The Controversy Surrounding the Release of Michael Lewis’ New Book

It seems that financial storyteller extraordinaire Michael Lewis has once again caught the attention of the public with his latest book. This time, he explores the rise and fall of FTX cryptocurrency exchange founder, Sam Bankman-Fried, who has been accused of fraud. While some may not have heard about this recent release, it has generated quite a bit of controversy in the financial world.

What caused the outrage surrounding Lewis’ book wasn’t necessarily the content itself, but rather a snippet of an interview he broadcasted on CBS 60 Minutes. In the interview, Lewis claimed that FTX, despite losing $8 billion in customer money, was not a Ponzi scheme and actually had a legitimate business. This statement has left many people questioning Lewis’ judgment and the validity of his argument.

Examining Lewis’ Position on FTX

Lewis’ stance on FTX and its founder, Sam Bankman-Fried, is highly contentious. By referring to a cryptocurrency exchange that lost such a significant amount of customer money as a “big deal,” Lewis seems to overlook the severity of the situation. FTX held only 10% of its liabilities in liquid assets, a clear violation of standard financial practices for a non-banking institution.

While some argue that Lewis is sympathetic towards Bankman-Fried in his book, it is crucial to consider the facts presented. Lewis’ interview and other statements suggest a moderate tone towards FTX and cryptocurrencies in general. He claims that the existing financial system could be improved by the crypto version, raising questions about his overall perspective on the matter.

The Nihilistic View of Cryptocurrencies

One of the central issues surrounding cryptocurrencies, like FTX, is the fundamentally nihilistic view they present of the financial market. In this world, money becomes nothing more than numbers on a screen, and the value is often dissociated from tangible assets or economic functions. For example, cryptocurrencies can generate immense market capitalization despite lacking a solid foundation or real asset backing.

This nihilistic perspective has been developing for several decades, with the free market ideology evolving into blind faith in the infallibility of the financial system. Martin Walker, director of banking and finance at the Center of Evidence-Based Management, traces this shift back to the ’90s, where the notion of “the financial system is always right” emerged.

It is not surprising, then, that Michael Lewis, who has spent his career uncovering financial shenanigans, has grown cynical about the value and integrity of the system he studies. The financial world often resembles a casino, and so-called financial innovations, like cryptocurrencies, exploit regulatory loopholes for personal gain.

The Fallout from the Loss of $8 Billion

One cannot discount the reaction of those who once admired FTX but lost faith in the exchange and its founder following the revelation of the $8 billion loss. It is only natural for individuals, especially investors, to be concerned when a financial institution mishandles such a significant amount of money.

However, the support that Lewis’ book and statements have garnered suggests a deeper issue at play. It raises questions about the collective perception of the financial system and its inherent flaws. The belief that cryptocurrency exchanges, like FTX, can improve upon the existing system by minimizing corruption and skimming profits may stem from a dissatisfaction with the status quo.

This dissatisfaction is not unfounded. The existing financial system is not without its shortcomings, and the allure of decentralized currencies and blockchain technology offers a potential alternative. However, it is essential to remember the crucial functions of the financial market, such as determining prices and facilitating economic transactions.

Expanding on the Topic: Understanding Cryptocurrencies and the Financial System

1. The Zero-Sum Game Fallacy

Many people mistakenly believe that cryptocurrencies operate on a zero-sum game principle, where one person can only gain if another loses. However, this oversimplification fails to capture the broader dynamics of cryptocurrencies and the potential benefits they offer.

While some people may exploit cryptocurrencies for personal gain, these digital assets have the potential to provide financial access and opportunities to underserved populations. Cryptocurrencies can enable peer-to-peer transactions without the need for a central authority, reducing transaction costs and increasing financial inclusivity.

2. Addressing the Lack of Regulation

One of the ongoing challenges with cryptocurrencies is the lack of robust regulation. This regulatory gap opens the door for fraudulent activities and scams, creating a challenging environment for investors and consumers.

However, efforts to close this regulatory gap are underway. Governments and regulatory bodies are increasingly recognizing the importance of regulating cryptocurrencies to protect investors and ensure market stability. As the industry evolves, it is expected that stricter regulations will be implemented to address concerns and mitigate risks.

3. Recognizing the Potential of Blockchain Technology

While cryptocurrencies may have their flaws, they are built on an underlying technology called blockchain. Blockchain has the potential to revolutionize various industries, not just finance. It offers secure and transparent transaction records, eliminating the need for intermediaries and reducing costs.

Blockchain technology can be applied to supply chain management, healthcare, intellectual property, and many other sectors. Its decentralized nature and immutability make it an attractive solution for enhancing transparency and trust in various processes.

