is the same impulse that delays the bursting of a stock market bubble: many investors convince themselves that undesirable outcomes must be unlikely because their consequences will be so painful to bear. It’s human nature.
O’Neill was not betting on a return to the norm. He was betting on volatility and sticking with his position. And almost immediately after markets dropped in July, the upheaval returned. In one month, the price of gas shot up 27 percent. Orders were piling up, and supplies were tight; customers who needed natural gas in the spot market started paying dearly to get it. During the 1970s, gas shortages caused an interruption of delivery—pipeline companies simply closed their spigots when price controls made it infeasible to deliver gas. This caused factories to shut down and lights to go out.
After the deregulation of the 1990s, it was the market that would enforce such rationing, and the main tool at the market’s disposal was the punishing power of high prices. This made perfect sense economically, but caused problems socially. Natural gas wasn’t a product that people could easily stop using when it got pricey. It was embedded in the electric and industrial base of America, so consumption remained strong and prices kept rising.
The run-up in gas prices continued for the rest of the year. In the fall, the price of gas jumped to the highest levels in years, hitting $6.31 in November, almost double the price just months before. Across the country, this volatility played out with terrible effect. It contributed to months of rolling blackouts in California, where factories ceased production, stores closed down, and auto accidents occurred when the traffic lights blinked out. In December, the price of gas hit $10.48. O’Neill cashed out of his position. He tallied the profits from his trading book. He’d earned roughly $70 million for Koch through his plays in the options market.
By contrast, the entire pipeline company of Koch Gateway, all 9,600 miles of pipe with 120 connection points to other customers, earned only $15.3 million, according to government filings. The black box economy of derivatives, once a shadow market, had far surpassed the real economy in its earnings. O’Neill said his entire trading team earned as much as $400 million of profit in one year. And that was just a single team.
* * *
After the books were closed on the year 2000, it was time for O’Neill to get his bonus. It would be his first payout under the Sobotka bonus pool regime. It would be his first taste of what other traders in the business were making, from Enron to Lehman Brothers. He knew that 14 percent of the profits would go to the floor, which would have equaled nearly $10 million. But that amount was split up among himself and others like Sobotka and Jeff Searle, a trading manager who reported to Sobotka.
One trader after another was called into Searle’s office to learn what their bonus for the year was. O’Neill’s turn came. He sat down to hear the news. He would be paid $4 million.
“We talked about how it was a life-changing number,” O’Neill said. “I was very appreciative.”
* * *
With a single paycheck, O’Neill was propelled up through the ranks of American economic life. He broke through the upper atmosphere of the middle class. He would no longer worry about making mortgage payments. He would no longer argue with his wife about cutting back to meet the monthly budget. He would no longer fret about the quality of public schools in his neighborhood. All the financial worries that had encompassed his life since he bunked in the basement with his brothers were gone.
The O’Neills sold their single-story, 2,428-square-foot home. Just before Christmas 2002, they bought a newly constructed, 4,820-square-foot house that sat far back on a wide grassy lawn in a tree-lined neighborhood in town. It had a pool in the backyard with a diving board. The O’Neills were able to hire a nanny to help with the kids, and began taking skiing vacations. They joined a country club and enrolled all of their children in private school.
If there was a downside to being a millionaire, O’Neill was hard-pressed to describe it. The new money ends up going faster than a person might think—private school might cost between $80,000 and $100,000 a year for all the kids. Nannies aren’t cheap. A ski trip might cost $20,000. It turned out that before long, you were spending all that money without even doing anything extravagant