Michael Lewis on Cryptocurrency and the FTX Empire

This is Master's in Business with Barry rid Holts on Bloomberg Radio.

This week. On the podcast, Michael Lewis out with a brand new book on Sam Bankman, Freed and FTX doing the circuit. We managed to get him right after his Sixty Minutes podcast and he was completely open and unguarded and talked about everything. Talked about the process of writing the book, what it's like to go on sixty minutes and know that social media is going to come at you.

Lewis it's good to see you Berry, good to.

See you again. So let's start out talking about how this landed in your lap. A friend is thinking about doing a deal with FTX, and he contacts you, says, I can't get a read on this guy, Sam bankmin Freed tell us about that first meeting with SBF. What was that like.

So this friend reaches out in September of twenty twenty one, and I never heard of Sam bankmcfreed or FTX. I hadn't been paying much attention to crypto and Sam BEKMCFREEDA a few weeks later ends up on my front porch and I take him for a hike in the hills of Berkeley. I think it's the first hike he ever went on. He was always dressed for the hike, but never.

Actually goes speakers cargo short.

I had no idea it was gonna turn up, and what turned up was this kind of kid. He's twenty nine years old, so I wasn't thinking this is literary material. I was thinking my friend wants to know what I think of this guy. But an hour into the walk, after I've discovered that Forbes has decided he's worth twenty two and a half billion dollars, he's kind of amused by his whole situation. It's gone from zero. This has happened in eighteen months. He's gone from zero to twenty

Like that first meeting you actually set this up?

And if he was that fascinating, he was that fascinating. And I know this because I said. I gave some interview right after this and someone said, do you know what your next book project might be? And I said, you know, I just had a two hour walk with a guy, and I think I might have found it. But I didn't know what the book was. I didn't know much more about him than you can learn in two hours. I just knew I had this. I had a theory of I had a theory about how I

Me, as opposed to as a well, there's a narrative and the characters flesh out, flesh.

It out well in the kind of I'd always kind of done this. I was just making a bigger point of it. And my prior books that I felt they were less fun to write were books where I had to strain to make the characters characters, like, to make them live on the page.

But really, because I find all your characters leap off the page.

Maybe that's just it's there. I think I think that there is a weakness, for example, the Flashboys in the character of Brad Katsiyama, because.

He's he's a chill exactly precisely.

He's a simply nice, decent guy that he's very I love him, but he's doing something really so it works only because when you drop that character into the middle of modern Wall Street, it gets very interesting.

He's very Canadian. He's very Canadian, right, and that doesn't come.

Nice Canadian guy is not where I wanted to ever start again, and I wanted to start with complicated, interesting people. And I had an idea. Uh my idea was Mike Leach, coach of the Mississippi State Bulldogs at the time, was going to let me move into his life for a season in the in SEC football could have been fun and so's character and situation. College football isn't turmoil because of the name, image and likeness stuff. But the transfer

You could have found some other coach to track though, if you really wanted to go that route.

But you need to find a coach who you really could light up on the page and who would let you in. So who would let who would let me see everything? And Mike Leach, I knew, would let me see everything.

And he's quite a character.

Oh my god, I'm yes. So anyway, so I had that in mind when I met Sam, and I thought the character in the situation, he's like walking social satire. He acquired twenty two and a half billion dollars in a flash, and the world was reorganizing itself around him.

Everybody wanted to everybody want by the way, the twenty two point five and I don't know if this is from the book or my research. Forbes settled on that number. They suspected it could have been high as one hundred billion, but they just couldn't come up with ways.

Of showing how do you value piles of serum and Solana and FTT and who knows what the hell's the inside of Alameter research.

Which raises an interesting question. Once you decide to write this, you have to know you're going to be going to be discussing crypto. But before you began work on Going Infinite, did you have any thoughts on bitcoin, blockchain, NFTs, ether, Like, what were you thinking about prior?

So going back to about I don't know, maybe two thy twelve. I had made several runs at writing about crypto, mainly at the behest of crypto people because they wanted attention. And I mean the first one was funny.

I hadn't noticed that.

I never wrote it. Oh okay, I mean I went and spent time in interview people, and I just thought.

So, you never put anything out, so you had some well, I said.

The first time, I make it, make some bid to get to know the people and to write the story about it. A guy called me up from Palo Alto. He had a legitimate crypto business. He said, if you come down, there's some people. Just come down in the next few days to this house. There's some people I want you to meet. One of them is Satoshi. And I fell for it. You know, I thought, well, but but you know, it was twenty twelve, so maybe maybe

And you've talked about how the narrative has changed consistently. They keep changing and just never never finds the narrative that sticks.

It's not that there's nothing there, it's just that whatever is there has not clicked with with like a serious problem in a serious way. But at that moment it was I spend the day with him, and they're selling me as hard as they can sell me that this is going to be We're not going to need dollars very soon. And I said, what can you use it?

Which probably costs you a million dollars.

A no, no, this gets better. The coffee shop, though in theory, accepted bitcoin. It took ten minutes and they gave up. They couldn't do it. And I said, I got an idea. I have this thing called a dollar. I'll just use this. It's a miracle. And I had this thought, I thought, like, they're selling this thing, but if it's some wacky world. Bitcoin was the first currency, and then someone came along and invented dollars everywhere to go, Thank God, right, right, So so I just thought it's

It was it wasn't ready for you.

To write whatever me to write about it.

