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The View | How the Federal Reserve helped create and burst the FTX crypto bubble

  • As the Fed boosted liquidity, the odds of cooking up a successful scam improved greatly – and more people did
  • Now that the Fed is winding down its bloated balance sheet, hot-air assets like cryptocurrencies are losing their life line

Reading Time:4 minutes
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The logo of the crypto trading firm FTX is reflected in an image of former chief executive Samuel Bankman-Fried. The collapsed company suffered a “complete failure of corporate controls” under Bankman-Fried, the company’s new chief executive said on November 17, calling the situation “unprecedented”. Photo: AFP
The Federal Reserve’s liquidity tsunami, especially its response to the Covid-19 crisis, supercharged financial bubbles and Ponzi scams. The collapse of the cryptocurrency exchange FTX is just one of many inevitable failures, as the US central bank unwinds quantitative easing.
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The Fed has actually kept the pace of balance-sheet unwinding rather slow (more on this later), given fears of a financial meltdown. But it is just prolonging the inflation crisis and keeping up the pressure for monetary tightening. Even if the Fed avoids the prospect of a thousand FTXes going bust together, the world will still see one collapse after another for the next couple of years.

The founder of FTX apparently believed in “effective altruism”, a fad among the ruthless billionaire class. The idea, it seems, is to maximise total contributions to society: technically, it is OK to do a few bad things to make money, as long as you put that money to good use eventually.
In the case of FTX, the money might have gone to top executives as loans. Good uses for that money may also have included donating to politicians to amass influence and buying a penthouse in the Bahamas.

As the Fed’s liquidity engulfed markets in recent years, the odds of cooking up a successful scam improved greatly and more people crossed over to the dark side. “Effective altruism” is something these people say to convince themselves that everything is OK.

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Throughout history, questionable things have been done in the name of morality. One result is that Europeans have taken over much of the world, including North America and Australia, eliminating massive numbers of local peoples in the process.

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