Wednesday, December 17, 2008

Bernie Madoff's Shady Schemes Should Have Set off Alarms Long Ago

From AlterNet:

Ignoring warning after warning is an essential element of the "Who Could Have Known?" excuse, as are rewriting history and shamelessly disregarding the foresight shown by those who sounded the alarm bells.

We're seeing the same ingredients in the Madoff affair. "We have worked with Madoff for nearly 20 years," said Jeffrey Tucker, a former federal regulator and the head of an investment firm facing losses of $7.5 billion. "We had no indication that we…were the victims of such a highly sophisticated, massive fraudulent scheme." It's a sentiment echoed by Arthur Levitt, the former chairman of the Securities and Exchange Commission: "I've known [Madoff] for nearly 35 years, and I'm absolutely astonished."

Who Could Have Known?

Well, Harry Markopolos, for one. In 1999, after researching Madoff's methods, Markopolos wrote a letter to the SEC saying, "Madoff Securities is the world's largest Ponzi Scheme." He pursued his claims with the feds for the next nine years, with little result.

More here.

Yeah, the first I heard of this story was NPR's coverage of it: their tease at the top of the hour asked something to the effect of "how did Madoff get past the SEC?" And NPR is supposedly liberal. I'll tell you how Madoff got past the SEC. You can't bust what you're not looking for. That is, for years now, going back to the Clinton era but dramatically escalating during the Bush administration, White House regulatory agencies have been purposely staffed by people coming directly from the industries they are supposed to be policing, people who see their mission as helping out their old industry buddies rather than making sure they obey the law.

That Madoff's massive fraud now stands to bankrupt thousands of investors comes as no surprise. The only real question here is how many more "surprises" are lurking out there waiting to fuck up innocent Americans.

Okay, there's another real question: do federal regulators intentionally create situations that guarantee their failure or do they simply ignore the obvious because their belief system is so strong that they literally don't see what's in plain sight? In other words, does all this come from sinister capitalists in smoke-filled rooms plotting to rob the poor in order to give the rich or do they just believe their own bullshit? Increasingly, I'm coming to think that the latter scenario plays much more heavily than I would have imagined only a few years ago. Indeed, as the above linked essay asserts, it appears that the entire ruling establishment is thoroughly blinded by its own ideology. In this case with Madoff, regulators may very well have honestly believed that staying out of his business was good for the economy, you know, all that "get the government off the people's backs" bullshit we've been hearing for so long. I think a lot of people with power really do believe such simple crackpot economic maxims.

And it's not just with the economy. It's one great big groupthink. It's as though these people, bankers, regulators, elected officials, investors, journalists, all of them, are much more sensitive to what the herd feels in its heart than to the cold hard facts. And that's quite a depressing thought. Long ago, in my teens and twenties, I strongly believed that facts were enough, that if you could put together unassailable arguments backed by the truth, that you would always win. I don't really think that's the case anymore, if it ever actually was.

People are irrational. People are herd animals. And I'm really frightened that our pack leaders are taking us over a cliff.