Michael Lewis on The Rise and Fall of FTX and Sam Bankman-Fried | Intelligence Squared

hello everyone Tinker Taylor Soldier sailor Rich Man Poor Man beggar man Thief I was thinking about that Nursery room today as I tried to weigh up my opinion of Sam bankman freed the man who became a crypto billionaire before his 30th birthday vowed to give it all away and is now standing trial for fraud and conspiracy in a Manhattan Court original or Reckless brilliant or just a charlatan it's possible to attach any number of conflicting adjectives to bankman Fred's and his extraordinary story and his meteoric rise and failure luckily for us we have an author on stage who's written a huge number of bestsellers on some of the biggest stories of our time and has watched the story of Sam bankman freed unfold from the inside Michael Lewis's books include Flash Boys liar poker The Big Short and Money Ball both made into successful movies and his new book is going infinite the rise and fall of a new Tycoon it is his compelling take on the story of Sam bankman freed so let's begin Michael Lewis welcome first of all I want to begin really simply by asking how you came to meet Sam bankman freed how did you get involved in all of this so a lot of my books start accidentally and this was no exception uh September of 2021 I had a call from um a friend in former book subject the main character of Flash Boys uh asking me if I would meet with this person who he was about to do a business deal with the person was Sam bankman freed I'd never heard of him he said he was about to swap shares in his company for shares in in s bankman Freed's company FTX which I had never heard of and he said um it's an it's such an odd situation for me because it's a big deal the this company FTX is the fastest growing Financial business I've ever seen um everybody in our in our Circle sort of on board but it's getting it's very hard for us to get a read on who he is um he says I I met with him I don't have a good feel nobody he's he was the richest person in the world under 30 at that point and he said I called all over Wall Street and nobody knows who he is so I said sure and Sam bankman freed happened to have grown up in the Bay area where I live and he was visiting his parents and he came over to see me um that been maybe a month later and he tumbles out of an Uber he looks like he tumbled out of a dumpster he he's wearing his shorts and his T-shirt and his and uh he's always dressed for a hike but I think I was the first one I ever took him on one and and so we went on the walk in the Berkeley Hills and after about an hour um I ceased to really think very much about my friend's interest and and started to think about my own but because he was the things that were coming out of his mouth both how fast he had made it how the world had respond I mean he was at that point he was saying $ 22.5 billion doar how the world was configuring itself around his money what he intended to do with the money um at the end of the walk I just said I I don't know where this is all going to end up but could I just watch so you were impressed I was so I there's a backstory to this I had decided some years ago and the last book I wrote the premonition was the one result of this that I was going to start books with a character that I that the character in a situation that I was going to cease to I was going to let the story take care of itself so what I thought after two hours with him is I thought I have a this is a character I don't know where it goes or what it is but it's just it was so odd it was peculiar and um the first thing I you know it was months before I called called up a a publisher and said maybe I've got a book here I I and and what I said to them I can remember what I said I don't know I still didn't know what the story was but it was there's a Sam bman freed shaped hole in the world now that I did not know exist I want to I want to use him to describe that hole and and so I thought he could take me places and in particular so from that walk the places I thought he could take me I was really interested that he was a spawn of Wall Street that he was he especially very modern wall stre high frequency trading had given him his identity I thought it's a way into that story like what is going on in markets there he could take me there he take me into American politics because he was SP he was going he he was threatening to spend a billion dollars in the next presidential election and he was already had already become B Biden's second biggest donor uh and was meddling in all kinds of interesting ways in Congressional races I thought he could take me into crypto I was crypto is on a list of things I was interested in I had not been that interested in it as people crypto people had called me over the years WR about us write about us because they were always promoting themselves he he was interesting because he was the first crypto person person in crypto I had met who didn't who didn't care all that much about crypto he was agnostic mostly they're religionists he had the view that this is could all be BS it could all fall apart H so I was thinking like where he takes me uh and now he's taking he ended up taking me a lot many further places than I imagined he was going to take me Journey may still be continuing but let's pick up on a couple of things you mentioned there so his background his parents are academics you talked about the fact that he was giving money away so it was at University that he became interested in this thing called effective altruism just tell us a little bit about this it it's a proper kind of ideology that he got you people are responsible for this comes out of Oxford right it's it's uh I mean as I understood