“I Told You So”

More of this please.

First, we must confront head-on the pervasive misunderstanding of what constitutes a "free market." For long stretches of the past 30 years, too many Americans fell prey to the ideology that a free market requires nearly complete deregulation of banks and other financial institutions and a government with a hands-off approach to enforcement. "We can regulate ourselves," the mantra went.

Those of us who raised red flags about this were scoffed at for failing to understand or even believe in "the market." During my tenure as New York state attorney general, my colleagues and I sought to require investment banking analysts to provide their clients with unbiased recommendations, devoid of undisclosed and structural conflicts. But powerful voices with heavily vested interests accused us of meddling in the market.

When my office, along with the Department of Justice, warned that some of American International Group’s reinsurance transactions were little more than efforts to create the false impression of extra capital on the company’s balance sheet, we were jeered at for attacking one of the nation’s great insurance companies, which surely knew how to balance risk and reward.

And when the attorneys general of all 50 states sought to investigate subprime lending, believing that some lending practices might be toxic, we were blocked by a coalition of the major banks and the Bush administration, which invoked a rarely used statute to preempt the states’ ability to probe. The administration claimed that it had the situation under control and that our inquiry was unnecessary.

Eliot Spitzer is one of the people best suited to help clean up the mess on Wall Street. After all, he was screaming about where all the bodies were buried back when everyone was in denial, up until the time Michael Garcia took him out for a high-priced hooker.

Here’s what he recommends:

One of the great advantages U.S. capital markets have enjoyed over the decades has been the view — held worldwide — that there was an underlying integrity to the representations market participants made, because the regulatory framework in which they were made was believed to provide genuine oversight. But as we all know, the laws requiring such integrity are meaningless without a government dedicated to enforcing them.

Second, our corporate governance system has failed. We need to reexamine each of the links in its chain. Boards of directors, compensation and audit committees, the trio of facilitators (lawyers, investment bankers and auditors) whose job it is to create the impression of legal compliance, and shareholders themselves — all abdicated their responsibilities.


Finally, we need to completely overhaul the federal financial regulatory framework.

Spitzer ends this piece by saying, "mistakes I made in my private life now prevent me from participating in these issues as I have in the past." Perhaps. But let’s hope that he continues to serve as a public scold, calling out all the half-assed "solutions" and insisting on real reform.

53 replies
  1. JimWhite says:

    Thanks for this, EW. The only reason I did not start another biotech company after my first one went under was that the experience showed me just how amoral the investment community is. I do not wish to associate with them anymore. Spitzer nails that complete lack of principles. Ironically, he’s free of them now, too.

    • MarkH says:

      The only reason I did not start another biotech company after my first one went under was that the experience showed me just how amoral the investment community is. I do not wish to associate with them anymore. Spitzer nails that complete lack of principles. Ironically, he’s free of them now, too.

      It’s a curious thing. I think that in a similar, but very odd, way senators Craig and Vitter are also free of that crowd. I almost applaud them for staying in the senate after they were outed. Their presence isn’t as much of a smear on the senate as it thumbs their noses at the real oppressors in our society.

      Breaking free is liberating, but it’s also sad that this blocks your ability to be a real entrepreneur.

      It really shows how Wall Street isn’t really about resource allocation in the textbook way; it’s really about allocating everyone’s resources right into the hands of Wall Street firms. It’s a slick con game in many ways. They’re somewhat like Amway in that they’re very suspiciously like con men, but they maintain enough of a veneer of respectability.

      If you look at two charts you can see the effects plainly. One shows that since the Reagan era all of the nation’s wealth has gone into the hands of a very few people, most people’s incomes have been flat. The other shows the growth in the financial industry over that same time period. They account for a much larger share of America’s corporate profits than before.

      The financial industry has essentially learned how to skim EVERYTHING off the top.

  2. pdaly says:

    Ironic that Spitzer’s extramarital activity disqualifies him from working on fixing the capital markets, whereas those men and women who caused the failure of the banks and insurance companies are invited into the closed door meetings to brainstorm a fix the problems they created.

