Mobs, Messiahs, and Markets

A Hedge Too Far

Hardly had we finished mopping up the dot‐com mess before the hedge funds began blowing up. Take poor Bernie Ebbers. His number was up only in 2006, on September 27. That was when the man drove up to the Oakdale Correctional Complex in Louisiana in his Mercedes and joined the former governor of the state, Edwin Edwards, in the federal pen. Hizonner faces 10 years in the hoosegow for extorting money out of riverboat casinos. Ebbers got 25 years for his role in a telecom scandal. Accountants under him took some whole numbers out of the operational columns, they say, and slipped them into the capital budget. Both men were naughty, we don't deny it. But putting poor Bernie behind bars for a quarter of a century for some financial hanky‐panky seems excessive.

But excess is what it's all about these days. And now the hedge hogs are already putting the telecom scandals in the shade. “Somebody was not monitoring this correctly,” said one pro, referring to the extraordinary bet that energy trader Brian Hunter placed on gas prices, a bet so large that at one time he held about 10 percent of the global market in natural gas futures.

As far as we can tell, these are the numbers in a nutshell: Hunter was long, and investors were short—as much as $6 billion. “It appears we have had a major malfunction,” he might have said. But that famous understatement has already been taken when the space shuttle Challenger broke up and physicist Richard Feynman charged that NASA's standards ...