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Markopolos: SEC "Had No Idea How To Do The Math"
Markopolos just put his finger on perhaps the key problem in the SEC's failure to catch Madoff:
"We need a highly trained finance team that is highly incentivized to look for frauds. Derivatives are too complicated otherwise," he said. "They had no idea how to do the math."
In other words, today's sophisticated Wall Street deals are simply too complex for the SEC's enforcement staff, as currently composed, to properly understand.
The only way to fix the problem, it appears, is to hire staff with more expertise.
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Josh
Zachary
The only way to fix the problem, it appears, is to hire staff with more expertise.
No fucking SHIT!!!!
And we PAY these people?
February 4, 2009 10:57 AM | Reply | Permalink
Well, it is more complicated than in seems. Regulatory agencies traditionally rely heavily on lawyers as regulators since they under the legal requirements better. In this case, the SEC needs more economists/financial analysts and fewer lawyers. It requires a real change in mind-set about what a regulator looks like.
February 4, 2009 11:10 AM | Reply | Permalink
I just know, as Will Rogers used to say, what I read in the papers. Don't know anything about stock or bond markets. Don't know anything about hedge funds. Don't understand why banks collapsed.
But I do know this: these derivatives were so complicated, sliced and diced and "tranched" in so many different ways, that nobody knew what was in them, including the people peddling them.
Be careful about buying into the contempt of someone like Markopolos for civil servants. The problem wasn't that the civil servants weren't as smart as the Masters of the Universe it was that the Masters of the Universe were too smart for their own good. And that was compounded by a mindset in the Bush administration (that Markopolos apparently shares) that career public officials were fools, while regulation defiled the purity of the market and regulators who did their jobs weren't good Republicans.
February 4, 2009 11:23 AM | Reply | Permalink
It also makes a twisted sense, if we're looking at a staff appointed during the Bush years, for the staff to not have teh requisite background or skills to do the job.
It was, after all, the hallmark of the Bush Administration, to hire people who, other than being 'good Republicans' have little else to show in the way of job skills, or motivation to handle the job's duties.
At this point, Obama needs to get away from this avoiding of prosecution, and 'turn loose the dogs'. Republican/conservative hacks are still looting the country, secure in the knowledge the Democrats lack the spine to follow through on prosecution for what crimes they find.
At this point the question begs: Which is worse, the crime, or the lack of will to prosecute?
February 4, 2009 11:28 AM | Reply | Permalink
"We need a highly trained finance team that is highly incentivized..."
Notice the word "incentivized". He basically means highly paid government employees. I have no problem with this. Like in college, football coaches usually make more than the Univeristy presidents and in this case, I could see inspectors possibly making more than the POTUS. Something has to give.
February 4, 2009 11:33 AM | Reply | Permalink
The problem is not the expertise or training of the staff. The lack of resources is not as much of a cause as it is a sympton. Also, the laws on the books now are more than adequate for the SEC to do its job.
The problem is the lack of commitment to enforce the securities laws on the part of upper SEC management (can you say revolving door?) and the administration that happens to be in power (both sides have been beholdened to Wall Street $$). Because of the general lack of resources sufficient to do an adequate job of enforcment the SEC management is very reluctant to bring an action where the issues/evidence are not of a slam dunk type (unless of course the target is a high profile person like Martha Stewart). Then the inherent lack of backbone exacerbates the reluctance to approve investigations that might draw the SEC into a battle with a large powerful target.
No, it isn't money or staff issues, it is lack of leadership within this sector of our business world.
February 4, 2009 3:34 PM | Reply | Permalink
How about making any accounting schemes and financial products that can not be understood by a basic CPA illegal? Wall Street has been running a high class casino and the words "complex" and "sophisticated" are just part of the scam. If the SEC doesn't understand how you are making money, then something is probably wrong. Let's stop buying into this crap that the people who work on Wall Street are financial wizards. They are not-- they are scam artists. We need to take off the green glasses and expose the little man behind the curtain. When do we get to "off with their heads"?
February 5, 2009 9:08 AM | Reply | Permalink