I believe I am correct in thinking that, ever since the Billy Sol Estes scandal, auditors have been required to check whether assets, goods, etc. that a company claims to have do in fact exist. No more empty tanks, please. But here the government did not do this elementary auditing check -- it did not even ask the purported holder of securities whether it had held the securities. Is it humanly possible to have been more negligent, more incompetent, than that?
You know, I'll bet that most Madoff victims did not even know that there is a Depository Trust Company or what it does. I know I certainly didn't. Most of us, after all, know very little about how Wall Street works as a "logistical matter. We wouldn't have known to make inquiries of DTC -- which perhaps would not have answered our inquiries had we made them -- even if we had suspicions about Madoff, which we didn't. But the regulators, on whom we depended, surely knew about DTC and what it did, and DTC surely would have or could have been compelled to answer their questions. Yet the regulators did not even pick up the phone to call DTC.
The second matter is likewise pretty simple. Madoff claimed to be hedging with put and call options. Without these options his strategy made no sense. With them it made all the sense in the world (some of us think). But it turns out that apparently there were not enough put and call options or put and call option traders in the world, literally in the world, to hedge the amounts of S&P 100 securities that Madoff claimed to be dealing in.
Had the regulators so much as made a few phone calls, they would have learned this, and would have learned as well that nobody appeared to be dealing with Madoff with respect to any options. Some calls to the Chicago Board of Options Exchange would have elicited that nobody there was doing any options business with Madoff. Ditto if the regulators had made some calls to over the counter traders in options or to European institutions that might deal in options (and that Madoff was falsely telling people he used). Finding out that nobody said they were dealing in options with Madoff would have set the stage for regulators to compulsorily demand, by subpoena, that Madoff tell them whom he was buying options from and selling them to, so that his claim of trading options could be checked out with the supposed counterparties. But none of this was done, although it would only have taken some phone calls and ultimately drafting a subpoena -- and, in the words of Michael Bienes about making money via shilling for Madoff, would have been easy-peasy. Here again, then, the incompetence, negligence and plain laziness of the regulators beggars the imagination.
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A last point for today:
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