In the broadest economic sense, we can. The collapse of Lehman, at the time the fourth-largest US investment bank, was like the full stop at the end of a long sentence – and that sentence was about the seemingly inexorable rise of banking and finances. 

Lehman’s collapse signalled the end of an era; an era of “masters of the universe” bankers who were nothing like the conservative, stern suits that preceded them. They danced, they sang, they drank, they drove fast cars. And then they went home with nothing.

FTX, the second-largest crypto exchange, is likewise the icon of our age; young men in shorts talking up complicated things people barely understood – things that had to do with the impervious world of matters digital and cryptocurrency. They danced, they sang, they drank, they drove fast cars, they dated each other. In the Bahamas! And then they went home with nothing.

The end of FTX constitutes its own full stop to its own verbose sentence. 

And, like Lehman, there were some good intentions – and lots of good intentions gone very wrong. Lehman’s problem was that it was selling complex financial instruments backed by home loans, and when the home loan market fizzled, the underpin disappeared. And when the underpin disappeared, the edifice collapsed with a speed and intensity that was bewildering.

In FTX’s case, the collapse was equally fast and intense. And there was a more obvious dubious backing – cryptocurrency. But here we get into some big differences, because in FTX’s case, it is now emerging, the dubiosity index goes into full-on overdrive.

Just to explain: before a company goes bankrupt, it will normally rush off to anyone who has large amounts of cash, mostly banks, and beg for a bailout. The banks will usually say, sure, we will think about it, but send us your detailed balance sheet. This, FTX did. 

I just wish I could have been in the room when some of those brainiac bankers took a look at this spreadsheet – yes, it was in fact just a spreadsheet. The howls of disbelief and horror and sheer incredulity that must have gone down would have been something to hear.

We know all this because, would you believe it, the Financial Times’ site FT Alphaville has published the spreadsheet.

It includes references to $5-billion in withdrawals “last Sunday”, and a negative $8-billion entry described as a “hidden, poorly internally labelled ‘fiat@’ account”. I am not making this up. What is a “hidden, poorly internally labelled ‘fiat@’ account”? Is this a specialist accounting term? Not so much.

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The story the FT published based on the “balance sheet” was that FTX CEO Sam Bankman-Fried’s main international FTX exchange held just $900-million in easily sellable assets against $9-billion of liabilities the day before it collapsed into bankruptcy.

In these situations, the go-to person to read is, of course, Matt Levine from Bloomberg Opinion. 

Forgive the lengthy quote, but it’s just too funny: 

“If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELLED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying, ‘just what do you think you’re doing, Dave?’ You cannot apply ordinary arithmetic to numbers in a cell labelled ‘HIDDEN POORLY INTERNALLY LABELLED ACCOUNT’. The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison.”

And there is another thing: The balance sheet contained a reference to $2.2-billion in now almost worthless Serum token. What was this about?

Well, Levine again. “One thing that is really really really really really important to mention about the Serum protocol is that it was created and promoted by FTX and Alameda Research, the FTX-affiliated crypto hedge fund that was also founded by Bankman-Fried. 

“What Bankman-Fried apparently did was to create a token, issue lots to itself, and sell a little into the public market. The effect is that it then has a small obligation and a huge asset because it owns lots of crypto that has a theoretically large value denoted by the small quantity in the public market. 

“Something like 3% of the total value of Serum is held by the public and trading on exchanges. The other 97% is not. Something like two-thirds of that 97% is held by FTX and Alameda.”

If you ever try to borrow a lot of money from a bank and post that bank’s stock as collateral, bankers will look at you as if you are insane, and they will say “no” very loudly. The reason is that the health of the loan is then tied up with the investment bank’s financial health. If the value of the bank goes down, then collateral will be worth less, and the bank’s stock will go further down in a never-ending death spiral. 

Essentially, this is what FTX was doing, but in this case it was the bank, the investor and the issuer of the currency! It’s all beyond madness, which is in itself an appropriate exclamation point to our current mad, global interlude.

Behind this madness lies an inconvenient truth: we were living in the age of easy money. And that age is gone. It fuelled investment in crazy notions and mad adventures. And we are destined to be sadder and wiser when we rise on the morrow morn.

Until the next crazy adventure. BM/DM