There's Starting To Be A Received Narrative Here, And I Don't Believe A Word Of It

The narrative of Sam Bankman-Fried and the Alameda-FTX bankruptcies has been settling into consensus, but as I've said here all along, I'm an Aristotelian as well as a contrarian, which means in this case that I look for causes, and I'm likely not to be satisfied with conventional answers. I think the conventional version boils down to this: Bankman-Fried and his enablers were quirky geniuses who had brilliant ideas but maybe got themselves in too deep. But they were effective altruists, so maybe their hearts were in the right place. Anyhow, crooks or not, the Establishment has come to the rescue, and John H Ray, III, who solved Enron, is on the case:

John H. Ray, III is the principal of Ray & Counsel, P.C. He is an experienced Harvard Law School graduate and Harvard Law Review editor with over 20 years of complex business and class action litigation, as well as appellate experience, with special expertise in securities litigation, officer and director liability, closely held corporation sharedholder disputes, First Amendment and intellectual property/media litigation, discrimination and substantial practice in labor and employment class actions. He served as a law clerk in the United States Court of Appeals for the Seventh Circuit, and worked in large national law firm environments for over 10 years, at Cravath, Swaine & Moore LLP and Jenner & Block LLP.

So, as an Aristotelian, I've got to ask who hired Ray? This story says,

Ray had been chosen as the new FTX chief executive officer and chief restructuring officer during late-night talks that led, at 4:30 a.m. Nov. 11, to Bankman-Fried’s exit.

Fine, but note we have the passive "had been chosen", and we don't know by whom. We also know from the same story,

Financial publications said Ray’s compensation includes a $200,000 retainer and a $1,300 hourly fee.

But from Ray's public statements, the company has no board of directors, and there are no board meetings. Ray is an attorney and is working for pay on behalf of clients, but we don't know who the clients are, nor what their interests are. But never fear, Ray solved Enron, whatever that means, except Kenneth Lay, just like Jeffrey Epstein, left this mortal coil before everything Enron could be solved. The United States Department of Justice issued a statement saying it remained committed to pursuing all available legal remedies for victims of the fraud. So it's all gonna work out, huh?

YouTubers are already thinking SBF may wind up like Jeffrey Epstein. He'll need at least to make sure the cameras near his cell are all in working order. However, I do not endorse wild and completely unfounded conspiracy theories.

Anyhow, the received narrative goes on to say that FTX was run by a dozen or so polyamorous hippie-style geniuses who suffered from ADHD, lived communally in a luxury penthouse in the Bahamas, and had their own doctor-therapist who prescribed amphetamines for their ADHD. The only female in the group I'm aware of was Caroline Ellison, so according to that doctor, there wasn't really that much action. Nevertheless, it was the synergy between Beanbag Boy Bankman-Fried and Queen Caroline that drove the whole enterprise, or something like that. But they let Caroline lose $10 billion in unsupervised trading, and John Ray III says he's nver seen anything like it.

Never underestimate what a beautiful woman can do.

But by early November, this had gotten out of hand, and both Bankman-Fried and sexy siren Caroline had to resign, and at 4:30 AM the same day, "they", whoever "they" is, hired John Ray III, caudillo of Enron, to fix things for them at $1300 an hour. But with no company board that holds no meetings, we don't know who "they" are, except "they" had also engaged white-shoe law firm Sullivan & Cromwell to work for FTX even before the bankruptcy, and Sullivan & Cromwell has also been brought in again to straighten things out.

Sounds like some very important people want things straightened out by some very expensive lawyers. The altruistic hippies who were thought to be running things in the penthouse are nowhere to be seen, and New York lawyers hired by someone else with a checkbook are on the case like white on rice. In fact, I doubt if the altruistic hippies ever had much to do with the company.

Just for starters, FTX had an app. Adults with ADHD, which the received narrative of the penthouse hippies claims they had, suffer from carelessness and lack of attention to detail, inability to focus or prioritize, and poor organizational skills, just the people you need to manage an app and its servers. Somebody else, almost certainly not in the penthouse, was running the app and its servers. Someone else had to tell the app not to authorize withdrawals when things got tight. The techies had to be paid, they had to have someone set their piorities and keep them focused. Almost certainly these people also were not in the penthouse, and they weren't working for pep pills or sack time with Caroline. Who and where were they, and what do they know? (Hint: Sullivan & Cromwsell are getting them to sign non disclosure agreements.)

