Speaker 1: This is Master's in Business with Barry rid Holts on
Speaker 1: Bloomberg Radio.
Speaker 2: This week. On the podcast, Michael Lewis out with a
Speaker 2: brand new book on Sam Bankman, Freed and FTX doing
Speaker 2: the circuit. We managed to get him right after his
Speaker 2: Sixty Minutes podcast and he was completely open and unguarded
Speaker 2: and talked about everything. Talked about the process of writing
Speaker 2: the book, what it's like to go on sixty minutes
Speaker 2: and know that social media is going to come at you.
Speaker 2: People would much rather go to the outrage machine than
Speaker 2: actually learn the details and argue from a factual perspective.
Speaker 2: He doesn't have an opinion on whether or not Sam
Speaker 2: Bankman Freed is going to be found guilty or not,
Speaker 2: and the book is similar. He just lays it out
Speaker 2: as he saw it as a fly on the wall
Speaker 2: and lets you the reader figure it out. So all
Speaker 2: of you haters out there, he's just shaking it off
Speaker 2: and moving on with whatever is going to be his
Speaker 2: next book project. I found the book to be absolutely fascinating,
Speaker 2: really enjoyed it, although I read it, you know, quickly
Speaker 2: in a weekend. Normally I luxuriate in Michael Lewis, and
Speaker 2: I found our conversation to be completely delightful, and I
Speaker 2: think you will also, So with no further ado, my
Speaker 2: discussion on going Infinite with Michael.
Speaker 1: Lewis it's good to see you Berry, good to.
Speaker 2: See you again. So let's start out talking about how
Speaker 2: this landed in your lap. A friend is thinking about
Speaker 2: doing a deal with FTX, and he contacts you, says,
Speaker 2: I can't get a read on this guy, Sam bankmin
Speaker 2: Freed tell us about that first meeting with SBF. What
Speaker 2: was that like.
Speaker 1: So this friend reaches out in September of twenty twenty one,
Speaker 1: and I never heard of Sam bankmcfreed or FTX. I
Speaker 1: hadn't been paying much attention to crypto and Sam BEKMCFREEDA
Speaker 1: a few weeks later ends up on my front porch
Speaker 1: and I take him for a hike in the hills
Speaker 1: of Berkeley. I think it's the first hike he ever
Speaker 1: went on. He was always dressed for the hike, but never.
Speaker 2: Actually goes speakers cargo short.
Speaker 1: I had no idea it was gonna turn up, and
Speaker 1: what turned up was this kind of kid. He's twenty
Speaker 1: nine years old, so I wasn't thinking this is literary material.
Speaker 1: I was thinking my friend wants to know what I
Speaker 1: think of this guy. But an hour into the walk,
Speaker 1: after I've discovered that Forbes has decided he's worth twenty
Speaker 1: two and a half billion dollars, he's kind of amused
Speaker 1: by his whole situation. It's gone from zero. This has
Speaker 1: happened in eighteen months. He's gone from zero to twenty
Speaker 1: two and a half billion in eighteen months. And he's
Speaker 1: describing what is going on in crypto where he intends
Speaker 1: to use this money. Kind of his background, where he
Speaker 1: came from. There is his child of these two Stanford academics.
Speaker 1: His parents were just completely bewildered by what had happened
Speaker 1: to their child because they weren't like they weren't money people,
Speaker 1: they weren't materialistic people, people who just kind of lived
Speaker 1: in their heads. And he said, they don't quite understand
Speaker 1: what to make of all this, And I thought it
Speaker 1: was kind of funny. So I called my friend at
Speaker 1: the end of it. I said, go ahead, to do
Speaker 1: the deal. What could go wrong? And he did the deal.
Speaker 1: But I turned to Sam Bangunfred at the end of
Speaker 1: it and I said, I don't know where this is
Speaker 1: going to end, but I just want to watch can
Speaker 1: I just tag along.
Speaker 2: Like that first meeting you actually set this up?
Speaker 1: And if he was that fascinating, he was that fascinating.
Speaker 1: And I know this because I said. I gave some
Speaker 1: interview right after this and someone said, do you know
Speaker 1: what your next book project might be? And I said,
Speaker 1: you know, I just had a two hour walk with
Speaker 1: a guy, and I think I might have found it.
Speaker 1: But I didn't know what the book was. I didn't
Speaker 1: know much more about him than you can learn in
Speaker 1: two hours. I just knew I had this. I had
Speaker 1: a theory of I had a theory about how I
Speaker 1: wanted my next book to work before COVID. I don't
Speaker 1: want to bore you with this, but before COVID, I
Speaker 1: had made a decision that I wanted to walk into
Speaker 1: books with characters that I was gonna I wasn't gonna
Speaker 1: know what the story was. I wasn't gonna have a
Speaker 1: theory of the case. I was gonna have an argument.
Speaker 1: I was going to attach myself to characters the interest
Speaker 1: who interested.
Speaker 2: Me, as opposed to as a well, there's a narrative
Speaker 2: and the characters flesh out, flesh.
Speaker 1: It out well in the kind of I'd always kind
Speaker 1: of done this. I was just making a bigger point
Speaker 1: of it. And my prior books that I felt they
Speaker 1: were less fun to write were books where I had
Speaker 1: to strain to make the characters characters, like, to make
Speaker 1: them live on the page.
Speaker 2: But really, because I find all your characters leap off
Speaker 2: the page.
Speaker 1: Maybe that's just it's there. I think I think that
Speaker 1: there is a weakness, for example, the Flashboys in the
Speaker 1: character of Brad Katsiyama, because.
Speaker 2: He's he's a chill exactly precisely.
Speaker 1: He's a simply nice, decent guy that he's very I
Speaker 1: love him, but he's doing something really so it works
Speaker 1: only because when you drop that character into the middle
Speaker 1: of modern Wall Street, it gets very interesting.
Speaker 2: He's very Canadian. He's very Canadian, right, and that doesn't come.
Speaker 1: Nice Canadian guy is not where I wanted to ever
Speaker 1: start again, and I wanted to start with complicated, interesting people.
Speaker 1: And I had an idea. Uh my idea was Mike Leach,
Speaker 1: coach of the Mississippi State Bulldogs at the time, was
Speaker 1: going to let me move into his life for a
Speaker 1: season in the in SEC football could have been fun
Speaker 1: and so's character and situation. College football isn't turmoil because
Speaker 1: of the name, image and likeness stuff. But the transfer
Speaker 1: portals and it's becoming ever more professionalized. The schools are afterthought,
Speaker 1: you know, you know, they're sort of like, you have
Speaker 1: the school to have a football team. And Mike Leach,
Speaker 1: who is a one who had written about once, uh,
Speaker 1: is a delightful character who would provide a view on
Speaker 1: it that would be so good. He died, Uh, That's
Speaker 1: what I would have done if he had lived.
Speaker 2: You could have found some other coach to track though,
Speaker 2: if you really wanted to go that route.
Speaker 1: But you need to find a coach who you really
Speaker 1: could light up on the page and who would let
Speaker 1: you in. So who would let who would let me
Speaker 1: see everything? And Mike Leach, I knew, would let me
Speaker 1: see everything.
Speaker 2: And he's quite a character.
Speaker 1: Oh my god, I'm yes. So anyway, so I had
Speaker 1: that in mind when I met Sam, and I thought
Speaker 1: the character in the situation, he's like walking social satire.
Speaker 1: He acquired twenty two and a half billion dollars in
Speaker 1: a flash, and the world was reorganizing itself around him.
Speaker 2: Everybody wanted to everybody want by the way, the twenty
Speaker 2: two point five and I don't know if this is
Speaker 2: from the book or my research. Forbes settled on that number.
Speaker 2: They suspected it could have been high as one hundred billion,
Speaker 2: but they just couldn't come up with ways.
Speaker 1: Of showing how do you value piles of serum and
Speaker 1: Solana and FTT and who knows what the hell's the
Speaker 1: inside of Alameter research.
Speaker 2: Which raises an interesting question. Once you decide to write this,
Speaker 2: you have to know you're going to be going to
Speaker 2: be discussing crypto. But before you began work on Going Infinite,
Speaker 2: did you have any thoughts on bitcoin, blockchain, NFTs, ether, Like,
Speaker 2: what were you thinking about prior?
Speaker 1: So going back to about I don't know, maybe two
Speaker 1: thy twelve. I had made several runs at writing about crypto,
Speaker 1: mainly at the behest of crypto people because they wanted attention.
Speaker 1: And I mean the first one was funny.
Speaker 2: I hadn't noticed that.
Speaker 1: I never wrote it. Oh okay, I mean I went
Speaker 1: and spent time in interview people, and I just thought.
Speaker 2: So, you never put anything out, so you had some well,
Speaker 2: I said.
Speaker 1: The first time, I make it, make some bid to
Speaker 1: get to know the people and to write the story
Speaker 1: about it. A guy called me up from Palo Alto.
Speaker 1: He had a legitimate crypto business. He said, if you
Speaker 1: come down, there's some people. Just come down in the
Speaker 1: next few days to this house. There's some people I
Speaker 1: want you to meet. One of them is Satoshi. And
Speaker 1: I fell for it. You know, I thought, well, but
Speaker 1: but you know, it was twenty twelve, so maybe maybe
Speaker 1: Stoshi's going to reveal himself to me. And so I
Speaker 1: went down and I got out of the car about
Speaker 1: a block from the house, and you could smell the
Speaker 1: weed from a block of the house. And I got
Speaker 1: in thousand and they were like twelve entrepreneurs with sleeping
Speaker 1: bags and this crashing in this multimillion dollar house in Paloratto.
Speaker 1: And some of them turned out to be quite prominent
Speaker 1: in crypto. But the problem was this is this is
Speaker 1: would turn me off. They said at that moment. They
Speaker 1: were selling crypto as it's going to replace Viat currency,
Speaker 1: it's going to be the means of exchange.
Speaker 2: And you've talked about how the narrative has changed consistently.
Speaker 2: They keep changing and just never never finds the narrative
Speaker 2: that sticks.
Speaker 1: It's not that there's nothing there, it's just that whatever
Speaker 1: is there has not clicked with with like a serious
Speaker 1: problem in a serious way. But at that moment it
Speaker 1: was I spend the day with him, and they're selling
Speaker 1: me as hard as they can sell me that this
Speaker 1: is going to be We're not going to need dollars
Speaker 1: very soon. And I said, what can you use it?
Speaker 1: And they said, here, we'll show you, and they put
Speaker 1: some bitcoin on my phone and we walked into Palo
Speaker 1: Alto to the one coffee shop that accepted bitcoin as currency,
Speaker 1: and I bought a latte.
Speaker 2: Which probably costs you a million dollars.
Speaker 1: A no, no, this gets better. The coffee shop, though
Speaker 1: in theory, accepted bitcoin. It took ten minutes and they
Speaker 1: gave up. They couldn't do it. And I said, I
Speaker 1: got an idea. I have this thing called a dollar.
