Local legislators urge more regulation

    While economists on Walnut Hill debate the need for more regulation following the collapse of Bernard Madoff's alleged Ponzi scheme, the Bay State's representatives on Capitol Hill have come out staunchly in support of governmental intervention in the market.
    "I think we have investors who have been scared for years now or more," Rep. Barney Frank (D-Mass.) told the Daily in a recent phone interview. "And that's one of the major reasons we need rules. Rules are not anti-market; they're pro-market."
    Frank chairs the House Financial Services Committee, which last week held a hearing on the Madoff scandal. Securities and Exchange Commission (SEC) Inspector General H. David Kotz was on hand to testify in front of lawmakers who overwhelmingly blame his agency for failing to catch the red flags sooner.
    Frank promised to further regulate the SEC, but argued that it is too early to suggest specific policies. "We aren't yet sure enough of what went wrong to know how to fix it," he said.
    In statements to the Daily through their press offices, Reps. Michael Capuano (D-Mass.) and Edward Markey (D-Mass.) also pointed fingers at the SEC and called for additional regulation. Markey and Capuano's districts include parts of Tufts' Medford/Somerville campus.
    "This situation is a prime example of lax federal oversight when it comes to many investment vehicles," Capuano said. "Unfortunately, it is too late for the many who entrusted their hard-earned funds with Mr. Madoff, but federal regulators must recognize the shortcomings of our current system and take thoughtful action to address them."
    Specifically, he suggested instituting more thorough disclosure requirements and more frequent examinations of investment advisors.
    Markey proposed similar reforms. "The fact that [Madoff] apparently got away with such a massive fraud for so long suggests that we need new leadership at the SEC, so that it can effectively accomplish its mission of serving as our nation's securities ‘cop on the beat,'" he said.
    Legislators said that the best strategy should take the form of a forward-looking approach, since there is little they can do to help investors recover funds lost when Madoff's scheme came toppling down. But even as political leaders encourage beefed-up rules, they concede that they cannot regulate away all instances of fraud.
    "Nothing's going to protect people against stupidity," Frank said. "People are still going to need to check and be [careful]."