Tag: Bernie Madoff

SEC Incompetence

There has been much speculation that the Securities and Exchange Commission (SEC) released its charges against Goldman Sachs on the eve of a Senate vote on new finance regulation in order to help Democrats win that vote.  Perhaps that theory is wrong: It now looks more likely that the SEC timed its Goldman case in order to divert attention away from two SEC inspector general (IG) reports criticizing the commission.

In one of the reports, the SEC IG found that several of the top staffers at the SEC were spending their days surfing the web for porn, rather than looking for securities fraud.  One senior manager spent almost 8 hours a day looking a porn, getting to the point where he even filled up his government issued hard-drive with porn.  His actions were not some isolated incident.  Over 30 employees were found to have regularly used SEC computers to download and view porn.  Some of the senior employees had salaries as high as $222,000 a year.  Sounds like nice work, if you can get it.

But the porn charges are the least of the SEC’s worries.  Also released was the IG’s report on the SEC’s failure to stop the Stanford Ponzi scheme.  The report shows a clear pattern of incompetence at the SEC.  Given the SEC’s failure to act on the Madoff scheme, and the repeated warnings about Stanford, one has to wonder how good SEC investogators are at discovering fraud if they don’t even pursue the clear-cut cases brought to them.

The IG report does help explain the SEC’s poor track record.  The SEC’s head of enforcement made it very clear that the staff was “to bring more Wall Street types of cases.”  Perhaps ones like the recent Goldman case?  The head of enforcement even goes so far as to ask the staff working on the Stanford case, “What are you bringing these cases for?”  Clearly the SEC only seems to care about fraud if its catches a big headline.  Since the SEC was first warned about Stanford, investors placed about $8 billion more into the Ponzi scheme, far more than the damages alleged in the Goldman case.

If anything should expose the current financial regulatory bill being debated in the Senate as a fraud, it should be the fact that it leaves the SEC still standing.  Even worse, it reduces Congressional oversight of the SEC by removing it from the appropriations process.

The Audacity of Hypocrisy

In his ongoing effort to micromanage the U.S. economy President Obama used his Dec. 12 weekly radio address to promote his proposed Consumer Financial Protection Agency.  It will be filled with bureaucrats second-guessing entrepreneurs and is sure to improve the performance of our financial institutions – much in the manner of the SEC’s bureaucrats alertly nailing Bernie Madoff just 30 years into his Ponzi scheme.  Never mind that the federal government had much more to do with the financial meltdown than the banks did, the real knee-slapper in his address was his claim that the CFPA “would bring new transparency and accountability to the financial markets…” This, from a man demanding passage of a 2000-page health care reform bill that no one, including Mr. Obama, has read.  So much for transparency and accountability.

Bernie Madoff and Government Fraud

In an op-ed Chris Edwards and I wrote for National Review Online yesterday, we shed light on the $100 billion or more in government subsidies pilfered by recipients through fraud and abuse:

Every year, criminals and cheats pilfer over $100 billion — that’s $40 billion more than Bernie Madoff scammed off his investors — in federal benefits to which they are not legally entitled. Medicare, Medicaid, food stamps, refundable tax credits, and many other programs are targets for looting.

Chris and I focused on fraud and abuse perpetrated by the recipients of taxpayer largesse, and Bernie Madoff made for a good comparison. But as the great economist and Cato adjunct scholar Robert Higgs also pointed out yesterday, “Bernie Madoff Was Only a Petty Crook Compared with Uncle Sam.”  Typically, Higgs doesn’t mince words when it comes to comparisons between private and public Ponzi schemes:

Madoff, in contrast to the government, carried out his fraud in a civilized way: he merely misrepresented what he was doing, purporting to invest his clients’ money and to obtain a high rate of return on these investments. People dealt with him voluntarily. Those who suspected something was fishy did not do business with him, and some people went so far as to give substantial information to the SEC to show that Madoff’s business had to be fraudulent (which information the SEC ignored for years on end, of course).

The leaders of the U.S. government have carried out their Social Security fraud—essentially a Ponzi scheme, in substance exactly the same as Madoff’s scheme—since 1935… . The U.S. government, however, does not bother to claim any prowess in investing the money it forces people to surrender to its scheme. It admits that the ‘client’s’ return is now close to zero (varying a bit according to the client’s age and other factors). Nor does it carry out its admitted Ponzi scheme in a civilized way. Not only is participation in the scheme involuntary, but the government threatens violence against anyone who fails to participate as it commands him. Thus, the government operates its Ponzi scheme in a markedly more thuggish manner than Bernie would ever have dreamed of. He might have been a crook, but he was not a thug.

Feds Pay Farmers to Till the Desert

No, this headline and story is not brought to you by The Onion.

The latest proof that there’s nothing more permanent than a temporary federal program:

As drought forces families in the West to shorten their showers and let their lawns turn brown, two Depression-era government programs have been paying some of the nation’s biggest farms hundreds of millions of dollars to grow water-thirsty crops in what was once desert.

My sympathy for this farmer lies somewhere between that which I have for Bernie Madoff and Ted Stevens:

Jim Hansen, a 69-year-old cotton grower in California’s Central Valley, said his family business would crumble if the government took away low-cost water and the nearly $1.7 million in crop payments he received in 2007 and 2008.

For more on the insanity that is federal farm policy and why the USDA needs to be downsized and/or done away with, click here.

Real Regulators: Madoff’s Accomplices

In his “Talking Business” column, Joe Nocera explores Bernie Madoff’s accomplices: the victims themselves, and the SEC. He quotes James R. Hedges IV of LJH Global Investments:

“It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.” And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.

Nocera ably acknowledges the hurt and suffering of Madoff’s victims while pointing out their thoroughgoing irresponsibility — especially in the suggestion that someone else should pick up the pieces.

I’m less sanguine: The more thoroughly their cascading delusions of government aid and protection are shattered, the better. And yours, too. And mine. No bailout.

(Earlier posts in this “real regulators” thread here and here.)