outside it. Playing the game, he made his one meaningful childhood friend, a boy named Matt Nass.† (Location: 558)
Sam. He was a really rare combination of hyper-rational and extremely kind.” (Location: 568)
He was perfectly positioned, emotionally and intellectually, to make a religion of himself. (Location: 578)
“It felt unambitious to not care about what happened to the rest of the world,” said Sam. (Location: 586)
their day jobs, his parents continually wrestled with the tension, in American law, between individual freedoms and the collective good. Both identified, broadly speaking, as utilitarians: any law should seek not to maximize some abstract notion of freedom but rather the greatest good for the greatest number. (Location: 587)
When I was about 12 years old I was first becoming politically aware and started to think through social issues. Gay marriage was a no brainer—you don’t have to be a hardcore utilitarian to see that making people’s lives miserable because they’re completely harmlessly a little bit different than you is stupid. But abortion was nagging me a bit. I was pretty conflicted for a while: having unwanted kids is bad, but so was murder. Then Sam framed abortion as a utilitarian might. Not by dwelling on the rights of the mother or the rights of the unborn child but by evaluating the utility of either course of action. There are lots of good reasons why murder is usually a really bad thing: you cause distress to the friends and family of the murdered, you cause society to lose a potentially valuable member in which it has already invested a lot of food and education and resources, and you take away the life of a person who had already invested a lot into it. But none of those apply to abortion. In fact, if you think about the actual consequences of an abortion, except for the distress caused to the parents (which they’re in the best position to evaluate), there are few differences from if the fetus had never been conceived in the first place. In other words, to a utilitarian abortion looks a lot like birth control. In the end murder is just a word and what’s important isn’t whether you try to apply the word to a situation but the facts of the situation that caused you to describe it as murder in the first place. And in the case of abortion few of the things that make murder so bad apply.§ (Location: 597)
Math camp had alerted him to the existence of people not entirely different from himself. (Location: 625)
“The place I am strongest is the place where you have to do things other people would find shocking,” (Location: 636)

3 META GAMES

“I had sort of implicitly assumed that academia was the center of morality,” (Location: 658)
“There was very little evidence that they were doing much of anything to change the world. Or even thinking about how to have the most impact on the world.” (Location: 664)
Sam saw right away that the key to the game was to make quick judgments about the expected value of bizarre situations, and act on them. (Location: 701)
The game, he sensed, was testing his relationship to information: when he sought it, how he sought it, how he updated his beliefs in response to it. (Location: 726)
The most difficult part of each game was seeing exactly what it was. (Location: 729)
Sam thought time pressure favored him. It wasn’t that he thrived under pressure; it was that he didn’t feel (Location: 732)
Sam’s first thought was to define the problem. If you didn’t define the problem, you couldn’t solve it. (Location: 741)
“There were no right answers,” said Sam. “There were only wrong answers.” (Location: 761)
“By the end of the day it was clear that it was by far the best I’d ever done at anything,” (Location: 769)
Peter Singer was at least partly responsible for the ideas Sam had about what to do with his life. (Location: 786)
he came to the view that we needed to give what we had to others until the cost to ourselves outweighed the benefits to them. (Location: 797)
The new social movement sprang directly from Singer’s forty-year-old argument. Effective altruism, (Location: 818)
you, student at an elite university, will spend roughly eighty thousand hours of your life working. If you are the sort of person who wants to “do good” in the world, what is the most effective way to spend those hours? (Location: 820)
Thus anyone with the ability to go to Wall Street and make vast sums of money had something like a moral obligation to do so—even (Location: 843)
Earn to give, MacAskill called his idea. (Location: 845)
It compelled them to think quantitatively about qualitative things. To think rigorously about everything—even (Location: 878)
Sam’s first thought was about adverse selection. Adverse selection was a favorite topic at Jane Street. In this context it 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. (Location: 893)
“People get so obsessed with free dollars when you frame it correctly,” said Sam. (Location: 939)

