The $50 billion fraud allegedly committed by Wall Street money manager Bernard Madoff has got to be false. After all, we’ve got the SEC. Right? It’s been in existence since the 1930s. Right? Its purpose is to ensure that the American people are protected from fraud in the financial markets. Right?
Well, then how is it possible that a $50 billion fraud has occurred? It just cannot be.
The Madoff case exposes, once again, the dark little secret of government regulation: it doesn’t work. Just ask the people who have lost their fortune with Madoff or those, say, who lost money with Enron, another big company subject to SEC regulation.
Of course, be prepared for the standard line issued by interventionists: “The Madoff fraud reflects the failure of free enterprise and the need for regulation.” Never mind that Madoff’s fraud fell squarely within the ambit of SEC regulation.
Be prepared for the standard secondary line issued by interventionists: “The regulators were asleep at the wheel. We just need to get better, more awake bureaucrats in office.”
But that position doesn’t hold any water either, especially given a man named Harry Markopolos, an investment manager from Boston. Beginning in 1999, he began sending analyses to the SEC warning that Madoff was running an enormous Ponzi scheme. Yes — you read that right — 9 years of continuous warnings, yet ignored by SEC regulators.
What better evidence of the idiocy of government regulations than the Madoff case? What’s the point of having the SEC and financial regulation if they don’t even prevent a $50 billion — billion! — fraud committed in violation of SEC regulations and right under the noses of SEC regulators over a period of 9 regulated years and despite repeated warnings to the SEC of the fraud?
Like so many other government programs that don’t work (e.g., the drug war), the point is simply to provide nice, lucrative jobs for power-hungry people who spend their lives harassing innocent people (e.g., Michael Milkin and Martha Stewart) while making investors think that their government officials are taking care of them.
That’s not to say that there wouldn’t be fraud committed in a free market. But at least people would tend to be more cautious, more responsible, and more diligent than they are when they innocently believe that their government personnel are watching over them and protecting them from the frauds of the world.