In the madoff case, the SEC didn't have to go looking for Madoff as a ponzi-scheme, a private citizen repeatedly brought information about Madoff issues over 9 years. The SEC's job was to take this information and investigate to uncover the Ponzi Scheme.
The absolute incompetence of SEC, and absolute impunity Madoff ran their ponzi scheme, even after SEC was "alerted" of the Madoff suspected issues by Mr. Markoplos.
So why is this important for trading? Consider this, information with industry experts brought "reasonable proof" that Madoff was supporting fraud, and the SEC was unable to "prove" the fraud. How many other companies are out there without a Mr. Markopolos out there? If the SEC is handed to them information sufficient to prove "suspect" accounting, and is unable to "prove" fraud, what chance does the SEC have to catch any skilled company?
Also, where is the "incentive" for SEC to do a vigilant job? SEC officials are frequently hired by private companies after their service to the US government. Who is held accountable for SEC failings?
This is a smoking gun to how rotten the US financial systems operations are likely to be from ground up. This very system now exposed, is being "Solved" by throwing more money after these executives and companies to avoid bankruptcy.
I find it odd how, blatant fraud, like Madoff, does not deserve the US to "cover losses". But sophisticated fraud involving multiple companies is. Bank loans made to people with no substantial credit rating, income level, or sane mortgage structure was made in the trillions. Rating agencies, banks, Investment banks, bond insurers, government agencies, all acted in unison systematically without questioning the operations being performed.
This, of course is worthy of a bail out, but Madoff, is not. There is a difference, but the difference is not as great as news media would suggest. And this is yet another reason why I do not believe the market bottom is even close to being realized, until all the Madoffs, AIG, Countrywide, DSL, Indy Mac, Freddie & Fannie Mae, Citibank, and other corporations can prove with honest accounting that the worst is past.
I will also believe a bottom is near when this type of news catches the attention of America in greater force, than who was kicked off American Idol.
I strongly recommend watching this video of Mr. Markopolos testifying before congress, he is a true patriot, and outstanding citizen. Click here for 4+ hour Cspan discussion on the topic. Or here for NYT spin.