Hedge funds and their related speculative vehicles are now so identified with engorged private wealth that we forget that a few years ago the policy tribe saw them as a tool for the general public's interest. In the late 1970s and early to mid-1980s, the big worry among central bankers and the like was that too much risk was being concentrated in the big banks. "Third World" or "LDC" (lesser-developed countries) debt, speculative real estate loans, unemployed oil tankers - they were all on balance sheets that were ultimately underwritten by central banks and government deposit insurance. The big question was how to avoid the risk of a forced nationalisation of the banking sector.

The answer, in the 1980s and early 1990s, was an artificially steep yield curve and credit risk curve, that gave the banking sector the cash flow necessary to gradually pay down the losses from the previous excesses. This was a huge drag on growth, sentiment, and the electoral prospects of people such as the first President Bush.