New York securities broker and former Nasdaq chairman Bernard Madoff is under house arrest in his Manhattan apartment and a $10-million bond during an investigation into an alleged $50-billion fraud, perhaps the largest Ponzi scheme in U.S. history. As his investors wonder about their assets and Congress probes how federal regulators failed to detect trouble sooner, here's a sampler of commentary on Wall Street's latest scandal.

Trust squandered

Wall Street depends on a foundation of trust, but that trust has been squandered in a year investors would rather forget.

Neither hedge-fund managers nor regulators at the Securities and Exchange Commission seemed suspicious of Madoff's consistently high returns. If his alleged confession is true, he really was engaged in a high-flying Ponzi scheme, using money from more recent investors to pay off clients who got in earlier.

The scheme came crashing down when some investors, nervous about the recession, tried to cash out their portfolios. In an instant, people who thought they were worth millions discovered they had been wiped out.

The alleged fraud has touched people from Sen. Frank Lautenberg, D-N.J., whose family foundation was an investor; to former Philadelphia Eagles owner Norman Braman, to media mogul Mort Zuckerman. Some of the world's largest banks lost hundreds of millions of dollars.

But the losses have hit people of modest means, too. At least 50 charities were bilked; several will shutter their doors because of evaporated investments. The town of Fairfield, Conn., reportedly lost $42 million of its pension plan -- 15% of its assets.

This scandal is a devastating blow to the hedge-fund market, which is loosely regulated and whose managers obviously didn't perform due diligence on Madoff for their investors. If the industry is to reclaim credibility, it must insist on auditors and regulators who can be believed.

It's an even worse day for the SEC, which allowed Madoff to perpetrate this fraud for years right out in the open. Only eight months after the Bear Stearns debacle, a new mess has been deposited on the SEC's doorstep.

For several years, the SEC's enforcement arm has been weakened to the point that its ability to ferret out fraud is now an open question.

Wall Street needs two pillars to restore investor confidence -- more money managers with integrity, and beefed-up regulation by the SEC. Until those changes take place, the Street will continue to devalue itself.

From an editorial in the Philadelphia Inquirer

No common sense

Bernard Madoff's $50 billion con game provides a damning illustration of how bad things have gotten for the Securities and Exchange Commission.

Red flags were everywhere. Madoff's so-called auditor had fewer employees than the midnight shift at a drive-through fast-food restaurant, and his investment firm boasted remarkably consistent returns that defied common sense. Yet, he magically lured charities, endowments and countless others into an old-fashioned Ponzi scheme while keeping the SEC at bay.

When the SEC did what passed as an investigation of Madoff in 2005 and 2007, the agency found nothing, just as it found nothing in 1992 and 1999 when tipsters alerted it of their concerns about the former Nasdaq chairman.

Makes you wonder what else the SEC is missing and how many other investors, large and small, are being duped. For an agency that is supposed to be an investor watchdog, the SEC continues to prove itself utterly inadequate at protecting investors.

This has to change; financial bad actors must not be free to outgun Wall Street's cops. For nearly two decades, the agency's workload has increased exponentially while its budget has remained virtually flat.

If a big-city police department was as undermanned as the SEC is, the force might be able to write five speeding tickets a year -- but don't count on it.

The SEC's current budget is $906 million and fiscal 2009 doesn't look much better; just $7 million more and a reduction of 94 positions. No wonder the SEC has high turnover and low morale and, in a crowning blow, missed this eye-popping financial fraud.

From an editorial in the Dallas Morning News

More fraud

It's no great feat to arrest a man who tells a federal agent "there is no innocent explanation" for his actions and that he expects to go to jail. The Securities and Exchange Commission blew many chances over the past decade to uncover his ruse, even after receiving detailed tips.

It's unclear why the SEC failed to stop Madoff, whether because of corruption, a lack of smarts, a dearth of interest or some combination. We can say with confidence, though, that many other huge frauds still are operating freely today -- and that the government might not be inclined to intervene, even when it knows all about them.

After all, Madoff's scheme -- at least in spirit, if not in its nefarious intent -- wasn't much different from the business models at some of the nation's largest failed financial institutions.

Back in May, four months before it collapsed, American International Group Inc. increased its dividend at the same time it unveiled plans to raise $12.5 billion in capital. Later, when its cash ran out, AIG got a government bailout, the size of which has expanded to about $150 billion.

Whether you call that a Ponzi scheme or something less sinister, AIG was paying old investors with money raised from new investors. The same could be said of many banks that blew through billions of dollars in freshly raised capital the past couple of years, continuing to pay large dividends even as their balance sheets quietly imploded.

So why have other Ponzi-esque operators emerged scot-free (so far) with taxpayer bailouts, while Madoff gets pinched?

Madoff probably wasn't the biggest Ponzi-scheme artist out there. He's just the first of his size to get nailed during the current bear market.

From a column by Jonathan Weil, Bloomberg News Service