Month: February 2009

Don’t Hate the Player, Hate the Game

Madoff, the SEC, hedge funds & the IC

After reading the testimony of Harry Markopolos, the whistleblower in the Madoff Ponzi scheme who crafted such a compelling reconstruction of events he deserves a Nobel Prize in Literature simply for the writing itself, I thought, “Don’t hate the player, hate the game.” Markopolos’ 58-page confessional and call to arms illustrates a process so painstakingly onerous, it invoked an image straight out of Kafka’s A Message from the Emperor:

The messenger started off at once, a powerful, tireless man. Sticking one arm out and then another, he makes his way through the crowd. If he runs into resistance, he points to his breast where there is a sign of the sun. So he moves forwards easily, unlike anyone else. But the crowd is so huge; its dwelling places are infinite. If there were an open field, how he would fly along, and soon you would hear the marvelous pounding of his fist on your door. But instead of that, how futile are all his efforts. He is still forcing his way through the private rooms of the innermost palace. Never will he win his way through. And if he did manage that, nothing would have been achieved. He would have to fight his way down the steps, and, if he managed to do that, nothing would have been achieved.

Markopolos began investigating Bernie Madoff in 1999, but due to consistent inadequacies and roadblocks, he was unable to elicit any action that could stop Madoff from his carrying out his odyssey of deceit. As easy as it would be to burn Madoff at the stakes and line up all the individuals guilty of inaction and ignorance for the firing squad, I’m more interested in the future of hedge funds.

For over a decade I have been fascinated by hedge funds – mainly due to the lack of transparency and oversight they have enjoyed since their inception in 1949. In reading Mr. Markopolos’ testimony, I couldn’t help but draw parallels to the Intelligence Community, who after 9/11, has been accused of “failing to connect the dots” (even though the dots in many ways were connected). Like the Intelligence Community, hedge funds are a dark market in that:

“…they do not trade on exchanges, they are not registered with the Securities and Exchange Commission, they are subject to few regulations, and their investors are not extended the same consumer-protection benefits that are given to investors in mutual funds and other entities that fall under the 1940 Investment Company Act.” (Knowledge@Wharton)

My greatest curiosity concerning hedge funds revolves around who benefits from them (and how greatly) and how have they continued to operate in such opaque circumstances after bombastic failures such as Long-Term Capital Management which required bailout supervision by the Federal Reserve. Whenever staggering amounts of money are involved, as is the case with hedge funds and the intelligence community and national security/defense, I sometimes wonder if the breadth and reach of the implications of who benefits and how becomes such a quagmire that any effort to address them with transparency seems disastrous and humiliating at the level of The Emperor’s New Clothes.

In his 30-page course of action to address securities fraud, Mr. Markapolos offers insightful, well-defined, and reasonable solutions; however, he omits two important components: 1) hedge fund transparency/regulation (which is currently being tackled by the Grassley/Levin Hedge Fund Transparency Act and 2) information technology.

If the SEC can learn one thing from the IC, it is the benefit of an integrated information technology system. The SEC, with its twelve offices across the country, along with agencies such as the IRS and DoJ, needs a better way to “talk to each other” (akin to an Intelink) – so the organizations can fluidly share information and utilize communal services to detect fraud. Markopolus’ idea of providing all employees access to a Bloomberg machine (a top-of-the-line financial, regulatory, and market database) is a plainly obvious one, noting that “most SEC offices are lucky to have even one Bloomberg machine for the entire region’s use.” The IC, via the DNI‘s Intelligence Community Enterprise Services (ICES), is provided a set of solutions that include enterprise search, a commnunity-wide wiki, blogs, instant messaging, social bookmarking, document sharing, video sharing, image sharing, and more. Our regulatory agencies need a common suite of tools, the same ones used by private/commericial financial institutions, that allow for greater analytic and data access capabilities.

If the IC can learn one thing from Markopolos and the SEC, it’s that if speaking truth to power is tough, bringing action against power is damn near impossible. Markopolos notes factors such as fear, lack of competence and vested interests as contributors to the abject failure of the regulatory system. His recommendation of creating an Office of the Whistleblower to “centralize the handling and investigation of whistleblower tips” is something the IC could implement to solicit and centralize anti-collaboration activities that would allow all IC members to contribute encountered instances of hoarding and/or resistance to knowledge-sharing in a systemic, protected manner. This would be in line with ICD 501 that strengthens the “sharing, integration, and management of information within the Intelligence Community (IC), and establishes policies for: (1) discovery; and (2) dissemination or retrieval of intelligence and intelligence-related information collected or analysis produced by the IC.”

