Will Congress Trim the Hedge Funds?

WASHINGTON: Don't bother to thank the Federal Reserve for saving the U.S. economy, Alan Greenspan told the House Banking Committee on Thursday -- that's what we're here for. But Rep. Barney Frank wasn't interested in why the Fed felt it had to step in and orchestrate a private bailout of Long-Term Capital Management -- he just wondered why Greenspan didn't seem too interested in instituting some preventive medicine.

Greenspan, unflappable as ever, responded that the current hotbed of super-leveraged hedge funds, with their daredevil betting habits, wasn't all bad. Congress, he said, could easily put limits on the capital that banks and other publicly held investment firms provide to the hedge funds, but "I'm not sure it's a good idea." Such high levels of exposure, he said, have "enhanced growth and raised the standard of living" in the U.S. economy. Long-Term Capital made news only because it fell on its face. The question, he said, is "where on that spectrum of leverage do we want to position ourselves." Translation: Mama said there'd be days like this, but it's the other days that keep the economy humming. The Banking Committee now has to decide how many bad days are too many to tolerate.