28.1.09

SUBOPTIMIZATION. Economics is optimization subject to constraints. Apparently the geniuses at the Securities and Exchange Commission never learned that.
The Banking Committee chairman, Sen. Christopher Dodd, D-Conn., demanded of SEC Enforcement Director Linda Thomsen and the other regulators, "What's happened here?"

"... If we had more resources, we could clearly do more," Thomsen testified.
Possibly, if you deployed them effectively. (Why do I form images of a party animal begging for an extension on a paper assignment?)

It's trivially true, however, that more resources, or relaxed constraints, mean expanded feasible sets. I make my modest living, however, exploring the intricacies of actually-existing feasible sets. So let's take the story seriously. Somebody at the Commission learns that the Madoff hedge fund is dirty.
"Madoff's fraud was so immense and obvious, and took place over such a long eriod of time, it is simply inexplicable how the SEC missed it," said Sen. Charles Schumer, D-N.Y. "It's as if there was a giant elephant standing next to the SEC in a rather small room for 25 years, and the SEC never noticed the elephant or even the smell of peanuts on its breath."
Cute quip, Senator, but let's ask the regulators what they were investigating with the resources they had, OK? Perhaps the resources went to identify a nest of cockroaches or a pack of rats, productive to be sure, but suboptimal.

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