Amy Froide, Professor of History at the University of Maryland, discusses the remarkable similarities between the recent FTX collapse and the Charitable Corporation Scandal of 1732.
...the management of both ventures was centralized in the hands of just a few people. The Charitable Corporation got into trouble when it reduced its directors from 12 to five and when it consolidated most of its loan business in the hands of one employee – namely, Thomson. FTX’s example is even more extreme, with founder Sam Bankman-Fried calling all the shots...
In both cases, the key fraud was using the assets of one company to prop up another company managed by the same people...
News of both frauds also came as a surprise, with little advance warning. Part of this is due to the ways in which managers were well respected and well connected to both politicians and the financial world...
I would also argue that in both cases the company’s connection to philanthropy lent it another level of cover. The Charitable Corporation’s very name announced its altruism. And even after the scandal subsided, commentators pointed out that the original business of microlending was useful. FTX’s founder Bankman-Fried is an advocate of effective altruism and has argued that it was useful for him and his companies to make lots of money so he could give it away to what he deemed effective causes.
It’s worth noting that the Charitable Corporation’s demise did not lead to the end of microlending. Pioneers in micro-credit, Muhammad Yunus and Grameen Bank, won the Nobel Peace Prize in 2006.
In the same way, FTX’s demise does not necessarily lead to the end of cryptocurrency, or the end of effective altruism.
It does support the case for more oversight and stronger regulations:
After the Charitable Corporation’s collapse in 1732, Parliament didn’t institute any regulation that would prevent such a fraud from happening again.
A tradition of loose oversight and regulations has been the hallmark of Anglo-American capitalism. If the response to the 2008 financial crash is any indication of what will come in the wake of FTX’s collapse, it’s possible that some bad actors, like Bankman-Fried, will be punished. But any regulation will be undone at the first opportunity–or never put in place to begin with.
FTX’s collapse mirrors an infamous 18th century British financial scandal
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Amy Froide, Professor of History at the University of Maryland, discusses the remarkable similarities between the recent FTX collapse and the Charitable Corporation Scandal of 1732.
It’s worth noting that the Charitable Corporation’s demise did not lead to the end of microlending. Pioneers in micro-credit, Muhammad Yunus and Grameen Bank, won the Nobel Peace Prize in 2006.
In the same way, FTX’s demise does not necessarily lead to the end of cryptocurrency, or the end of effective altruism.
It does support the case for more oversight and stronger regulations: