[Bonus Episode 1] Author Michael Lewis on the cult-like culture around Sam Bankman-Fried | Dean’s Speaker Series

In a fireside chat with host Jenny Chatman, best-selling author Michael Lewis shares the inside story of the strange culture Sam Bankman-Fried created at his failed crypto exchange, FTX. Lewis got to know SBF for his latest book, “Going Infinite: The Rise and Fall of a New Tycoon.” The story is a fascinating example of a strong organizational culture gone terribly wrong.

Lewis is known for his New York Times bestselling books, including Moneyball, The Big Short, Liar’s Poker, and The Blind Side. He started his career in finance on the bond desk at Salomon Brothers, and then left the business world to become a journalist. His books tell stories about real characters and provide insights into the business world—from working on Wall Street to the 2008 financial crisis to the rise and fall of cryptocurrency.

This episode is part of our summer bonus season to give more people the chance to hear some of the great speakers we’ve hosted at Haas and the Berkeley Center for Workplace Culture and Innovation this past year. This interview was held on November 8, 2023 as part of the Dean’s Speaker Series. Bringing in a diverse mix of preeminent business leaders, the series provides the Haas community with insightful perspectives on effective leadership and opportunities for thought-provoking discussions.  Learn more.

Do you have a vexing question about work that you want Jenny and Sameer to answer? Submit your “Fixit Ticket!”

You can learn more about the podcast and the Berkeley Center for Workplace Culture and Innovation at https://haas.berkeley.edu/culture/culture-kit-podcast/.

*The Culture Kit with Jenny & Sameer is a production of Haas School of Business and is produced by University FM.*

[0:04] Jenny: Before we dive into today’s episode, we want to recommend another great podcast: “Pfeffer on Power” with Stanford’s Jeffrey Pfeffer. The show equips leaders with tools for navigating power dynamics, influence, and negotiation.

[0:20] Sameer: It shares a similar focus on empowering leaders, just like our podcast does. Check out “Pfeffer on Power.” It’s also part of professors.fm, the podcast network that makes sense of the world with top scholars.

Intro:

[0:40] Sameer: From Berkeley Haas and the Berkeley Center for Workplace Culture and Innovation, this is “The Culture Kit” with Jenny and Sameer.

[0:49] Jenny: I’m Jenny Chatman—

[0:50] Sameer: and I’m Sameer Srivastava.

[0:53] Jenny: We’re professors at the Haas School of Business. On this podcast, we’ll answer your questions about workplace culture.

[1:00] Sameer: We’ll give you practical advice that you can put to work right away.

[1:03] Jenny: Join us to start building your culture tool kit.

Episode:

[1:07] Sameer: Hey, Jenny.

[1:08] Jenny: Hey, Sameer.

[1:10] Sameer: So how’s your summer going? Any news or developments?

[1:14] Jenny: It’s been really great but a little bit busy.

[1:17] Sameer: I bet. I can only imagine that you have a ton on your plate as you get ready to step into the new role you’ve just accepted: Interim Dean of the Haas School of Business starting on August 1. Congratulations on your appointment. We are super excited.

[1:32] Jenny: Thanks, Sameer. I’m really looking forward to it.

[1:35] Sameer: Well, it’s still summer for many of us. And in that spirit, we’re putting out some bonus episodes of the culture kit to give more people the chance to hear some of the great speakers we’ve hosted at Haas and the Berkeley Center for Workplace Culture and Innovation this past year.

[1:50] Jenny: Right? Super exciting. Today, we’re sharing a conversation with acclaimed financial journalist Michael Lewis. Michael talked about the cult-like culture that grew around Sam Bankman-Fried, founder of the failed crypto exchange FTX—and now, a convicted felon. I interviewed Michael as part of our Dean’s Speaker Series in November just after the publication of his latest book, “Going Infinite: The Rise And Fall Of a New Tycoon.” I hope you enjoy it.

[2:20] Jenny: Welcome to the Dean’s Speaker Series. This is an event [applause]—Yay! Go Bears!—This is an event that’s actually co-sponsored by the center that I co-direct with my colleague, Sameer Srivastava, the Center for Workplace Culture and Innovation. And I’m Jenny Chatman. I am the acting dean at the Haas School of Business, and I am absolutely thrilled to welcome today, Michael Lewis, the renowned author.We know him well; he almost needs no introduction. This morning, I was thinking about my favorite book of yours, “Flash Boys.” Is that a weird choice?

[3:00] Michael: Yes.

[3:01] Jenny: Yeah.

[3:02] Michael: It’s a weird choice.

