How much blame should the Securities and Exchange Commission shoulder for the Bernard Madoff case? On the one hand, Madoff was good--he appears to have hidden his $50 billion Ponzi scheme from even his own sons, who worked with him at Bernard L. Madoff Securities. On the other hand, well, a $50 billion Ponzi scheme should create some sort of wake, somewhere. In fact, it did: The New York Post this morning cites a 1999 letter from investor Harry Markopolos to the SEC insisting that “Madoff Securities is the world’s largest Ponzi scheme,” though nothing came of it.

The Madoff case is, as the New York Times notes, the latest black eye for the SEC, which has seen its budget slashed and staff morale plummet under Bush. But, of course, Madoff was in business long before 2001, pointing to even deeper problems with the Commission. The SEC is simply too small and too limited to address the breadth and rapidity of developments in financial markets. For years observers have been calling for significant reform--at the very least, merging the SEC with the Commodity Futures Trading Commission--calls that picked up speed this spring after Bear Stearns collapsed three days after Chairman Chris Cox said the firm was solid.

The SEC isn’t always in the public eye, but it plays a central role in the health of financial markets, and must play an even larger role in rebuilding investor trust during the recovery. All of which makes it noteworthy that Barack Obama has yet to name an SEC chair. To be fair, before doing so he has to decide what to do with the Commission. Whether he rolls it into another agency, or rolls other agencies into it, will be a large factor in deciding who should lead it. But by leaving that person out of the economic “dream team” he announced last month, he has positioned regulatory reform as a secondary issue to industry bailouts and economic stimulus. He must act quickly to put it on par with the rest of his economic agenda.

--Clay Risen