The Illusion of American Meritocracy

You have probably at least seen references to the huge business scandal involving the collapse of the cryptocurrency exchange FTX. While the details are not yet fully known, the company was potentially speculating with customer money. Insiders may have even directly stolen customer funds (there are unexplained transfers and a lot of money seems to be missing). Possibly other forms of fraud are involved. FTX had what analysts are calling the “balance sheet from hell.” There was actually an “asset” on the balance sheet called “TRUMPLOSE,” for example, as well as $8 billion in liabilities simply listed as “Hidden, poorly internally labeled ‘fiat@’ account.”

FTX was founded by Sam Bankman-Fried, known as “SBF” online. Prior to its collapse, he was a darling of the American A-List. Only 30 years old, he had already become a billionaire and famous business celebrity. Here he is on the cover of Fortune magazine.

Unlike with Theranos, where smart money investors took a pass, FTX received money from a who’s who of A-list firms like marquee Silicon Valley venture capital firm Sequoia, Softbank, and Black Rock.

In a now-deleted 13,000 word hagiographic profile of SBF, here’s how Sequoia recalled responding to his pitch:

That’s when SBF told Sequoia about the so-called super-app: “I want FTX to be a place where you can do anything you want with your next dollar. You can buy bitcoin. You can send money in whatever currency to any friend anywhere in the world. You can buy a banana. You can do anything you want with your money from inside FTX.”

Suddenly, the chat window on Sequoia’s side of the Zoom lights up with partners freaking out.

“I LOVE THIS FOUNDER,” typed one partner.

“I am a 10 out of 10,” pinged another. 

“YES!!!” exclaimed a third.

What Sequoia was reacting to was the scale of SBF’s vision. It wasn’t a story about how we might use fintech in the future, or crypto, or a new kind of bank. It was a vision about the future of money itself—with a total addressable market of every person on the entire planet.

“I sit ten feet from him, and I walked over, thinking, Oh, s—t, that was really good,” remembers Arora. “And it turns out that that f—er was playing League of Legends through the entire meeting.”

SBF was also accepted at the highest level of American politics and culture. He became a huge donor to various philanthropies, media outlets, and the Democratic party. In 2020 he was the largest donor to the Democratic party apart from George Soros. As of this writing, he’s actually still listed as a featured speaker at the upcoming New York Times Dealbook summit.

Yes, he’s pictured next to the mayor, although the speakers appear to be listed alphabetically.

Given SBF’s tight connections to the Democratic party, many commentators are assuming political corruption. It may be that he was involved in some sort of politically related fraud or money laundering. But the FTX collapse may well be a result of simply being in over his head.

What I want to highlight is SBF’s personal background. Although portrayed as a very intelligent, very charismatic wunderkind - which he may well have been - he and others at FTX came from extraordinarily connected personal backgrounds.