In his Senate hearing on his decade long quest for justice, Harry Markopolos seized the opportunity to reveal himself as a true patriot, populist, and Authentic American Hero in his sweeping indictment of the joke of a financial regulatory system that has exposed itself in the wake of this economic crisis. In a modern day “David vs. Goliath,” tale, Mr. Markopolos told Congress how he and a handful of industry executives and insiders were in affect committing career (and possibly literal) suicide in attempting to go after not just the monster now known today as Bernard Madoff, but the entire financial regulatory Gestapo that controls the wealth of our great nation
If nothing else is apparent from the findings of Harry Markopolos and his league of extraordinary gentleman, it should be that the “Wild West” nature by which the SEC, the NASD, and FINRA (“Regulators! Mount up!”) operates, in collusion with the very organizations they are charged with regulating, is by far the greatest factor in the systemic risk chained to the ankle of our economy as our society sinks deeper into these uncharted waters. Rep. Alan Grayson of the 8th District of Florida, has an excellent exchange with Mr. Markopolos during the Senate hearing, when he essentially poses to Harry to explain the concept of “capture.” “It’s basically when the regulator is in bed with the industry they proport to regulate and do not regulate the industry. In fact, they consider the industry the clients, not the public citizens,” Markopolos explains.
There it is ladies and gentleman. All the complicated mathmatical calculations, financial products, swaps, CDO’s, derivatives trading and analysis, risk models, connections between housing, banking, and insurance industries, and Main Street companies like Robin’s Book Store in Philadelphia, and The Republic Windows and Doors Company out in Chicago…forget about all of that, it’s just the details. Too many Americans, and too much of society is not educated enough to even wrap their heads around the bare bones of how these devastating events shape our current stance, let alone the details. However, the current season of 24 on Fox makes at least the concept of capture easy to understand and easy to explain. If you’ve been watching, you know Jack Bauer (Markopolos) and the old CTU team is working “Palin”/”rogue” right now, because they know that the current threat to America(fraud) goes all the way up to those with power(the regulators) in the President’s Cabinet(SEC,NASD,FINRA, etc.). Even the bad guys at the top don’t know the identities of the other bad guys on their level or above, so that the entire atmosphere is steeped in suspicion of everyone’s intents and a “cover-your-own-ass” mentality. Now, applying this to our Regulatory situation, Markopolos, like Bauer and Tony, had been “whisteblowing” and shedding light on the threat, the fruad, for years. But after being ignored time after time, it’s no surprise that he figured the very process set up for handling the threat, the regulatory system, was clogged and cluttered with individuals who were either too stupid, young, and naive to see a threat themselves, or so caught up in the status quo – that Markopolos himself attributes to a “code of silence” among industry insiders and regulators alike – that being charged with the responsibility of making sure this type of fraud doesn’t happen, although it might feel nice for the soul, does not amount to a good enough paycheck for them to take that responsibility seriously.
When asked what other organizations could be charged with participating in “capture,” Markopolos is quick to name the FDA along with the SEC. He suggests incentivizing the compensation structure of the regulatory bodies, and making it similar to that of the financial industry. With this type of structure, the philosophy is that anyone working for the regulators will not allow themselves to be stopped or hindered, and will run over people that present themselves as barriers in their investigations of fraud like a “bulldozer,” if they knew their paychecks might get a nice boost. Regulators like Meaghan Cheung, the New York Division SEC Branch Chief, might have paid attention to the chief executive of midsize, Boston based, Equity-Derivatives trading business when he walked through her door in 2000, with volumes of provocative information revealing what has become the largest and longest fraud scheme in American History…so far.
Markopolos also offered his insight in the arena of human intelligence gathering, which the workers at the regulators sorely lacked. “When they [the regulators] come in to inspect a firm, they are led to conference room, they meet the compliance staff, and they are fed controlled pieces of paper. That’s what they do, they inspect pieces of paper, because they’re too untrained to realize what to look for on the financial end. All they’re looking for is the pieces of paper.” He goes on to say that if they actually probed the company’s, and spoke with the various workers, traders, executives, and salesmen, and asked them, “Do you see anything fraudulent going on? Is there anything going on here I should know about?” then that would have, and still would go a long way towards accomplishing what the SEC was created to accomplish. As far as Markopolis is concerned, the SEC did not ask these questions nor make any real attempt at gathering any information on questionable companies, “because they were afraid the answer[s] would be ‘Yes.'” That would have meant more mountains of work for the regulators, which brings us back to their incentive and motivation…not enough. Combine that with the fact that Bernard Madoff, as a former chairman of the entire NASDAQ Stock exchange and the amount of respect and power gleamed in the “white swan” public view by holding that powerful a position within the industry, and there is almost no incentive for any one regulator to investigate anything other than how they themselves can capitalize somehow, and join the club. It’s that same view of power that “sophisticated investors” scammed by Madoff allowed to lull them into such a sense of safety in the very idea of having their money managed by a man with such financial clout, that they didn’t feel they had to pay attention to or investigate how they were making such high returns, so consistently, even though the investments they were making were labelled as “high risk” investments. This obliviousness and drunken greed is an attitude that pervades American society, and it is the “systemic risk” that we as a society must fully recognize and deal with if we are going to have any chance of passing this planet on to future generations.