In fact, someone, and that was before the bankruptcy, hired Sullivan & Cromwell to do FTX's legal work. Remember that adults who suffer from ADHD have difficulty keeping quiet, speak out of turn, are edgy and irritable, and forgetful. Who among those in that penthouse has even the basic button-down style to hire or manage people like white-shoe lawyers? Someone else involved with FTX had to have the legal expertise to know they needed a Sullivan & Cromwell and the credibility to convince Sullivan & Cromwell to work for FTX. An altruistic hippie who forgets what he wanted yesterday isn't that guy. And that person had, and still has, a serious checkbook, no matter $50 billion of someone else's money is down the drain.

Someone else was behind FTX. John Ray III and Sullivan & Cromwell are working for them, and they're closer to the Aristotelian cause of what's going on here. Beanbag Boy and Hornrim Girl are distractions.

And people ask why I think Ferdinand Lundberg had a point.

There's Too Much That Doesn't Add Up With FTX

At this point, there's a lot that isn't adding up in the current FTX-Bankman-Fried narrative, even among the more skeptical commentators. Let's just start with John Ray III, the new CEO of FTX who is to supervise its liquidation, whom I quoted yesterday as saying, “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

More succintly, he's saying the Bankman-Fried-Ellison clique who putatively ran the company couldn't organize a two-car funeral. So let's ask a very basic question. The evidence we have is that they suffered from serious cases of ADHD, which simple research shows renders its victims incapable of planning complex tasks, conducting sustained research, or even sitting still for fairly minimal periods. Sixty years ago, I went through five years of the Ivy admissions rat race.

I don't know how much of it has changed, but at least back then, you had to sit for a lot of exams, and the SATs were just a start. I remember another one where I had to sit in a classroom for several hours on a sunny Saturday doing sight translation of Latin. I think there were other SAT-like exams for the National Merit Scholarship. And of course, you had to take advanced placement courses. Based on the minimal research I did via web search, an adolescent with ADHD would not only be incapable of the sustained learning effort required to do well on such exams, but wouldn't even be able to sit still long enough to fill in all the circles with a number 2 pencil.

Now, I was flying coach, I've got to acknowledge. As Jerome Karabel pointed out in The Chosen, the Ivies have different admissions "baskets" for different kinds of candidates, but the airline analogy breaks down. If I get on a Delta flight, I know exactly how many "baskets" there are, first, business, and coach, and their relative sizes. At Harvard, nobody knows just how many "baskets" there are for an entering class, nor how many are in them, and that's in fact a closely guarded secret. I assume I was in a "basket" for white gentile public school kids from Northeastern suburbs, and I had to pay full coach fare, which included high GPA, high SAT scores, prestigious extracurriculars, alumni recommendations, and so forth.

If elite-school admissions are anything like they used to be in my case, there were and probably are additional "baskets" for kids like the Bankman-Fried clique, offspring of influential people who wouldn't remotely qualify for the SAT-plus-GPA "basket". That's the only explanation I can see for Ellison and the Bankman-Frieds, who simply don't come off as the usual kids with enough talent to finish at an Ivy and go on to law school, medical school, business school, engineering school, or a PhD. But that simply leaves us with the question of who got them into the other "basket" -- they didn't make it on their own.

And let's keep in mind Mr Ray III's assessment, they were "a very small group of inexperienced, unsophisticated and potentially compromised individuals". They were doofuses, but he threw in the word "compromised" on top. "Compromised" how? Who owed what to whom? If they weren't capable of running a two-car funeral, who was actually running the show? This was a scam in the $50 billion range. SBF looking cute in the obviously posed shot above snoozing in a beanbag chair is just window dressing. If he wasn't even capable of organizing something on that scale, somebody else was.

The Enron and Madoff swindles, comparable in size to FTX, required a lot of window dressing to convince investors they were legitimate. Enron had a phony trading floor where employees had to sign up for shifts where they looked like they were trading electricity and natural gas for the benefit of visitors. Madoff had two separate floors in his building where employees made up fictitious account statements that purported to show non-existent stock and options trades. Let's face it, FTX had to have an equivalent operation, and it wasn't the one in the posed photo with SBF in the beanbag chair. Someone was running it who could indeed organize a two-car funeral, and we so far know nothing about him.

Next piece that won't fit in this puzzle: just this morning I caught up with some legal developments in the case:

According to Reuters, Sullivan & Cromwell has been named as one of the advising law firms to the disgraced crypto exchange, FTX, in its bankruptcy proceedings. . . . The selection of Sullivan & Cromwell as a bankruptcy advisor to FTX might be problematic for some of its looted investors and customers, given Sullivan & Cromwell’s past work for FTX.

