Beware the woke young Messiahs
Better than reading a crime thriller
3 December 2022
Don’t get me wrong – I love a good novel. But when it comes to stand-out characters, intrigue, devious behaviour and media adulation, it’s hard to go past the real life stories of Elizabeth Holmes and, more recently, Sam Bankman-Fried – fallen entrepreneurial wunderkinds.
When Theranos, the blood-testing company that Liz Holmes had established in her twenties, blew up, there was multiple media coverage of the event. There were books, a TV series and several podcasts.
It is a truly fascinating story in which an unproven and unworkable blood-testing technique was used by Liz to entice sophisticated investors to hand over their cash and make her a very rich person, at least temporarily.
She understood that she had to fake it until she made it – a guiding principle for start-ups in Silicon Valley – and this required all the trappings of a successful operation in the meantime. She had a board of luminaries – mainly old men who were seduced by her story and good looks – providing her with an undeserved reputation.
One was George Schultz, former US secretary of state, who sided with Holmes over his sceptical grandson, Tyler. Even wily Rupert Murdoch was sucked in by Liz and stumped up some serious funds for the venture.
The best part of the story is the investigative journalism undertaken by John Carreyrou of the Wall Street Journal. Liz tried to get Rupert to kill the story but he refused, knowing full well that he was blowing up his personal investment. Carreyrou’s book, Bad Blood: Secrets and Lies in a Silicon Valley Start-up is a great read. The second-best part is that Liz is now heading to jail.
The corporate saga of Sam Bankman-Fried, generally known as SBF, is possibly even more intriguing, with lots of twists and turns still to come. The son of two Stanford law professors, SBF was a bright boy who grew up in a very liberal, in the US sense of the word, environment.
He completed a physics/maths degree at MIT before being lured into the world of ‘effective altruism’. This world is akin to the environment, social and governance movement but also has parallels with the cult of wellbeing. In other words, it’s full of insufferable, deluded do-gooders who are often only good at self-promotion and nothing else.
Now one of the acceptable paths for the followers of effective altruism is to make a truckload of money and give it away. SBF decided that this was his preferred route, initially setting up Alameda Research before establishing FTX, a cryptocurrency exchange. He told anyone who would listen that making money was not his main aim, but rather he was seeking to eliminate nuclear war and pandemics. (Sadly, his looks, albeit not his gender, prevented him from entering the Miss World competition.)
Riding the crypto wave, SBF was able to lure many rich and not-so-rich investors to finance his venture. At one stage, he was thought to be one of the ten richest individuals in the world. Located at Nassau in the Bahamas – it was a pirate port in days-gone-by, there’s a bit of irony – he lived in some massive penthouse with nine other colleagues. His commitment to effective altruism didn’t prevent him using FTX funds to invest $US450 million in real estate in the Bahamas, which incidentally is a tax haven. Gosh, a man has to live somewhere.
Unfortunately for SBF and his pals, account-keeping and corporate governance were not their strong suits. Actually, there were really no systems in place and funds flew between Alameda and FTX with few constraints and scant recording. In effect, SBF was using shareholder funds to make highly risky trades, with the shareholders totally unaware of what was going on.
When some of them sought to withdraw money from their accounts, it became apparent that there were insufficient funds and the companies collapsed like a house of cards. It was the equivalent of a run on a bank. It is estimated that some 30,000 Aussies will do their dough.
But here’s the thing: corporate collapses are nothing new; we have seen this sort of conniving and slippery behaviour many times before. But the stockmarket analysts, who are so important in driving investor sentiment, were very taken by the SBF story, including the fact that FTX had been buying up distressed crypto companies in recent times. The opacity of its governance – there were only three members on the board of FTX – was simply discounted.
The media were also complicit in this disaster, showering praise on SBF and his nerdy colleagues. After all, he was one of the biggest political donors to the Democrats. He regularly travelled to Washington to call for greater regulation of the crypto industry.
At least he now admits that he was faking that part too. According to him, ‘most of the ethics stuff was a front. It’s what reputations are made of, to some extent. I feel bad for those who get fucked by it. By this dumb game we woke Westerners play where we say all the right [shibboleths] and so everyone likes us.’
The Australian Financial Review fell hard for the scam, sending a photographer to the Bahamas to capture a carefully composed image of the great man himself which appeared on the cover of the Young Rich edition of the AFR magazine released in late October (oops). Included was a long profile piece in which the claim was made that ‘he is perhaps the single most important person in the global crypto industry.’
The gushing continued. ‘Bankman-Fried is like the Oracle of Omaha in other ways, too: he speaks publicly about living modestly and the importance of giving. He is possibly the most prominent follower of a new modern philosophy called Effective Altruism, which studies how to donate money while maximising its impact, while also giving young people a set of compelling reasons to earn as much wealth as they can.’
Sadly, for the Center for Effective Altruism, the largest recipient of SBF’s largesse, the collapse of FTX/Alameda has put a spanner in the works. Not only will there be no further donations from that source but the provenance of the funds already received now looks completely toxic.
There are many lessons that can be learnt from these two examples. Two central ones are: first, beware the young, woke Messiah corporate types who are lauded by the media and, secondly, always look at the fundamentals of companies to ensure they can make money by providing goods and services of value to customers.
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