Reforming the S.E.C.: It’s Simple Math

Madoff with your loot.

I have a couple friends who have the most exciting job imaginable in a field with a really boring reputation: they’re forensic accountants. They’re the folks who are called upon to tease out the fake numbers of financial fraudsters once an indictment’s come down. They helped put Bernie Madoff in jail, and a lot of other Wall Street hooligans too. How do I know? Because I asked ’em. I also asked ’em if they’d like a post at the National Security and Exchange Commission (SEC). One laughed. He said, “When they pay me as much as I’m making here!”

Now, these folks I know, they’re brilliant. And they’re right on. But they make their money after everyone else has lost theirs. That’s not right. And when I read something like this, I get really mad:

Why do you think the S.E.C. failed to wake up to Madoff’s $65 billion Ponzi scheme until he turned himself in?

They weren’t even asleep at the switch; they were comatose. They didn’t respond to heat and light, much less evidence of wrongdoing. They were not engaged in the fight.

That’s Harry Markopolos, who describes himself as “the SEC’s doormat for nine years,” who’s being profiled in The New York Times and has a new book out, No One Would Listen.

Simply put, we need to reform the compensation system for federal employees. People who work in finance are, naturally, motivated by money. People who are motivated by money and ethics and personal accountability and interesting problems go into fields like venture capitalism and forensic accounting. It makes no sense to hire SEC investigators and put them on a bureaucratically-contrived federal tier pay system tied to seniority. If, long ago, we had created enough incentives for my brilliant friends to work for the federal government and stop the Ponzi schemers and mortgage tranchers before the crap hit the fan, we could all have breathed a sigh of relief and continued to sip our martinis. As it stands, my friends the forensic accountants are skiing at Killington and sipping martinis while the rest of us are on the Mad Dog 20/20.

~ David Schneider

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