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After Bernard Madoff confessed to looting some $50 billion from investors in a widespread Ponzi scheme, a Democratic member of Congress complained that this huge fraud “fell through the cracks of our regulatory system.”
Indeed it did, but let’s be honest – there are now more “cracks” than “system” in America’s regulatory apparatus.
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In the past decade, credible evidence of Madoff’s theft had been brought numerous times to the SEC, which is supposed to be the watchdog against financial fraud. Yet, the SEC conducted only one cursory investigation, exonerating him based on data that Madoff himself so helpfully gave to the agency. Indeed, Madoff even served on various SEC advisory committees while he was going about his dirty business!
His case is no anomaly. It’s the SEC, after all, that offered not so much as a bark while the biggest firms on Wall Street built their own Ponzi schemes on flimsy subprime mortgage scams, leading to today’s economic crash and massive bank bailouts.
None of this is accidental. Under both George Bush and Bill Clinton, there has been a deliberate, fantasy-based de-fanging of our public watchdog. “Free Wall Street hucksters from the yoke of regulation,” was the ridiculous political demand, and Washington meekly complied.
SEC’s enforcement budget was slashed, fraud investigators were neutered, and bankers came to be treated as the agency’s “customers.” In 2000, the once-proud SEC prosecuted 69 cases of securities fraud; in 2007, it prosecuted 9.
Good regulation has to have real bite to it. Barack Obama promises to put some teeth back in our watchdog, but he can’t do it alone, for Wall Street lobbyists are already swarming Washington to stop real change. To help push them back contact, OMB Watch at www.ombwatch.org.
“Lawmakers blast SEC for ignoring alarms on Madoff,” Austin American Statesman, January 6, 2009.
“Wall St. Fraud Prosecutions Fall Sharply,” New York Times, December 25, 2008.
“Heck of a job, SEC,” Austin American Statesman, January 7, 2009.