Dreading the infinite
Every time I picked up Going Infinite, Michael Lewis’ book about crypto grifter Sam Bankman-Fried, I found a reason to put it back down.
For me Michael Lewis is an icon. I never would have found my way to FiveThirtyEight or consulted for an NFL team — two highlights of my working life — if not for Lewis’ storytelling.
Lewis turned me on to evidence-based decision making at a pivotal moment in my life. His worked spurred the analytics revolution in sports. My friends at Wharton have a radio show named after his book. It’s a long shadow.
I also have a bit of personal history with Sam Bankman-Fried, and my distaste for all things crypto is not something I have ever tried to hide.
So the prospect of a personal hero writing a book that many said was excusing the actions of this run-of-the-mill charlatan — well it filled me with dread.
After finishing Going Infinite, I can report that the book is not an apologia for FTX or SBF, at least not in a strict sense. That was a relief. SBF comes off as a liar and a fraudster who is completely capable of doing all the crimes for which he is accused.
Instead the book is notable mainly for what it doesn’t say about SBF, and what that in turn reveals about Lewis. Most disappointing to me is that Lewis doesn’t come out and call balls and strikes on the fraud and theft that occurred. Incredibly, given his subject matter (crypto! SBF!), the word fraud is used just three times in the entire text.1
It made me think I was missing something important. So after finishing the book I went and read every interview Lewis gave during the run-up to the book’s publication, watched every interview I could find, and listened to his podcasts. It became abundantly clear to me that Lewis was fooled. Badly fooled.
In a remarkable Time interview where Lewis expressed astonishment at how fraud works, he also said he believes that Bankman-Fried isn’t a liar but is instead a "serial withholder."
This overlaps with SBF’s portrayal In the book. Lewis paints a picture of SBF as a person who will evade or obfuscate, but not lie.
The thing is, we know this isn't a true picture of SBF. It only takes one instance of lying when asked a direct question to disprove Lewis’ impression of SBF, and the evidence of SBF being a serial liar is overwhelming. Here are just a few examples:
When asked by Bloomburg directly about the relationship between Alameda and FTX, SBF said "Alameda is a wholly separate entity." The truth is, of course, that both companies were deeply intertwined; that Alameda could make trades in God Mode and go negative without being liquidated; and that Alameda could trade faster than other exchange participants.
From the very beginning there was fraud. A conference flier for Alameda in 2018 promised "high returns with no risk." You can’t hide behind incompetence here. These were Jane Street traders.
SBF admitted that he lied about — “fronted” — a lot of the ethics stuff.
Incredibly, Lewis says he was present as SBF was pounding out these messages to Vox reporter Kelsey Piper. His response when asked what to make of SBF admitting his altruistic pose was a ruse: “He was zonked out.”
Lewis finally updates
I wrote all the above last week, and wasn’t sure what to do with this post. It’s just so damn depressing. However, I am happy to report Lewis is finally updating.
In a pod released today, when the other co-hosts of Judging SBF asked Lewis what surprised him about the SBF trial thus far, he had this to say:
It tilted my calculation just a bit, that it's really not likely that he didn't know anything. And the shocker was the willful not wanting to be at the meetings, that kind of stuff.
This is progress, and cause for celebration. Everyone deserves to have room to change their mind.
But Lewis also asks this, which confused me:
I have all kinds of questions…So this thing blows up in May or June. The crypto markets collapse and the people who are lending this crypto demand their 8 billion dollars back, and Sam makes the decision to give it to them, and it is in fact customer money. Why didn't he just let it go? Like it’s a crazy decision. It doesn't matter to the lawsuit but I would like to poke and prod him on that. That is the active decision. There is a moment where he could have just said we're stiffing these lenders and Alameda is bankrupt but FTX is fine.
Lewis’ hypothesis is that SBF's identity is wrapped up in Alameda somehow, and that explains why SBF wouldn’t let it go bankrupt when the loans were called. Lewis also thinks this explains why SBF didn’t take a plea deal before the trial. His ego won’t allow him to admit he’s bad at the one thing the world told him he’s a genius at.
I don't think this reflects a great understanding of the situation SBF and Caroline found themselves in when the Alameda loans were called, or of SBF as a person.
Those lenders held FTT as collateral. If Alameda refused to pay, the lenders would sell FTT into a highly illiquid market. The price of FTT would crash, likely causing the run on FTX deposits that we ultimately saw occur in November.
SBF’s only defense against a crash would be for Alameda to buy the FTT tokens to prop up the price — something they tried to do in November. And to purchase them they'd have to use the same customer funds — with the added cost of a very public bankruptcy.
Conditional on being ready and willing to do a fraud, the decision to pay off the loans was the better choice, and it seems to me exactly the kind of calculation SBF would make. And as we know, SBF had been doing fraud for a very long time.
The “active decision” wasn't to prop up Alameda with customer funds. It was to take out loans on illiquid FTT in order to invest in more illiquid, highly correlated assets. The second number stops going up, everything explodes.
It’s the move of someone with a self-proclaimed nearly linear utility function. It’s a Sam move.
It's also strange to me that Lewis spent so much time with SBF and still fails to see how someone who has SBF’s personality traits would choose to fight it out until the bitter end.
In the book Lewis writes that SBF believes a productive life basically ends at 40. SBF is 31. There's no world in which he gets less than 9 years in jail with a plea agreement, so the only choice is to let the trial play out and try and shoot the moon. And if that goes badly, you appeal. Another moon shot.
The utility of a not-guilty verdict approaches infinity for SBF. A big number times a small probability of success is still a big number in an expected value calculation. And again, SBF is famous for saying he would bite the bullet in the St. Petersburg paradox.
SBF is going infinite right on cue and Lewis seems to be missing it.
Coda: Going Infinite isn’t about SBF
Going Infinite was an interesting read, but not for the obvious reasons. It’s not about SBF or Alameda or FTX, not really. It’s a book about Michael Lewis. It’s about following along as one of the great storytellers of our time is completely fooled by a grifter. But the story is still incomplete. There is a third act redemption arc in here somewhere. I’m sure of it.
It’s a Michael Lewis story I desperately want to read.
Update: Fixed some typos and a spot where I weirdly swapped debtors and lenders.
Update 2: SBF will testify tomorrow, according to Molly White.
Buy Low Week 8
Sam Darnold is starting in SF. Buyer beware.
I’m all-in on Calvin Ridley this week. Join me and go for it! What could possibly go wrong?
Once in Chapter 5, paraphrasing what the former management group of effective altruists at Alameda said to SBF when he suggested that Alameda lie to their investors and fudge the books to show that 80 percent of the 4 million in lost crypto currency was still held by the firm even though they had no idea where it was.
Once in Chapter 9, explaining that Bahamian authorities had no evidence to charge anyone at FTX of a crime. “They had no evidence to charge anyone with a crime: in the Bahamas, fraud required intent, and the intent here was unclear.”
And Once in Chapter 11, where he relays SBF’s state of mind while on house arrest. “Sam was hell-bent on going to trial—insisted that he was innocent of fraudulent intent.”
You just summarized my reaction to the book as well
VERY cool. Thank you for sharing that story