Who’s at fault for FTX’s wrongdoing

EliezerYudkowsky16 Nov 2022 4:47 UTC
171 points
88 comments6 min readEA link

Caroline Ellison, co-CEO and later CEO of Alameda, had a now-deleted blog, “worldoptimization” on Tumblr. One does not usually post excerpts from deleted blogs—the Internet has, of course, saved it by now—but it looks like Caroline violated enough deontology to be less protected than usual in turn, and also I think it’s important for people to see what signals are apparently not reliable signs of honesty and goodness.

In a post on Oct 10 2022, Caroline Ellison crossposted her Goodreads review of The Golden Enclaves, book 3 of Scholomance by Naomi Novik. Caroline Ellison writes, including very light /​ abstract spoilers only:

A pretty good conclusion to the series.

Biggest pro was the resolution of mysteries/​open questions from the first two books. It wrapped everything up in a way that felt very satisfying.

Biggest con was … I think I felt less bought into the ethics of the story than I had for the previous two books?

The first two books often have a vibe of “you can either do the thing that’s easy and safe or you can do the thing that’s hard and scary but right, and being a good person is doing the right thing.” And I’m super on board with that.

Whereas if I had to sum up the moral message of the third book I might go with “there is no ethical consumption under late capitalism.”

For someone like myself, this is a pretty shocking thing to hear somebody say, on a Tumblr blog not then associated with their main corporate persona, not in a way that sounds like the usual performativity, not like it’s meant to impress anybody (because then you’re probably not writing about anything as undignified as fantasy fiction in the first place). It sounds like—Caroline might have been under the impression, as late as Oct 10, that what she was doing at FTX was the thing that’s hard and scary but right? That she was doing, even, what Naomi Novik would have told her to do?

The Scholomance novels feature a protagonist, Galadriel Higgins, with unusually dark and scary powers, with a dark and scary prophecy about herself, trying to do the right thing anyways and being misinterpreted by her classmates, in an incredibly hostile environment.

The line of causality seems clear—Naomi Novik, by telling her readers to do the right thing, probably contributed to Caroline Ellison doing what she thought was the right thing—misusing Alameda’s customer deposits. Furthermore, the Scholomance novels romanticized people with dark and scary powers, and those people not just immediately killing themselves in the face of a prophecy that they’d do immense harm later, i.e., sending the message that it’s okay for them to take huge risks with other people’s interests.

I expect this to be a very serious blow to Naomi Novik’s reputation, possibly the reputation of fantasy fiction in general. The now-deleted Tumblr post is tantamount to a declaration that Caroline Ellison was doing this because she thought Naomi Novik told her to. We can infer that probably at least $30 of Scholomance sales are due to Caroline Ellison, and with the resources that Ellison commanded as co-CEO of Alameda, some unknown other fraction of Scholomance’s entire revenues could have been due to phantom purchases that Ellison funded in order to channel customer deposits to her favorite author.

My moral here? It can also be summed up in an old joke that goes as follows: “He has no right to make himself that small; he is not that great.”

The best summary of the FTX affair that I’ve read so is Milky Eggs’s “What Happened at Alameda Research?” If you haven’t read it already, and you’re at all interested in this affair, I recommend that you go read it right now.

Pieced together from various sources, including some allegedly shared from FTX-employees (and including some comments posted by those to the Effective Altruism forum), Milky Eggs pieces together a harrowing story of how Alameda Research probably lost in excess of $15 billion dollars. Primary causative factors:

  • Their actual arb strategies stopped working, and were frog-boilingly gradually replaced with long bets on crypto that paid out during the boom and exploded during the bust;

  • Poor accounting, possibly just no really global accounting or sense of where the money was going;

  • Excessive use of stimulants, including those known to result in compulsive gambling behavior;

  • A corporate acquisitions spree, possibly partially motivated by buying up corporate entities that held the FTT token and could have taked the market by dumping it, maybe even raiding those companies for their own customer deposits;

  • A general lack of spending discipline: for example, buying naming rights to the e-sports organization TSM for $210M, which was way out of line to comparable deals in e-sports.

Completely missing from Milky Eggs’s account: Any mention of effective altruism, except that the EA Forum is listed as a source for some of their alleged-ex-FTX-employee accounts.

Why?

Because—and I say this meaning it gently, and with kindness—you were not that fucking important.

The amount that FTX spent on e-sports naming rights for TSM was greater than everything they donated to effective altruism.

Can you imagine how you’d judge it if, rather than my writing it as a joke, Naomi Novik had gone online and sincerely tried to accept blame for FTX’s fall, because she thought she hadn’t been careful enough to put messages about good corporate governance and careful accounting into her fantasy novels, and Novik had talked about how she was planning to donate an appropriate portion of her Scholomance book royalties back to FTX’s ruined customers? Depending on her state of mind, you might either try to gently console her and somehow get her to realize that she was being way too scrupulous and might possibly want to try standard meds for OCD at some point; or, on another hypothesis about Novik’s state of mind, you might try to gently explain that she’s not the center of the universe and that this wasn’t mostly about her.