Speaker 1: I'll just use this. It's a miracle. And I had
Speaker 1: this thought, I thought, like, they're selling this thing, but
Speaker 1: if it's some wacky world. Bitcoin was the first currency,
Speaker 1: and then someone came along and invented dollars everywhere to go,
Speaker 1: Thank God, right, right, So so I just thought it's
Speaker 1: not right. It's like there's something to lampoon, but it's
Speaker 1: I don't want to do that.
Speaker 2: It was it wasn't ready for you.
Speaker 1: To write whatever me to write about it.
Speaker 2: So, Sam bankmin Freed, is this fascinating, quirky character you
Speaker 2: decide to embed with him, like a military journalist embedding
Speaker 2: with the troops, So while they're covering a war. What
Speaker 2: was that like? Was it difficult to maintain arm's length
Speaker 2: objectivity because you're a journalist essentially so and you're you're
Speaker 2: like trailing this.
Speaker 1: Guy, right? So the first thing, I mean, if I
Speaker 1: go back, a hard time remembering it, but if I
Speaker 1: go back and I think, what was it that made
Speaker 1: me think not just this character, but this situation, that
Speaker 1: what part of it was he wasn't trying to sell
Speaker 1: me crypto, that he himself didn't completely swallow crypto. He
Speaker 1: wasn't a religionist, he said, basically, I am using it
Speaker 1: to make money because there are all these inefficiencies. I
Speaker 1: don't know what's going to happen with it. He wasn't.
Speaker 1: It was the first crypto person not to pitch crypto
Speaker 1: to me interesting and it was interesting. It made him
Speaker 1: more interesting to me, and it was the first time
Speaker 1: I thought, ah, this may be the way into crypto
Speaker 1: because to me, what was interesting about crypto at that
Speaker 1: point was I mean, the technology is interesting. Fact, the
Speaker 1: whole financial structure that's arisen in crypto, it's interesting. It's
Speaker 1: not a book by me. What's interesting and is a
Speaker 1: book by me? Are the social consequences of all of
Speaker 1: a sudden there being three trillion dollars of new wealth.
Speaker 1: That's just it's randomly distributed and not so random?
Speaker 2: Are it's mostly dudes?
Speaker 1: It's cryptoz that's right.
Speaker 2: And there's a reason why Lamborghini sold out for two years.
Speaker 1: That's right. That's right.
Speaker 2: So it's fun being poor.
Speaker 1: So I didn't answer your question, but so this is
Speaker 1: the why of it. So embedding I always in bed, right,
Speaker 1: that's what I do. And then the goal is to
Speaker 1: get to a point with the subject where you're sitting
Speaker 1: in their office with a desk and they don't even
Speaker 1: know you're there.
Speaker 2: So does that compromise your objectivity as a journalist?
Speaker 1: Never? As before?
Speaker 2: Okay, that's a fair answer.
Speaker 1: I mean I've never nobody's cause people.
Speaker 2: Are saying, oh, Michael got so close to SBF and
Speaker 2: he's defending him. I didn't read the book that way.
Speaker 2: I read it as an explanatory, not a defense. No,
Speaker 2: it was, that's the accusation.
Speaker 1: The radical act was just to tell the story as
Speaker 1: I saw the story. What possible purpose, what possible good
Speaker 1: would it do me to set myself up as Sam's bankman,
Speaker 1: Freed's defense counsel. And that's not what it was. And
Speaker 1: in fact, it's all kind.
Speaker 2: Of people ask me find out what he got paid.
Speaker 2: I'm like, are you kidding?
Speaker 1: People said this about Flashboys? Oh really? A Wall Street
Speaker 1: firm published a note that I had been given shares
Speaker 1: in IEX to write Flashboys.
Speaker 2: Not true, right, of course, not true. And disclosure, Not
Speaker 2: only did you get a butt on selling the book,
Speaker 2: you sold the movie rights before this even came out.
Speaker 2: Why would anyone else have to pay you for this?
Speaker 2: It's such a silly question.
Speaker 1: So it's people, Well, let me say, let's just actually
Speaker 1: establish the relationship. So of course I don't get paid anything.
Speaker 1: Of course I didn't have any financial interest in ft excerpt.
Speaker 1: In fact, I'm a creditor. I have two thousand dollars
Speaker 1: on the US Exchange that I'm waiting to get out
Speaker 1: of the bank round because I wanted to see how
Speaker 1: it worked, you know, and the the Sam bankman free
Speaker 1: Neither Sam bankman freed, nor anyone in his operation ever
Speaker 1: asked me what I was doing, asked me why I
Speaker 1: was doing it, question the questions I was asking forbid
Speaker 1: me from seeing. There's only one moment, one part of
Speaker 1: his empire that I had to fight to see, like
Speaker 1: he had to say he at first he said, I
Speaker 1: can't let you into that meaning because the people are
Speaker 1: going to be too uncomfortable. But other than that, it
Speaker 1: was just like, it's here. You just watch you, ask you,
Speaker 1: and ask anybody any question you want to ask. And
Speaker 1: it took me a while to get to that point.
Speaker 1: But so they had no finger they as far as
Speaker 1: I know, they haven't read it. So nobody nobody reads
Speaker 1: the book until it comes out right. And that's the
Speaker 1: deal I've had with everybody I read about. And it's
Speaker 1: sort of like, at some point, you just have to
Speaker 1: leave me alone and trust that I'm not some sinister person.
Speaker 2: Let me ask you a question that's going to make
Speaker 2: you feel old. Given how famous you are in Wall
Speaker 2: Street finance circles from Liar's Poker forward, any of these
Speaker 2: twenty somethings know who the hell you were. They all
Speaker 2: love flashboards, they do okay, So they had a sense.
Speaker 1: Oh no, no, no, they all had books to sign and all. Yeah.
Speaker 1: So the so the answer is yes, it was odd
Speaker 1: what they knew.
Speaker 2: Sam Liar's Poker, not the Big Short, not Moneyball, those
Speaker 2: are the really big Sam.
Speaker 1: Sam never said this, but I found out from his
Speaker 1: parents that he adored Moneyball when he was a little kid.
Speaker 1: And of course he did because he was he was
Speaker 1: a totally isolated math. He sitting alone in his room
Speaker 1: who felt powerless, and all of a sudden this book
Speaker 1: say as the things you can do actually could change baseball.
Speaker 1: But that apart from that, No, that was just the
Speaker 1: weird old guy, right. I mean, that's good, and that
Speaker 1: was kind of what it was. They were so odd
Speaker 1: themselves as a collection of characters. It's the best look FTX.
Speaker 1: Never mind Sam. FTX was the best collection of characters
Speaker 1: I've seen in a financial operation since Solomon Brothers. Wow,
Speaker 1: because they were just like they were all these random
Speaker 1: people like it wasn't They weren't filtered in the way
Speaker 1: that financial form usually filters people. It was like the
Speaker 1: odd collisions that happened between the world and FTX, and
Speaker 1: from the world, odd people had entered FTX huh amazing.
Speaker 2: You spend a lot of time talking about what an odd, quirky,
Speaker 2: sort of socially misfit kid he was. What was the
Speaker 2: source of that was that Sam has himself, was that
Speaker 2: his parents, was that other people? How did you get
Speaker 2: pink that picture of a young SBF?
Speaker 1: So I think it's partly because of how I grew
Speaker 1: up and the importance of like who my parents were,
Speaker 1: and who my friends were, and who my coach was.
Speaker 1: When I'm trying to get to know somebody, I go
Speaker 1: right to the childhood and sometimes that's stuff that's a
Speaker 1: mislead that doesn't lead you anywhere. So Sam I asked him,
Speaker 1: I'd like it just a list of people who knew
Speaker 1: you before the age of eighteen, who could give me
Speaker 1: some picture of you, just to start out right, And
Speaker 1: he said, there's nobody. I said, what do you mean,
Speaker 1: there's nobody?
Speaker 2: It was a guy who played the game.
Speaker 1: I've pushed and pushed and finally it's his. The list
Speaker 1: is his parents, who you know, they did observe him,
Speaker 1: and his little brother who says I didn't know him,
Speaker 1: and his h he was a tenant in the house,
Speaker 1: his little brother said, And there was one guy named
Speaker 1: Matt Nass who Sam met in middle school and he
Speaker 1: became partners in playing in this game they played called
Speaker 1: Magic the Gathering, and Matt Nass's chief attribute was he
Speaker 1: made no emotional demands on Sam and they seemed to
Speaker 1: hardly talk. They just sat there and played together. And
Speaker 1: you see them together now and they still will sit
Speaker 1: together and not hardly talk. So there was it was
Speaker 1: that Matt would say, you know, they were Sam, they
Speaker 1: weren't that close in some ways, they were close. They
Speaker 1: were close playing games together. So you had this kid
Speaker 1: who was he was totally isolated. You know, you can
Speaker 1: imagine if other circumstances a child might end up being
Speaker 1: very isolated. But he is the child of two very
Speaker 1: social professors living on the Stanford campus who have a
Speaker 1: world around of really smart and interesting people, and Sam gets.
Speaker 1: Sam is known by nobody and the the So the
Speaker 1: question is why he he had He still has horrible
Speaker 1: problems with social interactions, but when he's a kid, I
Speaker 1: mean he did. He realized, for example, that he didn't
Speaker 1: know how to make facial expressions right.
Speaker 2: He teaches himself to smile and finds out that that
Speaker 2: solves a problem within the game that is the simulation
Speaker 2: of life.
Speaker 1: That's exactly right. He sits in front of a mirror.
Speaker 1: It's not till college and learns to make the facial
Speaker 1: expressions that are appropriate to what someone says. He's irritated.
Speaker 1: He has to do it, he doesn't. He realizes he
Speaker 1: doesn't have a full compliment of human feeling, that he
Speaker 1: doesn't feel happiness, he doesn't feel pleasure. Really, he doesn't
Speaker 1: feel empathy, and that this is you know, it's just
Speaker 1: like and he realizes the people around him see him
Speaker 1: as not completely human.
Speaker 2: So I have a question that I was going to
Speaker 2: ask you later on, but I might as well bring
Speaker 2: it up here, so it's already come out. He's being
Speaker 2: treated with the m SAM patch for adderall and adderall
Speaker 2: for ADHD and depression. The persona in the book that
Speaker 2: you just described kind of reminded me a little bit
Speaker 2: of the reference you make in The Big Shorts of
Speaker 2: Michael Burry, who, when he finds out his son has Asperger's,
Speaker 2: has himself tested and he's on Asperger's. So the obvious
Speaker 2: question is I have seen no mention of this anywhere
Speaker 2: Sam on the autism slash Asperger's spectrum.
Speaker 1: Whatever it is that he's diagnosable with is so much
Speaker 1: more extreme than Michael Berry. Really, oh yeah, and it's
Speaker 1: I don't know, so I don't use any of those
Speaker 1: words in the book.
Speaker 2: I noticed that, which was what made me ask the question.
