Following on this earlier cue, NY Times business columnist Gretchen Morgenson contends in this column (Times Select, registration required) that Amaranth Advisors, LLP’s loss of $6 billion or so last week on the natural gas trading market is conclusive proof that energy markets are in need of more government regulation:

Many of Amaranthís monster trades in the natural gas markets were conducted on over-the-counter markets or with so-called voice brokers and so were not on regulatorsí radar screens.
It is too soon to tell what role Amaranthís gamble had on natural gas prices. But speculators played a significant role in the astonishing rise in energy prices in recent years.
Such is the conclusion of a compelling Congressional report produced in June by the Senateís Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs. The 49-page report detailed the explosion in energy speculation on unregulated trading markets and recommended eliminating the so-called Enron loophole that put electronic energy trading off the regulatory reservation.

See how easy that was? Just associate “Enron” with a company that suddenly lost about 2/3rd’s of its assets and, presto! — you have the need for more government regulation of trading markets without any analysis whatsoever of whether such regulation would ultimately be more expensive than the cost of the allowing markets to allocate loss. Indeed, how one earth would it have helped had Amaranth made filings with the CFTC? Does anyone really think that such a requirement would have prompted Amaranth to modify its trading practices?
As noted earlier here and here, allowing investors to make bets in energy trading markets — although not widely understood by the general public — is tremendously beneficial in forecasting energy prices. Not only will greater regulation of those markets likely undermine those benefits, Morgenson’s dubious assertion that speculation in energy markets has caused an increase in natural gas prices is based upon a Senate report that, as noted earlier here, is a sham that was essentially produced by the regulators to feather their nest.

Although I could go on and on about the irresponsible nature of Morgenson’s analysis, but Larry Ribstein’s weekly evisceration of Morgenson does it much better than I ever could:

As in any free market, the natural gas market aggregates many right and wrong trader bets into a collective judgment about reality that is usually more accurate than a single mind can come up with. This judgment assists society in allocating resources, thereby making us all better off. We may not like what the market is telling us ñ i.e., that prices are going up — but that doesn’t mean we should regulate it. If we’re going to constrain the operation of these markets we ought to be very sure that this regulation helps them be more accurate.
Even if there is a case for regulation (which I doubt), nothing about the problems at Amaranth suggests that such regulation will get us more accurate energy prices. Amaranth made a bad bet and its rich investors suffered. Perhaps Amaranth misled its investors about its trading strategies. But as far as I’ve seen, there was no manipulation of energy markets.
That doesn’t stop Morgenson from linking Amaranth, with absolutely no justification, to BP traders’ manipulation of propane prices and, of course, to Enron. Morgenson ends her story by saying that “as last week’s implosion of Amaranth shows, Enron’s’ troubling legacy lives on.” Morgenson wants to talk about regulating markets, and Amaranth happens to be the most visible anecdote right now connected with those markets, and so she’s damn well going to use it for her purposes, relevant or not.
This is irresponsible. The task of a financial columnist with millions of readers should be to enlighten readers, not mislead them with a magician’s sleight of hand (Amaranth = BP/Enron). Sadly, we have come to expect this sort of thing from Morgenson. No doubt Morgenson’s column will be fodder for equally disingenuous lawmakers who are working on regulating energy markets as we write, and she will play her part in the manufacture of misguided regulation. In the end, Morgenson will get the attention for her writing she craves, while doing more harm than any of the targets of her weekly indignation.