The Very Thin Line Between FTX and Big Banks

Though you will not find one person praising Sam Bankman-Fried for the fraud over which he presided, all commercial banks regularly commit the exact same nonsense transactions that FTX executed, for which FTX has been widely condemned. The only major difference is lack of transparency/legal disclaimers about the manner in which such risky transactions are executed that labels Bankman-Fried’s actions as fraudulent and the upfront legal disclaimers (but still little public awareness at times) of big bank’s transactions that deem their risky behaviors as legal and “acceptable”.  

And even though backlash against big banks’ bad behavior soared after the 2008 global financial crisis, the backlash was sadly and roundly ineffective in preventing big bank executives from being handsomely rewarded, instead of deservedly harshly punished, for their bad behavior. Even today, most widely still see a false massive gap between the practices of someone like Sam Bankman Fried and big bank CEOs Jamie Dimon (JP Morgan), Noel Quinn (HSBC), and David Solomon (Goldman Sachs).  Though I wrote this article before the collapse of America’s sixteenth largest bank, Silicon Valley Bank (SVB), this article is particularly apropos to understand in light of the recent SVB collapse.

As I explained in detail in this article, the massive risk inherent in assets held by private equity and hedge funds is often overlooked by their investors due to the opacity of the true value of held assets that don’t have to be marked to market and may not even be re-evaluated for proper price but more than twice-a-year. Over the past two decades I’ve been writing financial articles, I’ve been acidicly critical of banks for running their operations closer to a hedge fund model rather than simply as a “bank” and a safekeeper of clients’ assets as they should. And it is this highly risky model that necessitated an absurd $29 trillion bailout after the 2008 global financial crisis and also the one embraced by Silicon Valley Bank in which it grew its long-term maturity bond portfolio from $13.8B to a whopping $98.7B in just little over two years.

And their freedom to incredulously avoid marking-to-market the crashing valuation of this long-term bond portfolio hid massive losses of their portfolio (that one could rightfully call legalized fraud), and that would eventually hinder their ability to honor large client withdrawals, made SVB’s collapse seem like it was an out-of-control bank run that materialized within 48 hours when its reality was actually years in the making. And for this reason, that I will explain more in depth in this article, the decisions that bank executives make to ruin their banks are really no different at all from decisions Sam Bankman-Fried and Alamada Research executives made that ruined both of their companies.

Both executives at FTX/Alameda and SVB believed that the decisions they made were “safe” to guard the value of client deposits in their companies though executives at neither company adequately understood the risk of their investments. The fact that banks are “legally” able to engage in such risky behavior that could bankrupt their client deposits while other financial firms like FTX cannot legally engage in such risky behavior should not make Jamie Dimon, Lloyd Blankfein, Brian Monyihan and Greg Becker (Silicon Valley Bank CEO) any less culpable to prison sentences for ruining their banks than Sam Bankman-Fried for ruining FTX. And trillions of dollars of taxpayer money and free money created by the US Federal Reserve should not be given to bankers (as it greatly ruined the US dollar purchasing power and continued to punish all USD holders for years after the bailouts) to falsely claim that the irresponsible, driven-by-greed behaviors of bank CEOs did not ruin their banks.

Thus, I felt compelled to write this article to destroy these false delineations created by the banker puppet mass media financial journalists between Sam Bankman Fried and big bank CEOs, especially in light of the fact that the collapse of Silicon Valley Bank is only the first of much bigger implosions to come. It is the greed-over everything, high-risk actions of global bank CEOs, not people like Sam Bankman-Fried, that will soon unleash another 2008 type of global financial crisis upon us all of far worse negative consequences than we experienced in 2008.

For those that can’t understand this and how the FTX debacle exposes everything fraudulent about our current fiat currency based, fractional reserve banking system, including the fraud that all global bankers consistently commit with zero negative consequences upon themselves, and that critically fail to understand the massive risk that may exist in the bank that holds all of your savings right now, ensure you read this article in its entirety. Far too many investors fail to understand the critical nature of what I publish here until it actually manifests in real life, by which time the actions of which I preach here will be too late to undertake in order to save your financial life.

