Is (was) Eliot Spitzer a necessary evil, or just evil?

Since my teaching package includes Corporate Crimes, I've followed Eliot Spitzer's career in recent years, though not so much last year since I was on pretenure leave in the fall and taught Con Law in the spring.  Still, it's one thing to read an occasional news story; it's altogether different to read a biography of Spitzer, as I did recently with Brooke Masters' Spoiling for a Fight, which the publisher sent to me.

I'll admit, I was quite bothered by a passage on page 15, where Masters, in discussing how the Reagan deregulation revolution impacted Spitzer's thinking, seemed to suggest that the Republicans invented "federalism" as a theory to justify deregulation.  Ordinarily, I'd cut a non-lawyer some slack on such matters, but the way it was presented made me think that Masters was revealing a not-so-subtle political bias that was wholly ignorant of our constitutional history.

My concern passed, though, and I plowed ahead into the book.  It's basically organized chronologically, but what works well is that Masters sticks to one scandal per chapter.  Thus, we see how Spitzer approached the Wall Street analyst bias scandal (aka Henry Blodgett), the mutual fund after hour scandal, and the Dick Grasso retirement pay brohaha.  In one passage that I particularly enjoyed (credit to Masters for her writing, but also to Spitzer, who apparently does have a wicked sense of humor), Spitzer was invited to give the keynote speech at a setting honoring 51 stock analyst "all stars."  Spitzer's speech started by saying that it was nice to meet all these people, so that he could put faces to the names on the e-mails that his office was reviewing.  Then he noted how of the 51 all-stars, something like two-thirds of them didn't even beat the average fund in their field!

Spitzer has been a polarizing figure in corporate scandals, lionized by some and demonized by others.  As I read Masters' account of his investigations, I was consistently struck by two thoughts: (1) Spitzer's targets generally seem like they warranted investigations, and the other regulatory agencies hadn't been performing that function; and (2) the methods that Spitzer used (public denunciations, often pre-indictment; leveraging the threat of criminal conviction of corporations, especially after the demise of Arthur Andersen, to extract massive settlements; almost utter failure to provide any restitution to individual victims, with the money going to the state of New York; and unrelenting obnoxiousness and combativeness with even erstwhile allies) left a bad taste in my mouth.  Though his targets may have deserved what happened to them, the biggest beneficiary by far has been . . . Eliot Spitzer, who appears on his way to become Governor of New York.

Comments

I'm not convinced that Spitzer's missteps are as distasteful as you cast them. A couple quick thoughts:
1. Don't regulatory agencies (I don't know what the structure of government is in NY, but I'd say the NY AG's office arguably is a quasi-regulatory agency, or at least often performs similar functions) often issue public denouncements before an indictment stage? For example, if the Health Inspector shuts down a restaurant on the basis of an immediate threat to public welfare but before a hearing, isn't that similar? Couldn't Spitzer argue his public pronouncements are also on behalf of the public welfare?
2. I don't see why corporations should be exempt from threats of criminal prosecution in efforts to settle. Thousands of individuals plea bargain every day. Also, Spitzer certainly isn't alone in this effort. The Thompson memo almost got the government thrown out of Judge Kaplan's courtroom in the KPMG case.
3. I'll take your word that he "almost" completely failed to provide restitution, but isn't that what civil suits are for? As a state actor, isn't he working on behalf of NY; maybe it's not so inappropriate for settlement funds to go back to the taxpayers of the state - I'm sure they're paying a pretty penny of their tax dollars to extract those settlements.
4. Assuming you liked the results of Spitzer's actions, it might be easy to overlook certain character flaws; on the other hand, if you don't approve of his actions, they might make it easier to vilify him. It's hard to argue that he's placing others ahead of himself. It's also difficult to argue that he hasn't been effective.

[Tung Yin]

1. The public health department analogy is interesting, but I don't think it works. Whatever else it might be, the AG is first and foremost a prosecutor, and thus prosecutorial ethics are the primary source of conduct rules. The book quotes some former prosecutors who were appalled at Spitzer's tactics. Granted, these sources were probably Republicans opposed to Spitzer, but it would be interesting to see if there have been any high profile U.S. Attorneys General who used this tactic of pre-indictment public denunciations.

2. I wouldn't say that corporations should be exempt from the threat of criminal prosecution, but I do think prosecutors should be careful about using such an approach. Even an indictment can destroy a corporation in a way that may not be applicable to individuals (though it could with some). The part that gives me concern is that feeling that Spitzer threatened prosecution not because he really felt that the corporation should risk destruction a la Arthur Andersen, but rather that it was an expedient way to get what he wanted -- headlines and a quick settlement.

3. The book makes the point that he didn't collect money for the victims. What makes this problematic is that Spitzer in some instances interfered with SEC and federal investigations, and those agencies could have obtained some restitution.

4. I think this is right, and that's why I have mixed feelings about Spitzer. I don't think he's the greatest thing since sliced bread, but I don't think he's the source of all evil either.

Eliot's Mess

The $200 billion bail-out for predator banks and Spitzer charges are intimately linked
The sex scandal is the coverup - the full truth is here! Just like JFK and Abraham Lincoln, Spitzer tried stopping the bankers.
For any amazing video on How the Federal Reserve Board (The Fed) Violates the United States Constitution - Go to Google Video and Type Fiat

Empire, watch teh movie for free. We have been duped by those we are supposed to be able to trust. You can't even trust our elected

leaders. The whole fiat empire banking system is corrupt. It is time to abolish fractional reserve banking now!