The General Counsel of FTX.US, the FTX exchange serving customers in the U.S., is former Sullivan & Cromwell partner, Ryne Miller, who had co-chaired the law firm’s commodities, futures and derivatives group and worked at the law firm for eight years prior to joining this speculative, upstart crypto exchange. Miller had previously served as legal counsel for the current SEC Chair, Gary Gensler, when Gensler was Chair of the Commodity Futures Trading Commission. FTX.US is also included in the recent bankruptcy filing of FTX, despite Bankman-Fried Tweeting that the firm was fine just days before the bankruptcy filing.

Another Sullivan & Cromwell partner involved with FTX is Ken Li, who represented FTX.US last year in its acquisition of crypto derivatives firm, LedgerX, which provides trading in crypto futures, options and swaps to both retail and institutional clients.

But of greatest significance was Sullivan & Cromwell’s representation of both Alameda Research and FTX in their joint bid to purchase the assets of bankrupt crypto exchange, Voyager Digital Holdings, last year.

Sullivan & Cromwell appears in Wikipedia's entry for "white shoe firms", of which it says,

The term originated in the Ivy League colleges and originally reflected a stereotype of old-line firms populated by White Anglo-Saxon Protestants (WASPs). . . . In the 21st century, the term is sometimes used in a general sense to refer to firms that are perceived as prestigious or high-quality; it is also sometimes used in a derogatory manner to denote stodginess, elitism, or a lack of diversity.

So here we have Sullivan & Cromwell, among the whitest of white-shoe institutions, knee-deep in the non-WASP mud of a $50 billion scandal, not only hired to clean it up, but cleaning up a mess it was at least partly responsible for creating.

It's hard not to think the prior associations of many background figures, for instance the parents of the Bankman-Frieds and Caroline Ellison, weren't just random. Isn't it odd that both sets are married to each other on prestigious faculties, Stanford and MIT, at highly selective schools, Stanford and MIT, that somehow mutually accepted their underperforming kids? Pure concidence. How come all three of those kids then worked together at Jane Street Capital, a quantitiative trading firm, when the ADHD disabilities of all three presumably would have prevented them from doing precisely the same sort of complex mathematical calculations that would normally be required of traders there? Pure coincidence, and I'm sure they did quite well there.

Maybe I just don't understand David Brooks's new meritocratic American upper class. I guess there is in fact much to learn.

ADHD At FTX

There have been persistent stories that Sam Bankman-Fried, Caroline Ellison, and other key people at FTX were being treated for Attention-deficit/hyperactivity disorder (ADHD), and they were apparently being prescribed amphetamines to treat it. The tweet above from Caroline Ellison at least suggests this. On the other hand, this is difficult to confirm for several reasons. Diagnosis of ADHD must be done by a medical or mental health professional, and nobody can diagnose it from a distance in any case. Medical records are highly confidential (unless they relate to COVID vaccination, in which case they are completely public). In addition, statements from John Ray III, FTX's new CEO, indicate that company records are so poor that nobody is quite sure who even worked there.

My own interest in the question stems from my research into public information on the minimal job histories of those key people, Caroline Ellison and the Bankman-Fried brothers, and their vapid public personas. If they were such prodigies from such privileged backgrounds, why did they need to be such crooks? And why have they turned out to be incompetent even as crooks? Their peers, Kenneth Lay and Bernard Madoff, kept their scams running for a decade and more, while the elite graduates of Stanford, Brown, and MIT could manage it for only a few years.

I'm inclined to accept the ADHD hypothesis, at least until a better one comes along. According to the National Institute of Mental Health,

Attention-deficit/hyperactivity disorder (ADHD) is marked by an ongoing pattern of inattention and/or hyperactivity-impulsivity that interferes with functioning or development. . . . Many people experience some inattention, unfocused motor activity, and impulsivity, but for people with ADHD, these behaviors. . . [i]nterfere with or reduce the quality of how they function socially, at school, or in a job.

More specifically, the site goes on to say that adults with ADHD have difficulty sustaining attention during tasks such as conversations, lectures, or lengthy reading; have difficulty organizing tasks and activities, doing tasks in sequence, keeping materials and belongings in order, managing time, and meeting deadlines; and avoid tasks that require sustained mental effort, such as preparing reports, completing forms, or reviewing lengthy papers.

All of these qualities are apparent in accounts of Sam's behavior even in important meetings with investors, where he is reported to have fidgeted, fiddled with toys, and played video games. He is reported to have said few books are worth reading. Caroline Ellison's video accounts of her duties disparage tools like stop-losses or tasks like technical analysis or use of math above the elementary school level. But it's worth pointing out that new CEO John Ray III's published analysis of Alameda Research, where Ellison was previously CEO, indicate that it was owned 90% by Sam and 10% by another of Sam's cronies; she had no ownership stake and probably had few actual duties as "CEO".

