The wrong-way bets which cost Connecticut-based hedge fund Amaranth Advisors more than $6 billion have renewed calls for these unregulated pools of money to be brought under more control.

So far, the Securities and Exchange Commission has said it's taking no action.

SEC commissioner Paul Atkins says hedge fund investors are "big boys and girls" and that the funds provide lots of liquidity, according to the latest report.

But whose money are these big boys and girls using? There are concerns that Amaranth-style losses can bring down the entire financial system because these risks are funded with borrowed money.

In short, they are betting with other people's money.

The other big problem is that those big boys and girls aren't always what they seem. Even though hedge funds are supposed to be a game for elite investors, money from smaller investors often winds up in them, reports Loren Steffy in the Houston Chronicle.

As Steffy says, pension funds, desperate for big returns, are drawn to hedge funds like moths to a flame.

Massachusetts, New Jersey, Pennsylvania and California were among the states with public pensions exposed to Amaranth and it doesn't look like these funds will be reducing their risk, according to news reports.

In other words, the risks are spread to non-investors who have their money sitting in the pension funds. These investors have nothing to do with the hedge funds. But they could pay a massive price when there are bad bets on stocks, commodities, currencies, loan portfolios and other assets.

And with the hedge fund industry now worth an estimated $1.2 trillion, the risks are getting bigger. The more money that flows in, the more pressure fund managers come under to take bigger risks and come up with new schemes for making profits.

Henry Blodget, the former Merrill Lynch analyst who praised stocks in public but derided them as dogs in email and who was barred for life from the securities industry, warns there will be many more Amaranths.

The systems are designed for hedge fund traders to take these dangerous risks, he says in his piece in Slate:

"The risks faced by hedge-fund investors are obvious: They might lose money-a lot, in fact, if prices move the wrong way. This is a strong incentive for investors to hope that their hedge funds are careful. It is not, unfortunately, a strong incentive for the funds to be careful.

"The risks facing hedge-fund employees, meanwhile-and, importantly, the employees of "fund-of-funds" that invest in hedge funds-encourage the funds to swing for the fences. Unless the employees keep most of their net worth in their funds, for example, they are not in danger of losing their money or careers. The total of $6 billion that Amaranth vaporized this month belonged mostly to corporations, individuals, and lenders, not Amaranth employees, and fired hedge-fund staffers can usually get jobs at other funds (or start their own).

"The real risk facing hedge-fund employees is that they won't make a killing. The average base salary (pre-bonus) for a hedge-fund peon is about $150,000-a lot of money in the real world, but chicken feed in this one. If hedge-fund peons don't help their bosses make a killing, they don't get big bonuses, and they often get fired. If the bosses don't make a killing, meanwhile, they don't get big bonuses and they often get fired by clients, who aren't paying massive hedge-fund fees to earn bank interest.

"The way to keep your job and get rich in the hedge-fund business is to generate gains-on which you collect "success" fees that usually range from 20 percent to 50 percent. It doesn't matter whether the gains result from luck or skill, and it doesn't matter how much risk you take to get them."