[3:03] Jenny: I remember I bought it when I was coming back from a large eastern school at Logan Airport. I picked it up, and I had all this work to do on the plane. And instead, I opened the cover, and I read it from coast to coast and did zero of my work. So it was as usual, a gripping book. So Michael’s style, as you know, is to use real life characters to kind of open up a world of mystery and intrigue. His books are stranger than fiction, and they are so gripping that many of them have been made into Hollywood films, including, you know, pick your favorites: “The Blind Side,” “Moneyball,” which I use in my classes, and “The Big Short.” So Michael, thank you so much for spending some time with us and visiting us here at Haas. It’s great to have you.

[3:57] Michael: Thanks for being here. I was surprised you didn’t explain how far back we go. I mean, our kids were in school together starting, what was it, preschool—or was it?

[4:10] Jenny: Well, so we were actually, truth be told, we were the host parents and actually, my husband Russell and I, we were host parents to your family coming into the school that our kids went to in kindergarten, and I had no idea who Tabitha was or Michael Lewis was. Coincidentally I had the book “Liar’s Poker” on my nightstand, and they came over for dinner, and I’m asking, like, “What do you do for a living?” And he’s like, “Oh, I write books.” I’m like, “Oh, have you written anything? I would know.” “Yeah. ‘Liar’s Poker,’ ‘Moneyball.’” And I’m like, “Oh, you’re that guy.” And I didn’t bring my book down because for some reason my Amazon order came back. Sorry, it was Amazon. It came back as the easy-read version, and I’m like, look, like, I’m 900 years old with this easy read. It was a mistake. But, so we do go way back, and I think you and Russell have cooked pancakes together in various camping sites. So let’s talk about “Going Infinite” and we can talk about anything.

[5:20] Michael: Yeah.

[5:21 Jenny: But, but yes, because I’m obsessed with this book. So, so you may notice that it’s like not even really been opened. But that doesn’t mean I haven’t read it. I actually listened to it for the last two weeks. Michael is the narrator of the audiobook, which is unusual, and they keep saying when they do the credits, they say performed by Michael Lewis, which is so fun. So you’ve been in my ear for my long runs for the last two weeks.

And it’s really a fascinating book, and of course, has coincided with, you know, the events of Sam Bankman-Fried’s fate, emerging fate. And so, why don’t we start with that?

So if you’ve read the book, and if you’ve gone to business school, you have thought a lot about expected value calculations. And so, my first question is: Why did Sam let you write a book about him? What do you think his expected value calculation was for that?

[6:23] Michael: So I think it was complicated. Is everybody, I mean, I don’t know how much background we need to give people. Does everybody know who Sam Bankman-Fried is in here? You know, it’s funny. I was in Portland this weekend at a literary festival. You know, it’s like people who read novels, even poetry. And there were 1,200 people in the auditorium. And I thought, and the person started with this a question that just presumed that the audience knew what FTX was and crypto trading.And, and I said, “Well, we just stop a second.Did, does anybody here not know who Sam Bankamn-Fried is?” They go, they all go, “No, we all know,” and it’s just amazing the reach of this story. And so, if they know, these guys definitely know, OK, these people are. So I’ll just tell you, I’ll tell you how it came about. It came about right here in Berkeley, and he came over to my office because a friend, Brad Katsuyama, the hero of “Flash Boys,” the main character of “Flash Boys,” called me and said, “I’m about to swap shares with FTX.” And I said, “What’s FTX?” He said, “It’s the fastest-growing financial business I’ve ever seen. And we’re going to exchange $300 million or there is an IEX, our stock exchange, with this guy.” And he says, “My problem is, I don’t know this guy, I mean, I met him, but he’s odd, and I can, I, and then I don’t, I, I’m trying, getting to kind of read on him, and nobody knows who he is. Eighteen months ago, he had no money—and now, he’s worth $22 billion. And he’s in Hong Kong.” He says, “If, could you sit down with him and just give me a view.” And I took him on a walk up in Tilden, for two hours, almost killed him. And I mean, this whole scandal could have been avoided if I just took him on a three-hour walk. But he, I mean, he shows up, he shows up, I, he showed up, but he comes out in his hiking shorts and his T-shirt. I thought, “He wants to go for a hike.” He’s never been on one. You know, he’s always dressed for one and never taken one. And, and, and so so he, we go on this walk, and by the end of the walk, I was already, I already thought character and situation is as good as it gets. He was the, the situation was so bizarre. So I, I, I, we can get into why I got interested, but why he was interested is a different question because, at the end of it, I said to him, “I didn’t know there was a book.” I didn’t know what there was. It often takes me, it can take me a year to figure out if there’s a book in something. I, I said I just want to come, “Can I just come along and watch? I don’t know.” I said, “I don’t know what’s going happen to you, but I want to watch because what’s happened already is incredible.” And he said, “Fine.” Now, he never once explained to me why he said fine. He never once asked me what I was doing or why I was interested. He never once asked, when I asked a question, why you want to know that. He never once asked to see‚ he didn’t see the book until he got it smuggled into him in jail a week after it came out. So he had no idea what I was up to. But I think what he thought, what he would have told his colleagues who were saying, a few of whom were saying, “Why did you let them in?” was, “We are on a quest to be the legitimate crypto exchange.: The big, the holy grail is to be regulated in the United States, to get the approval of the SEC or the CFTC to open a crypto futures trading platform. And those people read Michael Lewis’ books. Now, this was, so that’s, that’s the official answer. I think the answer is he read “Moneyball” when he was a little kid; he was a completely isolated nerd among nerds. He was a person who could read “Moneyball” and think, “Oh, there’s a place for me in the world and for some months in his childhood.” He wanted to be a baseball general manager, and you, got obsessed with baseball statistics. I know this, not from him. I know this from his parents.

