Plain English with Derek Thompson - A Crypto Catastrophe: The Stunning Fall of FTX—and What Comes Next

Episode Date: November 15, 2022

Derek shares his thoughts on the meltdown of crypto exchange FTX and the disgrace of its founder, Sam Bankman-Fried, before welcoming veteran finance journalist William D. Cohan to discuss the history of finance frauds, what comes next for FTX, the media’s relationship to CEO royalty, and his new book, 'Power Failure,' on the rise and fall of GE. Host: Derek Thompson  Guest: William D. Cohan Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

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You can listen to This Blue Up on Spotify or wherever you get your podcasts. Today's episode is about a crypto implosion that stunned the world, or at the very least, stunned me. As listeners of this podcast know, I am not exactly the world's biggest crypto booster. I consider myself a skeptic who tries not to write off technologies that I don't fully understand. But of all the characters in the crypto landscape, the one I was perhaps most interested in, even in a way the most impressed by was Sam Bankman-Freed. He went by SBF. SBF is the founder of a crypto exchange FTX and a hedge fund Alameda Research.

Sam was a quirky nerd with wild hair who dressed in cargo shorts and t-shirts for conferences, and he was a fixture of media events. He appeared on the cover of magazines like Fortune and Forbes. He donated to Democratic candidates. He subscribed to a philosophy known as effective altruism, which is a kind of utilitarian movement that seeks to do the most good for the most people now and in the future. And he has expressed an interest in giving away all of his money to an array of charities, from malaria prevention to artificial intelligence safety.

Some magazines had called him the next Warren Buffett. Others went even further. As cryptocurrencies fell in value over the last year, SBF bailed out several projects. which struck some as a kind of echo of gilded-age robber barons stepping in to prop up the financial industry during the crises of the late 1800s. People called him the JP Morgan of crypto, or the JPEG Morgan.

And his company was a fixture in sports, too. FTX spent $135 million on the naming rights for FTX Arena, where the Miami Heat Play. They paid millions of dollars for a Super Bowl ad with Larry David. They attracted investment from that only only money. only blue-chip venture capital firms like Sequoia, but also Tom Brady, Giselle, Steph Curry. And then it all fell apart. One month ago, FTX and SBF were the darlings of crypto.

And now it's a total cluster shit. After a report circulated a couple weeks ago, that this exchange's balance sheets were heavily composed of tokens that were essentially invented cryptocurrencies or for mathematically sophisticated IOUs, there was a run on the bank that left FTX down several billion dollars. A rival exchange called Binance initially offered to buy them, but later pulled out, and the company has declared bankruptcy.

SBF's $16 billion wealth was wiped out in a matter of days. We don't yet know the full shape of the failure here, but it looks a lot like fraud. And this is the part where I have to make a confession, or a few confessions. I have met and interviewed Sam. I liked him. I thought he was charming and weird and smart and playfully intelligent, game to answer questions about the intersection of crypto, the greater good, the nature of capitalism.

I liked that he talked about crypto, not like a true believer, but rather like a guy who stuck a drill in the ground, found a $1 billion in oil, and decided he didn't really care that much about oil, but he'd like to soak it up and give it away to better causes. That was a really interesting perspective from the richest 29-year-old in the world. Another confession, the movement that SBF subscribed to, effective altruism,

is a movement that I have respected for a long time. In fact, when I lived in New York City for several years, one of my sub-letter roommates was a philosopher named Will McCaskill, who is now a leader of that movement, effective altruism, and was until recently sort of a moral consigliary for Bankman Freed. I knew Will.

I knew that Will trusted SBF. And so while I never wrote or podcasted or had any money or any financial relationship with FTX, I sort of admired Sam's strangeness from afar. I admired the causes that he gave to, including, and especially pandemic preparedness. And now, like a lot of people, I think he may have been a fraud. I want to stress that we don't yet know exactly what happened, but at least one plausible scenario is that SBF was in charge of both a trading platform, FTX, and a hedge fund. That meant he had access to customer funds that he could bet with.

