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What was the SEC doing when Bernie Madoff was stealing billions and the economy crashed? Here are a few reports.

SEC staffers watched porn as economy crashed

CNN is reporting SEC staffers watched porn as economy crashed:

"During the past five years, the SEC OIG (Office of Inspector General) substantiated that 33 SEC employees and or contractors violated Commission rules and policies, as well as the government-wide Standards of Ethical Conduct, by viewing pornographic, sexually explicit or sexually suggestive images using government computer resources and official time," said a summary of the investigation by the inspector general's office.

More than half of the workers made between $99,000 and $223,000. All the cases took place over the past five years. ...

SEC Knew About and Ignored Stanford Ponzi Scheme

Please consider IG report: SEC knew of Stanford scheme since 1997:

The Securities and Exchange Commission knew since 1997 that R. Allen Stanford likely was operating a Ponzi scheme but waited 12 years to bring fraud charges against the billionaire, the agency inspector general said Friday.

An SEC enforcement official who helped quash investigations of Stanford's business later legally represented him, according to a new report by the agency watchdog.

The SEC didn't bring charges against Stanford until February 2009, when it alleged a $7 billion fraud. SEC Inspector General David Kotz said in the report that "institutional influence" in the enforcement division was a factor in the agency's repeated decisions not to conduct a full investigation.
...
The findings were the latest in a string of black eyes for the SEC, following a series of reports issued by Kotz's office last year that chronicled in detail how the agency bungled five investigations of financier Bernard Madoff's business between June 1992 and December 2008. Madoff's multibillion-dollar fraud, which could be the biggest Ponzi scheme in history, destroyed thousands of people's life savings, wrecked charities and jolted investor confidence during the worst days of the financial crisis. ...

Ratings agencies rolled over for Wall Street

Inquiring minds are reading Senate panel: Ratings agencies rolled over for Wall Street
:

A Senate panel investigating the causes of the nation's financial crisis on Thursday unveiled evidence that credit-ratings agencies knowingly gave inflated ratings to complex deals backed by shaky U.S. mortgages in exchange for lucrative fees.

The Senate Permanent Subcommittee on Investigations will hold a detailed hearing on Friday, where its chairman, Sen. Carl Levin, D-Mich., will introduce e-mail records in which executives from Standard & Poor's (MHP) and Moody's (MCO) Investors Service acknowledge compromising the integrity of ratings to win business from big Wall Street firms. ...

See the link for a couple of videos.

Who Anointed Moody's, Fitch, and the S&P?

The answer is the SEC. I have been harping about this since 2007!

Please consider Time To Break Up The Credit Rating Cartel:

The rating agencies were originally research firms. They were paid by those looking to buy bonds or make loans to a company. If a rating company did poorly it lost business. If it did poorly too often it went out of business.

Low and behold the SEC came along in 1975 and ruined a perfectly viable business construct by mandating that debt be rated by a Nationally Recognized Statistical Rating Organization (NRSRO). It originally named seven such rating companies but the number fluctuated between 5 and 7 over the years.

Establishment of the NRSRO did three things (all bad):

1) It made it extremely difficult to become "nationally recognized" as a rating agency when all debt had to be rated by someone who was already nationally recognized.
2) In effect it created a nice monopoly for those in the designated group.
3) It turned upside down the model of who had to pay. Previously debt buyers would go to the ratings companies to know what they were buying. The new model was issuers of debt had to pay to get it rated or they couldn't sell it. Of course this led to shopping around to see who would give the debt the highest rating.

With that I have to sit back and laugh at one of the original opening statements in this article: "I do not think that the market can discipline ratings agencies sufficiently," said Mr. Mindich, chief executive of Eton Park Capital and a former colleague of Hank Paulson, the Treasury secretary, at Goldman Sachs (GS), the investment bank.

Clearly Mr. Mindich does not understand the free market. The problems arose because the free market was disrupted by a misguided mandate by the SEC.

The Solution is Amazingly Easy

Government sponsorship of organizations and intervention into free markets always creates these kinds of problems. The cure is not an executive shuffle, third party verification or half-measures and more regulation that mask over the issues by splitting functions within an organization. The SEC created this problem by creating the NRSRO. The problem is easily fixable.

It's time to break up the cartel by eliminating the rules that created it. Moody's, Fitch, and the S&P should have to sink or swim by the accuracy of their ratings just like everyone else. Ratings would be a lot better if corporations had to live or die by them. Free market competition, not additional regulation, is the cure.

The SEC is attempting to improve its piss poor image by cracking down on Goldman Sachs. It has a reason (many of them as detailed above) for that piss poor image. The SEC and regulators in general have a lot to do if they hope to regain confidence. Goldman is just a start. Where are the charges against Fuld, Hank Paulson, Geithner, and the New York Fed?

Source: SEC Staff Watched Porn as Economy Crashed; Senate Panel: Ratings Agencies Rolled Over for Wall Street