Jason and Leopold

Way back on August 8 I posted this article about the sad and disturbing case of one Jason Arday, academic extraordinaire, who had resigned his faculty position at Cambridge University after it became undeniable that he had plagiarized and/or faked much of his research, while also telling massive lies about his own life. That story was sad and disturbing when I wrote it, and that was before Mr. Arday committed suicide on August 14, leaving behind a wife and two children.

The chattering classes went into overdrive once Arday killed himself, most folks being willing to point a finger in print at ‘the other side’ as the reason for his suicide. I am not going to wade into that: any suicide is a tragedy, and my interest here is only in what happened up to the point at which Arday resigned from Cambridge.

The relevant facts are that Arday was appointed to a faculty position at Cambridge, fawned over (on camera, no less) by the Dean of the Faculty in which he served, and feted far and wide as being the youngest black faculty member ever appointed at Cambridge.

A further fact, although I know many will say that this is only my opinion, is that even had Arday written every word in every research paper he published, and conducted every interview he claimed to have done, as an academic researcher his value-added to the understanding of humanity was zero. Zilch and nada.

The kind of ‘research’ he published is little more than polemic. One does not have to go to graduate school to acquire the skills needed to write the papers he wrote, one learns the right words and phrases to use as an undergraduate in the Sociology or Social Work or Black Studies or Education program in most universities, and one learns that praise follows from repeating those words and phrases.

I qualify those previous two paragraphs only to the extent that I admit I did not read everything Arday wrote during his career. I read enough to be pretty sure of what the rest of it looked like, having read a lot of such drivel over the years, but I admit the possibility that somewhere in his corpus of work there might be something that could accurately be called ‘research’.

So, his story up to his resignation is sad and disturbing because it demonstrates that a supposedly prestigious and trustworthy institution like Cambridge, and the supposedly highly educated faculty and administrators within it, could be so blinded by those words and phrases, written by a photogenic black man with a great but largely fabricated back-story, that they did zero due diligence before hiring him.

They did more than that, as the questions about Arday’s research and life story had apparently bubbled up years before his resignation, and they refused to deal with them, but I will leave that aside.

My goal here is to juxtapose this sad and disturbing story with a more recent one, the story of one Leopold Aschenbrenner.

He is another apparently bright and accomplished young man, younger than Arday, and also very photogenic.

Here’s a photo of him from a recent WSJ article:

Good looking young man, and he just got married. Lucky gal, eh?

Leopold also has a great backstory, although he is at this point only 24.

He migrated from Germany to the US at a young age and went to Columbia University, from which he graduated in 2021 at age 19. His BA was in Economics and Mathematical Statistics (those are real subjects, hard to do well in) and he was his graduating class valedictorian.

He headed out to California after graduation and went to work for the philanthropic arm of Sam Bankman-Fried’s crypto exchange FTX before joining OpenAI, where he worked in the niche field of AI superalignment. I have no idea what that is, but I read that it is concerned with preventing AI from destroying humanity.

Huh.

Aschenbrenner was fired from OpenAI in 2024, the company says for revealing sensitive internal info, Leopold disagrees that it was sensitive.

Shortly after his departure from OpenAI, Aschenbrenner wrote a 165-page essay titled “Situational Awareness: The Decade Ahead”, published in June 2024. I have not read this document, but it apparently predicts that by 2027 AI will be able to conduct independent research on itself, leading to runaway superintelligence. This got him the moniker of ‘The Nostradamus of AI’.

Huh, again.

So, what does an unemployed young feller do after all this? He founds a hedge fund, of course, and titles it Situational Awareness.

Good titles are so important, I think.

This AI-focused investment firm managed about $45 billion at its peak in July 2026.

Do keep in mind that if a hedge fund manages that much money, it is because people and firms voluntarily gave it that much money to invest.

Actually, that’s what you might think – I certainly did – but here is how the WSJ puts it:

Aschenbrenner piled into concentrated positions in AI stocks, aided with debt and other tactics to supersize the bets. His early success turning a few hundred million dollars into $45 billion earned him a cult following in online circles, where his firm’s routine regulatory filings were pored over like scripture. His sweaters and dark turtlenecks added to his reputation as a reclusive oracle of AI.

Image matters (see photo above). Anyway, he was given only ‘a few hundred million’ by others. Got it.

Let us now go back into history, folks, to 1929, a year in which mostly the US stock market just rose and rose, just as it had been doing for some years previous. Everyone wanted to get in on the money being made, but how could ordinary people do that?