And I think that, that because I reached him when he was a little kid, he felt some odd connection. And, and so that he was, he was interested for that reason. But then, of course, what happens is that I’ve become a nuisance in his life. I mean, I spent, I don’t know, I commuted to the Bahamas, you know, I was commuting from here to the Bahamas. I spent 60 nights there over the course of, and, and I insisted on traveling with him around the country here and so on and so forth. And I think then what happened was what happens with all the subjects. They’re, you know, they’re three months in and they realize it’s too late to turn around,  that I’ve seen too much and not too much. And like, I may be a pain in the neck to have around. But we’re too, it’s too late. I had a number of subjects give me that look like, “How did you do this?” Like, “How did you get this far in?” And we can’t just chuck you out. Now, I remember Billy Bean actually saying that to me and, and, and, but I think so, I think it just got to the point where it had its own momentum and the—and so, I was there, I mean, where it gets particularly odd is last, no, exactly a year ago, almost today when the, the, when FTX is imploding, the only people, all the employees have fled the Bahamas. And it’s me, his psychiatrist, him, and his parents and, one employee, the COO who stuck around to kind of investigate him.But I was that, that kind of in, so it was a privileged view of a bizarre story.

[11:32] Jenny: Yeah, I mean, you write about this effective altruism movement that Sam kind of identified with.

[11:45] Michael: More than identified with—I mean, you know, the, to appreciate the weird, the, the, the media sort of flattens the story and the trial certainly flattens the story. Like, I don’t think the phrase effective altruism was uttered in the courtroom. The jury never would have learned that all these people they were hearing from, were united by a cult-like belief in this thing. They never got the motive. But if you want to understand Sam Bankman-Fried, you got to understand the movement.And the movement starts basically when, when Bitcoin is created same, same kind of year period, it’s a movement that grows out of work that was done. I mean, grows out of utilitarianism. But, but papers that were written by an Australian philosopher named Peter Singer, who was at Princeton when I was actually at Princeton and, and had a, had a mesmerizing effect on students because he was sort of asking young people, what’s your obligation to the world? And he, he was, he started, I think the first paper, he wrote the story that kind of hovers in the background of the effective altruism movement. It’s a, it’s an anecdote that Singer has in his first paper where he says, “I’m going put you in a moral quandary. You are, you’re walking by a pond, and you see a small child drowning. You’re wearing your brand-new $300 shoes. Do you hesitate to take off your shoes before you jump into the pond to pull the child out, who’s drowning out of the pond?” Of course, you don’t, you just, you go in, and you, the shoes are ruined. So, “Why do you hesitate to, instead of buying those shoes, take the $300 and send it to, you know, some poor country in Africa where it would save a child’s life?” And he said, he, he creates, he, he created a lot of moral discomfort in a lot of young people, but it never led to any action. I can remember hearing about this guy and people kind of coming out of his class thinking, “I’m rethinking my responsibility to like total strangers.” This, these Oxford philosophers in 2009, in particular one named Toby Ord, start to write papers where they say, “We’re going to, we’re going to take action on the back of Peter Singer’s work.” And Ord writes this paper where he, he says that he, he, he, he shows that if he just took half his salary, which he, he said he intended to do, his academic salary over the course of his lifetime and

[13:59] Jenny: Huge, absolutely huge.

[14:01] Michael: Huge, giant Oxford salary, right? I mean, you know, look at you, you’re, you know, you, I mean, you put it into clothing, he was putting into,

[14:10] Jenny: I would actually take my shoes off because right, you could, you could swim better if you didn’t have your shoes on. So you, you, could kind of do both and you’d be so much faster than—

[14:19] Michael: Spoken like a Claremont member, swim club. So, so, but, but they start essentially proselytizing the idea to, to young people, that it’s a combination of your duty to the world, to other people, and also the, the twist that really gets inside of the heads of the mathy, sciencey kids that they attract is: “We are going to be rigorous about the altruism. We’re going to actually start to measure the effects of the various things you might do with this money. And we’re going to measure in terms of,” I mean, they, they developed some pretty kind of abstruse units of measurement but, you know, quality life, life years saved or whatever it is, you can measure your performance as an altruist.

