Saturday Commentary and Review #105
The FTX Implosion, Pragmatism vs. Principle Among Millennials, Count Kalergi Reassessed, The Israeli Right Triumphant, The DEA's "Most Corrupt Agent"
Last weekend I was up at a ranch just outside of the Croatian capital of Zagreb attending a two-night long party for what is called “The Reaspora”. Reaspora refers to those of us Croatians who were born or grew up outside of the old country and have since permanently returned to it. There has been a significant uptick in the numbers these past few years spurred by two events: 1. harsh COVID-19 regimes and 2. the growing disaffection with the social trends in western countries. I promise to write about the subject of the Reaspora soon for your reading pleasure.
There are a lot of locals who look at us repatriates as oddballs, as they are convinced that we are out of our minds to choose to live in a country that they view as inherently corrupt. I spend roughly an hour per week with locals here in Split trying to explain to them that they do not know what industrial-scale corruption and thievery really is, and that they don’t know just how good they actually have it. A lot of these types are incredibly hard-headed (as am I), so constant repetition is the only way to try and make them understand. Sometimes I succeed, usually I fail.
The implosion of FTX and Alameda Research is another big data point that I will use to try to explain to friends and acquaintances that not every western country is as clean as Switzerland or Norway, and that the USA is in particular is as corrupt as Turkey or Russia when it comes to big ticket items that fall outside of what would be considered “petty corruption”. “Go big, or go home”, is how corruption is done in the Anglosphere.
Theranos first raised money with a $500,000 seed round led by Draper Fisher Jurvetson (now called Threshold) in June 2004, according to Crunchbase.
Some of the most high-profile investors in the company include:
Media mogul Rupert Murdoch, who led a $5.8 million Series A in February 2005;
Venture capitalist and Draper Fisher Jurvetson partner Tim Draper, who remained an outspoken defender of Theranos at least until 2018;
National pharmacy and retail chain Walgreens.
Following Murdoch’s investment, Theranos raised a $9.1 million Series B funding round led by ATA Ventures and a $28.5 million Series C, both in 2006. Theranos then raised $45 million in venture funding in July 2010.
Among the large VC and private equity firms to invest in the company were Partner Fund Management and Fortress Investment Group, which led Theranos’ last financing event, a $100 million debt financing in December 2017, before the blood-testing company shut down.
Now check out who served on her board:
Henry Kissinger (former United States Secretary of State);
Jim Mattis (retired Marine Corps four-star general);
George Shultz (former United States Secretary of State);
William Perry (former United States Secretary of Defense); and
These are huge names. What did they know? When did they know it? Doesn’t matter, as no one will be touching these people any time soon. Elizabeth Holmes, the face of Theranos, is the sacrificial lamb that has been offered up to “prove” to everyone that “yes, the system works”.
……which brings us to FTX and Alameda Research.
This hilarious implosion is still happening in real time, making for great audience viewing. Nothing on television nor in the movies can compete with this story. The amount of news coming out detailing what happened and what is happening needs a word stronger and more powerful than “avalanche” or “tsunami” to describe it. I am certain that quite a bit of what is being reported will have to be revised or discarded outright, as “events are fluid”, in the parlance of the US military.
What we do know for certain is that Sam Bankman-Fried’s (SBF for short) FTX cryptocurrency exchange has filed for bankruptcy after blowing through $20 Billion USD of profits AND user deposits via Alameda Research, a trading company set up by SBF and run (into the ground) by his ex-gf Caroline Ellison, thanks to poor strategy, bad trades, and so on. Many of you have forwarded me articles on this subject (thank you, keep doing so on all subjects of interest), but there are two that we will use for our general edification.
