The Problem With Jon Stewart - Why the FTX Crypto Scam Is a Tale As Old As Time

Episode Date: December 7, 2022

“Whatever fun name you wanna put on it, it’s the same damn thing we’ve seen over and over again.” David Dayen, executive editor of The American Prospect, joins us to discuss the spect...acular rise and fall of crypto exchange FTX and its disgraced leader, Sam Bankman-Fried. We dive into the ways its collapse mirrors the worst failures of more mainstream markets, how SBF was able to use effective altruism as cover for garden-variety political influence, and why it’s a mess that the House Agriculture Committee ended up regulating exchanges like FTX. Plus, writers Henrik Blix and Jay Jurden stop by to talk about living in a golden age of grifts and teach Jon about the Liver King’s dirty secret. Season 2 is now streaming on Apple TV+.CREDITS
Hosted by: Jon Stewart Featuring, in order of appearance: Henrik Blix, Jay Jurden, David Dayen Executive Produced by Jon Stewart, Brinda Adhikari, James Dixon, Chris McShane, and Richard Plepler.Lead Producer: Sophie EricksonProducers: Zach Goldbaum, Caity GrayAssoc. Producer: Andrea Betanzos Sound Engineer & Editor: Miguel CarrascalSenior Digital Producer: Freddie MorganDigital Producer: Cassie MurdochDigital Coordinator: Norma HernandezSupervising Producer: Lorrie BaranekHead Writer: Kris Acimovic Elements: Kenneth Hull, Daniella PhilipsonTalent: Brittany Mehmedovic, Marjorie McCurry, Lukas Thimm Research: Susan Helvenston, Andy Crystal, Harjyot Ron Singh, Deniz ÇamTheme Music by: Gary Clark Jr. The Problem With Jon Stewart podcast is an Apple TV+ podcast, produced by Busboy Productions.

Discussion (0)
Starting point is 00:00:00 I'm just gonna be wandering around and just thinking like, you know, I should swing by, grab some food. I should swing by there and get myself a plate of latkes. I'm assuming it's gonna be latkes. I'm assuming this is a holiday party, not just a Christmas party. It's your show. Oh yeah, that is true.
Starting point is 00:00:12 You could be, you could set a special request. Can I design the appetizers? 100% Hello everybody, welcome to the podcast, the problem with me, Jon Stewart, the show. We got the problem with Jon Stewart. It's on Apple TV plus season two is out now. We got more new episodes early next year.
Starting point is 00:00:47 So you can check those out. Today is a very, very special day. It's well, first of all, it's December, the holiday spirit. I think everybody is feeling it. And in the spirit of the holidays, we're gonna be talking to David Day. And he is the executive editor of the American prospect about the collapse of the crypto exchange, FTX,
Starting point is 00:01:04 and how Sam Bachman Fried's networking and lobbying donations showed that he was actually just part of the establishment corruption. And he was not an innovator. He was just joining the party that already existed. But first, as always, writer's gonna be joining us, Jay Jordan and Henrik Blix. Happy, happy holidays.
Starting point is 00:01:26 Can I say Merry Christmas or happy holidays? You better say Merry Christmas, Jon. Merry Catholic Christmas. Are we allowed to say that in America anymore? I don't know. Merry Christmas, gentlemen. A pleasure to see both of you. What is on your minds this fine holiday season?
Starting point is 00:01:42 Well, yesterday afternoon, Jay and I were talking about how we believe we're living in a golden age of scammers. We're in an amazing- Oh, you believe this age you believe is different than scammers of the past? I don't think the scammers are different. Well, our theory is that their reach has been amplified. This is what does, like before we were like,
Starting point is 00:02:02 to get a scam going in the early 2000s, you had to be like a Dr. Oz, where you at least had to be a cardiologist and then you could get on Oprah. You had to have access to television or Oprah, yes. And then you can sell it. And now you can just be like the liver king. I don't know if you know about the liver king.
Starting point is 00:02:18 I do not know about the liver king. Oh, Jon. So if you want to imagine the liver king, picture a guy on steroids. Okay. Now double the amount of steroids that guy is on and sprinkle some steroids. And imagine-
Starting point is 00:02:29 And they can- Wait, wait, wait. But why is he the liver king? Is he a fit, I'm assuming he's a fitness buff. Yes. All right. So this is a man who looks like, hey kids, if you take steroids,
Starting point is 00:02:44 this is what'll happen. Jon, he's a shade of aubergine. He is- Jay said yesterday, he looks like a sweet potato that works out. Have you ever seen the one kind of gnarled sweet potato at the top of the pile? There's always one.
Starting point is 00:02:57 That's what he looks like. He looks like, you know, if you overcook a bratwurst and it bursts. But that doesn't seem muscular. That none of what you're describing suggests a physique like a Mr. Elliptic. He's more than that. But anyway, his whole deal is he's like,
Starting point is 00:03:12 I've never done steroids. I got this way by eating raw liver and testicles. Oh my God, he's a cannibal. There's all these pictures of him holding up like huge cow livers and holding up balls, which- I'm like, ah. Okay. And-
Starting point is 00:03:27 So he's got kind of a fear factor thing going. But how does he monetize? If you're a scammer, why would you monetize something that's easily available to everybody? Well, Jon, guess what? He has supplements that you can buy. What?
Starting point is 00:03:41 Wait, what? Made based on his nine ancestral tenets. So his scam is this. Unless you wanna actually eat balls to get what I look like. And listen, we're not yucking anyone's pills. No, he's like, you should also eat the balls. On your own time, eat the balls,
Starting point is 00:03:57 but also buy my supplements. In addition- In addition. Buy my supplements. That's interesting. He made $100 million last year selling supplements. Guys, come on, you are fucking with me. And guess what scandal just dropped?
Starting point is 00:04:11 Last week, it turns out, his emails got revealed, he's doing $15,000 a month of steroids. Wow, can I tell you something? That is incredibly judicious given his overall income. Generally, you like to put 5% of your income to steroids at $100 million. This has been exposed now.
