A billion here, a billion there, and pretty soon you’re talking real money.

                         Senator Everett Dirksen


Beware, this is a LOUD song. Not our type but the lyrics were irresistible in this discussion of the FTX debacle.



Flocking to the market like lemmings to a cliff 

The latest smell of money, did you catch a whiff? 

No central bank protects you now, “embrace the new frontier “ 

A new free market sets you free from the system that you fear 

The latest online gambling scheme, You can finally get ahead… 

Like roulette in Vegas baby, put it all on red 

You leverage your house to the hilt, “this market cannot dive” 

You’re mortgaged with no exit plan and feel so damn alive! 


CHORUS (Crypto Klepto)


Lurking through the ether watching every key you strike 

He hacks into your world to uncover your whole life 

First it’s your identity and then your bank accounts 

Finally it’s your crypto wallet, where he goes to town 

You wake the day to find out that your wallet has been hacked 

As fear sets in, the shivers run, up and down your back 

All your money and the bank’s, is suddenly at risk 

“What happened to the glory days, when all was safe on disc?” 




Crypto Klepto wants your soul, not the money you invest 

He shops the dark net’s contraband, with your return address 

The Initial order’s innocent – sex toys to your employer 

Then a bill from Ashley Maddison, and your wife calls up her lawyer 

Walter White’s blue meth arrives, addressed to the local cops 

Then customs get alerted about your truckload full of glocks 

Your get-rich scheme now foiled, you ask “how did this all go wrong?” 

As you sit inside your padded cell, where your sleeves are much too long 



released August 1, 2018 

by Anonymericans


In 2009 Paul Volcker, berating a banking industry that had taken finance to the brink of disaster, quipped that the ATM has been the only useful innovation in banking for the past 20 years”.


Either Volcker was unaware or unimpressed that on October 31,2008 Satoshi Nakamoto (pseudonym) introduced his seminal white paper on Bitcoin thus launching the cryptocurrency boom. [Probably unimpressed unlike tech groupies, goo-goo-eyed venture capitalists, libertarians looking to avoid regulations and taxes, Miami’s mayor, and secrecy-seekers like those wishing to hide their assets in divorce cases.]


Our recognition of cryptocurrency as a likely permanent investment category is an acknowledgement of its potential to power decentralized, tamper-resistant, anonymous transactions on blockchains leveraged for myriad applications.


Money, as I learned in my first elementary economics class, serves three functions: (1) A medium of exchange (i.e. you can buy stuff with it); (2) a unit of account (i.e. a way to avoid a less efficient bartering system by valuing things in terms of it); and (3) a store of value (i.e. you can hold money to buy stuff later without worrying too much about inflation). A possible fourth function is as a safe investible asset when the risk in other assets is high. Pretty simple really, yet crypto doesn’t actually meet any of these functions, at least not very well.


If you’ve paid any attention over the past month to the news, in particular the financial news, specifically the saga unfolding in the arcane world of cryptocurrency then you know about the spectacular fall of SBF (Sam Bankman-Fried). In less than a week, SBF’s $16 billion fortune evaporated. In a recent interview he claimed to be worth only $100,000 after the companies he built (FTX, a cryptocurrency trading company, and Alameda Research, a hedge fund that traded crypto currencies) collapsed into thin air which is what they actually turned out to be worth. At its’ peak SBF’s fortune was estimated at $26 billion.


What happened, how and why it happened has been a matter of intense scrutiny since the companies declared bankruptcy on November 11. At Think in the Morning we’ve read dozens of articles in an attempt to understand what few seem to understand—how a few twenty-and-thirty-somethings with precious little experience and almost no internal accounting or controls managed to raise the capital and trick the system to create such immense wealth in the first place? The collapse should have been more easily predictable although most preferred to ignore it because of FOMO (fear of missing out), something that has fueled Ponzi schemes from the beginning.


In a stinging court filing posted on Thursday, John Ray III, the new boss of the bankrupt crypto exchange FTX, said the company had suffered an “unprecedented and complete failure of corporate controls”.

Ray has overseen some of the biggest bankruptcies ever, including the collapse of the energy giant Enron, and has 40 years of experience in restructuring companies. He said he had never seen anything as bad as FTX.

He wrote in a filing with the Delaware bankruptcy court: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.

“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”


Samuel Bankman-Fried was born in 1992 at Stanford where his parents are both attorneys and teach at Stanford Law School. He graduated from MIT in physics and mathematics. He is a vegan and apparently adheres to Effective Altruism (EA): achieving great wealth is morally admirable when that wealth is donated to make the world a better place. After college, he traded ETFs at Jane Street Capital, “one of the biggest, weirdest, trading shops in finance today.”


At Jane Street he noticed the Kimchi Premium. It turns out that cryptocurrency was quoted in higher prices in Korean won than in other currencies allowing for profitable arbitrage. SBF created his trading company, Alameda Research, to take advantage of such arbitrage opportunities. Later he created FTX, “one of the largest and most influential digital asset exchanges in the world.” In the beginning FTX was oriented toward professional traders but quickly transitioned to serve less sophisticated retail investors and money from everywhere rolled in.


