November 29, 2022 - 2:11pm
The unravelling of Sam Bankman-Fried’s trading empire FTX this past month has exposed the shortfalls of crypto as the supposed solution to the excesses, conflicts and trust issues of core finance. With the impending collapse of crypto lender Blockfi it appears crypto may even be equally prone to the sort of contagion the financial sector experienced in 2008.
What has prevented the crisis from spiralling into a fully systemic episode for the global economy — at least so far — is crypto’s still largely contained nature and much smaller size, relative to that of the traditional financial system.
Yet those keen to assert that the debacle is evidence of core finance’s clear superiority to crypto underplay the role of central banks themselves in stoking and propagating the rise of the crypto market.
The point of quantitative easing, after all, was always to lubricate the market and create the conditions for excessive risk-taking. By design.
The best evidence of this is the inadvertent truth revealed by the “secret” text message brought to light by a new media outlet, Semafor, in its obsessive drive to debunk Elon Musk’s assertion that his “bullshit meter” was going off when SBF first approached him to invest in Twitter back in March 2022.
Bankman-Fried happens to have been a key investor in the media group, a conflict that Musk was quick to pick up on in his response to the article. Semafor’s piece had focused on Musk’s supposed hypocrisy and manipulation of the truth, since — in their estimation — by May of this year he was back tapping SBF for money for his “take Twitter private” deal. This allegedly resulted in SBF maintaining a small stake in Twitter, worth approximately $43m, a fact backed by publicly disclosed FTX bankruptcy filings.
Musk denied the assertion, claiming that SBF had been given the opportunity to roll his legacy Twitter share into the private structure, but had not carried through. With the truth now a function of one billionaire’s word against another’s, Ben Smith, Semafor’s co-founder, finally coughed up the evidence. This proved to be the counterpart text message to one of Musk’s — the latter having already been disclosed in the legal documents related to the Tesla billionaire’s attempt to renege on the Twitter deal.
The text, however, was hardly conclusive. All it revealed was that SBF had decided to withdraw from the investment round because of his own regulatory issues but remained interested in rolling his legacy investment if possible. Musk’s response was ambivalent at most, and certainly not indicative of someone desperate for SBF’s investment.
The bigger factor missed by almost all covering the story was the relevance of the dates in the tit-for-tat squabble. SBF’s decision to walk away from the Twitter financing round came on 5th May, two days before the dramatic market collapse of the Terra Luna crypto stablecoin on 7th May. This is relevant because Terra Luna’s collapse is now largely seen as the most probable trigger for the fall of the SBF empire.
But there’s another date that needs to be factored into the FTX collapse puzzle: what happened on 4th May. This was the day the Federal Reserve finally — after much market anticipation — officially raised interest rates on US dollar funding by 50 basis points. These rates would become effective in the market from 5th May, the very same day SBF officially walked away from the Twitter deal.
That the Fed ultimately played a role in FTX’s collapse, by puncturing more than a decade’s worth of irrational market exuberance it had itself fuelled with cheap central bank money, is arguably the real key to this story. It implies more than anything that SBF’s entire empire, rather than being a crypto phenomenon, was mostly built on the excesses of cheap dollar funding and massively over-leveraged business models.
The culpability of the Fed in stoking these bubbles, however, is strangely not getting the attention it deserves.
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SubscribeThe 1960s (in the iconic form) reached most people in the provinces in the 1970s.
Kamala Harris went from being one of the least admired Vice Presidents to the leading candidate for election in a matter of three weeks. Not bad for never receiving a primary vote. Since President Biden dropped out of the race following his disastrous debate performance where we could all see his frailties which have been hidden and denied by his staff and the mainstream media, it’s been Kamalamania here in the US.
Perhaps its because people who were anti-Trump and anti-Biden, now have a better choice. Or its DEI – how cool to have a Black woman President. Or its simply not Trump and Kamala can win where Joe could not. Kamala is part of the Administration. If people are unhappy with the direction of the country, why isn’t she being held accountable for her role in it?
We are facing a fiscal cliff in the early 2030s once our Social Security system will not longer be able to pay benefits are the levels promised. The Medicare system for pensioner healthcare could go broke later this decade. $35 trillion in debt and getting bigger all the time. These problems will make climate, race, gender, immigration, education and Palestine seem like small potatoes. Our young people are anxious, fearful, suicidal, lonely and depressed.
I don’t get a warm fuzzy feeling that Kamala and her Administration will be able to address America’s decline.
Do you get a warm fuzzy feeling that Trump and his Administration will be able to address it?
At least Donald Trump will put in the effort to try. He’s not lost in a cloud of abstractions like Kamala Harris, the airheaded Barbie doll of politics.
He will put in the effort to fuel is galactic sized ego. Any benefit that accrues to anybody else will be entirely coincidental.
Superb article Mr. Cuenco, with many fresh insights. I just hope that when the profound cultural revolutions of the day settle in with a new unifying narrative, it won’t involve men insisting that they’re really women, and success or failure depending on which identity boxes one can check.
I hate to sound cynical, but politicians lie. The Republicans talk about helping workers is just talk, they will go the Steve Scalise route, and the Democrats will go the Clinton route because the only way they can win is to keep their fragile coalition together with the glue of identity politics.
In the end they will do what their biggest donors want which is to continue the neo-liberal economic policies that made them rich.
Art thou a Prophet?
You don’t need a weatherman to know which way the wind is blowing.
In other words, we are in Neil Howe’s “Fourth Turning.”
A lone assassin managed to mount a rifle across from a former president and the target turned his head at just the right time to avoid a headshot.
Who believes that this 20-year-old who was moving about in plain sight before Trump went on stage acted alone? Unlike the FBI, the Secret Service does not yet have a reputation for being a politically corrupted agency but that may be coming.
At best, this was an almost inconceivable failure, a possibility that diminishes with each revelation of how standard procedures were ignored. That leads to the ‘at worst’ option, which after eight years of attacks, impeachments, and lawfare was the only one left to those determined to stop Trump.
It seems hard to believe the incompetency involved. But Ive learned to never underestimate the incompetent.
Almost all actions by government agencies are driven by incompetence. The few that aren’t are driven by cowardice.
We should not be encouraging more violence than already exists around these grand democratic spectacles.
But nor should we sponsoring pointless military violence in a country like the Ukraine where is it obvious (at least to a majority of the world) that the military course of action is failing badly and will always fail.
The two seem to feed off each other in terms of fostering a culture of nihilism around big-stage politics. It is certainly a major weakness in American culture at present.
How is it failing? The Russians are being attrited in as safe a manor as possible.
Any independently verified figures on that one?
Every story and picture that comes out of the battlefield.
What stories and pictures? Where,?
I’m glad you agree that the Russians are going to lose.
The world isn’t static. If we don’t push back now, it’ll just break out somewhere else until
eventually it’s right on our stoops.
The ‘endless war between Wall Street and Main Street’ continues. The difference now is that fifty years ago Wall Street had some interest in the welfare of ordinary Americans since they were its workforce. Not any more.
I’d be more inclined to describe it as the ‘Being There’ election.
But then every US election is a ‘Being There’ election.
Not a bad article at all, I rather liked it. A pretty good summation of the current situation. My compliments to the chef, by all means my compliments to the chef!