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Global market chaos, but at least one man made a killing

Date: Friday, March 2, 2007
Author: Stephen Foley, The Independent

One might think that capsizing a $130bn (66bn) hedge fund and almost triggering the collapse of global financial markets might end even the most bombastic of Wall Street careers. Not so for John Meriwether - the biggest of the "Big Swinging Dicks" who made their reputations and fortunes during the testosterone-fuelled heyday of Eighties share trading.

For now it emerges that the famed risk-taker, whose hedge fund Long Term Capital Management imploded in 1998, is one of the few big winners from the latest bout of blood-letting on the financial markets.

Even as $1 trillion was being wiped off the value of stock markets from China to the US to Britain, JWM Partners - the firm Mr Meriwether has named after himself - made millions of dollars for its investors, ending February on a high.

The profits are the culmination of punchy bets on a string of different markets around the world - typical of the ballsy and, some would say, reckless manner that characterises Mr Meriwether's behaviour, both on and off the trading floor. "Not everyone loses money," one rueful trader said yesterday, after reports of JWM's success. "Just the majority of us who don't have balls of steel."

The bets that went right for JWM this week included ones on the Japanese yen (it has jumped in value against the dollar as the US economy has started to look dangerously weak) and on US government bonds (which rose as panicked equity investors sought safer havens for their money).

Rich individuals and brave pension funds have given JWM $2.6bn to speculate on global markets, an astonishing achievement given that it is not Mr Meriwether's first, but rather his second comeback from disgrace.

His first career trading bonds at the financial powerhouse, Salomon Brothers was immortalised in the book, Liar's Poker, by Michael Lewis - to this day a must-read for every terrified novice about to embark on a career on a Wall Street trading desk. Mr Meriwether and other stars were known at Salomon as Big Swinging Dicks, engaging in games of one-upmanship against their colleagues and taking home multi-million dollar bonuses year after year, traders whose fabulous wealth was eclipsed only by their arrogance.

The book is named after the game of chance invented by the Salomon traders, and begins with the firm's chairman, John Gutfreund - no coward himself - challenging Mr Meriwether to a high-stakes game: "one game, one million dollars, no tears."

As Mr Meriwether told it to the author, he refused unless the bet was raised to $10m. Gutfreund was out-gunned. Both men were forced out of Salomon Brothers in 1991, after investigators at the Federal Reserve, the US central bank, uncovered evidence that traders were rigging the market in US bonds. In one episode, the bank bought up more than $1bn of 30-year bonds to play a "practical joke" on a rookie trader.

And, in 1998, there was Long-Term Capital Management, the hedge fund started by Mr Meriwether with two Nobel prize-winning economists, whose traders revelled in their reputation as "masters of the universe".

The contrast with his luck over the past few days could not be starker. At LTCM, he found himself on the wrong side of too many risky bets when financial markets were roiled by the Asian and Russian debt crises a decade ago.

Because LTCM had borrowed 125 times its capital to maximise its bets, its losses were 125 times more times spectacular than they would otherwise have been. So many of the world's biggest financial institutions had lent LTCM huge sums of money that the consequences of its collapse were unthinkable. The Federal Reserve, organised for it to be bailed out.