Starting point is 00:04:36 I've gotta tell you something. I don't think it's going to affect his business that badly. No, I don't think so either. But John, every podcast that he went on, every podcast, the first two questions were, are you on steroids and are you on steroids? And his answers were, he always went, no. If you guys ate more testicles,
Starting point is 00:04:56 if you guys went out into the sun more, if you guys had a liver queen at home, you would look like this. All right, so here, and I'm gonna tell you guys something, and I didn't wanna say this before. I do nothing but sit in the sun and eat testicles. And I'm gonna tell you something.
Starting point is 00:05:13 I thought I saw you at that party. This is what it does. This is all testicles and sunbodies. John, we've been saying, you're looking huge around the office. Fucking yoked. I am yoked. Now, is he on a apology tour?
Starting point is 00:05:33 Is he going back to those and saying, hey, man, I got caught up in the pressure of it. It's worse than that. So this is, it's kind of analogous to a lot of these grifts right now where they're like, I grifted with the best of intentions, which he said he did this because men are killing themselves, men are sad, men are having a hard time,
Starting point is 00:05:54 and he needed to rescue them with his system. By doing steroids. And the only way was steroids. The only way to stop these young men from killing themselves and being isolated online was for him to just run a bunch of HGH and run a bunch of tests. What I have always said is the secret to male happiness is back acne and tiny testicles.
Starting point is 00:06:16 And an anger problem. So you, and an anger problem. And if you don't, if you don't do that, you know, the biggest problem we have with young men is they're not angry enough and they're not muscular enough. Wait John, what the fuck did you just say? They don't spend enough on supplements. It is really just a recipe for road rage.
Starting point is 00:06:35 Yeah. Can I ask you, and this is not an opportunity to just suggest that I am completely out of touch, but why don't I know about the liver king? I think it's a very specific part of, I guess, Gen Z millennial internet where like everyone became a fitness bro over the past two years.
Starting point is 00:06:55 Everyone on TikTok is obsessed with getting jacked as fuck wearing short shorts. So everyone became obsessed with fitness in like an alpha return to masculinity sort of way. And he was the poster child. He would go on these podcast shirtless. I just want to know what part of my media diet am I missing?
Starting point is 00:07:15 Balls. I mean, how is this, how would a man such as me atrophying during this podcast? I'm literally wasting away as we talk. And here's a gentleman with the answer to all of my problems. And I'm not going to have to eat testicles to get there. And I don't know it. I'm the target audience.
Starting point is 00:07:37 You really are. Cause he's like, people say, you know, as you get older, you lose testosterone. He's like, I'm 45. Look at me. And I got this way just by eating liver. Ambals. Ambals.
Starting point is 00:07:47 Okay. It's so important that you don't skip the balls. As a vegetarian, balls and liver are sort of out, but I can take the supplements. That's true. Yeah. How am I missing this? I think it's an Instagram phenomenon
Starting point is 00:07:59 is probably. So I've got to get Instagram. Part of it. Yeah. And you've got to get Instagram? Yes. I've got to get Instagram. That's my guess is that it's an Instagram phenomenon.
Starting point is 00:08:11 I also would guess that you're not listening to the podcast that he's going. The podcast that he's on, every dude looks the same. It's a guy that looks like me basically. Who's like. Who's like. And John, funny enough, a guy that looks like me. Yeah.
Starting point is 00:08:25 Next thing. It's basically evil me and Jay. Who are like, so there's a lot of dudes out there that wish they were getting more ass. What do you got to say, liver king? So this is all. And I'm just curious if they do look like the both of you, how have you guys not decided to jump in on this trend
Starting point is 00:08:41 and start capitalizing on this new found anger at all that has happened to men? We have been negotiating contracts for next time. So. All right. We're trying to get some TPWJS supplements going. Well, we can get it. Listen, my problem is I just spend too much time
Starting point is 00:08:58 on the Goop Instagram. Yeah. So. Henry, tell the Goop, tell the Goop, Goop. Oh, the Goop, here's my Goop on the Goop. This was kind of my grift awakening about five or six years ago when I found out that the supplements that Alex Jones sells
Starting point is 00:09:15 and the supplements that Gwyneth Peltrow sells are the same ingredients just in different packages and marketed for different reasons. So Gwyneth Peltrow's is like pink and white and like it'll give you better hair and nails and skin and help you feel calm and good. And Alex Jones is like, this will help you rip your steering wheel off.
Starting point is 00:09:36 You'll be so strong. Can I tell you something? And I don't say this lightly. It shows that we really are all connected. You know, when I think about our culture and what's gone on and the division, we really are all the same. All of us are deeply unhappy with the nails and our hair
Starting point is 00:10:01 and we're all- It's very funny because all of my gay frog friends love Goop. So there does seem to be like a connection to the two. We're all suckers looking to become scammers. Looking to become scammers. All suckers looking to become scammers. Henry, you couldn't have picked a better segue for God's sakes because you know who's on the program today.
Starting point is 00:10:20 We're talking to David Dain, executive editor of the American Prospect. He's going to be talking about Sam Bankman-Freed, who no one could look like more of a sucker and no one could be more of a scammer. And with that, I'm just going to drop... Do I have a mic to drop? Throw your mic on the ground.
Starting point is 00:10:40 But as I put my hand up into the camera, I realized I need some fucking supplements. And I need them now because this shit is deteriorating faster than I can possibly have it. All right, gentlemen, thank you so much. Well, I'm going to talk to David Dain and we will be back to wrap it up in just a moment.
Starting point is 00:11:03 Talking to our guests, we're bringing them on there. It's David Dain. He's the executive editor of the American Prospect and he's been doing tremendous reporting on crypto and corruption in the crypto area and Sam Bankman-Freed, the third... And everything that went down. David, thank you so much for joining us.
Starting point is 00:11:25 Well, thanks for having me on. We're going to talk about this FTX, FTT, Alameda. I don't understand an awful lot about any of this, but the one premise that I think I have, and I'd like you to talk about it a little bit, is when I read about how these crypto exchanges and companies have been set up, it seems that the biggest mistake they've made
Starting point is 00:11:57 is they are mirroring the worst excesses of the actual stock market, but with a much more volatile commodity. It seems like they've centralized things. There's only a few, like big crypto exchanges. All the conflict of interest and corruption inherent in our more standard markets, they seem to have mirrored
Starting point is 00:12:21 and they've lost the lessons of sort of what this was supposed to be. Yeah, I mean, I'd like to say that this is some sort of innovative and newfangled way to separate people from their money, but I think the real answer is that it's really dull. It's the same schemes transported to something new with different acronyms.