And when the hedge fund made a series of bad investments, he may have transferred customer funds to fill that hole. That is incredibly bad. It might meet the least. definition of outright fraud. And it makes me feel like this guy that I kind of admired from afar might have been less of a J.P. Morgan and more like a bizarro Elizabeth Holmes, the CEO, former CEO of Theranos. If you recall, Holmes had a costume, the black turtleneck, the red lipstick. SBF had a costume, too, the frizzy hair, the disheveled clothes. Holmes hid her fraud with bluster and confidence. SBF hid behind this illusion that he was in on the joke, that he partially understood that

some cryptovaluations relied on a kind of infinite Ponzi scheme, where Holmes seduced with impressiveness, SBF may have seduced by being disarming. I don't know. Maybe there's a ton we still don't know about this. Maybe there's a more innocent explanation. But right now, I don't think there is. I think people got played. Now, there are so many lessons we can draw from an implosion like this, an Icarus story like this.

I think one of the lessons is the dangerous power of stories. When SBF was raising money from Sequoia, which is one of the most famous and successful venture capital firms in the planet, he reportedly wowed the entire VC movement, the entire VC team, while playing a video game on a separate screen. So at the same time, the fact that he could secure millions in funding from discerning, investors while playing a video game, they was seen as a sign of incredible genius, right? His ability to do nine things at once, which is an important trait for a founder.

But now, in retrospect, it looks like Sequoia gave their money to a kid who was either in way over his head or worse, was so unmoved by the immorality of his entire enterprise that he couldn't be bothered to give investors his full attention. Another lesson is that we, the media,

kind of suck at allocating our trust. We idolize wealth. We idolize people who braid mainstream success and radical personality quirks. We Hollywood-eyes complicated characters and fail to ask the hard questions. Questions like, hey, Sam, you run a trading exchange that has an obscure and complex relationship with a hedge fund? Are we sure that's above board, or is this arrangement an obvious invitation for duplicity and fraud?

Well, today's guest is no stranger to writing about duplicity or fraud in the business world. Bill Cohen is a long-time best-selling finance journalist, whose latest book Power Failure Traces the Rise and Fall of GE. He's been following the SBF FTX crypto meltdown, even as he's producing a documentary on the state of and future of the crypto industry. And he provides us excellent background on the finance aspects of this disaster, even as we debate what it means that we were all duped, or so many of us were duped.

by this bizarre and extraordinary character. I'm Derek Thompson. This is plain English. Bill, welcome to the podcast. Thank you for having me. It's great to be here. I'm a real honor. I think we should start by talking about this character,

who Sam Bankman-Feed is. Tell me about the SBF that the world thought we knew just two, three weeks ago. Because I've already said this in the open. I interviewed him. about a month ago, I had no idea that this guy was about to become the most infamous name in business. What made him such a captivating and unique figure before the sky fell down?

Yeah, I thought a lot about that, Derek, in the last few days. And, you know, I had, I interviewed him for this documentary film about crypto that I've been working on for the last year, last December. So think about it. Last December, like Bitcoin, peaked last November ish, like $69,000. So in December, you're talking about SBF, Sam Bankman-F

Sam-Bankman-Fried, flying into New York on a cold winter night. We're up in this hotel on 6th Avenue at like 55th Street, and I'm freezing. I mean, I'm freezing my ass off.