4 THE MARCH OF PROGRESS

It wasn’t enough for the trader to make money. You needed to be able to explain why you were making money. A great trader at Jane Street was not a great trader unless he could explain why he was a great trader—and why some great trade existed. (Location: 1,086)
“Markets were moving at the speed of CNN, not the speed of data,” said Sam. “We were confident we had better info than the market. (Location: 1,141)
“It went from single most profitable to single worst trade in Jane Street history.” Plus Donald Trump was now president of the United States, a fact that did not please Sam or anyone else he knew at Jane Street. “The universe was a cruel joke,” he said. (Location: 1,157)
In retrospect, they had spent too much time getting their information and not enough time thinking about how to use it. They’d just assumed that a Trump victory was a global financial disaster. (Location: 1,166)
They’d paid him $300,000 after his first year, $600,000 after his second year, and, after his third year, when he was twenty-five years old, were about to hand him a bonus of $1 million. (Location: 1,185)
He thought of himself as a thinking machine rather than a feeling one. He thought of himself as a person who thought his way to action. (Location: 1,208)
If you really believed all that, you wouldn’t eat meat. At little cost to yourself you reduce a lot of suffering. (Location: 1,214)
He’d given away most of the money he’d made on the trading floor to three charities identified by the Oxford philosophers as being especially efficient at saving lives. (Two of those charities, 80,000 Hours and the Centre for Effective Altruism, the Oxford philosophers had started themselves. The third was the Humane League.) (Location: 1,225)
The only way to figure it out was to fuck around and try some of these things.” (Location: 1,237)

Act II

5 How to Think About Bob

Like Sam, she had discovered effective altruism in college, and found in it an intellectually coherent sense of purpose. (Location: 1,276)
Wall Street firms were not capable of generating that level of trust, but EA was. (Location: 1,402)
“It was borderline illegal, but in practice, who goes after you when you do this?” said Nishad later. “No one.” This was the very beginning of Nishad’s financial education: there were laws that, in theory, governed money; and then there was what people actually did with money. “That’s where I learned what the law is,” said Nishad. “The law is what happens, not what is written.” (Location: 1,474)
that idea,” said one of the firm’s managers. Sam continued to insist that the missing Ripple was no big deal. (Location: 1,514)
He hated the way inherently probabilistic situations would be interpreted, after the fact, as having been black-and-white, or good and bad, or right and wrong. So much of what made his approach to life different from most people’s was his willingness to assign probabilities and act on them, and his refusal to be swayed by any after-the-fact illusion that the world had been more knowable than it actually was. (Location: 1,520)
Life’s uncertainties often made a mockery of a probabilistic approach, but in Sam’s view there was really no other approach to take. (Location: 1,535)
in their financial dealings with each other, the effective altruists were more ruthless than Russian oligarchs. (Location: 1,581)
The dust had settled on what was being called The Schism, (Location: 1,626)

