FLASHBACK '06: Feds probe $4 trillion bond market . . .

. . . only to discover, much to their chagrin, that they can no longer hide its rotten, festering core.

[originally published 2006-11-06 07:49:16 -0500 - this so-called "crisis" was many years in the making...]

[F]or the first time in 15 years, [a regulatory group] that includes the Treasury Department and the Securities Exchange Commission wants to meet Monday afternoon with the 22 primary bond dealers that trade directly with the Federal Reserve Bank of New York, related to investigations in the market that sees about $530 billion in securities change hands everyday.
That highly-liquid market pumps cash into the U.S.'s debt-laden budget, sets consumer interest rates and generally keeps the economy humming.

The Interagency Working Group on Market Surveillance -- which also includes officials from the Federal Reserve and the Commodity Futures Trading Commission -- will meet with the bond trading and compliance officers to discuss an investigation that some firms may have squeezed securities to boost profits.

May have? May have???

Of course, THEY DID!

You can tell right away what kind of 'probe' this will be.

"Regulators must come up with clarity on the bond markets.

In other words, they must devise a way to cover their tracks.

In the stock market, the rules are very clear," says Michael Cheah, a portfolio manager at AIG Sun America.
"What is at stake is the credibility of the bond market, which is so vital to the U.S. economy." FOREIGN INVESTORS OWN HALF OF IT, and they need to believe that it's a transparent market.

"People who are in the market know that every now and then games are played.

Every now and then???

Try - ALL-THE-Freaking-TIME!

The fact that people have lost their jobs over some of these activities suggests some kind of wrongdoing, and the law must now make clear where the wrongdoing was."

Of course, they're referring to the two senior traders at UBS who were sacked last week in anticipation of the probe.

Citing people familiar with the matter, The Wall Street Journal reported last week that the SEC is investigating a series of trades made by UBS AG (Charts) to see whether the bank hoarded securities to make them scarce and boost their value.

This is bad for everyone from Wall Street to Main Street, since Treasuries set the benchmarks for commercial and consumer borrowing costs.

* * *

The Interagency Working Group was set up in 1992 after Salomon confessed to rigging five Treasury auctions in 1991, a scandal that ended in the ouster of then CEO John Gutfreund, president Thomas Strauss and bond chief John Meriwether. Paul Mozer, head of the firm's Treasury bond trading group, served four months in jail.

* * *

"This isn't too unusual... it's part of review about practices in the market place," says Ernest Patrikis, a former Federal Reserve Bank of New York general counsel and now a partner at Pillsbury Winthrop Shaw Pittman LLP. "Regulators are saying to these guys 'Let's all get our acts together and behave and do the right thing'."

Don't make me laugh.

Pigs would sooner fly over the moon than bankers would 'do the right thing.'

Patrikis says that whether or not the UBS/Credit Suisse leaks turn into a full-on scandal, they will be used as a way for the Fed to force bankers and primary dealers to keep their noses clean.

It's like expecting a pig to stay clean after wading all day in sh*t.