And Sam Bankman-Fried hears one of these philosophers give a talk when he’s a junior at MIT. And he just thinks that’s right. And they’d done it by, this is 2012, but they, what the philosophers had done at that point, was started to make an argument to especially young American college students—college students in the typical was like math or science at MIT or Harvard or Stanford or here. And the argument was: “If you’re thinking about what you’re going to do with your life, and we’re going to be rigorous and analytical about this, stop thinking about the direct good you would do.” Like, don’t think about, oh, I don’t know, going to be a doctor in Africa. Think about earn to give. Think about this idea that you, hey, “You’re appealing to high frequency trading firms. You can make millions of dollars in the course of your career. Go do that to give it away.” And what I remember when I first heard about this, I was at some Wall Street Conference, and someone came up to me and said, “You’ve got to know about this. You know, we’ve hired a couple of kids, and they’re here because they say they want to make money to give it away.” And this was so perplexing to this Wall Street guy. It was like, no one, I, and it was like the first time in the history of Wall Street that people go to Wall Street to give it away. And actually quite seditious in a way, the point where it actually makes the firm that Sam Bankman-Fried goes to work for and a bunch of other effective altruists go to work for uncomfortable because they sort of, the lever they usually have on the employees is not there anymore. They’re doing it for a different kind of purpose. But then, the high frequency trading firms who are recruiting people like Sam Bankman-Fried are sort of fishing in the same pond as the effective altruist of philosophers that they’re, they’re looking for mathy, sciencey, you know, analytical young people. And so, a lot of these people end up doing what Sam does, going to high frequency trading firm and with it, you know, to earn to give.

Now there’s a whole, we don’t probably want to go off on this too much longer, but there’s a whole turn that, that movement, the effective altruism movement takes, which, which amplifies the ambition of the people in effective altruism amplifies it beyond. It’s, there’s this cult-like quality of the people who become effective altruists.  But it’s a kind of anti-cult cult because it’s a cult that’s based on reason and argument.  And if you, and unlike a lot of cults, if you win the argument, you can change the cult and at some point, someone wins the argument and the argument is OK, you, we’ve been talking about maximizing the number of lives you’re going to save with the money you make, doing whatever you do. But we’ve been talking about saving the lives of people who are here. Now, there is this problem with existential risk to humanity and it takes many forms.There are all these risks, climate change and artificial intelligence and some really horrible pandemic, something that would wipe out the species, asteroid strikes. If you could do anything to, the argument goes, if you could do anything to reduce the risks of any of the, one of these things, you will have saved many, many more lives in the future than, than you could by just focusing on the here and there. And this decouples even further the actions that people are taking to do good from the recipients of the goodness. It, it sort of completely strips the action of human sympathy, and this is perfect for Sam Bankman-Fried because he has no human sympathy. And, and it’s, it’s but, but you can’t understand why he’s doing what he’s doing unless you understand he’s completely. This isn’t phony. He eats, sleeps, and breathes this movement.  And his ambition is to be the most important person in this movement. But it’s not like he’s just faking it.  I mean, in some ways, I, I wonder if that was a way that he felt invulnerable, right? Because these grandiose means just ends justified the means. And in a sense, you could justify almost anything, including buying most of the luxury housing in the Bahamas and being uncivil to your co, your immediate colleagues who are in front of you. If you imagine you have the greater good in mind, and you have the, I’ll call it.

It does let you off hooks, I’ll call it confidence for the moment, but it could border on arrogance, to be the one who decides what those existential problems are and how you’re giong prioritize them. I mean, that’s a pretty, you know, he, he reminded me of somewhere in the middle of, of kind of figuring out what the story was before I’d start writing it. So I didn’t start writing this till January, so that,and I didn’t commit to do it until after it all collapsed. But somewhere in the middle of it, I thought I’m watching some, some odd foreshadowing of the dystopic artificial intelligence story where you—one dystopic artificial intelligence story is you tell artificial intelligence to do something that you think is good, but you don’t tell it how to do it. And so there are no guard rails. So you say, “Could you get me a reservation for dinner tomorrow night at Chez Panisse?” And you don’t say anything else. And it goes and finds that all the tables at Chez Panisse tomorrow night are booked and starts murdering the people who have tables to get you a reservation.

This is Sam, but I thought this is, this is Sam Bankman-Fried that this is, it’s like you told him what to do, but you didn’t tell him how to do it. And there was a whiff of that about him.

[20:45] Jenny:That was so, so let me try this out on you. So we have four defining leader principles at Haas that we hold one another accountable for. I don’t know if you saw those when you walked in on our building. We etch, etched them in stone to show that we’re quite serious about them. And I tried to kind of analyze, Sam, using our four defining leader principles

[21:08] Michael: I knew this was going to happen. This is good. I’m glad this is going to happen.  But I knew that eventually my book was going to be a business school, how to, how not to book.