Speaker 2: By the way, nobody has brought that up anywhere in
Speaker 2: any interview. I found something buried in a reddit where
Speaker 2: someone brought it up, but other than that, because I
Speaker 2: was hunting to see, hey, this guy. I'm not a diagnotician,
Speaker 2: but I've read enough about this. I've worked with enough
Speaker 2: of those folks. I've had enough people with Asperger's on
Speaker 2: the show.
Speaker 1: You know, the word that it's funny, whatever word you
Speaker 1: would use, would put him in a box that probably
Speaker 1: he doesn't belong in, because it feels different from what
Speaker 1: I've seen before Thosetario. It seems different. He's very very
Speaker 1: good at reading you.
Speaker 2: With which people on the spectrum generally are not.
Speaker 1: So there's this odd one way thing. He read you
Speaker 1: very well, but he's hard to read as a kid.
Speaker 1: So the other thing about it, the important beats in
Speaker 1: his childhood, I think are one. His parents don't think
Speaker 1: of him as gifted. They worry about him, they think
Speaker 1: of him, and his parents' friends said to me they
Speaker 1: thought the parents were both afraid for and of him,
Speaker 1: which was a curious thing to say about a parent
Speaker 1: and child. And it's not until he's in middle school
Speaker 1: when his mom finds him sobbing in his room alone
Speaker 1: and he says, I'm just so bored that she realizes
Speaker 1: that he's an average student. And he's an average student
Speaker 1: because whenever's coming out of teacher's mouth just did not
Speaker 1: interest tell.
Speaker 2: There's a piece in the book where he is mom
Speaker 2: is going to give a paper somewhere, and like the
Speaker 2: eight year old gives her a read on the paper
Speaker 2: more sophisticated than the PhD candidates gave her.
Speaker 1: As a cris it was a bit like he was waiting.
Speaker 1: He wasn't living his childhood. He was waiting for it
Speaker 1: to end so that he could start talking to people.
Speaker 1: And in any case, he's eventually he's identified as gifted mathematically, right.
Speaker 2: So he's brilliant at math. He goes to MIT just
Speaker 2: does he study physics and math?
Speaker 1: It so brilliant, but not that brilliant, so brilliant enough,
Speaker 1: really so brilliant enough so that sure he goes to
Speaker 1: math camp in the summer and kind of finds his tribe.
Speaker 1: But in math camp, he's not the best. He's he's
Speaker 1: kind of just average among the brilliant math kids. He's average.
Speaker 1: So he has no sense of himself as special until
Speaker 1: he collides with Wall Street.
Speaker 2: So that's where I was about to go. So he
Speaker 2: goes from MIT to Jane Street Trading, which is a
Speaker 2: high frequency trading shop where it's really partly about math
Speaker 2: but mostly about probabilities and problem solving and gameplaying where
Speaker 2: he excels.
Speaker 1: And quantifying what usually doesn't get quantified, quantifying things that
Speaker 1: seem to be sort of subjective. The test that he
Speaker 1: gets this is where he finds out, oh my god,
Speaker 1: I'm actually off the charts good at this. The Jane
Speaker 1: Street interviews where they're making him do all kinds of
Speaker 1: weird puzzles and solve puzzles and play games and make
Speaker 1: bets that he just he flies through the thing and
Speaker 1: he realizes that what he's good at is not it's
Speaker 1: not chess he's good at. It's it's chess where you're
Speaker 1: on a clock. You're gonna let you have five seconds
Speaker 1: to make the move, and every five minutes someone shouts
Speaker 1: a rule change, so the queen is now a rook,
Speaker 1: and so every it's it's semi chaos.
Speaker 2: Now he can manage that.
Speaker 1: He can manage that. It's not that he's better than
Speaker 1: than when he's playing chest regular chests. It's that everybody
Speaker 1: else is worse.
Speaker 2: And it's a quote right from the book. It wasn't
Speaker 2: that he thrived on the pressure. He just didn't feel it.
Speaker 2: He wasn't better than usual. He just wasn't worse. Most
Speaker 2: people felt emotions, he did not, and therefore performed poorly
Speaker 2: in the pressure.
Speaker 1: And you know what I think. I think this is
Speaker 1: a This is a really important key to everything that
Speaker 1: happens next in Sam Bankruin Free's life, because once he
Speaker 1: discovers that, it's this environment. It's sort of the semi
Speaker 1: chaotic environ environment where mathematical aptitude, ability to quantify, ability
Speaker 1: to make quick judgments about probabilities really benefit you, but
Speaker 1: there's no clear, perfect right answer. He's so good compared
Speaker 1: to other people in that environment. He creates that environment
Speaker 1: over and over and over so he can be the best.
Speaker 1: I think it's that's like the beginning of the understanding
Speaker 1: of Sam Bangmun freed. He loves that feeling of being
Speaker 1: the best. Who doesn't. It's a weird environment, and he
Speaker 1: realizes what it is, so he creates it. Jane Street.
Speaker 1: The market's created for him. So it's a really good
Speaker 1: you know, it's he's a natural in the markets. But
Speaker 1: even in his own company. The reason there's chaos in
Speaker 1: his company, I would tell you there are reasons. We
Speaker 1: don't have job titles, and we have no organization chart,
Speaker 1: and there's no list of employees, and nobody knows who's
Speaker 1: supposed to be doing what. But in fact, he wanted
Speaker 1: everybody to be in the same state of chaos. That's
Speaker 1: where he won.
Speaker 2: Allows him to thrive. I love the story at Jane
Speaker 2: Street where he figures out that they can scrape each
Speaker 2: state's presidential election data. Oh yes, and figures out a
Speaker 2: five minute lead on CNN and they start trading futures
Speaker 2: overnight in twenty sixteen in the presidential election, they're up
Speaker 2: three hundred million dollars.
Speaker 1: Tell us what happens. This is an amazing story.
Speaker 2: I love that part.
Speaker 1: So this is there's some scoops in the Jane Street
Speaker 1: part of the book. I think, I mean just assembling
Speaker 1: a portrait of Jane Street is not easy because they
Speaker 1: just won't talk to you. But Sam sort of created
Speaker 1: the portrait because he hired so many former Jane Street
Speaker 1: people and they felt free to talk. But there was
Speaker 1: the trade, the Trump trade. So Sam becinfhree is partly
Speaker 1: responsible for the worst trade in Jane Street history as
Speaker 1: far as he.
Speaker 2: Knew, which started out as a giant winner.
Speaker 1: That's right, but if you really think about it, it's
Speaker 1: a wild trade. So going into the twenty sixteen election
Speaker 1: Hillary Clinton Donald Trump, it looks like every time there's
Speaker 1: good news for Trump in the week's running up to
Speaker 1: the election, the market's tank. It looks like that's the
Speaker 1: trade if you can The trade is can you get
Speaker 1: election information before the rest of the market. Now it
Speaker 1: seems like a wild idea, that seems like information that
Speaker 1: is everybody's going to get basically at the same time,
Speaker 1: But in fact where everybody's getting it is from John
Speaker 1: King on CNN, and John King has commercials, and John
Speaker 1: King has to walk from getting the data to get
Speaker 1: to his board. The data is slow to get the
Speaker 1: John King. So Jane Street creates its own data gathering
Speaker 1: system in the important states.
Speaker 2: People took right, it's just Florida and Ohio.
Speaker 1: And there sometimes moments and sometimes hours ahead of CNN
Speaker 1: in knowing what just happened in the election and how
Speaker 1: the odds shifted, and what John King's going to say next,
Speaker 1: and what that's going to do it to S and
Speaker 1: P futures. So their bet they put on in retrospect,
Speaker 1: they should have maybe thought more about the bet, But
Speaker 1: it was good for Trump. Short S and PS in
Speaker 1: a big way, and short in foreign markets like Mexican
Speaker 1: markets or whatever in a less big way. And during
Speaker 1: the night, as it progresses, it looks like the Genius trade.
Speaker 1: The markets collapse. Sam Bankfree goes home at like three
Speaker 1: in the morning and they're up three hundred million dollars.
Speaker 1: He sleeps for six hours and comes back. And the
Speaker 1: problem is the international market stayed down, but the US
Speaker 1: Dotorg popped back up.
Speaker 2: Tax cuts and fiscal stimulus. What's not going to be
Speaker 2: good for equity.
Speaker 1: And so it went from a three hundred million dollar
Speaker 1: win to a three hundred million.
Speaker 2: Dollar loss and biggest in Jane Street history.
Speaker 1: So not much of this makes it into the book,
Speaker 1: but there were these long memos that were written about
Speaker 1: in Jane Street about the trade. Oh really, yeah, I got.
Speaker 2: Them because there was no post mortem. No one ever
Speaker 2: pulled him aside and said, so hey, you blew us up.
Speaker 1: Just like Sam wrote these long memos to his boss
Speaker 1: about we need to write long memos about this because
Speaker 1: we ought to understand what we did, because this is
Speaker 1: a wild opportunity we got. We succeeded. We got the
Speaker 1: information before anybody else. It wasn't in the market. Nobody
Speaker 1: else had it. You didn't see the markets move when
Speaker 1: we got the information. We were the only ones there.
Speaker 1: So he describes like how they should have thought about
Speaker 1: the trade and what they should have done is they
Speaker 1: should have shortened international markets. That was this that that
Speaker 1: was and maybe even hedged it against with the US markets.
Speaker 1: That's his view. But he can't get his superiors to engage.
Speaker 1: They just like think, as he put it, that we
Speaker 1: just shouldn't be doing this, like this is not our wheelhouse.
Speaker 1: And it disappointed him. I mean I think he.
Speaker 2: Thought set the grounds for him to exit.
Speaker 1: It was one of several things. But yes, he which
Speaker 1: is And if you think about this, you got kind
Speaker 1: of love Jane Street that in my in my day,
Speaker 1: if someone had done this they would have been a scapegoat.
Speaker 2: So absolutely someone had been strung, there would have been
Speaker 2: a committee that would have been reviewed. Someone would have
Speaker 2: been fired, tart and found feathered, drummed out of Wall Street.
Speaker 1: This is a very smart place because the process was right,
Speaker 1: the outcome was a problem. Process was mostly right, and
Speaker 1: it wasn't.
Speaker 2: No second level thinking. They no stop and say, all right,
Speaker 2: so what happens if he's elected?
Speaker 1: That's right, and but that they don't go punish Sam
Speaker 1: and the handful of people who are really at the
Speaker 1: center of it. If I were Sam, it would cause
Speaker 1: me to love my employer for sure. Right, it'd be
Speaker 1: a reason to stay, and for him it becomes a
Speaker 1: reason to leave, and that's our part of a reason
Speaker 1: to leave. That's curious.
Speaker 2: So let's talk a little bit about Alameda Research and FTX.
Speaker 2: Alameda predates FTX. It's the sort of hedge fund trading
Speaker 2: operation that Sam Benkmin Freed is operating under. And it
Speaker 2: begins arbitrage and crypto between like Asia and the United
Speaker 2: States and making a ton of money in what should
Speaker 2: be something that in the equity markets there wouldn't be
Speaker 2: that big a gap.
