The Salomon Brothers' misconduct in the Treasuries market _
coming after such scandals as the fall and bailout of hundreds of
savings and loans, the drug and money-laundering and bribing
activities of the Bank of Credit and Commerce International, the
junk bond debacle of Drexel Burnham Lambert and the assorted frauds
in the Japanese stock market _ has further stirred anxieties about
the integrity of financial markets. Unless they are quelled, such
anxieties could hurt saving and investment all around the world.
In cracking down hard on Salomon Brothers for exceeding the 35
percent quota for primary dealers in the auction markets for
government securities, the Treasury was sending a message to the
other 39 primary dealers in that market that conduct like Salomon's
would be dealt with harshly.
With $2.3 trillion in federal debt to be marketed and rolled
over ad infinitum _ a debt total that is expected to increase by
$279 billion in the fiscal year 1991 and by $362 billion in 1992 _
any loss of faith in the integrity of the government securities
market might be extremely costly.
Treasury Secretary Nicholas F. Brady, in an interview on
Tuesday, said he did not know how "deep" the problems in the
government securities market went.
The Treasury, he said, was not an investigative agency; the SEC
and the Federal Reserve, on which the Treasury depends, are now
"collecting information." But Brady is clearly warning every house
that might be acting as Salomon was to clean up its act fast.
He was asked why the Treasury, having first announced, at 10:30
Sunday morning, that Salomon had been barred from bidding in the
primary Treasury auction market, said five hours later, following a
telephone conversation between Brady and Warren E. Buffett, the
firm's new chairman, that Salomon could bid for its own account but
not for its customers.
Brady replied, "In substance, that changed the situation only
At the time of the first announcement Sunday morning, he said,
there had been only "a lot of talk about what might happen," but no
concrete action. By the time of the second announcement, said a
Treasury official, who requested anonymity, the Salomon board had
taken four actions:
Dismissed the top three executives _ John H. Gutfreund, the
chairman; Thomas W. Strauss, president, and John W. Meriwether,
Discharged the head of the government trading desk, Paul
Mozer, and his No. 2, Thomas Murphy.
Announced other administrative and management changes.
Pledged, through Buffett, to cooperate fully with the
Treasury, SEC and Fed, to "right the wrongs. …