The Plank

What The Madoff Case Means For The Sec


How much blame should the Securities and Exchange Commission
shoulder for the Bernard Madoff case? On the one hand, Madoff was good--he appears
to have hidden his $50 billion Ponzi scheme from even his own sons, who worked
with him at Bernard L. Madoff Securities. On the other hand, well, a $50
billion Ponzi scheme should create some sort of wake, somewhere. In fact, it
did: The New
York Post
this morning cites a 1999 letter from investor Harry Markopolos
to the SEC insisting that “Madoff Securities is the world’s largest Ponzi
scheme,” though nothing came of it.

The Madoff case is, as the New
York Times
notes, the latest black eye for the SEC, which has seen its budget
slashed and staff morale plummet under Bush. But, of course, Madoff was in
business long before 2001, pointing to even deeper problems with the
Commission. The SEC is simply too small and too limited to address the breadth
and rapidity of developments in financial markets. For years observers have
been calling for significant reform--at the very least, merging the SEC with
the Commodity Futures Trading Commission--calls that picked up speed this
spring after Bear Stearns collapsed three days after Chairman Chris Cox said
the firm was solid.


The SEC isn’t always in the public eye, but it plays a
central role in the health of financial markets, and must play an even larger
role in rebuilding investor trust during the recovery. All of which makes it noteworthy
that Barack Obama has yet to name an SEC chair. To be fair, before doing so he
has to decide what to do with the Commission. Whether he rolls it into another
agency, or rolls other agencies into it, will be a large factor in deciding who
should lead it. But by leaving that person out of the economic “dream team” he
announced last month, he has positioned regulatory reform as a secondary issue
to industry bailouts and economic stimulus. He must act quickly to put it on
par with the rest of his economic agenda.


--Clay Risen

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