    We should send Spitzer a Dear Judy letter. Come back to work and to life.
    Some roots need untangling.

  3. perris says:

    regulations vs “the free market myth” is one of my favorite discussions, I did a piece on it over on my diary

    Contrary to corporate spin, regulations do not arise out of nowhere, they do not emanate from political whole cloth, regulations in just about every example were written to address issues industry caused themselves.

    Nor do regulations cost consumers money, most of the time regulations are cost saving.

    Nor do regulations usually raise the price of goods, the price of goods are usually based on what consumers are willing to pay, not the cost to produce that product, for instance, football tickets are much higher then baseball tickets even though a baseball team costs exponentially much more to operate.

    In fact regulations lower the overall cost of consumer goods since those regulations prevent injury to ourselves and our family.

    When I say “regulations are usually written because an industry created issues they refuse to address”, here’s what I mean;

    Corporations do their best to defer their costs, or in other words, if they can they will have the rest of us to pay their bill.

    That obviously increases their profit margin and there is nothing wrong with an industry that tries to increase their profit margin, in fact that’s what they should be doing, however we need to make certain they don’t accomplish that goal at our expense.

    Here’s an example;

    I remember back in the 70’s, flying over New York or L.A, you would look out of your airplane window and see a literal bubble of “yellow” encasing the city.

    They called it “smog” and it came from industry, you could also see where some of it came from, you saw it billowing from smokestacks and belching from automobiles

    Obviously this smog caused bronchitis and other health issues real time, however the future health toll was not even known at the time and we can assume those chemicals have been the cause of cancer and other problems later on down the road.

    The industries that caused this smog refused to clean up the mess they themselves produced, they refused to pay the health care for those individuals they affected, they wanted you, me, and our kids to pay for their mess

    We would pay with our health and the health of those we love.

    Thank goodness we realized the issues being created by industry and we realized a set of regulations had to be created

    We needed to force industry to clean up their own crap

    Low and behold, the EPA was created. (under that ultra-liberal president named Richard M Nixon)

    and it goes on but the bottom line, industry brings regulation on themselves because they refuse to pay their own bills

  4. klynn says:

    We should invite him to a “financial solution salon”. I realize he just gave a broad stroke as to what happened and what needs to happen for the system fix. How about we tap him to guide us, the people, and then we can use the framework he would have used to clean this up?

    Sounds crazy I know. However, if Spitzer sees himself as unable to carry out the task, why not channel a big group of people and direct the change from the “outside” where his actions (and others) put him?

    • klynn says:

      EW my response was triggered by your closing comment…

      But let’s hope that he continues to serve as a public scold, calling out all the half-assed “solutions” and insisting on real reform.

      The economy is a Strangebedfellows issue. He really could empower a large mass of people who will carry out the real solutions on the grassroots-netroots level.

      Thanks for this post EW.

  5. BooRadley says:

    The WaPu has a decent comment system. Readers can rate and provide comments under Spitzer’s piece. If you have not registered, it’s free and just requires an email address. There are about seventy comments so far and imho a slim majority favors Mr. Spitzer. If anyone has a chance to show him some support, I’m sure he would appreciate it.

    • readerOfTeaLeaves says:

      pfffttttt…. I don’t care as much about supporting Spitzer as I do about my kids financial solvency. But thanks for the tip.

      When my office, along with the Department of Justice, warned that some of American International Group’s reinsurance transactions were little more than efforts to create the false impression of extra capital on the company’s balance sheet, we were jeered

      I still don’t have the linkages between Stan Greenberg, Greenberg-Traurig, and K-Street all figured out; no time, not at the top of my to-do list, etc, etc.

      But watching the movie “Michael Clayton”, in which private corporations hire phone tappers and black ops guys, always puts me in mind of Elliott Spitzer. Just looking at what happened in his case sure suggests that he posed one helluva threat to certain powers that wanted to ensure that he couldn’t come after them.

      I interpret it to mean he’s the one those interests most fear. By that logic, he’s the one who ought to be empowered to go after them. Surely that would be karmic justice, would it not?

  6. radiofreewill says:

    Make him The Wall Street Czar anyway.