What’s the Difference?

FTX v. Commercial Banks

FTX secretly transferred more than $8 billion of its customer funds without knowledge of its clients to its sister company Alameda Research, so Alameda executives could invest its client funds in cryptocurrencies that they thought were low-risk but were in reality, high-risk, in search of higher yield (And this again speaks to my unyielding discussions of proper risk assessment to investment success on this platform.  Asset price mania, during which people that have no idea what they’re doing are making tons of profits does not equate to a low-risk environment). Unfortunately in search of spectacular yields, Alameda executives invested in highly volatile, little-known cryptos like Alpha Venture DAO, Serum, Perpetual Protocol, RAMP, Akropolis, Ren, Dodo, Solar and many more that they believed to be low-risk but turned out to be extremely high-risk, most of which subsequently collapsed after Alameda’s investment.

Commercial Banks

According to the St. Louis branch of the US Central Bank, at the end of December 2022, US commercial banks held $5.1 trillion in customer deposits in money market funds, or 635.5X the amount SBF fraudulently transferred to Alameda Research for investment.

Thus, quite obviously the potential of the US big Bank CEOs to endanger the savings accounts of hundreds of millions of Americans versus the much lesser amount endangered by Sam Bankman-Fried is very real. And we already know that they were willing to do so in 2008. Though almost all of this money is invested in one manner or another by banks into short-term liquid investments that are relatively safe, a logical person would consider it to be of the utmost insanity for Bank CEOs to take risks with client deposits similar to the risk profile of Alameda Research and FTX.  Unfortunately, what we believe to be insanity and what Bank CEOs believe to be insanity often does not intersect at the same points.

DIFFERENCE

FTX conducted its investments secretly and invested in highly risky assets they believed to be safe. Commercial banks invest nearly all their client’s money as well, but are transparent about this process and invest their client’s money into investments they deem as safe. However, the problem is not with how they invest client deposits as was the case with FTX and Alameda. The problem lies in the fact that they endanger client deposits with massive risks they take with other investment strategies they execute, as was the situation that caused the collapse of Silicon Valley Bank.

Banks should never take investment risks as risky as Alameda Research, but as they illustrated in the years that led up to the 2008 global financial crisis, they take risks comparable to those assumed by FTX all the time. And after 2008, when the Federal Reserve bailed them out with US taxpayer currency and trillions of dollars they created out of thin air,  Bank CEOs’ confidence in their “too big to fail” status and in being bailed out in the future by engaging in similarly risky behavior skyrocketed. Thus, after 2008, the probability that such events would repeat did not greatly diminish as a logical person would expect, but instead, skyrocketed exponentially, as just demonstrated by the SVB debacle.

Who cares if clients deposits are invested in relatively “safe” short-term, liquid instruments if the intelligence of doing so is obliterated by other dumb, risky investments that can completely wipe out the bank’s assets if these investments go south?

Essentially, Bank CEOs use safe investments of clients as collateral (not only in spirit only, but often even within legal confines as defined by regulatory agency bankruptcy procedures since 2008) to offset much riskier investments, comparable in risk to the risky cryptocurrency investments undertaken by Alameda Research. In 2008, many US and global banks lost trillions of dollars buying mortgage backed securities (MBS) and collateralized debt obligations (CDOs) that contained subprime mortgages that they believed were low-risk instruments. Because of this distorted, stupid belief, by June, 2008, 57% of all existing 55 million mortgages in the US were of subprime or lower tier quality.

When the housing bubble collapsed and subprime mortgage borrowers were unable to service their debt, this caused a domino effect that crashed the valuation of trillions of MBS, CDOs and subprime mortgages to practically worthless. Furthermore, many banks that kicked millions of American homeowners out of their homes and seized their homes as collateral for the defaulted loans, received homes with plummeting valuations as the US housing market collapsed. Before the US housing crash, many banks never marked housing assets to market and misrepresented their economic viability by using overinflated unrealistic valuations for their real estate portfolios.

