Hedge fund managers are now conceding that Bernard Madoff has probably achieved what the Securities and Exchange Commission's Christopher Cox could never do: usher in strict new regulations for hedge funds. "This is an Enron moment for hedge funds," Peter Rup, chief investment officer at New York-based hedge fund orion Capital Management told Bloomberg.

But how severe will the regulation be? Dan Freed at TheStreet.Com says it probably won't go over the top. There will be changes. Like, for example, legislation making it easier to sue hedge funds and even legislation restoring so-called "aiding and abetting liability," which would make it easier to sue lawyers, accountants and bankers working on behalf of a fund accused of illegal activity.

But, Freed says, it won't go too far because Obama's economic team is very much to the center and that's not just symbolic.

Wharton professor Thomas Donaldson claims that too much regulation wouldn't work anyway because it would stifle innovation and that it would be too expensive to compile the necessary data.

Instead, he has proposed a "microsocial contract", some form of self-regulation similar to the codes of conduct created by Nike and others in the apparel industry.

Whether hedge funds are up to doing that, and whether they have the candor to put such a contract in place, is another story.