Madoff Claimed He Was On Short List To Be SEC Chairman

The SEC Inspector General's summary, on the SEC's failure to detect the Bernie Madoff fraud, is out. The full report is due out on Friday. Here's a bit of what the Inspector General, David Kotz, found:

The other NERO [SEC's Northeast Regional Office] examiner noted that all throughout the examination, Bernard Madoff would drop the names of high-up people in the SEC. Madoff told them that Christopher Cox was going to be the next Chairman of the SEC a few weeks prior to Cox being officially named. He also told them that Madoff himself "was on the short list" to be the next Chairman of the SEC.

NyPo has these details from the report:

In some cases, the agency neglected to pursue complaints that provided specific signs that Madoff was running a gigantic scam, according to a brief outlining Kotz's 450-page report. One complaint from 2005 entitled, "The World's Largest Hedge Fund is a Fraud," detailed 30 red flags that could have led the SEC to nab Madoff, said the brief.

The self-regulated agency received a total of eight complaints about Madoff, including one from a "respected hedge-fund manager."

In another instance, the SEC's investigators caught Madoff in outright lies -- but opted not to dig deeper.

"Even when Madoff's answers were seemingly implausible, the SEC examiners accepted them at face value," the report said.

So what when on here? First, bad guys always try to get close to the government. The government is a power source and it's a source they need to influence. I am not surprised that Madoff knew who was going to be the new SEC chairman, before SEC employees knew. And it doesn't necessarily seem to me that Madoff was lying when he said he was on the short list.

Second, the blatant failures of the SEC are probably duplicated in every government agency going. Employees are there not for the "good of the people," but to keep the agency in power. That generally means posing in whatever way will make an agency look good versus work that will actually accomplish something.

Again, the SEC is just an example of what goes on through out government. Yes, they were inept, but is that ineptness any different than, say, the ineptness of Assistant Treasury Secretary for Economic Policy Phil Swagel who admitted to me that he had no idea that Bernanke has stopped printing money the entire summer of 2008--just before the intensification of the financial crisis?

Swagel can spew out thousand of pages of data justifying whatever his boss, Hank Paulson. wanted to do to "fight" the crisis, but for him to look at basic data analysis, not a chance. He knew is chance for advancement was to kiss Paulson's butt and not solve problems.

The incentives are all wrong in bureaucracies. Like a horse with a broken leg, no attempt should be made to fix them. They should be put to sleep. The fewer sources of monopoly power, the greater our freedom and ultimately the standard of living of a country will rise, without bureaucrats clogging up creativity of individuals..