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> Most news accounts seem to portray the scale of the bankruptcy as relatively small. This is a key point. They lost $16B in customer deposits. LTCM lost $4.
by DebtDeflation 4y ago
> Most news accounts seem to portray the scale of the bankruptcy as relatively small.
This is a key point.
They lost $16B in customer deposits.
LTCM lost $4.6B in investor funds.
Enron lost $11B in shareholder capital.
Interestingly, while Madoff is widely quoted as having lost $65B, that was almost all fabricated paper wealth, actual losses were around $18B and $14.4B of that was recovered and returned.
All of these situations are obviously somewhat different, but if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
- jjallen 4y agoThis is a great point. I guess I am skeptical that everything will be lost, but even if it's only half it will still be an absolutely enormous bankruptcy and loss. If all of the actual cash, the real liquid assets were withdrawn leaving only illiquid, relatively valueless crypto tokens, and those tokens are sold down over the coming months then the percentage losses as a percentage of the max or total value they managed will be very high indeed. Sorry for the run-on sentence.
- anonymoushn 4y agoThe secondary market for claims against FTX is pricing those claims at about 5c
- gadders 4y agoI can't think of any possible reason. https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-biden-democratic-party-second-biggest-donor/ https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid...
- nova22033 4y agoRyan Salame, the co-CEO, donated heavily to the GOP.
- PubliusMI 4y ago
- jpadkins 4y agoDon't fall for the red-blue trap. There is one establishment, which uses social issues to divide and conquer and create the illusion of choice.
- joenot443 4y agoAs I've explained to others here before, there's a difference in magnitude which is relevant here. SBF pledged to donate _$1 billion_ to the Democrat party. The only person to spend more money on the Democrats this cycle was the dear George Soros. Who knows what's in store for SBF, but it's important to look at the facts here and acknowledge that this operation was heavily invested in the success of the Democratic party.
- DebtDeflation 4y agoThere's an even bigger difference between donating and pledging to donate. Salame donated $26.4M to individual GOP politicians and another $2-3M to GOP political organization. SBF donated $39.8M to Democratic politicians and organizations. Not all that different. The $1B pledge was realistically never going to happen, just as his offer to loan Musk $3B to buy Twitter was never going to happen. Even in the best of times he never would have been able to extract that kind of real money from his operation within a short time.
- ReptileMan 4y agoAlso 1MDB seems t9 be somewhere between 16-50 B usd
- manholio 4y ago> FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such. Most of that wealth was manufactured in the crypto bubble, not actual money people worked for and put into crypto, just early stage ponzi investors that kept rolling their investment. The wealth, while apparently substantial, was never actually there, I think most understand that the mirage would have collapsed anyway if most investors would have attempted to exit earlier. Basically, any early holder of Bitcoin today, while losing 70% or so of the peak value, is still a bazzillion basis points in the black, because they can get real dollars for what is essentially an early and rudimentary shitcoin with arcane limits, slow transaction times and extreme volatility, which is only used in the real world for speculation, money laundry and trading other shitcoins. Pretty ironic that's the "gold standard" of the crypto world, followed by an entire brown spectrum of shittier and scammier tokens.
- anonymoushn 4y agoThis is simply not true. Their liabilities are in dollars because their customers wired them dollars.
- manholio 4y agoMany of their customers (if not most, on volume) wired USDT obtained from other parts of the ponzi ecosystem, then traded them internally for dollars. This way, FTX could accumulate internal USD liabilities without ever having those dollars wired into their accounts. Even if we were to take at face value the $5 billion liabilities from SBF's "Excel ballancesheet", that's still less than a third of the loses. Sure, Tether should have a 1:1 backing to real dollars or dollar denominated assets - but it's like the ponzi-world's worst kept secret that they don't, as we'll soon find out.
- onlyrealcuzzo 4y agoIf most of the losses are USDT, how do we know Tether didn't just print them out of thin air to lend to FTX / Alameda as their "Commercial Paper"? That would be my first guess.
- jasode 4y ago>LTCM lost $4.6B in investor funds. [...] All of these situations are obviously somewhat different, [...] biggest financial frauds/scandals in history. LTCM shouldn't be in that list because that wasn't fraud. That hedge fund had a flawed math model of volatility of their holdings when a cascade of events got triggered by Russia defaulting on their bonds. LTCM losses were magnified by their over leveraged positions. A bunch of PhD traders lost their wealth and got their reputations tarnished but it wasn't criminal activity.
