The collapse of the cryptocurrency exchange FTX is, even if you’re not interested in cryptocurrency, a history changing event. It may turn out to be the biggest single-day loss of assets in the history of money. Billions of dollars evaporated in just moments and it’s still not clear what happened to a lot of that money. It just disappeared and as it did, it sparked a growing financial crisis across entire sectors of the economy, a disaster that quite possibly could get very worse very soon, but the story of the FTX implosion is bigger even than the global recession it may cause.  

It is the story of the complete and utter corruption of the people who run our country. The very people who should have been covering and regulating and reining in FTX and its 30-year-old founder, Sam Bankman-Fried were instead profiting from this scam, not just a few of them, nearly all of them—from the news media paid off by Sam Bankman-Fried; to the leadership of the Democratic Party, also paid off by Sam Bankman-Fried; to the chairman of the Securities and Exchange Commission, the SEC commissioner himself, Gary Gensler. They all knew that FTX was not a real company and that Sam Bankman-Fried was a fraud and if they didn’t know that, they certainly should have known that because it was very obvious to anyone who bothered to pay attention.  

One of the few who did pay attention was a short seller called Marc Cohodes, who took one look at Sam Bankman-Fried (SBF for short) and recognized here is a con artist obviously. Watch this tape which aired on Hedgeye TV, a small investment advice channel back in October.  

HEDGEYE TV: When anyone tries to pin SBF down on where he made his money, you can’t get a cogent answer. Then you take into account that SBF is bailing out known ponzis and frauds in the crypto space, everyone who’s gone bankrupt or is a proven fraud, but nothing here fits. Everyone, everything reads like this thing is a complete scam and I think this thing is dirty and rotten to the core.  

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If that guy on a small audience investment channel could tell that Sam Bankman-Fried was a fraud, where was Gary Gensler of the SEC and by the way, the tell in the sentence you just heard is that Sam Bankman-Fried couldn’t explain where he got his money. Here you are, a 30-year-old billionaire, how did you do that? If you can’t tell us that, maybe that’s a red flag and you would think most investors would have recognized it, but for the most part, they didn’t, nor do they seem to notice the obvious incompetence of Sam Bankman-Fried’s business partner/girlfriend, Caroline Ellison.  

Ellison was totally and obviously unqualified for the job she claimed to have. She had no track record of success at anything. She reportedly wrote online about her drug use and then on a podcast back in May, months before the collapse, Caroline Ellison just came out and admitted that she had no idea what she was doing. Watch this.  

QUESTION: Do you think that you have been able to pull this thing off without your mathematics degree or it has been the pillar of your trading activity? 

CAROLINE ELLISON: Uh, yeah, absolutely. I could pull it off without my math degree. I use very little math. When you start out as like an intern and you, you know, do something and accidentally lose, you know, maybe $1,000 or your desk, you’re like, “Oh, God, like, everyone’s going to hate me now. Like, this is terrible” and, yeah, over time, you have to sort of, yeah, get comfortable with larger and larger swings of money. Yeah, I’m trying to think of a good example of a trade where I’ve lost a ton of money. Well, I don’t know. I probably don’t want to go into specifics too much about. 

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Oh, I’ve lost a ton of money. No big deal. It’s not mine and no, there’s no math here at the cryptocurrency exchange. Let’s send her billions of dollars! Lost a lot of money. A lot of money that investors, including institutional investors, including individuals who are hoping to retire with that money all gone because we don’t do math, it’s so outdated, but here’s the amazing thing. 

None of this seemed to face the biggest institutional investors, Sequoia. Their entire job is to what? Assess risk, but it wasn’t really about risk and reward. It was about something else. Earlier this year, Michael Grimes, a former spokesman for Bill Clinton who seemed to be making an awful lot of money somehow in the financial world, approached Elon Musk, the world’s richest man, with an investment offer on behalf of SBF. Sam Bankman-Fried wants you to invest. 

Elon Musk didn’t get to be the richest man on the planet by investing in things like that, so he apparently smelled B.S. and turned Grimes down, but in their exchange, which has since become public, Grimes multiple times told Musk that, by the way, Sam Bankman-Fried is a huge donor to the Democratic Party. “Major Democratic donor” Grimes wrote to Musk, second to Bloomberg and donations to Biden campaign. 

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What does that have to do with the investment? It should be irrelevant, but that was the substance of the pitch. What is this exactly? It doesn’t quite sound like a business. It sounds like a hybrid of some kind and not in a reassuring way. Now, some of this was happening in secret, but a lot of it was happening right out in public, right in front of the news media and of course, a lot of them knew Sam Bankman-Fried because he was sending a lot of the money and when he wasn’t, he was desperate for the publicity they could provide. Sam Bankman-Fried was on the cover of more magazines than Madonna. So, they probably should’ve been asking questions about his business, but none of them did. They promoted him. Watch. 

