Obama promises 'adult supervision' for Wall Street
President-elect Barack Obama on Thursday blamed a lack of “adult supervision” in the financial markets for scandals such as Bernard Madoff’s alleged $50-billion fraud and has pledged urgent reform to beef up policing on Wall Street.
Making appointments, including a new chairperson for the Securities and Exchange Commission (SEC), Obama blamed the Bush administration’s laissez-faire philosophy for allowing excessive risk and corruption at the highest echelons of finance.
“The American people are feeling frustrated that there’s not a lot of adult supervision out there,” Obama told a press conference in Chicago. “We’ve been asleep at the switch.”
As details emerged of warnings ignored by the SEC about Madoff’s investment empire, Obama appointed a veteran fraud fighter, Mary Schapiro, to run the authority in spite of revelations that she gave a job to one of Madoff’s sons in 2001.
Schapiro will have to rebuild the credibility of the SEC, which has been blasted by its own inspector general over the Madoff affair and over its failure to spot warning signs before the collapse of Bear Stearns, the 85-year-old bank.
In a clear dig at the SEC’s outgoing chairperson, Christopher Cox, Obama said: “Instead of people with disdain for regulation, I will ensure the regulatory authorities are led by people who are ready and willing to enforce the law.”
The president-elect promised one of his earliest initiatives would be to improve financial policing. “Not just some of the regulatory agencies but some of the congressional committees have not been as aggressive as they should and we’ve had a White House that started with the premise deregulation was always good,” he said.
Business and political leaders are still digesting the extent of what appeared to be the most expensive fraud in Wall Street history.
Formerly a pillar of the financial community, Madoff reportedly confessed last week that his investment firm was little more than a pyramid scheme.
A Boston fraud investigator, Harry Markopolos, has revealed he waged an unsuccessful eight-year campaign to alert the SEC, sending documents and peppering officials with phone calls, arguing that the financier’s purported 10% to 12% annual returns were illusory.
Markopolos, who used to work for a rival fund management firm, became suspicious in 2000 when he analysed Madoff’s investment method to see whether he could emulate it. He calculated that there were insufficient options in existence to support the amount of hedging Madoff claimed he was doing.
“Madoff was our fantasy sport,” Markopolos told the Wall Street Journal. “We wanted him nailed.”
Victims include banks in Japan, Spain, Switzerland, Britain and America. The affair has wiped out several hedge funds, caused the closure of at least three charities and has hit philanthropists including film director Steven Spielberg, Holocaust survivor Elie Wiesel and the newspaper magnate Mort Zuckerman.
Carl Shapiro, a 95-year-old former womenswear entrepreneur, lost nearly $550-million in Madoff’s fund, including $145-million from his family’s charitable trust.
His wife, Ruth, revealed to the Palm Beach Daily News that only last month, the couple handed more money to Madoff.
“He seemed a little anxious this time,” she said. “He kept calling saying ‘I didn’t get it, it hasn’t come yet, are you sure you sent it?’”—guardian.co.uk