Saturday, April 23, 2011

How Government and Big Bank Cronies Destroyed a Hedge Fund

From Rob Kirby at comes a detailed investigation of how a small hedge fund, Amaranth Advisors LLC, was apparently destroyed by the crony-capitalism collusion of JP Morgan (aka JP Morgue) The Federal Reserve, the and, well, the powers that be connected to the Ruling Class.  If you're counting, this was in 2006, soundly in the midst of the Bush administration, which proves the more things change the more they stay the same.  There's a reason Goldman-Sachs is called "Government Sacks"; high level executives have been going back and forth between and the "private sector" for a long time. 

"Amaranth Kill Shot: Collateral Damage in a 78 Trillion Dollar Derivatives Book Compliments of J.P. Morgan Chase"

A really disgusting and sordid tale.  There's a rather interesting chart in there that I'd like to point out:
Note that as of December 31, 2010, the total value of the derivatives these groups hold is essentially 300 Trillion dollars.  That's around four times the GDP of the world

Amaranth was destroyed for trading in natural gas futures.  Even in 2006, with the burgeoning Asian economies clamoring for energy, betting on natural gas to go up seemed logical.  The destruction of Amaranth occurred over a period of a few weeks in August and September of 2006.  The cover story is that a statistically unusual event took place, bleeding Amaranth of an average of $420 million dollars per day for the first 14 trading days of September, a loss of around $6 billion.  One analyst says this not just "unusual", it's a 9 sigma event.  That's about once in the life of the universe, so not bloody likely. As Kirby says:
You see folks, when you are printing money like a banshee and telling the world that inflation is running at 2 % - you don’t want interlopers with deep pockets – like Amaranth – bidding the price of strategic commodities like natural gas – UP.
So the Federal Reserve, JP Morgan, Goldman Sachs and a few of their other lackeys broke up their party long enough to destroy a hedge fund.

Call it Brokeback Banking.

No comments:

Post a Comment