This is a paper tiger. just by banning "Hedgefonds" (misnomer of the decade by the way, they do anything but hedge these days), or, more precisely investment funds structured as limited partnerships, from owning residential real estate you do absolutely NOTHING to mitigate what happened in 2008.

hedge funds are just an easily hated scapegoat, because they ARE insufferable in many cases, but they are not at fault here.

The real problem is the moral hazard that is growing exponentially with every increase in distance between the ones dishing out the money and the ones who are liable. If you can repackage mortgages into more and more complex derivatives you can sell to other people, and you also figure out a way to game rating agencies into a triple A rating by misleading them with thin-file FICO scores and faux diversification, you can profit from deadbeat customers and make someone else the bag holder at the same time. That’s the archetypal moral hazard.

The institutional clients don’t understand that correlation increases with volatility, they are consoled by the ratings and don’t realize they are part of a time bomb, waiting to drag the whole economy down with it.