Muriel "Mickey" Siebert is used to fighting for what she wants.

The chief executive of her eponymous New York brokerage, Muriel Siebert & Co., is known as "the first woman of finance" thanks to her nearly yearlong battle to become the first female member of the New York Stock Exchange in 1967. She also was named the first female superintendent of banks in New York and launched one of the first discount brokerage firms in the mid-1970s.

Now Siebert is fighting for more regulation on Wall Street -- a suggestion rarely made by industry insiders.

She contends that regulation is desperately needed to reduce market manipulation, restore investor confidence and eliminate systemic risks that have become so great that they threaten the entire economy.

"The public has been burned badly," she said. "You don't want people to think that investing in the market subjects their retirement money to unreasonable risks."

At the heart of today's industry problems are hedge funds, Siebert said. These funds are structured a bit like mutual funds, but loopholes in the nation's securities laws allow them to operate without regulatory scrutiny. That means that regulators don't know precisely how many of these funds exist, they don't know the amount of assets they control, and they don't know how those assets are being invested.

Moreover, a recent study by New York University's Stern School of Business indicates that what hedge funds do tell the public isn't always true. The study, which examined confidential data provided on the condition that specific company data would not be revealed, found that 1 in 5 hedge funds lied about either the assets they controlled, the performance of their fund or even the dicey legal backgrounds of their principals.

What market professionals and securities regulators do know is that the hedge fund industry has grown by leaps and bounds and is now believed to control some $1.5 trillion in assets, according to Hedge Fund Research Inc. in Chicago. That's up more than 3,000 percent from 20 years ago, according to testimony by securities regulators.

They also know that hedge funds commonly borrow to buy far more securities than they have cash to cover. That allows them to possibly manipulate markets, profiting from the turmoil they caused at the expense of the overall economy and ordinary investors, Siebert said.

How do they do that?

Consider the commodities markets, which sell rights to buy natural resources and industrial products such as oil, gas, sugar and wheat. These markets were established decades ago to solve what economic texts dubbed "the farm problem." In a nutshell, farmers had to spend money to produce agricultural products, such as corn and pork, long before they knew what price they could demand months or years later when these products were ripe (or plump) enough to sell.

The commodities markets gave farmers a place to sell rights to buy their wheat at a set price in the future and gave bakers, for example, a place where they could lock in a price for flour. Because few people can afford to buy a product months or years in advance, these markets also allow significant leverage, or borrowing, to buy. Typically you can put down just a small portion of the contract purchase price upfront -- often less than 5 percent. The remaining amount must be paid at delivery. You are essentially borrowing the rest.

Being able to borrow to buy a product that won't be delivered until some point in the future makes sense for traditional buyers such as airlines, which need oil, and manufacturers, which need other natural resources to produce their products. But it also allows hedge funds and other speculators to control roughly 20 times more of a commodity than they have cash to purchase. Continued...