TCS Daily

Wall Street Thug

By Stephen W. Stanton - December 20, 2002 12:00 AM

Tony Soprano is an unsavory character. He breaks the law. He lies. He intimidates. He makes his own rules, and he gets what he wants. And yet he remains a very popular guy.

Eliot Spitzer is also a popular guy, recently winning reelection as New York's attorney general in a landslide with 66% of the vote. In fact, it seems that Mr. Spitzer has a lot in common with Mr. Soprano. A recent issue of Forbes exposed the grittier details about this public official. Spitzer has broken the law. He may well have lied about his campaign finances. He is especially adept at intimidation. Here are a few of the specific charges mentioned in the article:

  • He violated ethics rules and the law by bullying defendants in a civil suit with threats of criminal charges.
  • Spitzer went on TV to smear the reputation of a company to damage its business and bully it into a settlement.
  • Spitzer filed civil suits against executives for engaging in business practices that are not even against the law.
  • He personally profited by the same business practices he now prosecutes.

Spitzer is no saint. He usually gets what he wants by intimidation and coercion. Not satisfied with his legal authority, he practices pseudo-law in the court of public opinion. He uses the media to extort settlements that he probably could not have achieved in a court of law.

Nor is Spitzer the hero he believes himself to be. Spitzer said ''I've got a job, and it's to protect small investors.'' Well, extorting $100 million from Merrill shareholders certainly doesn't help them. That money is going right into state coffers.

Spitzer attacks Wall Street firms for their conflicts of interest, yet he ignores his own. His opportunistic attacks on major brokers coincided neatly with his own reelection campaign. He offered voters a convenient scapegoat for their recent financial troubles. It was clearly in his political interest not only to prosecute criminals, but to demonize the entire financial services industry. In addition, it remains unclear whether his undisclosed loans from JP Morgan have protected the firm from his wrath. I would trust any analyst's integrity more than I trust this campaigning politician.

The attorney general has an unabashedly liberal agenda, and he uses his position to advance it. He has pushed to enact gun control from the bench. When the Bush administration considered changing clean-air standards, Spitzer insisted "We will absolutely go to court to forestall these new rules and regulations." Spitzer has the audacity to force the citizens of New York to fund his crusades against laws passed by elected federal officials.

In his most famous crusade, Spitzer tried to split investment research from investment banking functions at Merrill Lynch. This was to be his template for pursuing other banks in the future. A settlement was reached at a proverbial gunpoint. If Merrill had not cooperated, Spitzer would have pursued even more ambitious civil and criminal damages, plus he would have continued the damning smear campaign that had already cut billions off Merrill's market cap. Spitzer accepted a more modest restructuring of the bank when he realized his plan was completely unworkable.

In a recent American Enterprise Institute report, the scholar Michael S. Greve asked an important and overlooked question: "With the exception of Eliot Spitzer, who authorized Eliot Spitzer to 'restructure' the U.S. financial markets?" The answer, of course, is nobody. By law, Spitzer has no legislative authority.

Spitzer defends his actions as "federalism". Since the Reagan years, conservatives on Capitol Hill have dusted off the Tenth Amendment and begun devolving some power to the states. Spitzer believes that gave him all the power he needs to run amok in New York. He ignores the fact that the state has its own elected lawmakers, too, and he is not one of them. Walter Olson, senior fellow at the Manhattan Institute put it mildly, ''Spitzer wishes to second-guess the results of the democratic process.'' To put it more bluntly, when the legislature does not pass the laws that Spitzer wants, he just exploits his office to impose his political agenda from the bench.

What is his agenda? He believes 90's deregulation was a "spasm" that should and will be reversed. He believes the government must impose a pricing scheme for pharmaceuticals, dismissing the importance of profit motive in R&D and the value of intellectual property. He believes that arguments in favor of capitalism have "structural flaws".

Structural flaws? As impressive as Spitzer's ivy league credentials are, I see no finance in his background. Nor is there mention of any business experience apart from being a lawyer. His one widely-publicized idea to reform Wall Street analysts involved socializing stock research, eliminating competition, and creating a business model that would never attract customers. The idea was naïve and untenable.

Spitzer has demonstrated a disdain for (and misunderstanding of) both democracy and capitalism. While he may be an effective lawyer, we certainly don't want an ethically challenged, politically motivated, government attorney with limited business experience running Wall Street.



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