Sam Bankman-Fried, FTX and risk management

I

To live is to manage risk. But what then to make of Sam Bank-Friedman’s cryptocurrency debacle?

“I wasn’t even trying, like, I wasn’t spending any time or effort trying to manage risk on FTX,” Mr. Bankman-Fried said in an interview. Echoed a co-head of digital asset trading in Citigroup about FTX, “The thing that I picked up on immediately that was causing us heartburn was the complete lack of a risk-management framework that they could articulate in any meaningful way.”

Before it was the wrong framework for managing risks; now the problem is having no framework at all. But how could FTX not have risk managers, albeit of sorts and not formalized?

II

In answer, let’s recast the issue in a different way. Risk and risk managers were around long before risk management frameworks and registries had been formalized. Think Christians being around from the time of Jesus to formalizing the Scriptures in 4th century AD at the Council of Nicaea, How did Christians operate in the 300 years between? Can we think of Bank-Friedman and his FTX colleagues (and other cult-entrepreneurs) in the same way as these early Christians?

If we did, one question would be: What does the FTX debacle herald for risk management frameworks going ahead? The equivalent of more Pauline conversions? No wonder the guardians of current frameworks might want to convince us the FTX debacle has nothing to offer.

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