- isthisthingon99 4y agoCorrect. Arrogance is not illegal (yet).
- DebtDeflation 4y agoTaking customer money and using it for something else is absolutely a crime. And it has nothing to do with the regulatory status (or lack thereof) for crypto. If a car dealership takes customer down payments on cars and instead of ordering the cars they gamble the money away in Vegas, they don't get to just declare bankruptcy and say "too bad so sad", they go to jail.
- isthisthingon99 4y agoTo be clear, SBF/FTX total fraud. The PhD guys from LTCM, not so much. Just arrogant.
- deleted 4y ago[deleted]
- wbl 4y agoNot just PhD. World famous economists with Nobel prizes.
- alainchabat 4y agoI can't find which Nobel prize were in, do you have any names? Robert C. Merton got the nobel prize, but it seems 3 years later (ironic)
- belter 4y agoIf only these calls for regulation from the two persons in this interview, could have been heard on time. Most interestingly, and as it's obvious from the interview, regulators were watching these children playing and only poking gently. At correct time: https://youtu.be/2ozjiX1E7ZA?t=25 https://youtu.be/2ozjiX1E7ZA?t=25
- bboygravity 4y agoMay have something to do with FTX having paid off both US political sides and having close ties to SEC's chair.
- coffeebeqn 4y agoThey were trying to push through a legislation that would make most of their competitors illegal
- pjc50 4y agoThe secret is that regulators can only have a fairly limited effect, and retrospectively. As well as the inherent jurisdiction difficulties in operating out of the Bahamas. Mind you, that's something crypto investors wanted: freedom from government! There's a real "accountability overhang" not just in crypto but so many other things. Justice is slow and getting slower.
- oldgradstudent 4y ago> The secret is that regulators can only have a fairly limited effect Not in this case. A momentary glance from a distance at the balance sheet by a semi competent bank supervisor would have noticed the fraud. The question: do you hold your users' assets in segregated account is easily asked and easily answered with no.
- mkj 4y agoIf they lost it through bad bets, who was on the winning side of those bets?
- paulusthe 4y agoCrypto shorts
- gruez 4y agoIronically keeping a short position to benefit from this collapse is pretty risky. Shorting requires leverage by necessity, which means you'll have to turn to an exchange like FTX, which has the possibility of collapsing. Decentralized lending protocols aren't much better, as collapses a few months ago has shown.
- super256 4y agoCME offers micro futures at globex: METX2 and MBTX2. You can short those with your typical margin rates; my broker gives me the same leverage as legally defined by my gov.
- pcthrowaway 4y agoYou can short by borrowing and selling as well. Even on-chain, though you're then susceptible to defi hacks that would affect your collateral
- gruez 4y ago>You can short by borrowing that's leverage.
- JamesianP 4y agoOr just to people losing money who would have lost more had Alameda not bought from them on the way down.
- hoseja 4y agoAre those 2022 dollars?
- matwood 4y agoFor another reference, 16B is Spotify's entire market cap. The amount lost here is staggering. And given what's leaked from their balance sheet, I don't see how people avoid jail time. I'll also add, if you want to really dig into FTX details, simply read Matt Levine's newsletters.
- mudrockbestgirl 4y agoI think a lot of people are missing that it was not 16 liquid USD that was lost here. It was 16B of various assets on paper. That's different from a pretty liquid stock traded on the NYSE. The 16B could've never been liquidated as 16B in cash because the liquidity for many of these assets is too low. Selling even just a small fraction would have crashed the market for many of these assets. It's impossible to know what the liquid worth of these assets was, but it was probably 5-10x less than what's on paper.
- benjaminwootton 4y agoStrangely, I am not hearing many stories from retail of big losses. There were tons of people coming out of the woodwork on Reddit and Twitter after the LUNA collapse. Not sure what that’s all about.
