When I transitioned from the trading floor to the “real world”, I had some problems adjusting. One big problem that hopefully will be echoed by other traders in the comments section is that the real world isn’t trustworthy.
On the floor, your word was your bond and if you didn’t perform on what you said, there was no excuse. This was a critical part of trading in a pit face-to-face with someone every day for years and years. People that didn’t stand up behind their trades were run out off the floor on a rail.
On the floor, things happen fast. You know at the end of the day where you stand. In the real world, it can take days, weeks, and years.
Another big problem I had was that I was blunt. I didn’t sugarcoat or use corporate or legal speak to address issues. If I had a problem with someone I said so. On the trading floor, time is money. Seconds matter. There is no time for nuance or worrying about someone’s feelings. Shit has to get done now.
I think the world wants plain spoken honest politicians right now. It’s one reason Joe Lombardo won the governor’s race in Nevada this year and why Ron DeSantis and Glenn Youngkin have done so well in their states.
Like everyone else, I have been reading plenty of commentary about Sam Bankman Fried (SBF) and FTX over the past few days. It’s shocking because it is human to want to trust another person. You hate to walk around and be cynical all the time. At least for me, that’s not the way I want to go through life.
Besides, I had seen enough in the venture capital world where businesses really took off like rocket ships. It’s not like it cannot happen. As a matter of fact, when you think about it if you believe in the American Dream, it has to happen sometimes.
It is not the case that a new exchange can’t be created, compete, and topple existing entrenched exchanges. It can happen. I would agree that the regulatory thicket that has to be navigated can be mind-numbing and some of it is in fact useless. Like any regulatory thicket, some regulations were written to protect existing businesses not because they make anything “safer”.
But, if you are going to go into the exchange business you better have your structure and all your processes tight. Matching trades is easy. Everything else is hard. But, it’s the “everything else” that makes an exchange an exchange.
I was alerted to this podcast by my friend Tony, and I saw it posted in some trader forums. My old trading friend Terry Duffy said it exactly the way we would have said it on the trading floor and I notice no one else in the media or in corporate finance had the balls to say it.
I listened to the entire podcast. One part of it really jumped out at me.
Terry has been testifying on Capitol Hill for the last 25 years on issues related to the commodity business. What you see on C-Span is generally pretty boring because legal teams prepare statements and politicians don’t really ask questions, they grandstand for soundbites. The real work happens in meetings before the testimony.
This is when the stuff gets done. There are one on one meetings in an office where real questions are asked and things are explained. Sometimes lobbying isn’t lobbying in the cynical way we think. There is education. Senators and Representatives perform an oversight role to the agencies that regulate financial markets. They need to know where to look for potential problems or issues and they need to know when agencies overreach, or where they aren’t doing their jobs.
I am often critical of Congress because the people on the committees that regulate the agencies which administer the private businesses often don’t understand the businesses they are working with. However, many of the Congresspeople are attorneys and if you are a well-trained objective attorney you can figure out how to ask the right questions to at least uncover evidence so that it can be digested and discussed.
I am most certainly critical when I figure out a Congressperson is working for the benefit of themselves, not the people. I met Speaker Denny Hastert at Terry’s house once and told him he ought to start scoring some touchdowns for people instead of just playing for first downs. The Speaker didn’t like that.
I remember when we were working on the CMFA in 1999. It was easy to agree on very broad points but the devil was in the details. How those words were written and how they were going to be interpreted was everything.
This is why when SBF wanted to do on-the-run clearing every thirty seconds the traditional exchanges recoiled. Of course, the innovators thought they had found an Achilles heel they could exploit to take the big corporate guys down, but they hadn’t. The big corporates had explored these sorts of ideas long ago.
Sometimes when there is a process or an idea that isn’t being used, the reason it isn’t being used is that it sucks.
Our press is so intellectually weak and biased, no one ever asked a tough question of SBF. All the articles leading up to the collapse were fawning. The new wunderkind. This is why you see a blizzard of breathless articles today that are trying to catch-up. The press wants to show it is credible.
It isn’t and until it rediscovers the dual traits of objectivity and curiosity, it won’t be.
Duffy said overnight, things were different on Capitol Hill. Years of relationships he had built up suddenly were a bit chillier. They were different. When one of the CFTC commissioners tweets out a photo like this, you know things are different.
There was, and there will be no self-awareness in the Silicon Valley venture capital community either.
Turns out, SBF spent a lot of money on Capitol Hill making sure the campaign coffers of people who would regulate him were full. Since they wanted to appear “hip” and embrace the shiny new object, they didn’t give him the scrutiny he deserved. I have been invested in two companies that went through the regulatory process, Bitnomial and Open Finance. Bitnomial took years to go through the CFTC regulatory thicket. Open Finance went through the SEC regulatory thicket. Both made it through, but not without spending a lot of money on regulatory attorney’s fees.
Neither company spent money filling the pockets of politicians.
Terry Duffy said it right when it comes to this money that went into politicians’ campaigns. Every politician that got money from SBF or FTX ought to cut a check and give it all back to the penny. It wasn’t SBFs to give. He stole it from his customers.
People trust each other either because they have similar backgrounds that are values based or because they have worked together for years. Trust is an end product of a process.
Even so, sometimes trust breaks down. Ralph Northam, former Governor of Virginia, is a VMI grad and I wouldn't trust that SOB to run a bake sale.
You raise an exceedingly good question - should politicians keep the fruits of the poisoned tree when they know Sam Bankman-Fraud was spreading ill gotten wealth?
The obvious answer is NO to Hell NO!
I will not hold my breath.
Happy Thanksgiving, amigo.
BTW, FTX is not the last stop on that line. There will be a lot more of these disasters.
The more I see things like this the more I am a traditionalist.
I used to believe that there was always a better, newer way to do things if you just searched hard enough. It was the "continuous improvement" mentality. I still think that there's merit to that in small doses, but I now see the value of the past, and the time-tested rites, rituals or processes that have been put in place for our benefit.
It's easy to think that "the way things are done" is because of prejudices or lack of information, but then you realize that we have had thousands of years of trial and error to fine tune things. Many things are done for a reason and for good reasons.
I think we are now finding out that in thinking that our past is deficient, somehow, is hubris. The fact is that our ancestors discovered many of problems in the past, and found good solutions for them.
Things like keeping good books, checks and balances, processes to not allow human nature to destroy the good things. Things like "trust but verify."