So, Sam bankmin Freed, is this fascinating, quirky character you decide to embed with him, like a military journalist embedding with the troops, So while they're covering a war. What was that like? Was it difficult to maintain arm's length objectivity because you're a journalist essentially so and you're you're like trailing this.

Guy, right? So the first thing, I mean, if I go back, a hard time remembering it, but if I go back and I think, what was it that made me think not just this character, but this situation, that what part of it was he wasn't trying to sell me crypto, that he himself didn't completely swallow crypto. He wasn't a religionist, he said, basically, I am using it to make money because there are all these inefficiencies. I don't know what's going to happen with it. He wasn't.

Are it's mostly dudes?

It's cryptoz that's right.

And there's a reason why Lamborghini sold out for two years.

That's right. That's right.

So it's fun being poor.

So I didn't answer your question, but so this is the why of it. So embedding I always in bed, right, that's what I do. And then the goal is to get to a point with the subject where you're sitting in their office with a desk and they don't even know you're there.

So does that compromise your objectivity as a journalist?

Never? As before?

Okay, that's a fair answer.

I mean I've never nobody's cause people.

Are saying, oh, Michael got so close to SBF and he's defending him. I didn't read the book that way. I read it as an explanatory, not a defense. No, it was, that's the accusation.

The radical act was just to tell the story as I saw the story. What possible purpose, what possible good would it do me to set myself up as Sam's bankman, Freed's defense counsel. And that's not what it was. And in fact, it's all kind.

Of people ask me find out what he got paid. I'm like, are you kidding?

People said this about Flashboys? Oh really? A Wall Street firm published a note that I had been given shares in IEX to write Flashboys.

Not true, right, of course, not true. And disclosure, Not only did you get a butt on selling the book, you sold the movie rights before this even came out. Why would anyone else have to pay you for this? It's such a silly question.

So it's people, Well, let me say, let's just actually establish the relationship. So of course I don't get paid anything. Of course I didn't have any financial interest in ft excerpt.

Let me ask you a question that's going to make you feel old. Given how famous you are in Wall Street finance circles from Liar's Poker forward, any of these twenty somethings know who the hell you were. They all love flashboards, they do okay, So they had a sense.

Oh no, no, no, they all had books to sign and all. Yeah. So the so the answer is yes, it was odd what they knew.

Sam Liar's Poker, not the Big Short, not Moneyball, those are the really big Sam.

Sam never said this, but I found out from his parents that he adored Moneyball when he was a little kid. And of course he did because he was he was a totally isolated math. He sitting alone in his room who felt powerless, and all of a sudden this book say as the things you can do actually could change baseball. But that apart from that, No, that was just the weird old guy, right. I mean, that's good, and that was kind of what it was. They were so odd

You spend a lot of time talking about what an odd, quirky, sort of socially misfit kid he was. What was the source of that was that Sam has himself, was that his parents, was that other people? How did you get pink that picture of a young SBF?

So I think it's partly because of how I grew up and the importance of like who my parents were, and who my friends were, and who my coach was. When I'm trying to get to know somebody, I go right to the childhood and sometimes that's stuff that's a mislead that doesn't lead you anywhere. So Sam I asked him, I'd like it just a list of people who knew you before the age of eighteen, who could give me some picture of you, just to start out right, And

It was a guy who played the game.

I've pushed and pushed and finally it's his. The list is his parents, who you know, they did observe him, and his little brother who says I didn't know him, and his h he was a tenant in the house, his little brother said, And there was one guy named Matt Nass who Sam met in middle school and he became partners in playing in this game they played called Magic the Gathering, and Matt Nass's chief attribute was he made no emotional demands on Sam and they seemed to

He teaches himself to smile and finds out that that solves a problem within the game that is the simulation of life.

That's exactly right. He sits in front of a mirror. It's not till college and learns to make the facial expressions that are appropriate to what someone says. He's irritated. He has to do it, he doesn't. He realizes he doesn't have a full compliment of human feeling, that he doesn't feel happiness, he doesn't feel pleasure. Really, he doesn't feel empathy, and that this is you know, it's just like and he realizes the people around him see him as not completely human.

So I have a question that I was going to ask you later on, but I might as well bring it up here, so it's already come out. He's being treated with the m SAM patch for adderall and adderall for ADHD and depression. The persona in the book that you just described kind of reminded me a little bit of the reference you make in The Big Shorts of Michael Burry, who, when he finds out his son has Asperger's,

Whatever it is that he's diagnosable with is so much more extreme than Michael Berry. Really, oh yeah, and it's I don't know, so I don't use any of those words in the book.

I noticed that, which was what made me ask the question. By the way, nobody has brought that up anywhere in any interview. I found something buried in a reddit where someone brought it up, but other than that, because I was hunting to see, hey, this guy. I'm not a diagnotician, but I've read enough about this. I've worked with enough of those folks. I've had enough people with Asperger's on the show.

You know, the word that it's funny, whatever word you would use, would put him in a box that probably he doesn't belong in, because it feels different from what I've seen before Thosetario. It seems different. He's very very good at reading you.

With which people on the spectrum generally are not.

So there's this odd one way thing. He read you very well, but he's hard to read as a kid. So the other thing about it, the important beats in his childhood, I think are one. His parents don't think of him as gifted. They worry about him, they think of him, and his parents' friends said to me they thought the parents were both afraid for and of him, which was a curious thing to say about a parent

There's a piece in the book where he is mom is going to give a paper somewhere, and like the eight year old gives her a read on the paper more sophisticated than the PhD candidates gave her.