FTX: As of March 2023, FTX still owes its customers $8.7 billion of assets it does not have.

Commercial Banks

Many of the world’s largest banks, in the years immediately following the 2008 global financial crisis, due to the trillions of dollars in losses in risky investments they suffered, were on the verge of failure, with many likely even technically bankrupt when assets were marked-to-market. The only thing that saved some of the world’s largest banks from failures back then was an unethical practice of valuing many of their assets at multiple inflated valuations impossible to obtain in the open market in the immediate months and years following the 2008 global financial crisis. In other words, the main factor that saved many big global big banks back then was an indefinite suspension of real market valuations and a Central Banker artificially created perception of bank economic viability when there was none.  

DIFFERENCE

Sam Bankman Fried, the FTX CEO, is still undergoing trial for the following charges: wire fraud on customers and lenders, conspiracy to commit commodities and securities fraud, one count of money laundering, and one count related to campaign finance laws. If convicted of all charges, Bankman-Fried could receive up to 115 years in prison. Though it is doubtful he will be convicted of all charges, he could still face serious time of 10 years or more, a sentence, if handed out, of which he no doubt will be deserving, but also a sentence of which many big Bank CEOs in 2009 were deserving but of course, never received.

During the years that led up to the 2008 global financial crisis, the actions of the bankers were virtually the same as Sam Bankman-Fried’s.  The only reason their banks did not face the same fate as FTX and Alameda Research was due to the fact that Bank CEOs lied indefinitely about the valuation of their assets and they were not taken to task for doing so as was Bankman-Fried. If Sam Bankman-Fried committed the same lies as bankers and stated that the valuation of Alameda Research’s worst cryptocurrency investments at some fake valuation that would be impossible to achieve in the open market today, as banks did with trillions of their assets in 2008, 2009, 2010 and in years beyond, then perhaps he would be able to successfully sell the lie that his firm is only a few hundred million dollars under water at the current time and perhaps lie his way into convincing the people that he never committed fraud and thus should never serve prison time.  The only difference between Bankman-Fried and the Dimons, Moynihans, and Blankfeins of the world is Bankman-Fried’s inability to do so because the word “bank” does not follow the letters FTX.

Furthermore, the bankers, despite their facade of lies for years about their economic viability, maintained by deliberate improper asset pricing, still depended upon an initial lie of a $700 billion bailout for the bankers (funded by US taxpayers) to restore confidence in their banking institutions so they would not collapse. And that totally inadequate lie of an initial “mere” $700 billion Troubled Assets Relief Program (TARP) to bail out the banks, though subsequently reduced to $475 billion, morphed into a $16 trillion bailout and eventually into an epic $29 trillion bailout.

Banks were bailed out to the tune of $29 trillion for committing completely reckless and highly risky bets that failed, just like SBF. As I stated, if FTX were Citibank or JP Morgan, and SBF committed the act same acts, he likely would have been bailed out as well,  as $8.7 billion is a drop in the bucket compared to $29 trillion. Furthermore, if FTX were a bank, prison time would not even be a consideration for SBF at the current time.

Conclusion

The only real difference between FTX/Alameda Research and Citibank, JP Morgan, Goldman Sachs and others was transparency, a legal system that makes criminal acts “legal”, and some institutions considered as “too big to fail” and another, because it trades cryptocurrencies, considered as “never too big to fail and make an example of it”. The Military Industrial Banking complex has no vested interest in seeing cryptocurrencies remain viable into the foreseeable future. Therefore, there will be no effort to make FTX clients whole from SBF’s terrible investments as there were with all big global banks in the aftermath of their investment debacle in 2008.

