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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

#31

Post by sidewndr46 »

LeifCarrotson wrote: post #26
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…

You're glossing over the fact that part 1 of your income equation is irrelevant if you can get the government on your side.

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

#32

Post by amluto »

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…

> But not once - not from word of mouth, or directly from them, or someone, ever, anywhere - have I heard a common sense way these guys make money due to intelligence, instead of due to a scam or due to luck.

Financial markets have a fascinating property: any well-known strategy that can be implemented at reasonable cost [0] stops working. This is because people implement it and the profit goes away. If Jane Street has a common sense strategy or three that makes money, they’re not telling you about it.

(I’m taking about actual market profits here. It is well known that you can make lots of money by charging fees on a lackluster fund as long as you can find investors.)

[0] The cost issue is real, and the relevant parameter is some combination of profit (revenue - opex), capex and risk. For example, one can make money (revenue) by being the fastest market on the block. But the revenue there is approximately bounded and competition has driven the cost up to insane levels, so it is not straightforward to do this profitably.

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

#34

Post by mrguyorama »

sidewndr46 wrote: post #31
LeifCarrotson wrote: post #26

Earlier quoted context omitted.

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…

You're glossing over the fact that part 1 of your income equation is irrelevant if you can get the government on your side.

In the US, you don't get the government on your side without money and connections.

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

#35

Post by oldgradstudent »

NovemberWhiskey wrote: post #28
guardiangod wrote: post #15

Earlier quoted context omitted.

>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.

I don't think this was a major problem in the 2008 crisis.

John Corzine's MF Global was a well known case in 2011.

https://en.wikipedia.org/wiki/MF_Global

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

#36

Post by knorker »

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.

"Only when the tide goes out do you discover who's been swimming naked"

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

#37

Post by somuchfordonor »

amluto wrote: post #32
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…

> But not once - not from word of mouth, or directly from them, or someone, ever, anywhere - have I heard a common sense way these guys make money due to intelligence, instead of due to a scam or due to luck. Financial markets have a fascinating property: any well-known strategy that can be implemented at reasonable cost [0] stops working. This is because people implement it and the profit goes away. If Jane Street h…

I see a lot of variations on these arbitrage and secrecy themes.

Arbitrage that sticks around for years: those are scams dude. They involve collusion, not intelligence. I understand it might not be illegal collusion, but if either side of the transaction being scammed found out, they would find someone else to work with.

Trust me, I know. I've worked in ad tech.

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

#38

Post by mattbrewsbytes »

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…

Payment for Order Flow was invented by Bernie Madoff. I believe many of the technical and complex Wall St. "products" like that are probably scams if it were laid out in laymans terms. Not products that retail/brokerage account holders use like buying a stock, ETF's or those "20XX Retirement Fund" - I'm talking about the obtuse derivatives and other "products" that Wall Street invents for themselves.

Edit to add: PFOF is the mechanism that Robinhood (and others) make money on - back of house Wall St. pays Robinhood for the order flow.

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

#39

Post by oldgradstudent »

jrm4 wrote: post #30
guardiangod wrote: post #15

Earlier quoted context omitted.

>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?

According to Wikipedia a Ponzi scheme

> is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

So if they are paying yield while actually losing money and covering it up by recruiting new clients then it's a Ponzi scheme.

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