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Comment by mikkergp | Hacker News Reader

I wonder what the world would be like if we assumed best intent and genuinely asked what we could do to prevent things like this in the future. I'm not talking about toxic optimism, but also maybe not using hindsight to call people out. Sure there's an important message here, but is this really about better journalism, or about improving the reputation of the person doing the calling out.

Maybe we'd just provide more space the scammers and charlatans, I don't know. But lots of people messed up in this thing.

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Maybe we need more calling people out.

No prominent political pundit is going to see one bit of long-term skepticism after the "Red Wave" stuff of the last couple of weeks. They'll just happily keep going on all the news programs to offer their "expert opinion".

> Maybe we need more calling people out.

This is all we do and it doesn't really seem to be working. I think the more power someone has, and the more divided our society, the more calling them out elevates them (Trump, Musk, etc)

We need to ban offshores and ban any contact with them. Create some legal framework and set defined thresholds of what is offshore and what is not and punish with short prison terms any schemes involving them. Unfortunately all world politicians are beneficiaries of this scam, and so financial crime will continue as before.

Ban shell companies while we're at it. This is not sarcasm or exaggeration. Companies should not be allowed to own majority stakes in other companies or obfuscate their operations under sub-brands of sub-brands.

> Companies should not be allowed to own majority stakes in other companies

You don't want companies to be able to buy other companies? You don't want multinationals? Good luck. Maybe you want a limit on the depth of an ownership tree instead - no more than 3 levels of ownership.

On the contrary, why should we allow it?

To get started, are you a socialist?

By what logic would one need to be a socialist in order to oppose opaque corporate structures that obscure the market and thereby make it harder for consumers to make more informed judgments? Companies don't need to own other companies to make markets work. Is it "socialist" to be pro-transparency?

I could agree with the need for corporate transparency, but the initial proposal seemed excessively strict. Unfortunately, people managed to arrange complicated empires of corporations even back in the days when it took an act of the legislature to create a corporation (and therefore shell companies as we know them were impossible to create)[1].

[1] https://en.wikipedia.org/wiki/Trust_(business)

You'd need to look at libel laws. SBF might not have been a real billionaire but he had access to enough money to sue the average journalist into oblivion (or at least make their life miserable for many years). Second look at how news is funded now it's not being subsidised by ads in the back of a newspaper.

Even if a journalist is too scared to criticize an apparent billionaire, that's no excuse for getting onto that billionaires gravy train and writing articles about how great the billionaire is. If they were too scared to do their job properly, they should at least have kept their mouths shut and said nothing. They didn't have to take the money of the guy they feared, and they didn't have to write nice things about him.

What's he going to do, sue you for libel for saying nothing at all?

Journalists, government officials, enforcement agencies are not separate from society, they are embedded within it.

Some social movements develop and the person which is perceived as the leader of that social movement becomes popular. And with popularity come free passes.

Now a smart person will make sure not to use free passes because they know that the populace is fickle, their infatuation too shall pass and as soon as it does pass then the backlash is going to be 100 times worse.

So if they do any media they'll do their best to put a stop to the ass-licking in order to make sure that they'll not be using a free pass.

Then you have those who don't care and instead try to accumulate as many free passes as they can, say because they are old and are projected not live to see the crowd turn against them, or for whatever reason.

Luck is also important. Take Nixon and JFK. One conspired against his opponents and the other stole Illinois. Both are very serious crimes, only one got to live to see the truth uncovered and crowd turn against him, the other is hailed as one of the best Presidents.

So the defense is no longer "the journalists were afraid of getting sued" but rather "the journalists like access." Access which affords them money and power.

That is as I already assumed. How is that any different from a bank robber excusing himself by citing the utility of money?

You don't get it. It's not about journalists vs. non-journalists.

It's about skeptics vs. easily indoctrinated.

Thankfully the proportions are about the same, there are about the same quantity of skeptics as well as easily indoctrinated people among every profession. including journalists. Skeptics however are a reationary bunch they show up with some delay compared to those who are easily indoctrinated.

Also skeptics tend to criticize from 30,000ft whereas easily indoctrinated people have a deep need to elevate a guy and blindly follow him. Journalists who are skeptics were criticizing the whole crypto movement, whereas journalists who are easily indoctrinated were busy elevating SBF, CZ, Musk and every other cult figures in the space.

