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SBF, FTX, and Me
A few years into running my former startup, when “CEO” had begun to feel like a title I’d actually earned, instead of just a foolish joke on a 25-year-old’s business card, I noticed, in my mind, an unnerving trend.
I would read articles about rapacious capitalists or corporate misconduct or supposed “leaders” shitting the bed in horrible ways and, where I would have previously identified with the defrauded customers or the abused employees or any number of other sympathetic characters, I now found myself empathizing with the people at the top instead.
This was an entirely unconscious process. It wasn’t as though I actually thought the executives were in the right, when I stopped to think about it. But when you read a story, real or fictional, you automatically identify with some characters more than others, and my circle of default identification had shifted.
On occasion, this expanded perspective was the result of my actually having learned something valuable about how the world works. A lot of organizational malfeasance is the result of broken culture and misaligned incentives, not explicit directives to do wrong. My time running a company, even one that never got bigger than 20 people, gave me fresh insight into how little visibility even the most ostensibly powerful leaders have into what’s actually happening within their organizations, and into how trying to change anything within even a medium-sized company is like setting off the first step of a Rube Goldberg machine and crossing your fingers that the end result is what you think it will be. In those kinds of cases, I did find I had a better and more accurate understanding of how ethical disasters often happen.
But I noticed this identification shift happening even with more egregious stories, cases of deception and fraud and outright villainy. WeWork and Theranos, Volkswagen and Wells Fargo, Enron and Fyre Fest—it didn’t matter. I was leadership now, so I instinctively imagined myself as them. Reading The Rise and Fall of the Third Reich, I even caught myself wondering what I would have done differently if I had been Hitler. (And let me tell you: things would have been very different in the Third Reich if I, a liberal New York Jew, had been in charge.)
But Hitler excepted, the true diabolical masterminds are few and far between. When you put yourself inside the heads of these people long enough, you start to see incompetence more than malice, stupidity and recklessness more than evil. (By the end, even Hitler couldn’t operate the Rube Goldberg machine—that’s why we still have the Eiffel Tower.)
You also start to see that when these people are brought down, it’s usually just by larger doses of the same vices we all have: arrogance and carelessness and willful blindness to the things it’s easier not to see. That’s another thing my time running a company taught me: how easy it is, when things are going right, to convince yourself that they’ll keep going right forever, and how terrifying it is when they inevitably start to go wrong.
I’ve been thinking about all this lately because, like everyone in the tech world and many people outside of it, I’ve been glued to the saga of FTX, the $32bn crypto exchange that vaporized overnight, and its founder Sam Bankman-Fried.
The full story of what happened at FTX is still coming out, but at the very least, it looks like they secretly used customer funds to make up for massive losses suffered by their associated hedge fund, until both collapsed and customers lost over $1bn in deposits they’d thought were safe.
Any good tale of corporate disaster has sex, drugs, and commentary from a relatable outsider to tells you how crazy the whole thing is, and this tale is no exception: there’s the rumor that the entire leadership team was in a polycule together, with a therapist on retainer to help resolve the inevitable interpersonal conflicts; there’s the stimulant use that was so common that new employees were taught how to design their ideal drug regimen, and there’s the internal controls so dysfunctional that they were described as “unprecedented” in a court filing—by the guy who handled the Enron bankruptcy.
So the question is: how did this all happen?
As the WeWork, Theranos, and Uber miniseries have demonstrated, it’s always tempting to psychoanalyze a fallen founder. SBF is an even more irresistible target than most, in part because people known by three-letter initialisms inevitably have fascinating backstories, but mostly because he was an extremely outspoken philanthropist. He’d given millions to Democratic political candidates, but he was mostly famous for having become the wealthiest and most prominent supporter of effective altruism, the utilitarian philosophical movement that advocates for using evidence and reason to figure out how to benefit others as much as possible. SBF claimed to have pursued his entire business career so that he could do the most possible good for the world by giving away money, and he’d funded causes as well-known as pandemic prevention and lead abatement, and as obscure as prediction markets and nuclear winter recovery plans.
(Worth noting: although I don’t fully identify as an effective altruist, I’m definitely sympathetic to the movement; I’ve taken the EA-inspired Giving What We Can pledge to donate 10% of my income, which I’ve written about here, here, and here.)
A few writers I admire—the most prominent being—have argued that you can draw a straight line from SBF’s philosophical beliefs to his misdeeds. In this version of the story, SBF’s EA-inspired obsession with expected value, and his belief that good ends—or even just the probability of good ends—can justify any means, led him to take unreasonable risks with other people’s money.
In that telling, SBF got himself into this mess by overthinking things. But I think it’s much more likely that he just wasn’t really thinking at all. You hardly need a high-minded philosophy to do something stupid—sloppiness and poor impulse control are always the more likely explanation than some kind of grand plan, especially when you’re barely 30, and especially when you’re also doing a lot of drugs. Besides, the details of FTX’s inner workings are more consistent with unthinking recklessness than with any kind of overarching philosophy. I can see how an aggressive utilitarianism could be used to justify unnecessary risk-taking and the misappropriation of customer money, but I don’t see how it could explain why FTX was so sloppily run that the company didn’t maintain an accurate list of all its bank accounts, or even of all the people who worked there.