As a cris it was a bit like he was waiting. He wasn't living his childhood. He was waiting for it to end so that he could start talking to people. And in any case, he's eventually he's identified as gifted mathematically, right.

So he's brilliant at math. He goes to MIT just does he study physics and math?

It so brilliant, but not that brilliant, so brilliant enough, really so brilliant enough so that sure he goes to math camp in the summer and kind of finds his tribe. But in math camp, he's not the best. He's he's kind of just average among the brilliant math kids. He's average. So he has no sense of himself as special until he collides with Wall Street.

So that's where I was about to go. So he goes from MIT to Jane Street Trading, which is a high frequency trading shop where it's really partly about math but mostly about probabilities and problem solving and gameplaying where he excels.

And quantifying what usually doesn't get quantified, quantifying things that seem to be sort of subjective. The test that he gets this is where he finds out, oh my god, I'm actually off the charts good at this. The Jane Street interviews where they're making him do all kinds of weird puzzles and solve puzzles and play games and make bets that he just he flies through the thing and he realizes that what he's good at is not it's not chess he's good at. It's it's chess where you're

Now he can manage that.

He can manage that. It's not that he's better than than when he's playing chest regular chests. It's that everybody else is worse.

And it's a quote right from the book. It wasn't that he thrived on the pressure. He just didn't feel it. He wasn't better than usual. He just wasn't worse. Most people felt emotions, he did not, and therefore performed poorly in the pressure.

And you know what I think. I think this is a This is a really important key to everything that happens next in Sam Bankruin Free's life, because once he discovers that, it's this environment. It's sort of the semi chaotic environ environment where mathematical aptitude, ability to quantify, ability to make quick judgments about probabilities really benefit you, but there's no clear, perfect right answer. He's so good compared

Allows him to thrive. I love the story at Jane Street where he figures out that they can scrape each state's presidential election data. Oh yes, and figures out a five minute lead on CNN and they start trading futures overnight in twenty sixteen in the presidential election, they're up three hundred million dollars.

Tell us what happens. This is an amazing story.

I love that part.

So this is there's some scoops in the Jane Street part of the book. I think, I mean just assembling a portrait of Jane Street is not easy because they just won't talk to you. But Sam sort of created the portrait because he hired so many former Jane Street people and they felt free to talk. But there was the trade, the Trump trade. So Sam becinfhree is partly responsible for the worst trade in Jane Street history as far as he.

Knew, which started out as a giant winner.

That's right, but if you really think about it, it's a wild trade. So going into the twenty sixteen election Hillary Clinton Donald Trump, it looks like every time there's good news for Trump in the week's running up to the election, the market's tank. It looks like that's the trade if you can The trade is can you get

People took right, it's just Florida and Ohio.

And there sometimes moments and sometimes hours ahead of CNN in knowing what just happened in the election and how the odds shifted, and what John King's going to say next, and what that's going to do it to S and P futures. So their bet they put on in retrospect, they should have maybe thought more about the bet, But it was good for Trump. Short S and PS in a big way, and short in foreign markets like Mexican

Tax cuts and fiscal stimulus. What's not going to be good for equity.

And so it went from a three hundred million dollar win to a three hundred million.

Dollar loss and biggest in Jane Street history.

So not much of this makes it into the book, but there were these long memos that were written about in Jane Street about the trade. Oh really, yeah, I got.

Them because there was no post mortem. No one ever pulled him aside and said, so hey, you blew us up.

Just like Sam wrote these long memos to his boss about we need to write long memos about this because we ought to understand what we did, because this is a wild opportunity we got. We succeeded. We got the information before anybody else. It wasn't in the market. Nobody else had it. You didn't see the markets move when we got the information. We were the only ones there. So he describes like how they should have thought about the trade and what they should have done is they

Thought set the grounds for him to exit.

It was one of several things. But yes, he which is And if you think about this, you got kind of love Jane Street that in my in my day, if someone had done this they would have been a scapegoat.

So absolutely someone had been strung, there would have been a committee that would have been reviewed. Someone would have been fired, tart and found feathered, drummed out of Wall Street.

This is a very smart place because the process was right, the outcome was a problem. Process was mostly right, and it wasn't.

No second level thinking. They no stop and say, all right, so what happens if he's elected?

That's right, and but that they don't go punish Sam and the handful of people who are really at the center of it. If I were Sam, it would cause me to love my employer for sure. Right, it'd be a reason to stay, and for him it becomes a reason to leave, and that's our part of a reason to leave. That's curious.

So let's talk a little bit about Alameda Research and FTX. Alameda predates FTX. It's the sort of hedge fund trading operation that Sam Benkmin Freed is operating under. And it begins arbitrage and crypto between like Asia and the United States and making a ton of money in what should be something that in the equity markets there wouldn't be that big a gap.

So the basic idea he's sitting at Jane Street and his financial ambition is limitless, not because he wants to buy a yacht, but because he wants to save humanity

States, and literally that's the gap.

It's it's huge.

Sometimes it's like it would be twenty cents in the inequities, and it's it's two hundred dollars.

That's right. It's so Sam looks at that and says, we can be I can be Jane Street for crypto U. And but then from then it becomes high comedy because he's doing it on behalf of his movement, effective altruism, and his idea of starting it is to start it with a bunch of effective altruists in Berkeley, where there's money from effective altruists to supply the capital.

