Christopher Cox, a Republican United States representative from Orange County, Calif., and a Republican, was sworn in as the 28th chairman of the Securities and Exchange Commission in August 2005.
“As a champion of the free-enterprise system in Congress, Chris Cox knows that a free economy is built on trust,” President Bush said when he nominated Mr. Cox, who in his 17 years in the House was known as an ally of Silicon Valley companies and the accounting industry. He ... fought against accounting rules that would have toughened tax treatment of executive stock options. And he sponsored legislation to limit shareholders' rights in lawsuits.
Of course, if the SEC really had "credible allegations about the scheme at least nine years ago," those allegations predated not only Cox but the Bush administration. It wouldn't be surprising if that's true, as the Clinton administration made a point of being "business friendly." The complete abrogation of responsibility for regulatory oversight is nonetheless a hallmark of the Bush administration. It is the inevitable product of Bush's belief that "a free economy is built on trust" rather than meaningful oversight.
On paper, the idea that regulators should help regulated industries understand and comply with regulations sounds reasonable. In practice, the coziness of a "helper" relationship too often interferes with the regulator's central mission: to assure that regulated industries obey the law, and to punish them when they don't. While businesses whine (sometimes legitimately) that regulators are too antagonistic, filling an agency with people who are allied with, or drawn from, the regulated industry risks shoddy enforcement of administrative laws.
Suppose police officers adopted the same attitude: we're here to help you, not to get you into trouble. The officer encountering a drug dealer would patiently explain that it's illegal to sell crack and would encourage the dealer to sell aspirin instead. Bank robbers would be told that you have to have an account at a bank before a withdrawal can be made. Perhaps we would live in a nicer world if the police helped criminals obey the law instead of enforcing the law, but the public would have little patience with that attitude.
Ideally, for both regulatory and law enforcement agencies, there is a middle ground between the role of "helper" and the role of "enforcer." In the Bush administration, regulatory agencies have been in bed with the industries they regulate. Sometimes literally:
One of the commission’s investigative teams that had examined the Madoff firm was headed by a lawyer named Eric Swanson, who served for 10 years as a lawyer at the commission and left in 2006 while he was an assistant director of the office of compliance inspections and examinations in Washington.
In 2007, Mr. Swanson married Shana Madoff, a niece of Bernard L. Madoff and daughter of his brother, Peter Madoff, the firm’s chief compliance officer. Ms. Madoff is the firm’s compliance attorney.
We're told by Swanson's spokesperson that Swanson’s “romantic relationship with his wife began years after the compliance team he helped supervise made an inquiry about Bernard Madoff’s securities operations.” Whether or not that's true, the SEC dropped the ball when it came to Madoff's operation.
Mr. Madoff kept several sets of books and false documents and lied to regulators when they questioned him in previous examinations of his firm, Bernard L. Madoff Investment Securities, Mr. Cox said. Investigators never used subpoena powers to obtain information, but rather “relied on information voluntarily produced by Mr. Madoff and his firm,” Mr. Cox said.
In other words, they trusted Madoff to tell them the truth. This is what happens when an administration believes "a free economy is built on trust." Does the Reagan philosophy -- "trust but verify" -- apply only to arms control agreements?
Madoff appears to be cooperating with prosecutors.
The first indication that Mr. Madoff might be talking to authorities came at midmorning, when a federal judge delayed a bond hearing for Mr. Madoff that had originally been set for 2 p.m. Tuesday afternoon. At the request of federal prosecutors, the hearing was rescheduled for the same time on Wednesday.
If the evidence against Madoff is as strong as it appears to be, cooperation might be his only ticket to a shorter prison sentence.
