Maybe It's Time....

After listening to the political rhetoric that espouses anti-regulation and watching as regulations intended to protect were rescinded or ignored by the Republican Congress and Republican President and Republican Appointees, the financial collapse and Madoff scheme seem consistent with their intent.

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This interview (excerpts below), SEC Whistleblower Speaks on Madoff Fraud offered some reasonable explanations.

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The Securities and Exchange Commission (SEC), the oversight body which was set up to enforce laws regulating finance in order to prevent a repeat of the stock market crash of 1929, has admitted to falling down on the job, missing the long-running scheme allegedly perpetrated by Bernard L. Madoff - potentially the largest scandal ever to rock Wall Street.
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On Tuesday, SEC chairman Christopher Cox admitted that the agency had failed to thoroughly investigate multiple "credible and specific allegations regarding Mr. Madoff's financial wrongdoing," adding "I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them."
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The Madoff affair is the latest in a string of missteps made by the regulatory body.
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After a successful career as a trial lawyer, Gary Aguirre turned his attention to public service, trading in a lucrative practice to become a government lawyer tasked with investigating financial crimes.
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In the course of an investigation into possible insider-trading by hedge fund Pequot Capital Management, Aguirre pushed to subpoena Wall Street star John Mack, now the chief executive of finance giant Morgan Stanley. The investigation was halted by Aguirre's supervisor and the SEC allowed the case to die.
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A subsequent report by the internal SEC watchdog found that Aguire's supervisors acted improperly in firing Aguirre and shutting down his investigation. While the report recommended punishment against four officials in the chain of command, Cox declined to hold them accountable.
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Senior officials at the SEC got a call from Debevoise lawyer asking about a case I was handling. It was clear she wanted the investigation of John Mack to go away so he could become Morgan Stanley's new CEO. And it did go away. SEC associate director Paul Berger derailed the investigation and when I questioned that decision, fired me. Within a few days of firing me, he made an inquiry through one of his colleagues to the Debevoise law firm to see if they were interested in hiring him. After the case against Mack was dead, Berger took a job with Debevoise and that is where he's working now. I'll let you draw your own inferences.
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There is an expectation that the SEC will face rigorous scrutiny by the new administration because the SEC's failures were a primary cause of the deepening financial crisis.
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Counter to that, is the fact that Kotz issued two reports in September. They called for discipline for all the SEC supervisors involved in my discharge, and similar discipline for the head of the Miami office on the Bear Stearns investigation. In those cases, nothing happened. Worse yet, Cox appointed someone to trash the Kotz reports and indirectly Kotz himself. So, Kotz may be a little gun-shy at this point.
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I think we've had a collapse of the markets caused by three different factors. The three factors all point to the failure of regulatory entities to carry out their missions. One area is the liquidity and capitalization of the major banks, which SEC was supposed to keep an eye on. We've had one bank fail after another. When you look at the scope of those failures, and the magnitude of those failures, you have to ask yourself, how could anybody miss the red flags that these banks were in deep trouble.
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The second factor is market manipulation and insider trading. It has been a colossal failure by the SEC. Its failure to investigate the big players gave them a sense they were invulnerable. So, they just got bolder.
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The SEC seemed to be doing its best job on investment fraud, but some of the fraud that has surfaced before Madoff raised some questions about the SEC. Madoff is on a new scale. It is a ten on the Richter scale. There were some preshocks that should have been picked up. It was the SEC's strong suit and they missed it. There has been a regulatory failure in this area; by the SEC, FBI, Department of Justice and local US attorneys' offices.
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The SEC has a budget of around $1 billion. It's not enough to police the financial industry, but it is enough to show that you can do things efficiently and competently. Occasionally, you can bring a case against somebody who has a significant effect on the markets and detect the fraud, conduct the surgery rather than the autopsy.
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In 1929, when the market crashed and the Senate Banking Committee surveyed the rubble, they discovered all kinds of fraud by Wall Street elite.
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I'm not sure that all of the dirt has come to light at this point. I think one reason for that is because [Treasury Secretary Henry] Paulson, a representative of Wall Street, has been pumping money into the system. We're transferring trillions of dollars from taxpayer's pockets to Wall Street to try to stem the downward cycle that we are in and perhaps to some extent we have. But that may help conceal the extent of the fraud. It is when the veneer is completely stripped away; that's when you discover the fraud. To the extent that we are pouring trillions into the capital markets, we may delay, postpone or even prevent the full extent of the fraud from surfacing. But I think it is out there and I don't think the downward cycle has ended yet. As long as it continues, we'll discover more.
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Christopher Cox, U.S. Securities and Exchange Commission chairman, leaving his position within the next few weeks, had the following comments included in his wikipedia entry -

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In the spring of 2001, then-Representative Cox was considered by President George W. Bush for a federal appellate judgeship on the United States Court of Appeals for the Ninth Circuit. Cox withdrew his name from consideration before a nomination could be made because one of his homestate Democratic senators, Barbara Boxer, objected to him due to his perceived conservatism.
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On September 18, 2008, the same day that these corrective measures went into effect, Republican presidential candidate John McCain lashed out at Cox for failing to rein in short selling and said if he were president he would fire him. McCain immediately came under fire for the critical remark, in which the Obama campaign pointedly refused to join, with the Wall Street Journal editorializing that McCain had made a "false and deeply unfair" attack on Cox that was "unpresidential," USA Today calling it "erratic," and columnist George Will terming it evidence that McCain was "behaving like a flustered rookie playing in a league too high."
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It is clear in hindsight that regulations few of us were aware of, were ignored or rescinded. It is clear that agencies designed to protect, regulate, inspect and prosecute have been politicized and

corrupted by ideologues, lobbyists, and those who flip flop between those they were charged with regulating and regulatory agencies. Instead of embracing the anti-regulation call, maybe it's time to re-consider the flag we rally around and our beliefs. Maybe it's time to restore integrity to the process and function to government.