That is hardly reason to indict such funds for the next collapse. L.T.C.M.'s had more to do with its aggressive, leveraged portfolio than with anything intrinsic to its hedge-fund form. But it is human to look for a recurrence, and since Sept. 11, fear of things going drastically wrong has become a national instinct. The reason L.T.C.M. shook Wall Street was that many investment banks held the same positions that the fund did, setting the stage for chain-link losses. But most hedge funds today neither rise nor fall in synchrony. As my colleague Joseph Nocera observes in this issue, they invest in distinct asset types; they are the bits of the chain without the link.

People worry about hedge funds, I think, because of a Galbraithian prejudice that easy money is bad money. At a dinner in Palm Beach, Fla., in March, I casually inquired of one hedge-fund steward how much he controlled. Came the reply, "Six and a half billion dollars." I whistled and replied that 1 percent of $6.5 billion would be a decent living. (Hedge-fund managers often charge 1 percent of assets plus a fifth of any profits.) He smiled and held up two fingers: 2 percent. Do the math; this gentleman's firm will earn, annually, $130 million a year for switching on the lights each morning -- $260 million if his fund attains a ho-hum return of 10 percent. No wonder that the London Business School boasts a "Hedge Fund Center" and, according to a recent graduate's informal survey, Harvard Business School sent 60 percent more of its graduates to hedge funds last year than to the much bigger mutual-fund industry.

But hedge funds are less an expression of risk-taking than of people's aversion to risk. Most funds deliberately try to hedge their bets (thus the name) by going both long and short -- that is, betting that one asset will rise while a related one falls. They are thus designed to be less volatile than ordinary stocks, which is why they are so fashionable. The risk isn't meltdown but mediocrity, a glimpse of which may be seen in the industry's recently lackluster returns.

Real estate, the runner-up to hedge funds in the anxiety sweepstakes, could be another matter. A recent Lehman Brothers report, "The Changing Landscape of the Mortgage Market," observed that U.S. homeowners have been "very willing to increase their leverage . . . through products like IO loans and MTA ARMs." This refers to interest-only mortgages, and to those in which the rate begins at an alluring, below-market level but after an interim floats according to the yield on Treasury bills. Who in his right mind would take an "IO- MTA ARM"? Hmmm, come to think of it, I did.

Although my bank did not describe it this way, an adjustable-rate mortgage is a bet between the bank and the homeowner. If rates fall or remain stable, I win; if rates rise, I lose. Of course, if I lose, the bank might also lose. I might, heaven forbid, default.

Why would a bank finance a home that under a conventional mortgage the borrower could not afford? Some computer in its vault was evidently mollified by the variability of the rate. What makes this bet rather interesting is that millions of other people have the same kind of loan that I do. If rates should take a sudden upturn, it is conceivable that a good many will default, in which case an instrument (a floating-rate mortgage) conceived to help the bank manage interest-rate risk will have resulted in increasing the bank's losses.

The saving grace is that home loans generally are the last thing people default on. But imagine how scary it would be if, say, businesses extended floating-rate contracts to one another -- if virtually every company were dependent on making the right calculation about how these risk-avoidance vehicles would function.