[somuchfordonor]

> Alameda’s CEO is Caroline Ellison, a Stanford University graduate who like Mr. Bankman-Fried previously worked for quantitative trading firm Jane Street Capital. Alameda is based in Hong Kong, where FTX was headquartered before relocating to the Bahamas last year.

Are the folks at Jane Street making money because they are smart, or because they use that perception to perpetuate some scam?

I interact with a lot of Harvard kids. Some of them are from Long Island, they know dads who work at that Republican's hedge fund. They are smart kids. They have good cognitive gifts.

But not once - not from word of mouth, or directly from them, or someone, ever, anywhere - have I heard a common sense way these guys make money due to intelligence, instead of due to a scam or due to luck.

It is really frustrating. So much human potential wasted on chasing the dollar sign. They are in denial that it is scams.

It has always been scams. Why is this so hard to believe? Why in the absence of any positive evidence, like "oh here is our genius but nonetheless expired" trading strategy, which anyone could have furnished in the last two decades, they agree, oh it must be real?

The simple answer seems, because if you believe it to be real, you can be this specific kind of Harvard + New York + "X" kid - and seriously, they are all cut from the same jib, superficially and inside their character, it tarnishes the institution - and you can do this scam and pocket your change and eat dim sum with 20 people on the weekends and have a skinny girlfriend and buy a condo. You can do something pretty meaningless with your life in exchange for the burn out.

This scam life lets 20 year olds not hear from their horrible parents that burned them out and gave them no meaning. Eventually they turn 30 and hope that a decade went by without a crash, and then life decides for them to sell before the ponzi collapses. Like you have a baby with your skinny girlfriend and you buy the condo and great, you sell, and it happens to be well timed!

I fucking hate Jane Street, I have hated them since I've known the assholes who intern there, and I don't know why this Bankman-Fried guy got such a big pass for scamming literally millions of people, and why this Caroline girl isn't going to be sent to jail, and it's frustrating because you can actually tell! You can predict this from when these kids are 20!

[amluto]

> But not once - not from word of mouth, or directly from them, or someone, ever, anywhere - have I heard a common sense way these guys make money due to intelligence, instead of due to a scam or due to luck.

Financial markets have a fascinating property: any well-known strategy that can be implemented at reasonable cost [0] stops working. This is because people implement it and the profit goes away. If Jane Street has a common sense strategy or three that makes money, they’re not telling you about it.

(I’m taking about actual market profits here. It is well known that you can make lots of money by charging fees on a lackluster fund as long as you can find investors.)

[0] The cost issue is real, and the relevant parameter is some combination of profit (revenue - opex), capex and risk. For example, one can make money (revenue) by being the fastest market on the block. But the revenue there is approximately bounded and competition has driven the cost up to insane levels, so it is not straightforward to do this profitably.

[itsdrewmiller]

The original comment addresses that concern:

>Why in the absence of any positive evidence, like "oh here is our genius but nonetheless expired" trading strategy, which anyone could have furnished in the last two decades, they agree, oh it must be real?

I agree that there should be some obviously awesome things these funds did that they can share now given they are no longer able to exploit them. I have no idea if they have done so and I and GP are just not aware of it.

[espadrine]

That is part of it. The Sequoia piece[0] describes what kicked off Alameda Research: after a tumultuous hard fork, there used to be a discrepancy between the price of Bitcoin in JPY at a Japanese exchange, and that in a US exchange. So he opened a Japanese account, bought a bitcoin in the US for a low price, and sold it in Japan for a high price.

To be clear, it is described by SBF. I haven’t verified historical prices to confirm it. The journalist that wrote this article probably hasn’t either.

[0]: https://web.archive.org/web/20221110141739/https://www.sequo...

[peyton]

He claims to have been wiring $25m a day from a BoA branch to banks in rural Japan. Total horseshit.

[tych0]

And at least in SBF/Alameda's case, they did, and you can google it. IIUC it was basic arbitrage, the hard part was figuring out how to interface with Japan's banks.

Maybe the guy is a bad dude, I don't have a horse in that race. But lots of trading strategies that have worked in the past are well known.

[jeffreyrogers]

There are known expired strategies that generated large profits for long periods of time. In some cases the people involved in developing the strategies have directly published things explaining what they did.

[121789]

Do you have any examples? Would be interested to read sone

[elijaht]

Article mentions one (bitcoin arbitrage)

[taliesinb]

I'd be fascinated to read these published things if anyone can point to them!

[jeffreyrogers]

The books and articles by Ed Thorpe are a good place to start.

[somuchfordonor]

I see a lot of variations on these arbitrage and secrecy themes.