Speaker 1: So the basic idea he's sitting at Jane Street and
Speaker 1: his financial ambition is limitless, not because he wants to
Speaker 1: buy a yacht, but because he wants to save humanity
Speaker 1: from existential risk. But never mind that for a minute,
Speaker 1: and he looks at the crypto markets and this is
Speaker 1: two late twenty seventeen, and they're exploded right that year,
Speaker 1: and there it's a trillion dollar market and the Jane
Speaker 1: Streets of the world which are engaged in this sort
Speaker 1: of radical, radical efficiency inside of financial markets, like efficient
Speaker 1: to a microsecond, but heavily regulated, but heavily regulated. But
Speaker 1: that getting information into the markets as fast as information
Speaker 1: can be gotten into the markets, that isn't happening in crypto.
Speaker 1: It's not happening to the extent that you know, a
Speaker 1: bitcoin is trading for one thousand in Japan and eight
Speaker 1: hundred in the United.
Speaker 2: States, and literally that's the gap.
Speaker 1: It's it's huge.
Speaker 2: Sometimes it's like it would be twenty cents in the inequities,
Speaker 2: and it's it's two hundred dollars.
Speaker 1: That's right. It's so Sam looks at that and says,
Speaker 1: we can be I can be Jane Street for crypto U.
Speaker 1: And but then from then it becomes high comedy because
Speaker 1: he's doing it on behalf of his movement, effective altruism,
Speaker 1: and his idea of starting it is to start it
Speaker 1: with a bunch of effective altruists in Berkeley, where there's
Speaker 1: money from effective altruists to supply the capital.
Speaker 2: So let's define effective altruists. Because I read a lot
Speaker 2: of stuff about it, and I don't think people really
Speaker 2: get it. This is a philosophical movement that really began.
Speaker 2: It was a Cambridge, Oxford.
Speaker 1: And it migrates, it grows out of utilitarianism and the
Speaker 1: general eyed I mean you think about it is sort.
Speaker 2: Of getting maximize the benefit for the most amount of people.
Speaker 1: That's right, and be actually mathematically rigorous about how you
Speaker 1: do your good.
Speaker 2: You you call that into question also as I thought,
Speaker 2: but we'll talk about.
Speaker 1: That lab Never mind what you think of effective altruism
Speaker 1: made up numbers. You just need to do it, yes you,
Speaker 1: but you need to just accept this. This has captivated
Speaker 1: the minds of the twenty people who Sam bankmanfree gather
Speaker 1: to create the first Jane Street for Crypto in Berkeley,
Speaker 1: California in two thousand se.
Speaker 2: And these folks are literally they set up charities, people
Speaker 2: are donating money, and they figure out what are the
Speaker 2: biggest threats to to humanity and will donate money to
Speaker 2: those causes.
Speaker 1: We'll find smart ways to donate money to those causes.
Speaker 1: That's right, and.
Speaker 2: We'll go out and make a ton of money and
Speaker 2: give it away.
Speaker 1: At that moment, they were pretty focused on existing human
Speaker 1: beings and saving their lives. So it was like a
Speaker 1: lot of public health in Africa, so which is pretty straightforward. Sure,
Speaker 1: the movement was about to jump the shark and focus
Speaker 1: on future humans who never been born by preventing existential catastrophe.
Speaker 1: For preventing so they stop giving money for bed nets
Speaker 1: to prevent malaria in Africa, and they start giving money
Speaker 1: to anthropic or whatever to AI out people who are
Speaker 1: thinking about AI risk. So it becomes a more complicated thing.
Speaker 1: In any case, they have appetite for virtually unlimited dollars.
Speaker 1: Sam is making a pitch to his fellow effective Altrus,
Speaker 1: this is a market in which we can make unlimited dollars.
Speaker 1: Almost none of them have a financial background. All of
Speaker 1: them are kind of under thirty, some of them are
Speaker 1: basically twenty. And they gather together and it works for
Speaker 1: a bit like weeks. For a few weeks they're able
Speaker 1: to do some trades that make I think half a
Speaker 1: million dollars a day kind of thing they would do
Speaker 1: pretty well. And but very quickly Sam has created his
Speaker 1: semi chaotic environment in which only he can operate and
Speaker 1: stay sane, and he's driven everybody else bad. Uh, And
Speaker 1: half of the people in the there's a management committee
Speaker 1: of five people and the other four think he is
Speaker 1: either insane or criminal or both. And because they've start
Speaker 1: can't they don't even know where the money is, like
Speaker 1: it's out of.
Speaker 2: Us right at this point, they go from winning to
Speaker 2: lose it.
Speaker 1: Here if from winning the trades start to go bad
Speaker 1: or it looks like they go bad. And some of
Speaker 1: that they don't have a record of some meaningful number
Speaker 1: of trades.
Speaker 2: Which is a little foreshadowing in the book that oh
Speaker 2: my god, that there's no we'll talk about this. There's
Speaker 2: no record keeping, there's no CFO. That is, none of
Speaker 2: the normal controls.
Speaker 1: None of the normal controls. And Sam has created this
Speaker 1: algorithm rhythmic algorithmic trading bought you called it model bot
Speaker 1: that he wants to it's like release the krack, and
Speaker 1: he wants to release in the markets and make two
Speaker 1: hundred and fifty thousand trades a day.
Speaker 2: And they're and they're going to crash and burn.
Speaker 1: Well. They have been given one hundred and seventy five
Speaker 1: million dollars from fellow rich effective Altruis, and they're thinking,
Speaker 1: we're supposed to be making money to give away and
Speaker 1: we're losing a active Altro his dollars and gets everybody's
Speaker 1: everybody gets upset, and there comes a moment where they
Speaker 1: realize that actually four million dollars of Ripple XRP is
Speaker 1: the token, but of Ripple is missing, and they just
Speaker 1: literally they can't have much. Four million for them, it
Speaker 1: was a lot, but it's like gone, like we we
Speaker 1: don't know where it went and how much more is gone.
Speaker 1: And Sam's attitude is, I don't worry, Let's keep trading
Speaker 1: because the markets are only going to good for so
Speaker 1: long and Jane Street is going to come out, come
Speaker 1: out and wipe us out, and so let's and their
Speaker 1: attitude is, no, we need to stop trading and find
Speaker 1: the ripple. And this becomes a war. In the end,
Speaker 1: every all the rest of the management team quits, takes
Speaker 1: big severance packages and quits. Half the firm leaves. I
Speaker 1: interviewed all these people you interview. Now, one of them
Speaker 1: will say, I still think he's kind of crooked. The
Speaker 1: other say, we overreacted. But in any case, the punchline
Speaker 1: was it is total chaos. They were probably right. I mean,
Speaker 1: they were huge risk. He created his environment in which
Speaker 1: he flourished. But once they leave, they find the money.
Speaker 1: It's there. It's the ripple is on some South Korean exchange,
Speaker 1: and the South Korean Exchange is bewildered that no one coming.
Speaker 2: We found, which is the theme that keeps.
Speaker 1: Repeating, repeating itself, like, hey.
Speaker 2: Is this your one hundred and fifty million dollars?
Speaker 1: That's right and uh. And so that was a moment
Speaker 1: where you had a foreshadowing of what might happen later
Speaker 1: in Alameter research. But it gets it finds its footing,
Speaker 1: and it's kind of fine. It does well for the next.
Speaker 2: The next day, after everybody leaves, he turned. He releases
Speaker 2: the Krackt.
Speaker 1: He releases the Krackt and it starts killing.
Speaker 2: It's taking a ton of money.
Speaker 1: It does well, Yes, it does well.
Speaker 2: When does he come to realize, hey, you know, some
Speaker 2: of the other players are coming in and these big
Speaker 2: fat arbitrage opportunities are going away.
Speaker 1: So he was the one who made markets. He was
Speaker 1: the one who everybody noticed in crypto what just happened
Speaker 1: to the spreads? Oh my god, like some something just
Speaker 1: happened and all of a sudden start to look like
Speaker 1: a real Wall Street market. And it took a while
Speaker 1: people figure out that there was this wholly anonymous operation
Speaker 1: called Alomedy Research with this vegan twenty six year old
Speaker 1: who was behind it. So it's about what is it
Speaker 1: about nine months where Sam and Alameda starts to realize
Speaker 1: they have a lot of competition and it is not
Speaker 1: the markets will never be as fat as they were.
Speaker 1: It's going to be more complicated, and they start thinking
Speaker 1: about other ways to make money and.
Speaker 2: Different and that's the genesis of this is so ft.
Speaker 1: It's important to know that this is how FTX comes about.
Speaker 1: And it's also important to know that they didn't think
Speaker 1: they had the capacity to actually run an exchange. Running
Speaker 1: exchange meant having customers and meant dealing with ordinary people.
Speaker 2: That was the big issue. How are we going to
Speaker 2: get people?
Speaker 1: People are going to I don't know how to talk
Speaker 1: to people. I don't know what people feel. How on
Speaker 1: earth am I going to be like a Carnival Barker
Speaker 1: at the middle of an exchange. So he knew he
Speaker 1: had the ability to create the software.
Speaker 2: His CTO brilliant guy Gary Wang, basically one guy writes
Speaker 2: all the code better than everybody else.
Speaker 1: Which apparently didn't take much but was true. And their
Speaker 1: thinking is, we'll get some We'll get people who understand
Speaker 1: people to do this for us. They went to all
Speaker 1: the other exchanges and said, we'll sell you this and
Speaker 1: we'll keep a kind of licensing fee, but we don't
Speaker 1: want to run it. And nobody wanted it, and so
Speaker 1: they get that. All of a sudden, it's like, oh
Speaker 1: my god, if we're going to do this, we got
Speaker 1: to do it ourselves. So they really back into creating
Speaker 1: an exchange. It's not. It was not, and he really
Speaker 1: had severe doubts about whether he's gonna be able to
Speaker 1: pull this out.
Speaker 2: That's interesting. There are two things that really leapt out
Speaker 2: about the launch of FTX. The first is all these
Speaker 2: other exchanges sort of socialized losses, so you're doing futures
Speaker 2: trading and every customer effectively is putting up money. And
Speaker 2: if somebody has a big loss and it drops way
Speaker 2: below the collateral they put up. That loss gets spread out.
Speaker 2: So his brilliant idea is, hey, well tight stops. If
Speaker 2: someone loses money, we liquidate the collateral. They're done. We're
Speaker 2: not going to have losses.
Speaker 1: That's right. They built a better risk engine. This is
Speaker 1: funny given what happened, but yes.
Speaker 2: Well, on the futures trading, that risk engine was very
Speaker 2: professional and well done.
Speaker 1: That's right, and it was it was the chief There
Speaker 1: were other selling points, but it was probably the chief
Speaker 1: selling point. Was all you crypto traders have now had
Speaker 1: the misery of socialized losses on all these exchanges, and
Speaker 1: you've just lived with it. You know, you get these
Speaker 1: clawbacks of forty and fifty percent of your trades because
Speaker 1: somebody blew up, and we're not going to have that
Speaker 1: and that. So that that is what they were selling.
