Reason #60: Hedge Fund Madness

After the stock market crash of 1929, Congress actually tried to rein in Wall Street for once and prevent future calamities. But as so often happens, they gave their buddies in high finance a loophole in the new laws. If you ran a private investment “club” exclusively for wealthy investors, you could operate without any government oversight. For fifty years these clubs ran under the radar. Then in the 1990s the rest of the world decided they wanted in on the action. Suddenly a fifty-year-old loophole became the gateway of a radical new phenomenon: the hedge fund.

Public pension funds, university endowments, and charitable foundations all put their money into hedge funds. Nonetheless … these funds are completely unregulated by the government.

In the last ten years, hedge funds have grown like fungus all over the financial markets. There’s now about $2.8 trillion dollars in them. Some days, their wheeling and dealing accounts for half of all the volume on the New York and London stock exchanges.

And these aren’t just clubs for the super rich in Greenwich, Connecticut or Beverly Hills anymore. Public pension funds, university endowments, and charitable foundations all put their money into hedge funds. Nonetheless, even though your pension might be in one of them, these funds are completely unregulated by the government. Their operatives don’t have to report to anybody-not even their own investors. Basically they get to do whatever they want, however they want to.

NEXT: Reason #61: Derivatives - Playing Fast and Loose with House Money