If the IC and SEC can learn one thing from each other, it’s that while black markets will exist, there needs to be mechanisms to shed light on them.

Don't Hate the Player, Hate the Game

Madoff, the SEC, hedge funds & the IC

After reading the testimony of Harry Markopolos, the whistleblower in the Madoff Ponzi scheme who crafted such a compelling reconstruction of events he deserves a Nobel Prize in Literature simply for the writing itself, I thought, “Don’t hate the player, hate the game.” Markopolos’ 58-page confessional and call to arms illustrates a process so painstakingly onerous, it invoked an image straight out of Kafka’s A Message from the Emperor:

The messenger started off at once, a powerful, tireless man. Sticking one arm out and then another, he makes his way through the crowd. If he runs into resistance, he points to his breast where there is a sign of the sun. So he moves forwards easily, unlike anyone else. But the crowd is so huge; its dwelling places are infinite. If there were an open field, how he would fly along, and soon you would hear the marvelous pounding of his fist on your door. But instead of that, how futile are all his efforts. He is still forcing his way through the private rooms of the innermost palace. Never will he win his way through. And if he did manage that, nothing would have been achieved. He would have to fight his way down the steps, and, if he managed to do that, nothing would have been achieved.

Markopolos began investigating Bernie Madoff in 1999, but due to consistent inadequacies and roadblocks, he was unable to elicit any action that could stop Madoff from his carrying out his odyssey of deceit. As easy as it would be to burn Madoff at the stakes and line up all the individuals guilty of inaction and ignorance for the firing squad, I’m more interested in the future of hedge funds.

For over a decade I have been fascinated by hedge funds – mainly due to the lack of transparency and oversight they have enjoyed since their inception in 1949. In reading Mr. Markopolos’ testimony, I couldn’t help but draw parallels to the Intelligence Community, who after 9/11, has been accused of “failing to connect the dots” (even though the dots in many ways were connected). Like the Intelligence Community, hedge funds are a dark market in that:

“…they do not trade on exchanges, they are not registered with the Securities and Exchange Commission, they are subject to few regulations, and their investors are not extended the same consumer-protection benefits that are given to investors in mutual funds and other entities that fall under the 1940 Investment Company Act.” (Knowledge@Wharton)

My greatest curiosity concerning hedge funds revolves around who benefits from them (and how greatly) and how have they continued to operate in such opaque circumstances after bombastic failures such as Long-Term Capital Management which required bailout supervision by the Federal Reserve. Whenever staggering amounts of money are involved, as is the case with hedge funds and the intelligence community and national security/defense, I sometimes wonder if the breadth and reach of the implications of who benefits and how becomes such a quagmire that any effort to address them with transparency seems disastrous and humiliating at the level of The Emperor’s New Clothes.

In his 30-page course of action to address securities fraud, Mr. Markapolos offers insightful, well-defined, and reasonable solutions; however, he omits two important components: 1) hedge fund transparency/regulation (which is currently being tackled by the Grassley/Levin Hedge Fund Transparency Act and 2) information technology.

If the SEC can learn one thing from the IC, it is the benefit of an integrated information technology system. The SEC, with its twelve offices across the country, along with agencies such as the IRS and DoJ, needs a better way to “talk to each other” (akin to an Intelink) – so the organizations can fluidly share information and utilize communal services to detect fraud. Markopolus’ idea of providing all employees access to a Bloomberg machine (a top-of-the-line financial, regulatory, and market database) is a plainly obvious one, noting that “most SEC offices are lucky to have even one Bloomberg machine for the entire region’s use.” The IC, via the DNI‘s Intelligence Community Enterprise Services (ICES), is provided a set of solutions that include enterprise search, a commnunity-wide wiki, blogs, instant messaging, social bookmarking, document sharing, video sharing, image sharing, and more. Our regulatory agencies need a common suite of tools, the same ones used by private/commericial financial institutions, that allow for greater analytic and data access capabilities.

