The most recent television appearance Spitzer has made on the topic as of the time of writing was on CBS's This Morning, on 11 January 2010. Spitzer, readers will be glad to know, confirmed that the anger at seemingly excessive Wall Street bonuses was “legitimate,” because tax dollars were used to fund the bonuses. (I reacted by breathing a little easier. I had worried that my anger was not legitimate, until Eliot Spitzer confirmed that it was.)
Spitzer says this as though there's people outside of the financial industry and, to a degree, Fox News, who disagree with him. (And even with Fox News, it depends on which conservative face they are putting on that day: Ayn Rand's corporatist capitalism or Pat Buchanan's pitchfork populism.)
Even Governor David Paterson, who turned a 9 December 2009 speech at the Museum of American Finance into an odd pep talk to Wall Street, probably agrees with Spitzer about the bonuses. Paterson, however, thinks he can get more mileage out of taxing the bonuses for State revenue than he can by complaining about them.
In the same CBS interview, Spitzer also let the world know that he has caught on to the fact that the Bush Administration's financial industry bailout (referred to in policy wonk jargon as the “Trouble Asset Relief Program” or TARP), has, as implemented, effectively socialized risk, and privatized profits. In other words, we all put up the money when things go poorly, but when things are going well, suddenly Capitalism kicks in, and the individual's profits are the individual's profits. We all share in the risks together, not the profits. It's grand to know that Spitzer has caught onto something that actual financial experts were talking about awhile ago.
However, I, for one, have long suspected that Spitzer actually played a role in the troubles (for want of a better term) on Wall Street, due to actions he took as New York State Attorney General. Not that he conspired with Wall Street, not that he participated directly, but rather that his actions pushed things further underground, where they could flourish all-the-more.
My argument goes something like this.
The Bush Administration, acting within a lax regulatory framework that I have read can be traced in part to the Clinton Administration, basically allowed the financial industry to do pretty much anything it wanted. Complicit in this of course was Federal Reserve Chairman Alan Greenspan, who openly praised the overly complex financial time bombs known as derivatives. We now know that derivatives were one of the main sources of the financial industry collapse.
For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.
See this New York Times article, the source of that quote, for more.
At about the same time, then Attorney General Spitzer was emerging as the “Sheriff of Wall Street,” pursuing the crimes of the financial industry with a driven intensity Eliot Ness would have envied.
It is frighteningly easy to imagine that Spitzer had prophetic powers, that his pursuit of financial industry misdeeds foretold the economic crisis. And certainly I have little doubt that Spitzer, with his undeniably sharp and keen intellect, had some idea of the obvious parallels between the lead-up to the 1929 Stock Market Crash and the lead-up to the 2008 Stock Market Crash. (Then again, however, so would anyone else who cared to read John K. Galbraith's great book The Great Crash, 1929 sometime during 2005 through 2008.)
(It is, of course, likely Spitzer's embittered pursuit of Wall Street that forms the basis of the media's re-imagining of him as some kind of financial industry expert.)
Consider this analogy, however. If the exterminator's rat poison is taken away, can you effectively kill the rats by chasing them into the walls where they can breed in privacy? No, you cannot. Rather, the exterminator needs his poison back, or needs traps.
Bush and Greenspan took away the poison. Spitzer, I would suggest, chased the rats into the walls. At the very least, I find it doubtful that Spitzer's sheriff act helped matters. Even Thomas Friedman in his book The World is Flat (at least in the edition of that book that I happened to read), admitted that Spitzer's actions had driven certain Wall Street analytical jobs overseas. Traps are slow going, and aren't as much fun as the chase. Same for poison. But you can kill a lot more rats than you can by chasing them.
The financial industry is a noble and necessary one. As long as there has been money, there has been a financial industry.
But, unregulated, it just becomes a rat breeding colony. And when you pursue the bad actions in that industry, of which I'm sure there are many more than we know about, using legal tools designed to chase common street criminals, all that happens is you chase the rats into the wall, where they are safer, and can breed in the dark.
The truth is that the financial sector doesn't need an exterminator, or a sheriff. It is telling that the most prominent current book about Spitzer was entitled Spoiling for a Fight. This was not the approach America needed on Wall Street. Rather, America needed "adult supervision" of the financial industry.
I find it telling that one potential for such an adult, U.S. Treasury Secretary Timothy Geithner, is one of many current objects of Spitzer's ire.
Spitzer thinks that Geithner, who then was at the New York Federal Reserve, either had a role in the troubles at AIG, or at least did not help. And Spitzer may well prove correct. But is anything Geithner might or might not have done at the New York Fed really the source of Spitzer's ire? Or is it the fact that Geithner is an adult, and the intelligent, spoiled child can always see the adult's faults more clearly than he can his own?
I don't know exactly how to test my theory that Spitzer's rat-chasing games hurt more than helped. I will leave it to Historians, I suppose. Perhaps one day it will make a fine exhibit at the Museum of American Finance.
-The Albany Exile
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