This would be true even if Sam Bankman-Fried himself had presented as a Naomi Novik fan, if he had told others that he wanted to be a Novik-style DoTheRightThingist just like Galadriel Higgins the Scholomance protagonist, and he had funneled $140M to causes having to do with things that were on-theme for some of Novik’s books. The $140M would still be less than FTX had spent on e-sports naming rights. SBF calling himself a Novikian RightThingist would not have been much of a factor in why he was trusted, compared to their claims of being the first GAAP-audited crypto exchange and so on.

There probably would be some sort of weird blowup in the Novik fandom, in that case, it would make more sense for them to wonder if they were responsible. But I’d expect people in the Novik fandom to also vastly overestimate how much it was all about them, in that case; because they would know all about Novik, but have less daily exposure to the much wider world in which FTX operated. They’d have heard about the money donated to RightThingism but not about the e-sports naming rights. They would not realize that there were other and bigger fish in the pond.

(Be it clear, I’m not analogizing myself to Novik in that metaphor. I’m analogizing Peter Singer and classical Givewell-style EA to Novik. I asked SBF if he wanted to meet with me ever, he never got around to it, I do not think he was a Yudkowsky fan and he hung out with some EAs who definitely weren’t.)

(ADDED: I am not saying that EA influence on Alameda was comparable in magnitude to Novik’s influence on Caroline Ellison; I am giving an example of the mental motion of trying to grab too much responsibility because you don’t know about all the parts of the universe that aren’t yourself.)

It wouldn’t, even, reflect all that badly on the spirit running across many fantasy novels of RightThingism. Not just because “no true Scotsman”, not even because SBF would have really actually missed the point of fantasy-novel RightThingism. But because the amount that FTX spent on e-sports naming rights vs the amount they gave to RightThingist causes, and how they didn’t take a billion off the table for RightThingism while they still had a billion, maybe belied a bit the idea that RightThingism was in fact that central to their mental lives.

Also Milky Eggs’s account says that FTX’s own employees were encouraged to keep all their salaries on the exchange, which… I don’t really have words. It’s not—what you’d expect somebody to do if they still had even fantasy-novel RightThingism inside them. The Milky Eggs account says that Caroline Ellison was one of four FTX employees who knew. I wish I had a reliable printout of what Caroline Ellison was actually thinking at the time she wrote that Tumblr post. I would bet that, even without the benefit of hindsight on how it turned out, Naomi Novik wouldn’t have agreed with it at the time.

And whatever Caroline Ellison was thinking when she wrote that, it is obvious—when you look at it from safely outside—that it wasn’t Naomi Novik’s fault.

If Caroline Ellison had worn a Naomi Novik T-shirt and put the Scholomance books in her Twitter profile and told her crypto clients “Trust me, I read fantasy novels and I know what the Right Thing is,” it would still not have been Naomi Novik’s fault.

It wouldn’t have been the fault of the abstract concept of “you can either do the thing that’s easy and safe or you can do the thing that’s hard and scary but right, and being a good person is doing the right thing”. Plenty of people have read fantasy novels like that and not wrecked depository institutions. Not just in terms of moral responsibility, but actual causality, I’d be surprised if that was really in actual fact a key driver in the decisions that Caroline Ellison made; maybe she used that to rationalize that afterwards, but I doubt it’s what was going through her mind on the fatal day that FTX used customer deposits to pay back Alameda creditors (if that’s in fact when FTX first touched customer deposits). Pride did it, I’d sooner guess, or the desire to not not not be in this universe going so badly and taking the only step that preserved the feeling that everything could still be okay.

Who’s at fault for FTX’s wrongdoing?

FTX.

Ask a simple question, get a simple answer.

You have no right to blame yourself any more than that. You weren’t that important.

If there’s anyone other than FTX who’s really to blame, here, it’s me. I’ve written some fiction that tries to walk people through the experience of abandoning sunk costs and facing reality. Including my most recent work.

Caroline Ellison, according to her tumblr, had even started reading it...

But her liveblogs cut out before she got very far in.

I just wasn’t a good-enough writer; I lost my reader’s attention, and with it, perhaps, the world.

Now, some people might say here: “But Eliezer, aren’t you co-writing that story with another author?” And to this I can only reply: I see no reason why the existence of any other people in the universe ought to detract from my own sole accountability for everything that anyone does inside it.

EliezerYudkowsky16 Nov 2022 4:47 UTC
171 points
88 comments6 min readEA link