5 ms·

> The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison. Haven't laughed that hard in a while.

dweekly 4y ago
Matt Levine is a national treasure.
- EMM_386 4y ago
  I only wish he had gone into the "compliance officer was also previously involved in massive online poker scams". Maybe the next one!
  - guynamedloren 4y ago
    Marc Cohodes has been sounding the alarm about FTX for a while. Here's a snippet (from last month, before the FTX crash) where he calls out the shady background of said compliance officer: https://youtu.be/VbDiWXFxqr8?t=2348 https://youtu.be/VbDiWXFxqr8?t=2348 The whole conversation is fascinating.
- JTon 4y ago
  I happened to catch the Odd Lots podcast episode where Matt Levine and SBF of FTX were co-guests soon after it first came out [1]. Matt's reactions were priceless. Well worth the listen now, considering FTX blowup [1] https://www.youtube.com/watch?v=KZYqL79GDXU https://www.youtube.com/watch?v=KZYqL79GDXU
  - bombcar 4y ago
    Levine has said that he was a fan of SBF based on that podcast, btw. Someone posted about it earlier today. https://news.ycombinator.com/item?id=33594284 https://news.ycombinator.com/item?id=33594284 I think people would do well to remember that Levine's job is NOT to do your due diligence for you; he's an entertainer.
    - dwohnitmok 4y ago
      The point about being an entertainer is a good one. Nonetheless, after reading that I came out with more respect for Levine. With FTX in shambles, it would've been easy to go with the flow and lean into how he predicted the whole thing with his Ponzi question, but Levine instead honestly comes out and says that he actually liked SBF more after that interview.
    - robocat 4y ago
      > he's an entertainer That is a gross cynical misrepresentation. He appears to me to be a financial geek, interested in the mechanics of finance for its own sake, and who finds comedy (often dark comedy) in the mechanics of our financial systems. Philosophically, we can’t be 100% sure of his motivations to publish his insights, but everything of his that I have read points to the reason primarily being that he finds it fascinating, a nearly purposeless academic joy.
      - bombcar 4y ago
        There's nothing wrong with being an entertainer, it's just something to keep in mind. In other words, don't make major financial decisions based on Levine not saying it is a good or bad idea.
        tasuki 4y ago
        > In other words, don't make major financial decisions based on Levine not saying it is a good or bad idea. He puts such disclaimers on basically everything he says. What should I base my major financial decisions on?
      - shaklee3 4y ago
        he's a former M&A advisor at Goldman Sachs, so he has a lot of background and knowledge in everything he writes about.
  - HDThoreaun 4y ago
    I really don't think anyone was confused about yield farming being a Ponzi. Everyone who was in it just thought they'd get out before it blew up. Not really related to FTX blowing up.
    - noelsusman 4y ago
      This distinction keeps getting lost in all this. Exchanges like Celsius and Voyager were pretty explicit about the fact that they were taking your crypto and lending it out to people to generate yield. Anyone with a brain should have realized that involved some risk of losing your assets, especially when you compare their rates to what was available elsewhere at the time. Those exchanges blowing up because of bad loans was entirely foreseeable and not surprising. But that's not why FTX blew up. They went down seemingly due to straight up fraud and/or theft. FTX users had no indication that FTX was doing anything other than holding their assets and collecting transaction fees. They're completely different situations.
- rabf 4y ago
  Good to see a well researched accurate article on this compared to some of the hit pieces floating around from other "journalists".
  - whimsicalism 4y ago
    It'd have been more impressive if the article had preceded the collapse. Easy to pile on after the fact.
    - NoboruWataya 4y ago
      These people are in the business of market commentary, not market predictions. That said, Levine has been very critical of crypto (and very entertaining about it) for a long time now.
      - deleted 4y ago
        [deleted]
    - lxgr 4y ago
      How about (much) earlier this year? Matt Levine, in a podcast with SBF: > Matt: (27:13) I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good. https://www.bloomberg.com/news/articles/2022-04-25/sam-bankman-fried-described-yield-farming-and-left-matt-levine-stunned https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
      - whimsicalism 4y ago
        Yes, I read the article where Matt Levine explicitly mentions that he missed this.
      - jerf 4y ago
