I see. So, you’re making the argument I described in my earlier reply:
Maybe your point is based on treating FTX and Alameda as two properly segregated entities (even if just for the sake of argument). But then the “allow negative” feature is obviously problematic/in tension with that assumption, as is the fact that FTX no longer has the assets (they paid back some lenders, as opposed to saying “we would be short if you treated us as connected to Alameda, but obviously we aren’t connected to them and we’re not giving Alameda our customers’ money to pay any of their debts”).
You replied to that, “The point of the example is that there were never any assets, it was a naked option.”
But my point was that, even if it was initially a naked option by Alameda, the FTX customer money ended up (partly) gone. Where did it go? (Edit: When I said “as is the fact that FTX no longer has the assets,” I obviously meant their customer’s assets, not “assets put up for collateral.”) It seems that prosecution has evidence that some of it was used to pay off some of Alameda’s debtors. So, the two entities aren’t properly segregated/distinct, and something about Levine’s summary therefore seems misleading. Your account would be accurate if FTX refused to pay any of Alameda’s loans to third parties and therefore still had enough assets to make customers whole.
Or maybe you’re saying that FTX is a bit like the London Metals Exchange in your initial analogy and the fact that its biggest customer made such a big trading loss also affects other customers, because all the money was “numbers on an exchange” and therefore intertwined. In that case, it seems like FTX must have lied about its liquidation engine! They kept advertizing how they have an advanced liquidation engine that prevents situations where large customers making massive trading losses due to fast market movements (and liquidation not happening fast enough) puts other people’s customer funds at risk.
So, I keep believing that the fact that the money is no longer there in a liquid state cannot be explained without FTX lying about at least some things. We know this from FTX’s ToS + their talk about their advanced liquidation engine. It’s as simple as that: you cannot explain that the customer money is no longer there if the liquidation engine is “on” for every customer (including Alameda as the largest customer) and if they didn’t use customer funds to bail out Alameda when Alameda was in the red.
(And we indeed have evidence now that they lied about the liquidation engine; Alameda was exempt from it, but this was not disclosed.)
I see. So, you’re making the argument I described in my earlier reply:
You replied to that, “The point of the example is that there were never any assets, it was a naked option.”
But my point was that, even if it was initially a naked option by Alameda, the FTX customer money ended up (partly) gone. Where did it go? (Edit: When I said “as is the fact that FTX no longer has the assets,” I obviously meant their customer’s assets, not “assets put up for collateral.”) It seems that prosecution has evidence that some of it was used to pay off some of Alameda’s debtors. So, the two entities aren’t properly segregated/distinct, and something about Levine’s summary therefore seems misleading. Your account would be accurate if FTX refused to pay any of Alameda’s loans to third parties and therefore still had enough assets to make customers whole.
Or maybe you’re saying that FTX is a bit like the London Metals Exchange in your initial analogy and the fact that its biggest customer made such a big trading loss also affects other customers, because all the money was “numbers on an exchange” and therefore intertwined. In that case, it seems like FTX must have lied about its liquidation engine! They kept advertizing how they have an advanced liquidation engine that prevents situations where large customers making massive trading losses due to fast market movements (and liquidation not happening fast enough) puts other people’s customer funds at risk.
So, I keep believing that the fact that the money is no longer there in a liquid state cannot be explained without FTX lying about at least some things. We know this from FTX’s ToS + their talk about their advanced liquidation engine. It’s as simple as that: you cannot explain that the customer money is no longer there if the liquidation engine is “on” for every customer (including Alameda as the largest customer) and if they didn’t use customer funds to bail out Alameda when Alameda was in the red.
(And we indeed have evidence now that they lied about the liquidation engine; Alameda was exempt from it, but this was not disclosed.)