Many people confuse Accounting with Finance. Most people in the business world know the difference, but, in my experience, most people lump them together as “people who deal with money.” While they both do deal with money, that’s where the similarities tend to end.
Accountants track money and classify transactions. We figure out how the puzzle pieces all stick together. One of the reasons accountants aren’t very highly regarded in businesses is that we don’t often make money. We can save money in some instances, and we’re responsible for reporting information, but the decisions we are responsible for is oftentimes tangential to the actual business purpose.
Those in the finance world live by an entirely different set of rules. They speak the language of money as well, but in a different dialect: they make it. They make it in any way they can, repackaging it in stocks, bonds, options, derivatives, and all different kinds of forms that boggle the average person’s mind. They skim money off the top of every transaction, they come up with advanced mathematical models to maximize their return, and, in some cases, they just cheat people.
Supposedly, when these finance guys do cheat, the Securities Exchange Commission (SEC) is supposed to catch and prosecute them. They’re the main government watchdog set up to ensure that the massive amounts of money flowing through the financial markets is handled legally. Set up in the wake of the stock market crash in the Great Depression era, they were supposed to make sure investors were protected. Not necessarily from the normal market fluctuations — nobody can be protected from those — but from those bad guys that wouldn’t follow the rules.
No One Would Listen is about the failure of the SEC to actually do its job and, as a result, losing investors money to the tune of $40 billion. For those of you that may not recognize that number, it’s the result of over two decades of Bernie Madoff’s Ponzi scheme. It ended up taking money from hedge funds and individual investors around the world and, true to the Ponzi scheme modus operandi, never ended up actually investing it. Instead, it simply paid inflated returns year after year out of the money that it took in. The ability of Madoff to continue to yield these high returns relied on new cash coming in continually.
The author, Harry Markopolos, tried to warn the SEC that something was wrong with Madoff. He made something like five submissions to the SEC as he pursued Madoff and pointed out the discrepancies in his plans. Unfortunately, nobody listened, and the scheme persisted for two decades, growing all the while.
The book itself details Mr. Markopolos’s plight as he seeks to warn the SEC of impending doom. As a financial analyst himself, he was more than happy to show that steady returns month after month, even when the stock or options market tumbled, were impossible. Unfortunately, it wasn’t until the real estate market burst and Madoff ran out of money that Markopolos’ fears were validated.
The book, while accessible to many without a financial background, is very poorly written. The myriad of spelling and grammatical errors cry out for the hand of a good editor. The author comes across as eccentric, egotistical, and at many times petulant. Although this look at his inner psyche may be revealing, it doesn’t make for very involved reading.
I found myself skimming the last half of the book because it was simply the same information rehashed again and again. Markopolos was understandably upset with the SEC and does not hesitate to show it in his writing. Although he includes an appendix that details his plan to revamp the SEC — and reveals that he may have been on the short list to head the SEC at one point — his continued anger and resentment is palpable.
Overall, the book is a good insight into the seedier side of Wall Street. However, if you’re interested in the details of Bernie Madoff’s scheme, the Wikipedia article is probably a much better place to start.
Excellent account of the efforts of Harry Markopolos and his team in uncovering Bernie Madoff’s fraud and then trying to expose him and get the government to act. The book is well written and documents the the abysmal failures of an SEC relying too heavily on lawyers and accountants who lack the sophistication to understand how the investment industry works and the investment solutions the industry markets to investors.
Harry’s account of when Noelle Frangipane, a member of the SEC’s Inspector General’s team investigating the SEC’s failings, broke down and cried was indeed a particularly human moment and an account I’m glad Harry put in the book. There are people at the SEC who care. The agency clearly lacks investment professionals and people with investment industry operational experience. Lawyers and accountants have their role, but they are not trained as investment professionals.