Even though these global bank CEOs swear to this day that they were never in danger of going bankrupt, their actions during and after 2008 reveal the complete opposite.

The US Government Accounting Office in July 2011, released a report that stated that Citigroup was bailed out to the tune of $2.5 trillion; Morgan Stanley, $2.04 trillion; Merrill Lynch, $1.949 trillion; Bank of America, $1.344 trillion; Barclays PLC, $868 billion; Bear Sterns, $853 billion; Goldman Sachs, $814 billion; Royal Bank of Scotland, $541 billion; JP Morgan Chase, $391 billion; Deutsche Bank, $354 billion; United Bank of Switzerland, $287 billion; Credit Suisse, $262 billion; Lehman Brothers, $183 billion; Bank of Scotland, $181 billion; and BNP Paribas, $175 billion.

Despite these massive bailouts that severely understated the real final bailout amounts as I’ll explain, the collective $2.2 trillion handed out to Merrill Lynch, Bear Stearns and Lehman Brothers still turned out to be insufficient to prevent these three banks from going bankrupt. Thus, the lies of these big bank CEOs that they did not need the tens of trillions of bailout dollars they accepted in order to avoid bankruptcy are completely non-credible and to this day, are only believed by the most naïve among us all.  

And to add insult to injury, many of these big bank CEOs, after accepting their bailout money, which severely diluted the purchasing power for all US dollar owners, narcissistically and unethically paid themselves multi-million dollar bonuses for essentially almost collapsing the global banking system. For example, Citibank paid its executives $5.33 billion in bonuses in 2008 despite taking $2.5 trillion in bailout money, Bank of America paid 172 of its employees at least $1 million in bonuses totaling $3.3 billion. JP Morgan and Goldman Sachs respectively paid 1,626 and 953 employees bonuses of at least $1 million. 

Though JP Morgan CEO Jamie Dimon and Goldman Sachs CEO Lloyd Blankfein each insisted that they did not need the bailout money they accepted and that they only accepted it to restore the public’s confidence in their banks, it’s extremely difficult to believe these ludicrous statements when Goldman and JP Morgan both accepted absolutely monstrous bailouts respectively of nearly $1 trillion and $457 billion. If they didn’t need the money to avoid bankruptcy, then when not accept just $50M, or a much lesser amount as a “token” insignificant amount to restore public confidence in their banks? Furthermore wouldn’t acceptance of a few million dollars, rather than half a trillion and a trillion respectively, have restored confidence in their banks to a much greater degree?

Even if the amounts they accepted were closer to SBF’s fraud of $8.7 billion, then their claims would have seemed far more credible. In fact, if SBF were gifted by the US Federal Reserve $8.7 billion to bail him out and FTX survived because of the bailout, a subsequent claim from Bankman Fried, that he never needed a single dollar of the $8.7 billion bailout, upon a full recovery of FTX, would have been far more believable than claims made by Goldman and JP Morgan executives after the 2008 global financial crisis.

But when one is accepting such massive amounts of money, it’s comical to believe claims from big bank executives that they “didn’t need [the initial TARP bailouts]” and only accepted it “because it was good for the overall financial system.”  These claims were as credible as recent US intelligence official claims that "pro-Ukraine, possibly government-trained Ukrainian or Russian nationals, or some combination of the two” blew up three of the four Nordstream gas pipelines in an act of war but that "no American or British nationals were involved.” As several Russian officials roundly mocked such claims as pure “bread and circus” propaganda, the claims of JP Morgan and Goldman Sachs executives made during the financial crisis should be subjected to the same mockery. If they didn’t need the initial hundreds of millions from the initial bailout to save their companies, why would they need to accept hundreds of billions of dollars from later handouts?

