2464Joined Aug 2014


It seems significant if only $3B of customers were earning interest on cash or assets, and the other customers had the option to opt in to lending but explicitly did not. I think all the other customers would have an extremely reasonable expectation of their assets just sitting there.  I'm not super convinced by the close reading of the terms of service but it seems like the common-sense case is strong.

I'm interested in understanding that $3B number and any relevant subtleties in the accounting.  I feel like if that number had been $15B then this would plausibly just be a failure of risk management, in which case I guess that number is central to the clear-cut fraud vs willful negligence question. The $3B estimate seems plausible but all I've seen is an out of context screenshot which is not great.

Doesn't FTX pay interest on deposits and prominently offer margin loans? Do you have a citation for the claim that the terms of service excluded the prospect of lending? (All I've seen are some out-of-context screenshots.)

Why do you say "Alameda (FTX trading)"? Aren't these just separate entities?

It seems like FTX offered borrowing and lending to its clients, and this was prominently marketed.  I don't think you can call FTX offering margin loans to Alameda a "straightforward case of fraud" if they publicly offer margin loans to all of their clients. (There may be other ways in which their behavior was straightforwardly fraudulent, especially as they were falling apart, but I don't know.)

In general brokers can get wiped out by risk management failures. I agree this isn't just an "ordinary bank run," the bank run was just an exacerbating feature once the damage had already been done.

"Never invest customer deposits" sounds like a misleading tweet. In the conversation with Kelsey, SBF clarifies that he meant that FTX never invests customer deposits, that it is just acting as an exchange that facilitates borrowing and lending between its customers one of whom was Alameda. I think this is probably technically true but misleading.

It seems like there are two distinctive problems:

  1. By November 2 Alameda's collateral looks like it was very bad. Nominally the market value might have exceeded their liabilities, but it was exceptionally illiquid even before considering the fact that a lot of it was FTT and hence correlated with FTX solvency. They were evidently not automatically liquidated as any normal customer would be, and it sounds like their liabilities were not tracked by the normal system at all.

    If this was just a huge risk management and accounting failure that would be merely bad, but the beneficiary was a hedge fund mostly owned by SBF whose leadership he had a close relationship with. From the outside it looks quite likely that they knew this was a possibility, but didn't want to liquidate Alameda after its losses in 2022 (or perhaps deliberately avoided getting clarity about the accounting situation?) because they had a good chance of making money during a market recovery and wanted to take one last gamble at the customer's expense.

    This isn't technically FTX investing customer's money, but the risk management is so bad, the joint ownership so extreme, and the organizational boundaries so blurred by bad accounting, that it seems likely to be willful negligence and fair to say that they were effectively investing customer money.
  2. I assume FTX also didn't pay back customers who weren't participating in asset lending  and who weren't getting paid interest on their deposits. I don't actually know details here, either about FTX or about finance in general,  and they would affect my view about how bad this part was (though point 1 is bad at any rate). My guess is that it this outcome was basically inevitable once the exchange was having liquidity problems (I'd have been surprised if they halted withdrawals for margin accounts while they still had a ton of $ and liquid coins in other accounts) and the question is just how much of a betrayal that is.

    For normal brokerage accounts, my vague sense of expectations is that margin accounts would be at risk of going down with the exchange, whereas normal accounts wouldn't. I don't know if that expectation is grounded in legal reality. I don't know if FTX had any such distinction.

    I would guess that  FTX customers had the choice to opt in to lending, though I wouldn't be surprised if it was opt-out or if uptake of lending was very large. And legally I don't know if customers who don't use margin accounts or who don't click the "lend asset" box or whatever are supposed to be protected (kind of like more senior creditors). Morally it seems like they have a reasonable expectation of not losing it but I expect this is also not straightforward fraud.

Overall my sense is that this is probably not straightforward fraud, but I don't know and would appreciate a bit more clarity.

If someone is strongly considering donating to a charitable fund, I think they should usually instead participate in a donor lottery up to  say 5-10% of the annual money moved by that fund. If they win, they can spend more time deciding how to give (whether that means giving to the fund that they were considering, giving to a different fund, changing cause areas, supporting a charity directly,  participating in a larger lottery, saving in a donor-advised fund, or doing something altogether different).

I'm curious how you feel about that advice. Obviously some donors won't be comfortable with the idea of a donor lottery and they can continue to give directly. I personally remain very excited about the idea of donor lotteries and think it would be healthy for the EA community to use more extensively.

For example, I think it would be healthy if funds were accountable to a smaller number of randomly selected donors who had the time to investigate more deeply, rather than spending <10% as much time and being more likely to pick based on a quick skim of fund materials and advertising/social dynamics/etc. And it seems like there's no way to escape from that regress by having GWWC evaluate evaluators, since then the donor must evaluate GWWC's evaluations. From this perspective a donor lottery is really like a "free lunch" that's hard to get in other ways.

Using a fund is similar to using an actively managed investment fund instead of trying to pick individual stocks to invest in: in both cases, you let experts decide what to do with your money. This analogy helps explain the structure of a charitable fund, but it likely understates its benefits.