And he comes in, of course, in his shorts, in his t-shirt, looking like a mini you know, Albert Einstein. And you got to remember, he's at that point, he's 29, he's the richest person under 30 in the world. So already there's this aura

about him. He comes in, t-shirt, shorts, it's cold, he doesn't seem to feel it, talking about being a vegan. His parents are both Stanford Law professors, so I'm sorry, I don't really know anybody who's both of whose parents are Stanford

law school professors, he graduated from MIT in physics. So already, okay, anybody who has a degree in physics in college, you know, is already on a separate plane from mere mortals. And then having a degree from MIT in physics puts him, you know, on a separate plane. And then he goes and becomes a, you know, a trader at a hedge fund downtown New York, you know, et cetera. So I think the, this resume the combination of the resume, the parentage, the DNA, the appearance, the wealth, you know, having accumulated, and like this FTC's name being everywhere, right, on the stadium in Miami, on the freaking, you know, umpire uniforms, his influence in Washington being the second largest donor to the Democrats, you know, in this cycle after George Soros. I mean, what more do you need to be, you know, sort of wowed from the outset? It's an unbelievable package that this guy is put together. And being incredibly, pretty much incredibly open to the media and available to the media and coverboy for the media.

You know, and once again, people just fell for it, hook, line, and sinker. Let's do a little TikTok on the week leading up to the FTX bankruptcy filing. There are a lot of steps here that I am not going to collapse for our purposes, but basically I see this as a three-part story. Part one, there are rumors and revelations that FTC's balance sheet is composed of tokens that it invented and that are potentially nearly worthless. Customers freak out, and there's a run in the bank. Part two, as it goes with bank runs, sometimes FTX does not have the cash on hand that it needs

to fulfill all these requests that used to have the cash, but the cash is gone. it is somewhere else. We will return to this mystery in a second. And then part three, after this bank run reveals this $8 billion to maybe $16 billion hole in FTX's balance sheet, SBF scrambles to raise funds or otherwise collapse in a bankruptcy. Yeah, so this finally gets this to the big question, which is what the hell actually happened here? You know, where's the money, essentially? Where's the money, Lubowski? So the story that most people seem to be telling is that FTCS, of course, was not just a trading platform. It was a trading platform attached to a hedge fund called Alameda Research.

And that hedge fund had been making absolutely wild amounts of money during the crypto boom. But when asset values crashed, the hedge fund was wiped out. And SBF tried to fill the hole by transferring customer funds into that private investment fund. But as the market continued to be a disaster, he then lost that money to, And as a result, the entire thing imploded. Is that your closest understanding of what we're looking at here with FTCS? Well, first of all, it's important, I think, to not project, not be definitive about what we know or don't know. I mean, obviously there's some been reporting and usually the Wall Street Journal and Bloomberg or whatever who are sort of leading the charge here in the New York Times are responsible.

and trying to get it right. But we have a bankruptcy filing. We know that for a fact. What we really need here, as I was saying the other day, is an examiner hired by the bankruptcy court to really sort through what happened. But what I'm hearing happened and what is kind of like the big mystery is

and what could be, I mean, the real issue here, Derg, is whether SBF is a naive, which he certainly comes across as from time to time, almost childlike, as I'm sure you would agree, or whether he's a major league criminal fraudster. And so on the one hand, if he's a criminal fraudster, what I've heard is that, you know,

the question is people would send him money or crypto to trade on his exchange. And did they actually have accounts on the exchange? did he actually open accounts on the exchange, or was that all just a fiction as a way to take their money and put it into his hedge fund? Like it never even was on the exchange, and there never really was, this is one theory,

never really were any accounts on the exchange. So all these customers, whether there's 100,000 or a million is the latest number, is they gave him on this money, and he just hived it off into Alameda research. Okay? Then, so that's, that would be completely fraudulent and criminal, and that's jail time right there. Then I've heard that he had these tokens, you know, the shit coins, which, you know, and they were thinly traded because he controlled most of them.

