The Tragedy of SBF
So, Sam Bankman-Fried has been found guilty on all counts, after the jury deliberated for just a few hours. His former inner circle all pointed fingers at him, in exchange for immunity or reduced sentences, and their testimony doomed him. The most dramatic was the testimony of Caroline Ellison, the CEO of Alameda Research (to which FTX gave customer deposits) and SBF’s sometime-girlfriend. The testimony of Adam Yedidia, my former MIT student, who Shtetl-Optimized readers might remember for our paper proving the value of the 8000th Busy Beaver number independent of the axioms of set theory, also played a significant role. (According to news reports, Adam testified about confronting SBF during a tennis match over $8 billion in missing customer deposits.)
Just before the trial, I read Michael Lewis’s much-discussed book about what happened, Going Infinite. In the press, Lewis has generally been savaged for getting too close to SBF and for painting too sympathetic a portrait of him. The central problem, many reviewers explained, is that Lewis started working on the book six months before the collapse of FTX—when it still seemed to nearly everyone, including Lewis, that SBF was a hero rather than villain. Thus, Going Infinite reads like tale of triumph that unexpectedly veers at the end into tragedy, rather than the book Lewis obviously should’ve written, a tragedy from the start.
Me? I thought Going Infinite was great. And it was great partly because of, rather than in spite of, Lewis not knowing how the story would turn out when he entered it. The resulting document makes a compelling case for the radical contingency and uncertainty of the world—appropriate given that the subject, SBF, differed from those around him in large part by seeing everything probabilistically all the time (infamously, including ethics).
In other contexts, serious commentators love to warn against writing “Whig history,” the kind where knowledge of the outcome colors the whole. With the SBF saga, though, there seems to be a selective amnesia, where all the respectable people now always knew that FTX—and indeed, cryptocurrency, utilitarianism, and Effective Altruism in their entirety—were all giant scams from the beginning. Even if they took no actions based on that knowledge. Even if the top crypto traders and investors, who could’ve rescued or made fortunes by figuring out that FTX was on the verge of collapse, didn’t. Even if, when people were rightly suspicious about FTX, it still mostly wasn’t for the right reasons.
Going Infinite takes the radical view that, what insiders and financial experts didn’t know at the time, the narrative mostly shouldn’t know either. It should show things the way they seemed then, so that readers can honestly ponder the question: faced with this evidence, when would I have figured it out?
Even if Michael Lewis is by far the most sympathetic person to have written about SBF post-collapse, he still doesn’t defend him, not really. He paints a picture of someone who could totally, absolutely have committed the crimes for which he’s now been duly convicted. But—and this was the central revelation for me—Lewis also makes it clear that SBF didn’t have to.
With only “minor” changes, that is, SBF could still be running a multibillion-dollar cryptocurrency empire to this day, without lying, stealing, or fraud, and without the whole thing being especially vulnerable to collapse. He could have donated his billions to pandemic prevention and AI risk and stopping Trump. He conceivably even could’ve done more good, in one or more of those ways, than anyone else in the world was doing. He didn’t, but he came “close.” The tragedy is all the greater, some people might even say that SBF’s culpability (or the rage we should feel at him, or at fate) is all the greater, because of how close he came.
I’m not a believer in historical determinism. I’ve argued before on this blog that if Yitzhak Rabin hadn’t been killed—if he’d walked down the staircase a little differently, if he’d survived the gunshot—there would likely now be peace between Israel and Palestine. For that matter: if Hitler hadn’t been born, if he’d been accepted to art school, if he’d been shot while running between trenches in WWI, there would probably have been no WWII, and with near-certainty no Holocaust. Likewise, if not for certain contingent political developments of the 1970s (especially, the turn away from nuclear power), the world wouldn’t now face the climate crisis.
Maybe there’s an arc of the universe that bends toward horribleness. Or maybe someone has to occupy the freakishly horrible branches of the wavefunction, and that someone happens to be you and me. Or maybe the freakishly improbable good (for example, the availability of Winston Churchill and Alan Turing to win WWII) actually balances out the freakishly improbable bad in the celestial accounting, if only we could examine the books. Whatever the case, again and again civilization’s worst catastrophes were at least proximately caused by seemingly minor events that could have turned out differently.
But what’s the argument that FTX, Alameda, and SBF’s planet-sized philanthropic mission “could have” succeeded? It rests on three planks:
First, FTX was actually a profitable business till the end. It brought in hundreds of millions per year—meaning fees, not speculative investments—and could’ve continued doing so more-or-less indefinitely. That’s why even FTX’s executives were shocked when FTX became unable to honor customer withdrawals: FTX made plenty of money, so where the hell did it all go?
Second: we now have the answer to that mystery. John Ray, the grizzled CEO who managed FTX’s bankruptcy, has successfully recovered more than 90% of the customer funds that went missing in 2022! The recovery was complicated, enormously, by Ray’s refusal to accept help from former FTX executives, but ultimately the money was still there, stashed under the virtual equivalent of random sofa cushions.
