While it isn’t remotely what you were talking about, a point that I often confuse in my head is about how you “win”/”lose” this money. Losing financially is one thing, losing through crime is another.
If FTX had lost $10bn on a standard trade (like Meta’s recent foray into VR, which may or may not turn out well) we’d have a completely different discussion to what happened. In the FTX case, their behaviour looks to lose far more than just the capital—they caused lots of harm and lost people’s respect and goodwill also. In that sense, the trade took their capital to 0 and then caused a load of damage besides. Ex-ante it was much worse than it looked, even without a discussion of utility curves.
A confusion is introduced in the quoted passage by the shift from the personal to the general. You personally cannot lose more than all your assets, because of bankruptcy. But bankruptcy just shifts any further losses to your creditors, so once we shift to thinking about global benefits and harms, the loss is no longer capped in that way.
More generally, the assumption that returns can’t be negative is the worrying assumption. Either SBF didn’t realize that or he thought that depositors didn’t matter.
While it isn’t remotely what you were talking about, a point that I often confuse in my head is about how you “win”/”lose” this money. Losing financially is one thing, losing through crime is another.
If FTX had lost $10bn on a standard trade (like Meta’s recent foray into VR, which may or may not turn out well) we’d have a completely different discussion to what happened. In the FTX case, their behaviour looks to lose far more than just the capital—they caused lots of harm and lost people’s respect and goodwill also. In that sense, the trade took their capital to 0 and then caused a load of damage besides. Ex-ante it was much worse than it looked, even without a discussion of utility curves.
A confusion is introduced in the quoted passage by the shift from the personal to the general. You personally cannot lose more than all your assets, because of bankruptcy. But bankruptcy just shifts any further losses to your creditors, so once we shift to thinking about global benefits and harms, the loss is no longer capped in that way.
More generally, the assumption that returns can’t be negative is the worrying assumption. Either SBF didn’t realize that or he thought that depositors didn’t matter.