Matthew Rafat

The Congressional Bailout of Madoff's Investors

On WallStreet: you do not cite the law that allows the SIPC to charge transaction fees on securities transactions. Please include a citation. Also, your proposal fully reimburses all of Madoff's direct investors. As far as I know, the SIPC coverage is limited to 500K per direct investor and should continue to be limited to a total of 500K per direct investor. Maintaining or even reducing the 500K limit makes sense, because it creates incentives for investors to spread their wealth among different brokers/brokerages, thereby gaining a minimal form of diversification. Anything that promotes diversification is a good thing. Post-Madoff, we shouldn't have to hear the words, "too big to fail."

logicalthought: I understand your point; however, insurance coverage is a non-moral issue. If you have an insurance policy and some event triggers the policy, whoever issued the policy should pay. Here, the taxpayer may become the insurer because the banks and other SIPC members failed to properly fund the SIPC. SIPC members only had to pay $150 per year into the SIPC fund. (That's not a typo--it really is only $150.) The proposed new law only increases the amount to $1,000. Why not increase the minimum annual assessment to $5,000 or $10,000 per year until the SIPC fund reaches a reasonable amount?

The only part of the proposed bill I like is section (d), which creates civil and criminal penalties for misrepresenting SIPC membership or protection. However, even this part is watered down, because the penalties are too low. The maximum financial penalty is only $250,000 and the maximum prison term is five years--hardly enough to faze a future Madoff. You almost have to wonder if white collar criminals have a PAC or group of lobbyists.