FTX

[Willie Whittaker is a Putin Cock Sucker]

This past week, crypto exchange FTX filed for bankruptcy protection in a

Delaware court. In 2008, investment bank Lehman filed for bankruptcy.

How do we compare these two seminal financial events? Can we even?

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FTX,
the second-largest crypto exchange, is likewise the icon of our age;
young men in shorts talking up complicated things people barely
understood – things that had to do with the impervious world of matters
digital and cryptocurrency. They danced, they sang, they drank, they
drove fast cars, they dated each other. In the Bahamas! And then they
went home with nothing.

The end of FTX constitutes its own full stop to its own verbose sentence.

And, like Lehman, there were some
good intentions – and lots of good intentions gone very wrong. Lehman’s
problem was that it was selling complex financial instruments backed by
home loans, and when the home loan market fizzled, the underpin
disappeared. And when the underpin disappeared, the edifice collapsed
with a speed and intensity that was bewildering.

In FTX’s case, the collapse was
equally fast and intense. And there was a more obvious dubious backing –
cryptocurrency. But here we get into some big differences, because in
FTX’s case, it is now emerging, the dubiosity index goes into full-on
overdrive.

Just to explain: before a company
goes bankrupt, it will normally rush off to anyone who has large amounts
of cash, mostly banks, and beg for a bailout. The banks will usually
say, sure, we will think about it, but send us your detailed balance
sheet. This, FTX did.

I just wish I could have been in the
room when some of those brainiac bankers took a look at this spreadsheet
– yes, it was in fact just a spreadsheet. The howls of disbelief and
horror and sheer incredulity that must have gone down would have been
something to hear.

We know all this because, would you believe it, the Financial Times’
site FT Alphaville has published the spreadsheet.

It includes references to $5-billion
in withdrawals “last Sunday”, and a negative $8-billion entry described
as a “hidden, poorly internally labelled ‘fiat@’ account”. I am not
making this up. What is a “hidden, poorly internally labelled ‘fiat@’
account”? Is this a specialist accounting term? Not so much.

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The story the FT published based on
the “balance sheet” was that FTX CEO Sam Bankman-Fried’s main
international FTX exchange held just $900-million in easily sellable
assets against $9-billion of liabilities the day before it collapsed
into bankruptcy.

In these situations, the go-to person to read is, of course, Matt Levine
from Bloomberg Opinion.

Forgive the lengthy quote, but it’s just too funny:

“If you
try to calculate the equity of a balance sheet with an entry for HIDDEN
POORLY INTERNALLY LABELLED ACCOUNT, Microsoft Clippy will appear before
you in the flesh, bloodshot and staggering, with a knife in his little
paper-clip hand, saying, ‘just what do you think you’re doing, Dave?’
You cannot apply ordinary arithmetic to numbers in a cell labelled
‘HIDDEN POORLY INTERNALLY LABELLED ACCOUNT’. The result of adding or
subtracting those numbers with ordinary numbers is not a number; it is
prison.”

And there is another thing: The
balance sheet contained a reference to $2.2-billion in now almost
worthless Serum token. What was this about?

Well, Levine again. “One thing that
is really really really really really important to mention about the
Serum protocol is that it was created and promoted by FTX and Alameda
Research, the FTX-affiliated crypto hedge fund that was also founded by
Bankman-Fried.

“What Bankman-Fried apparently did
was to create a token, issue lots to itself, and sell a little into the
public market. The effect is that it then has a small obligation and a
huge asset because it owns lots of crypto that has a theoretically large
value denoted by the small quantity in the public market.

“Something like 3% of the total value
of Serum is held by the public and trading on exchange
is not. Something like two-thirds of that 97% is held by FTX and
Alameda.”

If you ever try to borrow a lot of
money from a bank and post that bank’s stock as collateral, bankers will
look at you as if you are insane, and they will say “no” very loudly.
The reason is that the health of the loan is then tied up with the
investment bank’s financial health. If the value of the bank goes down,
then collateral will be worth less, and the bank’s stock will go further
down in a never-ending death spiral.

Essentially, this is what FTX was
doing, but in this case it was the bank, the investor and the issuer of
the currency! It’s all beyond madness, which is in itself an appropriate
exclamation point to our current mad, global interlude.

Behind this madness lies an
inconvenient truth: we were living in the age of easy money. And that
age is gone. It fuelled investment in crazy notions and mad adventures.
And we are destined to be sadder and wiser when we rise on the morrow
morn.

Until the next crazy adventure. BM/DM

Crypto

FTX

Lehman

Sam Bankman-Fried

Tim Cohen