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Lessons from Amaranth’s collapse

Jeremy Hobson Jun 25, 2007

TEXT OF STORY

Tess Vigeland: A congressional report out today finds the wheelings and dealings of the hedge fund Amaranth punched U.S. consumers in the pocketbook. Amaranth collapsed last year after losing more than $6 billion in a single week on natural gas futures.

It’s said to be the largest hedge fund collapse in history. The ripple effects were widespread because of Amaranth’s enormous stake in the natural gas market. Jeremy Hobson reports.

Jeremy Hobson: A little more than a year ago, Amaranth was buzzing along. It controlled about 5 percent of U.S. natural gas contracts. The firm was betting a lot of money natural gas prices would rise during certain months of the year. It was wrong — and paid dearly.

Today, Congress is looking at the effect its collapse had on the industry, and on consumers. Industry groups say the issue here is a lack of regulation, since Amaranth traded on markets that are largely out of the regulatory control of the Commodity Futures Trading Commission.

But some warn Congress should be careful about too much regulation. Adam Lerrick is an economics professor at Carnegie Mellon University.

Adam Lerrick: If one market is heavily regulated and others are not, investors will naturally migrate to the unregulated markets.

For lawmakers, there does seem to be general agreement more transparency is needed. Today, they’ll try to figure just how much. In Washington, I’m Jeremy Hobson for Marketplace.

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