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FTX tapped into customer accounts to fund risky bets, setting up its downfall

wsj.com

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Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#21

Post by danans »

somuchfordonor wrote: post #10

> Alameda’s CEO is Caroline Ellison, a Stanford University graduate who like Mr. Bankman-Fried previously worked for quantitative trading firm Jane Street Capital. Alameda is based in Hong Kong, where FTX was headquartered before relocating to the Bahamas last year. Are the folks at Jane Street making money because they are smart, or because they use that perception to perpetuate some scam? I interact with a lot of H…

> The simple answer seems, because if you believe it to be real, you can be this specific kind of Harvard + New York + "X" kid - and seriously, they are all cut from the same jib, superficially and inside their character, it tarnishes the institution - and you can do this scam and pocket your change and eat dim sum with 20 people on the weekends and have a skinny girlfriend and buy a condo. You can do something pretty meaningless with your life in exchange for the burn out.

> This scam life lets 20 year olds not hear from their horrible parents that burned them out and gave them no meaning. Eventually they turn 30 and hope that a decade went by without a crash, and then life decides for them to sell before the ponzi collapses. Like you have a baby with your skinny girlfriend and you buy the condo and great, you sell, and it happens to be well timed!

This is great screenplay material, like a "Millenial Fight-Club on Wall-Street". You should keep writing!

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#22

Post by naraga »

bin_bash wrote: post #9

This is one of the reasons downturns in markets are good. If the market would've just kept growing then SBF likely could've kept his ponzi scheme afloat without anyone noticing. The 2008 recession is what really stopped Bernie Madoff.

Sure, yet, these people will mostly manage to escape. Have no doubt they all have few mils on side and they are ready to lie to themselves all sort of excuses to make them feel better spending them. Sam apparently "miss-labeled" some accounts all in pursuit to give more to charity i am pretty sure.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#25

Post by [deleted] »

guardiangod wrote: post #15
bin_bash wrote: post #9

This is one of the reasons downturns in markets are good. If the market would've just kept growing then SBF likely could've kept his ponzi scheme afloat without anyone noticing. The 2008 recession is what really stopped Bernie Madoff.

>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.

[deleted]

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#26

Post by LeifCarrotson »

somuchfordonor wrote: post #10

> Alameda’s CEO is Caroline Ellison, a Stanford University graduate who like Mr. Bankman-Fried previously worked for quantitative trading firm Jane Street Capital. Alameda is based in Hong Kong, where FTX was headquartered before relocating to the Bahamas last year. Are the folks at Jane Street making money because they are smart, or because they use that perception to perpetuate some scam? I interact with a lot of H…

Income is a combination of two main factors:

1. The value you add to the economic 'stream' flowing around you

2. The amount you're able to divert out of that and into your own control

These are influenced by a number of secondary factors:

1. Starting capital to buy tools and resources to increase your ability to contribute

2. The ability to help others increase their contributions, or less charitably, the ability to take credit for the contributions of others

3. A willingness or unwillingness to pillage the commons

A humble farmer can work some acres of land, use his mind to know what best to grow, use his hands to make it happen, trust the sun and rain to grow the crops, and sell the harvest for a value greater than the cost to lease the land and buy the seed. With a million-dollar combine, cultivators, spreaders, center-pivot irrigation systems, an all the other features of modern agriculture, he can reap a much greater - more valuable - harvest.

But when a dealership has negotiated exclusive rights over a region, and the salesmen take a non-negotiable commission of sales, does the salesman who connects the farmer to the combine he knows he needs deserve thousands of dollars for closing that sale, just because he's situated himself between the farmer and the manufacturer?

When Wall Street or Jane Street sees that our massive farm industry needs massive numbers of combines - it's a $500B industry - and they're able to siphon off a percent of that industry's output for "providing liquidity" just because their Daddy knows some people, while the farmer's Daddy worked 18-hour-days every harvest season until he died, and the former is a multimillionaire by age 30 while the latter might make $200k during 4 of 5 seasons and lose $300k in a bad year...it just doesn't feel right.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#27

Post by JumpCrisscross »

jo6gwb wrote: post #5

For all those who want to draw parallels to the banking industry, Reg O delineates rules for lending to insiders. https://www.federalreserve.gov/supervisionreg/legalinterpret...

> Reg O delineates rules for lending to insiders

Also, in case this isn't painfully obvious, broker's can't make prop bets using client assets. And exchanges can't make prop bets using their flows.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#28

Post by NovemberWhiskey »

guardiangod wrote: post #15
bin_bash wrote: post #9

This is one of the reasons downturns in markets are good. If the market would've just kept growing then SBF likely could've kept his ponzi scheme afloat without anyone noticing. The 2008 recession is what really stopped Bernie Madoff.

>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.

>"not firewalling your customer's money and your investment money" that everyone suffered from in 2008

... cite for this, please. I don't recall there being any significant client money problems in that period.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#29

Post by shmatt »

guardiangod wrote: post #15
bin_bash wrote: post #9

This is one of the reasons downturns in markets are good. If the market would've just kept growing then SBF likely could've kept his ponzi scheme afloat without anyone noticing. The 2008 recession is what really stopped Bernie Madoff.

>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.

>The first $10,000 USD value in your deposit wallets will earn 8% APY

(This is what FTX was offering customers)

And now we know the accounts weren't actually covered by real money (or "value" as they called it). So when person X was asking FTX for their money back, FTX would send person X+1's money to cover

Sounds like a Ponzi to me

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#30

Post by jrm4 »

guardiangod wrote: post #15
bin_bash wrote: post #9

This is one of the reasons downturns in markets are good. If the market would've just kept growing then SBF likely could've kept his ponzi scheme afloat without anyone noticing. The 2008 recession is what really stopped Bernie Madoff.

>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.

What makes it not a ponzi? Is the idea that "the possibility that number may go up" the only thing to distinguish it?
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