You might be surprised to hear just how many people in crypto cite Michael Lewis, the former Wall St. bond slinger turned biggest living finance writer, as their favorite author. Many in the industry still wholeheartedly believe that crypto is something of a reformation event for the church of capital, a way to clear away decades of bureaucracy, become more personally involved in personal finances and align the world with the professed ideals of redistribution, inclusion and equality. And many see Lewis as an Abrahamic figure because of his role exposing the rot at the center of modern finance most notably through "The Big Short," the 2008 best seller adopted by Michael Scorsese for the big screen.
And so, if I tell you that Lewis has essentially become persona non grata within the world of crypto, it's with a heavy heart. Almost overnight, Lewis' reputation as the Virgil of Wall St., the financial crime writing extraordinaire, has tanked — all due to what can only be described as a profoundly ill-advised "60 Minutes" interview on Sunday, which served as the kickoff media event for his latest book "Going Infinite." It was an appearance that all but solidified the idea that "Going Infinite" (Lewis' 21st book), will be a hagiography of Sam Bankman-Fried, the disgraced founder of the now bankrupt crypto exchange, and one that raised serious questions about Lewis' role in this long nightmare.
We should caveat this with a few hugely important details: almost no one outside of publisher Norton or Lewis' circle has read the book, which publishes tomorrow, coinciding with the start of Sam Bankman-Fried's trial, where the disgraced founder is set to plead not guilty to multiple counts of fraud. It's also forgivable that Lewis, like most reporters with direct access to SBF, missed the red flags at FTX. Bankman-Fried was a media phenomenon, a self-made billionaire who stood for capitalism done right — represented by his political donations, charitable commitments and shabby attire (even if he didn't exactly come from rags).
Things that now seem like obvious warning signs, like FTX's meteoric growth and seemingly boundless spending, were the story everyone wanted to tell. As Lewis told "60 Minutes:" "You gotta remember, I knew nothing about him … All I knew was I was supposed to evaluate his character. And that 18 months earlier, he had nothing, now he had $22.5 billion dollars and was the richest person in the world under 30." It was, as Lewis said, an "incredible story."
But what Lewis has chosen to do with his firsthand account and access to the media is to muddy the waters. This is true whether or not Bankman-Fried is ultimately convicted. Everyone is entitled to their opinion, and Bankman-Fried certainly deserves his day in court, but there are matters of fact and lines that simply should not be blurred when writing or promoting non-fiction.
In the interview, Lewis claims "if there hadn't been a run on customer deposits [at FTX], they'd still be sitting there making tons of money," a statement that completely misses the fact that crypto exchanges are not banks, are not supposed to lend or use customer deposits and are not "fractional reserve" institutions.
For a writer who built a career making convoluted financial fraud dead simple to miss something so fundamental is bizarre, to say the least. Whether or not FTX brought in revenue is not being litigated, and bringing it up is to — again — missing the gigantic fraud-shaped hole in FTX's books (an SBF talking point). It's enough to make a CoinDesk editor ask, maybe rhetorically, whether Bankman-Fried "has something" on Lewis. There doesn't have to be an embarrassing photo of Lewis, like, kissing a goat at a Bahamian rave, for this to be a question worth asking.
In fact, on "60 Minutes," Lewis notes that he essentially worked as an advisor for FTX raising the issues of conflicts of interest. To be fair, this was likely informal, and a result of Bankman-Fried's boundless impropriety — Lewis reportedly met with the wunderkind more than a hundred times, speaking for countless hours over two years. But the idea that Lewis could be a "neutral observer" is shattered. Others have brought up the idea that Lewis may have been and could still be financially ensnared in the web of FTX corporate, a tangle of over 100 shell companies and subsidiaries.
Venture capitalist Nic Carter, for instance, flagged the partnership between SBF's hedge fund Alameda Research and IEX, an alternative stock exchange that Lewis profiled in the 2014 book "Flash Boys." Fortune speculated the exchange tie-up could've been a way to bring FTX to the U.S. through a backdoor. Before FTX bought a stake in IEX, they held multiple meetings with notorious crypto skeptic Gary Gensler, who heads the U.S. Securities and Exchange Commission.
Regulatory and financial oddities aside, it's clear that Lewis was always destined to write something that'd spin FTX in the best possible light. Bloomberg investigative journalist Zeke Faux notes in his recent book "Number Go Up" how jarring it was to see his literary hero on stage at an FTX-hosted conference in the Bahamas more or less proclaiming Bankman-Fried as the second coming of capitalism's savior. In a sense, this is the most forgivable of Lewis' perceived crimes against journalism. Bankman-Fried failed in his purported mission, but you can still admire the mission (even if it was front).
It's one thing to present opinion as fact — like saying FTX would be a going concern if Binance CEO Changpeng Zhao didn't trigger a panic run, or that SBF was simply making SO MUCH MONEY he didn't notice an $8 billion hole in the balance sheet. It's another to want to see the best in people (or believe that people could be good). "There is still a Sam-Bankman-Fried-shaped hole in the world that now needs filling," Lewis said, referring to someone willing to take risks principally to benefit the world.
Effective altruism, Bankman-Fried's professed motivation, in my opinion, is noble at a small scale and psychopathic when scaled up. Lewis seems to be an adherent, or at least that John-Galt-but-charitable makes for a great protagonist. But life is not an Ayn Rand novel, and it seems like the writer has been tricked by a fabulist. The lowest point of the interview was when Lewis parroted the idea that customer funds went missing due to a criss-crossed banking situation to dispel the notion of outright theft.
Considering the circumstances, it seems better to leave the possibility of fraud being committed to the courts to determine. The best defense Bankman-Fried has is that he was profoundly oblivious and that FTX was for all intents and purposes, if not actually, criminally mismanaged (now that he can't blame bad legal counsel). That Lewis seems willing to speak up for a perennially "misunderstood" man-child with few other public defenders is basically a gamble. What he's wagering is a well-earned reputation.
Read the article online.
– D.K.
@danielgkuhn
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