Yes, the funds had been illegally stolen from FTX customer deposits—according to trial testimony, at SBF’s personal direction. Yes, the funds had then been invested in thousands of places—incredibly, with no one person or spreadsheet or anything really keeping track. Yes, in the crucial week, FTX was unable to locate the funds in time to cover customer withdrawals. But holy crap, the rockets’ red glare, the bombs bursting in air—the money was still there! Which means: if FTX had just had better accounting (!), the entire collapse might not have happened. This is a crucial part of the story that’s gotten lost, which is why I’m calling so much attention to it now. It’s a part that I imagine should be taught in accounting courses from now till the end of time. (“This double-entry bookkeeping might seem unsexy, but someday it could mean the difference between you remaining the most sought-after wunderkind-philanthropist in the world, and you spending the rest of your life in prison…”)
Third, SBF really was a committed utilitarian, as he apparently remains today. As a small example, he became a vegan after my former student Adam Yedidia argued him into it, even though giving up chicken was extremely hard for him. None of it was an act. It was not a cynical front for crime, or for the desire to live in luxury (something SBF really, truly seems not to have cared about, although he indulged those around him who did). When I blogged about SBF last fall, I mused that I’d wished I’d met him back when he was an undergrad at MIT and I was a professor there, so that I could’ve tried to convince him to be more risk-averse: for example, to treat utility as logarithmic rather than linear in money. To my surprise, I got bitterly attacked for writing that: supposedly, by blaming a “merely technical” failure, I was excusing SBF’s far more important moral failure.
But reading Lewis confirmed for me that it really was all part of the same package. (See also here for Sarah Constantin’s careful explanation of SBF’s failure to understand the rationale for the Kelly betting criterion, and how many of his later errors were downstream of that.) Not once but over and over, SBF considers hypotheticals of the form “if this coin lands heads then the earth gets multiplied by three, while if it lands tails then the earth gets destroyed”—and always, every time, he chooses to flip the coin. SBF was so committed to double-or-nothing that he’d take what he saw as a positive-expected-utility gamble even when his customers’ savings were on the line, even when all the future good he could do for the planet as well as the reputation of Effective Altruism were on the line, even when his own life and freedom were on the line.
On the one hand, you have to give that level of devotion to a principle its grudging due. On the other hand, if “the Gambler’s Ruin fallacy is not a fallacy” is so central to someone’s worldview, then how shocked should we be when he ends up … well, in Gambler’s Ruin?
The relevance is that, if SBF’s success and downfall alike came from truly believing what he said, then I’m plausibly correct that this whole story would’ve played out differently, had he believed something slightly different. And given the role of serendipitous conversations in SBF’s life (e.g., one meeting with William MacAskill making him an Effective Altruist, one conversation with Adam Yedidia making him a vegan), I find it plausible that a single conversation might’ve set him on the path to a less brittle, more fault-tolerant utilitarianism.
Going Infinite shows signs of being finished in a hurry, in time for the trial. Sometimes big parts of the story seem skipped over without comment; we land without warning in a later part and have to reorient ourselves. There’s almost nothing about the apparent rampant stimulant use at FTX and the role it might have played, nor does Lewis ever directly address the truth or falsehood of the central criminal charge against SBF (namely, that he ordered his subordinates to move customer deposits from FTX’s control to Alameda’s). Rather, the book has the feeling of a series of magazine articles, as Lewis alights on one interesting topic after the next: the betting games that Jane Street uses to pick interns (SBF discovered that he excelled at those games, unfortunately for him and for the world). The design process (such as it was) for FTX’s never-built Bahamian headquarters. The musings of FTX’s in-house psychotherapist, George Lerner. The constant struggles of SBF’s personal scheduler to locate SBF, get his attention, and predict where he might go next.
When it comes to explaining cryptocurrency, Lewis amusingly punts entirely, commenting that the reader has surely already read countless “blockchain 101” explainers that seemed to make sense at the time but didn’t really stick, and that in any case, SBF himself (by his own admission) barely understood crypto even as he started trading it by the billions.
Anyway, what vignettes we do get are so vividly written that they’ll clearly be a central part of the documentary record of this episode—as anyone who’d read any of Lewis’s previous books could’ve predicted.
And for anyone who accuses me or Lewis of excusing SBF: while I can’t speak for Lewis, I don’t even excuse myself. For the past 15 years, I should have paid more attention to cryptocurrency, to the incredible ease (in hindsight!) with which almost anyone could’ve ridden this speculative bubble in order to direct billions of dollars toward the salvation of the human race. If I wasn’t going to try it myself, then at least I should’ve paid attention to who else in my wide social circle was trying it. Who knows, maybe I could’ve discovered something about the extreme financial, moral, and legal risks those people were taking on, and then I could’ve screamed at them to turn the ship and avoid those risks. Instead, I spent the time proving quantum complexity theorems, and raising my kids, and teaching courses, and arguing with commenters on this blog. I was too selfish to enter the world of crypto billionaires.