Morriss on Madoff and the S.E.C.
02/14/09 - Cafe Hayek by Don Boudreaux
It seems that the employees at the Securities and Exchange Commission belong to the National Treasury Employees Union. I didn't know that there is a special union to represent the workers at the Treasury Department. Does every government department have its own union?
Colleen Kelley is president of that union. She has bravely come forward to reveal that employees of the Treasury Department have too little resources, training, and direction to be effective investigating financial crime. If only they had revealed this before the Bernie Madoff scandal, maybe government could have done something about it.
Government makes a poor regulator, purchaser, and evaluator because no one loses their jobs when they fail. They don't have to be afraid. It is OK to mishandle a few investigations involving $50 billion dollars lost.
On the other hand, they did a great job prosecuting Martha Stuart. They did not claim that she did anything fundamentally wrong. They claimed that she misled them about the perfectly legal actions she took. She thought that she might possibly have done something wrong, and lied to them about what her stock broker told her. Lying to a federal agent is a crime, even if there is no previous crime involved. This is a subtle point that got Ms. Stuart 5 months in jail.
Now we know why they prosecuted Ms. Stuart. It seems that the SEC is easily misled and thrown off the track. They must act swiftly to punish anyone who tries this, because it is so effective.
Andy Morriss of Market Correction writes:
[edited] Colleen Kelley defends the SEC’s “front line” employees against charges that they ignored the Madoff fraud, right under their noses, by declaring that it is all the Bush Administration’s fault. (“Don’t Blame the SEC’s Employees,” Letters, Feb. 13).
There will be no more Madoffs if we give those “front line” employees “adequate staff and resources,” “appropriate regulatory authority consistent with the growing complexity of financial instruments and trading techniques,” and “leaders committed to the missions of their agencies”!
This is not just nonsense but self-serving nonsense on more steroids than all of our home run champions combined. The Madoff fraud was one of the oldest games in town, a Ponzi scheme.
Dozens of fund managers rejected investing with Madoff because they undertook simple steps, such as talking to Madoff and observing his unwillingness to provide information on his strategy, and his suspicious use of a tiny accounting firm.
We need to stop pretending that government can protect investors from people like Mr. Madoff and tell investors to do some due diligence themselves.
So, who needs government, and who can afford to depend on government?