The first piece, and it is a very, very long and detailed one, is by an anonymous writer named “milky eggs”. I cannot verify every claim made in this article, so buyer beware:
Of course, without witness testimonies and a full financial investigation, our claims only remain tentative at best. Any given piece of information may be flawed or even fabricated. However, if they are assembled together and put in context, they together lend credence to the following timeline:
SBF, Trabucco, and Caroline were (probably) initially well-intentioned but not especially competent at running a trading firm
Alameda Research made large amounts of book profits via leveraged longs and illiquid equity deals in the 2020-2021 bull market
Although Alameda was likely initially profitable as a market maker, their edge eventually degraded and their systems became unprofitable
Despite success with some discretionary positions, on net, Alameda & FTX jointly continued to lose large amounts of money and liquid cash throughout 2021-2022 as a result of excessive discretionary spending, illiquid venture investments, uncompetitive market-making strategies, risky lending practices, lackluster internal accounting, and general deficiencies in overall organizational ability
When loans were recalled in early 2022, an emergency decision was made to use FTX users’ deposits to repay creditors
This repayment spurred on increasingly erratic behavior and unprofitable gambling, eventually resulting in total insolvency
Several theories are being floated at present, with my favourite being that FTX was set up by people intent on blowing it up to serve as an argument to regulate crypto. Case in point:
Others are pointing to the fact that SBF was the Democrats’ second biggest funder in this recent election cycle, implying that FTX/Alameda were little more than Dem Party piggybanks. Matt Stoller takes issue with this claim:
Anyway, back to the main article:
Turning to Caroline, she herself, a month ago, strongly implies that she prefers to punt on longs rather than pick up pennies in the algorithmic jungle:
Naturally, these strategies do very well in a bull market, when almost every long position goes up! Remarkably, Trabucco attributes their success to skill rather than simple market beta:
We can therefore speculate that their trading strategies were a combination of (1) negative-edge market making and (2) discretionary longs. Indeed, the more unprofitable their algorithmic trading was, the more tempted one imagines they were to make back all the losses with “brilliant” longs on BTC and DOGE. On net, it is likely that they were quite profitable throughout a good deal of 2020-2021, but as soon as the market began to reverse in late 2021, it is probable that their overall PnL suffered dramatically.
There is definitely a lot of discretionary trading that Alameda did do correctly; buying Solana at low prices, accumulating massive quantities of low-float Solana ecosystem tokens, boosting the Solana ecosystem overall, buying oversold liquidations, and so on. Ultimately, though, one gets the sense that perhaps they overextrapolated from the ambient bull market and ended up overrating their own trading ability, with consequent losses later down the line. Their strategy of borrowing against illiquid ecosystem coins (discussed in a later section), rather than selling them more consistently, may also have worked to their detriment.
A lot of this is inside baseball that will confuse many of you. Don’t worry, there’s a lot more in there that is funny and easier to grasp:
Autism Capital recently shared an account from an ex-FTX employee recounting how SBF encouraged extreme use of stimulants:
This is, of course, consistent with SBF’s self-admitted usage of stimulants as performance enhancers:
What is particularly notable, however, is SBF’s usage of “patch[es] for … stimulants.” In a follow-up Tweet, Autism Capital reports that the patches are Emsam (US brand name for selegiline), a MAO-B inhibitor used to treat Parkinson’s which increases levels of dopamine in the brain. This was confirmed with some excellent follow-up detective work, also from Autism Capital, which pinpointed a particular video frame from a video showing SBF at his desk:
I haven’t even touched on the subject of “Effective Altruism”, the philosophy that SBF was using as cover, nor on the “polycule” (open sexual relations group) that he and his colleagues were part of down in their Bahamaian HQ. There’s just too much to this story to cover here:
So if you have the time, read the rest of the article from Milky Eggs, and also check out this piece by my friend Scott Locklin (interviewed here) in which he takes a look at Michael Lewis, the famous finance journalist who wrote The Big Short. Lewis has been hanging around SBF for six months now, and Locklin suggests that he was writing a hagiography just as the whole thing imploded.
We don’t know how this story will end, but we can be certain that it is going to get a whole lot funnier as it continues to roll out.
We’re gonna keep it light and American for this next segment as well in which we look at Millennial Democrat Party operatives replaying Bolshevik vs. Menshevik (or SPD vs. KPD) in the 21st century. The fight between political pragmatism and a principled approach is as old as humanity itself, with only the specific players being changed.
Politico has recently published a very long piece that looks at political operatives like David Shor and Sean McElwee, and how they are influencing Dem Party politics to the consternation of others in the party who oppose their calls to move to the centre in order to win elections, fearing that they are abandoning progressive principles in the process.
