A brilliant observation by Ray Pelecchia at Exchanges:
Perhaps the biggest irony of the Bernard Madoff case is that Harry Markopolos, the investor-turned-investigator who for years warned other investors and the Securities and Exchange Commission that Mr. Madoff was running a Ponzi scheme, today is haunted by regrets that he was not more effective in getting others to heed his whistle blowing, according to today's Wall Street Journal.
Mr. Markopolos shouldn't fault himself; rather, he deserves immense credit and appreciation. He did more than anyone else to sound the alarm. According to the article, he did manage to warn off some prospective Madoff investors. The SEC inspector general is investigating how the agency missed the alleged fraud, but surely Mr. Markopolos bears no blame. He sent the SEC and investors a detailed 19-page analysis, listing 25 red flags about Mr. Madoff's supposed investment results.
Certainly, any failure to convince others was not due to lack of effort. Perhaps Mr. Markopolos lacked only an effective medium to communicate his warning. Here's a thought experiment: What would have happened if Mr. Markopolos had blogged his analysis? That is, what if he had posted the entire piece on a blog, under his name or a pseudonym?
We'll never know the answer, but here's what I think might have followed:
• The post would have quickly spread far and wide among traders and investors. It's a small Street, as the saying goes, and an analysis raising questions about the investment results of a prominent name such as Madoff would have sent e-mails flying.
• Those who had money invested with Mr. Madoff -- or who were thinking of investing -- would have done the same math that Mr. Markopolos had done, undoubtedly reaching the same conclusion. The resulting rush to pull money out and the avoidance of adding new money would have meant a faster end to the alleged Ponzi scheme. [More worth reading]
It is the speed and connectivity of blogs that allows them to more closely match the information flows of today. I agree with the above speculation because I have been alerted to many incoming (heh) troubles by following a link or two or googling the blogs and news.
Blogs have arguably moved transparency at least two quantum levels higher because it allows whistleblowers and and cranks alike to throw out opinions rapidly for the world to sort out, instead of the judgment of a few editors with biases and blind spots of their own. The capacity of the blog-reading public to determine useful sources is similarly taking huge forward strides as better minds and tools come into the arena.
Arguably, the current stimulus conversation is much deeper and richer because so many top economists can blog and debate practically in real-time, allowing winning arguments to be easily expropriated (along with buttressing data) by policymakers. All this occurs without conferences, papers and even compensation. Congress has essentially added an enormous staff who will sort through the details and logic simply for the delight in finding the howling error and crying "First!"
Also, the power of bloggers and search engines to referee/score commerce is becoming a factor in consumer economics:
THOSE of you who watched the Superbowl may have seen an advertisement for Cash4Gold (whose ads are omnipresent on the airwaves, at least in my area). The company's business model is this—they send envelopes to folks who request them. Those folks send back any old gold they have lying around, and Cash4Gold sends them money. How could this business model work? Well, obviously, Cash4Gold is paying less than the market price of gold to their "customers".
About two-thirds less, according Rob Cockerham, who wrote as much on his website, in a post that was subsequently linked all around the internet. The linkage meant that his post became one of the top Google returns for the search "Cash4Gold", which apparently was bad for Cash4Gold's business. How do we know? Well, they sent Mr Cockerham a letter: [I don't want to spoil the ending of this post, so please follow to read]
If this isn't proof of making more efficient markets, I don't know what is. We may not need so much more government regulation as we do affordable broadband access for our citizens.
Free wisdom [although you have to sort for it yourself] is proving to be a blessing of increasing magnitude for our globe. In addition, since the value of output is decided by readers, not the media, the threshold for participation is very low.
Even I can try to advance the collective understanding from my corner. And so can you.