Starting point is 00:12:45 I mean, what you have here is you had two separate companies owned essentially by the same person. You had FTX and Alameda Research. Now FTX was the exchange where people could go on and trade different cryptocurrencies and Alameda was just kind of a simple hedge fund. Yeah, and Alameda was a customer on FTX.
Starting point is 00:13:11 Well, that seems completely above board. Why would that be something that would draw people's attention? Well, not only that, but they didn't have to play by the rules that everybody else played by on FTX regarding margins and leverage. Yes, apparently not.
Starting point is 00:13:30 Yeah, so the exchange is supposed to make its money essentially through small fees on transactions, right? So they are supposed to have, it's basically a bank. There are depositors, there are these entities that are trading on the exchange and they get a little bit of money from each trade and that's how they sustain themselves. The number one thing you are not supposed to do
Starting point is 00:13:58 if you're a bank or a bank-like object like an exchange is take the customer money and gamble with it. Wait, this is, okay, hold on one second now. Now you've really stepped into something here. I apologize. If I'm not mistaking, that is the foundation of American capitalism. That's when they repealed Glass-Steagall,
Starting point is 00:14:21 I'm pretty sure if you looked at the fine print, it said, oh, and by the way, if you wanna place like a really wild, long shot bet using these deposits on let's say, subprime derivative bundles, knock yourself out. Right, but I mean, the point you make is the correct one that we solve this problem almost a hundred years ago and we continue to fall into it over and over again.
Starting point is 00:14:51 So just like MF Global, just like some of the mortgage derivatives that we saw, just like this SNL scandal. The savings and loan scandals, the Keating Five. I saw an economic historian say it's like the South Seas Company from the 18th century. Oh my God. This is just the same kind of thing. They took customer money, they made a bunch of bets,
Starting point is 00:15:16 they lost those bets and the customers wanted their money back and they didn't have it. Whatever fun name that you wanna put on it, it's the same damn thing that we've seen over and over again. And it's incredible because I think all the players within this space played their roles in enabling this corruption to a T in the exact same way that they've played them
Starting point is 00:15:45 from all pastings, all the pundits, all the financial reporters who did these incredibly glowing profiles of this young altruistic boy genius. And it's all nonsense. I mean, I'm struck by, you've got guys like Jim Kramer who, he was praising this guy. You have a problem with something Jim Kramer said? Yeah, well, but is there any accountability
Starting point is 00:16:18 for any of these knuckleheads? Like before the crash of this, Kramer says, he's the new JP Morgan, doling out credit lines to save crypto institutions. And JP Morgan apparently, a paragon of financial. Yeah, but why is that a good comparison is one question. And then the next one is a pathological liar and a con man. You know, there's just a fine line between JP Morgan
Starting point is 00:16:48 and a pathological liar and a con man. It's fucking insane. Here we go, fortune, the new war in Buffett, a white knight. And now there's a ton of things out there that are like the disgraced wonder kid. We were duped too. And you're like, you're a reporter. Well, you know, I think one thing that we've seen here
Starting point is 00:17:10 is not only did Sam Bankman Friedor SBF as he is sometimes so cutely called. Sure, you gotta have a moniker. If you're a boy wonder kind, you have to have a moniker. So one thing that he did and continues to do very skillfully, I think, is not only does he use, did he use his paper wealth to dole out money to politicians on both sides of the aisle?
Starting point is 00:17:40 I mean, SBF was kind of running point on the democratic side. And then they had this co-CEO Ryan Salome who gave $23 million to Republicans. So this is a common thing in the financial industry where you have your democratic guy and you have your Republican guy and the money goes out separately, but it's all to the same end.
Starting point is 00:18:02 And there is a bipartisan group of Republicans and Democrats known as the Blockchain 8. Well, known by me as the Blockchain 8. Known by you as the Blockchain 8. And basically they were just being greased by this company FTX to lobby to make sure that whether it was the FTC or the SEC or the Commodities CFTC, any of those sort of regulatory bodies
Starting point is 00:18:34 that they would lay off. Yeah, I mean, what happened was way back in March when the SEC was engaging in some inquiries to crypto firms. And in large part about the use of customer deposits, like what they were doing with this exchange money, these eight members led by Tom Emmer who was recently elected the number three in the house leadership.
Starting point is 00:19:01 He's the new incoming majority with. They wrote this letter saying, essentially intimating that the SEC was overstepping its boundaries by asking these inquiries of crypto firms. That's right. And saying that we don't think that you're doing this above board. We think you're violating a hilarious law
Starting point is 00:19:23 called the Paperwork Reduction Act, which is a law that came into play, believe in the 90s, it's like a Gingrich era law that says that we don't wanna burden these companies with having to do all this paperwork. So let's not regulate them, right? Meanwhile, it's not applicable to a law enforcement investigation,
Starting point is 00:19:48 but they used it anyway in this context. Right. And probably not applicable, I would think, to an online cryptocurrency world. Well, there you go. The Paperwork Reduction doesn't, yeah, I don't think they're using the Mimeograph machine. That's right.
Starting point is 00:20:01 But the point being that, so in not too veiled away, they were saying back off. They were saying the SEC back off of these firms that you're conducting these inquiries in. What we recently learned in the wake of the FTX collapse is that one of the companies the SEC was investigating back in March in this manner was FTX. FTX, right.
Starting point is 00:20:26 And now, Emmer is blaming the SEC. Yes. He's saying that this is, in his mind, this shows how the government is unable to effectively regulate cryptocurrencies and exchanges without ever acknowledging that he's the one who told them to back off. Exactly.