So let's define effective altruists. Because I read a lot of stuff about it, and I don't think people really get it. This is a philosophical movement that really began. It was a Cambridge, Oxford.

And it migrates, it grows out of utilitarianism and the general eyed I mean you think about it is sort.

Of getting maximize the benefit for the most amount of people.

That's right, and be actually mathematically rigorous about how you do your good.

You you call that into question also as I thought, but we'll talk about.

That lab Never mind what you think of effective altruism made up numbers. You just need to do it, yes you, but you need to just accept this. This has captivated the minds of the twenty people who Sam bankmanfree gather to create the first Jane Street for Crypto in Berkeley, California in two thousand se.

And these folks are literally they set up charities, people are donating money, and they figure out what are the biggest threats to to humanity and will donate money to those causes.

We'll find smart ways to donate money to those causes. That's right, and.

We'll go out and make a ton of money and give it away.

At that moment, they were pretty focused on existing human beings and saving their lives. So it was like a lot of public health in Africa, so which is pretty straightforward. Sure, the movement was about to jump the shark and focus on future humans who never been born by preventing existential catastrophe. For preventing so they stop giving money for bed nets to prevent malaria in Africa, and they start giving money to anthropic or whatever to AI out people who are

Us right at this point, they go from winning to lose it.

Here if from winning the trades start to go bad or it looks like they go bad. And some of that they don't have a record of some meaningful number of trades.

Which is a little foreshadowing in the book that oh my god, that there's no we'll talk about this. There's no record keeping, there's no CFO. That is, none of the normal controls.

None of the normal controls. And Sam has created this algorithm rhythmic algorithmic trading bought you called it model bot that he wants to it's like release the krack, and he wants to release in the markets and make two hundred and fifty thousand trades a day.

And they're and they're going to crash and burn.

Well. They have been given one hundred and seventy five million dollars from fellow rich effective Altruis, and they're thinking, we're supposed to be making money to give away and we're losing a active Altro his dollars and gets everybody's everybody gets upset, and there comes a moment where they realize that actually four million dollars of Ripple XRP is the token, but of Ripple is missing, and they just

We found, which is the theme that keeps.

Repeating, repeating itself, like, hey.

Is this your one hundred and fifty million dollars?

That's right and uh. And so that was a moment where you had a foreshadowing of what might happen later in Alameter research. But it gets it finds its footing, and it's kind of fine. It does well for the next.

The next day, after everybody leaves, he turned. He releases the Krackt.

He releases the Krackt and it starts killing.

It's taking a ton of money.

It does well, Yes, it does well.

When does he come to realize, hey, you know, some of the other players are coming in and these big fat arbitrage opportunities are going away.

So he was the one who made markets. He was the one who everybody noticed in crypto what just happened to the spreads? Oh my god, like some something just happened and all of a sudden start to look like a real Wall Street market. And it took a while people figure out that there was this wholly anonymous operation called Alomedy Research with this vegan twenty six year old

Different and that's the genesis of this is so ft.

It's important to know that this is how FTX comes about. And it's also important to know that they didn't think they had the capacity to actually run an exchange. Running exchange meant having customers and meant dealing with ordinary people.

That was the big issue. How are we going to get people?

People are going to I don't know how to talk to people. I don't know what people feel. How on earth am I going to be like a Carnival Barker at the middle of an exchange. So he knew he had the ability to create the software.

His CTO brilliant guy Gary Wang, basically one guy writes all the code better than everybody else.

Which apparently didn't take much but was true. And their thinking is, we'll get some We'll get people who understand people to do this for us. They went to all the other exchanges and said, we'll sell you this and we'll keep a kind of licensing fee, but we don't want to run it. And nobody wanted it, and so they get that. All of a sudden, it's like, oh my god, if we're going to do this, we got to do it ourselves. So they really back into creating

That's interesting. There are two things that really leapt out about the launch of FTX. The first is all these other exchanges sort of socialized losses, so you're doing futures trading and every customer effectively is putting up money. And if somebody has a big loss and it drops way below the collateral they put up. That loss gets spread out. So his brilliant idea is, hey, well tight stops. If someone loses money, we liquidate the collateral. They're done. We're not going to have losses.

That's right. They built a better risk engine. This is funny given what happened, but yes.

Well, on the futures trading, that risk engine was very professional and well done.

That's right, and it was it was the chief There were other selling points, but it was probably the chief selling point. Was all you crypto traders have now had the misery of socialized losses on all these exchanges, and you've just lived with it. You know, you get these clawbacks of forty and fifty percent of your trades because somebody blew up, and we're not going to have that and that. So that that is what they were selling.

And so he starts going to conferences and he's the guy that was scalping all of that cash and suddenly he kind of becomes a bit of a star. Well, Bloomberg launches him the first first TV show.

Right, that's right in the place that launches him that he goes on TV. He is, by my lights, very awkward on TV.

Right.

I mean in a video games he's playing. He's on live TV at his computer monitor playing a video game. At the same time. You see his eyes going back and forth. You can see him stall not half listening to the questions he's being asked. He always says, you can, well, that's a really good question. So that just he give himself a little beat. He's not and he's a he just he gives a little soliloqual in in response to every question. But he doesn't seem guarded in any way.

And so so he goes from there to every major crypto exchange and suddenly every major crypto conference in Asia. They're located in Hong Kong. Certainly they start to get volume, right and if you.

