“An ounce of prevention is worth a pound of cure.” – Benjamin Franklin
Yesterday, in the biggest one day bust in US history, the Feds decided to get aggressive on crime and arrested 127 suspected mobsters. Included in the bust were reputed Colombo capo Anthony “Hootie” Russo, who is charged with the 1993 gangland killing of then-underboss Joseph Scopo during the crime family’s civil war. Also busted was Luigi “Baby Shacks” Manocchio, 83, suspected former boss in the New England mob. Members of all five New York crime families were arrested, some of them were: Vincenzo “Vinny Carwash” Frogeiro, Benny “The Claw” Castellazzo and Tony “Bagels” Cavezza. Many of the arrests were for racketeering, extortion, loan-sharking, money laundering and gambling. Now these crimes sound a lot like what that other family based in Washington DC and headed by Benny “The Bernank” Bernanke and Timmy “TurboTax” Geithner have been getting away with for the past few years. Maybe we’ll see them named in the next indictment.
Many of the alleged crimes were not linked together but it appears the Feds wanted to make a statement and bust them all in one day so the bad guys know that the Feds are back on the scene. According to some ex-FBI agents, the Feds had spent most of their time on counter-terrorism since 9/11 and they had been neglecting domestic crimes. If the bad guys know that nobody is watching, then they will try to get away with whatever they can. Can you imagine what would happen if Wall Street banks thought nobody was watching them or if HFT firms felt that the regulators were not keeping a very close eye on them? Even though they may have missed Bernie Madoff’s multi-year, multi-billion dollar Ponzi scheme, we know they must be watching closely now. Right? But then yesterday we hear from the SEC’s top cop Robert Khuzami and he tells us that the SEC has funding problems. Khuzami said, “It’s clearly impairing our efforts…It’s requiring us, frankly, to make some difficult choices, such as limiting travel to interview witnesses and postponing hiring experts needed to help monitor Wall Street”. He also said the SEC also can’t afford the technology upgrades it needs to store and manage as much as 2 terabytes of data it receives each month (there goes the Consolidated Audit Trail).
This is the way market reform is shaping up: the HFT lobby in DC continues to spend wildly to keep the politicians in check, the one person in DC who was fighting for investors (Sen. Kaufman) is no longer in office, the House Financial Services Committee is now headed by Rep. Spencer Bachus who recently co-wrote a letter to the SEC supporting current market practices like HFT and the SEC is running out of money. Eight months after the Flash Crash and this is what we are relying on to prevent another confidence-crushing crash.