And then he, you know, gave or, you know, he exchanged 500 million of them in exchange to CZ over at Binance in exchange for his. stake in FTCS that he wanted to sell. So he got shitcoins in return and then when he realized he wanted to sell them, you know, all hell break loose. But in the, before that, you know, apparently, we don't know yet, but apparently our boy SBF was using the shit coins as collateral for margin loans. We don't know who was making those loans to him. That would be nice to find out. But as the value of the collateral, the shit coins, fell because CZ said he wanted to sell his 500 million a worth of them. Then he got the margin loan spiral just spiraled out of control. Can I catch you? This is great. It's exactly where I wanted you to go. I just want to tap the

brakes here for people who might have their head spinning when you say collateral on margin loans. I mean, you're, you've written about this for years. So you're the perfect person to ask about this. In plain English, like, what are you talking about when you're talking about using collateral for margin loans and then maybe, if you can, try to introduce the idea that that collateral in this case is a made-up crypto token? Right. So anybody who has a brokerage account might be familiar, which is like half the country, might be familiar with, you know, quote-unquote a margin loan, which is something that a broker will allow you to, do, which is to take a loan from the broker using your stocks as collateral. I don't recommend this

at all. It is very stupid to do and very risky and very expensive. The money is very expensive. Because what happens is if the value of your stocks goes down, then essentially the loan to value ratio or the value to loan ratio, if you will, the assets, your stocks are collateral that the brokerage or bank uses to get comfortable with making you in the loan in the first place, just like when you get a mortgage on your house. The asset is your house, and the bank is making you a loan based on what they perceive as the value of that house. Now, that doesn't really fluctuate that much, but stocks go up and down all the time. And so, you know, if a stock goes down and you've got a margin loan against it, then they can ask for more collateral, more stocks.

Or if you don't have that, they'll sell out the stocks to pay themselves back and that'll just, you know, deteriorate very quickly. And if you're collateral or if your asset that you are getting a loan against is shitcoins, i.e. made up cryptocurrencies, which seems to be something that these crazy exchanges, just do. And for the life of me, I frankly wasn't even aware of it. And yet the more I hear about it, I cannot even believe that anybody fell for this, okay, let alone gave them value, let alone got a margin loan against it. So these people all need to have their heads examined, and they're kind of getting what they deserve at the moment, because this is so ridiculous. But what happened was when these, you know, I think what happened was that CZ at Binance wanted his equity bought out of FTX. And Sam did that by giving him $500 million worth of FTT these shit coins. And then he said,

you know, at some point when he started here looking at that balance sheet that came out, which I, by the way, not sure anybody could ever decipher, but. people did. Anyway, that's another rat hole to go down. But, you know, when he just said he was going to think about selling these shit coins because they were for shit, then the margin loans came in because the value of them started dropping and therefore the asset value had decreased and the margin calls came. And the spiral began.

SBF needed to make those margin calls, needed cash. And either he tapped into his customer's accounts or he had already tapped into them. And then customers wanted their money back because it seemed like it was spiraling out of control. And of course, he didn't have it because he had either invested in all these, you know, he invested in Sequoia or whatever, all the things that, you know, Almeida research was investing in. Right. And that's why a lot of people in Wall Street are trying to think about what the right historical analogy is, you know, is this Ferranos, is it Enron, WorldCom, is it a Lehman moment? We don't know for sure what it's going to be because we don't know exactly what happened yet, and we're still trying

to piece it together. When will we know? I mean, you understand the bankruptcy process better than I do, But it seems to me that one of the points of the bankruptcy process is to reveal the underlying reality of the fraud or the mistake or the naivete, as you said earlier. When do you think we're going to get something like that as formal as a bankruptcy process? Well, it is, it has filed for bankruptcy in Delaware. There is FTX counsel, has now, I believe Sullivan and Cromwell has been hired. I've heard that, you know, there may be a restructuring advisor who is hired, you know, probably in the mold of somebody like an Alvarez and Marcel or something, that I don't know whether that's happened yet. There's obviously a new CEO who, the guy who was, you know, got, you know, supervised and Ron.

post-bankruptcy. So the guy, you know, kind of knows what he's doing or should in this situation. SBF is gone. He's acting as an advisor. He's probably singing like a canary at this point or if he'd better be. He's hired Mike Milken's counsel from Paul Weiss, which is telling. Why is that telling? Well, because Mike Milken was a criminal as well.

