Mary Schapiro's Job Was to Fix the Sec. She Didn't Stop There.

This scandal was unique in itself as it shook the foundation of the sacrosanct $2.2 trillion government securities market which was considered too big to rig. The conventional wisdom was shaken to a great extent and regulations tightened for all the 40 primary designated dealers of T-bills and government bonds.

A Colossal Failure of Common Sense was one of many books to be published in the aftermath of the Financial Crisis of 2007. After seeing the global economy stall in the face of massive losses in word financial markets, many Americans sought to better understand the crisis and its causes. This book, written from the perspective of a financial market insider, provides a glimpse into the world of global finance and also seeks to explain how the players in this world were involved in the crisis. In the words of the author Lawrence McDonald, “My objective in writing A Colossal Failure of Common Sense was twofold. First, to provide … a close-up, inside view of how markets really work…..And, second, to give… as crystal clear an explanation as possible about the real reasons why the legendary Lehman Brothers met with such a swift end”1. By writing about his personal experience at Lehman Brothers and recounting stories from within the famous investment banking firm, Mr. McDonald largely succeeds at his first goal. However, the elements of personal biography and the chronological order of the book make it difficult for the reader to fully appreciate all of the varied causes of the financial crash. I believe that the main value of reading this book is in understanding these causes, with Lehman Brothers acting as a microcosm of the greater financial universe. As such, in this review I have isolated elements from Mr. McDonald’s book which highlight how the crisis

In recent years, scandal after scandal has eroded public confidence in the financial services sector. Since the onset of the financial crisis, there have been calls for a rethink of the values and culture of firms operating within the space. Attempts to regulate the financial services sector in this regard are increasingly stringent as regulators apply sanctions to firms and individual actors for non-compliance. Toshiba scandal that placed some of the blame on the company's internal audit

Ben-Artzi capitalises on enhanced regulatory provisions empowering the United States’ Security and Exchange Commission (SEC) to encourage and motivate corporate whistleblowing in order to check incidences of corporate malpractice of the financial kind in the United States. His decision helps provide deeper insight into the nature of financial malpractices Wall Street banks and other financial institutions engaged in in the build up to the financial crisis of 2008. From the insight gained, the dimensions of regulatory oversight over the financial system are enhanced, both

In connection with this Ponzi scheme, Bernard took those billions of dollars from investors money, charitable organizations, trusts, pension funds, hedge funds, and among others. He also caused false and fraudulent certified financial statements including balance sheets, statements of income and cash flows, and reports on internal control. Madoff told his family that if they invested money in him, he would add money to their interest account each year. Investors believed that money was being put into their accounts since it was being added each year, they had no reason to take their money out. Due to the economy, everyone started taking their money out and Madoff couldn't pay his family back. Madoff pleaded guilty to charges of fraud and faces 150 years. This scheme has now caused a big problem to SEC's reputation because people have lost their faith in the

In the words from Ben Bernanke, “September and October of 2008 was the worst financial crisis in global history, including the Great Depression” (Yahoo Finance 2014). The effects from the banking, or credit, crisis were felt worldwide. Starting back when the investment banks went public and lobbying for deregulation, resulting in risky investments with creative ways to hide these investments can be directly correlated with the causes of the crisis. The effects, consequently, are catastrophic and are still lingering on six years later.

Supervisory and regulatory structures have in the past failed to control the activities of these enormous companies dealing in financial solutions especially where these organizations have become larger than the country’s individual economies. The financial companies engage in risks too large for them to handle in a bid to generate more profits and when these ventures have gone haywire, these companies have sunk.

In the film, “Too Big to Fail,” we see the internal workings and negotiations of the 2008 financial crisis, beginning with the collapse of Lehman Brothers Holdings, Inc. due to plummeting stocks and large debt ratios. Following the CEOs of other private and commercial banks along with the U.S. Federal Reserve and Secretary of Treasury, it becomes apparent that large banking/investment institutions can in fact bring an economy into a recession and if not dealt with successfully, a depression. As this financial crisis became an unavoidable fate, we are able to see the plethora of issues that these types of large financial firms get themselves into when allowed to expand to such great sizes.

