"The Long-Term Capital saga is fraught with ironies related to moral authority as well as moral hazard" Leach, a Republican Congressman, said.

"The Fed's intervention comes at a time when our government has been preaching to foreign governments, particularly Asian ones, the way to modernise is to let weak institutions fail and rely on market mechanisms, rather than insider bailouts."

"Worse yet, the federal government appears to have played a part in precipitating a bailout that was more advantageous than that which the free market offered," he added.

The financial company, specialising in hedge funds and derivatives, had exposure to the tune of 1.2 trillion dollars with its capital, provided by rich investors, constituting a small amount.

The partners included last year's two Nobel prizewinners in economics Myron S. Scholes and Robert C. Merton who won the prize for the theories which were very innovative but which eventually led to the company's failure.

"While the goal of the Fed's intervention was to avert a short-term shock to the international economic system, it appears that a more serious long-term threat may be the result," Leach said.

"Today, we have a reconstituted fund that is co-owned by 14 of the world's largest financial institutions, raising the spectre of collusive activities that anti-trust authorities are obliged to review."

About the nature of such funds, the largest of which has now been bailed out, Leach said, "from a social perspective, it is not clear that long-term capital or any other hedge fund, serves a sufficient social purpose to warrant government-directed protection."

"In one view, hedge funds provide liquidity and stability in financial markets, allowing emerging markets to finance the infrastructure and enterprises necessary to move towardsindustrialisation," he said.

"In another view, hedge funds have a narrower rationale, they are seen to be run-amok, casino like enterprises, driven by greed and leveraged bets of such huge proportions they can control global capital markets and even jeopardise the economic viability of individual sovereign states," he added.