In the 1950s, Sen. Joe McCarthy made guilt by association a repugnant alternative to dealing only with facts. Bernard Madoff shows us "innocence by association" may be even more dangerous. How dare you treat a Goldman Sachs or a Lehman Brothers or a Fannie-or-Freddy or a Bernard Madoff like a used-car salesman? Don't you know Bernard Madoff was president of Nasdaq and has enough well-made money to crowd any possible thought of fraud out of his deeply religious heart, mind, and soul?"
That was then. That was until mid-December. Just as surely as Sputnik One erased the rule that "All that goes up must come down," and just as surely as 9/11 erased America's snug feeling of invulnerability between two vast oceans, the Madoff Excruciaton has scrambled the rules of trust. From now on, the used-car salesman may find himself in line between the chairman of the New York Stock Exchange and the president of the Federal Reserve; all prepared to face the same kind of "caveat-ing" by the "emptor." This is good. This is healthy, and this is long overdue.
I remember my parents’ teaching me as a boy who in town had achieved those upper reaches of unconditional respect; those you didn't have to watch out for. They were as definitely circled as the starting 11 of the high school football team. And I don't recall one single example of one of those glistening moral knights ever falling from grace.
Sure, there were occasional news stories of such from other cities here and there, but, as the military specialists say, "The center held." Nothing ever came close to shaking our confidence in those who had proved themselves morally. That "football team" now has 11 gaping vacancies.
The other side of the Madoff coin also gives hope. Whistle-blowers from now on may not have as much of their tooting ignored by cash-induced deafness.
In the fairy tale, the 6-year-old boy who yells, "The emperor has no clothes on!" brings down the crooked weavers' hoax as quickly as an Alka-Seltzer tablet dissolves under the Iguazu Falls. Real life, alas, accords much more protection to the crooks.
The following three paragraphs are lifted verbatim from a recent column by Paul Hollrah, a political and journalistic hero of mine.
"In 2005, a Boston investment advisor and derivatives expert, Harry Markopolos submitted a nineteen-page report, anonymously, to the SEC saying it was 'highly likely' that Madoff Securities was ‘the world's largest Ponzi Scheme.’ Markopolos reminded the SEC that he had first brought the Madoff matter to the attention of their Boston field office in 1999, during the Clinton Administration, but no action was taken. In his report he recommended discretion, suggesting that he knew his research could ruin people's careers. He asked the SEC to be discreet about circulating the report, saying, 'I am worried about the personal safety of myself and my family. Under no circumstances is this report or its contents to be shared with any other regulatory body without my express permission.'
"In his filing, Markopolos suggested two possible scenarios. Under Scenario #1, which he described a 'unlikely,' he said, ''I am submitting this case under Section 21A(e) of the 1934 Act in the event that the broker-dealer and (electronic communication network) depicted is actually providing the stated returns to investors, but is earning those returns by front-running customer order flow.' Front running qualifies as insider trading since it relies upon material, non-public information, that is acted upon for the benefit of one party to the detriment of another party.”
"Under Scenario #2, which Markopolos described as 'highly likely,' he said, ‘Madoff Securities is the world’s largest Ponzi Scheme. In this case there is no SEC reward payment due the whistle-blower so basically I’m turning this case in because it’s the right thing to do.’ ”
No action was taken despite Markopolos' warning. Hollrah wonders whether that's because Madoff had friends in high places. He reinforces his wonderment by citing the generous donations Madoff parceled out to major politicians. There are all the usual suspects and no surprises on Madoff's gift list.
One reason sports will always be more popular than politics is that a defensive safety who let a wide receiver get as far behind him as the SEC let Madoff get wouldn't be in the game much longer and might not be on the team next year — or next week.
Let's see how long the "safety men" at the SEC manage to keep their jobs and jerseys. And, oh yes, how long they can keep that fierce, vigilant watchdog look on their faces.
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