Give Wall Street scammers hard time

"More gruesome film clips and more puzzled intellectuals declaring their mystification over the systematic murder of millions," he says. "The reason they can never answer the question 'How could it possibly happen?' is that it's the wrong question. Given what people are, the question is, 'Why doesn't it happen more often?' "

The same thought occurred to me as moral outrage built last week over Bernard L. Madoff and his alleged Ponzi scheme that bilked clients out of as much as $50 billion -- possibly the biggest financial fraud in U.S. history.

What's shocking isn't the epic scope of the alleged swindle, although Madoff does get bonus points for chutzpah. What's most striking is that for years federal regulators ignored repeated warnings that Madoff may have been hoodwinking his clients.

"We have been asleep at the switch," President-elect Barack Obama told reporters Thursday. "I think the American people right now are feeling frustrated that there is not a lot of adult supervision out there."

Another frustration: In light of Madoff's alleged shenanigans, how can anyone know if their own money's safe?

"There are probably a lot of scammers out there," acknowledged Arthur Levitt, who chaired the Securities and Exchange Commission from 1993 to 2001. "The nature of this fraud was so far-reaching, and so outrageous, that obviously there are flaws in the system that must be corrected."

That's putting it mildly. I'll get to some of my proposals in a moment. First, a little recap:

Madoff, 70, a former chairman of the Nasdaq Stock Market and a senior advisor to the SEC, established a name for himself as a savvy money manager capable of delivering double-digit returns for clients, even when the stock market was taking a nose dive.

By January 2008, he had $17 billion in assets under management, according to a regulatory filing. All he required of clients was that they not ask too many questions about how he worked his financial alchemy.

And in the best tradition of greed getting the better of people's judgment, most clients were more than happy to acquiesce.

Some observers, however, saw in Madoff's consistently stellar returns a sign that something had to be hinky. The SEC admits it received warnings about Madoff for years -- and for years the agency did little more than tell whistle-blowers not to worry their pretty heads.