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William Tod

Why FTX Collapsed - With Michael Lewis, Author of ‘The Big Short’ & ‘Going Infinite’

In the pre-Christmas edition of the Money Maze Podcast, Simon Brewer meets with the author Michael Lewis, with guest co-host Ravi Joseph. This episode offers Money Maze listeners the opportunity to hear a fascinating discussion about Lewis’ most recent book; “Going Infinite”. In this riveting interview, Michael Lewis highlights the case study of FTX, its recent collapse, and the trial of its founder Sam Bankman-Fried as a warning against the same behaviours he witnessed and wrote about in “Wall Street” in his bestselling and salacious book; “Liar’s Poker” taking place in the world of Crypto.

What makes Lewis’ novel and interview so fascinating is his key takeaway that:

“There was nothing foreordained about this.”

So, what is FTX and why did it fail?

FTX Trading Ltd. (Futures Exchange) is a bankrupt company that operated an international cryptocurrency exchange headquartered in the Bahamas once under the control of its CEO Sam Bankman-Fried.

FTX was once one of the largest exchanges in the world and, alongside rivals such as Binance, once processed the majority of cryptocurrency trading in the world in a market that is almost entirely “unconstrained by regulatory requirements.

The FTX is a financial scandal that only an experienced and brilliant storyteller like Michael Lewis could unwind. His summary:

“It’s a comedy with a tragic ending”

Since the collapse of FTX, the entire crypto world has faced a bear market that is widely blamed on the collapse in confidence that has emerged from the tragedy of Sam Bankman-Fried (SBF).

FTX hit a $32 billion valuation at the start of 2022, and what a fall from grace it’s been. The exchange once had backing from major institutional investors such as BlackRock, SoftBank, Sequoia Capital, and Canada’s Ontario Teachers’ Pension Plan.

Yet, after questions, interventions, and doubts arose from its competitor, Binance, FTX faced a major liquidity crisis that brought to light major systemic failings in which its estimated 1 million customers’ funds had “gone missing”.

Sam Bankman-Fried is accused of embezzling $10 billion from unsuspecting customers to fund his crypto hedge fund Alameda Research.

On November 11th 2022, FTX declared Chapter 11 bankruptcy and Sam Bankman-Fried resigned.

Who is Sam Bankman-Fried?

Michael Lewis has many twists of the tongue, but among our favourites of his descriptions of Sam Bankman-Fried is:

“A Gatsby of the Crypto World”

Sam Bankman-Fried seems to be a similar enigma surrounded by many Nick Carraways.

“He grew up in Palo Alto on the Stanford campus. He’s the child of two gregarious professors at the Stanford Law School.”

Lewis paints the picture of a man stunningly successful and interesting to all for all sorts of unexpected reasons. But ultimately, SBF is an effective altruist more concerned by the mathematics of morality than empathy as most would understand it.

“He created the conditions for his demise by the way he went through the world”

Yet for only being 31 years old, SBF has achieved so much in that world and as a result he faces a future of 110 years in jail.

What did Sam Bankman-Fried Do?

SBF was found guilty on 7 counts of wire fraud, securities fraud, commodities fraud, and money laundering after the jury sat for just 5 hours in Manhattan Federal Court.

However, there is more to SBF that can’t be captured in a single article. It really is 

“a mind-bending trajectory of a character who never liked the rules and was allowed to live by his own.”

The Crypto wunderkind was accused of running his own “personal fiefdom” but its in putting the pieces of the FTX Humpty Dumpty back together again that we really spotlight the inadequacies of a crypto market that is so demonstrably reminiscent of regulation and as a result, responsibility.

John Ray III, the new CEO of FTX, running the bankruptcy told Michael Lewis that tracking down the FTX customer deposits is “like an Easter egg hunt.”

This is not a journey around the chaos of a criminal mastermind but instead the maddening result of an inexperienced and unpredictable maverick that in any other industry could never have been bestowed with such power.

Lewis argues that; 

“what Sam Bankman-Fried is guilty of, it’s more than just carelessness, I don't think of it that way. It's a wild recklessness and indifference to the risk he's exposing others to, they effectively used customer deposits as a free loan to do what they would with”.

Financial recklessness is not new, but perhaps we should have seen this one coming?

So, what happened to SBF’s own finances and what is his Net Worth?

While Forbes estimates that his wealth peaked at approximately $26.5 billion, much or most of his wealth was tied up in Bankman-Fried’s ownership of about half of FTX and a significant share of its token, FTT.

However, with the collapse of FTX, CNN reported that SBF lost 94% of his wealth in a single day and now Bloomberg values his assets at $0.

Michael Lewis told the Money Maze Podcast that the living embodiment of Icarus is now 

“at the mercy of a judge who could sentence him to 110 years in jail.”

Will FTX Recover?

There are few people alive more suited to a Trading Places joke than SBF.

Yet in a twist that Mark Twain’s attributed quote: “history doesn’t repeat itself, but it rhymes”, there are now suggestions that FTX could be rebooted.

Lewis posits in the Money Maze Podcast that there was an unexplainable allure to SBF that defied mere allusions to some kind of Schrödinger’s crypto-king: 

“there was this Sam Bankman-Fried shaped hole in the world that I don’t think he knew existed until he found himself in it.”

Well, in jail for 110 years, the world will have to live without SBF for the foreseeable future. Although, with $7.3 billion of the $8.6 billion missing having been recovered so far, is this reasonable? Ravi Joseph asked Lewis whether this was actually a crime of negligence and incompetence.

As of 4th December 2023, FTT the FTX token is trading at $4.89.

So, will the future of the Futures Exchange rhyme or repeat the successes and failures of its history?


When Michael Lewis was last on the Money Maze Podcast, Simon Brewer asked the question;

“Is there a shocking or scandalous topic that you haven’t written about but you’re inclined to?”

Well, with “Going Infinite” Michael Lewis has filled in the blanks of one of the most infamous stories in finance to date and confirmed in spades the answer that you heard first on the Money Maze Podcast 18 months ago:

“Crypto: the world it is wreaking. It didn’t work as money, so they pivoted to digital gold. It’s an act of faith and it’s reached the size that it’s having all these distorted effects on the world.”

There is no greater time than now it seems to confront the rise of the digital that has finally manifested itself as a competitor to reality on one of the most important aspects of our lives; money.

“It’s gotten harder to tell complicated truths”

By William Tod, who undertook an internship at The Money Maze Podcast. William is a recent Master’s graduate from The University of Amsterdam, who studied Literature, Culture and Society.  Outside of his degree, William is interested in long-term investment in education through digital skills having spent the past two years as Managing Director of a non-profit web design agency, recently winning a position as one of the Top 100 most influential disabled people in the UK from The Shaw Trust. Will is also an avid pool player having captained his SOAS varsity team on two occasions.

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December 5, 2023
December 5, 2023