In a World Full of Greed and Self-Motivation, Harry Markopolis Gives Hope

Harry Markopolos is saying some telling things to Congress today.

They are also obvious things to everyone who has ever worked in the financial world.  The SEC today is staffed mainly by young, inexperienced attorneys who are looking to punch their stamp and move on, and by eager finance majors or MBAs who are more anxious to impress those who they are supposed to be monitoring.  To boot, these kids aren't incentivized by the public sector to catch fraud.  They are actually incentivized to miss it so that they will not comtaminate the private market's demand for them particularly and for others with their SEC skills.

Markopolos believes that it takes a tremendous amount of experience and knowledge to catch most of the fraud of the 21st Century.  For this reason, he suggests that the SEC adopt a policy of reverse age-discrimination and try to hire those who are grey haired or bald and are accomplished who are eager at the end of the careers to give back to the financial community by helping to police it.

Interestingly, though, Markopolos believes that fraud of the nature brought by Madoff is actually quite eager to detect.  Consistent (month-after-month) and unparalleled returns are a read flag in an highly liquid economic system.   He is correct that the SEC just has to have either have been incompetent or eager to turn the other way.

Henry Markopolos should be hailed as a hero because he risked his career and even his life to expose Madoff years ago when nobody would listen.  But, what is terribly disapppointing is that so much of what Harry Markopolos is saying is obvious.  It shouldn't take an economic crisis and a Madoff to get us to realize this.