[21:17] Jenny: Well, I know I’m not, I’m not even sure that that’s not actually where I’m going.

[21:21]: Michael: OK? I, I’ll try to listen.

[21:25] Jenny: and I am using “Moneyball.” I’m not using “The Big Short” or any of those in my classes. So, yeah. So OK, so let’s try this out, and you all keep me honest because you know about these four defining leader principles.  So he was a student always, right. That’s one of ours. He was a puzzle solver and clearly learning over time as he was going through this, this journey in the cryptocurrency world. He was thinking beyond himself, we could say as an effective altruist. He was questioning the status quo. He was trying to bypass traditional institutions and regulation which he had no, no interest in. But alas the last one which is, wait, what is it?

[22:12] Audience: Confidence without attitude.

[22:15] Jenny:So we like to think of ourselves as a contrast. There’s institutions that have confidence with attitude, right? We have confidence without attitude. And we think that that combination is important. And that’s the one I think you could observe Bankman-Fried as falling short on. And I have to admit I do research on narcissistic leaders, and I have to admit that I could see a narrative in which Bankman-Fried is a narcissist. He’s also sort of an unassuming cult leader, right? That he didn’t intend, but we’ll hold that aside. So narcissistic leaders often prioritize their own success over the success of others. They forego collaboration for their own grandiose ideas. Like, I noticed his advisors would give him advice, and he wouldn’t necessarily take it. And sometimes they would engage in even ethically questionable behavior. They believe that pedestrian rules that apply to other people don’t apply to them. And I think his intellect caused him to think he kind of rose above that. So, do you think there’s anything to the idea that Sam Bankman-Fried is a narcissist?

[23:33] Michael: You know, yes. But it, there’s something to the idea. It’s, so, let’s a little, here’s a, is a fun exercise that I engaged in, he and I were talking about. He was obsessed with Donald Trump. To the list of existential risks to humanity that he was handed by the Oxford philosophers. He adds Donald Trump because he thinks that if Trump is president, American democracy is at risk. And without democracy, you’re not going to solve all these other problems. They are much less likely to solve all these other problems. And so, he was constantly kind of trying to get inside Trump’s camp. Trump’s mind. He’s trying to pay Donald Trump not to run for president.

[24:14] Jenny: I heard the number was $5 billion.

[24:17] Michael: $5 billion is where they were.

[24:19] Jenny: For Trump not to run.

[24:20] Michael: And I’m almost certain that they were negotiating, I don’t know this, but I’m almost certain with Donald Trump Jr., because Sam’s, one of the senior executives at FTX, was friends with Donald Trump Jr., and I think that was their path into the Trump world. I’m not sure if the numbers ever actually got to Trump, but I, when he’s, when he was telling me about that, my first thought was, “You don’t really think Donald Trump’s going to take your $5 billion and then not run for president.” You know what he’s going to do, he’s going to take your $5 billion and run for president.

And, and so but—

[24:57] Jenny: And call it a witch hunt.

[24:58] Michael: But it was interesting to watch Sam talk about Trump because he got Trump. And he got Trump because he rhymed with Trump. But he was a little different from Trump. So Sam’s behavior can read from a distance as narcissism, because in the narcissist, he looks like he’s thinking because he’s not thinking about other people. Sam Bankman-Fried is born without the natural complement of human feeling and is completely aware of this fact. He replaces the, I mean the normal mechanisms that you or I use to get moved through the world. A lot of emotion, a lot of intuition, a lot of feeling. He replaces it with a kind of mathematical calculation.

[25:37] Michael: He does it very consciously. Because he’s sort of like, it’s almost like being colorblind. He lacks empathy. He lacks—he doesn’t feel pleasure. It’s like there’s something he’s born without some equipment. So that reads as like he doesn’t care about you. And that feels like a narcissist. You default to, “Oh, he cares just about himself.” But he actually doesn’t spend a lot of time thinking about himself, either. I think he cares about himself almost as little as he cares about other people. And so, whereas Trump cares about himself constantly, thinks about himself constantly—Sam didn’t spend any time, when you were with him, he wasn’t talking about himself all the time. In fact, almost never. Sam didn’t spend any time, when you were with him, he wasn’t talking about himself all the time. In fact, almost never. He was always out, he was outer-directed. But it could read as narcissism because—because the consequences for other people were almost the same. But the, it was not as, it wasn’t as uncharming as what you’re imagining. Because it never seemed to be about him. It always seemed to be about problems or other things.

[26:35] Jenny: Well, and actually you’re doing some recording, you know, Michael has a pod, podcast called “Against The Rules,” and this season has been about the trial.

