“I have come through ’68, ’72, ’86, ’87, ’98 and 2002. But this is the worst ... It is batten-down-the-hatches time.” Not the words of a fearful banker, but of a hedge fund manager. As markets plunge one day and rally the next, hedge funds have made headlines and been the butt of public anger by profiting from bets that share prices will fall. But, for many hedge fund managers, 2008 has been a disaster. An industry that has benefited from cheap credit, and which is shrouded in inexplicable mystique, is on the brink of a Darwinian shake-out.

There is no small irony in the fact that hedge funds, long feared to be a source of financial instability, are not the root cause of the current crisis. It was the regulated banks, not the hedge funds, that blew up.