That's the reason why you can't find skeptical articles on FTX and SBF, the skeptics did not write pieces on that, they were writing pieces critical of the whole movement, whereas easily indoctrinated journalists were low-key intersted in the movement but what they really wanted was to blow SBF, Musk and CZ.

I suspect this has always been the case, but we apparently had enough journalists on various teams that someone would smell a scoop and dive in.

But I think that was mostly just a myth even in the "bad old days" of yellow journalism and newspapers making it big by exposing scandals. Maybe the increase of advertising revenues compared to subscriptions is involved, but deep down people are people and people are manipulatable.

It happens that rich people sue journalists (personally) even when they have no substantial case. Read this case: https://www.theguardian.com/commentisfree/2021/may/08/are-ou...

If you're a journalist and you're scared of being sued unless you write glowing articles about shady billionaires, then quit your job and find another. Work as a gas station clerk or something. How many gas station clerks get sued by billionaires for the offense of not being a journalist at all?

Gas station clerks do occasionally experience armed robberies though.

Do publishers not have legal insurance for exactly these cases? If not, they should.

Less concentrated wealth seems an obvious one. Including corporate wealth.

It's relatively easy to draw a parallel between fossil fuel corporations and the fawning media they paid for and FTX.

Not sure why you're being downvoted, I think this is a fair question to ask.

Crypto was founded on the notion that central banks were inherently corrupt and that we needed to establish an alternate financial system free from the power of banks. Well, here we are and look at how it's going. Fraud is everywhere and huge institutions are collapsing. This wasn't supposed to happen, but it does because it turns out that people with incredible amounts of money and power, whether backed by a government or not, are not very good at keeping the system in stasis.

> It's relatively easy to draw a parallel between fossil fuel corporations and the fawning media they paid for and FTX.

How?

They're both obviously scams intended to make a small group rich at the expense of everyone else and the newspapers would say so, if they weren't on the payroll and getting a cut via advertising, donations and other less visible transfers of cash.

How is fossil fuel a scam?

I understand the climate impact (and possibly the lies), but equating that to a scam?

Fossil fuels do have a positive impact.

You're saying we shouldn't call out people who didn't do their due diligence on who they took money from? I say the opposite. Tar and feather them.

I'm saying is calling people out the best way to solve the problem? Maybe Tar and feathering them _Elevates_ them and makes them more powerful or likely to stay in their tracks. Maybe this person is also complicit and just pointing the finger to take the focus off of themselves. Maybe we just keep circling around making the same mistakes because instead of educating eachother we just call each outer out, leading to people taking a side rather than trying to improve. I don't know.

What sort of due diligence would you have liked to see, and what do you expect it would have turned up? It was public that FTX money came from running a crypto exchange, but that FTX's CEO (SBF) secretly diverted customer funds to his hedge fund (Alameda) doesn't seem like something people would have discovered in due diligence. Major investors, with lots of money on the line, also didn't catch this.

There are two major ways in which you would not identify this flow of money:

1) You do a bad job at the due diligence and do not review anything beyond the income statement and top-level balance sheet accounts.

2) You turn a blind eye to it because it is favourable to you. Favourable can also be just the outcome of assessing the risk of 'cost of reversing fund diversion practices' vs. 'letting it slide because those diversions yield returns'.

Can you say more about the level of diligence you think journalists should generally be doing when they receive funds from an organization? I think you're proposing a much deeper level than anyone currently does and which would be maybe hundreds of hours of research, but I'm not sure?

Discovering a fraud when most people at the organization don't know about it and the people who do would like to your face is not a light task!

> ? It was public that FTX money came from running a crypto exchange, but that FTX's CEO (SBF) secretly diverted customer funds to his hedge fund (Alameda) doesn't seem like something people would have discovered in due diligence.

I'm guessing algebra is difficult for journalists.

> Major investors, with lots of money on the line, also didn't catch this.

Major investors had all the incentives to keep the scam going as they stood to make big money from the scam.

Journalists should have the incentives to expose the scams, except they were not in this ( and probably some other ) case because they were either getting money from the scam or were trying to be the best cheerleaders possible in hope of getting money from the scam.

> I'm guessing algebra is difficult for journalists.

Not sure what you're saying here? The amount of money the FTX Foundation was distributing was plausible given FTX's fees and volume.

> Major investors had all the incentives to keep the scam going.

That ignores new investors buying in, who I don't think had those incentives?

