The financial collapse of the crypto exchange FTX was brutal and swift. Almost overnight, its CEO Sam Bankman-Fried saw his $16 billion fortune wiped out.
SBF, as he’s popularly known, managed to fool almost the entire world—though not quite everyone.
In hindsight, it’s not hard to see the red flags at FTX. There was no board of directors. Bankman-Fried couldn’t answer simple questions about his funding. The executive leadership was shady and there was the whole “cabal of roommates” in the Bahamas.
One thing that hasn’t gotten enough attention, however, is SBF’s philosophy of “effective altruism,” a social movement that rejects self-interest and instead focuses on “how to benefit others as much as possible.”
Many people will no doubt applaud SBF for his philosophy. Putting others before oneself is considered by many to be not just a virtue but the virtue, and it could help explain Bankman-Fried’s meteoric rise and celebrity. Legacy media swooned over SBF’s apparent selflessness. Story after story after story gushed over the crypto altruist who wanted to give his wealth away—even as he lived in a $40 million penthouse.
Bankman-Fried clearly liked to talk about his altruism, which many see as a clear and obvious virtue. Or is it?
‘Do Not Confuse Altruism With Kindness’
Ayn Rand famously didn’t see altruism as a virtue; she saw it as a sinister force.
“Do not confuse altruism with kindness, good will or respect for the rights of others,” Rand wrote. “These are not primaries, but consequences, which, in fact, altruism makes impossible.”
Now, I’m not an Objectivist. I actually celebrate giving and see charity as part of my Christian calling. But I think Rand is on to something. While I don’t believe “selfishness is a virtue” or “that greed is good,” I do believe in rational self-interest, the idea that it’s both normal and prudent for humans to advance their own interests in their economic decisions.
The idea of rational self-interest is central to capitalism and was famously articulated by Adam Smith in The Wealth of Nations.
"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest,” Smith wrote. “We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities but of their advantages."
Smith, like myself, didn’t see charity as a sin or mere foolishness. But he clearly understood that humans are naturally self-interested creatures and that this instinct is not actually detrimental to human flourishing, but a key to it. This is the miracle of a market economy, which leverages self-interest through trade and voluntary action to improve everyone’s standard of living.
Now, contrast this sentiment with Sam Bankman-Fried, who said he was bailing out digital assets not because he saw an opportunity but because he felt it was the right thing to do.
“It’s not fair to customers,” SBF said on CNBC’s Squawk Box.
Or consider what Bankman-Fried told an Institute of International Finance audience in August.
“It's okay to do a deal that is moderately bad, in bailing out a place,” SBF said.
Purchasing failing companies to protect their customers seems like a dubious business strategy to me, and it was one of the things that caught the attention of seasoned traders, who began to raise questions about FTX. Those traders turned out to be right. FTX, which recently had a valuation of $32 billion, was massively overleveraged, and when rival crypto exchange Binance announced it was offloading hundreds of millions of dollars of FTT (FTX’s token), a run on funds ensued.
But it’s worth focusing on Bankman-Fried’s rhetoric a little more, because it occurred to me it sounds a little like a character in Atlas Shrugged.
‘Material Greed Isn’t Everything’
James Taggart, president of Taggart Transcontinental, is the most prominent villain in Ayn Rand’s magnum opus. He talks endlessly about serving mankind and sneers at those who are concerned with crass profits.
“Material greed isn’t everything. There are non-material ideals to consider,” Taggart lectures his sister Dagny, the hero of the story.
Taggart’s smug thinking is what prompts him to take on his own bad deal, a massive expansion of Taggart Transcontinental into Mexico. He confesses to “a feeling of shame” that he owns a railroad, but “the Mexican people have nothing but one or two inadequate lines.”
“The Mexicans, it seems to me, are a very diligent people, crushed by their primitive economy. How can they become industrialized if nobody lends them a hand? When considering an investment, we should, in my opinion, take a chance on human beings, rather than on purely material factors.”
Taggart gets his way and—like FTX—his San Sebastian Line is a disaster. The lesson in both cases is clear: beware business deals based on altruism.
SBF, like James Taggart, spoke often about serving humanity. His concern with climate change, global pandemics, and progressive causes earned him laurels and fawning press. Even after the collapse of FTX, newspapers are discussing his noble efforts “to prevent another pandemic.” But there is also a notable difference between Rand’s petulant railroad baron and Bankman-Fried.
While James Taggart is a mean, surly, unscrupulous man, his altruism seems somewhat genuine; either he’s too stupid to see his good intentions will bear bad fruit or he lacks the self awareness to realize his “altruistic” ideas are not as pure as he believes. (It’s important to understand that even though Taggart spurns selfishness and greed, he is clearly a selfish and greedy person.)
With Sam Bankman-Fried, this appears less true.
In an exchange with Vox reporter Kelsey Piper, SBF’s altruistic philosophy came up. Piper noted he was “really good at talking about ethics” publicly. His response is telling.
Sam Bankman-Friedman was no dummy.— Jon Miltimore (@miltimore79) November 18, 2022
He knew the game and was playing it superbly. pic.twitter.com/D9NA8ludcz
“I had to be…it’s what reputations are made of, to some extent,” SBF answered. “I feel bad for those who get [expletive] by it…by this dumb game we woke westerners play where we say the right shiboleths [sic] and everyone likes us.”
From this response, it’s clear Bankman-Fried knew he was a poser. His advocacy was just part of the new game of stakeholder capitalism. (Interestingly, SBF actually refers to ESG as a perversion.)
Sam Bankman-Fried, unlike James Taggart, is not an idiot. He knew what he was doing. I don’t know if this makes SBF more of a villain than Taggart or not.
But it certainly makes Bankman-Fried’s downfall all the more tragic.