<html xmlns:v="urn:schemas-microsoft-com:vml" xmlns:o="urn:schemas-microsoft-com:office:office" xmlns:w="urn:schemas-microsoft-com:office:word" xmlns:m="http://schemas.microsoft.com/office/2004/12/omml" xmlns="http://www.w3.org/TR/REC-html40"><head><meta http-equiv=Content-Type content="text/html; charset=utf-8"><meta name=Generator content="Microsoft Word 15 (filtered medium)"><style><!--
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</o:shapelayout></xml><![endif]--></head><body lang=EN-US link=blue vlink=purple style='word-wrap:break-word'><div class=WordSection1><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal><o:p> </o:p></p><div style='border:none;border-top:solid #E1E1E1 1.0pt;padding:3.0pt 0in 0in 0in'><p class=MsoNormal><b>…</b>> <b>On Behalf Of </b>Stathis Papaioannou via extropy-chat<br><b>Subject:</b> Re: [ExI] lotta splainin to do<o:p></o:p></p></div><p class=MsoNormal><o:p> </o:p></p><div><p class=MsoNormal><o:p> </o:p></p></div><div><p class=MsoNormal><o:p> </o:p></p><div><div><p class=MsoNormal>On Wed, 16 Nov 2022 at 00:57, spike jones via extropy-chat <<a href="mailto:extropy-chat@lists.extropy.org">extropy-chat@lists.extropy.org</a>> wrote:<o:p></o:p></p></div><blockquote style='border:none;border-left:solid #CCCCCC 1.0pt;padding:0in 0in 0in 6.0pt;margin-left:4.8pt;margin-right:0in'><div><div><div><div><p class=MsoNormal style='mso-margin-top-alt:auto;mso-margin-bottom-alt:auto'>…<o:p></o:p></p><p class=MsoNormal style='mso-margin-top-alt:auto;mso-margin-bottom-alt:auto'>OK cool thx, so the service FTX was providing is converting digital currency into fiat currency and back? <o:p></o:p></p></div></div></div></div></blockquote></div></div><p class=MsoNormal>>…They weren’t just doing that. They were using depositors’ funds for risky activities, such as lending to or investing in other parties or to subsidiaries. As a result their liabilities are now greater than their assets, and depositors will not get their money back. If it had just been a liquidity problem another business, such as Binance, would have taken over…-- <o:p></o:p></p><div><p class=MsoNormal>Stathis Papaioannou<o:p></o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal>Ja, cool thx Stathis. This and the others are explanations a rocket scientist can understand. This FTX was doing (in principle) the same thing banks do: they buy risk at a discount by downplaying it. A bank has the perpetual risk of a run, but the risk is low, so the investors equate low risk with zero risk. <o:p></o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal>Lehman Brothers and several other companies made high-risk real estate loans, mixed them with very low risk real estate loans, then sold the package as low risk mortgage-backed bonds. Over time, the small amount of toxins added to the stew increased until the entire pot was toxic. In 2008 the whole thing came down.<o:p></o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal>In the rocket science business we deal with risk models all the time, accumulated risk, risk where a long chain of events must work in series so the very high probability of success of each step (.995 is typical) is multiplied by fifteen other events of similar probability, so that the result of .995^15 is about 93% probability of success.<o:p></o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal>In the moneychanger business, there is always risk that is low but weird things happen. Sometimes a charismatic religious leader shows up and starts overturning the tables for instance. Doesn’t happen often, but the risk is non-zero.<o:p></o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal>I must watch for confirmation bias, for I am one who firmly believes that one should never rely on the honesty of the management in making investments. If the possibility to loot the bank is in any way enabled, sooner or later, a looter will show up, clean out the vault and head to her private island in the Bahamas. Had I known the stuff I just learned in the past day, I wouldn’t go anywhere near FTX. This all reinforces my reluctance to buy BitCoin, even though (I think) a good guy and friend (Hal Finney) helped start it.<o:p></o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal>spike<o:p></o:p></p><p class=MsoNormal><o:p> </o:p></p><p class=MsoNormal><o:p> </o:p></p></div></div></body></html>