The FTX Bubble’s Physics: Hot Air Rises Fastest

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Fraud is often obvious in retrospect, and as the dust settles around a scandal, it is often easy to point fingers at the failings of those actors who could have done better.

The collapse of the once-popular crypto exchange FTX and its press-friendly CEO Sam Bankman-Fried (SBF), along with his subordinates at Alameda Research, demonstrates that, ultimately, guilt should — and does — belong with the individual. Especially when that individual treats his or her firm like a “personal fiefdom,” as SBF has been accused of doing.

A rising tide may elevate all boats, but “when the tide goes out, you discover who is swimming naked,” Warren Buffett famously quipped.

The first-day motions heard in FTX’s bankruptcy proceedings on Tuesday (Nov. 22) revealed exactly how far SBF and his deputies at FTX and its affiliates were from whichever shore they left their garments on.

The company’s bankruptcy is establishing a formal record of a business with little oversight, or even insight, into its own operations, as over a million of the exchange’s customers are resigned to losing their own shirts, with little hope of regaining their deposits.

One in which company funds were spent on homes and other items for FTX employees, friends, and family, and customer funds were used to falsely prop up important trading accounts.