Lewis: “Please pay no attention to the problems we are failing to address.”

In a long, two-part NYT commentary, Michael Lewis tells about a former investment manager who spent nine years trying to convince the SEC that Bernie Madoff was a fraud. But the agency "Created to protect investors from financial predators ... has somehow evolved into a mechanism for protecting financial predators with political clout from investors."

Hapless regulation is only a symptom of the larger problem.

The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. “Greed” doesn’t cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy. The fixable problem isn’t the greed of the few but the misaligned interests of the many.

[...]

Our financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.

I suppose those Friedmanites who say government intervention is the problem could cherrypick a few passages to support why the financial markets should be left alone, but overall, Lewis and coauthor David Einhorn make a case for effective intervention.