"The argument is that it's a terrible time to be sending this kind of message," says TIME deputy managing editor Dan Goodgame. "The U.S. message to Asia is, let your banks fail if they've taken unwise risks. But when the New York Fed arranges a bailout of some very rich American investors, it undercuts the party line." The bailout may well dampen the kind of secondary shock waves that U.S. financial markets need right now like they need a run on the banks. But while President Clinton's economic team is shoving the transparency-and-accountability doctrine down the throats of Japan and the rest of Asia, the U.S. might do well to start swallowing some of its own medicine.
Crony Capitalism, American Style
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NEW YORK: Economists call it a "moral hazard," but it's the golden rule of thumb for every free-market gambler: Never bet what you can't afford to lose, and if you do, take your lumps. The blue-ribbon brains behind high-risk, high-yield (and very hush-hush) Greenwich-based hedge fund Long-Term Capital Management broke that rule -- just as surely as all the bad-risk Asian lenders did to get the global economy into the mess it's in today. Over there, it's reviled as crony capitalism. Over here, somehow, it's good policy.