This story in the New York Post is suggestive as much for what it doesn't say as for what it reports:

Dr. George K. Lerner, a psychiatrist, reportedly served as a therapist to disgraced FTX CEO Sam Bankman-Fried and an adviser to many of the firm’s employees. Bankman-Fried and his ex-lover Caroline Ellison were reportedly part of a 10-person group that ran FTX and its sister cryptocurrency trading firm Alameda Research from a “luxury penthouse” in the Bahamas.

“It’s a pretty tame place,” Lerner told the New York Times. “The higher-ups, they mostly played chess and board games. There was no partying. They were undersexed, if anything.”

Lerner told the outlet he moved in June to the Bahamas, where he served as an adviser at FTX for 32 hours per week and also maintained a “small private practice.” The performance coach asserted the FTX executives were workaholics with little in the way of social lives.

. . . Lerner also addressed viral rumors about the alleged use of stimulants by FTX executives. Ellison, the CEO of Alameda Research, admitted to “regular amphetamine use” in an April 2021 tweet, while Bankman-Fried has openly discussed his experimentation with Adderall and other stimulants.

Amphetamine can be prescribed under the brand name Adderall as medication to treat attention deficit hyperactivity disorder (ADHD).

Lerner told the Times that while some FTX employees may have had prescriptions for ADHD medications, the “rate of ADHD in the company was in line with most tech companies.”

To which I have two reactions. One is that if the rate of ADHD at FTX "was in line with most tech companies,” then maybe Elon Musk had a point in firing half of Twitter (he might have if he'd taken more than just a week to fire them, of course). But also, based on John Ray III's remarks, nobody knew who worked there or how many employees they actually had, so how can Dr Lerner even know what the ADHD rate actually was? As Ray put it,

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

In other words, it's as if the place was run by a little clique of people with ADHD.

Yet the key players came from remarkably privileged backgrounds. What does this say, for instance, about the schools and universities to which the powerful parents were able to send their children? If we can reason backward from the circumstance that those offspring seem to have suffered from serious symptoms of ADHD as adults, how could they possibly have qualified for admission to exclusive schools and universities as adolescents?

Remember that people with ADHD have problems with completing tasks, meeting deadlines, listening to lectures, or doing lengthy reading, all of which are normally required for elite-school admission. How did they manage even to sit through the SATs, much less pass them with distinction? How did they manage to graduate at all, much less to have had professors say glowing things about them?

And we're back to the question I raised above, why the Bankman-Fried brothers and Ellison, with degrees in math and physics from top universities, couldn't get careers going after graduation that were consistent with such outstanding credentials. Something's seriously missing in this whole picture.

Oh, right, this is David Brooks's new meritocratic American upper class.

Another Bankman-Fried

The photo above is Gabe Bankman-Fried, Sam's younger brother, who appears to have been involved in Sam's various enterprises in one way or another since their start. According to his Linkedin profile, he graduated from Brown University in 2017. Brown, an Ivy, has a reputation for accepting more than the usual number of offspring of celebrities, royalty, and wealthy donors, including John-John Kennedy and assorted other Kennedys, the son and daughter of Sunny von Bülow, Amy Carter, and John Kerry's daughter Alexandra.

Immediately after Brown, he worked as a trader at Jane Street Capital alongside his brother Sam and Sam's sometime girlfriend Caroline Ellison. However, Sam left Jane Street only months after Gabe's arrival, and Gabe didn't last there much longer. After a period of unemployment, he worked six months as a data consultant for Civis Analytics, a political data analysis firm tied to Democrats. Civis Analytics also has ties to the Bankman-Fried family:

Civis Analytics has positioned itself as a Democratic powerhouse in recent years. The firm was "born" from President Obama's campaign after Eric Schmidt, the former Google CEO and executive chairman of Alphabet, helped as a recruiter and trainer for the campaign and later teamed up with Dan Wagner, the chief analytics officer for Obama's 2012 campaign, to help launch the company.

As Gabe Bankman-Fried worked for the firm during the 2018 election cycle, Civis received nearly $4.4 million from the likes of the Senate Majority PAC, House Majority PAC, Priorities USA Action, Democratic National Committee and Democratic Senatorial Campaign Committee. The cash was primarily for research and data analytics consulting, FEC filings shows.

Barbara Fried leads Mind the Gap, a secretive organization that funnels massive amounts of money to Democratic campaigns, according to Influence Watch. The group has received major funding from well-known Silicon Valley donor. . . . In 2018, Mind the Gap paid Civis about $90,000 for data analytics services.

Isn't that peculiar? During precisely the same six-month period that Gabe worked for Civis, his mom funneled $90,000 to the company, which would have funded Gabe's salary plus a lagniappe. I'm having a hard time staying away from an imputation that Gabe is a pretty useless guy, and mom was fully aware of it.

