April 23, 2005

The Spitzer Effect

Thomas Frank asks, "What's the Matter with Liberals?" He probably thinks he's prescribing that Democrats do more economic populism stuff, as usual, but his essay suggests something more interesting: Democrats should use policy proposals, etc., not for the sake of proposing policies, but as a way of positioning themselves. Oftentimes that entails saying something you don't quite mean. Oftentimes it means not worrying too much about the substance of a proposal, or its gritty details, but what sort of message the act of proposing actually sends. As Mark Schmitt likes to say: "It's not what you say about the issues, it's what the issues say about you."

Anyway, that line of thinking is pretty standard by now. But I want to point out that this seems like something Eliot Spitzer has done extremely well in New York. As Irwin Stelzer points out in the Weekly Standard, Spitzer's crusade against Wall Street, despite doing quite a bit of good, has still been somewhat weasel-y and hypocritical. He never actually takes the companies he's attacking to court -- never actually brings them down. No, that would cause too much chaos and economic instability. Instead, he merely threatens them with prosecution, and then accepts a settlement. Collects his scalp, and moves on. In a sense, Spitzer's AG career hasn't truly been about reforming Wall Street, it's been a non-stop election campaign in which Spitzer positions himself as a Wall Street reformer. Now the danger here is that when Spitzer actually gets to office, he'll be all politics and no policy, ala George W. Bush. (Or, god help us, Bill Frist.) But it's hard to deny that that's how the game is played.

UPDATE: Okay, okay. This post was somewhat unfair to Spitzer, who's obviously done a lot to bloody the financial industry's nose (and before that, noses of gun manufacturers, lenders, tobacco companies, etc). I don't want to begrudge that. And even his halfway tactics and settlements have forced Wall Street to clean itself up to some extent. But still, it's a valid question: why does Spitzer always offer such generous settlements? Why doesn't he try to slap criminal charges on some of these mutual fund hucksters? Why didn't he go after Sanford Weill in 2002? (Because Weill was a big player in New York Democratic circles? Because it would've upset the multi-million dollar settlement that brought Spitzer such fame and acclaim in late 2002? Because the AG wanted to be able to proclaim that there were big reforms underway at Wall Street, even if there weren't, necessarily?)

Daniel Gross wrote an essay on this subject a year ago, focusing on the fact that Spitzer passed up a prime opportunity to set a precedent for prosecuting market-timing, with Richard Strong of Strong Capital Management. Gross' explanation, I think, is right on:
So, why isn't Spitzer driving tougher bargains? Cases involving capital markets and securities trading are complex. Trying to persuade a jury that market-timing is criminal and not merely sleazy would be particularly difficult. As we've seen with Dennis Kozlowski and Frank Quattrone, prosecutors run the risk of an acquittal or a hung jury. Easier to declare victory, cash the settlement check, and move on. What's more, the wheels of white-collar justice turn remarkably slowly. The trial of the executives accused of perpetrating a massive fraud against HFS (now Cendant) in 1997 is just getting under way. Spitzer, who's on the fast track for the 2006 governor's race, doesn't want to be filing discovery motions when he could be shaking hands in Utica.
Yep. Spitzer's done some seriously good work, and I should've made that clearer. No one was taking on the financial industry until he showed up. No one. But I don't think it's unfair to say that he's had his eye primarily on the governor's mansion in Albany, rather than on cleaning up Wall Street. I still have yet to hear an "honest" explanation for why he didn't go after Carl McCall, prominent New York Democrat and head of the NYSE Compensation Committee who signed off on Richard Grasso's fat bonanza. Surely not for political reasons, right? Oh no, surely not. Hey, if I still lived in New York I'd vote for Spitzer in a heartbeat, but from what I can tell, he's not half the crusader people say he is.
-- Brad Plumer 4:08 PM || ||