Arbitrage that sticks around for years: those are scams dude. They involve collusion, not intelligence. I understand it might not be illegal collusion, but if either side of the transaction being scammed found out, they would find someone else to work with.

Trust me, I know. I've worked in ad tech.

[solveit]

I mean, yeah. For arbitrage to stick around for years it requires that the person who first found it be years ahead of the curve, and that's really hard to do just by being smarter than the competition. The vast, vast majority of these will be collusion, or regulatory capture, or literal fraud, or whatever where the competition knows full well what you're doing, but can't/won't jump in for completely unrelated reasons.

But finding lots of different things to arbitrage and consistently being two weeks ahead of the competition is something you can do with a dedicated team of smart, experienced people, and this is the business model that Jane Street and others claim to be running.

[DebtDeflation]

The obvious suspicion, for any company that is both a market maker and doing prop trading, is that they're engaging in some sort of front running. They're probably doing it in a highly obfuscated non-trivial way otherwise they'd get caught quickly, but nevertheless are using their visibility into trillions of dollars worth of order flow to shape their own trading strategy.

[bwi4]

I just assume everyone but retail has order flow data now.

[adamsmith143]

>Trust me, I know. I've worked in ad tech.

Trust me I know about the inner workings of the Financial world because I did an internship at a Digital Marketing agency and totally didn't get coldly rejected by Jane Street when I applied for their Head of Trading position that I totally deserve because I'm like way smarter than those Harvard Math 55 morons.

Lol this is S tier cope or A tier trolling.

[skippyboxedhero]

SBF tried to throw Ellison under the bus in his latest tweet storm saying that he was shutting the fund down and that her tweets (some of which appear to have been either straight lies or attempts to manipulate the market) weren't approved by him.

I would suspect that both of them get into legal trouble.

Btw, I would say generally: quant investing isn't a scam, Jane Street make most of their money from ETF AP...that isn't complex, most of the high capacity strategies are quite simple (index replication being one, stat arb being another). The more complex HFT strategies tend to be (at their root) about detecting when someone is moving the market: for example, XYZ fund gets new money from investors, they deploy that into stocks, and HFT is about detecting that and calculating whether that is going to move the market (and XYZ fund now deploys various execution algos to stop HFT funds detecting that they have a huge order that will move the market).

There is nothing wrong with this work and, contrary to what people think, it is valuable. If you look at what it cost to invest capital even ten years ago, it was expensive. As in: $10-20 for a single trade. That has gone down to pennies, and created trillions of value. Saying they are all scammers because one guy is a scammer is not really a valid criticism.

[danans]

> The simple answer seems, because if you believe it to be real, you can be this specific kind of Harvard + New York + "X" kid - and seriously, they are all cut from the same jib, superficially and inside their character, it tarnishes the institution - and you can do this scam and pocket your change and eat dim sum with 20 people on the weekends and have a skinny girlfriend and buy a condo. You can do something pretty meaningless with your life in exchange for the burn out.

> This scam life lets 20 year olds not hear from their horrible parents that burned them out and gave them no meaning. Eventually they turn 30 and hope that a decade went by without a crash, and then life decides for them to sell before the ponzi collapses. Like you have a baby with your skinny girlfriend and you buy the condo and great, you sell, and it happens to be well timed!

This is great screenplay material, like a "Millenial Fight-Club on Wall-Street". You should keep writing!

[LeifCarrotson]

Income is a combination of two main factors:

1. The value you add to the economic 'stream' flowing around you

2. The amount you're able to divert out of that and into your own control

These are influenced by a number of secondary factors:

1. Starting capital to buy tools and resources to increase your ability to contribute

2. The ability to help others increase their contributions, or less charitably, the ability to take credit for the contributions of others

3. A willingness or unwillingness to pillage the commons

A humble farmer can work some acres of land, use his mind to know what best to grow, use his hands to make it happen, trust the sun and rain to grow the crops, and sell the harvest for a value greater than the cost to lease the land and buy the seed. With a million-dollar combine, cultivators, spreaders, center-pivot irrigation systems, an all the other features of modern agriculture, he can reap a much greater - more valuable - harvest.

But when a dealership has negotiated exclusive rights over a region, and the salesmen take a non-negotiable commission of sales, does the salesman who connects the farmer to the combine he knows he needs deserve thousands of dollars for closing that sale, just because he's situated himself between the farmer and the manufacturer?

When Wall Street or Jane Street sees that our massive farm industry needs massive numbers of combines - it's a $500B industry - and they're able to siphon off a percent of that industry's output for "providing liquidity" just because their Daddy knows some people, while the farmer's Daddy worked 18-hour-days every harvest season until he died, and the former is a multimillionaire by age 30 while the latter might make $200k during 4 of 5 seasons and lose $300k in a bad year...it just doesn't feel right.

