The demise of Chesapeake Energy continues to unfold. After news of $1.1 billion in unreported loans, Reuters exposed a $200 million hedge fund that CEO Aubrey McClendon ran from company headquarters. This fund invested in the same commodities that Chesapeake produces. Sen. Bill Nelson has called for the Department of Justice to look into possible fraud and price manipulation.
These issues of corporate governance and questionable financial engineering are breathtaking. But let’s step back and examine the full import of shale gas economics. Chesapeake may simply be a microcosm of a much graver, systemic problem.
While we were enjoying the exceptional economic party of the last 20 years, corporate America rose to new heights, and an interesting dynamic quietly slipped into place — what I call the two economies: one real and one virtual.