My column in the Financial Times this week is about the need for better incentives and simpler regulation of investment banks, rather than a vast new regulatory infrastructure and set of rules. You can read it here and comment below.

So far so good – or at least, not too bad – seems a fair assessment of how the financial crisis has so far treated hedge funds. Although some have collapsed, including two managed by Bear Stearns, and others have hit trouble, they have generally done better than big financial institutions.

One hedge fund manager I talked to this month estimated that hedge funds with equity of about $15bn had so far been mortally wounded in an industry that now manages $2,000bn of assets. He compared this to financial institutions such as Citigroup and Merrill Lynch (and now Bear Stearns) that had suffered more.

But I do not think we have yet seen the full impact of the financial crisis on hedge funds. As banks that have kept hedge funds in business by lending them money and providing other services pull back – and it becomes much harder to leverage equity with debt – some funds will face a colder climate.

I am afraid that I forgot to post a link to my column on Saturday in which I tried to explain to Weekend FT readers that Bear Stearns employees really were suffering from the collapse of their institution. The email responses I received were equally split between those who thought I was too kind, and those who thought I was too harsh, to Bear. You can post comments below.

Hmm. Well, we have now seen the terms of the JP Morgan’s revised $10 a share offer for Bear Stearns and I do not think it is a good outcome for the Federal Reserve.

The Fed does gain something from the new deal – JP Morgan takes on liability for the first $1bn of losses from the $30bn portfolio of illiquid assets that it guaranteed as part of the first agreement.

In return, however, it is allowing Bear shareholders to get five times the original price for an investment bank that was in effect insolvent 10 days ago without the backing of the taxpayer.

We have moved an awfully long way from 1998, when the New York Fed was criticised for simply calling a meeting of Wall Street banks to organise an attempted rescue of the hedge fund Long-Term Capital Management.

This time, the Fed has not only committed public money but has allowed the deal to be renegotiated in a way that grants Bear’s shareholders a bigger reward.

The Fed can argue that the structure of the new deal is in some ways preferable and the Bear shareholders still get relatively little for their equity. From that point of view, the Fed has minimised moral hazard while keeping Bear afloat.

The fact remains that it has been dragged into a public fight involving JP Morgan and Bear shareholders and has had to accept a further compromise. That cannot be a good thing for its authority.

Is JP Morgan about to give in to Bear Stearns’ angry shareholders and offer five times its original $2 a share price?

So Andrew Ross Sorkin says in the New York Times this morning:

Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share — a figure that represented a mere one-fifteenth of Bear’s going market price.

The Fed, which must approve any new deal, was balking at the new offer price on Sunday night after several days of frantic, secret negotiations, these people said. As a result, it was still possible the renegotiated deal might be postponed or collapse entirely, said these people.

I do not understand how the Federal Reserve can stand behind the deal on anything like the original terms if JP Morgan is going to pay more.