The Guardian and many others report on Goldman Sachs' hedge fund losses this morning:

The viability of elaborate computer-driven hedge funds came under the microscope yesterday, as Goldman Sachs became the latest financial institution to reveal that its funds have lost billions of dollars in coping with global stock market volatility.

Despite a calmer day on the markets ... the credit crunch prompted by defaults on American home loans continued to reverberate around the world, and the volume of losses suffered by a segment of the hedge fund industry began to emerge.

Goldman Sachs revealed that its Global Equity Opportunities (GEO) fund lost nearly a third of its value last week - a drop of some $1.8bn (£890m). Its deficit was due to so-called "herd mentality" as scores of computer-driven funds sparked each other in unwinding positions.

I've been bored by being told that liquidity is key to the City for the last few years. Hedge funds, I've been told, are vital to that because, I'm told repetitively:

They spread market risk.

When I've questioned that assumption it's always been implied that I've asked a dumb question. Well, I'll stand accused of that if you like, but my argument has always been that it's true that hedge funds do spread the risk, but in a way that guarantees that everyone will suffer. And it so happens that running them by computers, all programmed in the same way, seems particularly dumb and a recipe for ensuring that they really do spread the greatest risk into the market.

Because, let's be clear, what this liquidity in the market has ensured is that commission based sales people peddling duff mortgages in the States did not have to worry about what they were doing because the debt they created was sold off by the people they worked for to banks, who then repackaged it to hedge funds who then subdivided it to each other and then granted options on it, and so on. But in that case all these people worried about was a commodity they thought they could turn for a margin in a few minutes. But what there actually is out there is a duff product sold to a person who does not understand it and cannot pay for it. But because of the way the market spreads risk in the name of liquidity no one looks at that fact - their concern is just with the margin they can make on the resulting derivative that they'll trade for a moment or two.

That's wrong. Fundamentals count. Fundamentals require responsibility, not liquidity. Fundamentals require stewardship not decision-useful information. Which is also why the International Standards Board has got itself in a bind when it comes to International Financial Reporting Standards. All its interested in is decision useful information of the type that allows a deal to be turned. But it's the fundamentals that matter. We ignore them at our peril, as the current behaviour of hedge funds is showing.