To Catch a Thief

Now that Bernard Madoff has been arrested for pulling off a $50 billion Ponzi scheme, editorialists are naturally wondering what to do, and the Wall Street Journal is taking the opportunity to warn against using the incident as an excuse for more regulation. With the hard-nosed, clear-eyed thinking for which the free market's champions are famous, the WSJ tells us that "The reality is that it is impossible for the SEC or any regulator to prevent every financial fraud, just as it is impossible for city police to prevent every burglary." So I guess the message is that we should just accept that every now and then someone will steal $50 billion and not expect government to prevent it. The last thing we want is for "every enforcement failure [to] become an excuse for more enforcement."

Sorry, but what the WSJ analysis overlooks is that at least some smart people did detect the Madoff fraud. Aksia LLC, which advises clients about which hedge funds to invest in, warned against investing in Madoff as early as last year. How did they spot the potential fraud? As they recounted in a recent letter to their clients, they just did the basic due diligence. They noted many suspicious things: Madoff's vast fund was audited by a 3-person audit firm (and only one of the three employees seemed really active); the market in which Madoff traded was too small to support the huge sums he claimed to trade; he didn't have enough actual holdings; and so on. And with their suspicions heightened, the Aksia LLC people checked up: they actually visited Madoff's offices to check up on his vaunted technology, but found only paper tickets and no apparent electronic access to his holdings.

So it seems that what was really necessary to catch this thief was some due diligence. Not taking everything on faith, but actually checking up on some basic details.

Now, why couldn't the government have done that? The WSJ may be right that the SEC doesn't need any new enforcement powers as a result of this incident, but it sure does seem like we could use some more actual exercise of the powers the SEC already has. It seems like they were just asleep at the switch, doing a "heckuva job" doing nothing while the crisis was building. I don't know how related this is to the fundamental problems we've seen in the Bush Administration all along, but it does seem thematically related to the attitude that the government should mostly do nothing and let us all take care of ourselves, whether there's a real or an economic hurricane coming in.

Beating the Drum

One thing the Republicans are very good at is reminding the public, again and again and again, of the problems they perceive with Democratic leaders. During the Clinton years, even the smallest scandals -- Travelgate, say -- got mentioned endlessly, again and again, for years on end, even long after they were over.

The Democrats need to take this page out of the Republican playbook. As 2007 comes to a close, the chief scandal of the Bush administration, the Iraq war, seems to be in a somewhat equivocal state. On the one hand, 2007 was the deadliest year of all for U.S. troops, with nearly 900 fatalities; on the other hand, Iraq's security situation has improved considerably over the last few months and the rate of fatalities is down sharply.

But no matter how you look at it, it's still a scandal. The Democrats need to help the public remember:

* In 2003, before the start of the war, Donald Rumsfeld originally said the war would cost less than $50 billion.

* Some weeks later, the Pentagon estimated that the war would cost $60 - $95 billion. Paul Wolfowitz criticized the $95 billion upper end as too high.

* In fact, direct military spending alone already exceeds $368 billion and the total cost may be $1 trillion. Why, the White House just demanded and got another $70 billion.

Perhaps Democrats think the public would get bored if these figures were mentioned over and over again. But if the party situations were reversed, you'd be hearing them every day -- probably more than once.

Too Good to Be True

The Bush Administration has long been defined by its remark that "we create our own reality." Getting bad press? Just make up your own press. The Republicans tried this a couple of years ago with "Jeff Gannon," a fake reporter who asked softball questions at presidential press conferences. Now, they've gone one better.

FEMA, perhaps concerned about the bad press it got for the incompetence it displayed during Hurrican Katrina, decided to make sure it got some good press for its handling of the California wildfires. How to ensure this? Simple: stage a fake press conference in which FEMA's own employees pretend to be reporters asking questions.

The fraud was so blatant, the chutzpah so unbridled, that even the Bush administration has backed away this outrageous stunt. DHS spokesman Russ Knocke called it "totally unacceptable," although White House press secretary Dana Perino contented herself with calling it an "error in judgment."

FEMA has announced that it is "reviewing [its] press procedures." Reviewing the press procedures? Did the procedures previously say "Have agency employees pose as reporters"? Yes, that one will have to be changed. And if the procedures still include "Secretly pay syndicated columnists money to promote government policies" or "Give press credentials to political operatives posing as reporters," perhaps those could be changed too. Sheesh.