Because regulators don\’t have the correct incentives.
A 2009 report by the SEC\’s internal watchdog called into question the conduct of 21 staff members for work related to Madoff.
David Kotz, who wrote the report, had urged the SEC to act on an “employee-by-employee basis” to prevent a recurrence of mistakes that kept the agency from halting the fraud.
However, most staff found culpable were merely docked a week\’s wages or given \”counselling memos\”. The strongest action taken against any employee was a 30-day suspension without pay, after it was determined that if they were fired it would hurt the agency\’s operations, according to John Nester, an SEC spokesman.
Not even one person fired. Recall, the SEC was actually told (by Harry Markopolos) that Madoff was running a Ponzi scheme. He actually laid it all out in a memo to them.
He doesn\’t mince his words either. Either Madoff is doing illegal front-running or it\’s a Ponzi. No other possibilities exiost. And yes, this was formal evidence, presented in 2005. And he\’d made initial comments and a complaint about it back in 1999.
So, the SEC had been informed. And they did nothing. Which is why regulation doesn\’t in fact work.
Because, as we can see, even when spoon fed the truth, the regulators didn\’t in fact work.
Firing everyone involved with this unbelievable fuck up would at leasst align the incentives a little better: but that\’s not how bureaucracies work, is it? Which is why regulation doesn\’t work……