Did Michael Lewis get sucked in by Sam Bankman-Fried?

Intriguingly, Lewis’ book began life in the before times and arguably ends there, too. That is, he met Bankman-Fried in late 2021, at the apex of his wealth and influence, and got sucked in. “His ambition was grandiose, but he wasn’t,” Lewis writes. “I was totally sold.”

Once the indictments thundered down, Lewis scrambled to rewrite. Since his access to Bankman-Fried was already orders of magnitude greater than any other writer had, he automatically got a richer portrait.

Lewis is known for giving readers such deep, emotionally driven stories that they often end up as Hollywood films, such as Moneyball and The Blind Side. Plenty of that is on display in Going Infinite.

Brainy but detached childhood

Through Lewis’ vivid portrayal, readers get a thorough look at Bankman-Fried’s brainy but detached childhood. He had no real friends and struggles to list any for Lewis by name. By the time Bankman-Fried was eight years old, his mother said that she “had given up on the idea that his wants and needs would be anything like other children’s”. She recounts a time she took him to an amusement park. “Are you having fun, Mom?” he asked after several supposed amusements, “by which he meant, Is this really your or anyone’s idea of fun?”

Bankman-Fried’s lack of connection to his peers and unusual interests as a child were of little more than individual concern as he moved into his 20s. But then he stumbled into the world of crypto trading, in part because of his interest in utilitarianism and the movement known as effective altruism (EA). The movement posits that any person’s worth should be measured by how much net good they accomplish in their lives.

Bankman-Fried’s interpretation of this philosophy, he has said, was to maximise his earnings, so he could donate gobs of money to charitable causes that would save lives. He did this by co-founding Alameda Research, a trading firm that exploited discrepancies between the prices of crypto in different markets.

Since FTX’s implosion, it has become fashionable to dismiss EA as a pretext for the company’s alleged fraud. But Lewis persuasively portrays FTX and Alameda Research as heavily influenced by EA, especially in their earliest days.

Bankman-Fried recruited key employees from EA circles, in part because they were the closest personal connections he’d ever made, but also because they were bound to be more loyal than the average financial executive working for an obscure company that moved from Berkeley to Hong Kong to the Bahamas in a few short years.

‘More ruthless than Russian oligarchs’

If anything, Lewis paints EA as a borderline cult. And that may have been part of FTX’s problem: If your team truly believes that they’re helping the world by amassing piles of money, they may not pay much attention to how poorly the company is being run.

There was no conventional board of directors. There was no chief financial officer. Even the org chart was a well-kept secret. Lewis writes that it was handed to him “with a whisper that might accompany the transfer of a classified document”. In the early days, the funding came from EA investor loans that were charging 50 per cent interest. Lewis notes that “in their financial dealings with each other, the effective altruists were more ruthless than Russian oligarchs”.

Some might argue that a crypto exchange is inherently dodgy because cryptocurrency is largely imaginary. But even if the criminal charges had never emerged, the lack of any financial controls at FTX should have sent employees to the door. And in 2018, it did.

Alameda Research was making money by arbitrage trades on the cryptocurrency ripple. When it was discovered that $US4 million in ripple was missing, and Bankman-Fried had neither explanation nor concern, the entire management team and half the employees left. Bizarrely, they later found the missing ripple; it had been inadvertently locked up in other crypto exchanges.

Deeply enmeshed in Bankman-Fried’s corner

You can’t read Lewis’ book without thinking that, on some level, Bankman-Fried believes the “missing” $US8 billion that led to FTX’s bankruptcy will be found, too. It’s the most likely explanation for why he insisted on going to trial, rather than taking a plea (as his colleagues did), even when Lewis notes that less than half of 1 per cent of those charged with a crime by the US government last year were acquitted.

At times, Lewis seems so deeply enmeshed in Bankman-Fried’s corner that he, too, thinks the money will turn up. He spends much of the end of the book second-guessing the choices and interpretations made by John Ray, the CEO appointed to run FTX after it went bankrupt, rather than drilling down into the company’s fraud (admittedly, no easy task).

Bankman-Fried has argued, and Lewis at times echoes, that the company was never technically insolvent. That could be true, but it hardly matters now – Bankman-Fried is not on trial for going bankrupt, he’s on trial for fraud and money laundering.

A more nuanced breakdown of what went wrong – or any big-picture argument about crypto – would have bolstered Lewis’ book, which ends up focusing mostly on Bankman-Fried’s story and personality, and lacks some of the finer-grained financial analysis of his previous books, such as Liar’s Poker and The Big Short.

Readers looking for that might instead turn to Zeke Faux’s Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall. In that book, Bankman-Fried makes several dramatic appearances, including one where he all but confesses his role in the crimes with which he’s charged. It’s one of the better choices in the fertile crop of crypto books, which also includes Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud by The O.C. actor-turned-writer Ben McKenzie and journalist Jacob Silverman. Both Easy Money and Number Go Up take the opposite approach of Lewis, positioning themselves as “I told you so” narratives.

You can skip Easy Money, which is pretentious and factually sloppy, but Faux’s boisterous, masterfully written book is worth a read. An extension of a Bloomberg Businessweek cover story that he published in 2021, it focuses largely on the meteoric rise of the “stablecoin” tether, which he convincingly portrays as a licence to create digital money out of nothing, and which went on to prop up the price and infrastructure around bitcoin to this day.

Tether, which has had numerous clashes with regulators, was the brainchild of Brock Pierce (and two others), an improbable character who was a child actor in The Mighty Ducks. Faux’s cast of misfits and con artists never fails to entertain.

None of these books grapple meaningfully with the stubborn reality that cryptocurrency, for all the fraud it has engendered, is not going away. Faux argues that his Visa card makes cryptocurrency unnecessary; even if he is right, tens of millions of people across the globe own it and even more still want to. A speculative gamble, fear of inflation, dissatisfaction with government-controlled money and the fees that traditional banks attach to simple transactions (such as making cross-border payments) will continue to drive demand for crypto.

In the early days of Russia’s invasion of Ukraine, the world watched as millions of dollars in crypto-aid zapped instantly to help. The tales in these books certainly make a powerful case for desperately needed smarter regulation of crypto. But it’s a high-tech genie that won’t be forced back into its blockchain bottle.

James Ledbetter is the editor and publisher of the Substack newsletter FIN.

Washington Post