During the 2008 financial crisis, after the largest MMMF (Money Market Mutual Fund) broke the buck, triggering nearly $350B of outflow from US MMMFs, the US Central Bank created the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) to slow further liquidation of MMMFs by extending non-recourse loans to intermediary borrowers at the primary credit rate. Guess who was the largest borrower of the AMLF? JP Morgan, at $114.4 billion, or more than half of the entire AMLF used by US banks. The Feds quickly added more trillions of bailout money available to both major US and European banks in the form of lending facilities called the Term Asset-Backed Securities Loan Facility (TALF), the Term Auction Facility (TAF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), the Central Bank Liquidity Swap Lines (CBLS) and others, all created to bail out both commercial and central banks alike and to prevent them from going under.

But the bailouts didn’t stop with simple loans provided to banks. They extended into outright buying of crashed assets from the banks to help banks improve the asset side of their balance sheets. The US Central Bank created an Agency Mortgage-Backed Securities (MBS) facility to artificially stabilize prices of crashing MBSs held by banks. By July 2010, US Central Bankers purchased some $1,850.14 billion in MBS via open market operations, with JP Morgan and Goldman Sachs two of the heaviest beneficiaries of the MBS facility, respectively responsible for 8% and 9% of all sales to the facility. But of course, we’re supposed to believe the completely dishonorable and unethical JP Morgan and Goldman Sachs executives that informed the media they never required any of the bailout help they received from the US Central Bank across all lending facilities and asset buyback programs specifically designed to bail  them out. And those that believe this garbage will ignore the multiple red flags I’ve already discussed on this platform and my multiple urgings to exit the banking system as much as possible that I’ve already provided over the past year.

If US Central Bankers instituted a buyback program for all of Alameda Research’s crappy crypto investments of Alpha Venture DAO, Serum, Perpetual Protocol, RAMP, Akropolis, Ren, Dodo, Solar, etc. and subsequently artificially propped up the prices of these assets as they did for banks that invested in crappy MBS products by buying from Alamada all these crappy cryptos, perhaps SBF would have a way to weasel out of his conundrum as well. Unfortunately, since Central Bankers do not view speculative cryptocurrencies as vital to the ongoing functioning of their unethical fiat currency banking system, there will be zero bailout for SBF.

The Extreme Hypocrisy of Bankers

I don’t believe we should fail to condemn Sam Bankman Fried for his fraud that defrauded millions of investors in FTX that could ill afford to lose the cumulative $8.7 billion they will likely lose from SBF’s fraudulent practices. He deserves to go to prison for many, many years for ruining so many people’s financial lives. However, to separate Sam Bankman Fried from the likes of Jamie Dimon (JP Morgan CEO), Lloyd Blankfein (Goldman Sachs CEO), Brian Moynihan (Bank of America CEO), Stanley O’ Neal (Merrill Lynch CEO), Dick Fuld (Lehman Brothers CEO) or any of the other dozens of big bank CEOs bailed out by American taxpayers and the US Federal Reserve in 2008 is ludicrous. In fact, Sam Bankman Fried’s dastardly deeds did far less damage to Americans’ wealth than the unethical dishonorable actions global bankers executed upon the global population in the years leading up to 2008.  During 2006 to 2014, nearly 10 million Americans experienced foreclosure on their homes because of the actions undertaken by commercial bankers that ushered in the 2008 financial crisis. SBF did not cause overall damage remotely close to such an apocalyptic outcome.

Too many naively among us don’t view these bank CEOs as head of criminal organizations, even after their banks are prosecuted under laws specifically reserved for criminal organizations, as JP Morgan was prosecuted under the organized crime RICO act for illegally fixing prices of gold, silver, platinum and palladium (which they are still doing today). I truly don’t understand the public’s need to place Sam Bankman-Fried and big Bank CEOs that cause far worse damage to the people in completely different boxes of perception. One an undeniable criminal to be despised, but the others to be accepted for their far worse dastardly deeds. Even in light of the 2008 historical debacle and dozens of continuing counts of unethical criminal behavior under his leadership, people still refuse to view JP Morgan CEO Jamie Dimon in the same light as SBF, though his organization continues to inflict far more damage upon humanity than SBG ever committed.  

