The Federal Reserve Board is growing increasingly cautious about hedge funds and the risks they pose to the financial system. Key officials have been speaking out about the many ways that funds make bets. The concern is evident from a page one article in the Wall Street Journal, for which officials were interviewed and quoted. What's different these days? A rising correlation among hedge funds returns. With so much leverage pushing the market in the same direction, you can understand the concerns. In many ways, we're in unknown territory. The world has changed much since the Long-Term Capital Management fiasco. How would the total return swap market respond to a big shock? We don't know.

For more:
here's a column in the New York Post