Many people think hedge funds are evil, due to their ridiculous compensation and seemingly insatiable greed. I dont think so. I agree with Dr. Bookstaber, who asserts in his book "a Demon of our Own Design" that hedge funds are suppliers of liquidity, and takers of risk. Financial markets need those two things in abundance to function properly. What is evil is the system. It's the system that allows these guys to leverage themselves 10, 20, 30, even 50:1 by making borrowing far to easy. It's the system that has allowed massive proliferation of ridiculously arcane, illiquid structured finance products that even the best computer models cannot value. It's the system that keeps on engineering coverups and obfuscations to mask the ugliness beneath in a rotting corporate landscape.
In the end, the proliferation of hedge funds might save us from permanent oppression by Wall Street. Because as Wall St tries to engineer coverups for structured finance blowups, there are hedge funds out there making the opposite bet (see Paulson and Co). There are powerful, independent players out there making large bets against the establishment (See Chanos shorting Moody's). These guys won't go down easy. Or quietly.
If you are dumb enough to let someone take 2 and 20 for managing your money, hey, that's fine with me. Just don't allow all this leverage to proliferate to the point where it is in danger of wiping out big banks, and hence regular Joe's like me.
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