Perhaps public understanding of bank operations still are severely lacking for such a wide division in perception to exist. I remember when I first started exposing the mechanisms by which these big banks immorally suppress synthetic gold and silver prices (which set spot prices and ultimately hold down physical prices) way back in the mid 2000’s. For more than a decade, I was only one of a handful in the entire world consistently publicly speaking of this criminal matter, for everyone else was far too scared to talk about this publicly due to the damage they feared speaking about this matter would wreak not only on their earning potential but also on their public image as a “conspiracy theorist” rather than a purveyor of truth. Perhaps this intimidation is still happening today that suppresses such truths from ever reaching the surface. Please tell me in the comments below the reasons why you believe global bank CEOs to this day, are still not perceived in the same criminal light as someone like Sam Bankman-Fried.

Imagine if SBF had created a bank instead of FTX, and under his bank, accepted $750 billion in assets. And instead of investing $750 billion of assets in rubbish crypto assets that caused his company to enter a stage of bankruptcy, he merely invested $2 trillion of other corporate assets in CLOs (Collateralized Loan Obligations) that spectacularly imploded, causing his firm to go bankrupt. Do you not think that the US Federal Reserve would have not bailed him out, giving him trillions in free money to save the investors’ $750B of deposits as they did with every single large global bank in danger of failing during the 2008 financial crisis? And then, what if SBF took his bailout money and paid himself a $10M bonus in the same year that he received the bailout money? Do you think the MIB complex-controlled mass media would have given a damn about this completely unethical, spineless action? This story would have hardly made the back page of the Wall Street Journal or New York Times, let alone the front page, and SBF would still be living his best life instead of possibly facing decades in prison.

The only thing that separates people like SBF and Jamie Dimon is that Sam Bankman-Fried did not (1) incorporate as a bank; (2) stay out of crypto trading; and (3) execute a big enough fraud so that his company would be labeled “too big to fail”.

If SBF had been able to gather $500 billion in assets from some of the largest players in the global financial playground like JP Morgan, Goldman Sachs, Bank of America, UBS, and then lost it all, he would have assured himself of zero prison time for the fraud he perpetrated upon his clients. His only fault was not going big enough in the fraud he committed and not being able to secure investments from the major players in the global financial game that would have assured himself a bailout instead of criminal prosecution.

SBF’s fault was not understanding the top dog in the MIB complex, believing that his multi-million dollar contributions to top US politicians would keep him safe from prosecution for his illegal actions in the future. SBF failed to understand that the Queen on the global financial chessboard is always occupied by bankers, and not by politicians. Since SBF was never trying to change the world through his venture into the financial world but only trying to defraud people to fund a lavish, Bacchanalian lifestyle, his mistake was not to execute his scam through the criminal world perceived to be “legal” by the masses – the world of banking.  Had he gone this route, he could of easily defrauded his clients of hundreds of billions and received the standard banking sentence after prosecution – zero days in prison and a fine that amounts to a fraction of the money stolen and a continuing lifestyle of luxury at the expense of his defrauded clients and taxpayers.

In the end, is Sam Bankman-Fried really that different in character from any of the big bank CEOs? In two words, “Hell, No!” As I’ve exposed in this article, bankers merely operate within the gray realm that is still legal but very much unethical, dishonorable and would be fully illegal under a criminal justice system that actually adjudicated “right versus wrong”, instead of upholding the status quo system that very inequitably funnels and transfers wealth to a fraction of the top 1% of the richest while working against the best interests of the rest of us.

So for all those tearing SBF to shreds for his immoral behavior, you should do so, but if you’ve never gone a thousand times harder at the big bank CEOs for committing behavior with a thousand times worse consequences upon honest hard working people, you also are a massive hypocrite (and yes, this comment is directed to every single mass media financial journalist, every…single…one).

Coming Next: The Mass Delusions of Americans and Europeans about the “Safety” of their Bank Deposits