Concern has been expressed in three ways. Regulators were worried because hedge funds are unregulated. Market pundits were concerned because hedge funds are high-risk enterprises which because of the leverage they apply in markets pose a significant risk to the health of the financial system as a whole. And finally, the politicians are drawn in because hedge funds are seen as the ultimate market speculators whose activities are often blamed for speculative booms and subsequent busts.
None of these warnings seem to have stopped some of the world's best known banking names - including our own dearly beloved Barclays - becoming involved with John Meriwether's Long Term Capital Management, either as lenders or investors - and presumably a string of other hedge funds too. As it happens, LTCM was regarded as one of the safer hedge funds, so heaven knows what's going to happen to the rest.
Every business cycle comes to an end for a different set of reasons. If bankers could anticipate them, then there would be no cycle. Even so, those caught up in LTCM and other hedge funds really only have themselves to blame for the losses now being chalked up. Anyone that comes offering 30 per cent-plus returns a year cannot be for real.
Inevitably the hedge fund debacle will prompt calls both for a regulatory crackdown and for the activities of hedge funds to be made more transparent.
But as ever, the politicians are several steps behind the market. Nobody in their right mind is going to lend to or invest in these things after what's just happened. The hedge fund's time is probably already up, with or without regulatory action.