and, you know, spent time in prison, albeit, I'm sure, a country club prison for his misdeeds during the 1980s, which I could talk about it forever another time. But I don't think, but there's chaos now, right? There's chaos in Nassau. There's probably chaos in the Delaware court. Nobody knows what's really going on. They're trying to get their hands on it. They don't know whether there's a, hundred creditors or a million creditors or or what. So until things sort of get organized and sorted out and they're like creditor committees appointed and frankly until the judge appoints an examiner. I mean, this is a case that screams for an examiner to figure out what went wrong. Just like Lehman Brothers case screamed for an examiner. And it could be almost that size in terms of the billions of,

capital at stake here or that was lost potentially. And until, you know, an examiner comes in with the powers of the bankruptcy court to, you know, subpoena people and get them to talk and to say what happened and look at the accounts and to look at the books, I mean, that, that piece of paper that is now serving is like the quote-unquote balance sheet of FTX and, you know, his hedge fund is beyond pathetic, right? It's not even... Can you expand on that? Because we've referenced it a few times now,

just like this absolutely bizarre balance sheet that was circulated to potential rescuers. What makes it so bizarre? Because, you know, you know, a company that is being properly regulated, like by the SEC, which, of course, FTX wasn't, you know, it's a private,

company, even private companies had audited financials. And, you know, given that he founded this company in 2019. In the three years in the interim, he was able to get $1.8 billion from supposedly smart investors who apparently made these investments, you know, without audited financials. Because, you know, I've not seen any audited financials. I've never heard of anybody talking about any audited financials. So, you know, what appears is a one-pager listing some shit coins on it, as you said, is both assets and liabilities and using that to try to raise $8 billion of cash. It's, it's beyond absurd. It's pathetic. Is that naive or criminal? It's just, I don't know, but obviously he completely did not succeed because, but he obviously had succeeded in years earlier,

raising $1.8 billion from the likes of Sequoia and other Ontario teachers. I mean, it just blows my mind that he was able to do that from people who just sort of should be doing the due diligence on behalf of their limited partners. I mean, how anybody can give these firms any additional money after this fiasco is beyond me as well. But of course, you know, we know that our friends at A16Z, you know, Mark Andresen's, you know, who has to be the smartest guy in the world next to SBF, right? He gave Adam Newman a new fresh $350 million after we work. I just don't understand how this can keep happening over and over again

or why you would ever want to be a limited partner in funds that do this. But, okay, so. And I want to put a pin in that because I want to get back to the idea that a lot of LPs are potentially going to just give up on the entire crypto enterprise. because it's just such a Wild West for now. The last question I have about SBF specifically is the tweeting that's happened in the last few days has just gotten increasingly surreal and bizarre.

At one point, he was just tweeting letters and numbers that seem to spell out a kind of a cross-dick of what happened. I mean, I'm not going to try to psychoanalyze exactly what's going through his mind there, but there was one tweet that really, really surprised me and caught my attention, which is where SBF seemed to indicate that he was still trying to figure out what happened.

And would explain it to us. And would explain it to us. This is a week, a week and a half after the implosion of the business for which he is the CEO. It is run or seems to be run by about 10 people living out of the Bahamas in Nassah in a $30 million mansion on the water. How is it possible? Look, you're the expert.

You've been reporting on this for decades. Have you ever heard of a situation where the CEO of a hedge fund or the CEO of any kind of investment bank akin to the FTX Almeda Research hybrid did not understand what had happened to their company at the moment that it seemed to be collapsing? You may find this hard to believe, but this is kind of the way. It goes when there's a financial implosion. I haven't, you know, I've written about any number of financial implosion, especially around 2008 financial crisis, obviously wrote a book about the implosion at Bear Stearns, wrote a book about how Goldman was able to avoid the implosion.

