…….Bunch of Scumbags – Keith Moon
This week saw the stunning collapse of Sam Bankman-Fried’s crypto-currency empire. Bankman-Fried owned FTX.Com, a crypto exchange which before this week was valued at $32 billion. Today it is worth next to nothing as FTX filed for Chapter 11.
Up until this week Sam, as he will now be referred to, was feted by the business media, Silicon Valley venture capitalists, Congressmen and women from both sides of the aisle and Tom Brady! Whenever Sam was introduced on either digital newspaper or TV show “30-year old Billionaire” needed to be front and center. Sam was hailed as a modern day J.P. Morgan for his “rescue” of the crypto industry after the $2 trillion wipeout suffered ths spring and of couse the obligatory “Next Warren Buffett”. Now, Sam is just another con-man in a long list of thieves that litter our financial history.
FTX.Com was run off-shore in the Bahamas, which usually should be the first heads up, but it wasn’t. Sam also owned a large crypto trading firm, Alameda Research, It is highly irregular for a person to own an exchange as well as a trading firm because their owner might be tempted in to “borrow” from his exchange customer’s accounts to lend to his trading firm, which is unfortunately what happened here.
Approximately $10 billion was “borrowed” from customers and lent to Alameda, who in turn invested the borrowed money in illiquid crypto tokens, including the native token for FTX.Com, FTT. This is where it goes from bad to worse. The FTT tokens are created by FTX.Com for exchange customers to use to get discounted fees and other goodies when they trade. Alameda Research is the biggest owner of FTT tokens and used these tokens as collateral to borrow from FTX.Com customers, without their knowledge, to fund their $14 billion portfolio of illiquid crypto.
Why did Sam do this? What I find is when people start stealing in finance, it is often driven by a desire to plug a hole they’ve created doing legitmate things. The crypto explosion this past spring was largely caused by DeFi or Decentralized Finance. DeFi, was supposed to be “banking for the people.” Instead it turned into just another idiotic banking adventure where investors were lured into depositing real money into FDIC insured banks (giving the appearance of safety) in order to remove that money from the bank, buy a stablecoin and lend it to “De-Fi” lenders like Voyager and Celsius and earn 5%-10% on their coins (when regular bank CDs were paying practically zero). The DeFi lenders would then lend the coins to investors and hedge funds to buy Non Fungible Tokens (NFTs) and God knows what else for lending rates as high as 15%. The loans were “over-collateralized” with Bitcoin, which turned out not to be such a great idea when the market crashed, and Bitcoin dropped over 50% as liquidity was squeezed. When the retail folks tried to get their money out of what they thought were FDIC accounts they realized that they had overnight become creditors in the bankruptcies of Voyager and Celsius.
Well, Sam was viewed as J.P. Morgan after the spring crash because he gave multi-million dollar lifelines to the likes of Voyager supposedly to save them and more importantly, save the retail people who’s money was trapped with Voyager. Now it appears this was not the case at all. According to Dylan LeClaire, a crypto expert,
Voyager’s Chapter 11 bankruptcy filing shows that Alameda Research (owned by Sam ) owes the firm $376 million. AKA the same company many were hoping would bailout Voyager owes them $376 million.
Sam wasn’t bailing anyone out, he was just trying to quietly pay his tab, probably with other people’s money.
Anyway, back to our story
It seems that last week industry insiders began to get a good look at what was going on at FTX.Com and decided that it was a house of cards balanced on a worthless crypto token. A very large seller of FTT emerged and everything quickly unraveled from there. A classic run on the bank ensued with customers withdrawing $6 billion before withdrawals were suspended. FTT crashed 92% in two days, dragging the largest crypto currencies down with it. This morning FTX.Com, Alameda Research and FTX US have declared bankruptcy, customers with funds trapped will take significant losses and investors such as Tom Brady and Softbank (of course) will lose their shirts.
There’s also this.
Sam was a huge donor to the Democratic Party, reportedly donating $5 million to President Biden’s 2020 campaign and $40 million to Democrats in the current mid-terms. Congress has been piss-farting around for years NOT creating legislation to regulate the crypto industry. With that in mind, House Finance Chairwoman Maxine Waters issued this statement Thursday.
The recent fall of FTX.com – a major international cryptocurrency trading platform – is just the latest example in a string of incidents involving the collapse of cryptocurrency companies and the impacts these failures have on consumers and investors. Although FTX’s U.S.-facing company is reportedly operational, FTX’s FTT tokens are now worthless, and even worse, FTX.com customers are completely unable to access their funds. Now more than ever, it is clear that there are major consequences when cryptocurrency entities operate without robust federal oversight and protections for customers.
For four years, under my leadership as Chairwoman, the Committee on Financial Services has led the way in examining and investigating the cryptocurrency marketplace. This includes the Committee’s formation of Congress’ first-ever Task Forces on Financial Technology and Artificial Intelligence, along with the working group on digital assets. In addition, for several months, I've been working around the clock with Ranking Member Patrick McHenry to craft bipartisan legislation that establishes a federal framework for stablecoins in order to begin building the safeguards needed to protect customers’ assets and insulate our financial markets from contagion. This week’s news further highlights the urgent need for legislation.”
Here’s a nice picture. That is Sam in the middle next to Maxine.
That’s all folks!
Is Softbank the biggest collection of credulous imbeciles on Earth, or are they evil geniuses that know no matter how badly they fail, they will be bailed out at the expense of the working and middle classes?