In January 2019, as Sam was moving to start Alameda Research and FTX, he went to work for Rep. Sean Casten, D-Ill.

Casten, then a freshman congressman, was named that same month to the House Financial Services Committee, which oversees regulation of cryptocurrency and hedge funds, among other matters.

Gabe Bankman-Fried remained employed for two years on the House staff, according to his LinkedIn profile. The website Legistorm, which tracks members of Congress and their staffers, says he worked for Casten.

. . . The Daily Signal and The Heritage Foundation’s Oversight Project asked Casten’s spokesperson, Jacob Vurpillat, whether the congressman met with or received donations from FTX or any other cryptocurrency company. (The Daily Signal is Heritage’s multimedia news organization.)

Casten’s spokesman didn’t respond to email or phone inquiries Monday by publication time. We also reached out Tuesday to Casten through a Twitter direct message, but did not get a response.

We made inquiries by email asking whether ethical limitations regarding interactions with cryptocurrency companies were placed on Casten or Gabe Bankman-Fried, who was employed by Casten as a legislative correspondent from January 2019 through February 2021.

Typically in government, when an apparent conflict of interest arises involving a relative with whom a government employee has a close relationship, that employee or government office would seek counsel from a lawyer regarding ethical issues.

We also asked Casten’s spokesperson whether the congressman met with Treasury Department officials and discussed FTX or any other cryptocurrency companies.

In July 2020, according to Linkedin, he becme Director of Guarding Against Pandemics, which is

a left-leaning advocacy created in 2020 to support legislation that increases government investment in pandemic prevention plans. The organization was created to support a specific proposal by the Biden administration to allocate $30 billion in federal funding for the containment of future pandemic outbreaks. The organization was founded and is funded by cryptocurrency billionaire Sam Bankman-Fried and directed by his brother, Gabe Bankman-Fried.

According to NBC News,

Gabe Bankman-Fried resigned Monday from Guarding Against Pandemics, the nonprofit that purchased the Capitol Hill townhouse and served as the hub for its philanthropic work, telling his roughly three-dozen employees he didn’t want to get in the way of the group’s mission as it scrambles to find new funders.

Neither Gabe Bankman-Fried nor Guarding Against Pandemics responded to a request for comment.

The story suggests that Gabe was little more than a useful idiot for Sam:

Bankman-Fried’s collapse was so abrupt that his political point man in Washington only found out about it via Twitter, according to two sources.

That’s especially notable since his point man is his younger brother, Gabe, who quickly flew to the Bahamas to console Bankman-Fried, and who, like their parents, is now caught up in the ignominious collapse.

“A lot of people in D.C. thought this was the next big thing. Everybody was trying to get in,” said one source close to the Bankman-Frieds’ political operation who requested anonymity to speak candidly. “This went from the hottest thing to the most toxic thing. But that’s how D.C. works.”

The high-priced consultants and lobbyists the Bankman-Frieds employed will be fine, said the source. “The person who got most f----- from all this is probably his brother,” the source continued, “Somebody who probably had no idea what was going on on the business side, who unfortunately shares the same hyphenated name, who has worked in politics and is now probably not going to be able to.”

One pattern that's emerging here is that Sam Bankman-Fried knew what was going on, and directed the whole enterprise. He was surrounded by at least two ciphers, his sometime girlfriend Caroline Ellison and his brother Gabe. The parents of both Caroline and Gabe were, I would guess, delighted to have something that not only kept their no-count kids busy, but paid themselves a substantial income as well.

These are vignettes of life in the new meritocratic American upper class.

The Other Set Of Parents

Yesterday we took a closer look at Caroline Ellison's parents, both faculty members at elite-university MIT. This link provides an introduction to Sam Bankman-Fried's parents; in an odd mirror-image reflection, both are husband-and-wife faculty members at elite Stanford Law School, ranked Number 2 on the US News list, although Stanford recently withdrew from the US News rankings. Both of Sam's parents, Barbara Fried and Joseph Bankman, hold endowed chairs at Stanford Law, which places them somewhat higher in David Brooks's new meritocratic American upper class than even the Ellisons, of whom only one holds an endowed chair.

This places the family income, I would imagine, at something well north of $250,000 per year. This would be consistent with the private school to which they sent Sam befoere he went to MIT, the main building of which is shown in the photo at the top of this post. According to the first link,

[H]e attended local elite private school Crystal Springs Uplands School in the equally tony Bay Area suburb of Hillsborough and where tuition now costs $56,620 a year. At the school, Bankman-Fried won physics awards, but “kept to himself, spending most of his free time playing computer games (StarCraft, League of Legends) and a trading card game, Magic: The Gathering, according to a glowing, now-deleted profile of him on an investor website.

