Peter Elkind and Bethany McLean on what drove Jeff Skilling and brought down Enron

Just as he had when Enron was riding high, Skilling labeled ExxonMobil a "dinosaur" - as thought it didn't matter that the oil giant was thriving while Enron was nearly extinct.  "We were doing something special.  Magical."  The money wasn't what really mattered to him, insisted Skilling, who banked $70 million from Enron stock.  "It wasn't a job - it was a mission," he liked to say.  "We were changing the world.  We were doing God's work."

In the public eye, Enron's mission was nothing more than the cover story for a massive fraud.  But what brought Enron down was something more complex - and more tragic - than simple thievery.  The tale of Enron is a story of human weakness, of hubris and greed and rampant self-delusion; of ambition run amok; of a grand experiment in the deregulated world; of a business model that didn't work; and of smart people who believed their next gamble would cover their last disaster - and who couldn't admit they were wrong.

~ Peter Elkind and Bethany McLean, The Smartest Guys in the Room, p. xxi

Derek Van Shaik on the Dunning-Kruger effect

An easy way to spot a novice in a field is when they claim to know everything within that field.  A true expert knows the vastness of the field and how little they know within the vast field.  Ever hear someone say, "I know just enough to be dangerous?"  That's typically said by someone who is starting to come down from the peak of Mount Stupid and begins to acknowledge how little they know on the topic.  However, there are some people who work in a field who stay at the top of Mount Stupid by subconsciously shielding themselves from learning anything further, because learning can be intimidating, humbling and cause insecurities since it reveals how little they know.  Since they don't experience this Valley of Despair, they don't get to reach this inclining Slope of Enlightenment to gain real competence and expertise, which builds authentic confidence.

~ Derek Van Shaik, "What The Top Of Mount Stupid Looks Like - FTX's Caroline Ellison," YouTube, November 17, 2022

Terry Duffy on the baggy shorts image of Sam Bankman-Fried

When you have the greatest quarterback of all time and a supermodel wife doing a commercial, picking up the phones saying, "are you in?, are you in, are you in?".  To me it looks like a pump-and-dump scheme if you watch that commercial, and I watched it again today.  People get very influenced by people like Tom [Brady] and his wife and others - or his ex-wife.  So, no, I'm not surprised.  And I'm not surprised by the baggy shorts and the big t-shirt because it's a gimmick.  And most people that wear a gimmick are also selling a gimmick.

~ Terry Duffy, CEO of CME, CNBC interview with Melissa Lee, 5:00 mark, November 22, 2022

Jesse Powell on how Sam Bankman-Fried was in conflict with the crypto industry

Most people want good things.  They got into the space to change the world and really help people and to push crypto forward.  They're not here, first and foremost, to make money.  I think Sam saw crypto as a means to an end, and most people in this space see crypto as the end goal...  That's what we need to deliver to humanity.  So his ideas certainly were in conflict with the rest of the industry.

~ Jesse Powell, "FTX Meltdown and the Future of Crypto," Reason.com, 22:20 mark, November 16, 2022

Tim Price on judging character and minimizing the risk of fraud

If people are determined to commit fraud, there is probably not much any of us can realistically do to stop them.  We do recall what won us over to investing in Vietnam, however, some years ago – apart from the extraordinarily attractive valuations and growth prospects of this admittedly frontier market.  We met with the chairman and chief executive officer of the country’s largest securities broker.  We confessed that we had some questions about the standards of corporate governance in the country.  She responded that they had indeed experienced a fraud perpetrated by the bank manager of a local bank.  As a result he had been executed. 

There are, however, certain steps one can take at least to minimise the risk of control fraud and the related risk of catastrophic capital loss.  One is obviously to develop an acute judgment of other people’s character.  One is not to invest in banks.  One is to allow oneself to be naturally drawn to superior allocators of capital, running shareholder-friendly businesses in which they already have a meaningful equity stake.  And one is to diversify anyway, because you simply never know.

~ Tim Price, "There Is Nothing New Under the Sun," Price Value Partners, November 21, 2022

Warren Buffett and Charlie Munger on cryptocurrencies (2018)

Warren Buffett: There's nothing being produced in the way of value from the asset.  You also have the problem that it draws in a lot of charlatans... who are trying to create various sorts of exchanges...  It's something where people who are of less-than-stellar character see an opportunity to clip people who are trying to get rich because their neighbor's getting rich buying this stuff that neither one understands.  It will come to a bad ending.  Charlie.

Charlie Munger: Well, I like cryptocurrencies a lot less than you do.  And so to me it's just dimentia.  And I think the people who are professional traders who go into cryptocurrencies, it's just disgusting.  It's like somebody else is trading turds and you decide "I can't be left out."

