"Going Infinite" by Michael Lewis

Above: "Going Infinite - Michael Lewis - 254 pages.

There is a colorable argument that the real culpability for this corporate tragedy lies with sophisticated investors who were beguiled by the hype of young geniuses who refused to embrace long accepted corporate governance practices. Where was the due diligence?

I completed reading the above book today.

"Going Infinite" is a human tale (you won't learn a lot about the ins and outs of crypto currency reading this book) about Sam Bankman-Fried and his pursuit of building the world's most successful cryptocurrency exchange. Author, Michael Lewis, had an inside look at his subject. In April 2022 Bankman-Fried invited Lewis, author of "Moneyball," and "Liar's Poker, to be a fly on the wall with unlimited access to Bankman-Fried and his daily goings on.

Lewis spent eight months with Bankman-Fried, mostly at Bankman-Fried's FTX (his cryptocurrency exchange) Bahamas headquarters. Lewis relates the story of how, while still in his twenties, Bankman-Fried made tens of billions of dollars and lost it all overnight, bankrupting loyal employees and investors.

Bankman-Fried's downfall occurred as he engaged in a secretive love affair with Caroline Ellison (an MIT professor's daughter and MIT classmate of Bankman-Fried), the CEO of the investment wing of his empire, Alameda Research. The weird love letters exchanged between Bankman-Fried and Ellison (included in the Lewis narrative) illuminate Bankman-Fried's unemotional utilitarian bent and Ellison's insecure introspection. Bankman-Fried approached his relationship with Ellison as a decision tree analysis comparing pros and cons and determining how his relationship with Ellison would, or would not, facilitate achieving his altruistic goals. Ellison comes across more a timid, insecure, skittish little bird seeking only confirmation of Bankman-Fried's love than an unexcitable CEO managing billions of dollars of assets.

The putative cause of the FTX/Alameda downfall was, in the wake of a market collapse of cryptocurrency prices, the transfer of some $10 billion dollars of FTX customer funds - a no-no - to Alameda to pay off loans and to bankroll Bankman-Fried's lavish digs in the Bahamas, promotional deals with celebrities (Tom Brady purportedly received $50 million for twenty hours of his time) and big-dollar political contributions. At Bankman-Fried's trial, where Bankman-Fried is facing seven charges of conspiracy to defraud investors, ongoing as this review is written, Caroline Ellison has turned state's evidence to testify against her former lover and business partner. "He made me do it!"

Bankman-Fried was the son of two Stanford law professors who neither celebrated birthdays nor encouraged a belief in Santa Clause. Bankman-Fried was a misfit in school and only found his true self in summer math camp, MIT and at the secretive and exclusive trading company, Jane Street Capital. At Jane Street Bankman-Fried established himself as a top player in the niche world of high frequency automated trading. In this book you learn a lot about how bots embedded into the trading software react to market phenomena and trigger trades all without direct human intervention. Bankman-Fried oversaw the most successful single trade ever made by Jane Street in 2016. He and his team of traders determined, counter to then prevailing market signals, that Donald Trump would win the 2016 presidential election. They were right, making $300 million off of their bet. But... Bankman-Fried also bet that the market would tank after Trump's election was certified. It didn't. Bankman-Fried's counter bet on a market decline wiped out the entire $300 million gain.

Bankman-Fried soured on high-frequency proprietary trading at Jane Street. He left Jane Street and recruited Gary Wang, a taciturn coding expert, to build a cryptocurrency algorithm to make arbitraged trading plays in the cryptocurrency markets. Bankman-Fried hired some of his old pals from math camp and MIT. Before long he and his team were raking in millions of dollars of trading profits every month. The name of the hedge fund Bankman-Fried cofounded with Gary Wang, was Alameda Research.

Lewis reviews the story of the birth of bitcoin and the virtuous motivations of the early adherents to digital currencies. The idea was that digital currencies could be used as a medium of exchange on an entity-to-entity basis while bypassing intrusive government oversight. It didn't take long, however, for the loosely regulated cryptocurrency trading to resemble more a wild west casino than a well-ordered trading environment. It was into this unregulated financial cauldron, hors US, that super trader Bankman-Fried and coding genius Wang made their leap. Wang has also turned state's evidence at the current trial of Bankman-Fried. "He made me do it!"