[danans]

> 3. A willingness or unwillingness to pillage the commons

This is an important point. As we've pushed the limits of our natural resources, and woken up to the externalized costs of some of our ways of creating value (i.e. respiratory disease from fossil fuel based energy), this is increasingly going to require us to re-evaluate how we define 'value' added to the economic stream.

> But when a dealership has negotiated exclusive rights over a region, and the salesmen take a non-negotiable commission of sales, does the salesman who connects the farmer to the combine he knows he needs deserve thousands of dollars for closing that sale, just because he's situated himself between the farmer and the manufacturer?

I'm not arguing for any value added by middle-men in your example, but sales people provide a service that many of us "maker" types don't want to deal with, which is to engage "socially" with potential customers. Selling and buying an expensive product or service is often a social act. That social act has a value in some spaces.

[sidewndr46]

You're glossing over the fact that part 1 of your income equation is irrelevant if you can get the government on your side.

[mrguyorama]

In the US, you don't get the government on your side without money and connections.

[zen21]

> 1. The value* you add to the economic 'stream' flowing around you

*Real or imagined value.

[markisus]

But you actually can make money honestly by finding mispricings in the market. Eg Buffet, or Burry during the housing crisis.

You can also make money through arbitrage or other brief financial blips that occur in the market.

These things aren't really scams in the normal sense.

[somuchfordonor]

> honestly by finding mispricings in the market. Eg Buffet, or Burry during the housing crisis.

Like who wants to be on the other side of a Jane Street transaction? Absolutely fucking nobody. If you're talking about "mispricings" during the "housing crisis," my dude, nobody wanted to sell their house to these dumb fucks! They were going to starve, they had no choice! How does that not seem like a scam of some sort to you? That's not honest money!

Those 20 year olds with Math degrees from Harvard. They don't fucking know anything dude, they did not discover a model, they did not make a model with a price that says price is lower than this other price, then persuade some people to make some bet. That's a parallel reconstruction, that's to justify whatever actual scam is going on. How do you not see that?

There's no common sense reason Math 55 equips you with some magical vision into pricing that actually winds up meaning anything. When it does, it might as well be random.

If the Mercers were good people, would they be Republicans? No dude. C'mon, use common sense. Don't get hung up on "normal sense." Use common sense.

If Sam Bankman-Fried was a good person, would he fuck $10b out of his own god damned customers' money?

No dude, he's made some unspecific, previously-bankrupt-and-now-literally-bankrupt promise to donate some money to something somewhere in the future, to whitewash the fact that he just went around fucking everyone.

I mean get a grip Effective Altruists, whose guts I hate too, and whose energy is the stereotype of the student I am talking about - the same students! - where they get this readily packaged "religion" that happens to align exactly with their meaning-bankrupt approach to life.

So don't even get on it with the "honest" money. I can find the venture capitalists who take some dumb person's money and then hand it over to something risky and interesting: I see how VC is honest, it's just not necessarily intelligent, but it's redeemable. But the Jane Street people: No dude. Not Warren Buffet, not Burry, none of those vultures.

[adamsmith143]

>Like who wants to be on the other side of a Jane Street transaction? Absolutely fucking nobody. If you're talking about "mispricings" during the "housing crisis," my dude, nobody wanted to sell their house to these dumb fucks! They were going to starve, they had no choice! How does that not seem like a scam of some sort to you? That's not honest money!

This comment makes me think you don't have the slightest idea of how the financial sector works, how Warren Buffet makes money, what happened in 07-08 or how Michael Burry made money during the crisis.

>If the Mercers were good people, would they be Republicans? No dude. C'mon, use common sense. Don't get hung up on "normal sense." Use common sense.

This comment makes me think you are just a troll.

>But the Jane Street people: No dude. Not Warren Buffet, not Burry, none of those vultures.

This is just ignorant. If Warren Buffet looks at Coca-Cola and thinks hey this stock is under-priced and will be worth more in the next decade and makes 10B off it there's no scam involved. Michael Burry evidently read through hundreds of Mortgage Backed Securities and saw that the underlying assets were more risky then they were priced at and made a killing betting against them. No scam. I'm not privy to what Jane Street's techniques are but it's most likely some ML driven search for alpha but again nothing screams scam. They aren't taking retail investor money, you couldn't invest with them even if you wanted to. Where's the scam?

All of your posts reek of paranoid delusions frankly.

[donavanm]

> If you're talking about "mispricings" during the "housing crisis," my dude, nobody wanted to sell their house to these dumb fucks! They were going to starve, they had no choice!

