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The Dow Zero Insurgency

The nothing-can-be-believed chaos of the financial crisis created a golden opportunity for a blog run by a mysterious ex-hedge-funder with a dodgy past and conspiracy theories to burn.

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Illustration by Matthew Woodson   

Last spring, in a far corner of the Internet, an unknown blogger began to piece together a conspiracy theory: The investment bank Goldman Sachs was using sophisticated, high-speed computers to siphon hundreds of millions of dollars in illegitimate trading profits from the New York Stock Exchange, invisibly undercutting the market and sidestepping the regulatory reach of the Securities and Exchange Commission.

Only a few loyal readers paid attention to the blog called Zero Hedge, a no-frills site full of arcane analysis decipherable only by finance professionals. But when a former Goldman Sachs computer programmer was arrested for allegedly stealing software codes used for the firm’s electronic trading arm, and a federal prosecutor was quoted saying the codes could be used to “manipulate markets in unfair ways,” the once-obscure blog ignited a chain reaction. While on a golf outing, an editor at the New York Times learned from a friend who worked on Wall Street that the Zero Hedge allegation was the talk of the industry, and an assignment ensued. On July 24, the Times published a front-page article on so-called high-frequency trading and its potential abuses, which in turn prompted Chuck Schumer, a member of the Senate Finance Committee, to draft a letter to the SEC that same day. Twelve days later, the SEC signaled that it was considering a ban on the very computerized trading that Zero Hedge had attacked.

Suddenly, the shadowy figure behind Zero Hedge was a full-blown cult hero—a blogger with a bullet. His readership of angry traders and anti-government malcontents celebrated his newfound power. “Welcome to the party pal!!!” declared one of his fans in the comments section.

In a sign of just how radically the order has shifted in the political and media world, neither the Times nor Schumer had a clue about the identity of the pseudonymous author behind Zero Hedge. As it happens, the founder is a 30-year-old Bulgarian immigrant banned from working in the brokerage business for insider trading. A former hedge-fund analyst, he’s also a zealous believer in a sweeping conspiracy that casts the alumni of Goldman Sachs as a powerful cabal at the helm of U.S. policy, with the Treasury and the Federal Reserve colluding to preserve the status quo. His antidote? A purifying market crash that leads to the elimination of the big banks altogether and the reinstatement of genuine free-market capitalism.

Never mind Dow 10,000. Dan Ivandjiiski is all about Dow Zero.

Last year’s financial implosion left the investing public deeply unsettled about who or what to trust. The information that flowed from the banks, the ratings agencies, the regulatory agencies, and the mainstream media—the bedrock of the financial markets, in a sense—was viewed with great suspicion, and that created an opportunity for financial bloggers: a motley assortment of amateurs and professionals from all over the map. There are traders, economists, venture capitalists, financial advisers, and pajama-clad cranks all vying to explain the complex machinations that got us into this mess and to critique governmental solutions. Sites like Naked Capitalism, Seeking Alpha, the Big Picture, Infectious Greed, Angry Bear, Calculated Risk, and Zero Hedge have hatched communities based on discontent and disbelief, forming a kind of ragtag insurgency against the financial Establishment and what they view as its feckless lackeys in the government and media.

“We’re all happily cruising along, doing our financial-journalism thing, until late 2007,” explains Felix Salmon, who now blogs for Reuters. “We have relationships with flacks, and suddenly they started lying to us. Outright lies. And you’re like, ‘Wait, that’s not kosher, you can’t do that.’ ” Among bloggers, Salmon is more of the Establishment type, with little tolerance for the sloppy thinking of excitable bloggers.

Financial blogs grew out of the message boards launched by Yahoo! Finance in the late nineties, which were primarily a forum for day traders to argue investment ideas and vent little-guy frustrations about the Wall Street power structure.

The first financial blogger, according to Barry Ritholtz of the Big Picture, was Todd Harrison, the head trader for the hedge fund run by CNBC talking head Jim Cramer (also a New York Magazine contributing editor) in the early aughts. Harrison, who wrote a daily market column for Cramer’s TheStreet.com, “would crank out these little notes intraday,” recalls Ritholtz. “It was a real-time trader with real assets under management discussing trading flow.”

In the years that followed, blogs proliferated. They were mostly side projects, updated sporadically. Ritholtz, who started the Big Picture in 2003, was a market strategist who zeroed in on flaws in the government’s inflation data. Calculated Risk was started by a retired businessman in Southern California who took an obsessive interest in exotic mortgages and saw the housing collapse years in advance. Naked Capitalism, which features the work of a small gang of contributors, is overseen by a former Goldman Sachs and McKinsey executive who goes by the pseudonym Yves Smith.


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