Going Infinite In a Finite World

A year ago, a fast-rising crypto trading company, FTX, with a splashy office in the Bahamas, failed spectacularly. I just finished reading an intriguing book called Going Infinite: The Rise and Fall of a New Tycoon by the always intriguing author, Michael Lewis. The book takes a deep dive into FTX and its founder, Sam Bankman-Fried.  

Some of Michael Lewis' previous books have been turned into quality Hollywood motion pictures such as The Big Short and The Blind Side. A recent (October 1) episode of 60 Minutes features an intriguing interview with Michael Lewis which is worth the time to watch.

Starting a business from scratch is hard. Very hard. Most entrepreneurs do what I did – start their business in their garage or basement like Hewlett Packard and Apple. This allows you to keep expenses to an absolute minimum which is essential if you are to survive the startup period. Another reason for the garage or basement is it allows you to more easily work the long hours required to get the business going. Funding often comes from personal savings, a second mortgage on the home, borrowing from their parents and sometimes from a proverbial (or actual) rich uncle.

I did all the above except – except borrowing from my parents. I did "borrow" from a rich uncle. By borrow I meant that I sold him stock in AFT – which I bought back from him a number of years later. I started AFT in my basement and operated it there for three years. And I worked long hours.

I say all of this because it reflects the realities of any business – finite resources. Finite money. Finite time. A finite market to sell in. Finite.

Sam Bankman-Fried (also known as SBF) is one strange character who ran one strange business enterprise. As of two weeks ago he is also now a convicted felon facing decades in prison for misleading investors and lenders, and misappropriating customer funds.

Supposedly SBF did this all for altruistic reasons! Here an excerpt from this article Sam Bankman-Fried Demonstrates Ineffective Altruism at Its Worst:

In spending money that was never his in the first place on "good causes," SBF defaulted on the most important prerequisite for being generous – having something of yours to be generous with….

…Had SBF made it a priority to run a legitimate and responsibly managed business that earned honest profits, he would not have become the 41st richest American (according to Forbes). He also would not have garnered the unearned admiration he bought with stolen money.

The SBF story is an extreme example of the ever-growing phenomenon of putting lofty desires ahead of more important requirements – delivering excellent products.

If the pressure to appear altruistic was not so important, SBF might actually have focused his efforts on laying the foundation of building a sound business.

My key takeaway from the above is that a good business creates something valuable – a valuable service or product – and figures out how to sell it at a profit. The profits can then be used by the business owners to grow the business further, spend for personal purposes, or maybe fund charitable endeavors. All of this requires a fanatical attention to cash management. To succeed, it also requires a fanatical attention to and respect for your customers.

Another interesting article is this one The Faulty Moral Universe of Sam Bankman-Fried.

But for my money the most important and bizarre twist in the downfall of Sam Bankman-Fried is that his parents were, until their son's crimes were exposed, respected scholars of corporate tax law and ethics at Stanford University.

And

… there was the staggeringly evasive testimony Sam Bankman-Fried planned to give before the House Financial Services Committee – testimony forestalled by his arrest in the Bahamas. In that testimony, Bankman-Fried would have blamed his company's failure on everyone from Binance CEO Changpeng Zhao to, hilariously, the bankruptcy law firm and interim CEO who are currently cleaning up his massive mess.

The testimony is first and foremost disturbingly delusional. It does not even remotely square with the known facts of the situation, which are that Sam Bankman-Fried engaged in elaborate self-dealing and theft of his customers' funds. But viewed through the lens of his mother's ideology, the testimony is not merely delusional. It is also a reiteration of the belief that all of our actions are merely the product of circumstance, and that we can't really ever be blamed for anything.

And there it is. SBF did not seem to believe in personal responsibility. Someone who does not believe in personal responsibility should never be in charge of anything – especially running a business.