If he won physics awards in secondary school and went on to MIT as an undergraduate, especially given his backgound and putative talents, wouldn't we expect him to transition into a prestigious physics PhD program, if not at MIT itself, then at, say, Cal Tech or Berkeley? In fact, wouldn't he have been Nobel material? But he didn't, and he wasn't. That's a big dog that simply isn't barking here, just like the dog that didn't bark over Caroline Ellison. Both had parents who were in positions to foster major academic careers for their children after undergraduate degrees at prestige schools, and it simply didn't happen.

I used to look up the ratings for my former graduate school classmates at ratemyprofessors.com, but eventually I got out of the habit. This scandal has brought me back to that amusing exercise, especially when I found that Caroline Ellison's mother was rated "awful". (I dated a classmate who later got the same rating, too. In hindsight, I could see how.) However, like Glenn Ellison, neither Barbara Fried nor Joseph Bankman is listed on ratemyprofessors.com at all.

I can think of two explanations. One would be that law students, like graduate students at MIT, are primarily playing the game, and there's just no point in annoying a powerful professor whose recommendations can make or break a career, who doesn't need the rating and would not be moved by it. The other, equally credible to me, is that the professor is so powerful he can simply get his name removed from the app.

Nevertheles, the first link above does carry informal accounts of Bankman and Fried as professors:

Bankman-Fried’s parents are highly regarded professors at Stanford Law School. Joseph Bankman is a leading scholar in tax law and Barbara Fried is an award-winning teacher who specializes in moral philosophy and the law.

So Sam's mother specializes in moral philosophy? It brings to mind a remark by a priest who said that he had an erudite professor in seminary who, however, was Jewish. Nobody was more familiar with the writings of St Paul, except that the priest one day suddenly realized the professor didn't actually believe a word of them. Interestingly, the article links to a quote from Barbara Fried herself on Sam's moral development, written before the current scandal:

[My sons Sam and Gabe} have shown me by example the nobility of the ethical principle at the heart of utilitarianism: a commitment to the wellbeing of all people, and to counting each person — alive now or in the future, halfway around the world or next door, known or unknown to us — as one.

As far as I can tell, if Sam saw each person as one, he saw them all as one big sucker. The first link above also characterizes Sam's father, Joseph:

“Joe Bankman is sensitive and extremely soft-spoken,” one of the former students said. “Both of [Sam’s] parents were very quintessentially open-minded professor types, more than Socratic types. They seem like really supportive people.”

Bankman was also interested in helping the world, and he was a staunch believer in utilitarianism, the doctrine that the most ethical thing is to work on maximizing happiness for the greatest number of people. He passed this belief onto his son, who became a major proponent through the effective altruism movement.

This is illustrated most clearly by the Bankman-Frieds' effective altruistic participation in Sam's investment schemes:

Sam Bankman-Fried's FTX, his parents and senior executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years, official property records show.

. . . The documents for another home with beach access in Old Fort Bay -- a gated community that was once home to a British colonial fort built in the 1700s to protect against pirates -- show Bankman-Fried's parents, Stanford University law professors Joseph Bankman and Barbara Fried, as signatories. The property, one of the documents dated June 15 said, is for use as a "vacation home."

When asked by Reuters why the couple decided to buy a vacation home in the Bahamas and how it was paid for -- whether in cash, with a mortgage or by a third party such as FTX -- a spokesman for the professors said only that Bankman and Fried had been trying to return the property to FTX.

"Since before the bankruptcy proceedings, Mr. Bankman and Ms. Fried have been seeking to return the deed to the company and are awaiting further instructions," the spokesperson said, declining to elaborate.

Well, the lawsuits have begun, and they're only likely to get worse. Speaking only as a lay observer, I've got to think the Bankman-Frieds, eminent law professors both (and indeed authorities in moral philosophy) face civil liability in clawbacks of investor assets, for instance in their multimillion-dollar property they secured via FTX and Sam, as well as the potential for criminal conspiracy charges, depending on what they knew of Sam's whole frammis.

Even leaving civil or criminal penalties aside, I can see the potential for legal fees alone wiping out their net worth. Some lawyers, huh? But this is David Brooks's new meritocratic American upper class.