Bankman-Fried told CNBC in September that one of his fundamental principles when it comes to playing the markets is working with incomplete information. “When you can sort of start to quantify and map out what’s going on, but you know there are a lot of things you don’t know,” he said. “You know you’re being approximate, but you have to try to figure out what trade to do anyway.”


While he refocused his energy on FTX, SBF farmed out the management of Alameda Research to Caroline Ellison and Sam Trabucco. Trabucco, who graduated from MIT in 2015 with degrees in mathematics and computer science, left Alameda a few months before the crash. When the crypto market tanked, Alameda was holding illiquid assets leveraged by loans from FTX. The loans were client funds collateralized by crypto FTT tokens issued by FTX.  The bailout didn’t work and the house of cards collapsed like the Ponzi scheme it ultimately was.


“I was like, ‘Oh man, this sounds pretty exciting,’” she recalled in March. “For the next week, I kept thinking about it and being like, ‘I wonder what’s going on at Alameda right now?’ It sounded like crypto trading is pretty crazy.”(Caroline Ellison)


Caroline Ellison was born in 1994. Both her parents were prominent MIT economists. She graduated from Stanford with a Bachelors Degree in mathematics and worked at Jane Street for 19 months becoming a co-CEO of Alameda Research at age 24. Ellison and Bankman were in an on and off romantic relationship.


“I do think a lot of crypto projects don’t have much real value,” she saidmatter-of-factly on FTX’s official podcast in early 2021. On another episode, she saidshe had pursued crypto trading mainly to make lots of money, which she planned to give away as part of her commitment to effective altruism. “Young people tend to be too risk averse,” she [Ellison] said.


Bankman moved his operations to the Bahamas where there were rumors of wild parties, polyamory, widespread amphetamine use, large company expenses on real estate, lavish meals, and forums with elite speakers like Bill Clinton and Tony Blair, etc. At a recent interview SBF denied the “wild parties”.


“Nothing like regular amphetamine use to make you appreciate how dumb a lot of normal, non-medicated human experience is,” she [Ellison] tweeted in 2021.


Such bizarre stories have encouraged humorous tweets by Nassim Taleb, former options trader, author and mathematical statistician. His criticism of SBF and crypto in general has been merciless.


Taleb said SBF “got temporarily rich because he is [both] aggressive AND clueless about finance.”


Other Taleb quotes: SBF “is incapable of moving his lips without incriminating himself.” SBF is like “the garrulous characters who only show up in the middle of a Russian novel.”


“Referring to the crypto crash in a Tweet thread, Taleb said that he was optimistic that the world ‘will not be run by cadaverous pencilneck cryptocrats out of a 1964 black and white Dracula movie.”


“He went on to say ‘Combining computational skills with the mental flexibility of NY Department of Motor Vehicles agents & the common sense of a caffeinated parrot.’”


“Extending his vicious dig, the Black Swan author said: ‘I forget the most eerie: these joyless bureaucrats often look like funeral home directors in pre-owned ill-fitting pajamas’—a swipe at Vitalik Buterin, co-creator of Ethereum, who once showed up to an Ethereum conference wearing Shiba Enu pajamas.


Vital Buterin
Photo by TechCrunch on Flickr


Taleb maintained “there was no such thing as a liquidity crisis with cryptocurrencies as that was reserved for something that has hard intrinsic value.”


Humor aside, the losses impact both large and small creditors and are in nosebleed territory. A hard to believe level of irresponsibility seems to surround the cryptocurrency phenomena.


Millions of dollars in Bitcoin and other cryptocurrencies are now inaccessible to their owners because private keys have been lost. Cryptocurrencies also appeal to criminal enterprises that value the anonymity and impenetrable security of the virtual wallets. Such criminal activity is clearly demonstrated by ransomware attacks that demand cryptocurrency as the medium of payment. What the future holds for Bitcoin and other cryptocurrencies remains to be seen, but it appears they are here to stay.

                   Secret Lives, a novel by Mark De Castrique


FTX owes its 50 largest creditors $3.1 billion. The firm’s lawyers estimate there may be more than a million creditors.


As Bankman-Fried’s reputation as crypto’s white knight has collapsed, some are asking whether everything he built was a sham … That’s because the numbers don’t stack up. At the time of its collapse, FTX’s main international exchange had $900 million in assets—and $9 billion in unbacked liabilities, according to the Financial Times. Across all his associated businesses, up to $50 billion in liabilities was owed to more than 100,000 creditors.


SBF was an adept promoter to say the least.


FTX also became a popular brand within the sporting world. Promoters of FTX included Tom Brady, Stephen Curry, Naomi Osaka, and the Mercedes F-1 team. Some promoters received equity in FTX for their efforts, with Tom Brady investing $650 million into the exchange. This strong branding campaign propelled FTX to dizzying heights. FTX partnered with the World Economic Forum and built infrastructure to supply funds to Ukraine. Sam soon began lobbying politicians for a stronger regulatory framework. Sam donated $5 million to now US President Joe Biden in 2020 and a further $50 million to politicians [of both parties] ahead of the 2022 midterms


[NOTE: SBF’s partner, Ryan Salame, reportedly gave $23 million to Republicans.]