This seems like a pretty gross misunderstanding of all of the very basic finance here. It was NEVER “their house.” A lender let them live their while they payed off a long term contract. They lost it when they could no longer make basic payments OR sort out deferment or other basic accommodations to the existing contract.

> How does that not seem like a scam of some sort to you?

The “scam” that caught your average homeowner wasnt foreclosure. It was the moment someone convinced them could have free money by signing a mortgage at 20x their annual income, 100% ltv, and a 5% adjustable rate. And when they tried to take money off the table with a HELOC they doubled down in to the unsustainable fantasy. They were already blown out and just didnt understand it yet.

Your burys et al werent part of that. they were there to sink the bigger fish who were trading this monopoly money around.

[tedunangst]

How many houses do you think Jane Street was buying up?

[deck4rd]

Jane Street has been purchasing advertisements with popular math YouTubers[1][2] recently, and it really bothers me. Think how many young, mathematically curious people are watching these channels and getting told that working for Jane Street is a worthwhile use of their time and intelligence.

[1]: Numberphile, e.g. https://www.youtube.com/watch?v=rBU9E-ZOZAI

[2]: Stand-up Maths (Matt Parker), e.g. https://www.youtube.com/watch?v=EGoRJePORHs

[jeffreyrogers]

Jane Street isn't a hedge fund so I'm not sure why you're lumping in criticism of hedge funds with criticism of Jane Street.

I'm sure some hedge funds have been scams, and probably a decent percentage are frauds in the sense that they have no alpha even before fees (this isn't a crime though). There's not much evidence that the fund you're referring to is a fraud. There are published strategies now that if implemented in the 90s and early 2000s would've earned returns of >50% after transaction costs so their results seem attainable though obviously exceptional.

[paganel]

> Alameda’s CEO is Caroline Ellison

Just search for that Ellison young lady online. She's partly responsible for fraud that saw $10 billion of other people's money go into the ether. How come that kid (she looks to be under 30 years of age) was put in charge of a multi-billion dollar company is way, way beyond me.

[chasd00]

I take it her last name isn't the Ellison right? If so, that could be a hint.

[selimthegrim]

Megan Ellison produces movies

[paganel]

Not the movie producer, but according to this tweet [1] close enough:

> SEC Chair old boss at MIT is the father of Caroline Ellison who is the Co CEO of Alameda research.

Crookedness all around.

[1] https://twitter.com/WhaleChart/status/1590955151472353280

[22SAS]

I work in the industry at a market-maker. Jane Street is a lot more than just these two people. Prop trading firms and some quantitative hedge funds are a lot different than traditional hedge funds. Jane Street is mainly an ETF market maker, and are very good in that. They make their money because some of their core strategies work very well.

Also, JS has low attrition and traders there mostly stay long-term since it's a very trader-first place than some other places like HRT, Jump. Both SBF and Ellison had short tenures at JS.

[Projectiboga]

Hedge fund success comes from better tax treatment to very delayed tac for the 'carry over' part. And they get better trading and much higher margin. Yes skill and good ideas can drive better profitz with lower tax. Scams go easier with lower tax too.

[chasd00]

I hear what you're saying but consider we're going on two entire generations of brilliant people being spent largely on just putting an ad on your phone and computer. The stock market isn't the only waste of intelligence.

[mattbrewsbytes]

Payment for Order Flow was invented by Bernie Madoff. I believe many of the technical and complex Wall St. "products" like that are probably scams if it were laid out in laymans terms. Not products that retail/brokerage account holders use like buying a stock, ETF's or those "20XX Retirement Fund" - I'm talking about the obtuse derivatives and other "products" that Wall Street invents for themselves.

Edit to add: PFOF is the mechanism that Robinhood (and others) make money on - back of house Wall St. pays Robinhood for the order flow.

[cauthon]

I largely agree, but what does dim sum have to do with any of this

[tedunangst]

Dude got pranked and had somebody order chicken feet one time, has been living a life of resentment ever since.

[anomaly_]

Pranked by one of the “skinny girlfriends”. Nothing like a jealous hn poster who thinks people don’t recognise his brilliance.

[idohft]

This comment, and its posters' subsequent comments, are so filled with anger, much misguided, that it's hard to really respond.

Jane Street has some good people. Harvard has some good people.

Both have some bad people.

I don't know how "scam" is defined, because sometimes people use it for things they just don't like.

[ehzy]

Caroline who? What did I miss?

[scrlk]

Caroline Ellison - CEO of Alameda Research.

[justinbaker84]

This is a very well articulated comment. Thank you for laying this out so clearly. I don't know any hedge fund types so it is helpful to hear from somebody who does.

[govg]

Everything in their comment points to them not having a clue about the financial industry in general or about how hedge funds / trading firms generate revenue or even try to.