[26:43] Michael: Well, what we did is to cheat. So, “Against the Rules.” The interesting part to me is we do scripted, the seasons, and that’s work and writing and performing all of this. This was just a gabfest about the trial that was more run by sort of my producer more than me. And I jumped in a few times. I was at the trial.

[27:01] Jenny: But one of the things you said was that you noticed how the judge was even becoming more and more interested in Sam Bankman-Fried. He’s a complicated character. And…

[27:11] Michael: There were a couple of moments where I thought the judge was going to toss everybody out just so Sam could explain Bitcoin to him. Because Sam, almost all my characters have certain traits, but one of them is for sure is they’re all good teachers. You can learn a lot from them. Now, in addition, they’re often also in situations that teach you things inadvertently. They aren’t explicitly teaching you. They’re just kind of like the way they move through space is educational. But Sam is both. And when he gets talking, he’s going to be mesmerizing. And the judge, this is a complicated subject. The judge obviously didn’t know what a computer was and was quite open about it. He’s 80 years old, but he’s smart. And so, here he had someone who could actually start to explain in ways he understood what this was, and just a couple of moments where you could see that, “Wow,” the judge thought. “This is interesting. I would like to just learn more here.” It was a counterweight to the other thing that was going on pretty clearly in the judge’s head going all the way back to when Sam was put under house arrest and started to do things that annoyed the judge, is that the judge just hated him. He was so annoyed by him. So you could see the annoyance sort of fade a bit when Sam was allowed to talk at length. And so, he took the judge just a beat to stop him from doing that, which you’re not really supposed to do that in the courtroom, because he was interested.

[28:36] Jenny: So actually, I want to turn around because I was thinking about the comparison between Bankman-Fried and Trump, but from the other side, which is what we look for in our leaders. And why Trump’s, well, I’ll leave Trump aside…

[28:55] Michael: Yes, let’s leave Trump aside.

[28:56] Jenny: Yes, because Bankman freed sort of skyrocketed and was best friends with Tom Brady and people were flocking to him, but his star dropped quickly and definitively he was convicted within four and a half hours on seven counts. And we don’t see that happening as quickly with Trump. It’s a much more complicated situation. But what does it tell us about what we look for in people who we want to influence us?

[29:29] Michael: That’s an interesting question. Like, what it is, what was it about Sam? Well, so Sam was a, more of a misleader than a leader, that he was not a, he—the leadership was almost accidental. It was, I mean, he, up until the point, he creates Alameda Research, here in Berkeley. You know, this whole thing starts in Downtown Berkeley with 20 effective altruists, only two, one of whom Sam, has any experience trading anything. Like, most of them can’t tell you the difference between a stock and a bond. And they’re starting a high frequency trading firm.

[30:05] Jenny: So I’ll tell you about that rental. Is Mike Rielly here? Mike, are you here? So, our Berkeley Executive Education director rented the space to them, but he was so worried about what they were doing that he took it all cash upfront, which he had never done before. I just learned that,

[30:23] Michael: That’s very funny. I wish I’d known that. So, so that’s very funny

[30:28] Jenny: Can footnote that.

[30:30] Michael: So, so, so Sam is leading 20-, 24-year-olds who share his effective altruist religion, it’s a kind of religion. And he’s the only one who’s really traded successfully and can kind of, seems to know what he’s doing at first. But even then, it only takes four weeks before people are running for the exits. I mean, he had the advantage of having fellow cult members and being the only one who knew what he was doing, supposedly. And it takes a month before half the firm leaves because they’re terrified of him—of what he might do.I mean, the, the, the, the whole foreshadowing of what happens with FTX is right in Downtown Berkeley, where he seems to know, he seems to know what he’s doing, and he’s so unbelievably careless with the money. You know, they, they’ve raised money from effective out $175 million from effective out rich, effective altruists, and they seem to have squandered it. And these other people who were, you know, he’s supposed to be leading, start to wonder what the hell he’s doing, and he himself has no ability or to connect with people or interest in managing them. His view is basically you need to be able to manage yourself. And what happens is, in the Sam Bankman-Fried environment. This is a long way of saying, I don’t think Sam actually was exactly a leader. He was a figure. It’s different. And in his environment because look, he built his house on a gold mine. It was true that becoming a high frequency trading firm in crypto in late 2017 was a really good idea. And if you did it well, you made a lot of money, and they did it well enough, so they made a, they did end up making a bunch of money. And it was also true that if you created a crypto exchange that people wanted to trade on, that was just a money machine. And it’s kind of accidental that he even does that, that part of it. So he, he builds his, you know, his Beverly Hillbillies, he builds his, his houses on an oil field. So there is a mechanism, there’s conditions for success. Actually building an organization he had no ability to do, and people around him were forever compensating for his—I mean, look, do you have the book? Can you, if you didn’t read the book, It’s funny you missed something that’s fun. You pull the jacket off, you pull the jacket off versus, your versus, the versus audiobook because you, you don’t see this, you pull the jacket off the, the hardback. So and show there’s the, or so So, so here, so this is the world, this is the, this is the world that Sam Bankman-Fried creates

[33:10] Jenny: This we would not teach in our classes.

