I think the reassuring thing is that Amaranth seems to have been a "lone wolf" in their strategy. There was neither one big winner on the other side of the trade nor other major, high-profile big losers that followed similar strategies (but it could be just too early to tell).

So, it looks like they were likely an outlier, and there was not too much concentration in the market in which they were playing.

This is in, I believe, a $12 Trillion dollar economy. $6B is a speck, relatively speaking.

That helps.

I second the comments of the unknown professor -- amaranth seems to have been the only one on its side of its major losing trades. that presumably helped to limit contagion.

that and the fact that its prime brokers will able/ willing to help it sell its other positions w/o moving the market in those areas, and thus helped Amaranth meet margin calls on its losing natural gas spread bets.

wish i had a better grasp on this tho

That is the point of allowing speculators into the futures market in the first place: Liquidity. If the goal was merely efficient pricing or commoditization of a forward market, only people in a position to supply the commodity or take delivery of it would be allowed to trade.

The one thing overlooked by most but noted in your quote: The futures market is a zero-sum game. If Amaranth lost $6B, someone(s) gained $6B. They don't necessarily need to unwind their positions. The vast majority of speculators do not leave positions open overnight.

I wonder what has happened to the open interest over the last few weeks - but not enough to bother checking (then I'd have to spend time figuring out if it meant anything).

I don't know if these markets are deeper than they were when LTCM blew up (that was IIRC a $4B crash) in 1998. What appears to be a major difference is the greater political stability and financial depth of many of the emerging markets that tanked in 1998.