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Case in point. Harry Markopolos is a fraud investigator who works for institutional investors "big dogs", not the SEC. He looked at Madoff's returns, the strat

Case in point. Harry Markopolos is a fraud investigator who works for institutional investors "big dogs", not the SEC. He looked at Madoff's returns, the strategy they claimed they were using and took "4 hours" at home to figure out that it was fraud. Here is a choice section of Markopolos's testimony: http://www.youtube.com/watch?v=q1A7LdW0Y_s http://www.youtube.com/watch?v=q1A7LdW0Y_s

raganwald 15y ago
Reading further, it may have more to do with corruption and/or apathy than inability. I doubt they couldn’t find first base in Fenway park, they simply didn’t want to go looking for trouble. https://en.wikipedia.org/wiki/Harry_Markopolos https://en.wikipedia.org/wiki/Harry_Markopolos
- adamtmca 15y ago
  Probably also true - I think a lot of sec prosecutors end up in defence positions later. That said, I just can't see how they could ever attract or develop the financial minds required to keep up with wall street.
  - sanderjd 15y ago
    This ignores the non-financial side of employment decisions. I, for one, would hate to be an investment banker right now, because pretty much everyone I care about would lose nearly all their respect for me. This effect seems to be weaker than money, but it does exist.
    - adamtmca 15y ago
      It's interesting that you say that. I was actually primarily referring to the non-financial side of the employment decision which I would argue is huge. That's why I said "they want to work for big dogs rather than wimpy bureaucrats" instead of pointing out that the SEC could never pay them as well as BMO or GS. Setting aside whether you think this to be true the perception among undergrads headed into finance is that investment banks offer work environments which are high intensity, committed to excellence, meritocratic and so on. To them the idea of being involved in some sort of paper shuffling bureaucracy is really repulsive. The truth is there are still lots of people who don't hear that their buddy got a job at GS and immediately think they are some sort of a scumbag. I haven't responded to the comment below about the CIA but I think that rather than proving the point that its all about the SEC being underfunded it actually shows how culture/ perceived importance of the work/ mission/ impressing your friends etc etc can totally outweigh an organizations ability to pay when it comes to attracting talent (Wimpy bureaucrat certainly isn't the first thing that comes to my mind when someone says the CIA or the NSA). The CIA's entry level economic analyst positions top out at 90k which is where most entry level IB positions start, yet the CIA still manages to attract some of the United States' best and brightest econ/math/finance graduates.
maurits 15y ago
Not to ponder into conspiracy theories, but here is another thought. Markopolos wasn't the only one who figured this out. But investing in a pyramid scheme can still be brilliant fun if you get out early enough and enough new victims keep joining. What world would you rather live in? One in which a not so smart but rather well paid institutional investor puts money (your pension) in a scheme that apparently is a blatant fraught for anybody who cares to actually look at the numbers for more than a sec. Or one in which the rather smart but morally flexible investor saw through it and took a well educated guess how long it would hold up and be profitable?

raganwald 15y ago

Reading further, it may have more to do with corruption and/or apathy than inability. I doubt they couldn’t find first base in Fenway park, they simply didn’t want to go looking for trouble. https://en.wikipedia.org/wiki/Harry_Markopolos https://en.wikipedia.org/wiki/Harry_Markopolos

adamtmca 15y ago
Probably also true - I think a lot of sec prosecutors end up in defence positions later. That said, I just can't see how they could ever attract or develop the financial minds required to keep up with wall street.
- sanderjd 15y ago
  This ignores the non-financial side of employment decisions. I, for one, would hate to be an investment banker right now, because pretty much everyone I care about would lose nearly all their respect for me. This effect seems to be weaker than money, but it does exist.
  - adamtmca 15y ago
    It's interesting that you say that. I was actually primarily referring to the non-financial side of the employment decision which I would argue is huge. That's why I said "they want to work for big dogs rather than wimpy bureaucrats" instead of pointing out that the SEC could never pay them as well as BMO or GS. Setting aside whether you think this to be true the perception among undergrads headed into finance is that investment banks offer work environments which are high intensity, committed to excellence, meritocratic and so on. To them the idea of being involved in some sort of paper shuffling bureaucracy is really repulsive. The truth is there are still lots of people who don't hear that their buddy got a job at GS and immediately think they are some sort of a scumbag. I haven't responded to the comment below about the CIA but I think that rather than proving the point that its all about the SEC being underfunded it actually shows how culture/ perceived importance of the work/ mission/ impressing your friends etc etc can totally outweigh an organizations ability to pay when it comes to attracting talent (Wimpy bureaucrat certainly isn't the first thing that comes to my mind when someone says the CIA or the NSA). The CIA's entry level economic analyst positions top out at 90k which is where most entry level IB positions start, yet the CIA still manages to attract some of the United States' best and brightest econ/math/finance graduates.

maurits 15y ago

Not to ponder into conspiracy theories, but here is another thought. Markopolos wasn't the only one who figured this out. But investing in a pyramid scheme can still be brilliant fun if you get out early enough and enough new victims keep joining. What world would you rather live in? One in which a not so smart but rather well paid institutional investor puts money (your pension) in a scheme that apparently is a blatant fraught for anybody who cares to actually look at the numbers for more than a sec. Or one in which the rather smart but morally flexible investor saw through it and took a well educated guess how long it would hold up and be profitable?