I am currently watching one of the most enthralling dramas in recent memory, the meltdown of the cryptocurrency empire of 30-year-old Samuel Bankman-Fried.
This comes on the heels of the sentencing of Elizabeth Holmes, the con artist who sold a lot of people on technology that didn’t exist.
Some are drawing parallels with Holmes’ Theranos, Bernie Madoff, and the energy company Enron which collapsed after systematic accounting fraud was revealed.
But there’s something different about this. Theranos sold investment in blood analysis technology that turned out to be beyond the reach of current medical science.
Madoff lured investors by promising unrealistic returns on their investments, which turned out to be a gigantic Ponzi scheme.
Enron dealt in energy commodities and used creative accounting to hide the fact they were broke, enabling its top executives to line their pockets before bailing out.
These were like Bankman-Fried’s FTX-Alameda Research, all variations of the “Get rich quick” con. Theranos was a subset called the “sure-fire invention” con.
But what Bankman-Fried and his buds sold was crypto-currency, a computer age innovation whereby people suspicious of the long-term viability of government-issued money attempted to create a store of value immune to inflation.
Fear of inflation is entirely rational. Anybody with even minimal knowledge of economics must be concerned about the fact something like 40% of all US currency ever issued has been created out of thin air within the past couple years.
And as much as court economists such as Robert Reich try to throw the blame on those evil profiteering corporations, the only source of new money is the government. Corporations with government contracts and contacts may benefit from inflation, but they don’t create it.
I worry about inflation. When I first lived in Poland I was getting paid in millions of zloty, and a government devaluation once wiped out 12% of my savings while it was sitting in my closet.
While I was living in Bulgaria I starved thin when the inflation rate was an estimated 10% per DAY.
And in Serbia a dissident friend once gave me a crisp, like-new, one trillion dinar note as a souvenir. I gave it to a friend who teaches business and economics to use in his classes.
Once upon a time people worried about inflation and currency collapse sunk their money into precious metals, so-called “gold bugs.” Or if they were really worried, did like the old stock brokers joke and invested in “canned goods and ammunition.”
But cryptocurrency? It seems to me to have all the disadvantages of government money plus one. It’s based on literally nothing, but it’s not subject to legal tender laws, i.e. nobody can force you to use it as a medium of exchange.
Yes I know people who have profited in the cryptocurrency markets. But though I am better than average literate in economics I don’t understand it, so I stay away from it.
Theranos sold investors on tech that seemed achieveable. Madoff actually dealt in real stocks, and Enron in real commodities.
Holmes was a savvy woman with a brilliantly created façade. Madoff was an investor who’d been chairman of NASDAQ stock exchange at one time. Enron executives all had histories in real businesses.
But Bankman-Fried and his pals were kids with no accomplishments beyond expensive educations, dressed like slobs, and lived high in the Bahamas in some kind of polyamory I’m sure we’re all going to hear more about.
And I want to ask his celebrity investors, if you’re so rich why ain’t you smart?
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