        There's that famous quote about the tide going out and seeing who isn't actually wearing swim suits. I think a similar thing applies to all the financial chicanery that has been in play in this 0% interest rate environment. In reality, while the financial system is irreducibly complicated in some important ways, there's also an important sense in which the entire thing is really built on just some simple primitives. Basically, the financial system can move risk spatially and temporally, and charge a fee for the activity. That's really all it can do. I think from the proper point of view it can't really even do that primitive without at least some net increase in risk, though I admit defending that mathematically would be a challenge. (For now we could just start with the proposition that if there was an easy way to simply reduce overall risk, it would have already been taken, so all in all there can't be very many such things just lying around. And they've been building a lot of things on this primitive, so it's not a hard guess that there's a lot more use of the primitive than there could possibly be opportunities for such uses to result in true net reduction in risk, whatever exactly that may mean... I know I'm handwaving here.) If you think about it mathematically, it's important to understand that no amount of concatenation of the primitive of "moving around risk" can do anything more than that. And, in particular, no amount of concatenation of things that leave net risk either the same or somewhat greater can ever end up reducing the amount of risk in the system. However, each such composed operation introduces a place for someone to misprice the risk, especially as the risk is communicated across lossy channels, let alone channels with a certain amount of incentive to misrepresent the risk to the buyers on the other end. So while no amount of combination of those primitives can ever reduce risk overall, it sure is full of opportunities to convince people the risk has been reduced, and for them to take various actions based on that. Combine that with one of the most popular operations being to take a nice risk gradient that gradually ramps up from "high probability of small bad event" to "low probability of big bad event" and shoving all the risk into "super low probability of total utter unrecoverable catastrophe", and the whole thing is just destined to explode hopelessly. And yet... perhaps some readers are saying well, duh, jerf, how else could it be, I would say to you I'm firmly middle aged now, but those castles based on financial engineering have been floating in the sky my entire adult life now, even counting the so-called "crises" I've seen. And to the naked eye, those castles have gotten bigger, higher, nicer, and more numerous the entire time. It takes... something... some pretty big cajones to stare up at those things that have been floating in the sky for so long and saying "they can't possibly do that forever". Especially when you may well have bankrupted yourself seven times over trying to trade on that presumption, even if it is in fact true in some abstract sense. The financial system is rapidly simplifying. It's going to be a painful process for quite a lot of people. A lot of people who think they are on solid ground are going to discover they've been herded onto the flying castles without realizing it. It will, if nothing else, be very educational I suppose.
- guelo 4y ago
  The journalism I'm impressed by is coindesk's. They broke this story and have been all over it.
function_seven 4y ago
> If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?” You cannot apply ordinary arithmetic to numbers in a cell labeled “HIDDEN POORLY INTERNALLY LABELED ACCOUNT.” The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison. I had this full quote on my clipboard. It's a masterpiece. 3 Cuil (‽).
klenwell 4y ago
Did anyone else see the FTX fortune cookies? https://mobile.twitter.com/klenwell/status/1592178164675252226 https://mobile.twitter.com/klenwell/status/15921781646752522...
- wgd 4y ago
  I remember getting those once a couple of months ago. It was so indescribably disappointing. I had never heard of FTX before that because I don't care about crypto-BS, but I feel like everything happening to FTX lately is a suitable punishment for inflicting those on the world and so I'm just sitting here with the metaphorical popcorn.
  - wl 4y ago
    Sadly, OpenFortune still exists and will happily insert some other company's ad into your fortune cookie.
- mzs 4y ago
  I really disliked those. I had this fun routine where I would let my dogs pick a fortune cookie and then read the fortune to him or her before giving the cookie to the dog as a treat. One time Sky got, "you will live a long life and eat many cookies." I about cried. These, blegh took all the fun out of it and I just stopped getting Chinese take-out.
Animats 4y ago
The big question: Where did the somewhere between US$4 billion and $16 billion that went to Alameda Research go? It seems that FTX transferred most of their assets to Alameda Research, which either lost, stole, or hid them. Has Caroline Ellison, the CEO, been questioned yet?
- moralestapia 4y ago
  My bet would be that they stole them. Before someone tries to Hanlon's razor this, these guys were not stupid, they can pretend to be but they come from very competitive backgrounds, they knew what was going on. They're going to jail.
  - lazide 4y ago
    FYI, don’t give them too much credit. There looks like so much evidence here they could be in jail for most of their remaining lives. That’s pretty dumb.
- TheOtherHobbes 4y ago
  I wonder how Alameda's VC investors and backers are doing?
mike10921 4y ago
I missed that line while skimming the article, but that is exactly what was going through my mind. It is mind-boggling how this can exist on such a grand scale without any scrutiny.
lukemercado 4y ago
This whole article is a beauty. > FTX worked fine: People liked its technology, and it seems to have made money. The problem was in its balance sheet, which was full of snakes, and its governance, which put all the snakes there. Fucking lol.

dweekly 4y ago

Matt Levine is a national treasure.

