After reading Felix Salmon and Noam Scheiber on Sebastian Mallaby’s More Money Than God, I purchased and started reading the book last night. (I was also reading The Power of Pull. More on that to come.) Thus far, Mallaby is making an excellent case for hedge fund contrarianism, for reasons Salmon makes clear:

Hedge funds, especially big hedge funds, need more regulation than they get right now, as Mallaby readily admits. They might not have caused this crisis, but they still pose a potential systemic risk, and someone needs to be looking not only at the risks that individual funds take, but also the risks that they pose collectively. After all, given their extreme secrecy, they simply don’t know when they’re entering a crowded trade — as many of them discovered painfully during the quant meltdown of 2007.
But in general there’s one thing that the hedge fund system does well, and that’s confine hedge fund losses to the investors in those funds. Hedge funds will blow up occasionally, and that’s fine; the investors in those funds will lose money, and people betting against those funds will make money, and there will be few if any systemic repercussions. Even if the losses exceed the amount invested in the fund, those excess losses will be borne with few systemic implications by the fund’s prime broker.

Apart from offering an intelligent explanation a sector that is not well understood, least of all by me, Mallaby offers lots of highly entertaining mini-portraits of quirky hedge fund innovators.