it so he yes he had in University without he was kind of had no particular particular direction in life he he was a son child of two Stanford law professors and had kind of always assumed he would be a professor of some sort given his abilities he would have been maybe a physics or a math teacher but but uh but actually wasn't all that interested in it two things happen to him in University to give him Direction one is he collides with these high frequency traders who discover a curious aptitude in him and we can talk about what that is because it is a curious aptitude but he also he also collides with effective Alf M which is Young then it's 2012 um and the it grow this is a movement that grows out of utilitarianism the the greatest good for the greatest number but it it's and there's a philosopher Oxford named Toby Ward who gets the movement going by making the point that at very little inconvenience to himself if he directs the money he gives away really smartly effectively that he can do enormous good and he writes a paper where he shows that if he gives away half his salary over his lifetime he will spare 880,000 African children of blindness and um the movement uh actually kind of actively starts to recruit and it finds it's it finds the people most interested in the movement in kind of math and physics programs mainly at American Universities at Elite American universities and one of the movements Founders a fellow named will mgal wellknown uh gives a talk in Cambridge that Sam hears and the talk the important parts of the talk are at that point sammon knew about effective altruism and was interested in its ideas but effective altruism had spawn another idea and it was it was earned to give and this is what Sam here as will mgal basically talk about and it's it's as you 20-year-old college student who doesn't know what you want to do with your life think about what you want to do with your life um consider the cons cons consider this Choice let's make this Choice explicit uh you could go become a doctor and go work in Africa and save so many lives uh or if you have this aptitude That Wall Street craves you could go to Wall Street and you can make money enough to send 20 doctors to Africa and save 20 times as as many lives now What's Happening Here is your life choices are being turned into a math problem and Sam responded powerfully to this and it was this earn to give idea okay I'm going to go figure out how to make as much money as possible and essentially divorce it's not going to be a matter of the heart I'm not doing this because I'm feeling a certain that that this is my way of having the most impact on the world and this is the beginning of the of Sam bankman freed as a as a character in the world that that he at the virtually the same time without having I mean this is not a person who's a money person he does not grow up with like and never really become someone who has much interest in m in material things um and his parents don't either kind of lives in his head uh that that the idea that it bewildered the parents that all of a sudden the child is being recruited by Wall Street firms and that this this thing he can do and they've discovered he can do and it and it pays not just a few million dollars it might pay many many many many millions of dollars so we we'll come back to the money aspect a bit later but just talk about that aptitude so what is it about Sam bankman freed that made him so good at high frequency trading when he joined a Wall Street firm so when I went through Wall Street uh interviews back in the 1980s they were they were they were their own strange event mainly designed to sort of test your nerve I mean they do just weird things like uh um generally what they were try to is make you as uncomfortable as possible and see how you responded and um the the the interviews that identify Sam bankman fre is possibly very gifted uh in a way that The High Frequency Traders care about and these are the firms by the way these firms I mean unless you're in Wall Street or in finance you may never have heard of these places Jam Street Jam Street jump trading Tower research um uh Susana Capital uh Citadel vert these are the names of the places and this is this is a phenomenon of the last 15 years they have it they are taking the interesting risk in the markets now it's no longer Goldman Sachs and Morgan Stanley that are doing this that these firms they are the ones who are establishing market prices and and in these places sums of money are being made that dwarf the sums of money that were made in their predecessors I mean it used to be a big deal to make a million dollars in a firm there are people in these firms who make billions of dollars um so Sam and the tests they put you through and the kind of people they're looking for a little different social skills not important not at all important it's it's what's important is it's it's a mathness but it's not just a ma it's a math combined with an ability to deal with messiness so it's it's Sam bman freed good at chess good at math camp but not the very best not going to be a famous mathematician not going to be a chess champion but if instead you change chess so that every move has to be done within 10 seconds and every two minutes uh some voice shouts a rule change so Queens become pawns or pawns can fly or whatever that it is it doesn't matter creating a kind of semi chaotic environment that's the environment that at least the the the people who were recruiting for these firms think you need to be good at in order to to thrive um so and he also appears to be willing to take risks where other people might hesitate he jumps in correct but you you have to be able to make decisions where other people