The further to the left or the right you move, the more your lens on life distorts.

Friday, December 02, 2022

Force Field

It appears that it's possible to create a 'force field' that can protect (or at least postpone) even the most unscrupulous operators from indictment and imprisonment. The force field is created when the unscrupulous operator has one or more of the following characteristics: (1) they belong to an appropiate intersectional group; (2) they adopt language that causes our moral betters to swoon at their stated intent (no matter that their language and their actions have no connection to one another); (3) they are praised by all the best media with puff pieces that tout their brilliance, their intent to "change the world," and their supposed charitable selflessness; (4) they become major political donors to the political party favored by main stream media but also hedge by donating to movers and shakers in the opposition party.

The story of the now infamous FTX and it's founder, Sam Bankman-Freid (SBF) is an example of just how easy it is to create the force field. I made an attempt to explain the FTX saga in my first post on the subject. Yet, time has passed and it seems that the force field is holding. 

David Z. Morris discusses the latest developments:

In the weeks since Sam Bankman-Fried’s cryptocurrency empire was revealed to be a house of lies, mainstream news organizations and commentators have often failed to give their readers a straightforward assessment of exactly what happened. August institutions including the New York Times and Wall Street Journal have uncovered many key facts about the scandal, but they have also repeatedly seemed to downplay the facts in ways that soft-pedaled Bankman-Fried’s intent and culpability.

It is now clear that what happened at the FTX crypto exchange and the hedge fund Alameda Research involved a variety of conscious and intentional fraud intended to steal money from both users and investors. That’s why a recent New York Times interview was widely derided for seeming to frame FTX’s collapse as the result of mismanagement rather than malfeasance. A Wall Street Journal article bemoaned the loss of charitable donations from FTX, arguably propping up Bankman-Fried’s strategic philanthropic pose. Vox co-founder Matthew Yglesias, court chronicler of the neoliberal status quo, seemed to whitewash his own entanglements by crediting Bankman-Fried’s money with helping Democrats in the 2020 elections – sidestepping the likelihood that the money was effectively embezzled.

Perhaps most perniciously, many outlets have described what happened to FTX as a “bank run” or a “run on deposits,” while Bankman-Fried has repeatedly insisted the company was simply overleveraged and disorganized. Both of these attempts to frame the fallout obfuscate the core issue: the misuse of customer funds.

Banks can be hit by “bank runs” because they are explicitly in the business of lending customer funds out to generate returns. They can experience a short-term cash crunch if everyone withdraws at the same time, without there being any long-term problem.

But FTX and other crypto exchanges are not banks. They do not (or should not) do bank-style lending, so even a very acute surge of withdrawals should not create a liquidity strain. FTX had specifically promised customers it would never lend out or otherwise use the crypto they entrusted to the exchange. 

In reality, the funds were sent to the intimately linked trading firm Alameda Research, where they were, it seems, simply gambled away. This is, in the simplest terms, theft at a nearly unprecedented scale. While the total losses have yet to be quantified, up to one million customers could be impacted, according to a bankruptcy document. 

Morris goes on to describe the "special exemption" offered to SBF's girlfriend's hedge fund, Alemeda Reseach, the large personal loans offered to FTX's executives, bailouts to other struggling crypto lenders, the secretive purchase of a small U.S. bank, and the on-going attempts by a wide array of mainstream media sources to soften their reporting on FTX. Read the whole thing.

It has become increasingly clear that FTX and the people who were involved in running it were part of a grift. Hundreds of thousands on otherwise innocent (and unsophisticated) investors have been screwed, along with dozens of sophisticated investors who (amazingly) refused to do necessary due diligence and lost hundreds of millions as a consequence. The principals of FTX and Alemeda should be indicted, and if convicted, they should be imprisoned.

We have just lived through an era in which the FBI does early morning armed raids to arrest supposed wrong-doers for relatively minor offenses, leading them out to waiting media in handcuffs. We have seen the FBI raid an ex-president's residence on the suspicion of a crime, confiscating hundreds of documents and trumpeting the likelihood on an on-going criminal investigation. Yet for SBF, the DoJ and FBI are strangely passive. 

The force field holds. The question—knowing what we now know—is why?