The Lesson To Be Learned From Salomon

Take a moment to reflect on the enormity of the disaster that Salomon Brothers has brought down on its own head. Its three top officers, one of them a giant on Wall Street, have left in disgrace. The firm's reputation has been sullied as revelations of its misbehavior multiply. And on Aug. 17, the Treasury Dept. banned the firm from bidding in its auctions.

The total blackballing lasted only a few hours. Salomon's largest shareholder, Omaha-based investor Warren Buffett, persuaded Treasury Secretary Nicholas Brady that Salomon could be mortally wounded by a complete ban. The firm was told it could bid, but only for its own account. Brady was wise to heed Buffett. Treasury bonds and bills are the basis for many of the sophisticated instruments--swaps, options, and futures--in which the firm is a leader worldwide. Protecting the integrity of the U. S. government-bond market does not require destroying a company that has an important competitive edge in world financial markets.