might be paralyzed and he would say I think this is true that the kind of problems they give you tend to paral tend to cause people just to not not make decisions and they looking for people who will make decisions and make them fairly quickly uh and so the um his willingness to make the decisions was an was an asset in this process um I mean we could run we don't want to run through any of these tests they're incredbly they're incredibly Arcane what they do to these and you look and you say like how could how do you even think about that problem if I mean one I mean for example to to reduce to a quantitative matter uh what's the likelihood that I have a relative who played professional baseball and to think through that problem in a really sophisticated way and do it quickly it's one of the tests they put him through and so and another way of thinking about what they do is um learning how to quantify things that you might think are of as qualitative matters or qualitative decisions he had the ability to do that he he off the charts ability like when he when he went through the the these um interviews they would one of the firms stop the interviews halfway through the interviews and said we don't need to do anymore you just outscored anybody this year and his problem however is that these tests and the problem these firms have I think these tests do not filter for any kind of social ability uh and this is a person who to describe to describe him as isolated doesn't fully capture the the nature of the person um this is a person who you know from a very early age so when I ask him I mean which you I would do would would do with any subject give me a list of people uh from the who knew you before the age of 18 so I can just get a sense of what your child who was like he couldn't name a person he his parents his brother was off the list because his brother he didn't have anything to do with his brother and that I had to kind of dig and dig and dig to find people who had interaction with him before the age of 18 he felt he felt um uh first no real feeling for people like in the presence of people he didn't feel love he didn't feel he said I didn't feel Pride I didn't feel any of the things people normally feel he said the thing I most weirdly couldn't do is I couldn't make facial expressions so when people were interacting with me I wasn't giving they they didn't know how to respond to me so they just thought I was this weird thing so he I don't go ahead you I was just say he does at one time though talks about talk about being depressed and I wonder if that reflects the fact that he does feel emotion but just perhaps not in the way that you or I might I'm sure feels something he thinks but he his self-identity was I don't understand other I don't understand these feelings I don't I don't have these feelings and he um and he was ostracized all the way through childhood less so at MIT because MIT tends to collect these people who were ostracized by everybody else when they're in high school but he was some recognition there so I mean but you know he was the kind of person who even the Nerds rejected cuz he was such a nerd right there was no spot for this in in even in even in a private Silicon Valley High School where his classmate is Steve Jobs son that you would think that would they'd be plenty of people who we could not relate to who could not relate to him and they would Bond over that but but it that's not what happen Wonder though if it develops later on just jumping forward for a moment into a kind of arrogance because he tells you at one point that he doesn't struggle to read other problem other people his problem is that people can't read him and I there's a little bit of me that thinks H come on come on he was pretty good at reading other people people I you know I think he was surpr this is the this is the part that doesn't fit the overall picture that his astuteness about other people um not always but better than you would have imagined given how and the point about other people reading him is if he's not giving anything it's hard right he when he is in college when he starts to develop ambition to go to work on Wall Street and he realizes that there's there's been no social filter but eventually there's going to be problems because he can't do the social thing he gets a mirror and he starts practicing like how to smile and he's resentful about it why do I need to grin when you say something that's amusing isn't it enough that I just listen but he forces himself to learn these things um so you say arrogance I agree it's and it's the arrogance of a boy who sits in a room thinking about the world and watching the world for 18 years and trying to position his himself in a way that is not completely defeating um in relation to that world and he had a hollow sense of his own superiority without anything really up to the point he hits Wall Street with any kind of evidence to suggest he is Superior in any way he was he was never thought extremely special until he hits Wall Street so he's successful at Jane Street uh successful Trader but then sees a gap in the market and decides to leave and create his own firm alamer research can we do one thing before we move on from Wall Street I don't interrupt your interview no but this is something no this never will get mentioned in the in the in the processes what they did in this firm is two chapters of the book are just about this and it's riveting what's going on in this place and I'm going to give one example Sam bankman freed and his a few colleagues before the presidential election 2016 it's crazy stuff right but this will give you a wet your appetite although you're all getting the bughin way so I don't really need to do