It did not take long at all for these newly formed financial SWAT teams to storm their way onto Wall Street looking for any threat to the party system. No doubt this breed of financial auditors comes armed with high calibre paper shredders. At least this is one way of eliminating the losses expected to take down the financial world. Their biggest problem though will be to find all of the counterparty copies and e-mails. Good luck boyz! Rumour has it that the HQ for these FED stormtroopers is in a bunker deep below the NY COMEX.

Also, I have never read nor do I endorse the book below but its cover does reflect today's financial crisis rather well.

Regards - VHF

The US Federal Reserve has sent staff into some of Wall Street’s biggest firms and its New York branch is gathering evidence on key traders’ activities as America’s central bank raises its scrutiny of risk to an unprecedented level.

Fed staff have set up shop in Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch, and Bear Stearns to monitor their financial condition just days after Henry Paulson, the US Treasury Secretary, proposed that the Fed become the financial industry’s “risk czar”.

This is the first time in more than a decade that the Fed has put staff in securities firms and is a response, in part, to its decision to extend to investment banks the “discount window” of cheap loans traditionally offered only to the commercial banks. The Fed argues that if it is to act as lender of last resort to the securities firms, it should keep a closer eye on their activities.

The move comes as the central bank’s New York branch separately compiles a list of names and numbers of key traders in specific, esoteric securities such as auction rate preferred securities. These obscure instruments can be traded only at auctions and demand for them has virtually evaporated in recent weeks.

A senior US mutual fund executive, whom the Fed has approached, said: “They are looking in every corner to understand every esoteric financial product — who its traders are, who holds the most, whether its market is liquid and how great the losses could be. They are approaching people like me to find the key players in particular securities and then contacting them to find out the details. I have never heard of that being done before.”

The Fed will use the information to ascertain how effective the measures it has taken so far have been, where in the financial system the biggest dangers lie and how best to curb them. Its action includes a 3 percentage point cut in the base rate since last August and a reduction in its discount window lending rate.

The Fed declined to comment on its attempts to increase its market scrutiny. However, Timothy Geithner, its president, speaking to Congress yesterday, said: “[The banking industry's] most important risk is systemic: if this dynamic continues, unabated, the result would be greater probability of widespread insolvencies, severe and protracted damage to the financial system and, ultimately, to the economy as a whole.” He cited “a self-reinforcing downward spiral” of asset sales, “higher volatility, and still lower prices”.