FTX Collapse Is a Feature, Not a Bug, of Financial Innovation
It’s not as if “more regulation” has any track record of success. Failure means we need more experimentation with more new ideas until we find a mix that works.
What will be FTX’s legacy?
Photographer: Leon Neal/Getty Images
From afar, all financial disasters can look the same. Too much leverage, illiquid assets, fraud, fire sales and conflicts of interest bring down houses of cards that all sensible people knew could never last. But a closer view and reasoning without the benefit of hindsight it’s less clear that everyone in finance is a bad actor or that new disasters have novel elements. Moreover, leverage and the other things everyone tut-tuts about after-the-fact are essential for economic progress.
The problems at Sam Bankman-Fried’s cryptocurrency exchange FTX.com and its affiliated trading/hedge fund firm, Alameda Research, are a case in point. On Friday, Bankman-Fried’s crypto empire filed for Chapter 11 bankruptcy protection in Delaware, according to Bloomberg News. Customers are likely saddled with large losses.