that but but but the so so before the Clinton Trump ra campaign or race during the race before the election um they all everybody notices like everybody in the financial markets notices that whenever there's good news for Trump the stock markets collapse and whenever there's good news for Clinton the stock markets go up and they think to themselves I we wonder if we can get information real-time information on Election night before anybody else in the world and trade on it because it's obviously going to move markets around and this is audacious this is what these this is if you ask what Sam bankr free and these firms are doing what they're generally they are they're they're looking for they're looking to to get information no one else has before anybody has it and put it in the markets but on the level of the second or the millisecond and so they build an they they build a data collection uh um machine where Traders are assigned to states in the United States to find better faster ways to get the information from the polls and you would think well how could that how could they do that but the way up to that point Americans are getting the results of their election is on the ca is on cable news and the cable it goes to commercials the guy has to walk across a set to his map there there all these human things that are slowing down the information arriving in the minds of Wall Street people and they indeed build this thing that enables them to have sometimes minutes sometimes ours advantages on the market about what's happening in this election and it's Sam is right in the middle of this this is a sort of thing that completely captivates him um they make a bet the bet is that if as they see the Trump is going to win that US Stock markets are going to collapse they bet the foreign stock markets are going to collapse too but they make their big bet in the US Stock markets that's what they do in the first four or five hours after five hours after the election they have the most profitable trade in the history of Jane Street they've made several hundred million dollars in a matter of hours Sam goes to bed for a few hours and comes back and it's the worst trade in the history of Jane Street because Market have rallied the US markets have rallied on the news of trump and they've lost all this money this is this is re this this what happens next tells you something about Sam bankman freed he's lost he's just orchestrated the worst trade in the history of this firm The Firm the way they think about things they don't blame him the process was fine everybody approved of it they don't look to scapegoat him they just say like we won't do this again one of the reasons Sam bankman Freeds leaves Jan street is he's upset they won't do this again he says the problem wasn't that we shouldn't have done this it's just we should have thought about it a little better how we traded it we should keep doing this and he found there a lack of ambition frustrating so that's it's an amazing thing so then he finds crypto Al made a research I'm going to spool forward a little bit he gets funding from effective altruists uh partly to help Alam research do its work is that right y yep um but there is at some point a Schism right well this is a foreshadowing of what what is going to happen four billion dollar goes missing and a whole bunch of people four million four million four million in a pile four million I apologize $4 million goes missing uh and a bunch of people choose to leave should alarm Bells have rung in many people's minds at that moment about s bankman freed and they did so what happens is he's going to do he's going to be the first highfrequency Trader into crypto basically is the is the idea um he moves to California at the end of 2017 and for for various reasons reasons only recruits other effective altruists to work in this hedge fund none of are very only a couple of whom had any real Financial experience so they're 20 or so of them and within months the firm is is in a civil war because half the firms think Sam is either a crook or so catastrophically SL sloppy that he might as well be a crook and they're missing they're they're they're missing money like literally don't know where it is and money that has come to them from effective altruist so they're thinking this money could have gone to save lives in Africa instead it's it's gone to fuel Sam Beckman Freed's mad trading and now we don't know what it is and Sam doesn't care to go find it he wants to just keep trading because he thinks it'll turn up anyway so it did set off alarm Bill Bells uh in in the effective altruist Community because they were the only ones privy to what was going on half the people quit the firm including the entire management committee apart from Sam and um and they find the money so that so then it gets very complicated because they've accused him of stealing the money they've accused him of losing the money and that uhoh actually the money's there and actually these things he wants to do make sense and it and he starts to make a lot of money and I caught the effective altruists who had left and had accused him of wrongdoing in the moment uh when things were going great for Sam bankman freed and all but one of them were sheepish and apologetic like we should never have left we should have trusted him uh but they they they were all having second thoughts about the Schism but the Schism actually is a foreshadowing of what's going to happen because the carelessness was breathtaking and the the willingness to take risk was breathtaking and also the willingness to do things without consulting anybody like they got to a point in this firm where it was so scary that all this money was missing they made his fellow