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suy  1yr ago (astralcodexten.substack.com)   Edited 1yr ago   3866 thread views

Scott Alexander on Sam Bankman-Fried, FTX and Effective Altruism

astralcodexten.substack.com

I made this a top level post because I think people here might want to discuss it but you can remove it if it doesn't meet your standards.

Edit: removed my opinion of Scott from the body

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Should they though? I think the standard should be higher for institutional investors than for charities accepting donations, but that doesn't necessarily mean the standard for investors should be significantly higher than it already is.

Part of my argument is that this failed to meet the existing standards for institutional investors, at least for the pension funds -- I'm not (just) encouraging delicensing for encourage les autres, but because I'm extremely skeptical that this investment could have been made while honestly and completely complying with the Canadian principles for pension fund investments. (though I am not a lawyer, this is not legal advice, so on)

Sequoia Capital is a 50-year-old firm managing $85 billion, and while you could speculate that their employees have recently become less competent or too reckless...

Funny example! The current Sequoia Capital page on FTX is iso-standard lawyer speak, but the previous page was hilarious. I think I can make a pretty strong argument that the people investing 85 Billion USD to a guy who has a business plan worthy of the underpants gnomes and who plays League of Legends was not competent or prudent.

((During an investment meeting, specifically? Well, that too.))

There's a direct tradeoff between the two, if it's 35% of your funding you risk having wasted more money if it evaporates, while Sequoia obviously doesn't invest that much in a single company - but if you refuse you know you're out a whole 35% of your potential funding, whereas Sequoia can just invest their money in something else.

If you refuse 35% of your potential funding, you can go look for other funders. Very few charities are in a field where they just need or are capable of taking in infinite dollars, because either their goals are limited, or their ability to scale up is limited. This is pretty well-understood in EA and GiveWell circles: indeed, a number of GW top charities have been 'capped out' for years.

This also strikes the other direction. Sequoia isn't just investing less in any individual company than a charity was receiving from FTX Future, but it's devoting a lot less in FTX specifically. Sequoia put something like 210 million USD into FTX, which is absolutely embarrassing, and also well less than 1% of the specific Sequoia fund. The Ontario Teacher's Pension is almost an order of magnitude smaller on a percentage-of-assets measure. I don't think they did adequate due dilligence at this level of expenditure, and there are significant limitations to using models like the Kelly criterion even for investment funds, nevermind for charity, but the scope of the difference is a marker.

((Though not all 'conventional' hedge funds were that sober: Galois put nearly half of their bank on FTX, which would have been irresponsible to do for something like Apple.))

You talk about it killing charities, but if a sudden loss of funding can do that how much is because of "less funds than expected" vs. just "less funds, same as if you had refused"?

There are serious problems specific to having committed funds disappear on short notice, that are not present to not having the funds to start with. In the extremes, you've already bought crap from vendors and have to pay for it, signed leases, hired and/or moved people. Short of that case, there's still a bunch of softer commitments that have significant reputation or financial costs.

The reason why there was more funding than EA charities knew what to do with in the short term was because of FTX suddenly showing up and throwing around a bunch of money, if everyone had refused that wouldn't have been the case. If those other donors don't materialize for the current funding crunch would they have done so to begin with?

If we were talking about FTX-screwed charities as those which focused more on the Earning to Give side than the Rationality one, I think this would be a more plausible argument. My worry is not that someone got snookered: my worry is not even that someone focused on avoiding these risks got made a bad bet. But right now we're combining all of that with a 'whoops, shit happens, nothing we could have done'.

I think I can make a pretty strong argument that the people investing 85 Billion USD to a guy who has a business plan worthy of the underpants gnomes and who plays League of Legends was not competent or prudent.

I do find it funny how LOL is catching so many strays in this scandal. Like, its a popular video game. Some hopped up fake billionaire likes it, like the rest of the world of hopped up people.

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