Starting point is 00:20:48 And five of these eight members who put forward this letter received direct campaign contributions from FTX. Emmer, before becoming House majority whip, ran the NRCC, which is the National Republican Correctional Committee, that's the committee that tries to elect Republicans. They benefited from $2.75 million from both FTX's own PAC and this guy Salome,
Starting point is 00:21:19 who was the Republican version of SPF in terms of giving money to Republicans. So there was a lot of money being thrown. And to make it clear, the investigation was specifically that they were using customer money to make these, you know, bailing out their own hedge fund using FTX customer money. Like that, they were specifically looking into that.
Starting point is 00:21:45 They were looking into, you know, a version of that. It was about how they handle customer deposits. We now know that those deposits were being funneled to Alameda, the hedge fund that made a bunch of bets and lost. And they also asked them about this program that gave depositors interest, which sounds like that would be fine. They gave interest on the crypto asset,
Starting point is 00:22:10 but that would turn them into a security, which means it would have to be registered with the SEC. So there were a couple of different phases to the inquiries, but it was all around customer deposits, which were the problem. So you assume if the SEC is enabled to continue to investigate, they might have seen the leaking out of customer deposits by the billions
Starting point is 00:22:34 over to this associated hedge fund. And how big was the hole was what? 6.8 billion, 7.2 billion, it was some crazy number. In that range. And we know that personal loans were going out to the individuals who were working at FTX. So yeah, a lot going on here in terms of shuffling around money and the SEC was prepared to investigate
Starting point is 00:23:02 and was investigating, but they were getting pressure from the Hill and the Hill was compromised. I mean, they were certainly taking money from folks at FTX. And the thing that I find most galling about all of this is the sort of, well, crypto is so difficult to understand and there's no way that we could have seen this or foreseen it, it's this brand new world.
Starting point is 00:23:30 As though, as we talked about earlier, the general tenets of the corruption that exists between our government and the markets and all these big players, you could substitute out Lehman, Ken Griffin at Citadel. I mean, how is this different than Ken Griffin running a hedge fund at Citadel and also being the most gigantic market maker that we have
Starting point is 00:23:57 and who's the biggest donor to all kinds of politicians? It's Ken Griffin. I mean, the markings for corruption are all over our system but they wanna point to this as it's an anomaly. The conflicts of interest are very familiar and dull, as I say. I mean, I'm sorry to be brought on your show to tell you that things are dull.
Starting point is 00:24:20 You're not dull at all, baby, we're moving this through. But it goes further than that. So one thing we know is that SBF was very active and FTX, the company was active in this particular piece of legislation. And the legislation is called the Digital Commodities Consumer Protection Act because you gotta put consumer protection in there, right?
Starting point is 00:24:42 Because you have to live in an Orwellian dystopian hellscape whenever you make legislation. Exactly, exactly. So this bill, the goal of this bill was to move jurisdiction over certain types of digital assets from the Securities and Exchange Commission which was doing this investigation over to what is called the Commodity Futures Trading
Starting point is 00:25:09 Commission. Which has less teeth, so to speak. It's not as big an agency, it's a much smaller agency. It doesn't have a strict consumer protection mandate. That's not part of its purview. It's only part of its name, it's just not part of it. It's only part of the name of the bill, right? That's right.
Starting point is 00:25:26 So FTX was consulting on and lobbying for this bill. Now, stay with me. This bill, which seeds over to the CFTC, is being put through not the Banking Committee but the Senate Agriculture Committee. The reason is that CFTC jurisdiction is in agriculture because commodities back in the day were things like pork bellies and soybeans
Starting point is 00:25:59 and things like that. And so they retained that jurisdiction in the Agriculture Committee. So you have a bunch of rural state senators, frankly, who are putting forward this very sophisticated. Incidentally, Commodity Futures Trading Commission had control oversight over the derivatives markets during the financial collapse, right?
Starting point is 00:26:22 So you have the chair and the ranking member of that committee, Debbie Stabenow and a guy named John Boozman from, Stabenow's from Michigan, John Boozman's from Arkansas. And they also took money from FTX. They are, the CFTC's chair is a guy named Rostin Benham and he was Debbie's... I'm sorry, that's fictional.
Starting point is 00:26:48 I apologize. I'm so much of this. That's a character in a Dickens novel. But anyway, that guy was previously the lead staffer for Debbie Stabenow. Oh, for fuck's sake. If they move jurisdiction to CFTC for a lot of these crypto assets,
Starting point is 00:27:06 number one, they elevate this committee that the key staffer for the chair of the commission is a former staffer. Second, they get essentially congressional jurisdiction over this side of crypto, which means the money can keep flowing from crypto companies because they don't want to string an oversight from Congress.
Starting point is 00:27:29 So there's this jurisdictional fight going on between the banking committee and the agriculture committee over this. And it's all wrapped up in this bill that FTX and San Bank and Free consulted on. Holy shit. So he's greasing the skids. He's paying off the referees.
Starting point is 00:27:46 It gets darker and darker and darker as you think about it. He's stacked the stands with supporters. And I've watched his interviews and God bless him and his, the Chauncey Gardner character that he's playing now where he sits up there and he just goes, I'm just a child.
Starting point is 00:28:05 I wanted a lemonade stand, but in the absence of it, I decide. But he played this perfectly. I mean, he started his own, he seeded his own media ventures. He gave money to like Vox. He gave money to everybody that could possibly have a role.
Starting point is 00:28:25 He basically put them on the PR payroll. Yeah, the media aspect of this, I think is very important. Mind-blowing. It created this, not just a certain credulity over what people believed he could do and how he could innovate, but it created almost a subculture
Starting point is 00:28:44 of sort of a culture between media types, this weird kind of philosophy known as effective altruism where he was basically espousing this idea that I'm just making a bunch of money so I can give it away. They used to call that tithing, I think, in the old days. Indeed. And so he created a lot of affinity
Starting point is 00:29:07 among a certain type of center-left media professional who was very invested in both this philosophy and in access to this individual who had a lot of power and had a lot of money that could further their operation. And it's clearly very considered, as you say. It's incredibly strategic. He's the face of it
Starting point is 00:29:34 as the center-left, effective altruism guy who's created this crypto world. Meanwhile, underneath it all, behind the scenes, they're also greasing the Republican skids at the same amount of money. I mean, it is... But I mean, the difference is that that guy, the Republican guy, he doesn't have wacky hair and dress like...