- coffeebeqn 4y agoTheir s*tokens were mainly held by Alameda - serum and ftt. So probably not a ton of exposure among real users. Now when people won’t get to withdraw their money/tokens from FTX.. ever? That’ll become a huge problem. Sounds like all the money is just gone on stupid gambles
- ChrisMarshallNY 4y agoI'm wondering if the numbers are believable. That's because I think they are doing "paper valuation," like when a drug bust happens, and the value of the kilo is broken into "street-level" packets; quadrupling the value. I am not a crypto expert, but from the bit I do know, it seems as if it's fairly difficult to correlate fiat with crypto.
- pjc50 4y agoThe Matt Levine article looks at that and claims quite a lot of it is just tokens issued by FTX themselves or related trading entities. In the words of Walter Sobchak from the Big Lebowski : "Mark it zero!" Perhaps "only" $5bn was real and much of that was from institutional investors. Not yet clear how many retail rubes have been caught up in this.
- eternalban 4y agoUnless there is some sort of event horizon in financial systems, it is wrong to use the word "lost" as if it is impossible to find out who got these kingly sums. Billions of dollars were "blown" and the question we should be asking, very forcefully, is who got that money.
- pjc50 4y agoIt's crypto! Once it's transferred off the exchange, it's in a pseudonymous wallet. Just to confuse matters, it appears that both the exchange was hacked and an insider was draining funds just before it shut down. But before that, there was a lot of "money" that went out the door in legitimate trading losses.
- eternalban 4y ago(I thought these [addresses] could be watched.) > there was a lot of "money" that went out the door in legitimate trading losses. Let's not give them easy pass on this. I could be wrong so correct me on this: Easy setup is to have a bunch of people setup 'shitcoins' and shell companies, scam people to put actual money into the scheme to pump the price, and then pay inflated prices for your fellow scam artists' shitcoins, so they clean out, but the chumps who bought your coin are holding the bag.
- xhkkffbf 4y agoIt could be that no one "got that money." If a stock is trading at $2X and the value of all of the shares is $1 billion, no one gets the money if the stock opens the next day at $X. That's the problem with thinking of stock prices as real money. (And, indeed, real cash can also lose value through inflation.)
- deleted 4y ago[deleted]
- matthewdgreen 4y agoI wonder how much of those $16B in customer deposits were actually lightly-traded altcoins that could never have been liquidated at anything close to that value? There is no doubt they defrauded people of a lot of (real!) money, but my guess is a huge chunk of that $16B top-line figure is fantasyland dog-coin nonsense. Whereas the LTCM and Enron investors at least started with real cash.
- tommica 4y agoBut those coins were most likely purchased with real money?
- matthewdgreen 4y agoYes, but how much real money is the question. I'm not doubting that real money was lost, just wondering if $16B of actual customer dollars ever flowed into the exchange.
- scottyah 4y agoExactly, I always wondered what the real numbers looked like. It's so easy to mint 100 coins, get a friend to buy one at $100, and say you "have" $9,900. I wouldn't be surprised if the number of actual dollars was less than $100 million.
- tfehring 4y agoIt's easy to see how FTX's assets could be "worth" $16B in the absence of any real money coming into play, but I don't see how they could get to $16B in liabilities that way. The most obvious possibility would be if their liabilities were also denominated in thinly-traded shitcoins, but at this point it seems clear that that wasn't the case.
- elie222 4y agoThey haven’t lost 16b though. Unclear if we have accurate info from Sam but the situation is more like 9b in liabilities with 70% of that in liquid and illiquid assets. People getting back that much is highly optimistic but the 16b doesn’t seem accurate at all. FTX already paid users out $5b btw
- jjfoooo6 4y agoIt's pretty clear that "info from Sam" can't by trusted
- deleted 4y ago[deleted]
- shawabawa3 4y ago> 9b in liabilities with 70% of that in liquid and illiquid assets They have $9B in liabilities, and realistically they have about $1B in realisable assets. On the balance sheet Sam has included about $7B worth of Serum and FTT, both of which vastly exceed their circulating market cap and are also effectively worthless as the businesses they represent have lost all credibility and/or are insolvent (Serum is a decentralised exchange created by FTX)
- anonymoushn 4y agoThe starting point is the assumption that FTX's equity sales left them with a few billion and Alameda's trading left them with a few billion. You have to burn through these billions and then dig a ten billion dollar hole.
- boh 4y agoThe financial news (WSJ, FT, Bloomberg) is definitely less blasé about it. There's definitely a sense that a scam is slowly being unearthed. I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge. Too many institutional investors got burned and they will no doubt be eager to prove fault lest they themselves be blamed for poor judgement.