6 Artificial Love (Location: 1,673)

It was at once a plea for sound money and an appeal to mistrust. It was both financial innovation and social protest. (Location: 1,687)
As it turned out, the people who set out to eliminate financial intermediaries simply created some new ones of their own, including, by early 2019, two hundred fifty-four crypto exchanges. (Location: 1,724)
Even more than, say, the New York Stock Exchange, the institutions they created required their customers to trust them. (Location: 1,727)
The whole thing was odd: these people joined together by their fear of trust erected a parallel financial system that required more trust from its users than did the traditional financial system. Outside the law, and often hostile to it, they discovered many ways to run afoul of it. (Location: 1,732)
In traditional finance, founded on principles of trust, no one really had to trust anyone. In crypto finance, founded on a principle of mistrust, people trusted total strangers with vast sums of money. (Location: 1,743)
How did everyone’s actions reflect on the probability distribution of their future behavior. The sentence told you a lot about how Sam viewed other people, and maybe himself too. Not as fixed characters—good or bad, honest or false, brave or cowardly—but as a probability distribution around some mean. People were neither the worst nor the best thing they’d ever done. (Location: 1,801)
The idea of creating a crypto exchange was at once obvious and implausible. Obvious (Location: 1,847)
Implausible because of who Sam was, and how he related to people. (Location: 1,850)
(Everyone in crypto wanted to bet more than they had.) (Location: 1,868)
The design that FTX (Gary) had come up with solved the problem, in an elegant way. It monitored customers’ positions not by the day but by the second. The instant any customer’s trade went into the red, it was liquidated. (Location: 1,874)
Only after CZ turned him down did Sam decide to create an exchange himself. (Location: 1,894)
The FTX token was called FTT. (Location: 1,934)
“It’s a moderately bad sign if you are having someone do the same thing they’ve done before,” he said. “It’s adverse selection of a weird sort. Because: why are they coming to you?” (Location: 1,974)
If he seemed older than he was, it was because he was letting go of one of the things that defines youth: hope. “The smartest minds of our generation are either buying or selling stocks or predicting if you’ll click on an ad,” he said. “This is the tragedy of our generation.” (Location: 1,981)
Bitcoin was defined early on, in 2015, as a commodity, and so is regulated by the CFTC. (Location: 2,052)
In early 2021, Jump Trading—not a conventional venture capitalist—offered to buy a stake in FTX at a company valuation of $4 billion. “Sam said no, the fundraise is at twenty billion,” recalled Ramnik. Jump responded by saying that they’d be interested at that price if Sam could find others who were too—which told you that the value people assigned to new businesses was arbitrary. Selling a new business to a VC was apparently less like selling a sofa than it was like pitching a movie idea. The VCs’ eagerness to buy turned less on your hard numbers than on how excited they became about the story you told. (Location: 2,060)
between the summer of 2020 and the spring of 2021, in four rounds of fundraising, they sold roughly 6 percent of the company for $2.3 billion. (Location: 2,090)
“FTX is smaller than people think, and Alameda is bigger,” said Ramnik. “Way bigger.” It was never clear where Alameda Research stopped and FTX started. (Location: 2,099)
Seeing no single person inside of Alameda qualified to run it, Sam handed the job to two people. The first was a clever but socially awkward trader named Sam Trabucco (Location: 2,115)
By the fall of 2021 Caroline was effectively managing both the people and the trading risk while herself being managed only by Sam. (Location: 2,122)
Caroline sensed that, even as Sam promoted her to CEO of Alameda Research, he disapproved of her job performance—and she shared his opinion. (Location: 2,169)
Matt Levine’s excellent forty-thousand-word article in Bloomberg Businessweek, “The Crypto Story.” (Location: 2,182)
Nick Shalek, of Ribbit Capital. “I asked him a question. And he talked for an hour. I asked him a second question, and he talked for another hour.” (Location: 2,190)

7 The Org Chart

They also cared about the logic underpinning their behavior; consistency was, for them, not the hobgoblin of a little mind but the mark of a big one. (Location: 2,259)
George. “It’s because of the impact on their own lives. They believe that having kids takes away from their ability to have impact on the world.” After all, in the time it took to raise a child to become an effective altruist, you could persuade some unknowably large number of people who were not your children to become effective altruists. “It feels selfish to have a kid. The EA argument for having a kid is that kid equals happiness and happiness equals increased productivity. If they can get there in their head, then maybe they have a kid.” (Location: 2,261)
“There are two parts of being EA,” said George. “Part one is the focus on consequences. Part two is the personal sacrifice.” (Location: 2,267)
Sam had been in the market for a new therapist. (Location: 2,286)
He set out to establish FTX as the world’s most regulated, most law-abiding, most rule-following crypto exchange. (Location: 2,372)
Act III (Location: 2,722)

