Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

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Wed, 04 Feb 2009

Markopolos on the SEC

Last year, I blogged about the Markopolos submission to the SEC (way back in 2005) in which he argued that the Madoff fund was a Ponzi scheme. I wrote then that the Markopolos submission was extremely persuasive and well argued and was a good example of forensic economics. His prepared testimony to the US Congressional hearings is even better at explaining his deductions. He talks about how his army special operations background trained him “to build intelligence networks, collect intelligence reports from field operatives, devise lists of additional questions to fill in the blanks, analyse the data and send draft reports for review and correction before submission.”

The entire 65 page document is worth reading in full. What I found most interesting (after having read the 2005 submission) is what he has to say about the SEC. What happens when he turns his forensic mind at the SEC itself is really fascinating. He pulls no punches either in his diagnosis or in his recommendations:

I think that by and large Markopolos is on the right track though I disagree with a few of his recommendations. The question is whether any of this is likely to happen. Unfortunately, state failure is as endemic as market failure (if not more).

Posted at 20:16 on Wed, 04 Feb 2009     6 comments     permanent link


Himanshu Nautiyal wrote on Wed, 04 Feb 2009 22:37

Re: Markopolos on the SEC

How do Indian regulators compare as employers? Are they more enlightened? I ask because in these times a reasonable portion of the finance talent (CAs, MBAs) might be interested in exploring career possibilities with SEBI or RBI.

Manish Mishra wrote on Fri, 06 Feb 2009 11:43

Re: Markopolos on the SEC

I would like to add to Prof. There are a bunch of CS and Cas also, apart from that they have campus recruitment of IIMs also, however, the top level is lawyered and topmost is civil serviced, so every effort gone in vain, if you see the report they made on IPO, disgorgment, you can traight away laugh for 2 to 3 days... now what lacks is the domain knowledge... I would like to quote Mel Gibson in Paycheck, where he was a big thief and says if i would have a little more idiot i would have been in police....thats whats keep the regulators away when the actual acts are done.

sunaina wrote on Mon, 09 Feb 2009 16:39

Re: Markopolos on the SEC

Was interested to find out where you disagree..

Sandeep Yadav wrote on Mon, 16 Feb 2009 23:25

Re: Markopolos on the SEC

What I believe the top management of RBI and SEBI is great,but I doubt the middle and lower level of both the orgainsations are bureaucratic.