You know, I will tell you that the executives, including Jimmy Kane that I interviewed at Bear Stearns, and all the rest of the senior executives at Bear Stearns, they did not know what had happened to their company. Basically, Bear Stearns disappeared about as rapidly as FTX disappeared. You know, it all happened in a week, the eyes of March in March of 2008. It was literally gone in a week,

pretty late three days, not unlike FDX. Because that's because, Derek, Wall Street and finance is a confidence game. It is a confidence game. If you have confidence in your financial institution, you know, you can put up with a lot of shit. The moment that confidence is lost, it's over. It's over.

And it happens like that. And, you know, people don't think it's going to happen. They never expect it's going to happen. They don't believe it's going to happen. I mean, Bear Stearns was around for 85 years. it didn't have a losing quarter until the fourth quarter of 2007, two and a half months later, it was gone. And it was gone in a week after people like Jim Kramer went on CNBC saying you'd be crazy to

sell your Bear Stearn stock. And Alan Schwartz, who had become the CEO of Bear Stearns for three months in January of 2008, said everything was fine. And, you know, it's not because once the way you finance you, once where your source of capital comes from dries up, whether it's repo financing in the case of Bear Stearns or customer accounts, which is criminal. But if he was using them, the opposite of being available is when everybody wants their money back at the same time. That's called a run on the bank. When there's a run on the bank, confidence is completely lost. And that's because in a fractional banking system,

your money is never at the bank. Do you ever wonder why when you go into a bank branch, they're impressive, they're made of marble, their bank vaults. There's a huge vault in the corner, you know, the size of a football field. It's to give you the impression of safety that your money is safely at the bank. But guess what?

Your money's not at the bank. It's never been at the bank. If it was at the bank, we would not have a banking system. You put your money in the bank and they immediately, or soon thereafter, lend it out, and they pay you nothing for the money, you leave with them and they lend it out at big spreads. If your money was at the bank,

they couldn't use it to make money from your money, and therefore there wouldn't be a banking system. So as long as people don't want their money all at the same time, the system works. When people freak out and lose confidence, which happens like once every decade or so, they make a run on the bank, they want their money at the same time, just like at FTX, just like at Bear Stearns, just like at Lehman, just like in the 1929, 1930. just like over and over and over and over and over again, then the system collapses or that entity collapses. And that's what happened at FDX.

And what's so interesting to me is that in a way, to put a bow on the SBF story for now, he was playing a kind of reverse confidence game because the typical bank, as you said, looks like a temple. The typical banker is in a natty three-piece suit with a perfect tie and perfectly quaffed hair. he or she is supposed to look like the absolute picture of like a marble column or a bust etched

into deep marble. And SBF was playing the exact opposite game. I never comb my hair. I am never going to look comfortable in a suit. I'm going to wear t-shirts and cargo pants. I'm going to give the impression of such extraordinary, extraterrestrial intelligence that I don't even have to get dressed for you, for you to trust that I understand what's going on with your money and my investment scheme. If it does finally come out that he was basically Elizabeth Holmes

with worse hair and cargo shorts, that's going to be the story, that he played this extraordinary reverse confidence game on a lot of really sophisticated investors. Two more layers here. First, crypto and second, the philosophical movement of effective altruism that SBF was a part of. you know, I'm really curious what this does to institutional investor trust in crypto. Like, of course, there's going to be a vibe damage. It's rough to have the white knight of your industry revealed as a fraud or a failure. But it's really the institutional damage. The JPMorgan of your industry.

Exactly. Or the JPEG Morgan of your industry. It's really the institutional damage that I most interested in. Like, one of the investors, one of the major investors in FTX was the Ontario Teachers' Pension. The next pension fund is going to look. look at the next marginal investment in crypto and say no frigging way. There is no way I'm making the same mistake that Ontario made six weeks ago, six months ago. I mean, how devastating do you think it is for the near-term future of crypto to have an implosion like this that might

