welcome back we continue to follow the collapse of FTX we have some breaking news on the FDX
crypto story just crossing that FTX Founders Sam bankman freed has been hit with a class
action lawsuit what it means for Market liquidity Sam bankman Freed's Alameda research is closing
as we know FTX filed through bankruptcy and the Alameda was one of the biggest market makers in
this guy John Ray who did the Enron stuff never in my career have I ever seen such a complete
failure of corporate controls in such a complete absence of trustworthy financial information has
occurred here what happened at FTX I think is is again just a harbinger of things to come
um John Carney SBF is this guy going to jail what's going to happen to him because a couple
weeks ago now the world's largest crypto exchange FTX collapsed due to Borderland
fraudulent management and investment practices the collapse was the largest example of such collapse
albeit just one of many instances of fraud in the crypto Community The Fallout from FTX will
take months if not years to resolve lawyers have to decide whether the exchange can operate and
then there's the issue of all the customers who just want their money back I think it is very
important that everybody with Investments even non-crypto Investments understands what happened
to this company and I will do my best to give you everything that you need to know about this
collapse so far because it is rapidly evolving and circumstances may have changed significantly
when you watch this video investors will lose billions in this collapse and that by itself is
terrible but I think it highlights a much larger issue which is the personal finance influencers
that are directly responsible for directing hundreds of thousands of their viewers to
make investments that will harm their long term Financial well-being there's me Kevin
Graham Stefan Andre Jacob Jeremy from Financial education all these guys got paid Millions by FTA
I am not just talking about FTX either yeah sure this is one incident and maybe nobody could have
seen it coming but it's just the tip of the iceberg and people are going to keep losing
their money because of bad advice they received on the internet so it's time that people like Graham
Stefan Andre dick meet Kevin and the dozens of other influencers in the personal finance space
recognize the harm that they could be doing to Their audience I don't want to start YouTube b for
anything here I think these guys could do a lot of good for Their audience if they reverse some of
the really bad practices they have started making in recent months bad practices that are probably
going to blow up in their face in more ways than just this FTX disaster their reputations have just
been going down the toilet people who promoted absolute garbage companies like FTX us and block
5 for millions of dollars today we're finally seeing the results as both of those companies
are basically bankrupt so it's time to learn how money Works to understand what went wrong with FTX
and understand how you can personally tell when someone you think you can trust on the Internet is
telling you to do something that is not in your best interest a big part of understanding the
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200 of you will get 20 off Brilliance annual premium subscription FTX was a crypto exchange
platform that also released and promoted its own cryptocurrency ftt both the ftt token and the FTX
platform itself were heavily marketed through big budget campaigns involving sports stadiums
traditional celebrities and finance influencers a lot of focus was put on the founder and CEO
of the company Sam bankman freed or SBF he had marketed himself as a generous billionaire that
drove a regular old car and War dagged clothes and apparently people thought that was unusual
enough to make a big deal about it forgetting that most billionaires in the world were dagged clothes
and make a big deal about driving an old car it really isn't that remarkable anyway behind FTX and
the ftt token was Alameda research a supposedly quantitative-based hedge fund that would trade
cryptocurrencies as far as analysts can tell now their quantitative trading strategy was to
buy up a bunch of different cryptocurrencies and hope they would shoot up in price so bold
strategy cotton let's see if it pays off for them the person put in charge of managing this hedge
fund was a 20 28 year old Caroline Ellison who had just two years industry experience working at Jane
Street Ellison famously said in an interview that her trading strategy didn't require much math very
little math a quantitative hedge fund without math is like McDonald's without the burgers it just
doesn't really make sense due to the crash in the prices of most cryptocurrencies in 2022 Alameda
research began losing large amounts of cash which was replaced with large loans given by FTX using
their own tokens as collateral this is roughly the same as a company using its own stock as
collateral for a margin loan and there is a good reason why businesses are not normally allowed to
do this its share price will naturally decrease which undermines the value of the collateral the
loan was secured against in the first place but if you are Sam bankman freed and you control both
the lender and the borrower you don't need to care about business conventions eventually this house
of cards came crashing down as ftx's primary competitor binance raised down some of the
platform's ability to honor withdrawals a doubt that was very well founded because most of their
custom summer deposits were being used to save the sinking Alameda hedge fund as of today FTX
is still close to withdrawals and is starting the process of chapter 11 bankruptcy which is
a reorganization of the business to try and get creditors their money back in this case some of
those creditors are people who have deposited money on FTX to trade and are now unable to
withdraw that's the best two-minute summary I can give and if you want a more technical explanation
I highly recommend Patrick Boyle's 26 minute analysis he is Real World Experience running
an actual hedge fund that hasn't lost billions of dollars so its insights are truly Second To
None one of the biggest issues this collapse highlighted is personal finance influencers
and the role they played in promoting FTX to Their audience that watch them because they valued their
advice for those who haven't been following the stories too closely the space is basically divided