CNBC VIDEO: They call him the J.P. Morgan of crypto, right?  

Yeah. The Michael Jordan of crypto, if you will.  

CNBC VIDEO: So, why should you care about a floppy haired, vegan fidget spinning crypto billionaire who occasionally sleeps on a beanbag chair?  

CNBC VIDEO: During the so-called “crypto winter,” the 30-year-old CEO has been referred to as “Crypto’s White Knight.” 

CNBC VIDEO: JPMorgan of this generation: Sam Bankman-Fried’s FTX. Is he the Jay Gould of our era or is he the JPMorgan of our era?  

I think it’s yet to be determined. Yet to be decided.  

Is he Vanderbilt? 

He could be.  

… 

Is he Carnegie? 

If he gives a lot of libraries, he is. 

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He’s the JPMorgan of finance of crypto. He’s the Michael Jordan of crypto. Wait a second. Michael Jordan is not in crypto. He played basketball well. Sam Bankman-Fried is not really a crypto either. How are we all getting rich? Who knows. Don’t ask questions. He’s a JPMorgan. He’ll be a trillionaire. So, why were all these people pushing a scam that any normal person, even a person with no background in finance and just sort of an elementary understanding of profit loss equations could have seen was probably going to collapse in the end? Now, we’re not sure. Stupidity clearly plays a role and so does the herd instinct. All we can ask, really, is: who is benefiting from all of this?  

Well, we know that the Democratic Party benefited. As we told you, Sam Bankman-Fried donated $40 million to Democrats this cycle. That’s more than any other donor, apart from Soros. Then he pledged another billion dollars for the next election. A billion in one election because that’s democracy! He wasn’t doing this in private. He was bragging about it and then he was going on in public about how politicians, Democratic politicians, were begging him for money. Watch this.  

QUESTION: So, how do you find political fundraisers? They come to you directly. Is it easy to get to you and say, “we need this money for this candidate” and what type of candidates you tend to support?  

SAM BANKMAN-FRIED: Oh, yeah. Well, if you, if I pulled out my phone here and just looked at my last ten text messages, you know, about half of them are going to be people asking for, you know, politicians asking for contributions. 

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So why were you telling us this in public and by the way, if you’re shaking like a naked man in a snowstorm in the middle of an interview, maybe there’s something wrong with you. Send that boy another billion dollars. how substantial are we overstating this? Are we making a partisan points? So, things collapse. It was clearly a Ponzi. Are we trying to attack the Democratic Party now? No, it’s actually justified. This guy was a major donor. Major donor! According to the head of Citadel, defeating Donald Trump was literally on the balance sheet of FTX. Watch this.  

BLOOMBERG NEW ECONOMY FORUM: FTX crosses into a zone that all of us are worried about. You know, on the balance sheet of FTS is a line called “Trump lose” And Sam was the second biggest donor to Democratic candidates.  

BLOOMBERG NEW ECONOMY FORUM: I’m going to leave it to everybody else to draw their own conclusions about what you’re saying here.  

Another reporter says we’re out of time. We can’t go too deeply into that. Really? Let’s go more deeply into it. It’s pretty interesting. So, of course, politicians love the guy because he was just a cash spigot and that’s what they want most. Where were the regulators because there is a government that’s supposed to be independent of office holders, a regulatory state that keeps Ponzi from happening? Where were they? Well, Sam Bankman-Fried was himself invited to Washington to consult on crypto regulations and then he posed for a picture with Maxine Waters, who’s the head financial regulator in the Congress and then The Washington Post, who is the hometown newspaper of government, did no reporting on his actual business. They just wrote a puff piece about how cool it is that the guy with funky hair, can’t sit still and sleeps on a beanbag is getting super rich.  

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How did he pull this scam? How did he do that? Well, he did it with religion. That’s the quickest way to blind people. If they think you share a common faith, maybe they’ll do it and that religion is effective altruism. There are a lot of effective altruists. Maybe you haven’t heard of that. It’s a kind of religious movement. It’s very popular in the tech world and the finance world throughout Silicon Valley and parts of New York.  

The idea is that you make money not because you’re greedy, not because you have a bottomless pit inside you of need that can never be filled, but because you want to help other people and you want to help them in the most efficient way. You want to benefit the greatest numbers of people in the most efficient way, so that means effective altruists get to underpay their housekeepers. They get to stiff the waiter on the tip, but of course, needless to say they do, but that’s okay, because they’re deeply concerned about abstract tragedies like global warming. 