- cma 4y ago> I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge. The Ryan Salame part of it may be making both parties not want to look into it too much.
- syrrim 4y agoThey lost roughly $8B in customer deposits. The $16B cited in the article is the total amount of money they lost which includes a sizable profit that they were supposed to have made on their legitimate business activities.
- pinkfairy10 4y agoMadoff’s investors “lost” more than $14.4B. Many of them were invested in his funds for 20-30 years and received 0.77 on the dollar per your comment.
- jpm_sd 4y agoWas that $16B in "real money" (dollars), $16B in "pretend money" (astronomically overvalued cryptocurrency), or some of each?
- prego_xo 4y agoConsidering that "pretend money" is purchased with "real money", this distinction doesn't matter much. I guess it just depends on if you consider property valuable despite not having a green tint and dead political figure on it.
- robertlagrant 4y agoThe question being asked is if the pretend money has risen in value subsequent to purchase, then is the amount lost the real money used to purchase it, or the pretend money at peak (or another) valuation.
- prego_xo 4y agoWith both the 16 billion figure being preceded by the U.S dollar sign, and FTX being an exchange for many different cryptocurrencies at drastically different values, they were probably adding up the dollars invested by stockholders and the dollars input into the website. After all, their FTT coin crashed and burned completely, and many other currencies are also dipping to record lows. If they valued the dollar based on current prices, then it would be multiples of $16B instead. Either way, the inclusion of "astronomically overvalued cryptocurrency" as a descriptor definitely makes it seem more like a slight towards crypto than an honest question of the valuation. Put simply, a lot of people lost a lot of money.
- adrr 4y agoHow much shareholders capital did FTX lose? I assume they lost billions of investor capital.
- Scoundreller 4y agoAn interesting part of Madoff recoveries were through settlements against originators/feeder funds because they « ought » to have known it was a ponzi. Unsure if FTX creditors will be able to do the same. But mostly, Madoff himself didn’t really spend much money. Just did nothing with it. The few pieces of fancy real estate he lived in were actually profitable because he didn’t build some gawdy illiquid palace. But there was a lot of time-value loss that isn’t accounted for. Even 14 years later there are still distributions. Even getting $1 back on your 1995 $1 is still a big loss.
- JamesianP 4y ago> An interesting part of Madoff recoveries were through settlements against originators/feeder funds because they « ought » to have known it was a ponzi. Did the judge say that? I would think the logic was that they were effectively getting stolen money as gifts. Like when a scammer gives their victims' money to their own family. Doesn't matter if they were in the dark or even spent it already. As I understand it, if stolen/scam money is used to buy something it's not the seller's responsibility because money is legal tender. On the other hand, if a stolen item is sold, the issue of knowing where it came from does becomes important.
- Scoundreller 4y agoNo, but I think they were all settlements, so one needs to read between the lines. But maybe you’re right and it’s just recoveries of their commissions etc.
- Ntrails 4y ago> if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such. I think the media treats anything to do with crypto as much more buyer beware than eg Enron
- rrrrrrrrrrrryan 4y ago> The media doesn't seem to be treating it as such. FTX has been the lead story on the front page of the Wall Street Journal for days now.
- ploppyploppy 4y ago> The media doesn't seem to be treating it as such. The massive links to the Democractic party probably have something to do with this.
- DontchaKnowit 4y agoI'm not aware of this. A y reading/listening material you can link to?
- jjtheblunt 4y agoWhat's LTCM?
- hollerith 4y agoA hedge fund that went bust: Long-term Capital Management.
- jjtheblunt 4y agoThanks
- mt360 4y agoThey may have lost $16B but, as they were converting customer deposits into coins the customer did not buy, such as FTT but also many others, then it seems bad math to value the customer deposits at $16B - prior to essentially shorting against their customers, perhaps those deposits were worth 5x more. And it doesn't seem unreasonable to believe more deposits would have been made, if the price of the assets their customers hoped to buy (Bitcoin is far and away the market leader) were not being shorted in this manner. I'm not a mathematician but their activities may have amounted to many tens of billions of sell pressure against Bitcoin. Elon Musk purchased $1.5B and the price of this finite asset rallied tremendously, what might these tens of billions have resulted in?