“See how the world its veterans rewards!
A youth of frolics, an old age of cards.”

Alexander Pope – Moral Essays. Epistle ii. Line 243.

The wind blows hard on a house made of cards, or so Bernie Madoff and his family are discovering.

Does he look familiar?As government officials move to seize assets from the clan Madoff, he, the father of all Ponzi schemes, languishes in a jail cell in the Metropolitan Correctional Center in Manhattan, a short distance, but a far cry from the luxurious appointments of his penthouse.

His wife Ruth, zealously trying to keep as much of her lifestyle as possible, should be preparing to pack and move as the house of cards her husband built collapses around them both.

Built on greed and malice, with only the intent to defraud holding the pieces together, the lies these people told have unraveled and now, everything they could have legitimately been is collapsing under the weight of their illegitimacy.

It was a crime, not only in the context of law, but in that of morality and social justice that anyone can build an empire of wealth on the basis of such corruption. While this Institute has previously faulted the lack of vision and greed of the victims, it is becoming clear that Mr. Madoff’s scheme was so great that the savviest investor might have easily been duped.

Investors can be forgiven their sins, particularly in light of the severe penance they’re paying, even with tax credits and refunds, compensation forthcoming and reimbursement. The hell they’re going through will hopefully teach them the need for added caution when something seems too good to be true.

However, the fact that government regulators and those who should have conducted proper investigation failed, even when alerted, purely because of infantile in-house politics is a crime of equal stature, if not greater than that of Mr. Madoff.

Regulators and their superiors fail miserably to realize that their duties, first and foremost are to the protection of the American public.  Rather, they believe that duty is to the companies and executives in the industry they regulate simply because the regulators live within the cocoon of their jobs. Though they see their fellow citizens, they more frequently see, and develop relationships with those executives in the companies they’re charged to regulate. Still more often, they see and have relationships with their fellow workers. Unconsciously, they are influenced by the “data input” received not from public complaints, but the buzz heard around the water cooler.

Part of this, we believe stems from the fact that the typical American vacation period is considerably shorter than that of other countries, especially European nations.

While it would raise many eyebrows and some ire, we believe government regulators should be mandated to take a minimum of five weeks vacation annually, with at least three weeks in one period. Such extended vacations help people re-connect with the rest of their fellow citizens and bring regulators back to the reality of their prime objective.

We also believe regulators should be shifted around every six months from one role to another, taking them out of whatever sphere of influence they may experience at any one period. One might think this could cause havoc in managing cases. Not true. Software solutions and proper record keeping could make this possible.

Nonetheless, the Madoff case has brought into the painful light of day those extreme inadequacies of financial regulatory controls and inspection. Effectively, one house of cards was supposed to police another. In the windstorm of economic upheaval that is a depression, it becomes quite evident that there are problems, not only with some offerings, but with the controls placed to protect both investors and the general public.

We are reminded of these eloquent words from the 16th century:

Love thyself last: cherish those hearts that hate thee;
Corruption wins not more than honesty.
Still in thy right hand carry gentle peace,
To silence envious tongues. Be just, and fear not:
Let all the ends thou aim’st at be thy country’s,
Thy God’s, and truth’s; then if thou fall’st, O Cromwell,
Thou fall’st a blessed martyr!
William Shakespeare – King Henry VIII. Act iii. Sc. 2.

No matter what happens to Bernie, Ruth or their sons, the Madoff scheme is history, and though some parts of it are still unfolding, its victims can be assured that some actions are being taken to prevent such schemes from taking place again. Whether that’s true or not, only time will tell.

Our grave fear is that those regulators and their superiors who failed so miserably to review the complaints and information in that case are not, at present, scrambling to review every possible complaint about the other ‘too good to be true’ schemes that are still out there. Let’s not forget that Mr. Madoff confessed his sins voluntarily. Others will not have such pangs of conscience as we’re seeing with the few that have made immature attempts to flee the inevitability of justice.

If regulators fail to check every possible fact and complaint at this point, it must be clear to Congressional oversight committees that comprehensive overhaul of the economic control systems is a fundamental mandate essential to the survival of our financial industry.

Let’s remember, Mr. Madoff’s scheme did not stand in splendid isolation, but was one of potentially hundreds of other fraudulent offerings in the marketplace. Due diligence, verification and transparency are indeed, the proper order of the day.

Tagged with →