[33:12] Michael: No, but, but, but this is so, so when the whole, so to, to backtrack this is, this is, this is a, this is an anecdote, but it’s an anecdote. The, there are 40 versions of this anecdote in Sam Bankman-Fried land. When, when the firm collapses and the bankruptcy people move in, one of the things they say is, “Oh my God, there’s not even a list of employees. There’s no org chart. We don’t know who’s here or who did what.” And it does, it doesn’t exist. And the, and the prosecutors even said they’re like, “We, we can’t figure out how this place,” they’re trying to figure out how this place worked.

So, Sam had this principled objection to job titles and organization charts. He thought that job titles became excuses not to do whatever your job title was as opposed to fix a problem. And he thought that org charts created status problems between people.

And so he just, he for, he forbid there being an organization chart. However, people and organizations need to know where they are, they need to know who reports to them, they need to know who they report to, they need to know where this the level of seniority, all that stuff makes people not having, that makes people uncomfortable, especially makes Chinese people uncomfortable. And half the employees were Chinese, a whole bunch of them were, I mean, they’re like in the Chinese companies org charts are really, a really important thing. So Sam, as a result of not having any of this organization and not managing anybody not conventionally leading anybody,Sam all these psychological emotional issues in his company, like everybody’s kind of unhappy. And so, to solve, he solves the problem in a very Sam Bankman-Fried way. He moves his personal psychiatrist, his shrink, from here to the Bahamas to be the shrink to everybody. And, and so, sort of like George, his name is George, “You deal with all these problems that are caused because of the way I run my company.” George, who in the Bay Area had become shrink to the effective altruists. So he was the world’s authority on the inner life of effective altruists.

George moved to the Bahamas and within about six weeks, 100 employees of FTX are on his couch. Like that, many people all wanting to share their problems, and the problems all kind of went back to like there’s no.

So George in therapy starts to ask people where they are, they are and what you, what you can see here is that there’s just one box at the top one box, and all the other boxes are below that one box, which is Sam Bankman-Fried, and he’s got 24 direct reports, none of whom he talks to and, and, and, and he’s got a CTO who’s over here, Gary Wang, who has no one underneath him because Gary doesn’t speak. And it’s like, and George is figuring out like a psychiatrist trying to think about this thing, and George does this completely in secret because he’s worried Sam’s going to be angry if he finds out that he’s created an organization chart. So before George fled, he’s now hiding in the jungles of Vietnam, I think, but before he fled, he gave this to me on a thumb drive and my publisher said, let’s stick it on the inside out of the jacket. But, but that’s like the best picture of the organization, and it’s, it’s a little warped because it was done by the shrink based on therapy sessions. But it was, I, you know, what do you do in a business school with this story? You like, hand it to somebody or say, read it and never do any of this. It is kind of like, I think is the way you think.

[36:31] Jenny: There are lessons. I mean, you know, on the one hand, we’re a school that embraces entrepreneurship and pushing the boundaries and questioning the status quo and doing what hasn’t been done before.And there’s a way in which, you know, you want the Sam Bankman-Frieds of the world to succeed and to push new frontiers and try new things and you know, the promise of blockchain. You know, there’s, there’s something idealistic there.

On the other hand, there was essentially zero regulation, which seems to be at least in part responsible for all of the negative things that ensued. And so, what have you learned about that balance? Right. Should, should the investors had been much more wary? Is it their own fault that they invested in this operation? Should the government regulators have been on top of it sooner? Should we have clamped down on Sam Bankman-Fried and FTX sooner?

[37:27] Michael: I mean, where, where does that happen in the world of evolution and progress crypto—crypto is created in opposition to regulation, it’s created in opposition to institutions, to governments, to banks. It’s a reaction to the financial crisis, right, in the beginning.

So it was explicitly anti-regulatory, had this Libertarian streak, and it was, in theory, a different way to organize a financial system without all these trusted intermediaries and without the need for regulators. Right. But then what it did—very oddly and tellingly—is it recreated the financial system, the traditional financial system inside of crypto, but without the regulators. And what has resulted is scandal after scandal after scandal and presumably a lot of things, bad things going on that nobody has caught because, you know, there’s no way they’re watching and policing.

