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Senate Hearing on Madoff's Ponzi Scheme

Here is the Senate Hearing on Bernie Madoff's ponzi scheme. 

From Harry Markopolos testimony on the Madoff ponzi.

"The current situation is dire.

The cost to this nation's capital markets due to criminal acts by white?collar fraudsters is still being totaled up but easily runs into the trillions of dollars.

The only question is: how many trillions will be required to clean up the banking system, the insurance companies, and the shadow financial institutions and rid their balance sheets of toxic debt?

We still don't know and won't know for several more years. White collar crime is a cancer on this nation's soul and our tolerance of it speaks volumes about where we need to go as a nation if we are to survive the current economic troubles we find ourselves facing.

These troubles were of our own making and due solely to unchecked, unregulated greed.

We, as a nation, get the government and regulators that we deserve, so let us be sure to hold not only our government and our regulators accountable, but also ourselves, as citizens, for permitting these situations to occur."

I am not hopeful since the OIG report was simply a whitewash accusing the SEC of not being able to do proper due diligence, ignoring red flags when they were waving, and waving loudly.

Well, of course the regulator ignored red flags!  That is how frauds get through scrutiny.  We need to understand why those red flags did not produce the required human action.  What psychological principles were at work here?

To further rely upon human reason and ignore human behaviour is not going to further our understanding - fraud is always clear in hindsight, what we need to know is why in foresight what we will come to know is not accessible.

Robbing Peter to pay Paul mimics ordinary commercial life, and we have to start with the uncomfortable fact.  Greed has no more to do with fraud than ordinary economic life requires attention to self interest.

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• Bernard Madoff: Top cop at the SEC? (dailyfinance.com)

Full post as published by Misleading Advertising Law on September 11, 2009 (boomark / email).