Clippers Ready? It's Time to Trim the Hedge Funds

WASHINGTON: What to do in the wake of last September's meltdown of the prominent Long Term Capital Hedge Fund? At the highest echelons of Washington money mavenry, the solutions have fallen into two camps: Treasury Secretary Robert Rubin wants to regulate the risky funds; Federal Reserve chief Alan Greenspan thinks the markets should do it -- but urges the investors be more careful. And the new White House report that bears both their names -- and others', such as SEC head Arthur Leavitt -- indicates that the Fed chairman had his way. "Some kind of regulation was long overdue," says TIME senior economics reporter Bernard Baumohl. "But this report tends to address the investors as the source of the problem."

The report recommends that banks and money managers who put their clients' money into hedge funds should inform those clients about where their money's headed -- and keep more cash at hand to cover potential losses. Rubin pushed unsuccessfully for a minimum reserve requirement for the funds, but settled for urging regular public disclosures of their risk exposure, if not their methods, to scare off those investors who can't afford to lose. Hope for quick implementation -- the September meltdown even had Greenspan panicked, and Baumohl says it's only a matter of time before it happens again. "No matter how many geniuses are on your staff," he says, "no matter how good your mathematical models, the real-life markets will eventually beat you." The idea is to prevent the next meltdown from burning the rest of us with it.