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Comment by bmitc | Hacker News Reader

My thoughts are that FTX was maybe a legitimate business, but then Alameda was his trading baby that just happened to be run by kids, including himself, that have no idea what they're doing and was losing money left and right. Then using FTX customer funds was viewed as just a "let's move these funds over to get our trading back on track and when we do, we'll move them back". That's my honest guess if I'm being generous as to their intentions and thought process. Not saying it isn't criminal though, because I think it is. It's also a complete guess as an outsider to all this.

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I think they thought they were honest and doing things properly, and didn't realize that their holding of FTT was making them as bad as the other frauds before. I think these ouroboros are complex enough that even main players don't necessarily understand the position they've put themselves in.

If by 'they thought they were honest and doing things properly' you think the same for Madoff, then oof.

Actions and results matter. Intentions can easily be bullshit and delusion.

If someone is committing multi-billion dollar fraud, there is a line that was crossed a LONG time ago.

I read him as saying they thought they were doing honest things.

I was referring to the same miscreants as the poster was.

It’s only plausible to a certain point that they were unknowingly bad actors. They’d have to willingly be deluding themselves.

No one commits multi-billion dollar fraud accidentally.

They’d have to turn a blind eye to something any reasonable person would consider a ‘are we the baddies’ moment. Or two. Or dozens.

As to if it’s documented? One can hope, but I’m not holding my breath. I’m sure there have been many shredder parties (or digital equivalents) happening in many places since the news broke.

Oh you’d be surprised. I think most people are capable of this kind of fraud. It’s human nature to judge others by their actions, but judge yourself by your intentions.

Capable, yeah. Capable without knowing they’re doing something wrong? Yeah, no.

Most people cross that threshold well before a million bucks.

You can tell by the shape of the lies that are inevitably told. Someone who actually thinks they’re doing something ok won’t go to such lengths to hide important details, or omit specific things that are inevitably omitted.

And in this case, why not just update the TOS to be clear what they’re doing?

Because they know it’s wrong.

What you’re talking about is willful delusion.

Denial ain’t just a river in Egypt, etc.

Yeah and the point is no one sane would seriously say Madoff thought he was being honest. They’re making an analogy between Madoff and SBF being similar/the same.

Let’s not treat senior management and owners of a company that has gambled away billions of dollars of customers (and investors) money as kids. They should get jail time from what I’ve read so far.

They were either criminally stupid or did this on purpose. It really wasn’t that complex. This isn’t even close to 2008 complexity since this was all happening within one organization With the same owner SBF.

"Never attribute to incompetence that which can be adequately explained by greed."

“Never assume malice by that which could be explained by incompetence.”

As a caveat, however, SBF did work at Jane Street and graduated Summa Cum Laude from MIT with a Physics degree, so maybe this quote does not apply.

Right, which is exactly why I took that quote--which is overused by HN crowd--and changed it to fit the context. But you went and added it anyway.

I won't assume any malice on your part.

Nitpick: There is no such thing as Summa Cum Laude at MIT. Rankings and GPAs are not published, so he just graduated with a physics degree, period.

Always gives me pause when I hear people say that someone graduated with honors at MIT, even when it's Tony Stark:

https://getyarn.io/yarn-clip/87387a75-dde7-44ec-bc87-66f4e20...

Or this guy from Why Him:

https://getyarn.io/yarn-clip/bbc047f6-7417-4eb3-b4fe-064f75d...

1: “Never attribute to incompetence that which can be adequately explained by greed."

2: “Never assume malice by that which could be explained by incompetence.”

1+2 = 3: “Never attribute malice to that which can be adequately by greed”

Greed can be a form of incompetence - the inability to set goals that are reachable without recklessness or imprudence.

Yup, "accidentally criminal" is still criminal.

I don't really care whether they're kids of not. I do think it's possible that they step by step ended up in a situation they didn't realize they were getting into. Doesn't mean I think they shouldn't be punished if such a treatment is required.

But again and again, supposedly smart finance folks end up blindsided by retrospectively obvious stuff. There's just too many complicated fabrications on top of one another.

I'm not particularly sanctimonious, I think the average vilain of the day is most of the time just an average person making dumb mistake.

You’re right, and I see where you’re coming from, but the reality is that this can end with a 50 year prison sentence for SBF. That’s what Wasendorf got for swiping a mere $200M (the largest fraud in history prior to this, according to Animats): https://news.ycombinator.com/item?id=33564752

I think that reality hasn’t set in for most people yet. Especially SBF.

[2022-11-13] If I may follow up on myself: I didn't know anything about this situation and just commented randomly. It seems obvious a few days later that it was straight up fraud.

Seeing these kids talk puts it even more into perspective. Just watch this video of Caroline Ellison, CEO of Alameda.

https://www.youtube.com/watch?v=aW6SqLXw944

I made a comment on that video elsewhere. It’s pretty clear they were way out of their league in more ways than one.

They’re the type of people that are too smart for their own good where they can’t even see how idiotic they’re being. Or maybe they’re just spoiled. Or maybe they just think they’re smart. It’s interesting to me that Jane Street prides themselves on their hiring process, but they apparently hire folks like this.

Other than people losing money, I am super glad these reality checks are happening. But I wish they’d happen to more as well, e.g., Musk and Trump.

I agree, it reflects VERY poorly on Jane Street.