Summary:

Michael Lewis’ new book on the rise and fall of FTX cryptocurrency exchange founder, Sam Bankman-Fried, has sparked controversy within the financial community. Lewis’ interview and statements have left many questioning his judgment, as he appears sympathetic towards FTX despite the significant loss of customer money.

The nihilistic view of cryptocurrencies and the financial system they represent has contributed to the allure and skepticism surrounding these digital assets. While cryptocurrencies offer potential benefits and innovations, they also carry risks, such as regulatory loopholes and fraudulent activities.

However, it is crucial to recognize the broader implications and potential of blockchain technology underlying cryptocurrencies. Blockchain has the power to transform various industries, and as regulations evolve, the financial system may adapt and integrate these innovations.

Overall, the controversy surrounding Lewis’ book and the discussion of cryptocurrencies highlights the need for a comprehensive understanding of the financial system, its flaws, and the potential for positive change.

If you haven’t heard that financial storyteller extraordinaire Michael Lewis has released a new book, about the rise and fall of FTX cryptocurrency exchange founder and alleged fraudster extraordinaire Sam Bankman-Fried, then you probably won’t be spending much Internet time on it. Well done.

Those of you in the know will know that Lewis has generated almost as much controversy as the alleged criminal himself over the past week. But it wasn’t so much the book – whose publication was timed to coincide with the start of the SBF trial – that caused the outrage; era a snippet of an interview Lewis broadcast on CBS 60 minutes this was really making people nervous. I was one of those people.

“This is not a Ponzi scheme,” he tells host Jon Wertheim in the short video. “In this case, they actually had a big, real business. If no one had ever disparaged the company, if there hadn’t been a run on customer deposits, they would still be sitting there making a lot of money.

Lewis’ position is terrible. Calling a cryptocurrency exchange that managed to lose $8 billion in customer money a “big deal,” even if this failure was somehow completely innocent and accidental, is a bizarre and unfounded assessment. In case we forgot: FTX held just 10% of its liabilities in liquid assets the day before the exchange collapsed into bankruptcy. It was not allowed to do so; FTX was not a bank.

By most accounts, including one who complained about the fairness of the reaction to the online video an “erasure” of Lewis — the meaning of the interview reflected the argument expressed in the book; while the book is not a hagiography of SBF, it is certainly sympathetic to him. And indeed, its writer used the same tone in his podcast, Against the Rules with Michael Lewis:

“I . . . thought about how curious the speed was [FTX] Comes from [being] this widely admired and respectable operation is seen as a vast criminal enterprise, without much new data except that the money was in the wrong place.

That final clause is doing a lot of work there.

The fact that the kind of people who actually admired FTX suddenly lost faith in the exchange and its founder once it was discovered that he had lost $8 billion of other people’s money doesn’t strike me as curious. What it does, however, is that Lewis could have accepted not just SBF, but the entire crypto narrative. Bloomberg writer Zeke Faux, who also published a book on cryptocurrencies, quotes Lewis as telling him: “Look at the existing financial system. . . and the crypto version is better.”

How did we get here? Cryptocurrencies are not just a zero-sum game, where one person only gains if another loses; his many moral shortcomings make this possible a negative sum game. The idea that a store like FTX – and cryptocurrency companies in general – could represent an improvement on the existing financial system only makes sense if we want to evaluate that system simply based on how much money is being skimmed at the top.

This is a profoundly nihilistic view of the role that financial markets should play, which forgets crucial functions such as determining prices or facilitating the supply and demand of raw materials needed to keep the economy running.

But it’s also a phenomenon whose roots can be traced back several decades, says Martin Walker, director of banking and finance at the Center of Evidence-Based Management. “Going back to the ’90s, the idea ‘the free market is always right’ started to become dogma, and then ‘the free market is always right’ morphed into ‘the financial system is always right,'” he tells me he.

In some ways, then, it is no wonder that Lewis – who has spent his career documenting financial shenanigans – seems to have become so cynical about the value of the system he reports on. After all, much of the financial world seems to function like a casino, and so-called “financial innovation,” like cryptocurrencies themselves, is often just a game of regulatory arbitrage: finding loopholes in existing rules and exploiting them until regulators need to fall in line. .

Bankman-Fried – who was 15 when the global financial crisis hit, wiping trillions of dollars from the economy – strikes me as the apotheosis of a kind of financial nihilism in which nothing really matters. In fact, cryptocurrency itself was born from this perspective.

The world of cryptocurrencies is one of monopoly, where dog coins invented as a joke can reach a “market capitalization” of nearly $90 billion and where digital receipts for pixelated images can sell for tens of millions of dollars. In this pretend world of Monopoly, money is little more than a bunch of numbers on a screen. And in that context, why would it matter if there wasn’t $8 billion? In any case, there has never been any “there” in cryptocurrencies.

jemima.kelly@ft.com