Look at if you look at the way people have made money in crypto, they are like two basic strategies. You bought bigcoin and zero, or bought it low and it went way up. Or you created an exchange the exchanges have been the sources of great fortunes and it's it's and it's such a simple, easy business if you manage the risk right. It's like you take you take

And to put some flesh on those bones, two BIPs. They were earning on two hundred and fifty billion dollars a month, which meant they're doing you do the man, a few billion dollars in revenue and four hundred million in profits. It was.

It ended up being I think in twenty twenty one it's a billion and a billion in revenues and I've about four underd million in profits. So you've got this business. It's a really simple business that is growing so fast. And if you're looking at it as like what might happen to this business, it seems to be poised. It's only whatever eight percent of the marketplace to grow to be twenty or thirty percent of the marketplace. The marketplace end of twenty twenty one is a couple of two

It's a two let People were talking about one hundred trillion.

So it's this This business is going to be in direct proportion to that. But there's this other thing. It is a different financial structure, this exchange. It is for a start, it custodies the customer's money. But secondly, it doesn't require any intermediaries. You trade directly on the exchange and you keep it. You don't you don't go through a broker, You don't have any high freak trader between you and the in the marketplace. The exchange isn't selling

Really really intriguing. You go on sixty minutes, as you have for some of your recent books. Yep, I thought the interview tracked the book, which I had literally just finished that day, very closely.

Hard to do in twenty six minutes a whole book, but yes, they.

See, yeah, two segments. Most people will only get one segment. What was your experience like with sixty minutes? And some of the backlash to the interview.

Well, backlash was anticipated.

I mean really, I did not anticipate that. I read the book and thought, this is a fun romp and a crazy part of the world.

That's what will happen. Eventually people will read the book. But this is how I think about it. I think I said this on sixty minutes, that we're now in kind of a story war. That about the story. What is the story of Sam Bankman freed. Lots of people who didn't know very much about him or it have told lots of stories with great conviction. Twitter lynched him right away without thinking very much about Islench.

We had a dinner was it last December with a number of people who were very interested in the space, and you kept saying, whatever you think, it's times crazy.

You think it's crazier than you imagine, it more complicated and more fun actually.

And that turned out to be a fair description.

But the story war now is going to be a very loud story that comes out of the prosecution, and a story that probably presented a more muted away from the defense. And I don't think either those stories can be very good or full or complete. They're not going to be nearly what I have just from having been a fly on the wall for a year and a half. And I know what I think like, I know I

Did they speak to you?

They asked for the book, but they didn't speak to me.

Well when did they? When did you give him the book?

We didn't give him the book. So they've got it.

Now say go to Amazon, go buy your own kind of.

And and and and the defense can't talk to Caroline or Gary or Shot or a whole bunch of other people. And I still have been able to talk to a lot of the witnesses, so not all of them, but a lot of them. And so I've got like unusual three sixty the whole thing. And it was such an amazing just story. I thought, I'm just gonna tell a story. And the radical act is to withhold judgment like innocent until proven guilty.

But that believe that jective journal.

But leave that to one side. This is just this story. And all the books, when they work, they work. I have this experience with every book, ten different readers read ten different books.

We have discussed this. The book you write is not the book people read.

That's exactly right. They come to it with their baggage, and they supply they walk into the hole in the book. And this came with a ready made a hole. You you're you're the juror. You get to decide. It's you, you decide. And I could tell you that I have had the most radical range of responses to the book and to the characters, more than any book you've ever written, more than any book I've ever written. And and it's a mistake to think that I had some ambition, some

Well, well, once you make your mind up, you know, it's very hard to walk it back. You dedicate the book to your daughter in memory of Dixie Lee Lewis, you remain inside of me? Tell us about that, because I recall after your daughter's accident you kind of described yourself as I don't know if I'm ever writing again.

Yeah, that was true. I had a very specific resultse it was the tiniest liver of my response to her death. You know, I adored her and we were just she was the best kid, brave and full love and just the best kid. And I thought, up to that point in my life that I was just that was the luckiest person I knew. Nothing bad really had ever happened to me. I hadn't had that kind of experience. And I'd also thought that kind of the trick about I

I very vividly a mutual friend said, hey, you should give Michael a call. So we spoke a few months afterwards, and you said something that you know, you're such a mensch. I was genuinely shocked at this point when you're still mourning, and you said, hey, this tragedy showed me that up until this point, how long I actually was. Most humans aren't wired to think that way. That's a very unusual perspective to look at something that's not good and try and find the goodness in a tragedy.

So this is the way to honor her. The way to honor her is not to crumble, it's to build on it.

You call her a warrior, thinking.

She was an absolute warrior. But the way to honor her is in the spirit of improv It's you can't say no, you can't reject this. Rejecting her death or rejecting the feelings that go with it is to deny her in some way. What I need to do is accept whatever the emotions are and build on them. And whatever I build will have a little or hurt in it. So this book as a little of her in it. You know what's in her about this? About her in

It's an outrage it'.

An outrageing machine, and people are so sure they're right and that that mob. To get between that mob and its target is always dangerous. And Dixie would have done it. She shoot, She would put her body between a mob and had done it before, that kind of thing, and so I thought, it's going to be a little painful, but it's worth it and it will honor her.

So when you're talking to him and thinking this is not long after her accident, you're thinking, I'm going to go for this. And she would absolutely support this decision absolutely. Huh, that's an amazing conversation. I remember you did a podcast. It's three actors comedians. I don't remember SmartLess smart SmartLess. Yes, that's right, And I try never to listen to people's

And I do? I do. I don't remember what I said, but I do remember the spirit in which I said it, and in life I have found and this connects to this book, it connects to anyway books that there's a richness in recognizing and really insisting on any difference between what you feel and what you're supposed to feel. And there's always pressure to feel a certain thing, like this pressure right now to hate Sam batmanfree. But if you actually feel something different, hold on to that feeling and

I didn't.