[38:23] Jenny: Well, and it looks kind of like when you boil it down, it looks like old fashioned fraud, like commingling funds and investing with your,

[38:31] Michael: What’s amazing is, I mean, this story is so amazing. I, I regard, I didn’t know quite what to do with the structure of the story because, you know, some, Fitzgerald once said, what Americans really want is a, is a tragedy with a happy ending. What this was was a comedy with a tragic ending. It’s like the opposite of what, the, the whole thing felt so comic until, until what ha what happened, you know, the last year. But when they start, you know, they, they start, it doesn’t even, I don’t think it even occurs to them that the fact that there’s no distinction between Alameda Research and FTX is that big a deal. They’re an Asian crypto exchange. I don’t think any of the Asian crypto exchanges instituted these kind of controls that you would have in a, in a U.S. exchange. I mean, just the idea that the exchange custody, the, the, the trader’s funds, that’s something that’s alien to the U.S. markets, right? Just wouldn’t be allowed here. It’s much less you can own the biggest trader on the exchange at the same time that you’re custody and the funds on the exchange. All, the whole structure is nuts, and nobody even really questions it. I’m trying to think about the best way to answer your actual question.  That was like, what like what should have happened? Probably what should have happened is the minute serious grown-ups started to turn up on the scene, venture capitalists, for example, 140 venture capitalists invested in this business, valued it at the end at $40 billion, without insisting on there being a board of directors. There was no board of directors.

[40:07] Jenny: I mean, there was no CFO, right?

[40:09] Michael: No CFO

[40:10] No CFO. In fact, there’s a line in the book I asked, I was asking Sam about all this right away and it was, he was, it was comic. He says what he says, “They tell me I need a CFO.” I asked him, “What does a CFO do?” And “they said, ‘The CFO keeps track of the money.’” He says, “I keep track of the money. Why do I need a CFO?” Well, we saw how well he kept track of the money, right? And, but the reason that he was able to just run through the world without having the ordinary checks imposed upon him is that the thing was so actually successful that the revenues generated by the exchange were so crazy.

Then, the venture capitalists looked at it and said like, alright, this is different. But if, and yes, something bad might happen.  But the bad thing happening is not nearly as bad as us missing out on the next Google. And, and I had, I don’t know how many venture capitalists told me this might be the next trillion-dollar company. They say they, the first trillionaire that they thought it had that kind of scope.

And so it, it, it tells you about like how loosely the our conventional world holds its principles that if, when they’re faced with the incredible temptation that you drop the principles, and it wasn’t just the institutions that did this, everybody, the celebrities did this, politicians did this. There was a kind of, you know, a fear of missing out on a thing, and the thing was fun, and it was going, moving fast. And Sam was kind of delightful to be with every time he walked into the room; everybody wanted to listen to no one but him.

[41:45] Jenny: And, and the numbers were enormous. I mean, so they were thinking the money in Alameda was like rounding error, $8 billion. That’s nothing; we could cover that. You know?

[41:57] Michael: So, but, so it does. Well, I guess one of the takeaways, is one of the boring takeaways, but it is a takeaway from the story is, yeah, right, you can’t have finance markets without regulators. I mean, they’re not going to work, that, that you’re going to have violation of trust after violation of trust.

And finally, if you look at our financial market at the traditional financial markets, we’ve done a pretty good job at minimizing the amount you have to actually trust somebody, right? Because the regulators, they are watching them for you, because you’ve got things like deposit insurance. And crypto oddly born, born out of complete mistrust of, of, of the existing financial system, born out of a kind of mistrust of other people, created to sort of end the need for trust, creates these institutions that require us to trust them even more. It’s a strange, it’s a strange event. It is ironic. Anyway, the, the, if I were to convey to an audience like who hadn’t read the book, the main thing I wanted them to take away from the book, is just pleasure. The story is so incredible. I don’t know what lessons there are in here, but it’s just like an amazing story.

[43:10] Jenny: It really is. And what a fascinating example of a strong organizational culture gone wrong. The FTX case offers so many lessons including watching out for leaders who have crazy spans of control like Bankman-Fried did and the critical importance of transparency from the top. Sam offered anything but transparency. A huge thanks to Michael Lewis for sharing this fascinating case with us.

[43:36] Sameer: We also want to thank our Dean’s Speaker Series team, Sarah Bottger and Carrie Hults, along with Audrey Jones, and our MBA student board, for making this event possible. See you next time.

Outro: 

[43:49] Jenny: Thanks for listening to “The Culture Kit” with Jenny and Sameer. Do you have a question about work that you want us to answer? Go to haas.org/culture-kit to submit your fix-it ticket today.

[44:02] Sameer: “The Culture Kit” podcast is a production of the Berkeley Center for Workplace Culture and Innovation at the Haas School of Business and is produced by University FM. If you enjoyed the show, be sure to hit that subscribe button, leave us a review, and share this episode online, so others who have workplace culture questions can find us, too.

[44:22] Jenny: I’m Jenny.

[44:23] Sameer: And I’m Sameer.

[44:24] Jenny: We’ll be back soon with more tools to help fix your work culture challenges.