Some FTX Data Points

Above is a screen shot from the evaluation of Sara Fisher-Ellison at ratemyprofessors.com . She is the wife of Glenn Ellison, the Gregory K. Palm Professor of Economics at MIT. Although she's listed as a Senior Lecturer in the Economics Department at MIT, as far as I can tell, this is not a tenured or tenure-track position, and in the sort of arrangement I discussed yesterday, she's on the faculty primarily to pad the compensation for her powerful husband. I quote from a student evaluation that dates from June 19, 2021, before the FTX scandal broke:

Very nice but can't teach. She makes a lot of mistakes and seems nervous. When she's solving a problem she often has to back peddle because she made a mistake, which leads to a lot of confusion. Biggest critique is that she doesn't show her work for a lot of the problems she works through. She does a lot of solving in her head... sorry not sorry

My experience from my brief academic career is that non-tenure track faculty are expendable, and an instructor with such bad reviews is usually not renewed after a limited number of semesters -- EXCEPT. The except is either if the instructor is female and married to a powerful male dean or tenured professor, or she is in bed with him. Barring evidence to the contrary, I've got to assume something like this is the case with the Ellisons. Her MIT faculty thumbnail is suggestive as well:

She has spent most of her career at MIT, but has also held visiting positions at institutions such as the Centre for Economic Studies in Munich, the Institute for Advanced Study in Princeton, the Hoover Institution, the National Bureau of Economic Research, and the Paris School of Economics.

So, why hasn't she advanced beyond senior lecturer at MIT if her vita is so astounding? Or indeed, if it would somehow violate MIT's ethics standards (cough, cough) to have two married tenured faculty in the same department, why couldn't she just move over, say, to Harvard or Northeastern or UMass or Tufts or Brandeis, just as examples, and get promoted there? I think the answer is pretty clearly that she's at MIT to collect baksheesh for husband Glenn and has nothing else to contribute anywhere.

Why would all those other prestigious institutions have her, an apparent mediocrity, as a visitor? Because Glenn could, at minimum, block peer review for publication by members of those other places, or alternatively, smile on their careers. This is also how their daughter Caroline, by all indications an airhead with neither talent nor social skills, got into Stanford and why Stanford professors would give her glowing recommendations.

Intriguingly, there is no ratemyprofessors entry for Glenn. Either he's so powerful, no graduate student would dare rate him, or he's so powerfu;, he can keep his ratings off the site.

Consider as well that the Ellisons, Caroline's father in particular, are prestigious authorities on economics, but now they're hovering in the background of a major financial scandal. In fact, the YouTube video below suggests that Caroline was likely selected by Sam Bankman-Fried as CEO of Alameda Research not because she was a whiz at finance but specifically because she was not up to par intellectually.

In other words, Caroline was quite possibly more like a special-needs child who'd never matched the hype that was built up for her. Certainly that's what you see in the video clips. What I hear is that since the FTX collapse, she's disappeared and can't be located. What role are Glenn and Sara playing in this phase of the story? They're going to have to turn her over when she's indicted or face felony charges on their own.

Another data point on which I've been musing is the actual short life of the FTX fraud. Looking at the broad outlines of Enron, it was founded in 1985 by Kenneth Lay. Jeffrey Skilling joined the company in 1990. Enron filed for bankruptcy in 2001. It took over a decade for the full range of the fraud tro develop. Bernard Madoff founded Bernard L. Madoff Investment Securities LLC in 1960:

In 1999, financial analyst Harry Markopolos had informed the SEC that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, it took him four minutes to conclude that Madoff's numbers did not add up, and another minute to suspect they were fraudulent.

Reported admissions by Madoff to his family indicate that his financial operations had always been a Ponzi scheme, which suggests he had evaded detection for 40 years. Yet somehow Sam Bankman-Fried managed to steal amounts comparable to Enron or Madoff only between 2019 and 2022, but the bubble popped within three years.

This is David Brooks's new American upper class. Heck, Madoff and Kenneth Lay were smarter. The Bobos aren't even good at hype.

The Whole Elite-School Racket And FTX

I left off yesterday wondering if the whole elite-school racket, which earlier fraudsters like Madoff, Lay, and Kozlowski avoided, has anything to do with some of the less familiar features of the FTX scandal. I referred to David Brooks's 2000 Bobos in Paradise: The New Upper Class and How They Got There, which bases his argument on what might be called the bourgeois-optimistic interpretation of elite-school admissions: after World War II, James B Conant reformed the Ivy admissions process by introducing the Scholastic Aptitude Test, which devalued the role of money and social standing in determining who got into Harvard, Yale, Chicago, Stanford, MIT, and the like, and instead stressed merit and ability.

At the same time, the Ivies are thought to have dropped Jewish quotas, which allowed Jews to increase their presence on campus and qualified them in greater numbers for careers at upper levels in business and government. One needed to look no farther for confirmation than Brooks himself, from a Jewish family but admitted to Chicago purely on merit. Brooks doesn't hesitate to say that the Bobos, bourgeois bohemians, baby boom Jews from elite schools, became the new US upper class, and this is a Good Thing.