managers would make Sam promise you can't hit the button and send your Bots out there to make 250,000 trades a day unless we're here with you to watch and he goes yeah okay and then they go home for the night he hits the button and falls asleep and and that that was a kind of common occurrence so it was a obvious recklessness that um that gets buried it gets buried all the people who were suspicious of him but one there was an exception in management ranks um and end up like rethinking their suspicions and thinking oh no he was actually very special and we should have appreciated how special he was and the people that remain to some extent are True Believers two of them well this shapes The Firm right so you've got two of them who are in court uh this week Gary Wang the coda and Caroline Ellison I mean just two of the characters that appear in the book that are still part of the story how much do you think Sam bankman freed was able to to behave in the way that he did to go on to create um FTX which appeared to be a company without any controls without any of the the normal structures you'd expect in a company of that size can we talk a little bit about that about the about just how peculiar this was I mean it's extraordinary yes please do let me let me give one example and then I'll as to illustrate the just the general chaos so does anybody have the book on them right now if if if you open the book and um will you if you could you hand us the cover just the jacket cover and can you mind if I no not okay so so let me do I can get up and do this I probably the the this is uh breaking protocol with the intelligence Square it's stand actually standing up so but I'm going to show you oh I want to show you something because this this really does kind of dramatize it so when the whole thing falls apart um there so when Sam B he he refused to he had a principled objection to job titles and organization charts and even having a list of the employees who worked in The Firm or anybody knowing the list of employees who worked in the firm and he saw the organization chart people see where they are and it it distorts their behavior towards each other they had a long this is all in the story a long explanation fire they wouldn't he wouldn't do conventional organization of course people need organ organization and especially half his firm is Chinese and they don't they just go insane without an organization chart like it's the most important thing in a Chinese firm and and so Sam know and Sam would subcontract all the dealing with the other people's emotions and unhappiness to other people in The Firm one of the people to whom he subcontracts a large part of this mess is his own psychiatrist who he has flown from San Francisco who has gone from San Francisco where he was psychiatrist to effective altruist that was his business basically so he's got a wonderful view on the whole effective altruist thing comes to the Bahamas where he within moments has a 100 FTX employees on his couch coming through to talk about their personal problems and the personal problems are because all they do is work are all job problems and the job problems are mostly like I don't know where I am in this organization I Hate My Boss but I don't know who my boss is it's it's that kind of stuff and and so the psychiatrist the psychiatrist in order to treat these people starts to in therapy asks them who's above them who's below them who do they report to who do they talk to and he creates an organization chart but tells zero people except me he doesn't Sam bman freed does is in jail so he does not know this exists he'd be outraged to know this exists but the prosecutors don't know this exists the bankruptcy people have said over and over we don't know who even work for this firm well here they are every single name every single name and it's beautifully done like like U so I don't need to screw up your book cover we'll get it back but we'll sign your book twice but the but you look at it and it's like it's like one of those uh family trees in a toll story novel that that you this will this will help you understand everything you read and there are things on that they're just beautiful I mean someone who's actually a business consultant would take this and say wait 24 people are reporting to Sam how does that work and none of and he won't talk to any of them but but but Gary Wang who doesn't speak except when he's on a witness stand Gary Wang who is the who is the CTO who cooks up this business with Sam who is meant to Chief technology officer in a basically technology firm he has no one underneath him and that's because that's because the therapist in the therapist didn't know business but he knew that Gary didn't talk to anybody so there must be no one underneath it anyway anyway here we we'll get we'll get you let's give this back to you now there we go but that's an example just a little example of how this place functioned and it was so wonderful for a writer's point of view I wouldn't invest in it but from a writer's point of view it was just delightful because you never seen anything like it

Channel: Intelligence Squared

Views: 48,896

Keywords: intelligence squared, debate, intelligence squared debate, top debates, best debates, most interesting debates, intelligence2, intelligencesquared, iq2, iq2 debate, iq squared, Intelligence Squared +, IntelligenceSquared, Intelligence squared plus, IntelligenceSquaredPlus, IntelligenceSquared+, intelligencesquaredplus, intelligencesquared+, the fall of ftx, crypto, cyrpto currency, sam bankman fried, the rise and fall of sam bankman fried and ftx, ftx crypto currency, debate competition

Id: O3BVIwIKW74

Length: 28min 44sec (1724 seconds)

Published: Sat Oct 14 2023