~ 2018 Berkshire Hathaway Annual Meeting, May 5, 2018

Jeffrey Tucker on Sam Bankman-Fried marketing FTX with social justice causes

He was a physics major who got a lot of social justice in his head and began to realize that he was looking for a new angle on how to market cryptocurrency.  And the anti-government philosophy of the usual crypto crowd of "buy bitcoin to get away from the government and secede from the Fed and have your own private money and change the world toward freedom," he went the opposite direction and realized that he could market his little business with some version of ESG and DEI and all the fashionable social justice causes.  So he came up with this idea of effective altruism.  And so he wasn't in it to make money for himself.  He was in it to support good causes and to give all of his money away.  And he drives an inexpensive car and he dresses in a shabby way, and it was all virtue signaling within the crypto space.  And this was new, actually, for the crypto world which had usually been about kind of a cowboy anarchism: "let's get away from the government to do our own thing."  He went the opposite way.  So he developed very tight relations with the left basically.

~ Jeffrey Tucker, "FTX cryptocurrency scandal is just the beginning," Will Cain Podcast, 0:15 mark, November 15, 2022

Jeffrey Tucker on market forces revealing reality

I like markets most when they tell the truth.  Politicians don't.  Bureaucrats don't.  Media does not.  But market forces, they can be tricked for a very long time, but in the end there's a hard wall: it's called economic law.  And the numbers in the end have to add up.  So there's nothing Washington can do about this.  We're going to see the truth and I'm excited about these times.  As you say, it's going to be painful, but I'm glad for it because you don't want to live in a world of leverage and fraud and fakery forever living off perpetual motion machines that are going to die out.

~ Jeffrey Tucker, "FTX cryptocurrency scandal is just the beginning," Will Cain Podcast, 28:30 mark, November 15, 2022

Jeffrey Tucker on the FTX scam to "play nice with regulators"

This has really introduced a complication in the culture of crypto because up to now it's been assumed that if you don't want to play ball with regulators you might be up to no good.  Now, we have every reason to think that the more willing you are to play ball with regulators, the more you might be trying to cover up what you're up to that's actually unsustainable or up to no good.

~ Jeffrey Tucker, "FTX cryptocurrency scandal is just the beginning," Will Cain Podcast, 18:15 mark, November 15, 2022

Jeffrey Tucker on Sam Bankman-Fried and effective altruism

Will Cain: It reminds me of a company that was founded well over a decade ago and people might remember: Vice.  And Vice had a very charismatic leader who had a flashy lifestyle and said he understood Gen Z, or Gen X, or millennials, or whatever it may have been.  And because of that, he attracted investment from legacy media organizations, hundreds of millions of dollars in increasing rounds of capital raise that continued to push up the valuation of Vice.  And I hear what you're describing now with SBF is he did something similar, although instead of Lamborghinis the way that he got - I think he got - Silicon Valley to give him a ton of money to investing in FTX, or to buy FTT [FTX's token] was through the flashy mechanism of virtue signaling.  That I'm going to give it all away, that I'm altruistic.  And so that sucked in the sophisticated investor?

Jeffrey Tucker: Yeah, that was his value-added to the ongoing cons in this space, and there are many.  But his particular sort of spin on it was to be the innovator of effective altruism, which he describes as a religious conversion.  He realized it was wrong just to make a lot of money, but rather you should make a lot of money and then give it all away.  So just a nice bit of flim flam perfectly constructed for 2019 and 2020.

~ Jeffrey Tucker, "FTX cryptocurrency scandal is just the beginning," Will Cain Podcast, 12:40 mark, November 15, 2022

Brian Chesky on priorities, easy money and discipline

In life, one of the things I learned from the pandemic is you can do anything you want in your life; you just can't do it all at the same time.  You have to have ruthless prioritization.  And one of the pitfalls of tech the last 10 years - especially the last 5 years - is probably a plethora of capital.  Too much money.  And too much money means too many things at the same time.  And so we had to get really disciplined.  We said, "what we need to get focused on is great customer service and getting enough hosts."  And those became our priorities.

~ Brian Chesky, Airbnb CEO, interview, Bloomberg TV, November 18, 2022

Brian Chesky on cryptocurrencies post FTX collapse

Now as far as crypto, I think that generally the analogy I'd make is like we're all in a nightclub and the lights just came on.  So suddenly I feel that we have to take a really cold hard look, have a reality check.  The technology's really interesting.  I think we have to be very careful, though, about this frenetic get-in-on-any-technology trend before it's over.  I think we ought to be very very careful about that because that's when discipline goes down.  I think people will regret decisions they make when they have this mentality that "someone else is making money, I'm not."  You really gotta always focus on fundamentals.  You always have to focus on building things for other people of value.  And if the more you learn about somthing, the less you understand it, you just gotta slow down and make sure you really know what you're doing.