Starting point is 00:29:52 Yeah, Salome is not a great media icon that they can... Right. He's not dressed like he's heading to a LARPing convention or something like that. So there is a skewed sense in the media, in the aftermath, that this was the Democrats' big guy and that's been taken down in a spread of corruption. And you could think of it in the sense of being one-sided,
Starting point is 00:30:16 but no, this was bipartisan. That's right. This was across the spectrum. And the only, I think, if there is a silver lining here, it's that at this point, the crypto industry is quarantined enough from the economy at large as to not create the kind of contagion
Starting point is 00:30:35 that would have been created as that happened in the 2008 subprime crash and all those things. But it's the exact same fucking mechanism. And that's the part that is so frustrating, is to watch us play this damn song over and over again, and we're always told, hey, man, no, this is just the system as it has to be in a capitalist system,
Starting point is 00:31:02 but it's not, it's utterly corrupt at its core and that's not a bug, it's a feature. And what was layered onto it was this idea of innovation that they'd have Matt Damon in ads saying fortune favors the Dwayne, that they'd have these Larry David ads. That was for FTX, by the way, the Larry David ad. There was this sort of boundless optimism
Starting point is 00:31:25 around this and not the fact that it was just sort of another way to fleece people. Much of what, if you talk to people on Capitol Hill, who were boosters of crypto, what they'll say is that this promotes financial inclusion. This gets poor people into the banking system in a way that they couldn't before, which is just kind of nonsensical ludicrous that.
Starting point is 00:31:50 Wasn't the whole point that sort of blockchain would decentralize all of this and you wouldn't need the type of consolidation. And yet, when you really look at it, they followed a playbook of the big banks, of the big hedge funds. Like, if there's a good thing we can say here, it's what you just brought up,
Starting point is 00:32:10 the fact that this was not integrated into the broader financial system. And so there wasn't any contagion that could spread from the collapse of this particular exchange or the class of crypto more generally. That was a conscious decision by the regulators to not necessarily allow that.
Starting point is 00:32:30 There were certainly efforts made to move crypto into the payment system, to get it access to the Federal Reserve's discount window, to move crypto into people's retirement accounts. All of these things were attentive. Right, to join the corrupt system we already have. I mean, that's the part that I would really like your thoughts on.
Starting point is 00:32:51 There was a lot of talk of allowing them to join into the generally corrupt system that we already have. Like the thing you just said about giving them access to the discount window, why do we even allow that in these large institutions to go and dip in at 0% and then turn around it by treasuries at 1.5?
Starting point is 00:33:13 Like, what are we doing? And they're gonna try and say this is an anomaly. And not just Lehman, as you said, dressed up in a mop top wig and a larkin suit. Like, it's the same fucking thing over and over and over again. Yeah, I mean, I think that's definitely true. And to take the one bright side is that, we're hearing in the wake of this,
Starting point is 00:33:38 a lot of calls for, we need to regulate crypto. We need to come up with some regulation to help this system. And my kind of view on it is that we already have regulations on fraud. They're called fraud, right? I mean, we don't need more laws to say that when you take customer money and gamble with it,
Starting point is 00:34:04 then that is illegal. That already is a violation of law. If you start to, quote unquote, regulate crypto, what you're going to do is you're gonna bring it into that corrupt system that you're talking about. And so I think that it is much, a much more prudent way of going about this is to maybe look at the way in which it advertises
Starting point is 00:34:28 and think about, what do we do with cigarettes, right? We slap a warning label on it and say, okay, you can do this. You'd have to do that with the stock market. You'd have to do that with everything. If you look at the over the counter market, there's a big warning like you're doing this at your own risk with your own money.
Starting point is 00:34:45 I think more of those kind of warnings and then just actually policing fraud when you see it is the better way to go than to come up with some grand eloquent regulatory regime that will allow for and facilitate bailouts and facilitate that kind of thing. That's exactly right. If they were to join the system at large,
Starting point is 00:35:07 then this situation, let's play it out in the way that it would play out in the real world. There'd be tarp bailouts. There'd be some kind of billion dollar. The Fed would turn on a money hose and we would be told that, hey man, we got to land the crypto plane. It's on fire and I'm sorry that all these individuals
Starting point is 00:35:25 lost their houses and their savings, but we did bail out FTX at 100% on the dollar. Now, there is some fraud here and so they are gonna have to pay a billion dollar fine. Yeah, a big essentially to get there. That's right. They're gonna have to give us a cut of those profits. I mean, that's the problem with all this
Starting point is 00:35:46 because the regulators are the ones, it's a revolving door around it. They're probably, half of them will go and work for FTX then at that point. Like if they were to join the system at large. I'm sad to inform you that that's already happened. Are you serious? So the chief public policy guy of FTX
Starting point is 00:36:03 is this guy named Mark Weichen who was a commissioner of the CFTC, the Commodity Futures Trading Commission. The fix was in to do this, to move crypto regulation to this lightly regulated, this kind of laissez-faire agency and then kind of legalize some of these practices. And the fact that this blow up happened when it did
Starting point is 00:36:31 before they had a chance to put that regime into place is actually a positive thing. There was a hearing just last week about the fallout of FTX and it was at the Agriculture Committee that we were talking about before. Sure, the Agriculture Committee, Cryptocurrency, why not, makes total sense.
Starting point is 00:36:49 That guy, Benham, Rostin Benham was, he was the one witness at that hearing. And these guys were like falling all over themselves to say just because this one very large exchange blew up doesn't mean, this means now more than ever we need, it's like there's this now more than ever syndrome when like something happens
Starting point is 00:37:13 and you actually are trying to do what you wanted to do in the first place. You say, well, now more than ever, we need the regulation that I talked about before because this blow up of the system showed the need for what I already wanted to do. And it's actually quite the opposite, but you should check out that hearing.
