ORANGE COUNTY IN BANKRUPTCY : Washington Responds Tepidly to the Tumult : Politics: Neither Democrats nor Republicans seem inclined toward legislative remedies. The reason lies partly in the circumstances of the case, and in the county’s reputation for free enterprise and anti-tax fervor.

WASHINGTON —  It may be the biggest municipal bankruptcy case in the country’s history, but Orange County’s stunning financial fall is prompting a curiously tepid response in the nation’s capital.

Normally a nerve center of action and reaction in the aftermath of an emergency involving public assets, official Washington is instead strangely ambivalent over the proper posture on Orange County’s fiscal tumult and whether there is anything the federal government should do about it.

The contrast to the government’s usual instinct is striking. From New York City’s fiscal meltdown in 1975 to the savings and loan crisis to individual bank failures and plunges in the stock market, national political leaders have responded with a predictable explosion of declarations of concern, pleas for federal intervention and plans to address shortcomings with new regulations and tighter government oversight.

But in this case, the beleaguered Clinton Administration has shown little inclination to offer help to affluent Orange County and the incoming Congress shows little appetite for legislative remedies when it convenes next month. This is due in part to some unique factors in the Orange County affair, as well as the county’s reputation as a bastion of free enterprise and anti-tax fervor.

But it is also a sign of changed times. With talk of sweeping federal budget cuts and with ascendant conservatives in Congress vowing to roll back regulations and get the government out of people’s lives, the climate is notably hostile to any rescue effort or regulatory crackdown.

“The overall fiscal picture of the federal government ensures that no one in Washington is going to have any interest in easing Orange County’s financial burdens,” said Thomas E. Mann, director of governmental studies at the Brookings Institution. “It is also the case that Orange County has the reputation of being one of the wealthiest counties in the country and therefore, if anyone can cope with a loss of this sort, it’s them.”

Roger H. Davidson, a political scientist at the University of Maryland, put it a little differently. As far as Washington is concerned, he said, “it’s been like a tree falling in the forest without any ears around to hear it.”

To some extent, the relative quietude has been a matter of timing. The Orange County calamity broke in the wake of midterm elections that sent Democrats sprawling and Republicans scrambling to grab control of the congressional reins for the first time since the Eisenhower era. Not only was Congress not in session, but the transfer of power has created a sense of flux.

At this point, the incoming Republicans have announced plans to hold two hearings in January on the subjects of volatile derivative investments and the oversight of municipal securities--issues highlighted by Orange County’s collapse. The county suffered losses estimated to exceed $2 billion as a result of heavy borrowing and investments in high-risk derivatives, complex financial instruments that derive their value from the performance of an underlying security, interest rate or market index.

Also, incoming House Banking Committee Chairman James A. Leach (R-Iowa), a moderate who does not echo the prevailing conservative approach in his interest in possible regulatory redress, also plans to hold a hearing on Orange County. But any legislation that he or others propose is likely to run into opposition from powerful Republican colleagues as well as the politically influential securities industry.

The Clinton Administration insists that it has done everything that it could. To this point, that has largely amounted to convening a special markets working group, which was established after the 1987 stock market crash to survey the situation. The group’s answer: caution other localities to invest prudently.

“The federal government has no direct legal authority over the investments of local government,” said a senior official at the Treasury Department, which heads the group. “Those are controlled by state statutes and local ordinances.”

The official, who spoke on the condition that she not be named, said Orange County’s economic and political status as a Republican stronghold has nothing to do with the Administration’s passive position on a situation that is expected to force hundreds of layoffs and deep local spending cuts and jeopardize projects such as the construction of schools and courthouses.

“Ultimately, Orange County is going to figure out how it will get out of this situation, just like New York City or Bridgeport, Conn., or San Jose” did when those cities were embroiled in a financial crisis, the official said.

In this respect, the Administration has an unlikely ally: Orange County’s congressional delegation.

“I don’t think the federal government can do anything to help them out,” said Rep. Ron Packard (R-Oceanside). “I am convinced they can work themselves through it. I don’t think they should have any special dispensation.”

