You don't need to put a news desk on this one. It's pretty simple.

The government has a pretty sound policy of protecting average folks from getting taken advantage of, but it doesn't devote the same kinds of public resources to protecting corporate entities, rich people investing tons of money, and sophisticated parties, because these people can look out for their own interests.

In other words, if someone with a high school education or less is looking for a place to invest $2000 in savings, the government is going to make sure that the financial operations looking to get that person's money are on the up-and-up, and the government will impose criminal penalties people who try to steal that money by pitching ponzi schemes and bogus investments.

A lot of poor people and retirees have very limited understanding of investments, are credulous, and are easy to dupe. Certain detrimental financial practices, like excessive credit card debt, mortgages larger than people can afford, and loans against homes for consumer spending have been permitted. But a lot of regulations are in place to keep the credulous from getting fleeced, and to protect people from taking on risks they don't understand.

However, millionaires looking to invest large sums and institutional investors like university endowments and pension funds are expected to be capable of understanding what they're getting into, and the government doesn't need to expend resources to make sure that a hedge fund isn't robbing its wealthy and sophisticated investors.

Regulation also imposes costs and restrictions that would hamper the funds' ability to quickly devise innovative ways of making money. Before doing something new, a regulated fund would have to explain what they are doing to someone in the government, then the agency would have to digest the information and come back with a rule on it.

By the time this happens, the opportunity may have passed. So the wealthy are very happy to bear the risk of light regulation to gain access to sophisticated instruments that can be faster and more agile than could be allowed by cumbersome regulatory procedures.

This works well until the economy sours, and the Fed has to make a decision as to risk "moral hazard." Essentially, that means that the concern is that funds will take greater risks if they believe the Fed will shoulder some of the loss if everything falls apart.