Starting point is 00:37:36 It was these people trying to reverse time and try to come up with a way that the system didn't reveal itself. And have they, are any of them drawing the parallels to the current system that we have in place right now for what are called the regulated markets and the inherent corruption and conflicts of interest and monopolies that exist
Starting point is 00:38:03 to dominate those financial industries and put so many people's pension funds at risk? Like has anybody drawn the parallel here? By the way, there is a teacher's fund that was invested pretty heavily in FTX and it's in Ontario, Canada and we're probably gonna see that company or that pension fund lose a bunch of money.
Starting point is 00:38:21 Oh, that sucks. And shows the real world examples of this. That just sucks. But I think what you're seeing, now there's this sort of battle between the Ag committee and the banking committee members are kind of saying, I told you so. There's what I would call a rise of a bullshit caucus
Starting point is 00:38:42 that is finally saying out loud what they may have believed before but didn't want to say, which is that crypto is a bunch of bullshit. We're seeing this from Elizabeth Warren. Just as a, see, I always just assumed that I am a tiny brain that doesn't understand the algorithmic beauty
Starting point is 00:39:02 of the blockchain and that crypto and that because that's the other thing we didn't really discuss. The other part of FTX that's so bizarre is they just created their own token, the FTT and decided to fund it through this creation. There's no real use case for crypto. I still have not seen sort of, in my experience,
Starting point is 00:39:26 it's not a store of value. You don't, something that volatile, you don't want to use it to pay for your house. Crypto always struck me as a solution in search of a problem, but it was sort of that sense of, so what's wrong with money again? Right, exactly.
Starting point is 00:39:43 Like, my favorite thing is this stuff called stablecoins and stablecoins are supposed to be pegged to the US dollar. They're like a money market system. And you can use, you can convert your money into stablecoins and use that to trade crypto. And it's like, doesn't the dollar work as the dollar? Like, why are you tying the dollar to something else?
Starting point is 00:40:09 None of it makes any sense at all. It's just a triumph of marketing and they've found a bunch of people that say, yeah, this sounds cool. I can trade crypto and make a bunch of money. Now, it does, though, strike me as there is something valuable in these blockchains. In theory, maybe on a blockchain kind of system,
Starting point is 00:40:30 you could get to a place where, for example, maybe it improves the mortgage record-keeping system or something like that. But honestly, people just want to gamble with making a bunch of money with it. Like, that's honestly, I mean, the way SVF made his money, by the way, was that he was doing these coin transactions
Starting point is 00:40:50 in a region, I believe there were Japanese trades, because he figured out that there was a timing difference. There was an arbitrage that was available to him where he could buy Bitcoin or whatever the coin is in the US and sell it in Japan. And because of the timing difference, not time zones, but like there was an actual timing difference that he could make a bunch of money.
Starting point is 00:41:16 So he just exploited this arbitrage and that's how he made his initial billions. He's Icarus. He did fly a little too close. I mean, if you figure out that, like how come the figuring out the front running in Japan wasn't enough, like that's your beanie baby, right there, like you did it, get out before everybody figures out.
Starting point is 00:41:36 It was just a fucking- The other big red flag was he went on this podcast on Bloomberg and they asked him to explain something that is ridiculously technical and stupid called yield farming. And the way he explains it is he goes, well, say you have this box and the box doesn't really do anything,
Starting point is 00:41:58 but if people start putting money in the box, they'll think, oh, the box must be valuable. People just decide to put $200 million in the box. This is a pretty cool box, right? And now, of course, this weren't money. It's like, oh, wow, like this thing's now yielding like 60% a year, an X token, and then it goes to infinity and then ever makes money.
Starting point is 00:42:18 And what he was explaining was a Ponzi scheme. Like he was explaining it very directly that this is a Ponzi scheme. And the host that was on with him and says, like, you know, I like to think of myself as cynical, but this is extremely cynical. Like this is more than I've ever said. I think of myself as like a fairly cynical person.
Starting point is 00:42:41 And that was so much more cynical. Yeah, I would have described farming. Like you're just like, well, I'm in the Ponzi business and it's pretty good. He outed himself kind of as this guy over and over and over again. And the fact that nobody picked up on it is in some ways part of the corruption, right?
Starting point is 00:43:03 So a lot of the wealth of it was begun off of just a conjuring, so to speak. The thing that really triggered the downfall was a look at the balance sheet, I believe of Alameda and finding that most of... That was the hedge fund that Sam Bankman freed. Most of the money that was, or the assets that were in Alameda at that time was FTT.
Starting point is 00:43:30 Which was the token that FTX created. And once people saw that and said, there's an old Monty Python bit about a conjurer that creates a block of flats with his mind, he creates apartments with his mind, and the people living in the apartments have to believe in the apartments or else they'll fall down. Oh no, that's like the coyote when he goes over the cliff
Starting point is 00:44:00 and then he's fine till he looks down. The FTT moment was the moment where people stopped believing in the block of flats and that's what brought it down. Wow. And by the way, you could make that analogy for the subprime crisis. No question, but the only difference is
Starting point is 00:44:20 the people that control it already know there's no fucking flats. Like that was the thing that you remember about the subprime context. Those banks knew that those assets were toxic and at the time they were trying to unload them on their own customers. And certainly FTX was aware
Starting point is 00:44:40 that they were funneling customer deposits into this associated hedge fund and the assets of that hedge fund were not based in reality and that they had lost a lot of money. And that's... There's a reason he's based in the Bahamas. There's a reason they're not based in the United States. Like for them to act like,
Starting point is 00:45:00 they don't know that any of this was sort of on the edge there. Well, then why are you in international waters? I mean, yeah, the fact that all of the date lines of these glowing profiles are in the Bahamas should be a giant red flag to the entire enterprise. Like from the British Virgin Islands. Right. I mean, like why are you in this tax haven right now?
Starting point is 00:45:24 Why are you in, you know, outside of the US jurisdiction? Yeah, no, it's shocking to me now that again, as I was saying, he's playing this sort of being their card where it's just, I just wander around and I, you know, I pick out the same t-shirt every day and I go have a cup of oatmeal. Well, and he's very subtly blaming Alameda, even though he takes 90% of the profits from Alameda.
Starting point is 00:45:49 He's saying like, I didn't run Alameda. I don't know what is going on there. Apparently there was a CEO who was put in charge of Alameda who is like... Who's like his girlfriend. His girlfriend. I mean, come on. Or was his girlfriend, I guess.
