A concise and cogent explanation of why Lewis’s SBF story is so problematic.

“SBF is not an effective altruist. Michael Lewis has been a literary hero of mine for decades. Liars Poker was a book that both excited me about getting into the financial services industry and also made me deeply question the motives of people in the financial services industry. So I was surprised this week to see Lewis doing a book tour and framing Sam Bankman Fried as a good person who just flew too close to the sun. He even went so far as to distance SBF from Bernie Madoff.

I have a take a deep breath here because this one actually makes me mad. SBF is exactly how most Bernie Madoff’s start. The only difference is that SBF got caught quickly. You see, most financial services ponzi schemes start with good intentions. It’s usually someone with dreams of generating huge returns running a fancy strategy that blows up. It often involves commingling client funds with firm funds. And in an effort to climb out of the hole they exploded they oftentimes make things worse. And before you know it this well-meaning person is in a financial hole so deep that they have almost no choice but to try to continue digging in the hope that no one ever asks for the shovel. In the case of SBF people asked for the shovel quickly. In the case of Bernie Madoff it took 20 years for people to ask for enough shovels to realize that he was digging with his hands.

I’m a little disheartened by the Lewis commentary because he’s trying to diminish the severity of what happened here by claiming that SBF ran a good business on one side and got into hot water in an unrelated hedge fund. Okay, but this is precisely what Madoff did. Madoff Securities was one of the largest and most innovative market makers on Wall Street for many decades. They ran a large and legitimately great business. They were also commingling client funds and running the fraud in accounts on the side. This is almost exactly what SBF was allegedly doing.

This kills me because the lack of compliance is so egregious that it’s inexcusable. I don’t care that Sam or Bernie seemed like good guys. They were negligent about compliance and commingling of funds. According to Lewis, SBF treated everything like a game inside his unregulated casino. But this is exactly why casinos (and financial firms) need to be regulated. SBF isn’t just a guy who flew too close to the sun. He’s as prone to irrationality as the rest of us and that’s why sensible regulations need to exist. There’s no excuse for this sort of thing to be happening in an age where third party firewalls are the easiest first line of defense in finance.”

File this under “Michael Lewis. . .it’s more difficult to stay on top, than to get there.”

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