Not every bayou in America is under six feet of water. Bayou Management, a Connecticut hedge fund, is as dry as the African Sahel. The money is gone, hundreds of millions, apparently stolen and lost in panicky trading.
In A Devil’s Dictionary of Business,” this writer has explained that “a hedge fund is a souped up mutual fund on crystal meth, which takes risks ordinary mutual funds will not go near.” Bayou did things even ordinary hedge funds would not do. But the game is over. Its owner-operators, Samuel Israel III and Daniel Marino, have pleaded guilty to criminal fraud. www.thenation.com/doc/20051010/devils_dictionary">www.thenation.com/doc/20051010/devils_dictionary
"I knew that what I was doing was false and fraudulent," Israel said but the story may not be so simple. The older generation of Israel’s family were respected and accomplished people in the securities industries. III didn’t inherit the business talent gene, yet he was able to attract huge sums from people who believed he would make them money, apparently by virtue of his blood lines.
He didn’t. From the start Bayou was a loser, lying to its investors that it was profitable when it wasn’t. Evidently the more money Israel lost, the more he gambled on insane long shots, hoping to recoup so he could pay his investors off. Soon he’ll be in jail.
What kind of idiot would put millions of dollars in a hedge fund run by a documented loser? People who get advice from firms paid to evaluate hedge funds which tell them to put their money into a fund run by a documented loser, that’s who.
Next you’ll see investment adviser firms which check out other investment adviser firms. God knows how many advisers or hedge funds there are already. The swarm has gotten so big there are mutual funds which only buy hedge funds. Presumably this is to protect the swindle-able from putting all their money in a Bayou. Ha!
The other approach to protection is more laws and regulation, but stocks and bonds are already America’s most regulated industry. If only we did as well for safety or food or medicine as we do for consumer protection of the investing classes.
If we don’t choose to regulate mercury in children’s drinking water, let the plungers take care of themselves. People who want 30% on their investment are suffering from acute hog-ism. Let them take their chances.
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