Starting point is 00:46:01 Who lives down there in the compound in the Bahamas. So it's like, he's basically saying, well, look, I know about my bedroom. I don't know about the bedroom down the hall. I don't know what's going on there. And we're not allowed to talk about it at the breakfast table because that would be against the regulatory regime. Right, and we're very, we're very ethical.
Starting point is 00:46:21 How are they going to play this off as though our system itself isn't at incredible risk of everybody realizing that the flats aren't real? You know, I mean, I think it's a little fascinating that he keeps talking that, you know, against the advice of lawyers. But isn't that what narcissists do? Isn't that what narcissists do?
Starting point is 00:46:47 Isn't that what megalomaniacs do? Is they just assume, I mean, I've got to tell you. I think what we're seeing here with the first days of the post-collapse with Sam Bankman-Fried is similar to what we saw in the first days of Elizabeth Holmes, right? She came out and said, this is a big misunderstanding. I wasn't aware of the extent of this, yada, yada.
Starting point is 00:47:11 And now it took several years, but she's going to prison. And I think the same thing is going to happen, ultimately, with Bankman-Fried. People say like, well, look, Bernie Madoff, they found them, they got them, and he went right to jail. Well, Bernie Madoff confessed. Yeah, as soon as they found him, he was like, yep. Yeah, I did it.
Starting point is 00:47:31 Been waiting for you guys. Right, so, you know, you have to put together an investigation and if you don't have a witness that is essentially giving up the game. So I think in a few years, we actually are going to see the system in a weird way work because this was outside of the regulatory perimeter in a way that we didn't infect the rest of the system.
Starting point is 00:47:54 Right, right, right. And we're going to police it in the way that you should police these things, which is through a fraud investigation. You think this guy will go to jail at some point? How are they going to get him? Well, I mean, you know, they'd have to get the records and there's a new CEO who has been put in place
Starting point is 00:48:15 to deal with the bankruptcy. So he has access to everything. And that guy hilariously also dealt with the Enron dissolution, same guy. And he said, like, look, I've dealt with Enron. This is another order of magnitude. Wow. This is something way bigger than Enron.
Starting point is 00:48:37 Now, I think the only thing that is negative about this is that, you know, a bunch of customers of FTX are going to suffer here. That's always how it goes. The little man always pays the price for the gross negligence of all of it. Exactly. And so, you know, I think we need to do a better job
Starting point is 00:48:55 of policing on the marketing side, on the advertising side, and make sure everybody knows, look, you can drink the bottle of hooch, but you're going to get sick in the morning. And what I love about this is that it demonstrated, it's sort of, you know, the whole thing of the Native American used every part of the buffalo. Like, this touches every part of our corrupt system.
Starting point is 00:49:17 I look forward to this gentleman testifying in front of Congress, because I think he'll find it irresistible. And I think in the way that, I don't know if you've ever seen those date lines where they get the serial killer and he's like, he'll just talk his way out of it, like, it's going to be one of those. Yeah, he does definitely give off a vibe that he thinks he's, you know, the smartest guy in the room.
Starting point is 00:49:37 And that always makes for riveting television. Yes. Especially if he happens to come up against someone who's actually smarter. Well, what he said, I think he said, like, I'll get in there, once I figure out what happened. I just got a tag, you know what I'm going to have to do? I'm going to have to go knock on my girlfriend's door
Starting point is 00:49:53 and be like, what happened? He's going to find the real killer. He's going to do it. That'd be great if he writes a book, if I did it. David, thank you so much for joining us on this. It's remarkable. I'd love to talk to you again sometime about some of the more kind of what we consider the legacy industries
Starting point is 00:50:12 in finance and the corruption inherent there and some of the risks that are involved in that system. Because I have a feeling that everyone's going to try and play this off as kind of an anomaly. Yeah, no, I'd love to do it. David Dain, executive editor of the American Prospect. Thank you so much for joining us. Thank you.
Starting point is 00:50:34 All right, David Dain from the American Prospect. Jay, Henrik, come on back. What, give me your thoughts, baby. Shit sounds bleak. I do like how the Agriculture Commission regulates it. That feels like a true underdog story. Where some senators like, I may just be a simple farming man,
Starting point is 00:50:59 but no big city bank fellas that don't know grapes from peaches going to tell me how crypto works. They come in with a pig the whole time, it's like, whee, whee, now listen. Bitcoin ain't nothing, but so are beams on the computer. Henrik, you have to tell John the craze, the even crazier coincidence. Oh, okay.
Starting point is 00:51:27 I was Googling Sam Bankman-Freed and I were born on the exact same day. Two paths. Wow. Exact same, you are exactly. Yes, we are exactly the same age, within 24 hours of each other. There, but for the grace of God goes Henrik.
Starting point is 00:51:44 If this is not an example that astrology is bullshit, there is not one horoscope that you could read that would apply to Henrik and Sam Bankman-Freed, there's no way. Also, if we're just going based on, if you just took like a school photo of both of us, I should be scamming people financially and he should be in a comedy writer's room.
Starting point is 00:52:11 He should be wearing sweatpants at work and I should be wearing a white collar and being like, I got an opportunity. Can I tell you something? In my 35 years of being in writer's room, you could not be more dead on. I can't tell you how many Sam Bankman-Freeds won me Emmys in the early 2000s.
Starting point is 00:52:32 Oh my God. We got switched at birth, I guess. Oh, John, there is like this odd confluence of like whenever you hear about him and then you see him, you go, y'all were listening to this dude. It was this guy. That's what I meant by like,
Starting point is 00:52:51 when I was talking to David, the Chauncey Gardener of it all, like, you know. He looks like the kind of person who would be scared to talk sternly to a waiter. You'd be like, no, just order your food. He'd be like, I don't want him. It feels very cultivated, very Kaiser-Sose. Oh, that's interesting.