Rep. Robert K. Dornan (R-Garden Grove) was characteristically blunter: “That’s not on our watch. That’s the (county) supervisors’ battle.”

To the extent that Congress can help Orange County recover, said Rep. Christopher Cox (R-Newport Beach), it will do so by lifting cumbersome federal mandates on counties. “That’s the kind of solution you will get,” he said.

Governors and mayors, particularly Republicans, have long demanded that the federal government desist from handing down costly “unfunded mandates.” In time of need, this kind of stand for greater autonomy also makes it harder to ask for federal assistance.

Meanwhile, Democrats, who tend to be more receptive to bailouts and regulatory redress, look on Orange County as the gilded heartland of the right wing, a place that gave the country Richard Nixon and Ronald Reagan and an airport named after John Wayne.

“The free-market philosophy comes with pluses and minuses and one of the minuses is that sometimes you stumble,” said Rep. Barney Frank (D-Mass.), a member of the House Banking Committee. “They made a conscious decision to gamble so I don’t think we should bail them out. It was quite irresponsible to have done this with borrowed money. They should deal with the consequences of their actions.”

A liberal activist was even less charitable. The Orange County bankruptcy “is like a fire sale at Gucci’s,” said Colleen O’Connor, deputy director of the Campaign for New Priorities, which advocates shifting money from defense spending to urban programs.

Among Republicans, Leach has been unusually outspoken in calling for regulatory reform in the wake of the Orange County situation. At a news conference this month, he said that he intended to introduce legislation that would require municipal securities to operate under the same disclosure requirements as corporate issuers. Cox has called for similar legislation.

“In my judgment, in a democracy, municipalities ought to lead the way in full disclosure,” Leach said. “It is perverse to think that public officials should be held to a lower disclosure criteria than private corporations.”

This would require more than 55,000 public bodies that issue bonds to submit periodic certified reports that meet rigorous accounting standards to the Securities and Exchange Commission. State investment issues now fall under the jurisdiction of the states and not the SEC, with the exception of potential violations of the anti-fraud provisions of securities laws.

Opponents, including the securities industry and state and local government representatives, say that such a requirement would entail substantial costs to pay for auditors and lawyers to prepare the reports, would subject local governments to expanded liability and would constitute a new federal mandate. A GOP aide on the House Commerce Committee, which has jurisdiction over the securities industry, said that most Republicans on the panel would oppose such legislation.

SEC Commissioner Richard Roberts said that such legislation is not necessary because the commission has approved new reporting requirements in the past year “that should be completed and implemented before any new projects are started.”

These rules would bar broker-dealers from underwriting bonds as of July 3, unless they verify that the issuer has agreed to disclosure of annual financial information and material events that could affect their bonds.

Leach has also vowed to reintroduce legislation to strengthen regulations governing the investment of derivatives, which he has called “the new wild card in international finance.”

“To me, one of the most remarkable aspects of (Orange County) is that there is no accountability here in Washington because no accountability has been decisively and thoughtfully placed,” Leach said.

In contrast, Federal Reserve Board Chairman Alan Greenspan and other federal financial regulators have said that they view derivatives as a valuable way to balance risk in today’s rapidly changing financial markets.

Kevin Phillips, a conservative commentator, said the Administration and Congress have been so remiss in failing to address the dangers of derivatives that they are “either collaborators or guilty of regulatory omission.”

He said that key Administration officials came from Wall Street firms that reap large profits from derivative trading and that securities brokers had showered the major political parties and lawmakers with campaign funds.

Whatever the broader regulatory implications, some said that Washington’s lack of angst over Orange County’s situation is widely shared throughout the country.

William Schneider, a political analyst at the American Enterprise Institute, sees parallels with New York’s fiscal crisis, when the nation’s largest city narrowly averted bankruptcy. Many conservatives then believed that the city’s plight was well-deserved.

“As Orange County is the symbol of excessive conservatism and freewheeling capitalism, New York was regarded as the symbol of excessive liberalism and the corruption of the welfare state,” Schneider said. “If there was more concern about New York--and there wasn’t a lot of it--it was because New York was the financial capital of the country.”

Times staff writers James Risen and Gebe Martinez contributed to this story.