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What Do Sam Bankman-Fried’s Weird Ideas About Risk Have to Do With FTX’s Collapse? Almost Everything.
2022 was, you might say, the year when grifters got their just deserts. The year began with the conviction of Theranos founder Elizabeth Holmes, and ended with the arrest on fraud charges of FTX founder Sam Bankman-Fried, and the revelation that newly-elected Republican House member George Santos had essentially invented an entire life for himself when talking to voters. So perhaps it would be more accurate to call it the year of grifters getting caught (though Santos is still on track to be seated as a House member in a couple of days).
Of all these stories, the biggest, and strangest, was of course the collapse of FTX, the crypto “exchange” Bankman-Fried had somehow turned into a business that was valued at $32 billion at its peak. In one sense, FTX looks like a simple financial scam — according to the SEC complaint against Bankman-Fried, Alameda Research (the crypto hedge fund that Bankman-Fried owned and controlled, and which was run by his former girlfriend, Caroline Ellison) was dipping into FTX customer assets to fund its own trading, and was also funneling money to SBF and other FTX executives in the form of loans.
But that simple summary doesn’t really explain what happened at FTX, or why it collapsed. In a conventional scam — like, say…
