FTX Collapse Has Echoes of Lehman Brothers

In September 2008, Lehman Brothers filed for bankruptcy, and the global financial system nearly collapsed.

This week, another financial institution is having serious liquidity problems FTX, a cryptocurrency exchange founded by Sam Bankman-Fried.

FTX's collapse has echoes of Lehman Brothers in several ways.

First, both institutions were highly leveraged, with FTX holding billions in debt and Lehman Brothers as well.

Second, both institutions had questionable accounting practices.

Binance late yesterday backed out of a plan to rescue FTX, its smaller rival, after due diligence revealed problems it said were “beyond our ability to help.”

It looks likely that a cascade of margin calls, deleveraging & by the numbers FTX has received withdrawal requests totaling $8 billion.

The big difference between the crypto world today & the real world in 2008 is that there are no lenders of last resort in crypto who can shore up the system with bailouts.

It now seems highly likely that FTX will end up filing for bankruptcy, probably in the Bahamas.

Crypto prices are plummeting.

Bitcoin is at its lowest level since November 2020.

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