The Regulator as the "Cooler in the Blowoff"
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The Madoff Fraud, which may supplant or overthrow Charles Ponzi as the name of current robbing the future to pay the present scheme, has brought ot the fore examination of the appropriate role of the Regulator.
Many commentators wrongly believe that the role of the Regulator is to only to prevent fraud, somewhat like a superhero who spots ongoing frauds, swoops in and makes everything right.
These commentators have missed the other important role that the Regulator plays: the institution is there to prevent too much anger percolating against the financial institutions of the day.
Erving Goffman explained this Regulatory role, some 50 years ago.
Relying in part on work by David Maurer, Goffman used the confidence scheme as a conceptual tool for analyzing how "the disappointment of reasonable, expectations, as well as misguided ones, creates a need for consolation.
Persons who participate in what is recognized as a confidence game are found in only a few social settings, but persons who have to be cooled out are found in many. Cooling the mark out is one theme in a very basic social story."
In the language of Maurer, a confidence swindle ends with the mark being taken, and various endgames, blowoffs, are engineered to let the bad buys get out of town.
"After the blowoff has occurred, one of the operators stays with the mark and makes an effort to keep the anger of the mark within manageable and sensible proportions.
The operator stays behind his team‑mates in the capacity of what might be called a cooler and exercises upon the mark the art of consolation.
An attempt is made to define the situation for the mark in a way that makes it easy for him to accept the inevitable and quietly go home.
The mark is given instruction in the philosophy of taking a loss."
The art of consolation is the proper role of the Regulator. The Regulator can often get away with sophisms like:" If it looks to good to be true, it is." Unfortunately, for the Regulator,the systemic looting of the very very rich by Madoff, makes it an inappropriate response.
Questions will be asked about the Regulator, and the usual crowd will line up along the to regulate or not to regulate lines.
But what is really needed is an analysis of the ability of the Regulator to console, an analysis which will undoubtedly show up the real ineffectual nature of the Regulator.
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