If the IC can learn one thing from Markopolos and the SEC, it’s that if speaking truth to power is tough, bringing action against power is damn near impossible. Markopolos notes factors such as fear, lack of competence and vested interests as contributors to the abject failure of the regulatory system. His recommendation of creating an Office of the Whistleblower to “centralize the handling and investigation of whistleblower tips” is something the IC could implement to solicit and centralize anti-collaboration activities that would allow all IC members to contribute encountered instances of hoarding and/or resistance to knowledge-sharing in a systemic, protected manner. This would be in line with ICD 501 that strengthens the “sharing, integration, and management of information within the Intelligence Community (IC), and establishes policies for: (1) discovery; and (2) dissemination or retrieval of intelligence and intelligence-related information collected or analysis produced by the IC.”

If the IC and SEC can learn one thing from each other, it’s that while black markets will exist, there needs to be mechanisms to shed light on them.

25 things…

You may or may not know about Steve aka the @robotchampion:

  1. He wears black socks to gym. Somehow he manages to make this look good.
  2. He wears a pink sweatshirt with a lion on it and doesn’t understand why guys hit on him.
  3. He’s completely monogamous.
  4. He is an office lady-charmer.
  5. He does get jealous but tries to never let it show.
  6. When he’s really excited, he says “omigod!” with a Brooklyn accent.
  7. When it comes to our relationship, he has repose. I’ve been with him after his car’s been towed, while I’m freaking out about how closely he is driving behind another car on the beltway on route to the WIRE/ICES conference, and after I’ve yelled at him for failing to communicate with me – and he did not respond with the typical human knee jerk response of anger or aggravation.
  8. When he’s stressed or completely engrossed in figuring out something, he gnaws on his fingers.
  9. He likes to touch – almost like a blind person communicating through his fingers (I think this is why he loves Apple products so much).
  10. He denied my advances not once but twice and is the only man (that I recall) who has done this.
  11. He’s able to organize virtually anything in a wiki (and is known as “Wiki Steve” by colleagues).
  12. He is insecure about his body.
  13. He’s intimidated by pretty girls.
  14. He cried upon receiving churros at the Mexico/California border and during Obama’s acceptance speech.
  15. In California, he was a boogie board surfer, not a long board surfer.
  16. He will be an amazing father.
  17. He loves that he gets the pretty girls and guys have no idea why.
  18. He intentionally asked me to hold his passport at the airport b/c he knew my ex always handled everything, including the holding of the passports and was psychologically challenging my historical construct of relationships.
  19. He’s an incredible teacher – one of the best I’ve seen.
  20. He has an amazing family (and his brother Spence is quite possibly one of the coolest, most “truest” people I’ve ever met).
  21. Sometimes he’s afraid of me.
  22. He feels so deeply that he’s trained himself not to.
  23. He’s the only man besides my dad who I never get bored talking to and is able to throw humor at me from left field.
  24. He thinks I will somehow help him become President of the United States.
  25. I met Steve the day after I had given back my engagement ring to my then fiancée. It was a point in my life when everything was in flux and I knew what needed to change and where I wanted to go but I wasn’t sure how. I had spent too much time trying to please other people, to be something I wasn’t or didn’t want to be, and without trying, by just being himself, Steve showed me how to be me. I am who I am today because of him.

The 8 questions

Below is a list of 8 questions that was given to me by Bill Jordan, an 80-year old man I met while waiting at the Ritz Camera in DC. He was wearing an Obama cap and holding an iPhone.  We started talking about iPhones, Apple, and travel. His blind 12-year old granddaughter convinced him to buy stock in Apple  when it was selling at $42/share. He has visited over 100 countries and handed me a slip of paper that read: The doom of a profligate nation is certain – having been foretold by all of recorded history.”~Bill Jordan

  1. If you had unlimited time and unlimited money, what three cities in the world would you like to visit?
  2. If you could be present on any one day in the history of the world and participate in the events of the day or simply observe what happened what day would you choose?
  3. If I would reserve a table for four tomorrow night at 7pm at the very best restaurant in town (I would agree to pay the bill) and you could invite three people (now living or you could bring them back from the dead), what three people would you choose to visit and converse with for several hours?
  4. Please give me your three most negative impression about America or Americans.
  5. Out of 1000 people selected at random, how many do you believe are capable of original thought?
  6. Do you believe in life after death?
  7. If you believe in life after death, is there anything that you can do to improve your status in the afterlife? If so what?

Feel free to leave your answers as a comment:)