Alan Dershowitz, a much smarter guy than Brooks, offered a different take on Conant, the SATs, and Jewish quotas in his 1991 Chutzpah. In his view, the elite schools made good publicity for themselves by seeming to abolish Jewish quotas, but in fact they simply fudged their admissions criteria to accomplish the same ends: instead of directly ruling out applicants with identifiably Jewish surnames or aquiline features in their application photos, they claimed to stress applicants from outside the Northeastern cities and suburbs in order to achieve "diversity" and cancel out factors like the toublesome SAT scores themselves. Jewish quotas continue, but just with a different name -- and in their objective they now apply to Asian applicants as well.

Jerome Karabel's 2006 The Chosen: The Hidden History of Admission and Exclusion at Harvard, Yale, and Princeton in part echoes Dershowitz, but it goes much farther to argue that admissions departments put applicants into "basket" categories whose criteria and proportions are closely guarded secrets. There are occasional controversies that spill into the public forum -- several years ago, it was revealed that Dartmouth had reduced the number in the athletic "basket", athletes specifically recruited by coaches for the incoming class, in order (presumably) to increase the size of the academically gifted "basket", but where either basket stood in relation to other baskets, and what those other baskets comprised, was never explained.

Karabel, though, argues that legacy "baskets" for offspring of alumni are still highly important, as are "baskets" for offspring of donors who intend simply to buy a spot for their children in the incoming class -- the cost of this route, although presumably in the multimillions, is nevertheless completely legal and tax deductible as well. This is in contrast to the celebrities who didn't have the resources to endow a football stadium but felt a lesser amount in bribes to the right people could get their kids in as easily; this, however, was illegal.

It's hard to avoid thinking that the Varsity Blues scandal exposed only the tip of the iceberg. On one hand, it left aside the question of why lots of money via the right channel -- say, endowing a computer center -- can assure one child completely legal admission, while less but still significant money paid to a volleyball coach is against the law. And what the Varsity Blues scandal completely left aside was the question of how all these policy routes that bypass transparently meritocratic admissions can thrive, which they continue to do.

This brings me to Caroline Ellison, Sam Bankman-Fried, and FTX. I noted yesterday that they're the offspring of David Brooks's bourgeois-bohemian "new upper class", people who at least according to Brooks have risen entirely on merit. And we'd be entitled to think this was the case if the university system were in fact provably transparent and meritocratic, which it definitely isn't.

Let's just take the peculiar case of the parents, the Ellisons and Bankman-Frieds, both of whom are in the remarkable circumstance of being married to each other and together on the faculties of elite schools -- and not just on the faculty, but in the same department. There are marked class divisions on faculties, the first between those on the tenure track and those like graduate assistants and adjuncts who are not. Then there's the distinction between those who can earn tenure and become associate professors and those who are promoted to full professor -- but then there's the distinction between those with an endowed professorship ("Harley Throckmorton Distinguished Professor of Blahblah") and those who are simply full professors.

But the absolute pinnacle are the Ellisons at MIT: Glenn Ellison is the Gregory K. Palm Professor of Economics at MIT, and his wife, Sara Fisher Ellison, is currently described as "also an economist at MIT", although for whatever reason, I haven't been able to reach her faculty listings on the MIT website, quite possibly due to the current publicity over their daughter. If two faculty members are married in the same department at the same university, it frequently means that one spouse has been hired effectively to grant the other a family income that exceeds university limits on individual faculty pay.

Thus a Harvard or Yale may wish to recruit a pinnacle-level academic, who wants to be paid N. However, the university's policy limits professor pay to N - Y. But if they can work out a deal where they can also hire the prospect's spouse for Y, the total family income will reach N, and they can hire the big gun. This leaves aside the question of how the typical elite school like Stanford or MIT, with multibillion-dollar endowments, would be so parsimonious in its faculty salaries while maintaining informal means of bypassing that parsimoniousness. My own view is that the academic world loves corruption; it breeds it. If there were hiring and salary policies that were models of transparency, the deans would seek out ways to undermine them, and not even for their personal benefit, just on general principle. That's just how the academy runs.

We may assume the Bankman-Frieds, married and teaching together at Stanford Law, are in a similar enviable position. They're powerful people; they have cronies, contacts, and enablers across the world university system and beyond. My assumption is that their ability to place their utterly unpromising and incompetent children at elite schools is just one indication, though not a small one, of their standing in a corrputed and interdependent system. I've got to wonder what their kids picked up from that family environment.

Bobos in paradise indeed.