Harry Markopolos, and others like him (Pat Tillman, Dalton Fury, Robert Baer – real men that have put their lives on the line to defend the fabric of this nation’s security and safety, so that we can rise and sleep soundly “under the blanket of the very freedom that [they] provide,”) represents what is best in the Spirit of America. It is not only that they, and countless others who remain nameless, have put themselves in harms for us, but that they have excercised their own freedom in informing us what happened, and been through serious ordeals just in trying to do that. They are the real John McClain’s, Jack Bauer’s, and Solid Snake’s, that have worked within the system and gotten so fed up with the amount of “friendly fire” they’ve received in the form of inaction and outright stonewalling by the very agencies and governments for which they’ve worked, that they’ve realized they can’t trust anyone, and have to “go rogue” on their quests to safeguard us, the American public, from real terror.
And that very real terror that we are currently experiencing is coming from within. It is being perpetrated on us by the very leaders that are sworn to protect us. It is “capture” at the highest order, and it is the embrace of greed based politics and principles that is the only thing that has trickled down to the public like a cancerous disease. We have to wake up and let our government know, the way we did this November, that enough is enough. We have to maintain the interest, and continue to grow the amount of involvement we have, in simply knowing exactly what our elected officials are doing and how they are “representing” us. Remember, just because a guy gets elected, it doesn’t automatically make him a good leader. Let’s make sure we are electing proven leaders, and not admitted sex offenders, like some of our current officials, who shall remain nameless and should stay out of controversy if they don’t want people bringing up their previous sexual indiscretions.
Lastly, let’s wake up and realize the reality that taxes are extremely difficult for even tax professionals to get right all of the time. The media is spending too much time talking about the current Administration Appointees and their tax records from 2001. Who cares? Taxes are like parking tickets. There are those who deliberately take advantage of the fact that it’s a parking ticket, therefore a minor infraction, doesn’t have to be paid immediately, and so they don’t mind getting them and therefore keep getting them. Then it spirals out of control as they “forget” to pay the tickets, and before they know it, they’re getting their car towed and they owe the local government a lot of money. Now, the tax equivalent of a person or a public official that exhibits this behavior would probably be Senator Ted Stevens. He was indicted for using his position and accepting bribes among other things, but basically, had he reported these “gifts” he received from these “questionable” people or organizations on his taxes – either as personal spending or what have you – things could have been totally different for this now tarnished elder of the Senate. (Not saying that would have been the moral thing to do, but if you’re gonna accept bribes, wouldn’t you at least try to cover your tracks as best as possible, or slow down the process of your capture in any way?)
Then there are those who when they get parking tickets, it’s few and far between, so since it’s not as routine for them as for the previous example, it’s understandable that they might forget to make a payment for that ticket. To round it all out, there are of course those people that pay a parking ticket as soon as they get it, no matter how frequent an occurrence, but the group in the middle, the understandably forgetful group, is the group I would place most people in with parking tickets and taxes. We screw up on our own taxes from time to time, forget this rule and that, (or more likely don’t know it in the first place) and sometimes it’s in our favor, and sometimes not, but there’s no deliberate manipulation of any tax code involved in how we go about doing our taxes. It’s unfortunate that Tom Daschle had to withdraw from the position of Secretary of Health and Human Services, although I think it was the noble thing to do to take one for Team Obama. I place him in this group of understandably forgetful tax infraction holders. I myself owed New York City taxes after I thought I was done for 2008, but my accountant screwed up on the city taxes. Does that make me any more or less trustworthy that I chose to go to the same accountant I have for 3 years with no problems to get my taxes done? I think not. I have a friend that found out, also in last year’s tax season, that he was owed about $10,000 more in deductible income. Does that make him or his tax professional business or tax guru’s that have a leg up on the entire franchise? I think not. More likely, it means that single tax professional he went to on that very day was a more focused, harder worker than average. But it means nothing about the character or the integrity of my friend, the person that went to that professional for a service. Wake up people, please!