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One Reason the SEC Can’t Regulate Wall Street

Regulators, particularly those within the SEC, took a lot of criticism for their inability to prevent the financial crisis in 2008. And rightly so. The complex CDOs and credit default swaps were all poorly regulated and this whole cottage industry that arose to, in essence, gamble on the real estate industry brought the global economy to the brink.

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So feel free to continue piling on the regulators.
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I’m sure I will.

But sometimes you see something that adds a little more perspective.

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And today that comes from Forbes, which published the well-titled piece “10 Wall Street Expenses That Make The SEC’s Budget Look Pathetic” in response to the ongoing Washington debate over the size of SEC’s budget. (President Obama wants to raise it from the current $1.1 billion to $1.4 billion while House Republicans want to chop $25 million off the current total, according to Forbes.)

It isn’t apples-to-apples, but their list makes you wonder how always-behind-the-times-anyway bureaucrats could ever hope to compete with the savvy titans of the Street. The most glaring comes in looking at the $4 billion JPMorgan maintains for its litigation reserves alone. As Forbes writer Halah Touryalai puts it, “Yes — that means the money JPM is saving so it can fight or settle lawsuits is 4x the size of what the SEC has to regulate the entire securities industry.”

Kind of like taking a spork to a gun fight.

JPMorgan Chase Reportedly Ignored Its Risk Management Department’s Warnings About Madoff

Exhibit #8,492,299 why companies should start listening to their risk managers.

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Senior executives at JPMorgan Chase expressed serious doubts about the legitimacy of Bernard L.

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Madoff’s investment business more than 18 months before his Ponzi scheme collapsed but continued to do business with him, according to internal bank documents made public in a lawsuit on Thursday.

On June 15, 2007, an evidently high-level risk management officer for Chase’s investment bank sent a lunchtime e-mail to colleagues to report that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

Then again, it’s not altogether surprising that a financial firm would bury its head in the sand as long as money was still coming in and the risk ultimately did not fall on its shoulders. I feel like we’ve seen that somewhere else on Wall Street in the past few years.

Despite those suspicions and many more, the bank allowed Mr. Madoff to move billions of dollars of investors’ cash in and out of his Chase bank accounts right until the day of his arrest in December 2008 — although by then, the bank had withdrawn all but $35 million of the $276 million it had invested in Madoff-linked hedge funds, according to the litigation.

The Madoff saga continues to unfold.

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