Easy, buy stock on margin. That is, you buy $10k worth of stock by giving your broker $5k, borrowing the other $5k from said broker, and putting the stock you bought for $5k up as collateral for the loan. You could also do this by borrowing the extra $5k needed from a bank, and putting the stock you purchased up with the bank as collateral.

This works great so long as the value of the stock you bought keeps rising. You make money, the bank or broker is happy because your collateral is worth more than you owe them and of course you are paying them interest on the $5k you borrowed.

But what if the stocks go down? I do wonder if any of those Econ classes Leopold took at Columbia mentioned this. If those stock prices go down, as they eventually did in October of 1929, then your bank/broker is no longer happy, and they call you to provide them with more collateral on your loan.

Oops.

How do you get more collateral? Well, you could sell some of your stocks, but if their prices are dropping you don’t sell them for as much as you paid, and if everyone starts doing this, well – lots of selling means stock prices just keep dropping.

1929, as I say.

In Leopold’s case, only Leopold was in trouble, but he had to start selling some of what was in his Situational Awareness fund when the value of those AI stocks he had put up as collateral for his loans started to drop.

Oops.

Another quote from the WSJ article:

Aschenbrenner wrote to his investors that the firm had instead sold a portion of their public stocks in order to pay off the money it had borrowed, allowing it to keep its shares in private companies. His fund was down 67% on the month, he wrote. “These dynamics are essentially similar to a bank run: vulnerability begetting more vulnerability,” he wrote.

Ok, so Leopold learned a thing or two about bank runs, at least.

But down 67%?

Oops.

Here are the parts of this story I find most telling, courtesy of the WSJ:

Situational attracted an investment from Jane Street, the big quant-trading firm that rarely allocates capital to outside money managers.

Situational quickly signed up a roster of the biggest banks, including Goldman Sachs, JPMorgan, Citigroup and Bank of America, to finance and execute the firm’s trades, according to regulatory filings.

‘finance and execute’ is a great term, I think.

For every $1 of capital, Situational would upsize its positions by borrowing an additional $3 to $4, or sometimes more, people familiar with the matter said, well above the leverage used by funds trading such volatile kinds of shares.

All that leverage resulted in deep losses. As they intensified, banks issued margin calls demanding additional collateral to stand behind their loans of stock. Situational dumped stocks to raise cash and asked investors for additional capital. It met its margin calls as recently as Wednesday.

By the way, ‘leverage’ is the modern word for ‘margin’.

Here are the words which end the WSJ article on Leopold’s rise and fall:

In a letter to his investors Thursday, as wedding guests began to arrive in Carmel, Aschenbrenner said he would focus on changes to his portfolio management and risk teams in the coming weeks “to ensure a higher level of resilience going forward.”

“I take full responsibility for these events,” he wrote.

Good for you, Leopold.

So, it would appear that the young Mr. Aschenbrenner will live to invest another day. He found someone to buy some of his fund’s portfolio (at a deep discount, of course) so Situational Awareness is still solvent. For now.

I wonder how he will do getting new investors?

Actually, he’ll do fine, I expect.

I mean, look what happened here. This young dude, on the basis of nothing but an undergraduate degree in Econ and Stats, and having written a paper predicting the future (during which he did not wear the Wizard of Id hat, I’m sure) got supposedly savvy people at top banks to give him hundreds of millions of dollars to invest.

Who could have imagined that anything might go wrong?

Circling now (finally) back to Mr. Arday, there are some obvious parallels with Mr. Aschenbrenner and some just as obvious differences.

Both men were savvy or lucky enough to display the kind of characteristics, behaviour, attitudes and photogenicity* that would earn them the plaudits and confidence of some segment of contemporary society’s movers and shakers.

Those movers and shakers, being blinded by the superficial light of these men, made decisions to put them in positions of importance. In the case of Leopold, this meant entrusting him with a lot of money. All Cambridge entrusted to Arday was their students – and perhaps a bit of their reputation.

But Leopold survived his downfall, at least so far, as Arday did not, because Leopold had the good luck to entwine his own fate with that of people with serious money. Letting Leopold go bankrupt would possibly have meant they went down. All Cambridge had to give Jason Arday was the mantle of elite recognition, and once his presence on campus became inescapably embarrassing to Cambridge, they had no reason to give him that any more.

Moral of these two stories: To a large and depressing extent, there are no adults in charge of anything important anymore.

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* Webster thinks that is not a word. I think it should be.