Must See TV: Harry Markopolos explains how the Bernard Madoff Ponzi Scheme was possible

Posted by AzBlueMeanie:

I have been to many committee hearings over the years, but I have never witnessed anything as riveting and informative as what transpired before the House Financial Services Subcommittee on Wednesday. Wow!

Former investment manager Harry Markopolos, who investigated investment adviser Bernard Madoff for some 9 years, testified before the committee about his experiences with the Securities and Exchange Commission (SEC) in trying to bring Bernard Madoff to justice.

Mr. Markopolos makes some stunning allegations about the Ponzi Scheme of Bernie Madoff. Mr. Markopolos pointedly refers to Wall Street investment bankers as "predators," and suggests that Madoff is just the tip of the iceberg. He bluntly asserts that 30 years of deregulation of the financial services industry is responsible for our current financial crisis. Congress has fostered and permitted an unregulated "shadow banking" system to emerge, trading in extremely complex exotic investments that no one really understands (especially the regulatory agencies), and as Mr. Markopolos correctly notes, criminals tend to congregate in the shadows. He recommends it is time to shine a bright light of transparency on these unregulated markets by bringing them within the regulatory framework.

But it gets worse, much worse. New regulations alone are not going to solve this problem. Mr. Markopolos details how the regulatory agencies that are supposed to be the government watchdogs who protect us from the unscrupulous conduct of these predators have been gutted over the years of experienced staff and funding to conduct investigations. He asserts that the regulatory agencies have been entirely coopted as "captive agencies" of the very industries that they are supposed to regulate, and now serve as enablers for these white collar criminals on Wall Street. The SEC informed him that "we don't investigate" the big boys when he handed the Madoff case to them on a silver platter.

If you want to understand what is really going on and what went so horribly wrong with our financial system, this is "must see TV." All of the major television networks should be required to simultaneously rebroadcast this testimony as a public service to educate the American people.

You can watch the entire hearing at C-SPAN Video Player – House Financial Services Hearing on Madoff Investigation (4 hr, 39 min), which includes the testimony of the corrupt SEC officials whom Mr. Markopolos pointedly criticized in his testimony. The congressional panel came down hard on these individuals.

Here is a video clip of the opening statement of Harry Markopolos:

President Obama, I have three recommendations to make to you:

First, withdraw your inexplicable nomination of conservative ideologue Sen. Judd Gregg (R-NH) for Commerce Secretary (he has been a foot soldier in the deregulation of the financial services industry – he is part of the problem, not the solution). Several congressmen asked Mr. Markopolos if he would be willing to serve as chair of the SEC. Appoint Mr. Markopolos to Commerce Secretary to oversee the overhaul of all the regulatory agencies and to put the fear of God into the white collar criminals on Wall Street. Restore the watchdog role of these regulatory agencies by incentivizing aggressive investigations, whistelblower protections, and private attorneys general enforcement actions.

Second, request that Congress authorize a new Office of Special Prosecutor which will have unfettered subpoena power to conduct investigations into these predatory financial institutions. They are insolvent but for the taxpayer bailout money that keeps them afloat – the American people now own these financial institutions. We have the right to demand to review their books and all documentation and communications, and to compel testimony from witnesses when necessary. A few show trials of high profile Wall Street pirates will send the message loud and clear that this criminal conduct will no longer be tolerated by a civilized society.

And finally, it is time to reimpose the "firewall" regulatory protections that served us so well from the New Deal by repealing the Gramm-Leach-Bliley Act (1999) and adopting a modern version of the Glass-Steagall Act (1933). Then begins the hard work of figuring out how the financial system can be drained of all the toxic debt that was created by the various Ponzi Schemes of exotic investments that various acts of Congress unwittingly authorized. The current financial reforms under discussion by your administration do not begin to address unraveling the mess that Congress created when it deregulated the financial services industry. As long as these laws remain on the books we cannot begin to unravel this problem.

3 responses to “Must See TV: Harry Markopolos explains how the Bernard Madoff Ponzi Scheme was possible

  1. First, I do not “completely blame the Republicans.” This was movement conservatism which was shared by both the Reagan Revolution and Bill Clinton’s DLC/Third Way/New Democrats conservative Blue Dogs. It was Bill Clinton who signed the bills passed by the Gingrich Revolution Republicans (with the support of corporate HQ state Demcoratic senators, including Biden, Dodd, Lieberman and Schumer), on the advice of Robert Rubin, Larry Summers and Alan Greenspan.

    I am deeply disappointed with Obama’s choices for his economic team who are largely the same “Clintonistas” from Goldman Sachs who were responsible for creating this mess.

    The Regulatory agencies were populated by people who subscribed to your belief, Reagan’s bullshit line that “government is the problem” and “doesn’t work” and then set about to prove it through their own incompetence and indifference to good government, e.g., Michael Brown at FEMA and a host of others.

    The regulatory agencies were under the control of Bush for the past eight years. The inspector generals of these agencies were discouraged from conducting any investigations. The Republican Congress for six years failed to conduct any oversight hearings. The Bush “injustice” department refused to respond to the requests for investigations by Democratic chairmen who did conduct oversight hearings over the past eight years. This constituted obstruction of justice. (Impeachment is for cabinent level appointments, not agency level appointments).

    If you had listened to the testimony you would know that the agencies did receive numerous complaints, including from congressmen on the panel, that were ignored and not acted upon.

  2. I agree that nearly all government regulatory agencies, executive branch or otherwise, fail to perform their duties. I don’t think it has to do with being a conservative or an ideologue or having red hair.

    Hearing the now extremely orthodox answer that deregulation was the problem doesn’t fly far in my opinion. Democrats have been in the majority for 2 years and if they can’t bring government regulators to some sort of attention then I hardly think you can completely blame the Republicans (they certainly deserve plenty of blame but not exclusively).

    I already note that the modern day liberals are preemptively excusing themselves of any responsibility (beyond the occasional statement of words) by blaming 6 years of majority Republican legislature (plus George Bush). I imagine they hope that they have a pass for the -2010 cycle or the -2012 cycle.

    If Congress knew of malfeasance or imcompetence the House could start impeachment proceedings but they haven’t which means they had no complaints.

    To me the problems evident are nearly uniformly bipartisan in nature and the blame should be liberally (pun intended) applied to both responsible parties.

    In my opinion, government hasn’t solved the problem, government and more government isn’t going to solve the problem.