The Bush Administration sure had a knack for letting criminals get away with it, didn't they? They failed to stop 9/11, never caught bin Laden, and now we're learning about the total incompetence of the SEC in responding to Bernie Madoff's Ponzi scheme.

The U.S. Securities and Exchange Commission repeatedly missed chances to catch Bernard Madoff’s $65 billion fraud over 16 years by assigning inexperienced investigators and accepting “implausible” explanations after catching him in lies, the agency’s internal watchdog said.

At least six warnings from sources including a money manager, a “respected hedge-fund manager” and a firm that studied Madoff’s business failed to spur a “thorough and competent” probe, Inspector General H. David Kotz wrote in a summary of a report released today. Madoff, in an interview with Kotz, said even he “was astonished” when investigators failed to check trading records that would have exposed his scam.

“Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme,” Kotz wrote.

This is not only an incredible report, it plays into a larger truth about the conservative conception of regulation as a needless bother rather than a diligent effort to protect the consumer. One incredible moment, referenced above but covered in detail by Zachary Roth, shows that Madoff basically thought he was caught and the scheme had been discovered by federal regulators, only to find himself safe once again.

The agency's biggest screw up, says the summary, was the fact that examiners never verified Madoff's trading through an independent third party.

The details of that failure are more astonishing still. Madoff at one point told examiners that all his trades were cleared through his account at the Depository Trust Company (DTC), a clearing agency -- and he gave the examiners his DTC account number. At that point, Madoff told Kotz in an interview, "I thought it was the end game, over. Monday morning they'll call DTC and this will be over." Amazingly, the SEC never followed up with DTC. Madoff said he was "astonished."

The summary almost makes clear that the SEC's right hand didn't know what the left was doing. It notes with astonishment that at one point, two Madoff examinations were going on at the same time within the agency, without either being aware of the other. It was Madoff himself who informed one team of the other's existence [...]

The final, failed Madoff investigation of 2006 -- triggered by a detailed Markopolos complaint -- was perhaps the most egregious. According to the summary, most of the investigative work was done by a staff attorney "who recently graduated from law school and only joined the SEC nineteen months before she was given the Madoff investigation. She had never previously been the lead staff attorney on any investigation, and had been involved in very few investigations overall. The Madoff assignment was also her first real exposure to broker-dealer issues."

According to the summary, that inexperience helps explain why, when Madoff told the examiners that he got such unprecedentedly good return simply because he had a good "feel" for the market, they took that nonsensical explanation at face value.

Bush's SEC didn't bother to check up on Madoff's dealings, and they took his explanations as good enough for them, because their attitude toward regulation was "don't mess with a good thing." Indeed, the entire stock market during the Bush years was kind of operating under a false reality in its own right. Madoff was a crook, but at least an honest crook. And even he couldn't get caught.

This is not just the story of one agency's embarrassing failure. The failure lied in the theory of government, existing to make profits for cronies and lay off the connected and the powerful. The failure to catch Madoff and the failure of conservatism are essentially the same stories.

You can view this video right here by getting the latest version of Flash Player!

DOWNLOADS: (1134)

PLAYS: (7236)

I saw Bill Maher offer Matt Taibbi some pushback last night about his Rolling Stone piece on Goldman Sachs. Maher wasn't willing to believe that Goldman has been uniquely positioned to profit from the breakdown of the financial system and the various bubbles created. Maher offered the predictable "why just Goldman" response, and Taibbi decided to talk about the many Goldman officials in high positions in the government. He could have just pointed to this story that leaped from Zero Hedge to the New York Times yesterday.

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets [...]

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

They literally place their super-fast computers physically close to the machines that govern NYSE trades, to get the jump on competitors and make enough pennies off of the brief ups and downs of stocks to rake in mounds of cash. And in some cases, investors can buy access to buy and sell order information on certain exchanges that can be used to make these quick orders. When Chuck Schumer is calling for an investigation of Wall Street, you know something has gone horribly wrong.

Continue reading »