No one can accuse Jochen Sanio, Germany's top financial regulator, of mincing words. The most recent target of his sharp tongue has been hedge funds. "I'm an old hand at hedge fund-bashing," says Sanio, 58. Sanio calls hedge funds a black hole. According to his cosmology, they have the power to distort anything that crosses into their space by exerting a gravitational pull that is impossible to escape. Sanio traces his fears to the near collapse in 1998 of Long-Term Capital Management, the hedge fund firm founded by former Salomon Brothers vice chairman John Meriwether. LTCM began that year with $5 billion; as the firm's strategies unraveled, its capital shrank to $600 million. In the end, the Federal Reserve Bank of New York orchestrated a $3.5 billion bailout, and Sanio — watching from across the Atlantic — realized the truly global nature of the problem. Dresdner Bank alone wrote off $145 million on its investment in LTCM.
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