Yeah, Yeah, I didn't feel guilty. I thought she had a fantastic life, we had a fantastic relationship, we had magical amounts of time together, that she was on her way to a brilliant future. I feel sad, but I don't feel guilty. I don't feel anger. I didn't feel any of the toxic emotions. I felt sad and sad is that you can work with sad, sad and funny. This book I've just written is sad and funny. There's it's there's so much funny stuff in it, but it's

Huh. That's really fascinating and unexpected. Take. Let's bring this back to the crew of twenty somethings running FTX. I read the book not so much as in a defense of where FTX went off the rails, but just an explanation. Here are people with no experience in finance, no experience in management, no organizational structure, none of the usual controls in place to run a few million dollars, much less hundreds of billions of dollars. How criminal was this or

That's the question at the heart of the trial, and.

I mean clearly there was.

I mean answer this, Oh yeah, it's all in there, right it's all. There's no happy story to explain it all. But I want to say this. I don't want to answer the question because I've left the question for the reader to answer. I intentionally didn't answer the question because I didn't want my thumb on the scale. So I don't really want to answer this in interviews. So let

So let me pull something from the book that I thought was really fascinating, and I think Twitter has gotten wrong. It wasn't that FTX transferred money to Alameda, transferred eight point three billion dollars. As I read it, FTX was unbanked. You could give them crypto, but you couldn't give them cash. Alameda had a pre existing bank account, so you could wire money into Alameda and then they're supposed to move it over to FTX. Is that a fair statement.

That's that's how eight of the ten something billion that got into Alimeter from FAS got it.

And at one point in time, Alimede is sitting on like, I don't know ninety one hundred billion dollars worth of assets. It's not that eight billion is a rounding error, but in the grand scheme of things, yeah, yes, we'll make that mark to accounting eventually.

So that would be the story Sam would tell. Yeah. And the way you would challenge that story and I do, is we're really sitting on ninety billion dollars of assets that was Salona and FTT and serum, and what is it worth? You know, yes, the market seems to say it's worth that, but it's not cold liquid in it. Right.

Came into Alamo, from the client, not from FTX.

Right.

That sounds like that's an important distinction. It may be, I mean, actually it's problematic.

Yeah, oh yeah.

Whether that amounts to fraudulent intent is again it's for the jury.

That's right. That's gonna be the interesting thing. What this is why you need to understand Sam Bankman Freed. If you're the jury, it's like, what would that mind have intended? Uh, And that's what they will decide. You know, his odds are not good.

So so you mentioned FTT, which is the coin. This story was really this part of the narrative was really fascinating because I was unaware of this. So FTX issues FTT, which is effectively like equity in FTX, Yes, and they don't.

It's got to claim on the revenues, right.

So literally profit distributions go out to FTT.

Holders in the form of buybacks.

So in the form of buybacks of FTT. So that's how you get you get paid on that that suddenly and he does it at like pennies, not not a whole lot of money. Suddenly this runs up in price. Right at what point, what what is FTX holdings of FTT worth?

So as long as FTX is functioning and profitable, the FTT is actually pretty liquid and valuable. At the minute FTX goes down, it's worth zero. So it's all correlated concern and it's sort of pretty much everything in well not that, not everything, but a lot that was in Alameda was simply one thing, Sam FTX, FTT, Solana even and serum, these big these other tokens were so associated with him that if one thing, if FTX went down, they were all going to go down. Uh, they're they're

Well, actually, so you've said this, and I have another question, so let me bring it up here. Madeoff had a legitimate business. He was the largest market maker on the nestrary way back when, way back when. And the problem is nobody really knows when his business turned into a ponzi right right, There's been multiple books, none of them have found that information. Right here, it's pretty clear from the beginning, no controls, cole mingling of funds.

But FTX itself was never never looked like right.

And it was a legitimate business making a lot of money.

Right. But this thing rhymes to me with both Michael Milkin and with long term capital management. Long term how we management didn't realize that all of its stuff was correlated because it owned it. And once people started going after their positions and knew their positions, even if it was, you know, a position in Russian government bonds and overhear our position in gold, it didn't matter because everybody knew they were weak and these positions were going to be

Well stay there before you move on. So you talk about CZ basically starting a run on the bank and or a run on FTX, because he starts saying, hey, ore FTT, we've sold and we have other things. We we're no longer trusting FTX as an exchange. Did he precipitate the entire collapse?

He couldn't have done it. It's a combination of him and the moment in which he says what he says, And there's a reason I think he says what he says. He's even kind of hinted at this reason. Samm idiotically and made a trip to Dubai like the week a week earlier met with with Anthony Scaramucci. I was actually invited on this trip. I didn't go. But he tried to persuade the Dubai regulators to throw Binance and Sez out of Dubai.

Really, and they have an ongoing relationship, both Sam and and Binance and Dubai and.

Yes, and you know, Binance needs to find a home if by Dubai has given them a home. Caz needs to find a home. Dubai has given him a home. And so Sam was basically trying to render cz stateless and Uh overplayed Riley overplayed his hand. That it was just a dumb thing to do. I mean, it gets to Sam. But if he thought he was vulnerable, why would he have done that? Did he? So? Maybe he didn't,

Well, we were talking earlier. You go up against the king, you better better kill him.