There is also one major way in which it overstates the benefits: for financial investments it is very valuable to diversify across at least dozens of firms and a few asset classes. Evaluating so many investments would take a huge amount of time, and so even if evaluating individual investments was easier than  evaluating funds you'd still probably want to invest in a fund. In contrast, a charitable donor needs to find just one charity that they want to support, and so the case for evaluators really rests on it being easier to evaluate an evaluator than to evaluate a charity.

That comparison is most favorable for organizations like GiveWell, whose main role is to produce reasoning that would clearly be valuable to an individual donor trying to evaluate a charity. But "evaluate funds" vs "evaluate charities" is more apples-to-apples when you are primarily relying on funder judgment, since you could just as well rely on the judgment of people who run the charities they support.

(However the point about charities preferring to engage with fewer big funders is still very relevant and suggests using either a fund or a lottery.)

I would prefer more people give through donor lotteries rather than deferring to EA funds or some vague EA vibe. Right now I think EA funds do like $10M / year vs $1M / year through lotteries, and probably in my ideal world the lottery number would be at least 10x higher.

I think that EAs are consistently underrating the value of this kind of decentralization. With all due respect to EA funds I don't think it's reasonable to say "thinking more about how to donate wouldn't help because obviously I should just donate  100% to EA funds." (That said, I don't have a take about whether EA funds should shut down. I would have guessed not.)

I think that's probably the lowest hanging fruit, though it might only help modestly. The effect size depends on how much the problem is lacking diverse sources of money vs lacking diverse sources of attention.

Following up on this. Since May 2020 when these comments were written:

  • VT is up 13.5%/year.
  • VWO (emerging markets ETF) is up 3.6%/year.
  • VMOT is up 7%/year.

Comparing to your predictions:

  • You expected VMOT to outperform by about 6%, and suggesting cut that in half to 3% to be conservative, but it underperformed by 6.5%. So that's another 1.5-3 standard deviations of underperformance.
  • You expected VWO to significantly outperform, but it underperformed by about 10%/year.

I still broadly endorse this post. Here are some ways my views have changed over the last 6 years:

  • At the time I wrote the OP I considered consequentialist evaluation the only rubric for judging principles like this, and the only reason we needed anything else was because of the intractability of consequentialist reasoning or moral uncertainty. I’m now more sympathetic to other moral intuitions and norms, and think my previous attempts to shoehorn them into a consequentialist justification involve some motivated cognition and philosophical error.
  • That said I’m now more sympathetic to evidential cooperation in large worlds and a bit less confused about decision theory. So overall I’m more convinced by a range of consequentialist arguments for common-sense moral judgments, including the principle expressed in this post. I don't this is the most important form of justification, but it does slightly strengthen those intuitions and plays a role when trying to clarify them in weird cases (e.g. when considering our obligations towards AI systems rather than humans).
  • I’m more hesitant about retaliation than when I wrote the OP, and am mostly unwilling to “do malicious things that have no direct good consequences for me” except in cases where people have opted in to retaliation for bad behavior (e.g. by agreeing to a contract or putting down a deposit).
  • Although I still endorse this post and think that some relevant arguments have become stronger, I’m more sensitive to a bunch of ways it’s complicated and incomplete. Overall I have less conviction about everything in this space.  I do still try to just behave with integrity in a straightforward way, and do think that this is an unusually robust ethical conclusion despite acknowledging more uncertainty about it.

Earlier this year ARC received a grant for $1.25M from the FTX foundation. We now believe that this money morally (if not legally) belongs to FTX customers or creditors, so we intend to return $1.25M to them.

It may not be clear how to do this responsibly for some time depending on how bankruptcy proceedings evolve, and if unexpected revelations change the situation (e.g. if customers and creditors are unexpectedly made whole) then we may change our decision. We'll post an update here when we have a more concrete picture; in the meantime we will set aside the money and not spend it.

We feel this is a particularly straightforward decision for ARC because we haven't spent most of the money and have other supporters happy to fill our funding gap. I think the moral question is more complex for organizations that have already spent the money, especially on projects that they wouldn't have done if not for FTX, and who have less clear prospects for fundraising.

(Also posted on our website.)

I think the point of most non-profit boards is to ensure that donor funds are used effectively to advance the organization's charitable mission. If that's the case, then having donor representation on the board seems appropriate. Why would this represent a conflict of interest? My impression is that this is quite common amongst non-profits and is not considered problematic. (Note that Holden is on ARC's board.)

I'm also not sure this what the NYT author is objecting to. I think they would be equally unhappy with SBF claiming to have donated a lot, but it secretly went to a DAF he controlled that he could potentially use to have influence later. The problem is more like trying to claim credit for good works despite not having actually given up the influence yet, not a COI issue.

(I don't think it's plausible to call "I gave my money to foundation or DAF, and then I make 100% of the calls about how the foundation donates" a COI issue. )

I think that (normal charity) vs (lottery) is a clear improvement for a much wider range of worldviews than (normal charity) vs (defer to GiveWell).

I do agree that "defer to GiveWell" is easier to explain though. Or slightly more precisely: I think it's easier to explain what GiveWell does well enough that someone can understand why you might think it's the best option, but harder to explain what GiveWell does in enough detail that someone can verify for themselves that it's actually better than their alternatives.

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