8 The Dragon’s Hoard

If there was any rule governing Sam’s life, it was that it was never allowed to bore him. (Location: 2,761)
A lot of what got done inside Sam’s world got done without the usual checks and balances. (Location: 2,829)
Their first, less sneaky initiative was pandemic prevention. (Location: 2,901)
they’d adopted a strategy of finding as many congressional candidates as they could who would support spending on pandemic prevention and buying their elections in bulk, while at the same time doing their best to disguise that the money involved had anything to do with crypto. (Location: 2,919)
Will MacAskill—who (Location: 3,026)
Since MacAskill had first sold Sam, back in the fall of 2012, on the idea of earning to give, the EA movement had obviously changed. It had become a lot less interested in saving the lives of existing human beings than future ones. (Location: 3,027)
“The core argument was like, look, the future is vast,” said Sam. “You can try to put a number on it but obviously anything that flows through to that is going to have a vast multiplier.” (Location: 3,042)
You might think that people who had sacrificed fame and fortune to save poor children in Africa would rebel at the idea of moving on from poor children in Africa to future children in another galaxy. They didn’t, not really—which tells you something about the role of ordinary human feeling in the movement. It didn’t matter. What mattered was the math. (Location: 3,045)
instead of giving money away themselves, they scoured the world for subject matter experts who might have their own, better ideas for how to give away money. (Location: 3,064)
It also had its own banks and sort of banks that paid crypto interest on crypto deposits—though did not offer insurance on those deposits. The banks re-lent that money at higher rates of interest to crypto hedge funds—without anyone having really any idea what those hedge funds were doing with the money. It had exchanges that did not merely facilitate crypto trades but also warehoused their customers’ money—without any regulator paying a whole lot of attention to how they did this. (Location: 3,086)
The whole edifice relied on a fantastic amount of trust. (Location: 3,092)
The 2022 crypto crisis lacked this mechanism. Instead of governments, crypto had Sam. Or, rather, it had Ramnik, who was busily evaluating which of the failed crypto businesses to save and which to let die. (Location: 3,096)
Trust in Sam meant trust in Ramnik, who was just then putting the finishing touches on the purchase of two failed crypto banks, Voyager Digital and BlockFi. (Location: 3,099)

9 The Vanishing

at least $8 billion belonging to crypto traders, and meant to be safe and sound inside FTX, had wound up instead inside Alameda Research. (Location: 3,128)
Within twenty seconds of Caroline’s tweet came a rush to sell FTT by speculators who had borrowed money to buy it. (Location: 3,201)
the vast majority of the secret stash had no immediate market. (Location: 3,214)
Though Caroline was in charge of Alameda Research, she seemed totally clueless about where its money was. She’d come onto the screen and announce that she had found $200 million here, or $400 million there, as if she’d just made an original scientific discovery. (Location: 3,231)
As it turned out, it wasn’t easy to get people to give you $7 billion when you couldn’t explain why you needed it. It was even harder to get people to give you $7 billion when you had to have it right away. Lots of people were willing to talk to Sam and Can and Ramnik, but all of them had the same question: Where did the customer deposits go? When that question went unanswered, everyone who had $7 billion lying around lost interest. (Location: 3,249)
The agreement gave Binance the entire company, minus FTX US, in exchange for assuming its liabilities. It also gave Binance the right to inspect the books of both FTX and Alameda Research, (Location: 3,255)
“I just had an increasing dread of this day that was weighing on me for a long time and now that it’s actually happening it just feels great to get it over with one way or another,” she’d written to him on Sunday. (Location: 3,267)
How do we make sure we cooperate in prisoner’s dilemma? How do we all make sure we say the other ones are innocent? (Location: 3,293)
Zane Tackett had done something no one else had done: when the shooting started, he’d run toward the fight rather than away from it. (Location: 3,334)
Zane then sent Sam a message asking three questions: “One, are we insolvent, two, did we ever lend out customer funds to Alameda, and three anything I didn’t ask that I need to know?” Sam didn’t reply—and then went totally silent on him. He’d vanished on Zane in the same way he’d vanished on Christina Rolle. (Location: 3,345)
“That fucking asshole—how could he not tell me, when I went out to defend him?” said Zane, repeating more or less what he’d said to Sam directly. “You let me go out and lie for you. Fuck you.” (Location: 3,355)
To Zane it didn’t matter. There was one question he dwelled on: Why had neither he nor anyone else he knew seen this coming? He had the beginning of an answer. “Sam’s oddness,” he said. “His oddness mixed with just how smart he was allowed you to wave away a lot of the concerns. The question of why just goes away.” (Location: 3,363)

