How one wonders does one get away with a $50 billion fraud over such a long period of time? And, how does a fraudster become Chairman of Nasdaq? Does no-one check the integrity of the accounting firm that is supposedly doing the audit? Where were the accounting firms peers when it came to (supposedly) doing a peer review? How was it that the SEC allowed a three person accounting firm to (pretend to) audit a major securities firm? Why did no-one check up on the warnings that have apparently floated around for years? No doubt some of these questions will get answers as the case unfolds.
Meanwhile, the market receives another hammer blow to confidence. How can one trust the SEC? How can one trust the auditors? How can one trust one’s broker? And, if none of us can trust any of them, how does one re-establish confidence in the market where we must put our money in faith in the hands of others. As I have said repeatedly on this blog, the heart of the problem that we are facing is not one of money but one of simple trust. We no longer know whom to trust. We have lost faith in each others’ integrity. What a sad commentary on America.
The way forward must lie in great transparency. The SEC claims that it is understaffed and, therefore, unable to police the 11,000 security firms that it regulates. Why not then make those firms publish their financial information? Insist that it produced in digestible electronic form. Why not securitize information in the same way that we securitized assets? Bruit their information abroad and let the market do the policing. It is already apparent that some firms took a look at the information that Bernard Madoff Investment Securities and backed off when they saw how inadequate it was. If that same information had been made available to a wider audience, it is possible that this fraud would never have occurred. Bacteria flourishes in dark corners; so do fraudsters and con-men. Shine the light of day on them and sanitize the environment.