> You know who never goes to jail? Regulators.
Nor should they unless they were colluding with him or accepting bribes.
The punishment for just being bad at your job should be getting fired, not jail. Of course, I doubt many lost their job either.
Nor should they unless they were colluding with him or accepting bribes.
The punishment for just being bad at your job should be getting fired, not jail. Of course, I doubt many lost their job either.
1. Were Madoff's regulators fired? (My guess: they weren't, it wasn't even weighed as a realistic option by whoever should fire them.)
2. Was there an investigation into whether they were bribed, as there should be when someone is so spectacularly incompetent at their job that it's hard to reconcile with having the mental skills necessary to get the job in the first place? (My bet: there was no investigation whatsoever.)
"Starve the beast", remember?
How much bloody staff do you need to take a peek at the securities kept at a fund's bank account? We aren't talking "complex" stuff like rating agencies putting AAA ratings on junk (and BTW S&P was slapped on its wrist with a >$1B fine over that after an investigation). We're talking about a guy with almost no staff who paid "returns on investments" from his pool of investments.
The sum of the securities he'd keep would thus fall far behind the number following from his reports. Not noticing can only result from not checking. Not checking that much after multiple warnings results from defunding?! Perhaps, if there was just the janitor left and all the regulators were fired. Was that the case?
(You know what could be a probable cause other than incompetence or taking bribes? A desire to be employed by a Wall Street firm after resigning as a regulator, and a belief that it wouldn't work out if Madoff were checked and found clean, or even if checked and found guilty. But is it more than a convoluted bribe?)
Your assumption they were either bribed or incompetent is unwarranted.
If the SEC cannot look at the actual balance sheet as maintained by banks etc. until "the wheels come off" and until then they can only rely on what the org says its balance sheet is, things are really bad but somehow I doubt that's the case.
No, actually. This is wrong. You can't spot a clever Ponzi scheme if the person who provides the balance sheet is willing to put down false information.
As an auditor all you can do is correlate the bits of information you have. If the criminal is intelligent you won't spot anything until it's too late.
The "warnings" they got were that Madoff's fund was making money too consistently. That's useless.
As to the warnings being useless - you mean that the likelihood of such warnings does not correlate with the real state of things enough to justify action? As in, every legitimate money manager is suspected by many competitors of being a fraud and the SEC is overwhelmed with meaningless warnings to that effect? I doubt it somehow.
By way of analogy, if I create a new kind of medical device, the FDA does not say, "We don't have any regulations that cover that, so it's completely unregulated until we see the need to write some." No way.
But a new financial product, while it can't kill anyone, it can still cause massive damage. (We just got a case study in this in 2008.) The default for any new financial idea should be regulated, not unregulated.
And "but it's not a bank!" doesn't cut it. Mortgage securitization wasn't a bank activity, but it still nearly destroyed the world economy. Repo isn't a bank activity, either, but it played a significant role in the crash. Both are "bank-like" enough that they needed serious regulation. Since the risks were not yet understood, any regulation in place was not nearly stringent enough.
A great writeup about this by someone a bit more credible than Krugman can be found at http://blogs.wsj.com/economics/2010/02/23/so-what-exactly-ca...
Written by Yale and Wharton Professor Gary Gorton, who has held positions at the Bank Of England, the Federal Reserve and the FDIC.
"Innovation" is almost always another way of saying "We found another way to gamble with the customer's money."
The regulators, rating agencies, mortgage lenders, government, GSEs all contributed to people overleveraging, but thats not even the real issue.
The real problem is that the economy has changed, and all but the high skilled jobs are going overseas or being done by machines.
Bankers are not going to jail because they didn't break any laws. People need to stop being parrots and making claims about things they dont understand.
You look at the software industry, what do we see? Mild amateurs not encrypting personal data, or not protecting their sensitive data against hacking 101 attacks (we still see sql injections attacks in this day and age!). You see a very large shady industry prospering on invading the privacy of unsuspecting users (and not just the adclick of this world: google, facebook!). In a corporate environment, developers have a similar bad reputation than house builders in term of creating projects that very often take a lot longer that expected, fail, or simply are not fit for purpose.
Does it have no consequences? It has massive consequences and the worst data leaks are probably yet to come. Should we impose heavy regulations on the software industry and curb toxic innovation? It is certainly not an absurd debate. Obviously most people in the software industry will react to this with hostility. They will argue it would negatively affect innovation and progress, that there are good and bad apples, and that one cannot judge an entire industry without a minimum understanding of how it works and how it benefits the economy.
Well guess what: it is the same with the financial industry!
http://mcadams.posc.mu.edu/txt/ah/assyria/hammurabi.html#Ham...
Far harder to measure but magnitudes greater damage.
In Madoff's case there was an additional issue - the people he defrauded were mostly wealthy and powerful.
Of course they should go to jail, justice is blind, the law applies to all, look up the magna carta. When some are more equal than others injustice and corruption occurs, we see it vividly throughout the US corporate-fascist complex.
Lifeguards can go to jail (in Europe, at least) for manslaughter, as can ski marshals, if they're deemed sufficiently negligent when someone dies. It's pretty rare, but certainly something on the equivalent scale to causing a global economic crisis would warrant it.
You should keep that in mind next time you get surgery. :-)
None of those listed professions at any time motivate their training due to fear of imprisionment. It is a complete non factor and it's only effect is to shovel more pain and tragedy on already tragic situations to the illusion of relief for a small porportion of the parties aggrevied.
I don't care why he's doing his best. It would be nice if he was doing his best because he's a dedicated professional, but doing his best out of fear is far better than being operated on by some slacker not giving their best.
So the answer to your question is yes, please, I want the surgeon who is doing his best; not the one who is slacking.
Or coding software for medical machines.
Or being a pilot or a bus driver.
Or construction.
I don't believe anybody was arrested for the Therac-25[1] accidents.