Speaker 1: But problem with Sam is he never sold anything, and
Speaker 1: he had If you think about his background, not only
Speaker 1: is he entirely isolated as a child when he gets
Speaker 1: to Jane Street, he's in a culture where it's disregarded
Speaker 1: as the most foolish thing in the world to say
Speaker 1: anything to anyone about what you do. They are phobic
Speaker 1: about media attention. It's all bad and it's attitude towards
Speaker 1: the world is is suck information out of it, don't
Speaker 1: put information into it. But you can't sell that way.
Speaker 1: You have to go out and present yourself to people.
Speaker 1: And this is the big moment in Sam Bankman Tree's
Speaker 1: life when all of a sudden he realizes that I
Speaker 1: have to be a character or I have to be
Speaker 1: a person out there.
Speaker 2: And so he starts going to conferences and he's the
Speaker 2: guy that was scalping all of that cash and suddenly
Speaker 2: he kind of becomes a bit of a star. Well,
Speaker 2: Bloomberg launches him the first first TV show.
Speaker 1: Right, that's right in the place that launches him that
Speaker 1: he goes on TV. He is, by my lights, very
Speaker 1: awkward on TV.
Speaker 2: Right.
Speaker 1: I mean in a video games he's playing. He's on
Speaker 1: live TV at his computer monitor playing a video game.
Speaker 1: At the same time. You see his eyes going back
Speaker 1: and forth. You can see him stall not half listening
Speaker 1: to the questions he's being asked. He always says, you can, well,
Speaker 1: that's a really good question. So that just he give
Speaker 1: himself a little beat. He's not and he's a he
Speaker 1: just he gives a little soliloqual in in response to
Speaker 1: every question. But he doesn't seem guarded in any way.
Speaker 1: He seems completely open and is probably much more open.
Speaker 1: And although he's a litle jittery right his your knee
Speaker 1: is bumping, bouncing up and down, Jack Cameron, Yeah, but
Speaker 1: but it works. It's like the person who his PR
Speaker 1: person she'd never done PR before they'd hired Natalie now
Speaker 1: Lautianna said she looked at Sam and said, you know,
Speaker 1: when people meet Sam, they feel some they sense his vulnerability.
Speaker 1: They're really interested in what comes out of his mouth.
Speaker 1: They see is odd, but they kind of like his oddness.
Speaker 1: I'm just going to see if that oddness works on TV.
Speaker 1: And it did. I mean it just did. Uh.
Speaker 2: And so so he goes from there to every major
Speaker 2: crypto exchange and suddenly every major crypto conference in Asia.
Speaker 2: They're located in Hong Kong. Certainly they start to get volume,
Speaker 2: right and if you.
Speaker 1: Look at if you look at the way people have
Speaker 1: made money in crypto, they are like two basic strategies.
Speaker 1: You bought bigcoin and zero, or bought it low and
Speaker 1: it went way up. Or you created an exchange the
Speaker 1: exchanges have been the sources of great fortunes and it's
Speaker 1: it's and it's such a simple, easy business if you
Speaker 1: manage the risk right. It's like you take you take
Speaker 1: a you're the casino. You're the casino, that's right. Instead
Speaker 1: of getting your money by playing games with better odds
Speaker 1: against your customers, you're just taking a slice of each transaction.
Speaker 1: But you're the casino. And he was FTX appealed because
Speaker 1: of where Sam came from and because of the way
Speaker 1: it was designed immediately to big institutional trading which was
Speaker 1: coming in the jump tradings, the tower researches, so you
Speaker 1: had started to have volume there. It was slower to
Speaker 1: appeal to the retailed people who who the institutional people
Speaker 1: want to interact with, but they it. I mean, it
Speaker 1: was the fastest growing exchange, and it is.
Speaker 2: And to put some flesh on those bones, two BIPs.
Speaker 2: They were earning on two hundred and fifty billion dollars
Speaker 2: a month, which meant they're doing you do the man,
Speaker 2: a few billion dollars in revenue and four hundred million
Speaker 2: in profits. It was.
Speaker 1: It ended up being I think in twenty twenty one
Speaker 1: it's a billion and a billion in revenues and I've
Speaker 1: about four underd million in profits. So you've got this business.
Speaker 1: It's a really simple business that is growing so fast.
Speaker 1: And if you're looking at it as like what might
Speaker 1: happen to this business, it seems to be poised. It's
Speaker 1: only whatever eight percent of the marketplace to grow to
Speaker 1: be twenty or thirty percent of the marketplace. The marketplace
Speaker 1: end of twenty twenty one is a couple of two
Speaker 1: or three trillion dollars. But that, I mean, who knows.
Speaker 2: It's a two let People were talking about one hundred trillion.
Speaker 1: So it's this This business is going to be in
Speaker 1: direct proportion to that. But there's this other thing. It
Speaker 1: is a different financial structure, this exchange. It is for
Speaker 1: a start, it custodies the customer's money. But secondly, it
Speaker 1: doesn't require any intermediaries. You trade directly on the exchange
Speaker 1: and you keep it. You don't you don't go through
Speaker 1: a broker, You don't have any high freak trader between
Speaker 1: you and the in the marketplace. The exchange isn't selling
Speaker 1: your data. What if this model finds its way into
Speaker 1: the ordinary financial markets. What if they can trade stock futures?
Speaker 1: What if they can trade commodities. Venture capitalists look at
Speaker 1: this and thought, my god, this is a trillion dollar
Speaker 1: company if it goes right, and and it's that's when
Speaker 1: when when he starts to interact and it starts to
Speaker 1: get big time venture capital money, he starts to get normalized,
Speaker 1: it starts to become something different than an ordinary crypto exchange.
Speaker 2: Really really intriguing. You go on sixty minutes, as you
Speaker 2: have for some of your recent books. Yep, I thought
Speaker 2: the interview tracked the book, which I had literally just
Speaker 2: finished that day, very closely.
Speaker 1: Hard to do in twenty six minutes a whole book,
Speaker 1: but yes, they.
Speaker 2: See, yeah, two segments. Most people will only get one segment.
Speaker 2: What was your experience like with sixty minutes? And some
Speaker 2: of the backlash to the interview.
Speaker 1: Well, backlash was anticipated.
Speaker 2: I mean really, I did not anticipate that. I read
Speaker 2: the book and thought, this is a fun romp and
Speaker 2: a crazy part of the world.
Speaker 1: That's what will happen. Eventually people will read the book.
Speaker 1: But this is how I think about it. I think
Speaker 1: I said this on sixty minutes, that we're now in
Speaker 1: kind of a story war. That about the story. What
Speaker 1: is the story of Sam Bankman freed. Lots of people
Speaker 1: who didn't know very much about him or it have
Speaker 1: told lots of stories with great conviction. Twitter lynched him
Speaker 1: right away without thinking very much about Islench.
Speaker 2: We had a dinner was it last December with a
Speaker 2: number of people who were very interested in the space,
Speaker 2: and you kept saying, whatever you think, it's times crazy.
Speaker 1: You think it's crazier than you imagine, it more complicated
Speaker 1: and more fun actually.
Speaker 2: And that turned out to be a fair description.
Speaker 1: But the story war now is going to be a
Speaker 1: very loud story that comes out of the prosecution, and
Speaker 1: a story that probably presented a more muted away from
Speaker 1: the defense. And I don't think either those stories can
Speaker 1: be very good or full or complete. They're not going
Speaker 1: to be nearly what I have just from having been
Speaker 1: a fly on the wall for a year and a half.
Speaker 1: And I know what I think like, I know I
Speaker 1: know what I experienced. It would have felt like with
Speaker 1: the spirit in which things were done with this guy
Speaker 1: as best as possible, who this guy is and how
Speaker 1: he behaves and how he thinks. Uh, interviewed all around him,
Speaker 1: interviewed all his colleagues before they all got hold off
Speaker 1: by the Department of Justice, and so I just had
Speaker 1: I had a peculiar privileged view of it. Right, the
Speaker 1: prosecutors haven't spoken to Sam.
Speaker 2: Did they speak to you?
Speaker 1: They asked for the book, but they didn't speak to me.
Speaker 2: Well when did they? When did you give him the book?
Speaker 1: We didn't give him the book. So they've got it.
Speaker 2: Now say go to Amazon, go buy your own kind of.
Speaker 1: And and and and the defense can't talk to Caroline
Speaker 1: or Gary or Shot or a whole bunch of other people.
Speaker 1: And I still have been able to talk to a
Speaker 1: lot of the witnesses, so not all of them, but
Speaker 1: a lot of them. And so I've got like unusual
Speaker 1: three sixty the whole thing. And it was such an
Speaker 1: amazing just story. I thought, I'm just gonna tell a story.
Speaker 1: And the radical act is to withhold judgment like innocent
Speaker 1: until proven guilty.
Speaker 2: But that believe that jective journal.
Speaker 1: But leave that to one side. This is just this story.
Speaker 1: And all the books, when they work, they work. I
Speaker 1: have this experience with every book, ten different readers read
Speaker 1: ten different books.
Speaker 2: We have discussed this. The book you write is not
Speaker 2: the book people read.
Speaker 1: That's exactly right. They come to it with their baggage,
Speaker 1: and they supply they walk into the hole in the book.
Speaker 1: And this came with a ready made a hole. You
Speaker 1: you're you're the juror. You get to decide. It's you,
Speaker 1: you decide. And I could tell you that I have
Speaker 1: had the most radical range of responses to the book
Speaker 1: and to the characters, more than any book you've ever written,
Speaker 1: more than any book I've ever written. And and it's
Speaker 1: a mistake to think that I had some ambition, some
Speaker 1: ambition to affect like the trial outcome. That's preposterous. The
Speaker 1: trial is going to be the trial that but I did.
Speaker 1: I want to force the reader to grapple with how
Speaker 1: they felt about this situation once they'd seen the situation
Speaker 1: in full. And that seems to offend people who have
Speaker 1: already just made up their mind about him.
Speaker 2: Well, well, once you make your mind up, you know,
Speaker 2: it's very hard to walk it back. You dedicate the
Speaker 2: book to your daughter in memory of Dixie Lee Lewis,
Speaker 2: you remain inside of me? Tell us about that, because
Speaker 2: I recall after your daughter's accident you kind of described
Speaker 2: yourself as I don't know if I'm ever writing again.
Speaker 1: Yeah, that was true. I had a very specific resultse
Speaker 1: it was the tiniest liver of my response to her death.
