enforcement

[Thomas Hartman]

I'll share an interesting comment regarding fraud prevention and
enforcement that I saw at

http://news.ycombinator.com/item?id=403611:

"We should privatize the SEC. Put a bounty on fraud detection, and
then make the following deal: the government puts up a lump sum now,
and the recipient must make whole all parties harmed by fraud, but
only if the organization approved the fraudulent financial statements.

You probably need to tweak the numbers to avoid some bad incentives,
but the general principle is sound: treat it as an insurance problem,
rather than a regulatory problem, and the funding you get will
approach the point where the marginal utility of more fraud detection
falls below the cost."

I wonder if this insight can be applied in some way to
non-governmental currencies like ripple, ccs, or chris cook'ss
unitised revenue streams model.

The thread discusses the bernie madoff hedge fund ponzi meltdown, the
general problem is ensuring stability against gamers and con men.

With a real working ripple, who plays the role of the SEC?

[thomas hartman]

So, here's how it could work. A non-governmental currency system with
a sane enforcement component.

Ripple (or whatever sits at the root): Colects transaction fees from
users. Pays bounties to regulators per above. Deals with banks.

Banks: Have accounts with users, charge interest, are tempted to
speculate. But, they get audited by regulators.

Users: Have accounts with banks, choose what bank to have an account
with based on information published by regulators.

Could prosper.com have used this and avoided its demise?

Could ripple get off the ground along these lines?


On Dec 20, 2:33 pm, "Thomas Hartman" <thomashartm...@googlemail.com>
wrote:

[Thomas Hartman]

>""We should privatize the SEC. Put a bounty on fraud detection, and
>then make the following deal: the government puts up a lump sum now,
>and the recipient must make whole all parties harmed by fraud, but
>only if the organization approved the fraudulent financial statements."

There is a flaw here too though.

Regulators could game this system by taking their lump sum and not
doing the work involved with sniffing out fraud. If there's no fraud,
they win, and didn't have to do any work.

If there is fraud, maybe they can squirrel some of that bounty into an
offshore bank account and sneak out the back door like bernie madoff
was hoping to do.

Darn.

This is a hard problem.