10 Manfred

$10,152,068,800 of customer deposits. More than $10 billion that was meant to be custodied by FTX somehow had ended up inside Sam’s private trading fund. (Location: 3,481)
At the moment of its collapse, FTX had had more than ten million account holders, to whom it owed $8.7 billion. Nearly half of those losses, or $4 billion, were concentrated in these fifty accounts. (Location: 3,487)
It had exempted Alameda from the risk rules that governed all the other traders. The trades made by every other trader on FTX were liquidated the moment their losses exceeded the collateral they had posted. (Location: 3,500)
In Sam’s telling, the dollars sent in by customers that had accumulated inside of Alameda Research had simply never been moved. (Location: 3,555)
As Sam put it: “I didn’t ask, like, ‘How many dollars do we have?’ It felt to us that Alameda had infinity dollars.” (Location: 3,564)
Between the start of April and the middle of June, the price of a bitcoin fell from just over $45,000 to under $19,000. Entering that summer, the relative importance to Alameda of the $8.8 billion had skyrocketed. But Sam wasn’t managing the risk inside Alameda Research, according to him. Caroline was. Perhaps because he and Caroline were barely speaking by that point, she hadn’t bothered to raise, directly with him, her worries about the risks she’d been running. (Location: 3,566)
“He made me try to believe it was an accounting error.” (Location: 3,581)
Most FTX employees had lost their life savings. Some had lost their spouses, their homes, their friends, and their good names. (Location: 3,602)
Sam: in his telling, he hadn’t realized how much risk he’d subjected others to without their permission. (Location: 3,606)
“He has absolutely zero empathy,” she said. “That’s what I learned that I didn’t know. He can’t feel anything.” (Location: 3,607)
nearly $9 billion more had entered Sam’s World than had exited it. (Location: 3,640)
it still had $3 billion on hand. That dropped the missing sum to $6 billion. (Location: 3,641)
He’d entered the mode that maybe came most naturally to him. I thought of it as Sam's patiently-explaining-things-to-an-idiot mode. (Location: 3,683)
FTX had lost a lot of money to hackers. (Location: 3,698)
The hacks reduced to $5 billion the number of unexplained missing dollars. (Location: 3,708)

11 Truth Serum

John Ray read up on him and this company he’d created. (Location: 3,783)
The men he evaluated he tended to place in one of three bins in his mind: “good guy,” “naive guy,” and “crook.” Sam very obviously was not a good guy. And he sure didn’t seem naive. (Location: 3,788)
He had a clear, narrowly defined job: to find as much money as he could and return that money to the creditors. (Location: 3,806)
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” (Location: 3,822)
John Ray was on a bizarre Easter egg hunt with no prior egg count. With no idea how many eggs he was looking for, he’d never know when to end his search. (Location: 3,843)
Zane’s problem wasn’t that he was a crook but that he was too trusting. The same was true of almost all of FTX’s employees, many of whom had lost everything. (Location: 3,882)
Ray was inching toward an answer to the question I’d been asking from the day of the collapse: Where did all that money go? The answer was: nowhere. It was still there. (Location: 4,001)
And yet at least up until late spring of 2022, when crypto prices began to plunge, and possibly much later than that, none of them expressed disapproval of the risk being taken with their fortunes. Why not? (Location: 4,033)
“It’s sometimes easier for people to publicly be the villain, than to privately have thoughts that others would judge harshly were they to be public . . . in other words: sometimes courage of thought is even harder than courage of action.” When the social pressure reached a certain point, it was easier for people to cave to it than to preserve their true identities. (Location: 4,050)

Topic: Sam Bankman-Fried, FTX

Source

Ryan Holiday reading list, among others
Mom/Dad for Christmas 2023

Created: 2023-11-20-Mon
Updated: 2024-03-25-Mon