Madoff – Public Value Failure and Market Failure

Markets depend upon information to be efficient.  This NYT story on Madoff indicates that information was in short supply, and a disaster ensured.

The outsize impact on the industry may have resulted largely because Mr. Madoff (pronounced MAY-doff) managed his funds much the way that real estate leaders have operated successfully for decades: He provided little information and demanded a lot of trust.

So, where were the government regulators, those charged with ensuring that the market provide the necessary disclosures so that investors can rationally make their “risk” decisions?  Absent, according to a Washington Post op/ed:

Those who support regulation also say that hedge funds should disclose more of what they do. Well, Madoff did make some disclosures; it’s just that they weren’t true. As SEC Chairman Chris Cox has all but admitted, the scandal doesn’t show that his agency lacked the power to regulate; it shows that it failed to exercise it. Responding to this scandal with more regulation would be like thrusting more pills on a patient who refuses medication.

Advertisements

Leave a comment

Filed under Market Failure, public failure, public values

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s