Speaker 1: You know, I adored her and we were just she
Speaker 1: was the best kid, brave and full love and just
Speaker 1: the best kid. And I thought, up to that point
Speaker 1: in my life that I was just that was the
Speaker 1: luckiest person I knew. Nothing bad really had ever happened
Speaker 1: to me. I hadn't had that kind of experience. And
Speaker 1: I'd also thought that kind of the trick about I
Speaker 1: think of writing is a kind of trick. It's like,
Speaker 1: I don't know where it comes from that I can
Speaker 1: do this thing. I don't know why, but I've always
Speaker 1: associated with joy and pleasure and kind of happiness, and
Speaker 1: I wondered whether i'd feel that again when I sat
Speaker 1: down before a blank computer screen. And it was joyous
Speaker 1: to find that I did feel it like I didn't
Speaker 1: that I was right back in my place with maybe
Speaker 1: a little extra thing in me when I sat down
Speaker 1: to write this thing. But before I did that, I
Speaker 1: just didn't know. I just didn't know whether it's like
Speaker 1: I was so fundamentally changed that I would never want
Speaker 1: to do this.
Speaker 2: I very vividly a mutual friend said, hey, you should
Speaker 2: give Michael a call. So we spoke a few months afterwards,
Speaker 2: and you said something that you know, you're such a mensch.
Speaker 2: I was genuinely shocked at this point when you're still mourning,
Speaker 2: and you said, hey, this tragedy showed me that up
Speaker 2: until this point, how long I actually was. Most humans
Speaker 2: aren't wired to think that way. That's a very unusual
Speaker 2: perspective to look at something that's not good and try
Speaker 2: and find the goodness in a tragedy.
Speaker 1: So this is the way to honor her. The way
Speaker 1: to honor her is not to crumble, it's to build
Speaker 1: on it.
Speaker 2: You call her a warrior, thinking.
Speaker 1: She was an absolute warrior. But the way to honor
Speaker 1: her is in the spirit of improv It's you can't
Speaker 1: say no, you can't reject this. Rejecting her death or
Speaker 1: rejecting the feelings that go with it is to deny
Speaker 1: her in some way. What I need to do is
Speaker 1: accept whatever the emotions are and build on them. And
Speaker 1: whatever I build will have a little or hurt in it.
Speaker 1: So this book as a little of her in it.
Speaker 1: You know what's in her about this? About her in
Speaker 1: this book it very consciously. I knew when I wrote
Speaker 1: this book, I was going to be in a war.
Speaker 1: I knew that. I knew that there was a mob sentiment.
Speaker 1: And this culture is very good at whipping up mobs
Speaker 1: very fast. Twitter like exists for it.
Speaker 2: It's an outrage it'.
Speaker 1: An outrageing machine, and people are so sure they're right
Speaker 1: and that that mob. To get between that mob and
Speaker 1: its target is always dangerous. And Dixie would have done it.
Speaker 1: She shoot, She would put her body between a mob
Speaker 1: and had done it before, that kind of thing, and
Speaker 1: so I thought, it's going to be a little painful,
Speaker 1: but it's worth it and it will honor her.
Speaker 2: So when you're talking to him and thinking this is
Speaker 2: not long after her accident, you're thinking, I'm going to
Speaker 2: go for this. And she would absolutely support this decision absolutely. Huh,
Speaker 2: that's an amazing conversation. I remember you did a podcast.
Speaker 2: It's three actors comedians. I don't remember SmartLess smart SmartLess. Yes,
Speaker 2: that's right, And I try never to listen to people's
Speaker 2: podcasts before I go on with them. But we were
Speaker 2: doing the twenty fifth anniversary of Liars Poker, and I
Speaker 2: listened to that and the last segment was fifteen minutes
Speaker 2: of you discussing Dixie. It was just the most poignant,
Speaker 2: beautiful conversation I've ever heard from anybody experiencing loss. So
Speaker 2: get do you recall that podcast?
Speaker 1: And I do? I do. I don't remember what I said,
Speaker 1: but I do remember the spirit in which I said it,
Speaker 1: and in life I have found and this connects to
Speaker 1: this book, it connects to anyway books that there's a
Speaker 1: richness in recognizing and really insisting on any difference between
Speaker 1: what you feel and what you're supposed to feel. And
Speaker 1: there's always pressure to feel a certain thing, like this
Speaker 1: pressure right now to hate Sam batmanfree. But if you
Speaker 1: actually feel something different, hold on to that feeling and
Speaker 1: explore it. And there's there's there's great stuff in it,
Speaker 1: great life stuff, great literary stuff. And with my grief
Speaker 1: right after she died, I was inundated with correspondence, very
Speaker 1: well meaning correspondence from people who thought they'd gone through
Speaker 1: the same thing and had on the surface, gone through
Speaker 1: something similar, lost a child, and giving me advice, sending
Speaker 1: me books, you know, telling me how I was going to,
Speaker 1: telling me how I was going to feel, and they
Speaker 1: were none of it rang true. I knew how I
Speaker 1: knew how I felt, and I knew it was different
Speaker 1: from how they thought I should feel. And I thought
Speaker 1: that's interesting. And the books just looked like dead words
Speaker 1: on the page to me. So I thought I felt
Speaker 1: this way when Dixie was born. I felt that was
Speaker 1: about fatherhood in the beginning. I just felt differently about
Speaker 1: my children than I was expected to feel. I didn't
Speaker 1: fel attached to them right in the beginning. It's like
Speaker 1: I had to learn to love my children. Love wasn't
Speaker 1: there in the beginning. You learn to love something, or
Speaker 1: you come to love something by taking care of it,
Speaker 1: at least in my experience, and I hadn't taken care
Speaker 1: of them. Oh was I taken care of me? I
Speaker 1: loved them. I felt with the grief, for example, a
Speaker 1: lot of people told me how I should I would
Speaker 1: feel guilty, and I thought, why would I? I didn't.
Speaker 2: I didn't.
Speaker 1: Yeah, Yeah, I didn't feel guilty. I thought she had
Speaker 1: a fantastic life, we had a fantastic relationship, we had
Speaker 1: magical amounts of time together, that she was on her
Speaker 1: way to a brilliant future. I feel sad, but I
Speaker 1: don't feel guilty. I don't feel anger. I didn't feel
Speaker 1: any of the toxic emotions. I felt sad and sad
Speaker 1: is that you can work with sad, sad and funny.
Speaker 1: This book I've just written is sad and funny. There's
Speaker 1: it's there's so much funny stuff in it, but it's
Speaker 1: a it's a sad story. They go together, these emotions.
Speaker 1: You're in a You're in an emotional space rather than
Speaker 1: a kind of angry You're a rich emotional space rather
Speaker 1: than a kind of cheap emotional space.
Speaker 2: Huh. That's really fascinating and unexpected. Take. Let's bring this
Speaker 2: back to the crew of twenty somethings running FTX. I
Speaker 2: read the book not so much as in a defense
Speaker 2: of where FTX went off the rails, but just an explanation.
Speaker 2: Here are people with no experience in finance, no experience
Speaker 2: in management, no organizational structure, none of the usual controls
Speaker 2: in place to run a few million dollars, much less
Speaker 2: hundreds of billions of dollars. How criminal was this or
Speaker 2: was this really just terrible management run amuck? Was there
Speaker 2: any criminal intent?
Speaker 1: That's the question at the heart of the trial, and.
Speaker 2: I mean clearly there was.
Speaker 1: I mean answer this, Oh yeah, it's all in there,
Speaker 1: right it's all. There's no happy story to explain it all.
Speaker 1: But I want to say this. I don't want to
Speaker 1: answer the question because I've left the question for the
Speaker 1: reader to answer. I intentionally didn't answer the question because
Speaker 1: I didn't want my thumb on the scale. So I
Speaker 1: don't really want to answer this in interviews. So let
Speaker 1: me ask also. But let me also add to that
Speaker 1: that it's quite possible that stuff will come out in
Speaker 1: the trial that has not come out yet that will
Speaker 1: change my views. So I don't know, so I'm withholding judgment.
Speaker 2: So let me pull something from the book that I
Speaker 2: thought was really fascinating, and I think Twitter has gotten wrong.
Speaker 2: It wasn't that FTX transferred money to Alameda, transferred eight
Speaker 2: point three billion dollars. As I read it, FTX was unbanked.
Speaker 2: You could give them crypto, but you couldn't give them cash.
Speaker 2: Alameda had a pre existing bank account, so you could
Speaker 2: wire money into Alameda and then they're supposed to move
Speaker 2: it over to FTX. Is that a fair statement.
Speaker 1: That's that's how eight of the ten something billion that
Speaker 1: got into Alimeter from FAS got it.
Speaker 2: And at one point in time, Alimede is sitting on like,
Speaker 2: I don't know ninety one hundred billion dollars worth of assets.
Speaker 2: It's not that eight billion is a rounding error, but
Speaker 2: in the grand scheme of things, yeah, yes, we'll make
Speaker 2: that mark to accounting eventually.
Speaker 1: So that would be the story Sam would tell. Yeah.
Speaker 1: And the way you would challenge that story and I do,
Speaker 1: is we're really sitting on ninety billion dollars of assets
Speaker 1: that was Salona and FTT and serum, and what is
Speaker 1: it worth? You know, yes, the market seems to say
Speaker 1: it's worth that, but it's not cold liquid in it. Right.
Speaker 1: The second thing is it's just like, unless you know
Speaker 1: Sam Bank and free to know what he did back
Speaker 1: when he was trading the ripple in Berkeley, that it
Speaker 1: seems preposterous that someone could not pay attention to eight
Speaker 1: billion dollars of other people's money that was in the
Speaker 1: wrong place, and that the minute they have bank accounts
Speaker 1: or for that matter, you know, wallets to store crypto
Speaker 1: in in FTX because the dollars are going to become
Speaker 1: a crypto that you move it over. So it's inexcusable
Speaker 1: that it was there. But it does seem that it
Speaker 1: got I mean, and how much difference. It makes how
Speaker 1: it got there, I'm not clear, may not make any
Speaker 1: difference at all legally, but that that appears to be
Speaker 1: how it most.
Speaker 2: Came into Alamo, from the client, not from FTX.
Speaker 1: Right.
Speaker 2: That sounds like that's an important distinction. It may be,
Speaker 2: I mean, actually it's problematic.
Speaker 1: Yeah, oh yeah.
Speaker 2: Whether that amounts to fraudulent intent is again it's for
Speaker 2: the jury.
Speaker 1: That's right. That's gonna be the interesting thing. What this
Speaker 1: is why you need to understand Sam Bankman Freed. If
Speaker 1: you're the jury, it's like, what would that mind have intended? Uh,
Speaker 1: And that's what they will decide. You know, his odds
Speaker 1: are not good.
Speaker 2: So so you mentioned FTT, which is the coin. This
Speaker 2: story was really this part of the narrative was really
Speaker 2: fascinating because I was unaware of this. So FTX issues FTT,
Speaker 2: which is effectively like equity in FTX, Yes, and they don't.
Speaker 1: It's got to claim on the revenues, right.
Speaker 2: So literally profit distributions go out to FTT.
Speaker 1: Holders in the form of buybacks.
Speaker 2: So in the form of buybacks of FTT. So that's
Speaker 2: how you get you get paid on that that suddenly
Speaker 2: and he does it at like pennies, not not a
Speaker 2: whole lot of money. Suddenly this runs up in price.