It was a hot afternoon in the summer of 2021, and they were in a good mood. In Louisiana, a few weeks prior, a congressional candidate backed by Alexandria Ocasio-Cortez and her allies had gone down to defeat. In Virginia, Clintonite fundraiser Terry McAuliffe had just beaten a primary opponent backed by the Sunrise Movement and the Working Families Party. The left flank of the Democratic Party, once seen as laying siege to the party establishment, was in retreat. In Ohio, the duo’s polling showed that progressive favorite Nina Turner looked set to lose, too.
The good feeling didn’t last, of course — McAuliffe ended up losing the governorship to a Republican — but even in the moment their glee seemed surprising. Shor, wearing dark, John Lennonesque sunglasses, keeps a red rose at the end of his Twitter bio, proof of a commitment to democratic socialism. He is the kind of person who, midway into his first cocktail, says, “I don’t want to sound insufferable, but I wake up every morning thinking about how I can reduce poverty, how I can reduce suffering.”
Truly a mensch!
Back then, “Sean and Shor” were still mostly known only to the extremely online set and lefty political insiders. But in the years since, as a counterrevolution swept the Democratic Party, they have both become the avatars of a more pragmatic approach — they call it “popularism” — and also, for political professionals at least, kind of famous: There have been multiple New York Times profiles, podcast interviews and various think pieces devoted to their ideas, all of which led to vitriol directed at them from their former fellow travelers who fear that their critique — that the Democratic Party is too reliant on ultra-progressive voters from elite precincts — is nothing less than a betrayal of the basic principles of the party.
Their message has found an audience among establishment Dems. McElwee had advised the Joe Biden campaign during the 2020 campaign (something many on the left never forgave him for) and both are advising senior White House and Democratic congressional officials on polling and messaging. In the early days of the Biden era, when it still seemed like a progressive takeover of the party was around the corner, their insights had the frisson of dangerous knowledge, samizdat for leftists fearful that their own side had gone too far.
“Everybody wants politics to be this really inspiring thing,” Shor said as the sun set on Suffolk Street. “But politics in the real world is an endless series of terrible, emotionally unsatisfying tradeoffs.”
He has a point as the US system is by design one that encourages compromise.
The rationalization is hilarious though:
“And if you pretend it’s not,” he said, “then you are going to make bad choices, and when you make bad choices, children go hungry. I don’t want to be extreme, but I think all of us who work in politics, we’re all so privileged to do this, to have people pay us to do stuff we care about, and they are doing it because they hope we help the outcomes. Those hungry kids are counting on us to make the right fucking choices, and so we shouldn’t get drunk on self-expression.”
He took a swig of his cocktail.
On the other side of the party:
But a lot of people who work in professional Democratic politics, and who just a few years ago thought that they were fighting the same battles as McElwee and Shor, are pretty sure they aren’t. They see the two as selling little more than the warmed-over centrism of the Clinton and Obama eras that led to lost Democratic vote share among working-class voters.
Fast forward a year, and shift the scene 200 miles to the south, and roughly three dozen young progressive politicians and political operatives gathered at the top floor of an event space above H Street in Washington, D.C., where floor-to-ceiling windows look out onto the Capitol. The occasion was something called “SoundCheck 2022,” billed as a “conversation about the future of the Democratic Party.”
“Self-interested elites and corporations are using racism to divide the working class from each other,” said Heather McGhee, the board chair of the civil rights group Color of Change, as the attendees, mostly professional Hill staff and D.C. nonprofit workers, gathered fruit salad and coffee from the back of the room. “The core question is how do we act as political storytellers. Our biggest failure has been our inability to name a constant enemy.”
The problem, McGhee added, was that, unlike the Republicans, too many Democrats in Washington, especially white men, found it “dispositionally difficult” to fight on those terms. “We need to pick sides,” she said. “We need to be the skunk at the garden party. Righteous fights are necessary for how people understand the world.”
Shor and McElwee:
Nobody, not even Shor or McElwee, has a concise definition of their notion of “popularism,” but in essence what they call for is Democrats to recognize that large parts of their agenda — raising wages, raising taxes on the wealthy, legalizing marijuana and statehood for Washington D.C. — are very popular with a broad section of the overall electorate, and Democrats should run campaigns focused on those issues.
