10 February 2009

Sign of the Times

The Wall Street Journal editorializes today on Mary Schapiro, the new Chairman of the Securities and Exchange Commission, here. They are not happy that she does not wish to address the SEC's failures of the recent past, including in particular those of Bernard Madoff, who swindled many investors, including my home institution of Yeshiva University, out of a lot of money.

The final paragraph of the story is quite interesting:
If Ms. Schapiro seeks to learn from the SEC's recent history, she might start by considering the most basic lesson from the Madoff incident. Private market participants spotted the fraud, while SEC lawyers couldn't seem to grasp it. Rather than giving her staff lawyers still more autonomy, she should instead be supervising them more closely, while trying to harness the intelligence of the marketplace. Meantime, investors should remember that their own skepticism and diversified investing remain their best defenses against fraudsters.
Is the Journal suggesting that "private market participants" are better at policing the market than the state regulatory agencies are?

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