That's not miss And the other thing is Sam was potentially disruptive to US financial structure that he was arguing. He was making an argument was similar to Brad Katsiyama's argument flashboys. A lot of unnecessary intermediation in the markets, and there's a much simpler way to do this the structures of being built in crypto that could be poured it into the US stock market where all of a sudden, you know, the exchange isn't selling customer data for business.

So you talk about this specifically towards the end of the book. The takeaway from FTX and Crypto is the reason this collapse, the reason crypto had another Crypto winter, is there is no banker of last resort to step up, and that it turns out capitalism needs guardrails, banks need regulations, and guess what, we all need intermediaries because the supposedly trustless system works much worse than the system that that is highly regulated and supervised.

Yes, it's it's a great irony to me of Crypto that it starts out with Stoci's paper, and Satoci is clearly obsessed with with with not wanting to have to trust governments and banks. The whole point of this is, this is a way to eliminate banks and governments from the monetary system. And it's a trustless system. It's peer you trade directly with someone else, and the transactions are irreversible, et cetera, et cetera. And that he must be if

Which turns out to be a good thing deposit and show God right.

Yes and so and regulators too it So who would have fought? I wouldn't have thought that crypto would end up in this place. It would end up with all the same exchanges and brokers and banks that that the financial system has. Turns out, their reasons for these things.

So, so let's talk a little bit about the bankruptcy and the trustees and and what so far has been recovered. You write in the book, what there's eight point three billion missing.

So there's eight point six billion in customer deposits. This is all from the bankruptcy people.

That's unaccounted for.

That they that the customers are still owed, including me, to under grand.

You and most of the employees had all their network tied up. These people were drank the kool aid. They thought this was the next great thing.

Their employees who had their whole families, had their parents, had their brothers and sisters in with their assets on FTX.

Yes, right, so eight point six is zero.

Yeah, And they've said they've found seven This is three months ago, and they said they were still finding it. Seven point three billion of liquid assets of liquid.

And in the book you talk about other exchanges saying, hey, we have three hundred million of your ethereum here, come get it.

When the thing is unraveling, people not not Sam, probably Sam too, but people not Sam are getting phone calls from banks saying we have we have three hundred million dollars of dollars in an account. Do you know? And they didn't know about it, right, I mean so.

And then you talk about the dragon's layer, which is all these assets. So he bought one hundred million dollars of Twitter a year before Musk buys it at like twenty dollars a share.

So this is well, the big a ton of money. You know, the elephant in the room is and it's a really interesting elephant. So Sam Bagman Freed one of his obsessions is artificial intelligence and making sure artificial intelligence doesn't slip its leash and eat us. All right, And this is before it's fashionable at all to think about this. Now, this way back when nobody was thinking about it, are really few people. And he buys a steak in a

I think it was four hundred something like that, some huge amount of money.

Huge amount of money. And when the bankruptcy happens, the guy who's running the bankruptcy, John Ray, said to me, as an illustration of the idiocy of Sion Bakman, Freed said to me, can you believe he put like four under million dollars into this thing called Anthropic and it's just air. It's just an idea, there's nothing there. Well, last week Amazon has announced they're making a four billion up to four billion dollar investment and it's a minority stake.

This is means his.

Three or of five x yes, and it's that's right. So it very much looks like they may get paid back.

Not only they may get paid back, but the implication is, hey, if they had accounting and a CFO, where is it possible that they were never truly insolvent? If you take all their assets and add them up, might they not have needed to go into bankruptcy if there was an adult in the room running the place.

Well, there's an adult in the room running the place. The money would never have been in the wrong place. But the but it's it's I think that's certainly true of ft x US.

The well that was tiny compared to it's hard to know.

It'll be after the fact, we will find it.

But it's a real This isn't like a one in a billion possibility. This is a realistic chance, I think. And I picked that number on purpose because you know why.

Yeah, I think so. I think that's right, and I think you know, one way to think about this, it's is you talk to the people who were trading the claims on the on on. If I wanted to sell my claim on the on my deposits, I could and I think I get like thirty five cents on the dollar, not much, but some it's not.

Zero, not two, and that's not a typical night.

But if you talk to the people who buy those I had a couple tell me, we think it's maybe we're going to make it get one hundred cents on the dollar. Wow, And but it problems is going to take.

What it made offends up. It was pretty close to one hundred. Yeah, I think they can clawed back a lot so.

But this is without clawbacks. So the interesting thing about this is I don't think I mean some people like politicians people are embarrassed to have taken Sam's money and can give it back. Have given some of it back. It's pretty peanuts that but they are rules about clawbacks and bankruptcy, right, you have to demonstrate that when the money was given, that the.

There was a proceeds of a crime, also that it was insolvent.

And it's unclear when FTX becomes insolvent. Is it November of last year? Is it June? It certainly wasn't January of last year. The fine, So anything that went out the door before then, you're not gonna be able to clock.

With made off. It was pretty easy. That was never you know, the last twenty years, there was no business there. Whatever you got you were getting somebody else's money.

So that was easy.

This is a little more.

And they have not made the argument yet. And tellingly, if it turns out that the money is there, it will be because those the assets add up to the liabilities that nobody's really gone systematically through this pile of stuff, an incredible bile of stuff. It's sam bank and free to cumulate. It's one hundred and something in private investments.

