The Brightest and the Brokest

A high-flying hedge fund collapses. But it owes so much to lenders that the Fed organizes its rescue

Washington and Wall Street buzzed last week with outraged talk of "moral hazard," and for once it had nothing to do with Bill Clinton's sex life. Instead people were talking about the danger created when government backing for private lenders encourages them to take bigger risks--in search of bigger rewards. That danger was demonstrated in dramatic fashion when the Federal Reserve had to engineer the rescue of Long Term Capital Management, a high-flying hedge fund that as recently as August controlled high-risk, global investments worth more than $120 billion--enough to buy all of AT&T.

Though the partners and investors in Long...

Want the full story?

Subscribe Now

Subscribe
Subscribe

Get TIME the way you want it

  • One Week Digital Pass — $4.99
  • Monthly Pay-As-You-Go DIGITAL ACCESS$2.99
  • One Year ALL ACCESSJust $30!   Best Deal!
    Print Magazine + Digital Edition + Subscriber-only Content on TIME.com

Learn more about the benefits of being a TIME subscriber

If you are already a subscriber sign up — registration is free!