> Not sure what you're saying here? The amount of money the FTX Foundation was plausible given FTX's fees and volume.

Only if FTX and its founder found a way to create print money out of the thin air.

> That ignores new investors buying in, who I don't think had those incentives?

New investors are definitely not major investors and even those investors simply want to find an even greater fool.

Two weeks ago I overheard a bartender in a dive bar where beer and a shot goes for $6 telling the regular drunk about all the mad money he is making at FTX. Here's a thing: there's not a single non-scam that would allow a bartender in a dive bar that sells $6 beer and a shot to make gobs of money "investing" or "trading"

> Only if FTX and its founder found a way to create print money out of the thin air.

It looks like FTX volume was something like $7B/day in July [1].

FTX fee structure [2] was complex, but assuming they got at least 0.04% seems reasonable? In which case they were making ~$3M/day ($7B * 0.04%) or ~$1B/year in fees.

[1] https://web.archive.org/web/20220725151202/https://www.coing...

[2] https://help.ftx.com/hc/en-us/articles/360024479432-Fees

As I said, algebra is difficult for journalists looking to cheerlead in hopes of getting spoils:

https://ir.nasdaq.com/news-releases/news-release-details/nas...

It sounds like you think there's a bit of simple math that would have shown all of this was deeply suspicious? Could you be more specific?

Yes, compare the earnings of NASDAQ with the "earnings" of FTX. Google the "founder". Watch the shit he talks about. Ask yourself - if he has that much time to be a clown what are the odds of him actually running a company that is worth that much money without a team?

> compare the earnings of NASDAQ with the "earnings" of FTX

Yes? Everyone knew that volume in crypto was too high and likely irrational. But that wasn't much indication that FTX was behaving fraudulently: they seemed to be just doing the straightforward work of helping match buyers and sellers and taking a cut.

> if he has that much time to be a clown what are the odds of him actually running a company

Lots of CEOs seem to do things like this; again that's not a strong signal. Also doesn't have anything to do with algebra.

> without a team?

FTX had several hundred employees

> Yes? Everyone knew that volume in crypto was too high and likely irrationa

No, everyone knows that the exchange volume in crypto is high and fraudulent. Irrational behavior is not acknowledging it.

> Lots of CEOs seem to do things like this; again that's not a strong signal. Also doesn't have anything to do with algebra.

They do not. There's 24 hours in a day. Excluding 5 hours the CEO "slept", two hours that CEO spent eating and waking up that leaves 17 hours total. Every single activity one engages in subtracts available time for running the company.

> FTX had several hundred employees

FTX "leadership" lived in a single Penthouse in Bahamas, having sex with each other. Fish rots from the head. In this case anyone who did not want to ignore it saw that the head of the fish was rotten.

> Journalists should have the incentives to expose the scams

I agree. But the incentives are gone. A huge portion of the investigative journalism industry died when hard copy newspapers died. A lot of those journalists now work for private industry doing competitive intelligence. They need to pay their mortgage just like software developers do. Very few people pay for hard core journalism now (ads by their nature mainly pay for clickbait, and even then the 'journalist' sees very little of the income)

this kind of thing is not completely straight forward to catch. if they are able to lie about their liabilities then they can be truthful about their assets and it is difficult to catch the lie about the liabilities. if I'm an external auditor and you tell me you have some assets then that is something I can try to verify myself or ask you for more evidence. if you tell me you only have a liabilities of $X but the value is actually $X+Y then this is much harder to find.

in the case of FTX its probably easy to. shave customer liabilities without it showing up. probably, this is because they didn't have proper segmentation of client funds. if you have an external entity holding the assets in trust then you need to be doing very dodgy stuff in the company to be hiding customer liabilities. for example even in with a trust account setup you could have part of customer funds being diverted into secret accounts and they don't show up in the liabilities. as an external auditor you can ask to see systems and a paper trail but you are just seeing what people want you to see and if there is a conspiracy to lie then you are fucked. the best you can do is try to get some industry estimates and see if they match or compare to external statistics (like revenue, etc) and hope they have been reported truthfully.

my guess in the case of FTX there probably were red flags like lack of proper segregation and these weren't reported by the external auditor.

I agree this is tricky, and also that it seems like something auditors should have been able to catch. But "an experienced auditor would have caught this" is very different from "someone receiving funds from a foundation funded by this company should have caught this".

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