Skip to content, or skip to search.

Skip to content, or skip to search.

The Catastrophe Capitalist

ShareThis

Chanos (center, in glasses) and other hedge-fund managers testifying before Congress in the spring of 2007.  

Chanos doesn’t practice the rapid-fire computer trading of a quant fund like SAC Capital or Jim Simons’s Renaissance Technologies. He pushes his analysts to dig into the minutiae of a company’s financial statements. He ferrets out accounting gimmickry that he says companies use to spin their results and inflate profits (he’s particularly skeptical of the toxic practice of “mark to market” accounting, which allows companies wide latitude in valuing illiquid assets).

Once Chanos develops a thesis, he goes all in, taking up a short position while waiting for the rest of the market to come around to his way of thinking. This year, of course, the job has been easier—just about everything cratered, so he’s had an extremely good batting average with his massive short positions. And since he called the credit crisis early, the stocks he picked to collapse have had a long way to fall. On top of his 2 percent management fee, Chanos is paid when his fund rises more than the market falls.

But when the market is not dropping so precipitously, the game is much more nuanced. More than other hedge-fund managers, Chanos has long made use of a potent weapon: the media. Chanos is a media operator. According to the New York Times business columnist Joe Nocera, Chanos is “a guy who’s willing to talk to reporters, and reporters gravitate towards people who will give them information.” You can think of Chanos like the pre-2008 John McCain—the media is his base. In this information culture, Chanos has built valuable relationships with journalists who take his ideas seriously, promote his point of view, and ultimately help make him rich. Like Washington, Wall Street is a game that is fueled by the selective leak. The right tip can mean the difference between winning or losing millions.

To get his ideas into the market, Chanos has often sent his research to reporters he trusts and e-mails stories he finds interesting to groups of journalists and other fund managers.

Chanos disdains Wall Street’s elite culture.“The sense of entitlement that everybody has because nothing has gone wrong for them is frightening to me,” he says.

Earlier this year, that tactic produced substantial blowback. After Bear Stearns went down, in March, Wall Street’s beleaguered CEOs launched an attack on shorts like Chanos, accusing them of manipulating the media, leaking damaging rumors to journalists, and profiting from their banks’ demise. Chanos understands the expediency of going after the guy who announces the party is over. “People who lose money always need someone to blame,” Chanos says. Over the last few months he’s launched numerous counterstrikes. In July, he sent an e-mail to reporters linking to an article about British regulators’ efforts to curtail short-selling on the London Stock Exchange: “It’s almost sickening now that the regulators ‘on the beat’ while the biggest credit collapse in modern financial history unfolded are now patting themselves on the back for their ‘brave’ stance on short-selling!”

And what about the ranks of average Wall Street traders who rode the boom and are now losing? Chanos feels sorry, sort of. “The marginal people on the trading desks, there’s no skill set,” he says. “If they don’t trade derivatives, I don’t know what they can do. The next stop is driving a cab.”

But pity only goes so far. Chanos sees himself as a kind of truth-teller. “I’ll always understand the Schadenfreude aspect to short-selling. I get that no one will always like it,” Chanos says. “I’m also convinced to the deepest part of my bones that short-selling plays the role of real-time financial watchdog. It’s one of the few checks and balances in the market.”

He’s not in the game for charity, though. “It’s from enlightened self-interest,” he says. “I’m not doing this for free.”

If Chanos is something of a Wall Street pariah, the feeling is mutual. A self-professed “limousine liberal,” Chanos disdains Wall Street’s elite culture. “The sense of entitlement that everybody has because nothing has gone wrong for them is frightening to me,” he says.

One afternoon earlier this year, Chanos was relaxing in a cream-colored chair in his Upper East Side living room. “A bachelor pad,” he joked. Several years ago, Chanos and his wife separated, and, at 50, he’s become a feature in the Hamptons club scene. Rival hedge-fund managers gossiped when the Post reported this March that Ashley Dupré was a frequent houseguest—“Uncle Jim,” she reportedly called him. (“I never introduced her to the governor,” Chanos told me.) Chanos had just driven in from his office in East Hampton and looked like the South Fork player he wants to be: designer jeans, a red striped Façonnable shirt, and a navy blazer. Chanos has a thick chest (his trainer told me he can bench-press 300 pounds). His weathered face is lined with deep, topographical contours, and his blond mane parts severely, crashing wavelike across his forehead.


Related:

Advertising
Current Issue
Subscribe to New York
Subscribe

Give a Gift

Advertising