have a chilling effect in all these institutional investors? It might be the best thing that ever happened to crypto. Just like the implosion of internet one.0, pets.com, was the best thing. thing that ever happened to the internet, right? I mean, you know, it went from being a total speculative paradise or nightmare after March of 2000, you know, when it was, remember, you know, you're too young to remember eyeballs and, you know, all the crap that was being slung about all these companies and all they, you know, they all went public. They got their capital. They spent it on marketing to try to get eyeballs or creating their website, and then it all crashed out. And then out of that, out of that wasteland, that, that, you know, the forest fire, the raging forest

fire of that, that came green shoots. And out of that came, you know, the Googles, the Amazon's, you know, the next generation of companies in the internet that actually could use it, could actually provide services and products that people wanted and could actually make a profit. And now, of course, that's Web 2.0. Now, of course, people have started talking about Web 3.0 and how it's going to be decentralized again, blah, blah, blah. Let's not go down that rabbit hole. But that whole concept might be on ice now. But I think, you know, the whole facade of crypto capitalism has been, I think, plowed asunder at the moment. And, you know, I still believe, even though I don't really understand it, Derek, I have to say I don't really still don't really understand it because I'm obviously not

smart enough because I'm an old fogy. But, you know, perhaps there's something to the blockchain and the technology behind Bitcoin and cryptocurrencies that might be useful and can be built upon to make something that might be truly innovative and valuable for society. But I think clearing out this underbrush of all this crap and all the shit coins and all the 2,000 coins that are traded on Coinbase and, you know, all this BS that's being flung at us for years now, I think will be potentially quite healthy. I think bending over back. backward all the way to be fair to crypto in this moment when no one needs to be fair to crypto,

it is of course possible we can see some kind of forest fire effect that we saw with Web 2.0 in the early 2000s where the pets.coms of the world crash and the Amazon's nearly go bankrupt but end up becoming the next behemoths of the 21st century. Of course, something like that could happen. But there's something that you said that I think is really potent, which is that you just said, I'm a smart person, but I might not be smart enough to get crypto. So who, who needs? knows, maybe you just have to like trust that smarties better than me are going to figure out the way forward in Web 3, crypto, decentralized, whatever. It is potentially, precisely that attitude that is responsible for giving us people like SBF. A lot of really smart people and a lot

of venture capital firms saying, you know what, I'm really smart. I bet I've made huge bets in hard tech. I've made huge bets in consumer tech. I've made huge bets in, you know, native apps, et cetera. I don't think I'm smart enough to really understand what's going on in crypto. But damn, These physics majors from MIT really seems smart and they dress weirdly and they talk in circuitous language and it sounds really brilliant and I might as well write them a check for $100 million to see what all this is about. And it turns out that the fact that these people, who are very smart, didn't feel smart enough to truly understand what crypto is about, was an important signal that there was no underlying

product. There was the promise of a product built upon a interesting piece of a piece of a product. of math and technology, but hadn't yielded anything of use to actual consumers, certainly, in America. Like, there is always that possibility that your uncertainty is actually the most important signal here, that underneath all these promises, it's just a lot of hand webbing and shitcoins. Well, of course, that is absolutely correct. Okay.

There's no question that that is absolutely correct. and that has, you know, at one point, created a trillion dollar industry out of nothing that's now shrinking close, you know, getting its way back. Three trillion at its peak, right. Three trillion at its peak and now about $700 billion, yeah. Right. But on the other hand, you know, both things can be true. It can be true that we don't understand it for shit. And it can also be true that it might have some value at some point. Like, I don't understand. I don't understand how my iPhone works. I don't understand how a car works. I don't understand how a combustion engine works.

I don't understand how an electric engine works. But you do understand how to use all those things because you drive a car and you use a phone and you turn on a combustion engine. I think it's a really important distinction that you don't use any cryptoprides. But there was a time when I didn't understand, and there were time when people freaked out about cars,

absolutely freaked out about cars. I just written this book about GE. You know, GE was 100 years ago, the first manufacturer of electric cars. Have you ever seen people trying to drive the first electric cars or the first combustion engines? It's like Laurel and Hardy. It's like the three stooges. I mean, people didn't, I mean, I didn't understand, you know, Wi-Fi or the Internet.

