The historic coinage of Hedge Funds is unsecured high risk debt trading. The vast majority of them are also 'off limits' to most common investors... Think of them as the 401ks of the very wealthy.

I'm worried about them in principle because for years they have posted unrealistic gains (20% per year is not unusual) and are unregulated. Typically, such returns are too good to be true (Enron, anyone?).

But, in terms of credit crunches, if hedge Funds start going insolvent or collapsing, you will see a lot of the ultra wealthy losing small mountains of money. The economy relies on the rich for their capital. Cause the ultra rich to suddenly clam up and you'll see things like VC funds close their doors over night. Should the rich (globally) start sewing their money into their clothes hems or burying it in their yards (metaphorically) then you will also not see the 'consortium' bank bailouts that got us through credit crunches in the past- where consortiums of the ultra rich start buying large stakes in banks and credit companies to provide cash infusions.

Again, I am not thinking 'Great Depression' level global economic meltdowns, but I think even the most reasonable people would agree that such a thing is a possible outcome, depending on how things work out in other financial areas such as Hedge Funds and etc. I am not convinced that we will avoid a recession- but we might see virtually no economic growth coupled with inflation. While this would technically not be a recession, it will beat the hell out of anyone in the economy bu the very rich and very connected.

Yeti