A great deal has been said about the rescue of Long-Term Capital Management, the highly leveraged hedge fund. Much of the commentary has been specious, which is unfortunate because the episode could serve as a springboard into some important issues and lessons.

The most inane comment I heard was from a television talking head. He labeled the "bailout" of Long-Term Capital Management the "outrage of the week." He acknowledged that no direct taxpayer money went into the bailout.

But since banks were among the creditors that helped in the bailout and their deposits are insured, he contended that taxpayers are subsidizing the bailout of fat cats.

There was no "bailout" of Long-Term Capital. The only government involvement appears to have been the Federal Reserve's efforts to organize the creditors into a rescue plan. The Fed was clearly concerned about the potential for contagion throughout the world's financial system.

No taxpayer funds were used. The fact that some of the creditors were insured banks is irrelevant. The Federal Deposit Insurance Corp. is sitting on a surplus of some $38 billion, so any subsidy is running from the banks to the government, not the other direction.

One can debate whether it's appropriate for a regulatory agency to use moral suasion to induce private-sector creditors to support a rescue plan.

Moreover, it's unclear whether the Fed was aware of a reported offer by Berkshire Hathaway, AIG, and Goldman Sachs to purchase Long-Term Capital and, if so, why the Fed chose to promote a different approach.

One can also legitimately ask what the bank supervisors knew about bank lending to Long-Term Capital. The initial evidence suggests they didn't know much. Indeed, the creditors themselves apparently knew precious little about the activities of Long-Term Capital. There appear to be risk- management lessons for both the public and private sectors.

We've heard commentary from the regulators and others that there's no way to regulate the activities of hedge funds-if we attempt to do so, they'll simply move their activities offshore. Though I'm more than a little dubious about the ability of regulators to stay on top of such a complex, fast-moving business, I'm not concerned about forcing the business offshore.

We could make the same argument about any regulated business, including banking. If we conclude that hedge funds should be regulated-a big if-then we should do it. If they move offshore to escape regulation then people that continue to deal with them will do so at their own risk.

Perhaps the biggest public policy questions raised by the Long-Term Capital episode are these: When does the failure of a private company become an occasion for federal intervention? Who should direct the intervention?

Fed Chairman Alan Greenspan has contended for the past couple of years that banks enjoy a federal subsidy due to the safety net. He has used that argument to support the notion that new financial activities should be conducted in holding company affiliates, not bank subsidiaries.

The Fed's intervention in the Long-Term Capital situation calls into question Chairman Greenspan's premise. Is it banks that have a safety net underneath them, or is it any firm large enough to cause disruption in the marketplace? If it's the latter, who will decide when to intervene? Is it a question to be decided by unelected officials or by elected officials?

And if nonbanks are included in the safety net, should they not be required to pay the cost of it, as banks are required to do?

The rescue of Long-Term Capital Management was clearly not an outrage, just a sobering experience. Its implications should be discussed and debated at length.

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