    It would only be poetic justice for the Greedy Whores, who may very well have pulled the Global Finance System down on top of themselves and US.

    Let Spitzer’s penance be Sending the Wall Street Flatbackers to the Financial Health Department to get cleaned-up.

  7. Rayne says:

    I like that he pointedly used the word “reinsurance” in reference to his depts.’ pursuit of AIG. Not merely insurance, but reinsurance, where the regulation gets a bit more obscure, and where it’s much easier to spread around the exposure because that’s exactly what reinsurance is designed to do.

    Spitzer is a linchpin to this mess; he has what I would consider the best grasp of where it all went off the rails and who’s to blame. We need him back, and I hope like hell that Obama can find some surreptitious way to bring him in to consult on the repairs that are needed.

  8. skdadl says:

    I’ve been wondering when or whether Spitzer would speak again (and why he hasn’t), so this is such good news. Such an obvious political takedown — I still want to see that unravelled by our great detectives.

  9. Leen says:

    Thanks for the insights EW

    What Spitzer does in his private life is between him and his wife. Real questions as to why this guy was targeted.

    ot listening to Amy Goodmans interview with Bill Ayers and Bernadine Dohrn on Friday.
    Worth it. Amy’s interviews and focus are always worth it.


    • archiebird says:

      Greg Palast says the political takedown was due to the fact that Spitzer was getting in the way, and possibly exposing the whole mess. (My words) As reported in March of 2008 on his blog and by Crooks and Liars. Check out http://www.gregpalast.com “Eliot’s Mess” March 2008.

      • Leen says:

        Greg Palast digs deep. Met him at the election hearings in Columbus after the Kerry cave in on Ohio’s election count

  10. Sara says:

    Well, he needs to write the instruction book as to what needs to be done, and then either start a blog, or become a co-blogger someplace — a place where movement, economic and legal activists tend to gather that has a decent sized audience. Being a quite public commentator, a mentor to those wanting to push through solutions, could be his redemption.

    • readerOfTeaLeaves says:

      Thx, I’m a huge admirer of Zuboff. Her “Age of the Smart Machine” is still pure genius IMHO.

      bmaz @26. Yup; it was one hell of a political takedown. Which surely begs the question: ‘who wanted him kneecapped so badly, so fast?’**

      ** Don’t know whether you ever saw the 2007 movie “Michael Clayton”, which involves corporate-sponsored phone tapping and black ops. It’s easy to suppose that something like that happened to Spitzer, given the fact that he was scheduled to speak before Congress the day he was… ‘outed’ and humiliated.

  11. allan says:

    Newt Gingrich blabbing this morning on NPR that the
    solution to our woes is repealing Sarbanes-Oxley,
    a 0% captial gains rate and a 12% corporate income tax rate.

    Keep up the good work, Newt.
    That will be a killer platform for 2012.

  12. pdaly says:

    Naomi Klein commentary about the Wall Street bailout in the Nation this week:

    “The Street” would cheer a Summers appointment for exactly the same reason the rest of us should fear it: because traders will assume that Summers, champion of financial deregulation under Clinton, will offer a transition from Henry Paulson so smooth we will barely know it happened. Someone like FDIC chair Sheila Bair, on the other hand, would spark fear on the Street — for all the right reasons.

    One thing we know for certain is that the market will react violently to any signal that there is a new sheriff in town who will impose serious regulation, invest in people and cut off the free money for corporations.


    Over the past three months, we’ve been shocked so frequently that market stability would come as more of a surprise. That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first. Few will be able to blame him for a crisis that clearly predates him, or fault him for honoring the clearly expressed wishes of the electorate. The longer he waits, however, the more memories fade.

    When transferring power from a functional, trustworthy regime, everyone favors a smooth transition. When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.

    • earlofhuntingdon says:

      Good catch, excellent comment. “Free market” is a contradiction in terms. Unrestrained selfish behavior, backed by perfect knowledge in the hands of buyer and seller, the dynamic tension from which miraculously yields a middle ground of optimum resource use for many? We’ve never had it.

