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Complexity sells. But simple is best. Paradoxes don't get much bigger.
Humans love stories. As a human, I too, love stories.
As a writer however, I recognise how easy it is to spin a story, to weave a web in peoples' minds.
To be perfectly honest, it's something I wish I didn't know. Would be far easier to just spout nonsense (or puff pieces about fraudsters) without feeling any sense of responsibility.
Annoyingly, I have a conscience. Really gets in the way of just getting stuff done sometimes, you know?
Anyway, at times of turmoil and surprise, people will frantically search for answers. It's some evolutionary trait to keep us alive. Like most of those caveman traits, it's not optimised for financial markets.
Basically, if we don't understand something in our environment, our brains think we're in danger until we can make sense of it. In the complex world of markets, that's pretty hard to do, so our brains cut corners sometimes.
This paper draws attention to a powerful human motive that has not yet been incorporated into economics: the desire to make sense of our immediate experience, our life, and our world.
We propose that evolution has produced a ‘drive for sense-making’ which motivates people to gather, attend to, and process information in a fashion that augments, and complements, autonomous sense-making.
A large fraction of autonomous cognitive processes are devoted to making sense of the information we acquire: and they do this by seeking simple descriptions of the world.
Which is part of the reason we all love a good conspiracy theory. It doesn't need to be Alex Jones levels of insanity, just a shortcut to sensemaking. Sometimes, it isn't a shortcut, and we end up like Alice, falling down the rabbithole...
Take a look at the recent conspiracies around FTX and the democrat donations.
Stuff like this 👇
Look how neatly it's all packaged up. If you're looking for answers, your brain will be feasting on this....
What if that's EXACTLY what happened? Fkn corrupt government at it again, the whole reason I got into crypto was because they rugged us in '08 and I don't trust them, now they've done me twice
Then the media comes out running cover for their political friends, right?
He was surrounded in the Bahamas by his inner circle of similarly youthful disciples of effective altruism, a philanthropic and philosophic movement that tries to have the greatest impact by carefully spending money to solve problems. The cast included Caroline Ellison, Alameda’s CEO and Bankman-Fried’s occasional dating partner; Gary Wang, FTX’s chief technology officer; Nishad Singh, the exchange’s director of engineering; and Ramnik Arora, the head of product.
That save-the-world mentality was, in many ways, what drove Bankman-Fried and his acolytes. Though they got rich quickly through crypto, they weren’t just satisfied being power players in the nascent digital-asset world. The group of effective altruists understood money could solve almost anything.
Or maybe it's not really to do with politics at all. SBF simply got on the wrong side of the incumbents and they screwed him over... 👇
Nah, there's a line in there that really leaps out. For any curious soul asking why the media and public figures would want to try and explain away SBF's actions 👇
"...they can’t fully erase the fact that many sophisticated finance pros were duped by Bankman-Fried’s wacky charm"
Yep. He seemed like such a nice guy. Reminds me of those people on local news channels after finding out they've been living next door to a serial killer for 20 years.
Occam's Razor says that “it is futile to do with more what can be done with fewer”. Basically, the simplest explanation is usually the best one.
Rather than looking at the whole situation as an elaborate scheme between powerful, connected people, what happens if you break things down into the component parts? Like this 👇
- Democrat-linked parents are asked to introduce their kids to party members
- "You guys seem to be making a lot of money - maybe we can help each other out"
- Donate to grease the wheels. We'll push through legislation that eliminates your competition and/or secures your place as industry leader. Everyone wins.
I'm not saying that's what happened. All I'm saying is that everyone in that story is acting in their own self-interests rather than as part of a whole.
Which makes sense. Self-interest is a big motivator. Kind of like profit.
Let's not be naive. It's fair to assume that all sorts of shady stuff goes on behind the scenes, pretty much all of the time. What I really struggle with is the idea that it's all concocted as part of a grand plan.
Even if you presume that's what's happening, it's impossible to know, quantify or generally turn that into anything useful. Whose plan is it? Does everyone agree with the plan?
Another example of this is happening right now... People talking about the Fed as if it's a united bloc, ignoring that the chair and vice chair (among others) seem to have radically different ideas on the path ahead. But we're told that "the Fed wants"...
Anyway, we see an outcome (like the FTX bankruptcy) and then link it all together in hindsight to make the story fit. This is where another razor (no idea why they're all called razors) comes in handy...
Hanlon's Razor - "never attribute to malice that which is adequately explained by stupidity"
Look back at the comments of the people involved, their attitudes to risk and the unyielding belief in their own abilities. They were high on their own hubris, smoking their own stash...
If it walks like a duck, quacks like a duck, it's probably the overconfidence of youth, trades that went wrong, and an exchange that reallocated customer funds to cover for (unrecoverable) trading losses, all while believing they were untouchable, this is just a blip, and taking so many stims they were physically shaking in interviews.
I get why people would want to believe that this is part of something bigger. It's easier than admitting you put your faith in the wrong people, especially when all the classic signs were there.
But everyone was getting hilariously rich and you weren't. Disbelief was suspended in favour of the narrative. These fresh young faces of financial democratisation, the disruptors taking on the gatekeepers. We wanted to believe.
And it will all happen again. Humans are suckers for a good story.