So, if nothing else, effective altruism gives you a moral cover as you rip off investors in order to live tax-free in splendor in some beachfront paradise, as Sam Bankman-Fried did and to this day continues to do. He’s still in Albany and the Bahamas. It goes without saying that Sam Bankman-Fried talked a lot about effective altruism and return, FTX enjoyed a very high ESG score, higher than Exxon, which gets your ambulance to the hospital and your plane in the air to see your kids and heats your home. 

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Sam Bankman-Fried was considered a moral leader even as he was ripping off millions of people, but no one benefited long-term from this collapse or will benefit more than government regulators. They are pointing to FTX and demanding more control over cryptocurrency and ultimately the end of the cash economy. Why do we think they’re going to do that? Because they’re already working on it. SEC Commissioner Hester Peirce said this week the demise of FTX could be a “catalyst for more regulation.” Why should you worry about that? Well, because, as we saw in Canada last year, crypto is a huge problem for governments. Governments can’t control, ideally, cryptocurrency. You can’t freeze someone’s personal cold wallet with crypto in it if you don’t like what they say. What does this have to do with the collapse of FTX?  

Well, it turns out that Sam Bankman-Fried girlfriend’s Caroline Ellison, has a lot of connections to regulars, in fact, the biggest regulator of all in this country. Her father, Glenn, is an MIT professor who worked at that university alongside drum roll, please, Gary Gensler, the head of the SEC, which is in charge of cryptocurrency regulation. FTX’s general counsel used to work with Gensler on the Commodity Futures Trading Commission. Now Gensler is about to get a lot more power, so this thing swells to unsustainable size and inevitably implodes. It collapses and that collapse is used for a pretext to do what they’ve been planning to do all along. So, iy probably shouldn’t shock you that right after this collapse, every major bank in this country announced a new partnership with the New York Fed to establish a new digital currency. 

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Oh, digital currency, the one they can regulate and control. Citigroup, Wells Fargo, MasterCard, HSBC, all working on a 12-week digital dollar pilot. The Fed describes this project as a regulated liability network. What does this mean long-term? Well, if they have control of your money because it’s digital, you can’t stash it under your bed. If they don’t like what you say, they can turn it off and you’re impoverished. In other words, this whole thing is a bigger scam even that it seems and it was made possible by political sloganeering and Sam Bankman-Fried. If nothing else, he is not stupid and he knows that well.  

As he put it in a message to a reporter the other day from his hideout in the Bahamas, the woke posturing is the most effective possible business ploy, and we’re quoting “I feel bad for those who get effed by it”, he wrote. “By this dumb game we woke Westerners play where we all say the right chivalrous and everyone likes us.” In other words, if you suspected all this was a scam, all the moral posturing, all the lectures you get about how they’re great and you’re bad, this was all the way to blind you to the fact that there was a massive rip-off going on, you might be on the right track. 

John Ray III presided over the Enron bankruptcy, so he knows what a toxically troubled company looks like. That’s why Ray’s declaration that the bankrupt crypto exchange FTX was the result of “a complete failure of corporate controls” carries heavy weight.

In a 30-page FTX Chapter 11 bankruptcy filing submitted to a Delaware court Thursday, Ray also stated that an autopsy of the exchange’s records revealed “a complete absence of trustworthy financial information” and “compromised systems integrity and faulty regulatory oversight.”

He was just getting started. In this “unprecedented” situation, Ray wrote, there was a “concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals.” Later in the document, he described FTX’s sloppy security in searing terms:

Unacceptable management practices included the use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data for the FTX Group companies around the world, the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of customer funds, the secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol, and the absence of independent governance as between Alameda (owned 90% by Mr. Bankman-Fried and 10% by Mr. Wang) and the Dotcom Silo (in which third parties had invested).

Near the end of the declaration, Ray’s words seemed to make it clear that FTX’s actions under founder and former CEO Sam Bankman-Fried weren’t merely incompetence, writing, “One of the most pervasive failures of the FTX.com business in particular is the absence of lasting records of decision-making.”

“Mr. Bankman-Fried often communicated by using applications that were set to autodelete after a short period of time,” according to Ray, “and encouraged employees to do the same.”

Debtors, Ray said, did write things down. And in his position as the new CEO, the attorney has begun an investigation led by himself and a team that includes “a former Director of Enforcement at the SEC, a former Director of Enforcement at the CFTC, and a former Chief of the Complex Frauds and Cybercrime Unit of the United States Attorney’s Office for the Southern District of New York.”

This is all in addition to investigations reportedly underway by the Dept. of Justice and the Securities Exchange Commission.

It may not be surprising to learn that in an interview with Vox, Sam Bankman-Fried reportedly revealed that he wished his company had been more careful with its accounting, he believes regulators “make everything worse,” and he regrets filing for Chapter 11.