      Unrestrained selfish behavior demands that an actor attempt to rig the system, that s/he lower or avoid competition, by fixing prices, rigging bids, driving others out of the market, hording price and cost information, extorting tax windfalls for yourself and imposing burdens on others.

      John D. Rockefeller may or may not have been a genius. He did make millions throwing his weight around. He didn’t just “earn” volume rebates with railroads. He forced them secretly to charge his competitors higher freight prices than they charged him and rebate the difference back to J.D. In effect, he paid no freight. When his competitors suffered as a consequence, he bought ‘em up cheap, and grew and grew. On the resulting profits, he paid no tax (until 1913, when a national income tax was instituted in anticipation of First World War expenses). His apologists claim that he made more money after the so-called trust busters broke up the behemoth that was Standard Oil. He did. But they ignore that that happened before the 1914 War, before oil, the engines of peace and war it drives, and petroleum-derived products became ubiquitous.

      “Free market” is shorthand, like the phrase “natural selection”. It’s a wholesome sounding thing that implies its workings are beyond the human ability to comprehend or regulate. Natural selection hides what Jack London described as nature red in tooth and claw. Few survive to pass on their temporarily and locally well-adapted genes because most are dead. The neocon’s “free market” carries similar costs. That’s a price humans, with a moral sense we deem unavailable to other flora and fauna, need not and ought not pay.

      The costs, the excesses, of the “free market” are worth paying or living with only when they are modified by regulations. Would be shareholders need accurate disclosure of a company’s operations and financial health. Consumers need to know what’s in what they buy, whether the goods are and will do what the seller claims for them. Things that can kill you are always/often/sometimes banned, as are workplace practices that do the same.

      “Free market” arguments are really about who pays and who keeps the limited resources we have. It’s perspective, like that in a good novel, is the protagonist’s, the guy with the money. Everybody else is an also ran or, like a union, the antagonist. Not everybody wants it all, but no one should get it all. ‘Cause nothing is really free.

    • astilbe says:

      I’ve read comments elsewhere to the effect that the rest of the world is waiting for the IMF to come in and ‘restructure’ us. THEY think we’ve been shock doctrined.

  13. bell says:

    isn’t this always what happens when someone is getting close to revealing the nature of something that others wish kept hidden? they find something to take him out of action.. clearly the knives were out for spitzer..

    sounds like summers is a shoe in re post 20..

  14. LabDancer says:

    We have to get beyond the Puritanism that takes a big thinker effective public servant like Spitzer out of the picture [Tho it seems to me he was flying outside his comfort zone – are the two related?]. James Galbraith spoke on Bill Moyers a few weeks back about the need to get on all the corporate fraud Bush enabled Cheney et al to ignore, which to my mind means foster.]

    Probably OT – but what the hell happened with the big deal investigation in Spitzer Hooker Up Gate? All the dirt in the seams got magically released first, and it turns out now he’s not even facing a jaywalking ticket? Methinks something stinks about this scenario a lot worse than the E-man’s kinks.

    • bmaz says:

      Ha Ha heh heh. Come on, you, of all people, knew that that investigation was never headed towards real live charges. As to Spitzer, it was a political takedown pure and simple, and nothing else.

      • LabDancer says:

        Well yeah but … mom always told me there were consequences to the abuse of power.

        I wonder if Sherlock Spitzer’s awaiting the end of the long national nightmare before starting after his own one-armed men?

  15. lllphd says:

    no time to read all the comments, which i hate because they’re always so insightful. forgive me if someone has already scooped me on this find:


    a long article by michael lewis of ‘liar’s poker’ fame. pretty timely, i’d say.

    and fits in nicely with my feelings that wall street ought to be killed, stake through its heart, or at least allowed to die a cold and lonely death. the entire enterprise has always struck me as glorified gambling, all its endeavors designed to abstract numbers further and further from the real objects of use and people who make them and provide services. all constructed to feed greed; why would anyone want to perpetuate such a thing?

    oh sure, we can make arguments all day long about retirement funds and the like, but think about how foolish that is, really. whatever happened to savings accounts? and think how much better off we’d all be about now if we’d left our money in savings instead of investing!

    i know this is simplistic to the max, but no one has ever argued successfully for supporting wall street that i have ever heard, except to sound like a pompous greedy pig.

    we’re infinitely more inventive than this cesspool would lead anyone to believe, and we need to start exploiting that fact. and quick; the whole world is sinking.

    meanwhile, hope someone did recall spitzer’s contribution to the whole red flagging on the mortgage nightmare less than a month before he was forced to resign:

    this guy is a remarkable resource; would be a dirty rotten shame to miss out on his expertise and his conscience on these issues.

