“Stupid is as stupid does.” George Bernard Shaw
Many people think this phrase originally came from the film “Forest Gump”, but it’s actually from the play “Major Barbara”, written by George Bernard Shaw more than a century ago. Stupidity and ignorance is not the same thing; stupidity is a lack of intelligence, whereas ignorance is a lack of knowledge. Back in Shaw’s day we could actually use these words to describe someone’s actions with a clarity of understanding as to what was meant; unfortunately today saying something so obvious is deemed insensitive and derogatory, making you subject to condemnation, cancellation or even dismissal from employment.
Listening to mass media exposes you to many instances where either of these words would succinctly and aptly describe people’s actions; what is astounding is how often this occurs in finance, academia and politics. Any person with common sense should immediately ask themselves if they are witnessing stupidity, ignorance or perhaps something else. There are, and likely always will be people who depend on the stupidity, ignorance, greed, or the delusions of others as a way to make a buck; Bernie Madoff famously comes to mind and now we have Sam Bankman-Fried, both of whom saw such instances as opportunities for their fraudulent schemes.
In the case of Bernie, he was much more skillful than Sam, running the largest Ponzi scheme ever for more than 20 years for some $65B before he got caught. Fortunately nearly 88% of the assets were recovered and returned to investors. On the other hand we have Sam, whose $8B scheme began in 2019 and recently ended with his arrest. Bernie’s was a classic and simple Ponzi scheme, doing the usual return on investments to existing clients from funds secured from new ones; it was inherently unsustainable as kicking the can down the road means you will eventually run out of road. Few made excuses for Bernie or expressed sympathy for his demise, which is as it should be.
Now we have the case with Sam, a bewilderingly obvious fraudulent scheme diverting funds from FTX where his clients invested their money, to Alameda, his private hedge fund, with which he made huge real estate purchases and political donations. Prior to FTX announcing that it had financial problems in early November, many in the media and academia lauded Sam as the new face of socially responsible investment management, praising his progressive approach, while saying nothing about the risky assets FTX was involved with. Even when FTX announced bankruptcy there was this fawning reaction of many as to the altruistic motives and intentions of Sam, deploring not the theft of his clients’ money, but the failure to fund the grants he made for biodiversity and other worthy causes.
Eventually, so obvious was this fraudulent machination that many financial commentators began wondering why anyone would have invested with FTX and why it took so long for it to be exposed. To add to the stupidity and ignorance of this story is how to explain the focus of some of the politicians involved on the risky assets Sam invested in, principally cryptocurrencies; it’s not the assets that he invested his client’s money in that was a crime, but his fraudulent actions in siphoning off investor’s money into his own pockets from which he bought extravagant real estate and political favor. While the real estate bought can be liquidated, what about the political donations? This is where we need to look beyond the stupidity and ignorance of these actions, and the media coverage. We have learned that these donations were made to both Democrats and Republicans, and in violation of campaign finance laws.
As the office of the U.S. Attorney for the Southern District of New York reports on the names of the recipients, some have stated that they will be refunding the donations; however, that fails to explain whether or not they were aware of the source of or manner in which these donations were made. The fact that politicians are making so much of the assets invested in by calling for investigations into cryptocurrencies appears more as a deflection given their acceptance of the donations, especially as they were made illegally. Considering that 60% of the House, and 66% of the Senate are attorneys, and Congress makes such laws as those governing campaign contributions, it seems impossible to explain their involvement as either a case of stupidity or ignorance.
We should not be deceived here into thinking that those intelligent enough to win an election, even if disingenuously, and who have a considerable level of education, often in the legal and business professions, were not at least aware of the source of or manner in which these donations were made; neither should we be distracted by the purported altruistic intentions of our poor misguided Sam, who incredulously claims he was unaware of what was going on, any more than we should consider the same from the politicians involved.
“When you have eliminated the impossible, whatever remains, however improbable, must be the truth.” Arthur Conan Doyle (Sherlock Holmes)