Bankman-Fried and his associates would have us believe that they were never concerned about aggregating wealth in the traditional sense. Rather, they were adherents of the effective altruism (EA) movement. EA was an idea put forward by Peter Singer, the Australian, Princeton based ethicist, and propagated by Oxford academic William MacAskill in his book "Doing Good Better." The philosophy argued that if young radicals really wanted to make positive change in the world – specifically by saving the maximum possible number of vulnerable lives – they should not, say, qualify as doctors and practice in Sudan, they should, logically, use their education for maximum gain on Wall Street and employ that wealth to sponsor 100 doctors in Sudan. EA movement adherents would supposedly evaluate each business, or even personal, decision in terms of how it helped make a better world. EA played well to Bankman-Fried's penchant for utilitarian, probability-based decision making.

Lewis tells the story of Bankman-Fried's remarkable rise. From an office in Berkeley, in 2019, Bankman-Fried moved, almost overnight, to Hong Kong. On one level, it seems he might have been trying to distance himself from his girlfriend, Caroline. On another level, Hong Kong was a hotbed of cryptocurrency exchanges with a hospitable regulatory environment. In Hong Kong, Bankman-Fried met the world's most successful cryptocurrency trader, Changping Zhao, better known as CZ, head of the cryptocurrency exchange, Binance. CZ, impressed by Bankman-Fried's success in crypto would become an investor in FTX, but would later sell his shares in FTX and deny a rescue package for FTX in response to a Bankman-Fried pleas for help at the end.

Many who worked with Bankman-Fried were troubled by what they saw as his uncommunicative and unorthodox, if not cavalier, approach to management. In Hong Kong, the proceeds of a $4 million FTX trade went missing. Amidst a chaotic trading regimen, FTX managers worried about the absence of traditional business controls at FTX: no internal audit function, no board of directors and even no organization chart. How could anyone know how FTX was doing in such a topsy-turvy business environment with no conventional management process? Bankman-Fried's approach was, "not to worry... the missing money will turn up." Bankman-Fried didn't need management controls. He didn't need an organization chart or an internal audit process. He didn't want any fuddy duddy adult supervision with a board of directors.

Bankman-Fried's "business structure" was built around his own predilections for unstructured non-binary, utilitarian, probabilistic thinking. He figured there was, say, an 80% chance that the missing money would eventually be found and that any energy fretting about it before then would be a waste of time and money.

Tensions rose inside the Hong Kong based FTX management team and, eventually, failing to find a way to rid FTX of Bankman-Fried himself, key members of the FTX/Alameda management team bolted. In the history of FTX, this event is referred to as The Schism. Post schism the missing money did turn up. Examples of Bankman-Fried's utilitarian approach to decision making, and the accompanying uncertainty of Bankman-Fried's seeming insouciant management style, permeate the Lewis narrative.

Supposedly not seeking personal gain, Bankman-Fried's interest seemed to be that of a gamer with an urge to beat the house. He paid little attention to conventional business protocols. He famously was a no-show as honored guest at the annual Museum of Modern Art gala, the personal invitee of New York City fashion diva, Anna Wintour.

Bankman-Fried seems to be a real one-off type of character. In FTX's early days he was criticized by his employees for never smiling or showing empathy in interpersonal interactions. In response, Bankman-Fried trained himself, in his private time, to emote. Reading Lewis' account I thought Bankman-Fried might have been autistic or a victim of Asperger's Syndrome. He displayed strains of sheer brilliance alongside of being socially maladroit and lacking in empathy.

This reader had the impression that Lewis had a personal liking for Sam Bankman-Fried. The level of Bankman-Fried's success achieved in such a short amount of time clearly distinguished him, in Lewis eyes, as a legitimate wunderkind. Lewis chronicles the FTX denouement in the Bahamas without criticism for any Bankman-Fried wrongdoing. Bankman-Fried does not believe himself to be lying. He has pleaded not guilty to all charges against him. Stuff happens. Businesses fail. That doesn't mean fraud is involved, yada.

Clearly, Sam Bankman-Fried seems to be a round peg operating in a square hole world. It will be up to a jury to determine whether his actions, which resulted in lost customer funds and lost careers, were venal or unintentional business mistakes. There is a colorable argument that the real culpability for this corporate tragedy lies with sophisticated investors who were beguiled by the hype of young geniuses who refused embrace long accepted corporate governance practices. Where was the due diligence? Also, placing your bets with a genius kid who wears cargo shorts to work and who plays video games during his meeting with you, should have tipped you off to, if not a scam, a poorly managed good idea.

Like Lewis's other books, "Going Infinite" is a quick and engaging read. Apart from enjoying the well-crafted major story line, I learned a lot about high frequency trading, the crypto markets, and a cohort of very, very bright young math types whose moral framework does not align to traditional ways of thinking. Let the buyer beware.