I believe this is a story with sheer dumbness at its center because a simple explanation is always more likely than a complicated one. But I also believe it because that’s how it was when my company lost a bunch of people’s money too.
I don’t remember the exact moment when I realized that my own startup was going under without enough money to pay all our debts. Probably there was no one moment, just a gradual, dawning realization. The reasons were the same as they always are: sloppy accounting, denial, a few unanticipated bills coming due.
Everyone tells you—everyone told us—to make sure that your company doesn’t shut down without enough of a cash cushion to do it right, and if we had, a couple months before, done a thorough accounting of exactly where things stood, we no doubt would have caught all of our financial issues and avoided ending up in such a precarious situation. But that would have involved acknowledging our failure earlier, and so it was easier to ignore the nagging voice in the back of my head that knew I wasn’t 100% sure about all of our numbers, and to press forward regardless. Besides, if we’d raised more money—which we almost did—it all would have been fine, and no one would have ever known how close to the edge we’d gotten.
Hemingway said you go bankrupt gradually, then suddenly, but my experience was the exact opposite: the sudden realization that we were fucked, followed by the endless drawn-out attempt to un-fuck ourselves. I understood in theory that the entire corporate form was created to allow entrepreneurs to take risks, knowing they’d be protected if their businesses failed with outstanding debts. And the amounts we were dealing with were quite small, microscopic compared to FTX’s missing billions: we owed maybe a hundred people an average of $500 or so each. But our creditors were handymen and couriers and even some of our own customers, and I knew almost all of them personally. I blamed myself, and in my desperation to make things right, I accidentally made them worse.
Here is what you should do if you ever find yourself in this situation: hire a bankruptcy lawyer immediately. Here is what you absolutely should not do: attempt to personally negotiate with all hundred creditors, one at a time.
In my defense, this insane plan did have a certain logic to it. Corporate bankruptcies usually cost around $30,000, which was almost half of our total debt in the first place. If we’d been able to manage the whole thing without lawyers, the people we owed money to would’ve gotten significantly more. I told myself I was driven purely by this obvious math, but I suspect there was also an emotional component to my determination to handle the whole thing myself. Handing everything off to lawyers would have been too easy, would have lacked closure. A part of me wanted to hear each and every creditor accept our deal firsthand—that way, I could tell myself it was all good.
It was not, of course, all good. I had a month of almost uniformly-horrible phone calls with creditors where I was yelled at and hung up on and threatened with lawsuits. When I finally caved and brought in lawyers, the tone changed overnight. People who had screamed and sworn at me about receiving 80 cents on the dollar were happy to get half that when the news came from someone official. And, in retrospect, I get it. My frantic calls probably did seem a little sketchy. Besides, most of our creditors probably weren’t too concerned with losing a few hundred bucks—they just felt disappointed, maybe even betrayed, by the sudden turnaround in the young upstarts they’d trusted. They all felt better when there were some adults in the room, even if that meant taking a bigger haircut.
But that month before I caved and hired lawyers was pretty rough, probably the worst my mental health has ever been. And when I read the FTX news I couldn’t help but imagine their founders feeling all the same things I felt back then: the guilt, the panic, the desperation to fix something that isn’t fixable. And, most of all, the disbelief that you had even found yourself in a situation that could have easily been avoided if you’d just been a little less dumb.
But of course, it’s the easily-avoidable catastrophes that hurt the most. Because the more avoidable they are, the more you blame yourself.
Then again, I’m not sure SBF does blame himself. I’m actually not even sure he feels any guilt or regret whatsoever. The recent | interviews he’s given, presumably against his lawyers’ advice, make it hard to tell whether he’s confessing some kind of truth, flooding the zone with more lies, or just having a complete psychological breakdown—or possibly all three at once.
In this and many other ways, I’m actually nothing like him. He did things that were at best immoral and at worse serious crimes; I made an honest, albeit thoughtless, mistake. I never misappropriated customer funds, I only occasionally took stimulants at work, and I certainly never had sex with anyone on my leadership team—though my cofounders and I did once make out during a drunken game of spin the bottle.
But then again: if my company had grown as out-of-control quickly as his did, and if I’d been showered with the outrageous amount of investor money he had thrust at him, maybe I would’ve fucked things up just as epically. I don’t think I would have, but most of my catastrophic mistakes have been things I didn’t think I’d do. Maybe that’s why I’ve been feeling an unwanted rush of empathy for someone I don’t really think deserves any.
Or maybe I’m just a sucker for a good story. Half the time my motivations are a mystery even to me. That’s another reason I don’t think there’s an easy explanation for why SBF did the things he did: in the end, we’re unknowable even to ourselves.