As Roger Lowenstein says, Ezra Merkin was (is?) "a Wall Street sage, noted philanthropist and professional money manager". And yet for all his protestations that he was risk-conscious and diversified and an expert at due diligence, he still ended up simply investing substantially all of many of his investors' funds with Bernie Madoff.
This is the really invidious lesson of the Madoff mess: not that some fund managers are crooks, but rather that there is no way of knowing whether the non-crook fund and fund-of-funds managers are being entirely honest when they talk great game about their risk controls.
It strikes me that there is, or should be, serious demand for a trustworthy and reliable auditor who can check up on such claims. If I were running a hedge fund or fund-of-funds with elaborate and expensive and effective risk controls, I'd be eager to pay such an auditor a relatively modest sum to be able to distinguish myself from the frauds who talk a great game but who in reality do nothing. Even banks might avail themselves of such a service, in an attempt to persuade investors that they really have reduced their tail risks.
What's more, the existence of such an auditor might well do a good job in empowering professional risk managers, who tend during good times to get overruled by superiors who are strongly incentivized to make money rather than minimize risk. "If you go ahead and do this," they could say, "we'll lose our A+ rating from Risk Auditors Ltd".
Of course, anybody setting themselves up as such an auditor would need impeccable credentials when it comes to measuring risk in practice, and keeping proprietary secrets. Is there anybody out there who fits the bill?