It had the makings of good theater.
George Soros, the legendary investor blamed by some for aggressive currency trades that sharply devalued the British pound and the French franc, meets Rep. Henry Gonzalez, the fiery, populist chairman of the House Banking Committee.
Gonzalez, D-Texas, summoned Soros, leading bank and securities regulators and other Wall Street heavies to a hearing Wednesday on hedge funds, the secretive investment funds that lost billions this year in speculative bond market dealings.
Gonzalez wanted to know if banks, which increasingly are lending to the funds, were in any danger.
In this context, few expected Soros would even bother showing up.
". . . Anybody who is smart enough to make the kind of money he's been (making) is probably smart enough to avoid the House Banking Committee," Joseph Sidel, Republican counsel for the House Banking Committee, joked earlier this month.
But Soros came. And empty seats were hard to find.
One news service sent nearly a half-dozen reporters to cover Soros, whose public utterances alone have moved the gold and currency markets.
The arrival of the Soros entourage in the cramped House Banking hearing room was immediately apparent. The Soros public relations people handed out an "executive summary" of Soros' prepared remarks, sheathed in a clear, crisp plastic folder, along with two Soros essays on the future of NATO and of Europe.
Soros even had a congressman along to introduce him.
Rep. Tom Lantos, a friend who, like Soros, was born in Budapest, Hungary, lavishly praised the investor's philanthropy. Contributions to Eastern European countries "run into hundreds of millions of dollars," said Lantos, a California Democrat.
This glowing introduction set the tone for the committee's gentle questioning.
Gonzalez opened by relating his enjoyment of a book written by Soros. Rep. Jim Leach, R-Iowa, the committee's ranking Republican, commented that Soros alone has probably done more than many governments in fostering a free market economy in the formerly communist Eastern Europe.
Then, finally, the business of hedge funds.
Soros knows a thing or two about them. By his account, the $10-billion managed by his Quantum and Soros Fund Management funds represent 15 percent of the hedge fund industry. Average daily trading is a half a billion dollars, chiefly in the currency markets.
Soros said he didn't appear at the hearing "to offer a blanket defense for hedge funds." But he was sharply critical of derivatives _ the controversial, computer-driven contracts that enable investors to minimize losses when interest rates and currencies bolt unpredictably.
Some derivatives are not properly understood by even the most sophisticated investors, he said. Other derivatives seem "specifically designed to enable institutional investors to take gambles which they would otherwise not be permitted to take," he said.
Excessive use of derivatives makes markets unstable by passing risk from an individual investor on to the market as a whole, he said.
"It does pass it on to the system and the system does become unstable," he said. Later, he commented, "Frankly, I don't think hedge funds are a matter of concern to you or to regulators."
Some market analysts viewed these comments as a self-serving ploy to deflect criticism from hedge funds, while others questioned the basis for his statement.
Henry T. Hu, a derivatives expert and law professor at the University of Texas at Austin, said not enough is known to back up Soros' claim that derivatives create serious risk to the markets' foundation. Hu's personal opinion, however, is that derivatives do add some risk to the markets.
Soros' derivatives comments _ especially coming from Soros _ were more bad publicity for the derivatives business.
They came a day after Procter & Gamble Co. said it lost $102-million in a derivatives deal with Bankers Trust New York Co. Bankers Trust denied any wrongdoing.