Speaker 2: Right at what point, what what is FTX holdings of
Speaker 2: FTT worth?
Speaker 1: So as long as FTX is functioning and profitable, the
Speaker 1: FTT is actually pretty liquid and valuable. At the minute
Speaker 1: FTX goes down, it's worth zero. So it's all correlated
Speaker 1: concern and it's sort of pretty much everything in well
Speaker 1: not that, not everything, but a lot that was in
Speaker 1: Alameda was simply one thing, Sam FTX, FTT, Solana even
Speaker 1: and serum, these big these other tokens were so associated
Speaker 1: with him that if one thing, if FTX went down,
Speaker 1: they were all going to go down. Uh, they're they're
Speaker 1: parts of the story. It's funny way I think back
Speaker 1: of like former financial scandals, Madeoff is not the analogy.
Speaker 2: Well, actually, so you've said this, and I have another question,
Speaker 2: so let me bring it up here. Madeoff had a
Speaker 2: legitimate business. He was the largest market maker on the
Speaker 2: nestrary way back when, way back when. And the problem
Speaker 2: is nobody really knows when his business turned into a
Speaker 2: ponzi right right, There's been multiple books, none of them
Speaker 2: have found that information. Right here, it's pretty clear from
Speaker 2: the beginning, no controls, cole mingling of funds.
Speaker 1: But FTX itself was never never looked like right.
Speaker 2: And it was a legitimate business making a lot of money.
Speaker 1: Right. But this thing rhymes to me with both Michael
Speaker 1: Milkin and with long term capital management. Long term how
Speaker 1: we management didn't realize that all of its stuff was
Speaker 1: correlated because it owned it. And once people started going
Speaker 1: after their positions and knew their positions, even if it was,
Speaker 1: you know, a position in Russian government bonds and overhear
Speaker 1: our position in gold, it didn't matter because everybody knew
Speaker 1: they were weak and these positions were going to be
Speaker 1: puked out. And so the collapse of Sam's world reminded
Speaker 1: me a little of that, and it reminded me a
Speaker 1: little of party.
Speaker 2: Well stay there before you move on. So you talk
Speaker 2: about CZ basically starting a run on the bank and
Speaker 2: or a run on FTX, because he starts saying, hey,
Speaker 2: ore FTT, we've sold and we have other things. We
Speaker 2: we're no longer trusting FTX as an exchange. Did he
Speaker 2: precipitate the entire collapse?
Speaker 1: He couldn't have done it. It's a combination of him
Speaker 1: and the moment in which he says what he says,
Speaker 1: And there's a reason I think he says what he says.
Speaker 1: He's even kind of hinted at this reason. Samm idiotically
Speaker 1: and made a trip to Dubai like the week a
Speaker 1: week earlier met with with Anthony Scaramucci. I was actually
Speaker 1: invited on this trip. I didn't go. But he tried
Speaker 1: to persuade the Dubai regulators to throw Binance and Sez
Speaker 1: out of Dubai.
Speaker 2: Really, and they have an ongoing relationship, both Sam and
Speaker 2: and Binance and Dubai and.
Speaker 1: Yes, and you know, Binance needs to find a home
Speaker 1: if by Dubai has given them a home. Caz needs
Speaker 1: to find a home. Dubai has given him a home.
Speaker 1: And so Sam was basically trying to render cz stateless
Speaker 1: and Uh overplayed Riley overplayed his hand. That it was
Speaker 1: just a dumb thing to do. I mean, it gets
Speaker 1: to Sam. But if he thought he was vulnerable, why
Speaker 1: would he have done that? Did he? So? Maybe he didn't,
Speaker 1: I think he was vulnerable. That moment tells you argues
Speaker 1: that Sam is oblivious at that moment to how weak
Speaker 1: his hand is, because you don't do it if your
Speaker 1: hand is that week. I mean, he's really not going
Speaker 1: to get you very much.
Speaker 2: Well, we were talking earlier. You go up against the king,
Speaker 2: you better better kill him.
Speaker 1: That's not miss And the other thing is Sam was
Speaker 1: potentially disruptive to US financial structure that he was arguing.
Speaker 1: He was making an argument was similar to Brad Katsiyama's
Speaker 1: argument flashboys. A lot of unnecessary intermediation in the markets,
Speaker 1: and there's a much simpler way to do this the
Speaker 1: structures of being built in crypto that could be poured
Speaker 1: it into the US stock market where all of a sudden,
Speaker 1: you know, the exchange isn't selling customer data for business.
Speaker 1: That offended and bothered a lot of existing players.
Speaker 2: So you talk about this specifically towards the end of
Speaker 2: the book. The takeaway from FTX and Crypto is the
Speaker 2: reason this collapse, the reason crypto had another Crypto winter,
Speaker 2: is there is no banker of last resort to step up,
Speaker 2: and that it turns out capitalism needs guardrails, banks need regulations,
Speaker 2: and guess what, we all need intermediaries because the supposedly
Speaker 2: trustless system works much worse than the system that that
Speaker 2: is highly regulated and supervised.
Speaker 1: Yes, it's it's a great irony to me of Crypto
Speaker 1: that it starts out with Stoci's paper, and Satoci is
Speaker 1: clearly obsessed with with with not wanting to have to
Speaker 1: trust governments and banks. The whole point of this is,
Speaker 1: this is a way to eliminate banks and governments from
Speaker 1: the monetary system. And it's a trustless system. It's peer
Speaker 1: you trade directly with someone else, and the transactions are irreversible,
Speaker 1: et cetera, et cetera. And that he must be if
Speaker 1: he's alive. If he's dead, he's in his grave. Because
Speaker 1: what happens next Crypto goes and invents a whole nother
Speaker 1: financial system that looks an awful lot like the existing
Speaker 1: financial system, except without regulators right right, and it's and
Speaker 1: or deposit insurance right, and it's and and.
Speaker 2: Which turns out to be a good thing deposit and
Speaker 2: show God right.
Speaker 1: Yes and so and regulators too it So who would
Speaker 1: have fought? I wouldn't have thought that crypto would end
Speaker 1: up in this place. It would end up with all
Speaker 1: the same exchanges and brokers and banks that that the
Speaker 1: financial system has. Turns out, their reasons for these things.
Speaker 2: So, so let's talk a little bit about the bankruptcy
Speaker 2: and the trustees and and what so far has been recovered.
Speaker 2: You write in the book, what there's eight point three
Speaker 2: billion missing.
Speaker 1: So there's eight point six billion in customer deposits. This
Speaker 1: is all from the bankruptcy people.
Speaker 2: That's unaccounted for.
Speaker 1: That they that the customers are still owed, including me,
Speaker 1: to under grand.
Speaker 2: You and most of the employees had all their network
Speaker 2: tied up. These people were drank the kool aid. They
Speaker 2: thought this was the next great thing.
Speaker 1: Their employees who had their whole families, had their parents,
Speaker 1: had their brothers and sisters in with their assets on FTX.
Speaker 2: Yes, right, so eight point six is zero.
Speaker 1: Yeah, And they've said they've found seven This is three
Speaker 1: months ago, and they said they were still finding it.
Speaker 1: Seven point three billion of liquid assets of liquid.
Speaker 2: And in the book you talk about other exchanges saying, hey,
Speaker 2: we have three hundred million of your ethereum here, come
Speaker 2: get it.
Speaker 1: When the thing is unraveling, people not not Sam, probably
Speaker 1: Sam too, but people not Sam are getting phone calls
Speaker 1: from banks saying we have we have three hundred million
Speaker 1: dollars of dollars in an account. Do you know? And
Speaker 1: they didn't know about it, right, I mean so.
Speaker 2: And then you talk about the dragon's layer, which is
Speaker 2: all these assets. So he bought one hundred million dollars
Speaker 2: of Twitter a year before Musk buys it at like
Speaker 2: twenty dollars a share.
Speaker 1: So this is well, the big a ton of money.
Speaker 1: You know, the elephant in the room is and it's
Speaker 1: a really interesting elephant. So Sam Bagman Freed one of
Speaker 1: his obsessions is artificial intelligence and making sure artificial intelligence
Speaker 1: doesn't slip its leash and eat us. All right, And
Speaker 1: this is before it's fashionable at all to think about this. Now,
Speaker 1: this way back when nobody was thinking about it, are
Speaker 1: really few people. And he buys a steak in a
Speaker 1: company called Anthropic. He buys it I think at the
Speaker 1: time as a twenty percent stake, I can't remember.
Speaker 2: I think it was four hundred something like that, some
Speaker 2: huge amount of money.
Speaker 1: Huge amount of money. And when the bankruptcy happens, the
Speaker 1: guy who's running the bankruptcy, John Ray, said to me,
Speaker 1: as an illustration of the idiocy of Sion Bakman, Freed
Speaker 1: said to me, can you believe he put like four
Speaker 1: under million dollars into this thing called Anthropic and it's
Speaker 1: just air. It's just an idea, there's nothing there. Well,
Speaker 1: last week Amazon has announced they're making a four billion
Speaker 1: up to four billion dollar investment and it's a minority stake.
Speaker 1: So this company is now being valued at least eight
Speaker 1: billion more probably, and it seems going like it's going
Speaker 1: to the moon.
Speaker 2: This is means his.
Speaker 1: Three or of five x yes, and it's that's right.
Speaker 1: So it very much looks like they may get paid back.
Speaker 2: Not only they may get paid back, but the implication is, hey,
Speaker 2: if they had accounting and a CFO, where is it
Speaker 2: possible that they were never truly insolvent? If you take
Speaker 2: all their assets and add them up, might they not
Speaker 2: have needed to go into bankruptcy if there was an
Speaker 2: adult in the room running the place.
Speaker 1: Well, there's an adult in the room running the place.
Speaker 1: The money would never have been in the wrong place.
Speaker 1: But the but it's it's I think that's certainly true
Speaker 1: of ft x US.
Speaker 2: The well that was tiny compared to it's hard to know.
Speaker 1: It'll be after the fact, we will find it.
Speaker 2: But it's a real This isn't like a one in
Speaker 2: a billion possibility. This is a realistic chance, I think.
Speaker 2: And I picked that number on purpose because you know why.
Speaker 1: Yeah, I think so. I think that's right, and I
Speaker 1: think you know, one way to think about this, it's
Speaker 1: is you talk to the people who were trading the
Speaker 1: claims on the on on. If I wanted to sell
Speaker 1: my claim on the on my deposits, I could and
Speaker 1: I think I get like thirty five cents on the dollar,
Speaker 1: not much, but some it's not.
Speaker 2: Zero, not two, and that's not a typical night.
Speaker 1: But if you talk to the people who buy those
Speaker 1: I had a couple tell me, we think it's maybe
Speaker 1: we're going to make it get one hundred cents on
Speaker 1: the dollar. Wow, And but it problems is going to take.
Speaker 2: What it made offends up. It was pretty close to
Speaker 2: one hundred. Yeah, I think they can clawed back a
Speaker 2: lot so.