~ Brian Chesky, CEO of Airbnb, interview, Bloomberg TV, November 18, 2022

Charles Hugh Smith on counterparty risk and the dominos from the FTX collapse

The full exposure to the risks inherent in extreme leverage and illiquidity can be cloaked, buried in off-balance sheet assets and liabilities, etc., while pages of mind-numbing disclosures were duly signed by blinded-by-greed marks. 

These quasi-legal versions are just as prone to unraveling and collapse as the blatantly fraudulent varieties. Properly disclosed leverage and illiquidity are just as prone to unraveling as undisclosed leverage and illiquidity. 

Mismatches of duration, liquidity and risk are just as toxic to full-disclosure firms as they are to fraudulent firms. 

This is why we can predict the dominoes of FTX's financial fraud have yet to fall.  When there are mismatches in counterparty asset durations and liquidity, assets that theoretically cover loans that are called can't be sold or can only be sold at ruinous discounts.

~ Charles Hugh Smith, "FTX: The Dominoes of Financial Fraud Have Yet to Fall," OfTwoMinds.com, November 16, 2022

Jesse Felder on the cryptocurrency craze and FTX collapse

It’s no secret how Warren Buffett has been so successful over the course of his career. In fact, he has made it priority to share all of his “secrets” with anyone willing to take the time to simply read them. The trouble is his philosophy is intolerably dry and the process of investing as he does is infinitely boring to the vast majority of people in the world. The truth is that most don’t want to succeed in the markets as much as they want to be both thrilled and agonized by them. 

The latest example of this is the cryptocurrency craze. As an investment, cryptocurrencies make very little (if any) rational sense; in fact, there’s little reason to believe they are anything more than elaborate ponzi schemes. What they do offer, however, is a strong sense of community, a feeling of intellectual superiority, hope of an easy path to financial freedom and, perhaps most importantly, the thrill and agony of wild volatility.

~ Jesse Felder, "Crypto Bros Are Getting Exactly What They Want Out Of The Market," The Felder Report, November 16, 2022

Ben Carlson on surviving bear markets

Surviving bear markets requires you to manage both volatility and your emotions.

~ Ben Carlson

Warren Buffett on bankruptcy

My partner, Charlie, says there's only three ways that a smart person can go broke: liquor, ladies and leverage.  

Now the truth is — the first two he just added because they started with L — it’s leverage.

~ Warren Buffett

Benjamin Franklin on quality

The bitterness of poor quality lasts long after the sweetness of low price is forgotten.

~ Benjamin Franklin

(as quoted by Björn Fahlén in Quality First Investing: A checklist approach to finding and sitting tight in multibaggers)

Joseph Ayoub on how the FTX cryptocurrency crash is contained

We think Bitcoin and ETH remain a too small part of the market to cause broader financial market contagion, with a total crypto market cap size of $890 billion vs $41 trillion for U.S. equities.  The FTX shortfall is still relatively small in comparison to other crypto events, such as Luna ($40 billion lost) or market cap losses in public tech names.

~ Joseph Ayoub, Citigroup digital asset analyst, "FTX's bust and crypto crash come with two silver linings," Yahoo!Finance, November 14, 2022

Marko Papic on price inflation and supply problems

Why do we have inflation?  "Oh, it's Biden's stimulus."  Well, no.  False.  False.  First of all, it's Biden-Trump's stimulus.  Second of all, forget stimulus.  Forget that, that's easy.  You raise rates, done.  Demand gone.  The problem is, we have this plethora of idiosyncratic supply problems that seem idiosyncratic; they seem separate from each other.  But actually there are a cacophony of evidence that's telling you that we have completely dismantled the well-functioning, well-oiled machine.  Supply chain, just-in-time, all this stuff.  And why did we do it?  We decided that global warming was going to kill us tomorrow.  Not in 10 or 100 years.  No, no, tomorrow.  So we need to deal with it right now.  And the problem with that is what we've done is we've starved fossil fuel industry of capital.  We've turned off the capex tap at the same time that we didn't turn off the demand tap.  Like we're not all driving Teslas.  Sorry.  Some of us drive F150s.  So the problem with that is that we have an energy crisis, which is of our own making.  We have a supply chain crisis because five years ago we all thought China was cool; now all we think China is going to kill us.  So now we have to also fight a war with China tomorrow, we have to solve climate change tomorrow, and then finally, of course, Covid... disruptions also created supply chain problems.

~ Marko Papic, interview with Dan Ferris, Stansberry Investor Hour, 37:50 mark, October 31, 2022

Nassim Taleb on evolution

How does evolution happen?  Not by convincing people, but by replacing them with better people.

~ Nassim Taleb, "Why Correlation is Unreliable," Greenwhich Economic Forum, 10:45 mark, April 2022

Naval Ravikant on compounding

Play iterated games.  All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.

~ Naval Ravikant, co-founder of AngelList

Aristotle on deviation from the truth

The least initial deviation from the truth is multiplied later a thousand fold.

~ Aristotle