The fall of FTX – is $32bn a cheap price for a valuable lesson

No matter how successful the liquidators, the losses incurred by the investors in the FTX business empire are going to be large and painful and -sadly – many who lose money will be vulnerable and the losses will really hurt. So when I say that a $16bn loss could be a cheap price to pay for a lesson, I have all investors in mind, not just the rich ones we know about.

There are plenty more business empires out there founded on not much more than FTX, but continuing to prosper and OTPP are right to continue the search for the next Tesla or Amazon, it will not be found in the old places.

But the budget set aside for speculation is a budget that must be assumed to come to nothing. We are not talking premium bonds here, where massive wins are underwritten by a guarantee of your money back.

There is a separate question of investor judgement

Browsing the evidence on FTX it bears most of the hallmarks of a potential fraud. A hugely complicated corporate structure, un-transparent dealings between associated companies and the blurring of the lines between what is an investment on a platform and what are shareholder’s funds.

And this empire was allowed to balloon without much censure or risk warning

OTPP will find this embarrassing and questions will be asked about how they assessed the risks surrounding their investment and they will look a bit dumb for a while – but this will not really hurt them or their members.

By comparison, there are the day-traders and ordinary Joes (mainly young ones) for whom the collapse of FTX will be a short term catastrophe.

What kind of a lesson costs £16bn?

This was not a crypto story but a story of traditional finance masquerading as something else.

When the fireworks peter out , we will be left asking what in fact did FTX do? The problem is that it seems to have done very little but move money around.

I fear that traditional financiers, the banks – find ways to raise money and lend it back to us through various outlets which we mistake for something else. Clearly those investing in crypto on the FTX platform thought they were immune from the normal threats created by an absence of transparent governance and absolute power over money resting in the hands of a small number of either incompetent or foolhardy entrepreneurs.

We have seen a similar problem in UK pensions where what we thought were investment decisions were actually decisions about borrowing. Both FTX and LDI have in common , a disastrous conclusion though only one had a semi-happy ending (ironically because bad finance was bailed out by public money).

If you think you are investing , but infact you are involved in debt, you end up in a mess. You cannot win at both games for ever and that is the $32bn lesson worth learning.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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