They also strongly believe that Democrats should not run on certain other issues that college-educated elite Democrats in particular care about — like addressing police violence, liberalizing immigration laws, implementing the Green New Deal and ensuring trans women can play on sports teams that match their gender identity.
But they have a problem:
The problem, however, is that Democrats are increasingly the party of college-educated coastal elites, and the people who staff Democratic campaigns, government offices and policy shops are even more coastal and affluent and elite.
“People say, ‘Oh, Democrats are the party of eggheads, they don’t talk about values, they talk about issues’,” Shor said, doing his best imitation of a whiny Democrat. “The reason we don’t talk about values is that our values are really strange and weird. Only 20 percent of the electorate cares about our values. If they shared our values, they would be liberals.”
Much like the GOP is torn between its populist base and Chamber of Commerce elites, the Dems too feel a tug of war between those willing to approach elections pragmatically in order to win them and implement what changes are politically possible, and those who feel that any pragmatism is a sell-out akin to the Clintons in the 90s.
When one sees the name “Kalergi”, one will automatically connect it to the “Kalergi Plan”, a theory that posits that Count Richard von Coudenhove-Kalergi conspired to flood Europe with migrants from Asia and Africa in order to create a uniform mixed-race people based on the following quote from his work entitled “Praktischer Idealismus”:
"The man of the future will be of mixed race. Today's races and classes will gradually disappear owing to the vanishing of space, time, and prejudice. The Eurasian-Negroid race of the future, similar in its appearance to the Ancient Egyptians, will replace the diversity of peoples with a diversity of individuals."
As my friend Hakan would say, this idea is wrong for the simple fact that it would not eliminate racial differences, but would instead create newer races over time. Anyway, this is a tangent.
Kalergi was a proponent of a unified Europe, one that would rise out of the ashes of the First World War, in order to protect itself from outside threats such as the Soviet Union and the USA, but also internal ones like Bolshevism, via the resolution of class conflict led by aristocratic elites who put common European interest above those of class and petty nationalism. This has led him to be referred to by many as the “forgotten grandfather of Europe”. Unfortunately, it’s the quote above that has resonated most to this day, and thanks to his own multi-racial origins (his mother was Japanese and his father a mixture of several different European ethnic groups ranging from Flemish to Greek), this theory of wholesale population replacement now overshadows the important work he did in trying to reshape Europe so that it could stand on its own two feet after two disastrous world wars.
Miquel Vila has written an outstanding essay on Count Kalergi that I am pleased to share with you today. This is one of the best pieces that I have read this year, and it is one that deserves a lot of attention. There is too much to quote from here, so I will select a few key passages. It is rather timely in light of Europe’s complete capitulation to US foreign policy goals that demand that Europe purposely harm itself economically and politically.
His ancestry, which led to Hitler denouncing him as a ‘cosmopolitan bastard’ in Mein Kampf.
Kalergi had roots on several continents. He was born in Japan, the son of an Austrian diplomat and a Japanese mother. Among the many bloodlines in his father’s ancestry were Greek, Flemish, and Venetian nobles, as well as Byzantine emperors. He didn’t set foot in Europe until he was ten, arriving in Vienna just a few years before the First World War, which would destroy the multi-ethnic Habsburg empire. As the expatriate son of an aristocratic family with estates across Europe, he never had a strong national identity. After 1918, he held a Czechoslovak passport; after 1939, a French one that he retained until he died. He felt European because he couldn’t be anything else. Having seen Europe pitted against itself in mechanized trench warfare, a continent at peace was the only cause he could naturally support.
Modern perceptions as being incorrect:
Modern political divides color today’s perceptions of Kalergi. Both contemporary supporters and detractors like to portray him as the equivalent of today’s Davos man, an early theorist of globalism. Any online search of Kalergi’s name immediately brings up the conspiracy theory of the Kalergi Plan: based on a fragment of text from his twenties, he becomes the central figure in an intergenerational plan to replace Europe’s population with Africans. But it is difficult to believe that someone who feared decolonization and wrote in a letter to De Gaulle that the “UN represents for Europe, indeed for the whole of the white race, the worst danger since the days of Genghis Khan” is simultaneously the mind behind the Europe of the banlieues.
