Tough questions after Madoff

June 29, 2009

Even as Ponzi king Bernard Madoff goes away to prison for the rest of his life and then some, there are still so many unanswered questions — both big and fundamental.

Were Madoff’s sons involved? What did his wife Ruth know? Were the operators of the giant feeder funds that sucked in tens of billions of dollars in investor money in on the charade?

Those questions, though important, ultimately pale when compared with the bigger ones that remain about the root causes of the worst financial crisis since the Great Depression.

Indeed, for all the misery Madoff and his Ponzi brethren have caused, none of those scam artists were the cause of the crisis that brought the financial system to the brink. If anything, it was the financial crisis that helped flush out Madoff and his scurrilous ilk, as many investors rushed for the exits at the same time.

So that’s why Congress needs to act quickly to get up and running a bipartisan commission to study the underlying causes of the financial crisis. House Speaker Nancy Pelosi likens this new 10-member panel to the Pecora Commission, the famous Depression-era investigative committee that led to passage of Glass-Steagall — the 1933 law that drove a wall between commercial and investment banking.

The 1999 repeal of Glass-Steagall contributed mightily to the current crisis by opening the door to an anything-goes mentality on Wall Street and allowing far too many banks to become too big to fail.

This new commission, armed with the power to subpoena witnesses and documents, is meant to investigate all aspects of the crisis, including regulatory lapses, Wall Street excesses and deceptive behavior by lenders and securities traders.

A first order of business for the commission should be looking at the Federal Reserve’s dereliction of duty for missing the warning signs of trouble. Congress can’t consider acting on the Obama administration’s proposal to upgrade the Fed’s status to supreme financial regulator before there’s a full accounting of its missteps.

But there are already worrying signs that this commission will lack the political nerve to tackle the tough issues, let alone ask the right questions.

Reuters reported last week  that some of the people being considered for the commission include many former Congressmen, governors and familiar talking heads from Washington think tanks. Let’s hope that will not be the case because the financial system can’t truly be fixed until there’s a candid assessment of who let things get so out of control.

Sure, put some wise political statesmen on the commission. But also allow room for some longtime Wall Street critics, derivatives traders and hedge fund managers — the kind of people who know the system from the inside out.

Maybe, even include one or two people who were sharp enough to stay away from Bernie Madoff.

6 comments

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cause of the financial crises- how about market rate manipulation by the federal reseve?

Posted by daniel | Report as abusive

From what I understand the findings of a Congressional commision to investigate the financial crisis may not be available to President Obama until the end of next year. While I understand that in order to do a thorough job investigations of such magnitude take time. The article speaks of the need for a “candid asessment” and cites exclusion of former congressmen, Governers or members from Washington think tanks as a means to acheive such a perspective. In taking to this interesting idea then one might also be led to wonder if findings are in fact delayed until after the next Congressional election whether many voters may have sufficient information needed in order to make well informed decisions with regard to their candidates of choice.

A recent writer proposed investigators allow hedge fund traders and managers to be part of the investigation of the meltdown-thats akin to asking bank robbers to be part of the police The problem is the answer to what happened is known.Free unfettered capitalism failed !
Why !due to greed , incompetence(BUSH Phil Gramm ) and corruption caused by overfunded lobbies (Chris Dodd Barney Frank,Tom Delay Jack Abramhoff) .It will get worse unless there are some executions!

Yes, Madoff got hit big time, but half the reason for the big hit is to divert attention from the mafia criminal class that ran things as a syndicate. This Syndicate included Wall Street investment banks, the Fed, the financial regulators, the rating con shops, Congressional financial leadership, past Treasury, directed by pea-brain godfather, the Great Fundamentalist Idiot, one GWB. Together, they Ponzied out the economy and just about bankrupted the country. But they and their CEO pals were rewarded most handsomely.

In short, there existed a massive systemic corruption between government and the financial industry. A true fascism of the Mussolini genre. So massive that, even with a new administration, not a single charge was laid to anybody in the above criminal class. The cancer is still very much in place, ready to strike again.

The only way to save the USA is to apply radical chemo and radiation treatment. Don’t hold your breadth. The time is still not right. That time will come when in a few years time. You’ll know it when it comes – when a loaf of bread costs $25.

Posted by The Real Deal | Report as abusive

The people who precipitated the corruption are still driving the wagon. We do need a Constitutional Convention with duly elected representatives from every city and county, or borrough, to make the necessary changes to overhaul the government. These talking heads and governors only know what they have been told and many are still living on government money. The government and our representatives do not really know the sentiment of the country, nor can they point to all their successes. We need change from the grass roots to reinvent a government that works for the people rather then the people working for the government. What we have here is a Serf and Lord system where the people with money from the United States and abroad are trying to control the country. I say enough. Let’s do something that works.

Posted by f belz | Report as abusive

We Americans are so gullible especially with regards to the profit motive. Those who invested with Bernie Madoff are supposedly learned if not academically superior. How can anyone with over $50K not study about the basic rule of banking. That for every deposit, there is a lending side. If deposit interest rates are doing less than 4% how much more can lending rates be. If the operation is not a pawnshop business, how can people think of rates as high as what Madoff was offering. People(investors) are blinded by their own greed and then “cry” foul after the fact. The bottom line is trust your basic instincts not people who profess to be “masters of business”. Look at what happened to Wall Street.

Posted by Frank Velasco | Report as abusive