After he graduated, O’Neill took a job in 1991 with Koch Industries as a process engineer at the Corpus Christi refinery. He was paid $40,000 a year. He got married in 1995 and started a family. The O’Neills would have four children.
O’Neill loved his job and was promoted up through the ranks to be a lead engineer at Corpus Christi. By 1995, he was making about $60,000 a year and sometimes received bonuses of $10,000 or so.
But somehow, O’Neill’s paychecks never seemed to provide enough money to keep pace with America’s middle-class expectations. The O’Neills didn’t vacation extravagantly, but they did try to get away with the kids when they could. It turned out to be more expensive than they expected. They didn’t hire a nanny or drive expensive cars, but O’Neill’s income never seemed to quite cover expenses. Over time, they put a few thousand dollars on a credit card here and a few thousand there. They counted on O’Neill’s bonuses to help pay off the debt. But the debt seemed to grow with a life of its own. It seemed like one day they turned around and here was this horrible truth: they owed about $60,000 in credit card debt.
O’Neill knew that he needed to make some sort of change in his life—he needed a way to make more money. In 1996, the opportunity arrived when he heard that there was an opening in Koch’s commodities trading division in Houston. He had zero trading experience outside of some amateur forays into the stock market; he belonged to an investment club with some friends who made stock picks to see if they could outperform the market. But he decided to apply anyway. He discovered that Koch didn’t care all that much about prior trading experience. For example, Kyle Vann, the former Exxon engineer, had risen to a senior position over Koch’s trading operations. The company wasn’t looking for Wall Street swagger; it was looking for analytical engineers who approached the market in the same way they approached complex problems inside Koch’s pipeline and refinery divisions. O’Neill was hired and moved his family to Houston, first renting a home and then buying a four-bedroom house in the suburbs.
Trading wasn’t a path to instant riches. Koch hired former engineers, and it paid them like engineers—O’Neill started his new job at the same pay grade as before, about $60,000 a year. The bonuses got a little bigger, however, and the O’Neills were able to start digging themselves out of debt.
That morning, as O’Neill sat at his desk in early 2000, upper-middle-class comfort seemed like it might be within his reach. Or maybe even something greater than that. O’Neill’s computer was now fully alive. He opened his e-mail program and began to scroll through messages and reports that came in overnight and in the early morning hours. This information was starting to coalesce into a picture in O’Neill’s mind. He was beginning to see a trade taking shape, and a very large trade at that. He saw a strategy, in fact, that might very well lift him out of the financial strain that had defined his life up until that moment. He looked over the numbers as they scrolled and blinked on his screen, and as the Houston morning progressed, he began making phone calls.
Over the next year, O’Neill would execute a trade that was larger than any he’d ever done before. And it was a trade that was only possible, in all of its massive scope, because of the strange way that America’s financial markets had evolved over the previous decade, creating a small node within the economy that minted millionaires and billionaires.
If O’Neill could pull off his trade as he imagined it, he could become one of them. If he had confidence that he could do it, it was because he had been trained by the best in the business.
* * *
Koch’s trading office in Houston was overseen by a man named Sam Soliman. Like O’Neill, Soliman had cut his teeth in Koch’s Corpus Christi refinery. He was a graduate of Texas A&M and an engineer by training. Before working for Koch, Soliman was an officer on a US Navy nuclear submarine, and even years later, when overseeing Koch’s trading floor, Soliman carried with him the bearing and ethos of someone in a military chain of command. It seems that spending extended periods of time submerged in the ocean, confined next to a nuclear reactor, had impressed upon Soliman certain habits of discipline and risk assessment. He was tall and thin, with a head of thick, dark hair, and spoke with exacting precision. Soliman was considered a “talent sifter,” meaning that he hired young and bright employees, put them in profoundly challenging positions, and fired the traders who couldn’t handle the challenge. This talent sifting was a vital part of Koch’s strategy to build a trading floor from scratch during the late 1990s and early 2000s. Engineers like O’Neill were given a crash course in trading and graded every day by their profits or losses.
When describing the trading culture under Sam Soliman, trader Cris Franklin replied, simply: “No mistakes.” And Franklin was one of the traders on Soliman’s good side. “At any moment, you could get tapped on your shoulder and you’re leaving. It was extreme stress for most people,” Franklin said. “There are people I know today who say that when they drive by the building, their heart races. And they haven’t worked there in a decade.”
On any given afternoon, the dozens of traders sitting in long rows outside of Soliman’s office were trafficking in wildly diverse classes of commodities and financial products. Koch operated desks that traded crude, natural gas, and derivatives contracts based on crude oil and natural gas. Other traders handled futures contracts in metals, soybeans, corn, and wheat. After mastering the markets in these products, Koch branched out into more obscure territory. Cris Franklin, for example, worked on a desk that traded short-term commercial bonds—the same products made famous in the 1980s by notoriously voracious traders at Wall Street firms like Salomon Brothers. Franklin’s team then started trading financial products like swaps and derivatives based on interest rates and currency values. Koch even created its own financial products to trade. It pioneered a class of futures contracts for obscure petrochemicals like propylene and ethylene, selling them to big companies that bought plastics in bulk and wanted to hedge their risk.
Deep analysis was at the heart of Koch’s trading strategy. Franklin, for example, was hired into the trading unit after working in Koch’s pipeline division. He had impressed his bosses there by developing a software program that could help Koch run its hypercomplex network of pipelines and natural gas processing plants. Franklin’s program synthesized enormous amounts of data about pipeline flows and gauge pressures to simulate how the system could ship the most gas. When he started trading interest rate swaps, he used the same approach. Every trade began with research, which undergirded the trader’s view of how things worked in a certain market. Traders never executed a strategy based on hunches. Koch hired teams of analysts who worked alongside each trader to provide reams of data and analysis. The importance of this analysis was reflected in Koch’s pay structure—the company changed its payment structure so that profits were split between the trader and her supporting team of analysts. This put the analysts on equal footing with the traders. Melissa Beckett, who worked on several of Koch’s trading desks as both an analyst and trader, said Koch was unique in this regard. Other trading shops might consider analyst reports to be an afterthought; at Koch, those reports were the bedrock where a trade began.