The Journal continues, 'In 2008, major hedge funds and their trade groups spent $6.1 million lobbying Washington, up from $4.2 million in 2007 and nearly seven times the $897,000 average from 2003 to 2006. The growth rate in hedge-fund lobbying far exceeds the 38% increase for the overall financial-services industry."

Hedge funds are using their power and money to influence Washington to prevent strict disclosure rules. They are in effect using blackmail to get what they want:

"In meetings with representatives of the Federal Reserve, hedge-fund representatives said they would be less likely to participate in government programs to buy bank assets if they were subjected to extensive disclosure requirements as part of the regulatory changes, a person familiar with the discussions says."

So, what do hedge funds have to do with the average investor and our banking system? If the government threatens their business freedom with profit-crimping regulations, the government loses an extremely wealthy ally and we may see a longer and more brutal economic recovery. Hedge funds have the power, when aligned with government interest to assist the insolvent banks and use their capital to bring liquidity to the market.

President Obama wants to put the largest hedge funds on the same regulatory level as giant banks such as JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), and Citigroup Inc. (NYSE: C), but how much oversight is really possible when:

"The hedge-fund industry is making no secret of its higher profile. Heavy political hitters now working for the industry include Richard Baker, the former Republican representative from Louisiana hired last year as president and chief executive of the Managed Funds Association, the main hedge-fund trade group. MFA recently recruited a former staff member of Sen. Charles Schumer (D., N.Y.) to help advance its agenda on details of how regulation would work."

Is capitalism in jeopardy, or can the government protect Americans from future economic consequences and probable frauds? The Security and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are in control of the new financial reform package presented by President Obama, which includes detailed registration, but is ultimately "up to the hedge-fund managers and investors to implement" any regulation, says Robert Picard, previously chief investment officer at Optima Fund Management, a fund of hedge funds. "To date they have not. Moreover, do we have confidence in the regulators? Do the SEC and FINRA have the manpower and resources?"

Simply, no. The SEC's 3700+ employees are now overseeing the once $2 trillion industry (now $1.3 trillion). That equals approximately $35 million per SEC agent, an overwhelming task if they plan to protect the public over the long haul (and especially during this recession).