Gringo view: in God (or someone else) we trust

(Opinion) “In God We Trust” is the official US motto.

Lest we fall into the trap of believing that because it is inscribed on our money, this motto means that if the US treasury can’t pay its bills, we can trust our God to step in and fix things, and we may be disappointed.

The recent ugly crash of FTX, the bitcoin exchange flavor of the year, is a painful lesson in where to place (or not to place) our trust and our bets.

There has been endless academic debate and widespread acceptance of the ‘In God We Trust’ motto.

It has been principally focused on where ‘God’ belongs in civil religion in American culture, law, and politics, not on the seemingly more important question: what precisely are we trusting God for?

The meteoric rise and fall of Sam Bankman-Fried, who, according to Forbes, when just 29, was one of the wealthiest people in the unregulated crypto space, having amassed a net worth of over US$22 billion, raises lots of questions regulators and prosecutors are scratching their heads over. They want to know where has all the money gone.

At the same time, Bankman-Fried is held without bail in a Bahamian jail awaiting likely extradition.

Co-founder of FTX Sam Bankman-Fried launched his company and himself to billionaire status and managed to give investors a wild roller coaster ride up from less than US$4 in December 2020 to a high of US$85 in ten months to September 2021.

Physics teaches that everything that goes up eventually comes down, but the drop to only US$2 in just over a year to last month is a pretty spectacular nosedive.

FTX’s market cap swelled from US$400 million to US$9 billion during the same period but has since returned to approximately US$312 million.

That’s today’s best guess. No one knows for sure where the bottom is. And who has violated whose ‘trust’?

It indeed asks the question: how can you lose so much money in such a short time when the market is sure you are the one with the smarts, are on to a great thing, crypto is hot stuff, and you can trust it to totally change the financial landscape even though few people know the difference between a Bitcoin and a non-fungible token.

Not surprisingly, crypto boosters are very good at technobabble which fools most mortals like me.

Bankman-Fried used to have the financial TV producers scurrying to book him for cushy interviews and Wall Street, smart money such as SoftBank, BlackRock, Tiger Global, Insight Partners, and Paradigm all put their own funds and trust in him and recommended that their clients do the same.

Red faces on Wall Street and Silicon Valley signify more than Christmas cheer.

According to the legal news focus of JDSUPRA, lawsuits in connection with celebrities like Tom Brady, David Ortiz, and Udonis Haslem are flying faster than a thread of Elon Musk’s tweets.

FTX is accused of using these and other celebrities to push interest and investments from smaller investors, driving up the FTX price.

The trust these celebrities’ fans had in their promotions made it all possible.

‘In Tom Brady, we trust’ should get us safely into the endzone, but I’m not sure I’d trust him to make me rich, especially when he may not have fully disclosed his share of the action.

What Bankman-Fried is accused of is now generally called a ‘Ponzi’ scheme; Charles Ponzi, who lived in the early 1900s, was not the scheme’s inventor.

He was just very good at it, which earned him the fame of having his family name forever emblazoned on the scheme and 32 years in the pen.

So-called Ponzi schemes have all worked in more or less the same way. The schemer realizes that paying off early investors with proceeds from later investors while simultaneously enriching himself is a great idea.

That is until there are no more new investors, and the house of cards is blown away.

Before this day of reckoning, the trusted promoter has usually left in his private jet for the Bahamas or some other lush destination with a pile of money or gone to jail.

Investors Overseas Services creator and boss Bernie Cornfeld’s 1960s ads proclaimed: “The Money Game is Now Being Played by a New Set of Rules.”

God forbid!

Who made the old rules, and who is making the new ones? Were the old ones handed down by Moses or concocted by a believable schemer who managed to attract a fair amount of money and positive hype before escaping or being caught?

Cornfeld was caught but, in the process, did inspire a rare bit of Swiss humor when given a cell in a Swiss prison where, if he stood tiptoe, he could see his old chateau.

Not everyone was a believer, even in the halcyon ‘get rich quick’ days of incredible crypto growth.

Nobel laureate Paul Krugman asked: “What problem does this technology solve? What does it do that other, much cheaper, and easier-to-use technologies can’t do just as well or better?” I still haven’t heard a clear answer”.

Wall Street’s bitcoin publication ‘CoinTelegraph’ has criticized “mainstream media outlets like The Wall Street Journal, NY Times, Washington Post, Forbes, and many others…” who had been supporters of FTX for dealing with the scandal “…with kiddy gloves, refusing to call out Bankman-Fried and his inner circle for using and abusing customer funds.”

Another Nobel-winning economist, Joseph Stiglitz, condemned Bitcoin as “successful only because of its potential for circumvention [and] lack of oversight” and called for it to be banned.

Circumventing oversight and trust appears to have been the yellow brick road Bankman-Fried, Bernie Madoff, Bernie Cornfeld, and dozens of lesser-known perpetrators have traveled with varying success.

Looking at the bloody field of disasters caused by trust in the crypto boom and most recently in Sam Bankman-Fried as its prophet, investors would have been well advised to have adopted ‘In Professor Stiglitz’s We Trust’ as their new motto.

As this will be the final GringoView for 2022, may I take this opportunity to thank my loyal readers and wish them all a very merry Christmas and a peaceful, healthy, and happy 2023.