Afternoon:
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There have been more letters in the Financial Times from hedge-fund managers in the three weeks since the ban on short-selling than in the past five years.
An industry which loved to declare that it was private and therefore did not need to communicate with the public as long as its clients knew what was happening has woken up to find it no longer has a licence to operate.
It need not have been like this. Paul Marshall of Marshall Wace warned the industry last year that it could no longer afford to believe “that public engagement of any kind goes against the grain of the maverick entrepreneurialism that is at the heart of the industry's success”.
He and other industry leaders warned that hedge funds needed to get better understood. But not enough did.
Thus when the going got tough and the public and politicians looked for a scapegoat, they were the target.
Hedge funds were not at the centre of the market storm, but they were close enough to become a scapegoat because there is a web of linkages between them.
It is asking too much of the public and politicians to distinguish between subprime conduits, which were off-balance sheet vehicles sponsored and managed by banks and SIVs, which were structured investment vehicles sponsored by banks but often managed by hedge funds, particularly when they all seem to have made similar mistakes in valuation and risk management.
Against such a background short-selling was the final straw.
The warning for the rest of the financial world is that what has happened to hedge funds might provide a taste of things to come.
It is a feature of our times that our society has lost the ability to debate complex issues, so that “how do you feel” takes precedence over “what do you think”.
As a result, when accidents happen the energy which should be devoted to solving the problem instead gets diverted to finding someone to blame.
Hedge funds are a legitimate activity and do not deserve to be legislated out of business simply because too few of the managers who now get off the tube at Bond Street rather than Bank have become geniuses on the journey.
These would have been weeded out anyway. The majority of hedge funds are apparently around $25 million (£14 million) in funds under management, a low figure which it is no longer so easy to inflate with leverage.
If they don't perform they have to live on their 2% annual charge, which will yield only about $500,000 a year.
For a hedge-fund manager with a lifestyle and trading infrastructure to support, this is not enough to keep body and soul together.
This, as much as client withdrawals, is why so many funds are closing.
It should be considered just as an overdue consolidation of the kind which happens in any industry after a period of frenzied growth which attracts too many new entrants.
In the past there have been thousands of car manufacturers and thousands of computer manufacturers which have come down to the handful that exist today.
In this hedge funds are little different.
But the point is as power consolidates in the hands of the bigger players, these have a serious role to play in getting the system back on its feet. In a capital-starved and risk-averse world the bigger funds have capital and manage risk.
We need them to be actively engaged and fully functional, not treated as pariahs.
The danger is that what is happening to hedge funds today becomes a microcosm for the city as a whole tomorrow.
On all sides people talk about the need for new legislation “to stop this happening again” while totally ignoring the reality that every banking crisis gives birth to new legislation which self evidently fails to prevent the next one.
Currently we have a crisis. We can turn it into a disaster by ill-considered, hasty, repressive and ultimately irrelevant legislation — a series of financial dangerous dogs acts — which will leave us with the most conservative financial markets in the world, but markets which are utterly devoid of any spark or innovation or enterprise.
That indeed would be a high price to pay.
Insurers starting to shut up shop
It is hard not to feel sympathy for the growing number of retailers who have been forced to admit in public that their suppliers can no longer get credit insurance for the goods they deliver into the stores.
The interpretation put on such news by a jittery market is that this must inevitably mean the retailer concerned is in financial difficulties.
Some might be but not all. It is what insurance companies do. When there is no risk of default they will happily insure everyone.
When the economy is obviously turning down and the chances of them having to pay out increase, they naturally cut back as much as they can. It is the same in every recession.
