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I just don't understand how you can expose yourself to such risk if you are supposed to be this super smart MIT graduate. I don't understand much about finance

I just don't understand how you can expose yourself to such risk if you are supposed to be this super smart MIT graduate. I don't understand much about finance but if I had the CEO responsibility I would make damn sure I am not exposed like that. I just don't believe that it was an unfortunate event and SBF is innocent. How can you be so oblivious and I also think the top investors should be held accountable, they had to know the risk. Like with a terrorism charge you have the one committing the act and you also have the ones that aided and abeded. The enablers.

NotYourLawyer 4y ago
It’s fine if you have automated margin calls every 30 seconds and you can blow out somebody’s position quickly enough not to lose money. Which is what FTX allegedly had set up… for every trader except Alameda.
- HDThoreaun 4y ago
  No it's not really. It would not have been possible to sell the shit coin collateral for the amount loaned against it at any point. By the time FTX had liquidated half the collateral the coins liquidity would be gone and the rest of the coins would be worthless. There was no point in time where these loans were solvent, they were just pumped so they looked solvent on paper.
  - NotYourLawyer 4y ago
    Yeah, true. They probably shouldn’t have been accepting illiquid shitcoins as collateral at any valuation above zero.
  - wmf 4y ago
    They could calculate margin based on the liquidation value of collateral given the current state of the order book instead of mark-to-market value but I don't know if they did that.
    - HDThoreaun 4y ago
      But the entire order book could be wash trades that disappear as soon as the loan is made
- skippyboxedhero 4y ago
  The issue here was the risk-management system didn't work for this trader. What it sounds like, although it isn't totally clear, is that this guy worked out how to exploit their margin call system by running up an illiquid coin using FTX money, cashing out, and leaving FTX holding the bag.
balderdash 4y ago
Really the question in my mind is whether it’s: negligence, gross negligence, or fraud…
- jaywalk 4y ago
  Probably a mix of all three.
dragonwriter 4y ago
> I just don't understand how you can expose yourself to such risk if you are supposed to be this super smart MIT graduate. SBF publicly stated (well before the collapse) that he operated his life under a complete disregard of risk in pursuit of optimized expected value with no risk premium. While this is probably a rationalization, and he might well have actually been something of a risk junkie, even taken at face value its not surprising how he ended up exposed to massive risk that most people would have seen aa unwarranted even given the large potential rewards if it all worked out.
- Terretta 4y ago
  YOLO // Not being cute. If you believe you are young enough and clever enough to have time and energy to hit reset and try again on a Game Over, then it's an actually valid point of view -- if you cannot go less than zero. Given extreme rewards even with unlimited downside, if the downside is actually limited by bankrupt at zero, that caps the downside so taking the risk makes a lot of sense if you believe you can start again "near the top" (having developed non monetary resources and techniques to build wealth fast).
  - qeternity 4y ago
    Downside is capped at prison and restitution. Definitely not zero.
    - Terretta 4y ago
      Risk of long shots not paying off is different from risk of criminality and getting caught. I'm talking about the equivalent of playing the roulette wheel and betting on 00 repeatedly.
- wmf 4y ago
  It's not even completely crazy. You start a startup at age 25, shoot for the moon, it fails after 5 years, and then you start another startup. The part he did wrong is the criming which will prevent him from trying again.

NotYourLawyer 4y ago

It’s fine if you have automated margin calls every 30 seconds and you can blow out somebody’s position quickly enough not to lose money. Which is what FTX allegedly had set up… for every trader except Alameda.

HDThoreaun 4y ago
No it's not really. It would not have been possible to sell the shit coin collateral for the amount loaned against it at any point. By the time FTX had liquidated half the collateral the coins liquidity would be gone and the rest of the coins would be worthless. There was no point in time where these loans were solvent, they were just pumped so they looked solvent on paper.
- NotYourLawyer 4y ago
  Yeah, true. They probably shouldn’t have been accepting illiquid shitcoins as collateral at any valuation above zero.
- wmf 4y ago
  They could calculate margin based on the liquidation value of collateral given the current state of the order book instead of mark-to-market value but I don't know if they did that.
  - HDThoreaun 4y ago
    But the entire order book could be wash trades that disappear as soon as the loan is made
skippyboxedhero 4y ago
The issue here was the risk-management system didn't work for this trader. What it sounds like, although it isn't totally clear, is that this guy worked out how to exploit their margin call system by running up an illiquid coin using FTX money, cashing out, and leaving FTX holding the bag.

balderdash 4y ago

Really the question in my mind is whether it’s: negligence, gross negligence, or fraud…

jaywalk 4y ago
Probably a mix of all three.

dragonwriter 4y ago

> I just don't understand how you can expose yourself to such risk if you are supposed to be this super smart MIT graduate. SBF publicly stated (well before the collapse) that he operated his life under a complete disregard of risk in pursuit of optimized expected value with no risk premium. While this is probably a rationalization, and he might well have actually been something of a risk junkie, even taken at face value its not surprising how he ended up exposed to massive risk that most people would have seen aa unwarranted even given the large potential rewards if it all worked out.

Terretta 4y ago
YOLO // Not being cute. If you believe you are young enough and clever enough to have time and energy to hit reset and try again on a Game Over, then it's an actually valid point of view -- if you cannot go less than zero. Given extreme rewards even with unlimited downside, if the downside is actually limited by bankrupt at zero, that caps the downside so taking the risk makes a lot of sense if you believe you can start again "near the top" (having developed non monetary resources and techniques to build wealth fast).
- qeternity 4y ago
  Downside is capped at prison and restitution. Definitely not zero.
  - Terretta 4y ago
    Risk of long shots not paying off is different from risk of criminality and getting caught. I'm talking about the equivalent of playing the roulette wheel and betting on 00 repeatedly.
wmf 4y ago
It's not even completely crazy. You start a startup at age 25, shoot for the moon, it fails after 5 years, and then you start another startup. The part he did wrong is the criming which will prevent him from trying again.