  16. plunger says:

    You really don’t want to know the entire truth. You really don’t want to discuss who’s behind all this. You don’t want to admit that it is all the result of a very patient conspiracy. You simply don’t want to know.

  17. barne says:

    Arianna Huffington’s site front page headline: “Diane Sawyer Lands Ashley Dupre, Eliot Spitzer’s Hooker”

    Diane just wants to help America.

  18. mracine says:

    Sci-fi novelist Bruce Sterling came up with a term to describe what happened to Spitzer – “centipedes.” He wrote about it on his blog at Wired Defining the Centipede. Kind of a clunky term, but here’s his take:

    “Centipedes” are covert conspiracies meant to drive politicians from power by creating moral panics. Centipedes have the same dynamics as modern terror-groups, but they exploit sexual scandal instead of bloody mayhem. Centipedes are a cheap, highly effective, low-risk, highly-mediated method of political destabilization. ….

    While pretending to be about spontaneous indignation and moral values, centipedes are coolly calculated and all about power.

    The asymmetrical advantage that enables a “centipede” is that the conspirators themselves are never outed. They plot, they find a sexual weakness, they accumulate data about it, they launch a scandal from out of the woodwork, and while exposing private deeds to the public glare, the conspirators themselves remain unseen.

    He notes that this is a global phenomenon. One of the things that a real media would do is to hunt down the source of these sorts of rumors, bring them into the light. As it is now, there is no sense of balance on these things.


  19. jdmckay says:

    More of this please.

    a lot more.

    Everywhere I can, as loud as possible, I’ve doing all to convince and thinking human being w/in earshot of this stuff.

    The mantras of republican economics going back to Reagan are built upon what Spitz attacks here. The evolution of these economics are at heart on what’s got us on the brink of meltdown right now.

    I do not understand why Obama, dem leadership… the whole progressive political class is not saturating discussion with all the details, in order to drive a stake through the heart of this shit once and for all. The closer one looks, the worse repub free-market “principles” (cough) look.

  20. bell says:

    Alison # 16 and lllphd # 28 – thanks for the link to the michael lewis article… that is worth the read for anyone interested in understanding how we got to this huge pothole in the financial world…

  21. NMvoiceofreason says:

    EW, thank for an excellent post.

    I take a slightly different perspective. It is the Rule of Law that is gone. Will the two million felonies (50 USC 1809) of the warrantless wiretapping program between 2002 and 2008 ever be prosecuted? Or the other Bush/Cheney crimes? Will we hand them over to the International Court in the Hague for trial as war criminals for torture, rendition, and murder? Will we ever have US Attorneys who will indict WHOEVER violates the law? Will we ever have US Attorneys who will obey their MANDATORY duty under the Constitution (pesky SHALL clause) and bring contempt citations from Congress forward? Or shall we all just admit the truth, that we no longer live in a Democracy, but in a Plutocratic dictatorship, where only the rich make the laws for the rest of us to obey?

    • bmaz says:

      Will the two million felonies (50 USC 1809) of the warrantless wiretapping program between 2002 and 2008 ever be prosecuted?

      No, not even feasible after the FISA Amendment Act. The acts were deemed authorized and appropriate sufficiently so as to obviate civil liability; how can you ever make out a case of criminal liability with a beyond a reasonable doubt standard if the civil burden of preponderance of the evidence cannot be met? Answer: you can’t.

  22. lysias says:

    Was Spitzer taken out because the powers that be were already planning the bailout and thought that he would be a major obstacle?

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