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June 29, 2012

BLOG OF JUNE 29, 2012


As was pointed out in an essay by Jennifer Szalai in Harper’s, February, 2012, much has been made about how Bernie Madoff could have made off with billions of dollars in a Ponzi scheme in broad daylight.  Madoff’s plan was simple to a fault: You take people’s money and lie about what you do with it. You do not invest it (as you promised your investors); you just put the money in a bank account and set up phony returns and phantom trading records. You file bogus financial statements with regulators, in this case, the SEC. You lie under oath when interviewed by the SEC. You commit several felonies. You pay generous dividends to your investors from the money which continues to come in to your coffers. All is well, until the money flow falters, as it did in Madoff’s pyramid scheme. Who (other than Madoff) is responsible for allowing this huge scam to be visited on the investing public?

Szalai feels that the Madoff “story lies less with what he did than with the regulators and what they didn’t do.” She feels that “there was little reason for the agency to believe he was telling the truth when he attributed his success to a ‘gut feel’.” (I don’t agree – he started it – there could have been no regulatory lapse but for the scam.) Is a detective at fault for a crime he is investigating? One might answer: “No, but he is responsible for mishandling it.” Is he, or is there enough blame to go around? Let’s take a look at the context during these Bush years of scandals ranging from Enron and World-Com. to and through the Madoff disaster.

 In addition to the foregoing, there were regulatory investigations going on with Tyco, Adelphia, Scooter Libby and others during the Bush regime. The regulators, who have other things to do than criminal investigations, were underfunded and understaffed and busy beyond belief (and, as usual, were harassed and otherwise threatened with budget cuts by republicans in the House of Representatives – always the great defenders of “private enterprise” and against “government interference” with big business, banks, and other such campaign contributors). (I must have missed out on something during my 85 years; I always thought it was good public policy to interfere with criminal elements among such “contributors,” or non-contributors, for that matter.)

 Republican House members perched on their committee hearing roosts during hearings were so antagonistic to regulatory officials that, in some cases involving criminal investigations, it can almost be said that they were themselves guilty of impeding lawful investigations of possible criminal conduct by their patron corporations, conduct bordering on the status of accessory. Their hubris shows when they know they have legislative immunity while they are on the floor in the conduct of legislative business (see, currently, Issa of California, and the committee’s abuse of our attorney general, who also has other things to do – like investigate corporate criminal conduct), though I have am of the view that crimes can be committed on the legislative floor by legislators irrespective of the doctrine of legislative immunity (see my recent blog on aiding and abetting rape by the Virginia House of Delegates).

I am sure that my followers have seen the pictures of George Bush in an embrace with “Ken,” the now deceased (suicide) CEO of Enron (the corporation that turned off California’s lights, came up with hundreds of “partnerships” in offshore tax havens (who sponged up debt) to make its balance sheet look very profitable with the consequent phony inflation in value of its publicly-held stock etc. etc. etc.). The picture of Ken and George was taken at the renaming of the Houston Astros baseball field to “Enron Field,” a name which has been since withdrawn with the dissolution of Enron as a criminal enterprise guilty of stock swindling, among other things. “Ken” was on one occasion the number one contributor to “George’s” campaign. It pays to have friends in high places; republicans can protect your “free enterprise” status as you proceed to play the Ken and Bernie game.

So did the SEC mishandle the Madoff swindle? Who underfunded and thus understaffed the agency? Who made the laws and the regulatory constraints under which the agency conducts its investigations? Hint – it wasn’t the agency. It was the congress who passed the laws and who are constantly refashioning the rules and regulations of agencies (who are dealing with their corporate patrons) to suit their own political prerogatives. Much goes on in the back rooms of Washington between congressional aides and agency regulators to which we are not privy.

 Sometimes congressional “hearings” are called so that public blame for such things as Ken and Bernie games can be diverted from the congress and assigned to someone else. Perhaps the Ken and Bernie games and enormous losses to America’s investors would never have happened had the congress not serially underfunded the agency and harassed its members in such pointless exercises as “hearings,” but the hearing committee holds all the aces, including a power of “contempt.”

I think a cursory glance at the percentage of Americans who approve of our current congress tells the story of where “contempt” lies. It can be found in the mirrors of republican members of the House of Representatives. GERALD  E

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