Aubrey McClendon

McClendon was a risk taker, bordering on reckless when it came to some of his business dealings. And he lived a lavish lifestyle, to say the least. He was prone to overleveraging himself even in good times, and his industry is going through a period where things got way out of whack with high debt levels leading to many players now being wiped out. So you may be onto something. And you are right, whatever prosecution they were going to try would have been tough. It was a bullshit antitrust suit that would have been very difficult to prosecute and win -- I won't get into that, since it doesn't matter now.

The thing is, though, McClendon was worth at least $1.2 billion at one point. If what you are thinking (and I am wondering about) is that he blew through that much money, and that is behind the suicide, it will make for a stunning tale.

 

I'll push back a bit to say that the people who succeed over the long-term, DON'T gamble. They either play a rigged game in which there is absolutely no gambling going on . ... or in way more cases (because most of us don't run member banks that are stakeholders of the Federal Reserve), they take very calculated risks that leave them alive and kicking when things don't work. I am not a big-time financier (I am not an anything-time financier), but I mostly earning my living as a speculator and have been for several years now. The vast majority of people who try to do what I do, treat it like a gambling enterprise. They are NOT successful. And it makes me scratch my head. Almost without fail, they get wiped out, and most don't come back. I have seen it over and over again.

I can give you the nuts and bolts about what I do, and I do believe that statistically I have a slight edge that allows (or has allowed) me to trade in and out of different assets profitably. But I also believe the reason I make money has way more to do with risk management than it does with my edge -- being VERY disciplined about protecting myself on the downside when I am wrong. That is where most people go wrong. It is the most important thing when you are working with any kind of leverage, and for some reason, most people lack the discipline to do something that thankfully always made intuitive sense to me. I don't think it is intuitive for most people. The people who do treat leverage the right way are often successful. ... and there are way fewer of them than people who aren't successful.

If McClendon was busted, his story is a high-profile, high-dollar-amount version of something that started to play out across that industry, and that is poised to play out across many facets of our economy. It already has started to in the last half year or so. I know I am a broken record, but when markets are left to price the cost of money (or borrowing), lenders are incentivized to care A LOT about lending risk when choosing who to lend to and at what price. That has gotten thrown out the window and is coming with devastating consequences to areas and participants across our economy. What our central bank did over decades, but in a particularly reckless way over the last 7 years or so, was to distort those lending markets to push people into riskier and riskier behavior to the point where the misallocations of capital have gotten downright asburd-- to the point where someone could lose $1.2 billion, perhaps, and end up in debt. High-yield bonds in that industry started to crater late last year -- as the market started to push back against the central bank manipulation -- which is why a deleveraging (bankruptcies) started. And maybe McClendon was a victim of that. High yield debt in other areas have actually rebounded a bit in the last month as everyone is back to reading the tea leaves about which central bank might do what to keep the casino open a bit longer. Eventually, though, there are going to be more and more Aubrey McClendons, across other industries, if what we are speculating about him is correct. It has been way too easy to borrow and leverage yourself-- from the stock market millionaires of the last few years to billionaire shale drillers -- and that ability drove up asset prices across many areas of our economy. It has led a lot of people to confuse what was unsustainable phoniness with brains, and a lot of them are going to end up devastated, unfortunately.

 

The WSJ took a stab at figuring out how overleveraged he was.

Aubrey McClendon Bet Big to Finance Second Act

They came up short on anything except a bunch of anecdotes, but apparently he was putting up everything he owned as collateral to try to raise funds for new deals as things fell apart around him, and he was having a tough time of it. This is surely a boom-bust story. The tales of woe probably don't end with Aubrey McClendon.