You call it the dragon's lair. He threw five billion dollars into three hundred separate entities. And many of these are giant winners.

You know, some of a zero it's a VC portfolio. Yeah, And the question is what's it worth? And I don't know what it's worth. Is it enough to close the gap between eight point six and seven point three? It seems so there's some other they owe some other stuff, but the customer. It'll be interesting to see what the customers get back.

So one other thing I have to add ask about is you throw some shade at some of the big law firms, Sullivan and Cromwell and others. First, Sullivan and Cromwell was for a while ftx's outside council for certain.

Things, including their dealings with the regulators.

Which kind of raises questions, how could they be bankruptcy counsel.

I don't understand it because they're sitting.

On Isn't that an inherent conflict of interest?

They're sitting on the evidence for the trial. So you would have thought I would have thought that at least people would raise questions about the lawyers for FTX being also the lawyers for the bankruptcy and also especially since they're the ones who really twisted Sam's arm to sign that the bankruptcy documents.

Right, And there was a typo I found in the book. You wrote that the bankruptcy lawyers are going to generate fees of a billion dollars. That's a typo. What's that number supposed to be?

It's not a typo.

It's a billion dollars lawyer.

There are hundred advisor, lawyer and other fees. Real lawyer and other fees. So this is where we are. We're at several hundred million. Now. One of the creditors, Big creditor, did an analysis of what they were going to charge by the time the dust settles, and they figured out it's going to be about a billion dollars.

That's unconscionable.

The thing that's striking to me is just how insider a game the bankruptcy process is.

For a long time though took but it used to.

Be regulated by the SEC. And in the eighties they got they took it out of the SEC and they created this thing called a bankruptcy trustee who's in the who's in the Department of Justice, but has no real power except the power to bitch and moan to the bankruptcy.

He could petition, but he's gotten on so he did.

In this case. He said, this is outrageous. They shouldn't be the Department of Justice. Guy wrote long letter saying you should not allow Solomon Cromwell to be the bankruptcy lawyers, and when they should.

So this isn't Michael Lewis whining, And this is basically DJ saying these are the wrong attorneys, but they.

Don't have the power to do anything about it. And did the SEC back in the day. Yeah, yeah, So it's just it's changed so that the power resides with the bankruptcy judge, and the bankruptcy judge is usually a former bankruptcy lawyer. And it just starts to smell like a club. And what with all the trustee was asking for is there needs to be like an outside examiner to watch this stuff, and the judge wouldn't even allow that. So this thing is happening essentially inside of a black box.

How could it be? So I have hundreds of questions more for you, but I'm going to just stick to the two most potent ones now. Effective altruism seemed like a big part of Sam's persona and his self identification. I came away from the book thinking this is a bunch of nonsense. I mean, seriously, they talk about, well, the risk from a super and ova one in a billion, and an asteroid is one in a million, and a

I said the same thing.

I mean I immediately so. But by the way, if you just sit down for two minutes with a pen and paper, the one in a billion on the supernova you could shows something like one in four trillion very very easily. And I'm sure, but it doesn't matter. They're just round made up numbers.

So in their heads, you've got to understand this is a psychological as much of an as an intellectual movement, right. It's tribal. They're finding solos in each other's company. They're loving having these arguments about this thing. And what would they say? Let me see if I can for just a moment, there's some number that's true, whatever it is. We don't may not know the number, but there's some

Yes and no who specializes in trobabilities.

I try, I try, I try.

Hey listen, Eventually the universe suffers from heat death, and entropy means that everything dies. So so why bother doing your homework?

I try, I just try. I'll stop now. I didn't try to do much in the way of defending.

This, No. I was completely sympatical with you as you as I'm reading and I'm putting my nose up, and then you throw the numbers.

Out and me offer another weird defense of them, and that it's pretty cool how quickly they got to threats from artificial intelligence, and when that's fair, when nobody cared about it, right, and now.

Everybody and a pandemic before COVID.

Yeah, that's right. So I'll give them credit, given the credit for paying attention to things. These things are not unimportant. Once you start to kind of turn Matthew about them, it starts to feel a little silly. Yeah, And especially when you devote your life to these equations, then it seems to sit like a little just off. But it wasn't just stupid. It was four point zero stupid. It was it was it was you know, with that, it's sort of like sort of like the kid on the.

Softball weapons grade stupid.

It's like the kid on the softball team who's the best student but doesn't know when to steal a base. And it is a little of that. It's a different It's like blind spots to the intelligence is what it felt like, like really smart people with this big blind spot.

Last question, So, I've read your whole body of work, some books multiple times, and we talked a little bit about Flash Boys, But the thing that kind of stood out to me is wondering, regarding the characters in this book, do you find any similarities between the world of crypto and the world of subprime mortgage securitization, any parallels there?

You know there probably are. That's not what popped into my mind. What popped into my mind when I was working on the book, the nature of the characters and kind of how outrageous it all was and how there were no guardrails was Liar's Poker. I just felt like, I'm back at a time, I'm back in a space where your jaw is on the floor because of what's going on and you can't believe this happens in a business.

Right, this was more frat house than trading.

Floor there, or yes, a nerd frat house.

But yes, Michael, thank you for being so generous with your time. We have been speaking with the one and only Michael Lewis discussing his brand new book Going Infinite, The Rise and Fall of a New Tycoon. If you enjoy this podcast, we'll be sure and check out any of the previous five hundred we've done over the past nine years. You can find those at Apple Podcasts, Spotify