Remember Katie Couric? What's this thing, the Internet? What is this Internet thing? I mean, it takes time for people to internalize it, to adapt it, to get used to it, to trust it. And I think we're just like kind of in the early innings of whatever this thing is. Speaking of extraordinary downfalls of once esteemed companies, you have a new book out about GE called Power Failure. Tell us a little bit about this book that comes out this week and why you chose this subject for your latest book. Well, again, it's not unlike kind of Michael Lewis being embedded with, you know, SBF.

You know, I once upon a time worked at GE Capital when I first got out of business school back in the 80s. And all of a sudden, this company that was once the most valuable company in the world, the most respected company in the world, the most revered company in the world, with a CEO who was the manager of the century, who created unbelievable technology. The technology that Google created, that Microsoft created, that Apple created, all rolled up into one. I mean, there was no better technological leader than GE, a 130-year-old company. And next thing you know, it's a dead body on the floor. So just like I wanted to know what happened to Bear Stearns, just like I wanted to know what happened at Goldman Sachs,

just like I wanted to know what happened in the Duke Lacrosse scandal. I wanted to know there's a dead body on the floor, namely GE after 130 years, how did it get there? How the hell did it get there? So I spent three years trying to figure it out, and I'm pretty sure I figured it out, and that's what this book is about. And I think it's a riveting story, of course, what writer doesn't think what they've written is riveting. But to see the subtitle is the rise and fall of an American icon, I mean, there was no company

more iconic around the world than GE. And, you know, Hank Paulson, former Treasury Secretary, said that to me himself. I mean, you know, when he goes to China, that's what they talked about, GE. What happened to this company? How did this happen? How did it go from the most valuable company in the world in 2001 to irrelevant 20 years later? Is there a thread that connects the fact that Jack Welch and Emelt, the CEOs of GE, were among the most respected CEOs by the, the media for a period of their tenure. And now your book asks us to reevaluate the legacy of their tenure. Is there a thread that connects that to the fact that the media doesn't seem very good necessarily at picking out the CEOs that are going to have the best track record in the long

run? We fall in love with people who either fit a very specific archetype like Elizabeth Holmes or people who violently push against that archetype like SBF, but seem to not have a great track record of identifying those leaders that are the best for the long run of their company. Look, the media just gets, the mainstream media, just gets captivated by these people. I mean, you know, in addition to SBF being on the cover of Fortune and Forbes, literally in the last year, right,

I mean, guess who else used to be on the cover of fortunate Forbes all the time? Jack Welch, Jeff Immelt, Jeff Bezos, you know, Mark Zuckerberg, you know, we, you know, Miss Theranos, Elizabeth Holmes. I mean, Adam Newman, we fall in love with these people. You know, in America, we love to build people up and we love to tear them down. That is just the arc of the narrative that we get totally entranced by. whether in politics or in business or sports, it's just what we like to do. And so, you know, that's what happens in business. That's what's happening, you know, with SBF now. That's what's happening with Jeff Yomold and Jack Welch and Elizabeth Holmes and Adam Newman. I mean, that's, and,

you know, Mark Zuckerberg, that's just the way it goes. And it's probably not healthy because, you know, the ups and the downs, you know, this culture, this reverence culture that we've developed, especially for people with, you know, billions of dollars in their net worth is not healthy. Because a lot of money is lost along the way by people who don't know better, who think there's some great thing being here that, you know, their fear of missing out. And what really happens is their money disappears and they wonder what the hell happened. Certainly seems to be what happened in this case. Bill Cohen, thank you very much.

Thank you, Derek. It was a pleasure. Thank you for listening. Plain English is produced. by Devin Manzi. If you like the show, please go to Apple Podcasts or Spotify, give us a five-star rating, leave a review, and don't forget to check out our TikTok at plain English underscore. That's at Plain English underscore on TikTok.