Finance: by Ryan

Today I came across a post on yahoo! answers about the legality of hedge funds. The person argued they should be made illegal because "middle class guys" could not effectively use them as an investing instrument and are forced to instead go for mutual funds. Do I agree with this? Yes. Do I agree they should be outlawed? No.
In essence hedge funds are just less regulated mutual funds. The catch is that they have the potential for astronomical gains but the same potential for losses. The idea is that only astute investors should be putting their money into hedge funds. A "middle class guy" would be less inclined to throw around his money and would, as a result, invest in more of a "sure thing" (such as mutual funds due to intense SEC regulation).
In addition, the absolute minimum for investing in hedge funds is usually $100,000 for the individual investor (and $1,000,000 for the corporate investor). This fact gives hedge fund managers a large amount of leverage allowing them to employ complex strategies such as aggressive short-selling of stocks.
In any event, hedge funds are a large part of investing nowadays. They allow large corporations and venture capitalists to profit tremendously from their investments which ultimately help drive the economy and act as a market-mover. Increased regulation or even prohibition of hedge funds will not only impair potential growth in various areas such as the housing market, but will also lower the amount of leverage and liquidity in the overall market (making the economy susceptible, and less likely to recover, from shocks).