Hello from Aspen, wish you were here, best regards, John Devaney... by gimleteye

The Miami Herald reported yesterday, on the crash of John Devaney, Key Biscayne's high-flying hedge fund operator, once called "The King of Liquidity."

I've been gawking at the Devaney hedge fund wreck for a long time. The festive charitable giving to needy causes (inoculation from scrutiny by the mainstream press). The entertaining of then Senate majority leader Bill Frist and other luminaries. The mysteries of making a few hundred million trading asset backed securities formed from junk aka "the ownership society."

That turns out to be one of the signature phenomenon of the current market cycle that shows no signs of bottoming yet: what an excruciatingly long time it is taking to play out.

Almost a year ago, on August 2, 2007, the media first reported on troubles afflicting the Key Biscayne hedge fund king: "A Miami-based hedge fund titan with a taste for the high life is getting a harsh lesson in humility as his fund racks up losses in the bond-market rout. ... The fund's portfolios are now said to be worth around $460 million, down from about $620 million." (New York Post, August 2, 2007)

But according to The Miami Herald, "On Thursday, Devaney said the fund had lost about 90 percent of its value by September 2007." (July 11, 2008)

So, which was it? A year ago, was Devaney lying to the media or not?

With hedge funds, there is no penalty for misrepresentation unless it is outright fraud and theft. The US Congress and White House have repeatedly blocked efforts to hold hedge funds to the same degree of accountability as other fiduciary agents.

Investors are suddenly realizing that down markets are an especially bad time to question whether there is any difference between fraud, theft, and an investment portfolio with John Devaney that is entirely worthless.

Most mutual fund owners don't have a clue how John Devaney afforded hanging Matisses on the walls of his Key Biscayne home. But they should, because what John Devaney does (did) along with 10,000 hedge funds looms over the world stock markets and is shaking the foundations of the world financial system.

It is no surprise to me, that the excesses of the housing boom manifest in the collapsed fortunes of a Miami hedge fund operator. The political origins of the housing boom are right here, in the chain of campaign contributions that flowed from builders, lobbyists and land speculators-- still freely circulating and immune to criticism by the media.

If you are looking for other scoundrels to blame, start with key McCain economic advisor former Senator Phil Gramm, now vice chairman of the Swiss bank UBS, who helped speed the deregulation of the financial industries and who just lashed out at Americans as "a nation of whiners".

That clunker dropped at the same time Miami production homebuilders and lobbyists like Sergio Pino and Rodney Barreto--Miami's local power brokers-- are doing their own whining: begging for government bailouts of their own cratering investments in land outside the Urban Development Boundary.

"Help us, help us," they cry, looking to stuff their pockets with insider deals from big infrastructure "economic rescue plans", including new developments in western suburbs edging the Everglades despite the market vanishing.

The last tranche of buyers flushed out like dove, long ago. Critics of the homebuilders used to be called "elitists". You don't hear that, anymore. But you also don't hear what is happening except the iterations of the spin machine.

Yesterday, the Herald reported: "Devaney himself has lost more than $100 million, he said. His losses amount to about half his net worth, he added. But he still has a 126-foot yacht, the Dorothy Ann -- a present to his mother -- moored behind his Key Biscayne home." I doubt Devaney will ever be forced out like those foreclosed from ranch-style American dream homes sold by Lennar or Pino or Barreto.

Like Pino or Barreto, Devaney's assets are happily shielded by laws and regulations they condemn when it comes to the accumulation of wealth in free markets, like putting platted subdivisions in wetlands or polluting public lands with their stormwater runoff into the Everglades.

It's just the case that the pockets of wealth are drying down, like Everglades ponding in dry season. And it makes it easier for observers, like Eyeonmiami, to see what is in them, or, what is just pretending to be there.