An idealistic movement ignores our fallen nature
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It sounded crazy to me, but some respectable economists and conservative thinkers endorsed it. No matter how it was explained to me, verbally or in print, cybercurrency and the blockchain seemed like imaginary money, or creating value out of thin air. Which, on second thought, wasn’t unheard-of. Hadn’t the Federal Reserve been doing that for years?
We dipped a toe into this digital new world some years back when my husband bought two bitcoins. Later we sold them at a hefty profit and used the money to pay off debts from less favorable investments. That was all; we got out while the getting was good and never heard of the FTX cybercurrency exchange, or Sam Bankman-Fried, until the collapse of the former and the indictment of the latter. To me that story is an interesting sideshow with broad implications. To certain millennials I know, who sank every extra dollar into bitcoin, ethereum, or baskets of assorted geeky currency, it’s money swept away like dust.
Before turning 30, Sam Bankman-Fried had acquired enough panache to be known as “SBF.” His shambling, hyper-casual figure appeared on the TED-talk circuit, at policy conferences, on Fortune magazine covers. He made a pile the old-fashioned way: purchasing cybercurrencies in lower-priced markets and selling them in higher-priced ones. He parlayed his reputation into an investment firm called Alameda Research and an exchange website called FTX, said to be worth over $30 billion.
Then SBF went bust the old-fashioned way, a variation on robbing Peter to pay Paul. With the money poured into FTX from traders who believed they were investing in the Next Big Thing, Bankman-Fried funded Alameda Research. As one observer noted at the time, “This may not be legal.” Siphoning money from Alameda to support a jet-set lifestyle and beach home in the Bahamas was certainly not ethical.
When the CoinDesk website began looking askance at FTX and Alameda, investors got nervous. When Binance, the only exchange larger than FTX, looked into a possible merger, a “liquidity crunch” swam to the surface. The cyber-empire of SBF had no solid assets propping it up. As we should have learned from the financial crisis of 2007, solidity still matters.
Having declared bankruptcy and been indicted for fraud, Bankman-Fried is out on bail at his parents’ home in northern California, and his investors are out in the cold. Cybercurrency itself has taken a hit, dropping like a rock on all the exchanges. Buy low, anyone?
Lesson 1: Imaginary money tends to disappear. Lesson 2 is less obvious, but more consequential.
SBF’s FTX embodied ESG: the new business model, a brand of social responsibility labeled environmental, social, and governance. This represents a profound shift, from maximizing profits for shareholders to expanding nebulous benefits to “stakeholders”—that is, anyone who might be affected in any way by a company’s activities. Environmental policy and diversity, equity, and inclusion practices take precedence over the bottom line. Creating a better world matters more than creating a marketable service. That’s the rhetoric, made explicit in a statement from the Business Roundtable of 2019 and elevated at institutions like the Wharton School.
Like all idealistic movements, ESG fails to take fallen human nature into account. Sam Bankman-Fried was touted as the socially responsible face of business, channeling his profits into environmental causes, progressive goals, and the Democratic Party. Investors could feel good about changing the world while getting rich. It was a modern-day version of buying indulgences, until the extent of SBF’s own indulgences came to light.
FTX lacked a solid monetary foundation, but ESG, now adopted by every Fortune 100 company, lacks a solid ideological foundation. The old business virtues, built on Christian ethics, were honesty, value for the money, and accountability. The new business virtues are platitudes about saving the world, forgetting that only one Person is up to that job.
—This column has been corrected to reflect that Sam Bankman-Fried was released on bail.
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