EMM_386 4y ago
I only wish he had gone into the "compliance officer was also previously involved in massive online poker scams". Maybe the next one!
- guynamedloren 4y ago
  Marc Cohodes has been sounding the alarm about FTX for a while. Here's a snippet (from last month, before the FTX crash) where he calls out the shady background of said compliance officer: https://youtu.be/VbDiWXFxqr8?t=2348 https://youtu.be/VbDiWXFxqr8?t=2348 The whole conversation is fascinating.
JTon 4y ago
I happened to catch the Odd Lots podcast episode where Matt Levine and SBF of FTX were co-guests soon after it first came out [1]. Matt's reactions were priceless. Well worth the listen now, considering FTX blowup [1] https://www.youtube.com/watch?v=KZYqL79GDXU https://www.youtube.com/watch?v=KZYqL79GDXU
- bombcar 4y ago
  Levine has said that he was a fan of SBF based on that podcast, btw. Someone posted about it earlier today. https://news.ycombinator.com/item?id=33594284 https://news.ycombinator.com/item?id=33594284 I think people would do well to remember that Levine's job is NOT to do your due diligence for you; he's an entertainer.
  - dwohnitmok 4y ago
    The point about being an entertainer is a good one. Nonetheless, after reading that I came out with more respect for Levine. With FTX in shambles, it would've been easy to go with the flow and lean into how he predicted the whole thing with his Ponzi question, but Levine instead honestly comes out and says that he actually liked SBF more after that interview.
  - robocat 4y ago
    > he's an entertainer That is a gross cynical misrepresentation. He appears to me to be a financial geek, interested in the mechanics of finance for its own sake, and who finds comedy (often dark comedy) in the mechanics of our financial systems. Philosophically, we can’t be 100% sure of his motivations to publish his insights, but everything of his that I have read points to the reason primarily being that he finds it fascinating, a nearly purposeless academic joy.
    - bombcar 4y ago
      There's nothing wrong with being an entertainer, it's just something to keep in mind. In other words, don't make major financial decisions based on Levine not saying it is a good or bad idea.
      - tasuki 4y ago
        > In other words, don't make major financial decisions based on Levine not saying it is a good or bad idea. He puts such disclaimers on basically everything he says. What should I base my major financial decisions on?
    - shaklee3 4y ago
      he's a former M&A advisor at Goldman Sachs, so he has a lot of background and knowledge in everything he writes about.
- HDThoreaun 4y ago
  I really don't think anyone was confused about yield farming being a Ponzi. Everyone who was in it just thought they'd get out before it blew up. Not really related to FTX blowing up.
  - noelsusman 4y ago
    This distinction keeps getting lost in all this. Exchanges like Celsius and Voyager were pretty explicit about the fact that they were taking your crypto and lending it out to people to generate yield. Anyone with a brain should have realized that involved some risk of losing your assets, especially when you compare their rates to what was available elsewhere at the time. Those exchanges blowing up because of bad loans was entirely foreseeable and not surprising. But that's not why FTX blew up. They went down seemingly due to straight up fraud and/or theft. FTX users had no indication that FTX was doing anything other than holding their assets and collecting transaction fees. They're completely different situations.
rabf 4y ago
Good to see a well researched accurate article on this compared to some of the hit pieces floating around from other "journalists".
- whimsicalism 4y ago
  It'd have been more impressive if the article had preceded the collapse. Easy to pile on after the fact.
  - NoboruWataya 4y ago
    These people are in the business of market commentary, not market predictions. That said, Levine has been very critical of crypto (and very entertaining about it) for a long time now.
    - deleted 4y ago
      [deleted]
  - lxgr 4y ago
    How about (much) earlier this year? Matt Levine, in a podcast with SBF: > Matt: (27:13) I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good. https://www.bloomberg.com/news/articles/2022-04-25/sam-bankman-fried-described-yield-farming-and-left-matt-levine-stunned https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
    - whimsicalism 4y ago
      Yes, I read the article where Matt Levine explicitly mentions that he missed this.
    - jerf 4y ago
      There's that famous quote about the tide going out and seeing who isn't actually wearing swim suits. I think a similar thing applies to all the financial chicanery that has been in play in this 0% interest rate environment. In reality, while the financial system is irreducibly complicated in some important ways, there's also an important sense in which the entire thing is really built on just some simple primitives. Basically, the financial system can move risk spatially and temporally, and charge a fee for the activity. That's really all it can do. I think from the proper point of view it can't really even do that primitive without at least some net increase in risk, though I admit defending that mathematically would be a challenge. (For now we could just start with the proposition that if there was an easy way to simply reduce overall risk, it would have already been taken, so all in all there can't be very many such things just lying around. And they've been building a lot of things on this primitive, so it's not a hard guess that there's a lot more use of the primitive than there could possibly be opportunities for such uses to result in true net reduction in risk, whatever exactly that may mean... I know I'm handwaving here.) If you think about it mathematically, it's important to understand that no amount of concatenation of the primitive of "moving around risk" can do anything more than that. And, in particular, no amount of concatenation of things that leave net risk either the same or somewhat greater can ever end up reducing the amount of risk in the system. However, each such composed operation introduces a place for someone to misprice the risk, especially as the risk is communicated across lossy channels, let alone channels with a certain amount of incentive to misrepresent the risk to the buyers on the other end. So while no amount of combination of those primitives can ever reduce risk overall, it sure is full of opportunities to convince people the risk has been reduced, and for them to take various actions based on that. Combine that with one of the most popular operations being to take a nice risk gradient that gradually ramps up from "high probability of small bad event" to "low probability of big bad event" and shoving all the risk into "super low probability of total utter unrecoverable catastrophe", and the whole thing is just destined to explode hopelessly. And yet... perhaps some readers are saying well, duh, jerf, how else could it be, I would say to you I'm firmly middle aged now, but those castles based on financial engineering have been floating in the sky my entire adult life now, even counting the so-called "crises" I've seen. And to the naked eye, those castles have gotten bigger, higher, nicer, and more numerous the entire time. It takes... something... some pretty big cajones to stare up at those things that have been floating in the sky for so long and saying "they can't possibly do that forever". Especially when you may well have bankrupted yourself seven times over trying to trade on that presumption, even if it is in fact true in some abstract sense. The financial system is rapidly simplifying. It's going to be a painful process for quite a lot of people. A lot of people who think they are on solid ground are going to discover they've been herded onto the flying castles without realizing it. It will, if nothing else, be very educational I suppose.
guelo 4y ago
The journalism I'm impressed by is coindesk's. They broke this story and have been all over it.