What Kalergi wanted (and what he failed to achieve):
Opposed to both the domination of a single European power as well as Europe’s subjugation by either Soviet Russia or the United States, he proposed a political order founded on the spiritual rebirth of the continent’s elites.
Europe as one of the ‘five ruling empires’ of the world:
Looking ahead, Kalergi divided the world into five large spaces: a Pan-American hemisphere led by the United States, the continuing British Empire, the Soviet Union, a Pan-Asian space led by Japan, and Pan-Europa—which, despite its name, also included the vast European colonial territories in Africa. In a world where continental power superseded national power, Kalergi thought Europeans should come together and share their resources and colonies to ensure Europe’s survival. Moreover, Kalergi considered that a United States of Europe could not only protect the independence of European peoples but thrive as one of Earth’s five ruling empires.
Not a populist, but an elitist disenchanted with his contemporary elites:
Kalergi’s vision did include a form of democracy, but it was democracy valued as a means, not an end. He expressed his concern that “democracy believes more in number than in value, more in luck than in greatness.” Despite this, democracy could play a role by ensuring turnover among failed nominal elites: “political democracy can only be fruitful and creative when it has smashed the pseudo-aristocracy of birth and gold to replace it with a new aristocracy of spirit and mind.” In Nobility, published in 1922, he argued that democracy was a transitory moment, “an interlude between the old feudal aristocracy, based on birth, and the aristocracy of the future, based, as it will be, on mental and moral superiority.”
His Hapsburg cultural sympathies ideologically translated into something like political Platonism, informed by anti-materialist sentiments about history and society. Although he had no problem courting financially well-established donors, Kalergi was not fond of the “pseudo-aristocracy of money.” As he explained in Practical Idealism “the consummate aristocrat is an aristocrat of both the will and the mind, but is neither Junker [the conservative Prussian landed nobility, whose ranks included Bismarck and von Hindenburg] nor literati. He combines vision with willpower.”
You can easily detect Nietzschean influence in the above passage. He was also in good company:
In the political turmoil of the inter-war era, Kalergi would come to sit somewhere in between the tradition of enlightened European liberalism and the Conservative Revolution of the 1920s and ‘30s. His advocacy of peace and scientific progress, and his lionization of figures like Bonaparte, existed side by side with a fear of civilizational decline and a sense of elitism that can be found in rightist authors like Oswald Spengler, Eugeni d’Ors, Ortega y Gasset, or Ernst Jünger.
This is a brilliant treatment of Count Kalergi that I urge all of you to read in its entirety.
An interesting political development that I have been tracking for over a decade now is how American Jews have been moving away from their cousins in Israel politically, to the point where the gulf between the two is so massive that it could potentially threaten the Jewish State’s very existence.
American Jews by and large are very liberal in their worldview, which translates into how they vote and who they choose to fund and support. This political liberalism has long been the rule, but it continues to move to the left on many issues, particularly social ones.
On the other hand, Israel continues to move to the right. It is a true ethnostate for whom concepts such as equality and multiculturalism are not only rejected in argument, but also legally. Israel is a state for the Jews and no one else, placing it further to the right than any current state in the west. Peter Beinart, an American Jew, puts Israel into a wider context from his liberal perspective:
The impulse to draw comparisons to figures like Le Pen, Trump, Italian Prime Minister Giorgia Meloni, and Indian Prime Minister Narendra Modi is understandable. Ben-Gvir—a follower of the late Rabbi Meir Kahane, whose party was banned in Israel for “incitement to racism” in the 1980s—is a media-hound and a racist; he delights in threatening violence, and he’s risen swiftly from the political margins to the corridors of power.
But these parallels are mostly wrong. Ben-Gvir is different because Israel is different. In France, the US, Italy, and India, right-wing leaders are seeking—to varying degrees—to create ethnocracies, states that define themselves as belonging to a dominant ethnic, religious, or racial group. Their centrist opponents—to varying degrees—support legal equality for all citizens. This divide creates deep ideological polarization. But Israel is not deeply ideologically polarized. It’s already an ethnocracy and no major political party wants to change that. That’s what sets Ben-Gvir apart from figures like Trump and Le Pen: His rivalry with his centrist foes may be politically fierce, but it’s not a contest over the basic definition of the state. In the global struggle between group supremacy and equality under the law, Ben-Gvir and his centrist rivals are on the same side.