They like to give the impression they hire Ultra Mega Geniuses who have done the IMO (who cares if you did the IMO at age 17...?)

What is the imo? There are many imo things. International mathematical olympiad?

Most probably. Web searching for that Caroline Ellison young lady I found some articles describing her as a young math prodigy when she was in highschool (or something like that).

How does it reflect poorly on Jane Street? These are people who left, after not very long.

If your thesis is "they were inexperienced and operating without sufficient supervision" then that's a big part of what the structure of a place like Jane Street gets you.

I think it means Jane Street likely hires with a lot of bias for elites and “twitchy” smart people. The CEO of Alameda was an intern there and invited back for a full time position. Hearing her speak in interviews makes it seem like she has no idea what she’s doing and not all that intelligent or thoughtful. So it’s weird that she, seemingly easily given she states in interviews that she had no trading experience prior to Jane Street, made it through their supposedly rigorous hiring process. It seems their hiring process may not be as rigorous or effective as they hoped, which seems obvious even looking at the process in a vacuum.

>IMO

Anecdata,

I've studied along guys/gals who've done IMO, also had them as co-workers at other times, they have never performed well.

I really like Linus' saying "talk is cheap, show me the code". These people can make a thousand arguments about why something should/shouldn't work (but never write code), then you show up with working code and they don't have much else to say.

-- having watched a series of in depth interviews with Do Kwon - the interview with Sam Bankman-Fried on Odd Lots - and now this - I wonder if these children had any mentors? - where were the adults? --

I think the adults are the investors who are just older versions of these people that made billions selling some random website to Yahoo in the dot com bubble days.

Interestingly the lack of finance graybeard mentors was listed was a factor for why a short seller (Marc Cohodes) suspected ftx was going to go down, over a month ago.

That sounds like some of the thinking that went into these historic arbitrage disasters.

Some young kid thought he knew better than his elders, and was doing arbitrage, which is moving around vast amounts of money, for very small gains (but safe ones).

They had all this money at their disposal, and just knew that these stuffy old farts were "missing the boat," so they figured that they'd just use a bit, to make a small bet, and put it back...

https://en.wikipedia.org/wiki/Nick_Leeson

https://www.youtube.com/watch?v=NkQ58I53mjk

That’s my guess too but the size of the hole (8bn+) makes it hard to imagine it could all be lost in trading, either in a big bang, or gradually for years.

As I understand it, their primary "trade" was to buy and hold FTT. Suddenly FTT's value went "poof" and the rest is is history.

I think that would only explain $4B or so, they said their hole was $10B. Or do we think the FTT leverage multiplied the exposure?

I don’t even understand why FTT existed?

I also don’t understand why there are competing cryptocurrencies? Without governments and borders, shouldn’t one standard currency be enough? (Technical challenges aside)

Why are there multiple racecar teams? If there is a standard set of rules, why can't there be a standard car that hits the maximum ideal speed around a track, and a standard racer to do it? Or even just automate it?

>I also don’t understand why there are competing cryptocurrencies?

A lot of these "competing cryptocurrencies" are just financial instruments, kind of like you could have stock in a company, but you can also trade options and futures of the same underlying stock.

> A lot of these "competing cryptocurrencies" are just financial instruments, kind of like you could have stock in a company, but you can also trade options and futures of the same underlying stock.

No they weren't. This comparison has no relation to reality.

Crypto-currencies have no underlying. A crypto-currency is like a bunch of imaginary confetti. Why is every crypto organisation is issuing its own brand of confetti? It's a legitimate question. It's exactly the same confetti.

It’s not even real confetti, it’s digital copies.

Of course they do it because they can manufacture something that people will pay for out of nothing, and then can use that for other things that get them real value.

One third of FTX fees were used to buy and burn FTT tokens. This is nearly the same as stock buybacks, and makes it a security, i.e. an instrument that derives its value from the success of a business.

Buying your own imaginary confetti doesn't magically turn your confetti into a stock or into a financial derivative. A stock confers ownership of the firm that issued the stock. These tokens don't confer ownership of anything, and therefore are not like stocks.

Stocks and derivatives are not the only types of securities. I don't really see what you're getting at here.

For most people, the only important part of what you call "ownership" are the cash benefits (buybacks, dividends, and acquisitions). You can see this from the small price difference between GOOG and GOOGL.

Sorry, I don't understand what you're trying to say.

Some people think it's good to trade some of bitcoin's security for extra features, or at least, think that enough people will feel that way in the future to make these tokens good investments today.

Those people look particularly silly on days like this.

My understanding is that Alameda was a market maker, which should have less exposure to down / upswings.

What kind of bets was Alameda making? Why would it need so much leverage?

I understand why loaning money to Alameda could be rationalized a risky, but not sketchy move (if Alameda posted collateral, paid reasonable terms like anyone else would, etc.).

They have been taking directional bets since 2020 at least: https://twitter.com/AlamedaTrabucco/status/13851809411867893...

Whenever I see this kind of fervor and people getting rich off of it I liken it to pro wrestling. Everybody puts on the same show and lots of people cheer because they love the act and lots of people cheer because they think it's real. It's possible Alameda thought that wrestling was real.

My impression is that Alameda was also a legitimate business that also made a lot of money with a lot of leverage for a while, but eventually the tide turned or it had one bad leveraged trade and poof.

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