function_seven 4y ago

> If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?” You cannot apply ordinary arithmetic to numbers in a cell labeled “HIDDEN POORLY INTERNALLY LABELED ACCOUNT.” The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison. I had this full quote on my clipboard. It's a masterpiece. 3 Cuil (‽).

klenwell 4y ago

Did anyone else see the FTX fortune cookies? https://mobile.twitter.com/klenwell/status/1592178164675252226 https://mobile.twitter.com/klenwell/status/15921781646752522...

wgd 4y ago
I remember getting those once a couple of months ago. It was so indescribably disappointing. I had never heard of FTX before that because I don't care about crypto-BS, but I feel like everything happening to FTX lately is a suitable punishment for inflicting those on the world and so I'm just sitting here with the metaphorical popcorn.
- wl 4y ago
  Sadly, OpenFortune still exists and will happily insert some other company's ad into your fortune cookie.
mzs 4y ago
I really disliked those. I had this fun routine where I would let my dogs pick a fortune cookie and then read the fortune to him or her before giving the cookie to the dog as a treat. One time Sky got, "you will live a long life and eat many cookies." I about cried. These, blegh took all the fun out of it and I just stopped getting Chinese take-out.

Animats 4y ago

The big question: Where did the somewhere between US$4 billion and $16 billion that went to Alameda Research go? It seems that FTX transferred most of their assets to Alameda Research, which either lost, stole, or hid them. Has Caroline Ellison, the CEO, been questioned yet?

moralestapia 4y ago
My bet would be that they stole them. Before someone tries to Hanlon's razor this, these guys were not stupid, they can pretend to be but they come from very competitive backgrounds, they knew what was going on. They're going to jail.
- lazide 4y ago
  FYI, don’t give them too much credit. There looks like so much evidence here they could be in jail for most of their remaining lives. That’s pretty dumb.
TheOtherHobbes 4y ago
I wonder how Alameda's VC investors and backers are doing?

mike10921 4y ago

I missed that line while skimming the article, but that is exactly what was going through my mind. It is mind-boggling how this can exist on such a grand scale without any scrutiny.

lukemercado 4y ago

This whole article is a beauty. > FTX worked fine: People liked its technology, and it seems to have made money. The problem was in its balance sheet, which was full of snakes, and its governance, which put all the snakes there. Fucking lol.