Starting point is 00:53:07 You're going Kaiser, so you think this is one of those. That's the usual suspects, right? That is correct. Okay. I can't remember if that was just a dictator. You know what? Could be, could be, but I like the idea though that he is Kaiser-Sose, that he is this guy
Starting point is 00:53:22 and you sit there and he's spinning a tail and all of a sudden you look at your mug and go, wait, that's the name he used. Yeah. I think that's when we started to give people too much credit. I don't think he's playing 4D chess in the sky. I think he and his friends saw a scam
Starting point is 00:53:38 in their house in the Bahamas and they were just like, no one seems to be calling this out on it. You don't think though, this seems very, it does seem, or he understood the levers of power that he would have to co-opt to get himself. As far as getting the left to the right. To grease those skids. Yeah, he went to the media outlets
Starting point is 00:53:59 that would have reported on this. He went to the agriculture committee to try and co-opt them, to get them from the SEC and to the CFTC. Like he, they did a lot that speaks of orchestration and not of coincidence. It was that the Almeida side? The Almeida side was just a hedge fund.
Starting point is 00:54:22 But I mean, that was the engine by which he was, feeding all that FTX money into, that's why the exchange collapsed. But all the things that they did were very prescribed about gaining influence. He really understands the media landscape and how it's changed. Cause in the 90s and early 2000s,
Starting point is 00:54:46 we celebrated you for being like a rich douchebag. Like the show Cribs was like, fucking look how much money I got you idiot. And Brett Easton Ellis and the whole American Psycho and all that shit like that. Exactly, the greed is good. Yeah. Like that was cool.
Starting point is 00:55:03 Well, that was even earlier, that was Reagan era. That was Gordon Gekko. Well, listen, that's my childhood. I'm a big Reagan guy. Henrik is the one to look back away from actually believing on this stuff. Easy, easy. If my hair gets any harder,
Starting point is 00:55:16 I'm gonna start scamming people. I like it. But I think he understands the media landscape now. We're like being like, I'm a fucking douchebag. I love money that doesn't fly anymore. And there's this like fake altruism that you just, you just sprinkle a little layer on like, actually I'm doing this because it's good.
Starting point is 00:55:33 But how the fuck does anybody not go, you mean like the robber barons? Yeah. Like that, what's different from that and Vanderbilt Rockefeller. Rockefeller was like, yeah, I'm gonna fucking exploit this resource, but I'm also gonna buy an island
Starting point is 00:55:49 and turn it into a bird park. The big difference for me is that at least steel was tangible. At least we have buildings. We have railroads. Right, the value of it is in its utility. And crypto, the value of it is just in its ability to make you believe you too can get wildly rich. The ability to make athletes look stupid
Starting point is 00:56:13 for putting their sign in bonus in crypto. Boy, you're not kidding. Like you said, it's the same scam over and over again, just with like a different box to put money in. It feels like if regulators had like a transparency with a mustache and a top hat and they just like held it up over him, they'd be like, oh my God, it's this.
Starting point is 00:56:34 Oh my God. That should be the test. Well, this has been marvelous. I wish you all, am I gonna see you guys before Christmas and New Year's and all those things? I'll swing by. Thank you. Can I tell you one quick story though, before we go?
Starting point is 00:56:53 Please. So Nate and I, my son Nate and I, we'd love to go to the Nick games and we always have a great time. And generally like, I'll, I know a guy up there at MSG and I'll text him or call him and just be like, hey man, you know, we were thinking of a game. Do you got any tickets at all?
Starting point is 00:57:09 He texts me the other day. Hey man, a couple of tickets opened up, great seats, Nick's cabs, you wanna go? As I said, Nate, like you wanna go? It's a Sunday night game at six o'clock. Yeah, let's do it. I was just thinking it was on Saturday, don't me? Drive up, get in the thing, get down to our seats.
Starting point is 00:57:28 I'm looking around and I'm like, there's six dudes on the court by the color guard with Yama Kazan. And I'm like, what's happening here? I look up, it's like the singing Maccabees. They're the only Jewish acapella group. They do the national anthem. I realize it's Jewish appreciation night
Starting point is 00:57:49 at Madison Square, got this motherfucker. No! Without telling me, it's like, hey man, wanna come to a game and then I go and it's not a game, it's a Seder. It's a fucking, and the whole time I was just like, wait, is that why you? You weren't invited, you were tasked.
Starting point is 00:58:09 Right, like that's, wait, you called me because you thought, oh, well, the other Jews here, he'll be fine. Adam Silver said, we gonna put some things straight. We gonna set some stuff straight this weekend. We are distinguishing ourselves from the other New York team. So the other guy next to us was Amari Stottemeyer, who is the world's tallest Jew.
Starting point is 00:58:36 Yes, Anna and former Knicks player. Yeah. Love Amari Stottemeyer, he's great. It had all converged, but man, would I have loved to heads up on that one. Jay and I recently went to a Nets game and it was a Filipino-American appreciation night, but they didn't have an acapella group.
Starting point is 00:58:53 They did not have an acapella group, but they did, it was Kyrie and Ben Simmons' first game where they kind of looked like they had played basketball before, so that was, that was nice. And that was to show their appreciation. Yes. No John Morant though, this is us complaining. Oh wait, you saw Nets Grizzlies?
Starting point is 00:59:12 Yeah, and we were excited to see John Morant fly. The text Henry said. He may be the most exciting player in the NBA at present. He's unbelievable to watch. Well, we gotta see him dress comfy. And there's no question why the Knicks got the third pick and not the second pick, because that is the Knicks' lot in life,
Starting point is 00:59:32 is to finally get in the lottery, to finally get that high pick and just be one pick away from John Morant. Imagine him at the garden jumping over people. I can't even, on that note, I'm gonna get at it. That is our show for God's sakes. Jay, Henrik, thank you for being here.
Starting point is 00:59:52 David Day, and thank you for joining us. Check out the problem. It airs right now on Apple TV Plus, and enjoy yourselves, and we'll see you next week for our, I think it's next week's is our year end wrap up in review podcast extraordinaire extravaganza. It's gonna be a lot of fun. We've got some nice guests coming in,
Starting point is 01:00:10 so join us for that. See ya. Thank you, it was a blast. Bye. The Problem with John Stuart podcast is an Apple TV Plus podcast, and a joint busboy production.

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