Speaker 1: But this is without clawbacks. So the interesting thing about
Speaker 1: this is I don't think I mean some people like
Speaker 1: politicians people are embarrassed to have taken Sam's money and
Speaker 1: can give it back. Have given some of it back.
Speaker 1: It's pretty peanuts that but they are rules about clawbacks
Speaker 1: and bankruptcy, right, you have to demonstrate that when the
Speaker 1: money was given, that the.
Speaker 2: There was a proceeds of a crime, also that it
Speaker 2: was insolvent.
Speaker 1: And it's unclear when FTX becomes insolvent. Is it November
Speaker 1: of last year? Is it June? It certainly wasn't January
Speaker 1: of last year. The fine, So anything that went out
Speaker 1: the door before then, you're not gonna be able to clock.
Speaker 2: With made off. It was pretty easy. That was never
Speaker 2: you know, the last twenty years, there was no business there.
Speaker 2: Whatever you got you were getting somebody else's money.
Speaker 1: So that was easy.
Speaker 2: This is a little more.
Speaker 1: And they have not made the argument yet. And tellingly,
Speaker 1: if it turns out that the money is there, it
Speaker 1: will be because those the assets add up to the
Speaker 1: liabilities that nobody's really gone systematically through this pile of stuff,
Speaker 1: an incredible bile of stuff. It's sam bank and free
Speaker 1: to cumulate. It's one hundred and something in private investments.
Speaker 2: You call it the dragon's lair. He threw five billion
Speaker 2: dollars into three hundred separate entities. And many of these
Speaker 2: are giant winners.
Speaker 1: You know, some of a zero it's a VC portfolio. Yeah,
Speaker 1: And the question is what's it worth? And I don't
Speaker 1: know what it's worth. Is it enough to close the
Speaker 1: gap between eight point six and seven point three? It
Speaker 1: seems so there's some other they owe some other stuff,
Speaker 1: but the customer. It'll be interesting to see what the
Speaker 1: customers get back.
Speaker 2: So one other thing I have to add ask about
Speaker 2: is you throw some shade at some of the big
Speaker 2: law firms, Sullivan and Cromwell and others. First, Sullivan and
Speaker 2: Cromwell was for a while ftx's outside council for certain.
Speaker 1: Things, including their dealings with the regulators.
Speaker 2: Which kind of raises questions, how could they be bankruptcy counsel.
Speaker 1: I don't understand it because they're sitting.
Speaker 2: On Isn't that an inherent conflict of interest?
Speaker 1: They're sitting on the evidence for the trial. So you
Speaker 1: would have thought I would have thought that at least
Speaker 1: people would raise questions about the lawyers for FTX being
Speaker 1: also the lawyers for the bankruptcy and also especially since
Speaker 1: they're the ones who really twisted Sam's arm to sign
Speaker 1: that the bankruptcy documents.
Speaker 2: Right, And there was a typo I found in the book.
Speaker 2: You wrote that the bankruptcy lawyers are going to generate
Speaker 2: fees of a billion dollars. That's a typo. What's that
Speaker 2: number supposed to be?
Speaker 1: It's not a typo.
Speaker 2: It's a billion dollars lawyer.
Speaker 1: There are hundred advisor, lawyer and other fees. Real lawyer
Speaker 1: and other fees. So this is where we are. We're
Speaker 1: at several hundred million. Now. One of the creditors, Big creditor,
Speaker 1: did an analysis of what they were going to charge
Speaker 1: by the time the dust settles, and they figured out
Speaker 1: it's going to be about a billion dollars.
Speaker 2: That's unconscionable.
Speaker 1: The thing that's striking to me is just how insider
Speaker 1: a game the bankruptcy process is.
Speaker 2: For a long time though took but it used to.
Speaker 1: Be regulated by the SEC. And in the eighties they
Speaker 1: got they took it out of the SEC and they
Speaker 1: created this thing called a bankruptcy trustee who's in the
Speaker 1: who's in the Department of Justice, but has no real
Speaker 1: power except the power to bitch and moan to the bankruptcy.
Speaker 2: He could petition, but he's gotten on so he did.
Speaker 1: In this case. He said, this is outrageous. They shouldn't
Speaker 1: be the Department of Justice. Guy wrote long letter saying
Speaker 1: you should not allow Solomon Cromwell to be the bankruptcy lawyers,
Speaker 1: and when they should.
Speaker 2: So this isn't Michael Lewis whining, And this is basically
Speaker 2: DJ saying these are the wrong attorneys, but they.
Speaker 1: Don't have the power to do anything about it. And
Speaker 1: did the SEC back in the day. Yeah, yeah, So
Speaker 1: it's just it's changed so that the power resides with
Speaker 1: the bankruptcy judge, and the bankruptcy judge is usually a
Speaker 1: former bankruptcy lawyer. And it just starts to smell like
Speaker 1: a club. And what with all the trustee was asking
Speaker 1: for is there needs to be like an outside examiner
Speaker 1: to watch this stuff, and the judge wouldn't even allow that.
Speaker 1: So this thing is happening essentially inside of a black box.
Speaker 1: And I just find that curious. It just seems like,
Speaker 1: how could that be?
Speaker 2: How could it be? So I have hundreds of questions
Speaker 2: more for you, but I'm going to just stick to
Speaker 2: the two most potent ones now. Effective altruism seemed like
Speaker 2: a big part of Sam's persona and his self identification.
Speaker 2: I came away from the book thinking this is a
Speaker 2: bunch of nonsense. I mean, seriously, they talk about, well,
Speaker 2: the risk from a super and ova one in a billion,
Speaker 2: and an asteroid is one in a million, and a
Speaker 2: pandemic is one in one hundred. And AI is one
Speaker 2: and thirty and these are just bs made up numbers,
Speaker 2: which you know, to a math guy, even a middling
Speaker 2: MIIT math guy, should have been like obvious red flags
Speaker 2: that this is crap. How did they get away fooling
Speaker 2: so many smart people? Or am I overstating this?
Speaker 1: I said the same thing.
Speaker 2: I mean I immediately so. But by the way, if
Speaker 2: you just sit down for two minutes with a pen
Speaker 2: and paper, the one in a billion on the supernova
Speaker 2: you could shows something like one in four trillion very
Speaker 2: very easily. And I'm sure, but it doesn't matter. They're
Speaker 2: just round made up numbers.
Speaker 1: So in their heads, you've got to understand this is
Speaker 1: a psychological as much of an as an intellectual movement, right.
Speaker 1: It's tribal. They're finding solos in each other's company. They're
Speaker 1: loving having these arguments about this thing. And what would
Speaker 1: they say? Let me see if I can for just
Speaker 1: a moment, there's some number that's true, whatever it is.
Speaker 1: We don't may not know the number, but there's some
Speaker 1: number that's true. And if any number is true and
Speaker 1: you multiply it by an infinite future, you get a
Speaker 1: big number.
Speaker 2: Yes and no who specializes in trobabilities.
Speaker 1: I try, I try, I try.
Speaker 2: Hey listen, Eventually the universe suffers from heat death, and
Speaker 2: entropy means that everything dies. So so why bother doing
Speaker 2: your homework?
Speaker 1: I try, I just try. I'll stop now. I didn't
Speaker 1: try to do much in the way of defending.
Speaker 2: This, No. I was completely sympatical with you as you
Speaker 2: as I'm reading and I'm putting my nose up, and
Speaker 2: then you throw the numbers.
Speaker 1: Out and me offer another weird defense of them, and
Speaker 1: that it's pretty cool how quickly they got to threats
Speaker 1: from artificial intelligence, and when that's fair, when nobody cared
Speaker 1: about it, right, and now.
Speaker 2: Everybody and a pandemic before COVID.
Speaker 1: Yeah, that's right. So I'll give them credit, given the
Speaker 1: credit for paying attention to things. These things are not unimportant.
Speaker 1: Once you start to kind of turn Matthew about them,
Speaker 1: it starts to feel a little silly. Yeah, And especially
Speaker 1: when you devote your life to these equations, then it
Speaker 1: seems to sit like a little just off. But it
Speaker 1: wasn't just stupid. It was four point zero stupid. It
Speaker 1: was it was it was you know, with that, it's
Speaker 1: sort of like sort of like the kid on the.
Speaker 2: Softball weapons grade stupid.
Speaker 1: It's like the kid on the softball team who's the
Speaker 1: best student but doesn't know when to steal a base.
Speaker 1: And it is a little of that. It's a different
Speaker 1: It's like blind spots to the intelligence is what it
Speaker 1: felt like, like really smart people with this big blind spot.
Speaker 2: Last question, So, I've read your whole body of work,
Speaker 2: some books multiple times, and we talked a little bit
Speaker 2: about Flash Boys, But the thing that kind of stood
Speaker 2: out to me is wondering, regarding the characters in this book,
Speaker 2: do you find any similarities between the world of crypto
Speaker 2: and the world of subprime mortgage securitization, any parallels there?
Speaker 1: You know there probably are. That's not what popped into
Speaker 1: my mind. What popped into my mind when I was
Speaker 1: working on the book, the nature of the characters and
Speaker 1: kind of how outrageous it all was and how there
Speaker 1: were no guardrails was Liar's Poker. I just felt like,
Speaker 1: I'm back at a time, I'm back in a space
Speaker 1: where your jaw is on the floor because of what's
Speaker 1: going on and you can't believe this happens in a business.
Speaker 1: And that was the feeling about Liar's Poker. Wait, this
Speaker 1: is an actual business and people are strippers are on
Speaker 1: the floor and all that stuff. And then it quickly
Speaker 1: got very straight laced on the surface. This is before
Speaker 1: This is the moment in crypto before it gets straight laced.
Speaker 1: And it reminded me of that different people. You know,
Speaker 1: they're more nerds than jocks, but still wacky, like just
Speaker 1: wacky behavior. And the wackiness was kind of joyous. It's
Speaker 1: like a range of behavior is being tolerated here. This
Speaker 1: not ordinarily tolerated and Marshall in financial life.
Speaker 2: Right, this was more frat house than trading.
Speaker 1: Floor there, or yes, a nerd frat house.
Speaker 2: But yes, Michael, thank you for being so generous with
Speaker 2: your time. We have been speaking with the one and
Speaker 2: only Michael Lewis discussing his brand new book Going Infinite,
Speaker 2: The Rise and Fall of a New Tycoon. If you
Speaker 2: enjoy this podcast, we'll be sure and check out any
Speaker 2: of the previous five hundred we've done over the past
Speaker 2: nine years. You can find those at Apple Podcasts, Spotify
Speaker 2: or YouTube, or Bloomberg dot com. Follow me on Twitter
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Speaker 2: each week. My audio engineer is Meredith Frank A. Tika
Speaker 2: of Albron is my project manager. Anna Luke is my producer.
Speaker 2: Sean Russo is my researcher. I'm Barry Ridholts. You've been
Speaker 2: listening to Masters in Business on Bloomberg Radio