One version of the Greek tale of Icarus says that his father, Daedalus, advised him not to fly too high or too low; Icarus, enjoying the ability to fly with man-made wings, forgot his father’s advice and flew too close to the sun. He fell into the sea.
Icarus was essentially warned against complacency and hubris.
It seems Sam Bankman-Fried fell victim to both.
In 2020, The Bahamas passed legislation which encouraged FTX to move its international headquarters from Hong Kong to its shores. Coincidentally, FTX arrived in The Bahamas in September of 2021, the same month Prime Minister Philip Davis’ Progressive Liberal Party won a landslide victory over the ruling Free National Movement.
At a time when small island developing states, or SIDS, are looking for newer ways to sustainably grow their economies, Prime Minister Davis was certainly hoping to build a part of his legacy on making The Bahamas a respected jurisdiction for cryptocurrency. About a year later that dream suffered a major setback.
The way I see it, The Bahamas dodged a bullet.
The Bahamas Crypto Conference 2022, held April 26-29, and sponsored by FTX, was a celebration of sorts for The Bahamas and cryptocurrency exchange.
For a few days the disciples of cryptocurrencies could relax in paradise and forget the terrible year that the industry was going through – inflation, war, rising interest rates and falling cryptocurrency prices. Famous and respected personalities such as Tony Blair and Bill Clinton shared the stage alongside NFL superstar Tom Brady and his supermodel wife, Gisele B?ndchen.
Bankman-Fried also took to the stage in his trademark dishevelled hair, cargo pants and T-shirt; the epitome of a frugal, philanthropic, new-age genius working to make the world a better place.
However, it is very likely that conference attendees got a peek behind the curtain, a peek into a lavish lifestyle propped up on the wealth of investors, wealth which had little to no chance of earning a return.
The reputation of the Bahamian financial sector has undoubtedly taken a hit. However, it is a good thing that the FTX house of cards fell some months after the sod was turned on its headquarters. Given a few more years, FTX could have become a major contributor to the Bahamian economy, creating jobs directly and indirectly.
The Bahamas was saved the misery that was visited upon Antigua & Barbuda in 2009. Interestingly, FTX is incorporated in Antigua & Barbuda, and had applied for a licence to operate there, but the Gaston Browne administration did not grant it a licence on the basis that the company’s “business model was unclear”.
Upon exiting the V.C. Bird International Airport back in, say 2006, one was greeted by the famous Sticky Wicket to the left, and the imposing Stanford International Bank.
Any questions you might have had about Stanford’s importance to Antigua & Barbuda would have been erased. In fact, Allen Stanford was the second-largest employer in the country after the government. At that time, Stanford’s net worth was in the region of US$2.2 billion, while the GDP of Antigua & Barbuda was US$1.2 billion.
In the case of Bankman-Fried and The Bahamas we see a similar tale; the GDP of The Bahamas in 2021 is approximately US$11 billion, with Bankman-Fried’s worth, at peak, being US$26 billion, or about 2.4 times the GDP of The Bahamas.
A Texan, Stanford made money speculating in real estate. He then moved to Montserrat around 1985, but the strict financial regulations of that British overseas territory led to him moving his operations to Antigua & Barbuda in the late 1980s.
Stanford and his business found a home in Antigua & Barbuda. It is alleged that he developed strong ties to the ruling party, assisting it in the construction of a US$30-million public hospital. His banking and wealth management empire flourished, earning him respect and clout.
The truth is, however, Stanford was just another businessman who studied at the school of Charles Ponzi. Beyond the theatrics of landing in a helicopter at Lords with a suitcase of cash, sponsoring big-money Caribbean T20 cricket, and a team of West Indian cricket legends in tow, Stanford’s empire was built on financial malfeasance, and distraction.
Like Bankman-Fried, Stanford successfully courted the endorsements of sports figures and US politicians and used their fame and respect to deepen his stature, attracting billions of US dollars in the process.
Stanford treated his Antiguan staff well, paying them First-World wages. However, when his empire fell, the fallout was felt far and wide. Many ordinary Americans and Antiguans lost their life savings.
In Antigua & Barbuda, former staff lost their lucrative jobs, while their lowered spending power directly impacted the livelihood of many others – gardeners, cleaners, taxi drivers, construction workers, etc – in the population of about 85,000. Many choose to migrate in search of new jobs.
In 2008, the per capita income of Antigua & Barbuda stood at about US$16,000, but fell to about US$13,000 in 2010 – a 19 per cent decrease. For the same period, Jamaica’s per capita income fell from US$4,900 to US$4,700 – a four per cent decrease.
Readers will remember that during 2007-2009, the US was in the throes of the so called ‘Great Recession’, which adversely impacted the tourism-dependent, highly open economies of the Caribbean. The collapse of Stanford’s empire compounded the impact of the crisis on Antigua & Barbuda.
During economic downturns, legitimate financial firms will struggle to keep the lights on, but firms built upon poor financial practices are likely to face dramatic collapse. Such was the case with Stanford’s financial empire and so, too, Bankman-Fried’s empire in 2022.
On December 12, Sam Bankman-Fried was arrested by the Bahamian authorities for extradition to the United States; jail time is a foregone conclusion. He made his first appearance in US district court in Manhattan, New York, on December 22.
Notwithstanding all the lessons of history, we are very likely to see a similar unravelling of another firm in a decade or so. The cycle continues.
Samuel Braithwaite is a lecturer in the Department of Economics, University of the West Indies-Mona.firstname.lastname@example.org