ORANGE COUNTY IN BANKRUPTCY : Greenspan Indicates County Will Not Get Federal Help : Congress: Federal Reserve Board chairman says paper losses occur throughout the economy and that the markets ‘are adjusting well to that.’

Orange County’s bankruptcy after its huge losses in the value of derivatives investments are part of a “bumpy process” that reflects this year’s major slump in bond prices, Federal Reserve Board Chairman Alan Greenspan told Congress on Wednesday, indicating that there are no plans for federal intervention to help the county.

“There are hundreds of billions of dollars of paper losses throughout the economy” and the markets are “adjusting well to that,” he told a hearing of Congress’ Joint Economic Committee.

In effect, Greenspan was saying that Orange County lost a huge bet that interest rates would remain stable or decline in 1994. When interest rates rose steadily this year, those who bet the wrong way--individuals, banks, business or county investment funds--lost.

“There are lots of losses,” Greenspan said. “They are coming due all year.”

The Fed chairman and other financial regulators view derivatives as a legitimate, highly sophisticated way to balance risk in today’s rapidly changing financial markets. Derivatives are investment contracts whose values are based on the performance of an underlying security, interest rate or market index.

A year ago, Rep. Jim Leach (R-Iowa) issued a 900-page staff report on the potential dangers of derivatives and proposed a bill requiring the Securities and Exchange Commission to establish suitability standards for derivatives.

The bill was ignored when Leach was the ranking minority member of the House Banking Committee. But he becomes chairman next month and said he intends to hold hearings on derivatives.

“It’s a different earthquake than we were all expecting from Southern California,” Leach said Wednesday, referring to the Orange County bankruptcy.

“It’s quite possible there may be some other cases, but it’s extremely unlikely there will be anything this large,” Leach said. “This was simply extraordinary.”

Greenspan was pressed hard at the hearing by Rep. Ron Wyden (D-Ore.), who charged that the “federal government has not acted as an adequate watchdog over the derivatives market.”

There is “considerable risk out there,” Wyden told Greenspan. “I would implore you the government beef up its . . . role.”

Sen. Byron Dorgan (D-N.D.) said he will offer legislation barring banks from trading in derivatives for their own accounts.

But Greenspan, unimpressed by Dorgan’s recitation of risks to banks, noted dryly that real estate investments can also by considered highly risky.

“Virtually all derivatives are a zero-sum game,” said Greenspan, meaning that the losses by some investors are balanced by the winnings of others. He added: “I don’t consider it to be something which gives me great concern.”