Secondly, the report did not deal forcefully with the off-shore problem. Whenever a hedge fund is registered in an off-shore corporate domicile, it does not come under the full aegis of U.S. law and regulation.
Foreign regulation is generally much weaker, if there is any at all.
The Working Group may want to review this circumstance and other issues related to foreign registration of hedge funds. The new ownership of LTCM cannot be considered anything except an umbrage to a competitive market system which U.S. regulators, the Treasury and Justice Departments have an obligation to review. From a bank regulator's perspective, LTCM, as well as some other hedge funds, are dubiously-leveraged. This ill fits any idea of prudential banking practices, and it's made all the worse by the potential for self-dealing in situations where banks or their officers are also investors in a particular hedge fund. The McDonough study may be a good beginning for the Working Group's consideration of these issues.