into two camps with the influencers who took the sponsorship on one side claiming that if BlackRock
and Stephen Curry could fall for FTX then they should be allowed to as well on the other side
there are people like coffeezilla calling them out for costing their audiences billions of
dollars while personally profiting millions of dollars from advertising Revenue I have made it
pretty clear in the past that I am not a fan of traditional Finance influencers because
it is impossible to give appropriate Financial advice to such a broad audience especially when
most of the bigger names in the space have no background in finance Graham and meet Kevin are
ex real estate agents Andre dick was a magician and none of this is to get keeping talking about
Finance on the internet everybody should have the right to share their opinions but if you pay close
attention you will notice that more qualified creators Like Richard at the plain bagel who
is an investment analyst and has a CFA and Ben Felix who is a portfolio manager avoid making
Financial recommendations because they know they can't do it to an audience of that size without
doing more harm than good this means that their content is less exciting than hearing about how
to use the 2023 recession to get rich or how to safely invest ten thousand dollars and I think
the choice to not give Wild speculative advice is why their audience is significantly smaller than
these more exciting characters even incredibly generic advice like investing in a broad Market
stock portfolio is a terrible move for someone who is close to retirement or living paycheck
to paycheck if you ever consult with a real financial planner you will see that they spend
90 percent of their time listening to you about your Current financial situation and objectives
and 10 of their time making recommendations Financial influencers have no way of listening to
their millions of subscribers individual needs so they spend a hundred percent of their time making
recommendations this whole problem gets so much worse though when these guys start taking paid
sponsorships For Better or Worse people look to these influencers because they think they can help
them improve their financial situation so when they start recommending investment products that
they were paid to promote it causes two major problems the first is that it undermines their
credibility you wouldn't listen to a food critic sponsored by McDonald's and you shouldn't listen
to a finance influencer sponsored by a crypto exchange it would be very very hard for these
influencers to say anything bad about crypto in general because they would risk losing sponsorship
deals which by most reports were running half a million dollars a year that I'm genuinely asking
you to forgive me because I [ __ ] up I am not even going to say that I am personally above this
temptation I've been approached by many crypto exchanges offering me way more money than my other
sponsors do for an ad spot and I do need sponsors to keep even this modest Channel going which is
why this next point is so important people like Tom Brady Steph Curry and Matt Damon have more
leeway to lend their name to finance companies because nobody is paying attention to Tom Brady
for his financial advice that means it's a lot easier to tell when he is being paid money to
appear in an ad the same goes for sports stadiums and ironically even the largest financial firm in
the world BlackRock so far the biggest defense that Financial influencers have presented is
that the world's largest asset manager was also an investor in FTX so if they didn't know how would
anybody know BlackRock did invest in FTX and in fact so did a lot of big names such as Sequoia
tiger Global and Toma Bravo I am not going to say too much about the quality of due diligence that
these investors conducted but typically speaking due diligence for these minority Equity positions
tends to be far less involved than when you're seeking majority Equity furthermore blackrock's
Venture arm invests into many companies like this knowing very well that many of these companies
fail venture capital is a risky business and it's why VC funds tend to have much larger portfolios
than buyout funds they make many gambles with the hope that a couple do incredibly well a few more
do okay and the remainder fail so investing in FTX was by no means an endorsement of its success
but rather a gamble on its future the personal finance influencers who were stung by this really
do deserve the backlash they are receiving and I hope that it will make them seriously reconsider
what advice they give in the future and who they work with as sponsors I know none of them have
offered to compensate any of their viewers out of the piles of money they have made from sponsorship
deals but maybe that's asking too much so here's something much more reasonable to ask something
that will make sure they are never in a situation like this ever again I want to know tell me don't
accept sponsorships from any company that offers investing products or Services now I'm not saying
you shouldn't partner with anything money such as a company that offers your viewers way to
save money with coupons or even an app that helps your users put together a budget what I am saying
is no stock brokerages no crypto platforms no trading Bots and nothing where there's an
implied assumption that investing your money in X investment can generate y return I know
sponsors are crucial to running a channel but there are plenty of great sponsors to work with
that have a simple product that doesn't have to sell people on the chance of turning their money
into more money they do offer less lucrative deals because people are more willing to spend money on
things that they think will make them money but come on guys you are rich enough and this would
be a great way to show your audience that you have their best interest in mind I don't think
anybody should reasonably advocate for these guys to be completely canceled over this one incident
but if this becomes a pattern then it's going to do more damage to Their audience and their
reputation now if you haven't already seen it you should probably go and watch the video I did over
a year ago on all the other problems with these personal finance personalities a special thanks
again to brilliant for making it possible for everybody to keep on learning how money Works what
does Matt Damon say on that Bitcoin commercial fortune favors the brave my dad said he listened
to Matt Damon and lost all his body yeah yes everyone did but they were Brave in doing so