In 2001, it struck everybody as odd when a blue chip stock went bankrupt less than a year after it paid its top 5 executives a total of $282.7 million. The stock market is notorious for being seductively tricky; being the sole contributor to the making and breaking of many men. However, this time it was clear that this wasn’t an ordinary unexpected decline. Enron Corporation, a former American energy company, had to have had something going on behind the scenes to cause the largest chapter 11 bankruptcy of its time. As the house of cards collapsed, it became clear that investors were blindsided by one of the largest instances of pump and dump stock fraud the market had ever seen.

Short sellers identified most scams, in which the SEC should encourage with financial incentives rather than penalizing them. (5) The Federal Reserve was stated to be amassing more, not less, authority (Ritholtz, xxvi). Central banks should focus on setting monetary policy and regulation should be handled by a different regulator than the Fed. (6) Bank regulators should be replaced by a single regulator. As the FDIC made a wonderful job managing the 2008 crisis, and to stop regulator shopping the FDIC should oversee bank regulation.

I would first like to begin this paper by saying why I decide to chose this topic out of the 3 choices. I believe that all of the choices were credible and a viable topic in their own regards, but the reason this one hit home for me was because of the simplicity of the scandal. It’s hard to believe that someone could have made off with the amount of money Bernard did when the idea of a Ponzi scheme was notable as early as the 19th century, and was named after Charles Ponzi in 1920 after his scandal created enough issues to make it more aware to the public of what was happening. The fact that this happened almost 100 years later at the level that it did and where it happened made me extremely concerned and interested in the topic. In this paper I will cover the details happening up to the scandal, the scandal itself, the people involved in the scandal, the legislation and regulations implemented after the scandal, and my views on the outcome of the scandal.

In April 2010, “the SEC filed securities fraud charges against Goldman Sachs for alleged in connection with the structuring and marketing of a synthetic CDO.” (Securities and Exchange Commission v. Goldman Sachs & Co. and Fabrice Tourre, 2010) As a result, Goldman Sachs’ “shares price fell 13 % which erased about 12 billion of market capitalization.” (Timone, 2010, p. 1) Evidently, the lost in its reputation of Goldman Sachs with its clients had very serious impact on its stock value and trading business. “A Boston Consulting Group query of the best 250 Goldman clients worldwide dispiritedly showed a goodly number no longer trusted mighty Goldman.” (Lenzner, 2014, p. 1) The lost in stock value is sometime temporary if the company able to

The SEC probed Mr. Madoff’s business on numerous occasions for sixteen years. Despite many blatant warning signs, not once was there an investigation that uncovered the fraudulent auditing being performed. Regarding the SEC, Madoff was quoted in a jailhouse interview as saying that “it never entered the SEC’s mind that it was a Ponzi scheme,” and also that he had “too much credibility with them and they dismissed” the idea of a Ponzi scheme.(7)

Some financial institutions got bailed out. Some merged with others. Others were nationalized by the USG. But the USG chose not to bail out Lehman Brothers in September, instead allowing the bank to fail. That would become perhaps the biggest failed decision of the entire crisis, because it injected a lack of confidence into the markets. It caused a run on repos, similar to the bank runs traditionally seen in prior financial crises (Gorton and Metrick 279). However, the bank run came in the form of large banks concerned with the failure of other large banks, which had not traditionally occurred. Accordingly, the stock market crashed as the last remaining shreds of confidence exited the markets and a herd mentality ensued globally.

On top of all these, the regulators went lax. They failed to regulate the subprime lending market, mortgage brokers (non-banking mortgage underwriters) and the derivatives like MBS were unregulated. SEC loosening the capital requirements for the five Wall Street banks and Federal government’s overriding the anti-predatory law acerbated the situation and made it convenient for I banks to tap the bottomless CDO market.