Israel is “already more discriminatory”:
To grasp what sets Ben-Gvir and the Israeli context apart, look at immigration, the signature grievance of Le Pen, Meloni, and Trump. Each has built a political brand on promising to stop migrants from the Global South from undermining their nation’s white, Christian character. Trump proposed a wall and a Muslim ban. Meloni desires a naval blockade to prevent migration across the Mediterranean. Le Pen wants to tighten asylum laws and end birthright citizenship so children born to migrant parents in France don’t gain legal equality. Immigration doesn’t enjoy the same political salience in India because it’s not as attractive a destination for migrants. But even there, Modi has tried to alter asylum laws to exclude Muslims, and thus bolster Hindu demographic dominance.
Ben-Gvir doesn’t need to propose these kinds of changes. He does fervently oppose admitting asylum seekers, but restricting migration to preserve Israel’s ethnic and religious identity hasn’t been central to his rise. The reason is simple: Israel already does that. As a Jewish state, it radically privileges Jewish immigration. Jews can move to Israel and gain citizenship immediately. For non-Jews, by contrast, moving to Israel and gaining citizenship is extremely difficult. For Palestinians whose families were expelled from what is now Israel, it’s impossible. Israel’s immigration policy is already more discriminatory than anything being proposed by Le Pen, Meloni, Modi, or Trump.
…and this ethno-statist policy occupies not just the Israeli right, but its centre too:
When the conservative political commentator Dan Senor recently noted that despite Israel’s apparent polarization, “on the actual issues there’s pretty broad consensus,” this is what he meant: No Israeli party with a shot at taking power supports the egalitarian principles that hold sway in centrist and progressive circles in countries like the US, Italy, India, and France.
The actual score:
In Israel today, the political battle isn’t between group supremacy and equality under the law. It’s over how group supremacy can best be upheld. After the election, Haaretz called Ben-Gvir “a Trump-like figure.” That’s understandable. But in the kind of country Ben-Gvir’s rivals want, they are Trump-like figures too.
We can already begin to envision a coming US foreign policy that will demand equality for Palestinians in Israel and a single state that will incorporate Gaza and the West Bank as well, thanks to the growing strength of anti-Israeli sentiment on the American left, led by many Jewish-Americans.
We end this weekend’s Substack with a look at “The DEA’s most corrupt agent”:
SAN JUAN, Puerto Rico (AP) — José Irizarry accepts that he’s known as the most corrupt agent in U.S. Drug Enforcement Administration history, admitting he “became another man” in conspiring with Colombian cartels to build a lavish lifestyle of expensive sports cars, Tiffany jewels and paramours around the world.
But as he used his final hours of freedom to tell his story to The Associated Press, Irizarry says he won’t go down for this alone, accusing some long-trusted DEA colleagues of joining him in skimming millions of dollars from drug money laundering stings to fund a decade’s worth of luxury overseas travel, fine dining, top seats at sporting events and frat house-style debauchery.
The way Irizarry tells it, dozens of other federal agents, prosecutors, informants and in some cases cartel smugglers themselves were all in on the three-continent joyride known as “Team America” that chose cities for money laundering pick-ups mostly for party purposes or to coincide with Real Madrid soccer or Rafael Nadal tennis matches. That included stops along the way in VIP rooms of Caribbean strip joints, Amsterdam’s red-light district and aboard a Colombian yacht that launched with plenty of booze and more than a dozen prostitutes.
“We had free access to do whatever we wanted,” the 48-year-old Irizarry told the AP in a series of interviews before beginning a 12-year federal prison sentence. “We would generate money pick-ups in places we wanted to go. And once we got there it was about drinking and girls.”
Thank you once again for checking out my Substack. Hit the like button and use the share button to share this across social media. Leave a comment below if the mood strikes you. And don’t forget to subscribe if you haven’t done so already.
Substack was kind enough to present me with a “Substack Bestseller Badge” for having over 1,000 paid subscribers, a milestone that we passed several months ago.
Thanks to all of you who have helped me achieve this. I am both honoured and touched by your support.