The lightning-fast implosion of the American hedge fund, Amaranth, has confirmed fears among investors and Wall Street that lurking beneath these secretive investment funds are vast and poorly understood risks.
Amaranth has admitted so far to losing $5 billion just last week in a bad bet on how much natural gas will cost next spring.
Its traders have been selling other assets in order to cover the losses, while its competitors feast on the wreckage. Its investors, meanwhile, are contemplating the loss of half of their money, with the losses still expected to mount.
Wall Street is re-examining its own dependence on the trading and borrowing fees hedge funds generate. The key question has become how many Amaranths will it take to cause a financial crisis.
Much of the blame is being put on a
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single trader, Brian Hunter, 32, a Canadian. Hunter's bold bets and deep understanding of the natural gas market had propelled him through Wall Street and into Amaranth, which is based in Connecticut. Such was his success in trading natural gas futures, or bets on the future price of the commodity, that Amaranth allowed him to work from his home in Calgary, where he drove a Ferrari in summer and a Bentley in winter, according to the Wall Street Journal.
Hunter's trades, however, are only part of the story. Amaranth billed itself as a "multi-strategy" hedge fund. But its exposure to Hunter's gambles suggests it was over-reliant on a single strategy to earn the more than 20 per cent annual returns it was making for investors before its collapse.
Hunter's losses have also exposed yet again the risks inherent in the 
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