The Federal Reserve of New York warned today about hedge funds; note my quick overview of them here. The problem really is that there is much too much money in the market, money that simply has no place to go. The rich are the same as everyone when it comes to thrills: cheating on your wife is number one and high stakes gambling is number two. The other problem with hedge funds is that their trading devices are so complicated that no regulator can possibly know what they are doing. The biggest (and so far the only) hedge fund implosion happened when the darling of Wall Street, a hedge fund manned by Nobel Prize winners and math geniuses collapsed when their bets on Russian Bonds went south so fast that not even their hedges could save it. The "Smartest Guys in the World" ruined hundreds of "sure thing" rich people. Now the Federal Reserve has issued a caution, sending the bond market into the toilet, for a while. Here's a Google ref for those of you who want to read. This pile of extra capital sloshing around in the markets with no place to go will either favor a big raise in taxes or much higher interest rates.