Memo to Villages: If You Are Missing Some Idiots, Please Pick Them Up at the SEC

And Hurry, They Are Making a Mess of Things There

Remember Bernie Madoff.  The great genius of an investor who, as it turns out was running a real Ponzi scheme, not a fake Ponzi scheme like Social Security.  Well the Securities and Exchange Commission was called upon to devise a method of determining how much money investors would get back as assets were liquidated from Mr. Madoff's investments to pay them.

The way the process went was this.  Former SEC General Counsel David Becker led a study and produced a recommendation to the full Commission.

Mr. Becker and his subordinates led a series of closed-door commission meetings in the fall of 2009 that culminated in a commission vote backing a method for compensating victims of the Ponzi scheme.

So what’s the big deal?

In early 2009, the S.E.C. agreed on a method that would give investors a claim to only the money they had put into their Madoff accounts.

But in the summer of 2009, Mr. Becker reversed this decision, arguing that the commission should allow victims to keep some of the gains their investments had generated, since the investment would have grown over time even in a low-interest account. 



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No Wonder Mr. Madoff Was Able to Fool the Regulators



So what’s the big deal?  Oh, maybe this

Mr. Becker and his two brothers were beneficiaries of an estate that included about $2 million his late mother had invested with Mr. Madoff.

Oh, that.  Well surely everyone knew this, right.

Previously, Mr. Becker said that he had advised Ms. Schapiro and the S.E.C’s chief ethics officer of his financial interest in a Madoff account, “either shortly before or after” joining the agency in February 2009. The ethics officer, William Lenox, approved Mr. Becker’s role in the Madoff compensation deliberations after only a brief review. Mr. Lenox reported to Mr. Becker.

But what about the Commissioners, the one who actually got to make the decision?

all four commissioners learned about Mr. Becker's link to the Madoff case from reading news reports earlier this year. . .The report will also portray Commissioner Luis Aguilar as the most upset that he wasn't informed earlier about the account of Mr. Becker's mother, people familiar with the matter said. All four commissioners wish they had been told, according to the report.

There may be criminal charges filed, and The Dismal Political Economist doesn’t know if the actions of Ms. Schapiro (who has not publicly commented and may deny she was informed) who heads the SEC, Mr. Becker or Mr. Lenox were crimes, unless idiocy, stupidity, and failure to understand the most basic tenets of conflicts of interest are crimes, in which case these three should just go directly to jail, no trial needed.

Assuming these are the best and the brightest at the SEC, the agency in charge of policing financial markets we now have an explanation of what went wrong with the regulatory process that failed in the years before 2008 and resulted in what we now call The Great Recession.  Thanks regulators, we couldn't have done it without you.

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