Meanwhile, FTX grew its profile in popular culture, buying the naming rights to the Miami Heat’s home arena. (FTX Arena is now looking for another name rights buyer.) Comedian Larry David acted as the hype man for the company in TV ads targeting retail investors. The supermodel Gisele Bundchen came onboard as an advisor to the company on the environmental and social initiatives. Umpires in Major League Baseball and Formula 1 racers for Mercedes helped the FTX name through carefully positioned logos on shirts and chassis.


SBF managed to procure $210 million from Sequoia Capital and $24 million from BlackRock and more from other highly regarded venture capital firms.


Aside from filching investors, promoters and clients, SBF companies left several companies holding unpaid bills. The top five companies listed on the Alameda Research debt list in court filings are: Amazon Web Services $4.66 million; Herbert Smith Freehills $120,304; Bloomberg $80,256; Margaritaville Beach $55,319; and Piper Alderman Law $48,608. This list is from an article Wastin’ Away in FTX Debt based on the Jimmy Buffett song Wastin’ Away in Margaritaville. [Somehow TITM is reminded of a scene from the old days at the Sea Gull Cellarbar when Let’s Get Drunk And Screw by Jimmy Buffett was a favorite happy hour song.]


In The Crypto Emperor’s New Clothes, Project Syndicate brings together five scholars who offer their insights into the FTX debacle. Here is the introduction to that article.


Scandal and intrigue surround the swift fall from financial grace of 30-year-old Sam Bankman-Fried, who may have lost as much as $8 billion of customers’ money when his cryptocurrency exchange FTX became insolvent. But the real story is the regulatory lapses that enabled Bankman-Fried’s malfeasance and, with more dominoes set to fall, the FTX debacle’s likely impact on crypto’s future.


One reason regulators failed to prevent the FTX crash, Princeton’s Harold James suggests, may be that they—together with financial institutions and investors—still struggle to spot Ponzi schemes. After all, valuable innovations also rely on the “snowball effect,” which clever fraudsters fuel with a combination of a compelling narrative and incentives for the political elite.


As Princeton’s Peter Singer points out, Bankman-Fried’s narrative included “effective altruism”—the “ethical view that the end” (giving more) “justifies the means” (earning more). But while “the deception in which Bankman-Fried is alleged to have engaged was unnecessary and unjustified,” it should not discredit the effective altruist approach. “Sometimes, the end does justify the means,” Singer insists.


But when it comes to crypto, argues former Chilean Finance Minister Andres Velasco, neither the ends nor the means are much to boast about. In the 14 years since Bitcoin appeared, “the crypto industry has failed to produce anything of value,” he writes. “Even worse, the centgral promise of crypto—better money—has proved to be entirely bogus.”


Harvard’s Kenneth Rogoff thinks the FTX crash may well be a wake-up call for regulators, who until now followed a “wait-and-see approach to crypto regulation,” not lease because of the incentives—in the form of large political donations—provided by crypto lobbyists. But far from destroying crypto, stronger regulations could bolster the industry, by boosting confidence in the remaining exchanges.


The University of Chicago’s Jonathan Levy believes the FTX crash reflects a broader problem with the tech industry, also exemplified by the turmoil engulfing Twitter and Meta: the blind worship of enterprise and wealth. The message should be as clear today as it was during the nineteenth-century America’s railroad bubble: “The state cannot afford to leave matters of vital public importance, including citizens’savings and the principal means of public communication, to the whims of paper billionaires’ puerile fantasies.


As goes crypto so goes luxury spending. Thousands of dollars of frivolous spending on champagne, caviar, cars and even unmentionable illicit activities has already begun to dry up. Gino LoPinto, operating partner at the Miami hotspot E11even, told FT that a group of crypto businessmen came into the club in June of last year to celebrate what they claimed was the successful sale of their company. “50 Cent was performing, and their spend was more than a million dollars,” LoPinto told FT. “They paid in crypto.” LoPinto added: “They had bathtubs of champagne brought out, and gave 50 Cent a bunch of cash to throw.” In the last three months however the club has taken in just $10,000.


Crypto bros are also unloading G-Wagons and luxury cars.


What happens moving ahead remains to be seen. Surely investigations will take place, perhaps indictments. Plenty of lawsuits seem inevitable.


Treasury Secretary Janet Yellen likened the collapse of FTX to that of Lehman Brothers in 2008. Substantial harm fell upon investors, especially those who weren’t well informed about the risks, she said at the DealBook Summit. The fallout from FTX’s implosion has renewed conversations about regulation in the digital asset space.


Senator Elizabeth Warren says banks were protected from the FTX implosion by multiple regulations that prevented them from becoming dangerously intertwined and called FTX “nothing more than a pile of magic beans.”


One thing is clear. A lot of folks are going to be less trusting of financial wizards with moneymaking schemes. Until, that is, the next irresistible Ponzi scheme comes along. And then, as President Reagan would say, “there you go again.”