By Greg Palast
Reporting for Air America Radio’s Clout

March 14th, 2008

While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new

Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was

using ours.

This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to

guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who

have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’

bordello: Eliot Spitzer.

Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.

How? Follow the money.

The press has swallowed Wall Street’s line that millions of US families are about to lose their homes because they bought homes they

couldn’t afford or took loans too big for their wallets. Ba-LON-ey. That’s blaming the victim.

Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and its variants

including loans with teeny “introductory” interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage

lender, accounting for one in five home loans, a large chunk of these ‘sub-prime.’

Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955

monthly payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But

in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the

mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to

50% of pre-tax income. The Grinnings move into their Toyota.

Now, what kind of American is ‘sub-prime.’ Guess. No peeking. Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given

sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren’t stupid – they had no choice. They were ‘steered’ as it’s

called in the mortgage sharking business.

‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’

under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws

as nothing more than fancy loan-sharking.

But when the Bush regime took over, Countrywide and its banking brethren were told to party hearty – it was OK now to steer’m, fake’m,

charge’m and take’m.

But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or

tried to.

Instead of regulating the banks that had run amok, Bush’s regulators went on the warpath against Spitzer and states attempting to stop

predatory practices. Making an unprecedented use of the legal power of “federal pre-emption,” Bush-bots ordered the states to NOT enforce

their consumer protection laws.

Indeed, the feds actually filed a lawsuit to block Spitzer’s investigation of ugly racial mortgage steering. Bush’s banking buddies were

especially steamed that Spitzer hammered bank practices across the nation using New York State laws.

Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the

Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank

made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called “securitization.”

What that means is that they took a bunch of junk mortgages, like the Grinning's, loans about to go down the toilet and re-packaged them

into “tranches” of bonds which were stamped “AAA” - top grade - by bond rating agencies. These gold-painted turds were sold as sparkling

safe investments to US school district pension funds and town governments in Finland (really).

When the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses.

Countrywide’s top man, Angelo Mozilo, will ‘earn’ a $77 million buy-out bonus this year on top of the $656 million - over half a billion

dollars – he pulled in from 1998 through 2007.

But there were rumblings that the party would soon be over. Angry regulators, burned investors and the weight of millions of homes about to

be boarded up were causing the sharks to sink. Countrywide’s stock was down 50%, and Citigroup was off 38%, not pleasing to the Gulf sheiks

who now control its biggest share blocks.

Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went bankrupt. Who? That’s Carlyle as in Carlyle Group. James

Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and

presidents than you can count.

The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure –

and got to keep the Grinning’s house. There was no ‘quid’ of a foreclosure moratorium for the ‘pro quo’ of public bailout. Not one family

was saved – but not one banker was left behind.

Every mortgage sharking operation shot up in value. Mozilo’s Countrywide stock rose 17% in one day. The Citi sheiks saw their company’s

stock rise $10 billion in an afternoon.

And that very same day the bail-out was decided – what a coinkydink! – the man called, ‘The Sheriff of Wall Street’ was cuffed. Spitzer was

silenced.

Do I believe the banks called Justice and said, “Take him down today!” Naw, that’s not how the system works. But the big players knew that

unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was “Wall Street

Declares War on Spitzer” - made clear to Bush’s enforcers at Justice who their number one target should be. And it wasn’t Bin Laden.

It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just

finished signing these words for the Washington Post about predatory loans:

“Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent

states from protecting their residents from the very problems to which the federal government was turning a blind eye.”

Bush, Spitzer said right in the headline, was the “Predator Lenders’ Partner in Crime.” The President, said Spitzer, was a fugitive from

justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.

Spitzer wrote, “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many

innocent homeowners the Bush administration will not be judged favorably.”

But now, the Administration can rest assured that this love story – of Bush and his bankers - will not be told by history at all – now that

the Sheriff of Wall Street has fallen on his own gun.

A note on “Prosecutorial Indiscretion.”

Back in the day when I was an investigator of racketeers for government, the federal prosecutor I was assisting was deciding whether to

launch a case based on his negotiations for airtime with 60 Minutes. I’m not allowed to tell you the prosecutor’s name, but I want to

mention he was recently seen shouting, “Florida is Rudi country! Florida is Rudi country!”

Not all crimes lead to federal bust or even public exposure. It’s up to something called “prosecutorial discretion.”

Funny thing, this ‘discretion.’ For example, Senator David Vitter, Republican of Louisiana, paid Washington DC prostitutes to put him in

diapers (ewww!), yet the Senator was not exposed by the US prosecutors busting the pimp-ring that pampered him.
Naming and shaming and ruining Spitzer – rarely done in these cases - was made at the ‘discretion’ of Bush’s Justice Department.

Or maybe we should say, 'indiscretion.'

************
Greg Palast, former investigator of financial fraud, is the author of the New York Times bestsellers Armed Madhouse and The Best Democracy

Money Can Buy.

http://www.gregpalast.com/elliot-spitzer-gets-nailed/

for the original url of this story.

For those of you bloggers who have not seen or read Eliot Sptitzer damming critique of George Bush and the Bankers, here it is:

Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers

By Eliot Spitzer
Thursday, February 14, 2008; A25

Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of

predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers'

ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges

and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In

addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect

American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I

joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together,

state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in

predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As

Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a

resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent

states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the

Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140

years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few

years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal

opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented

states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious

and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In

fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal

lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending

would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair

lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have

stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our

economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent

homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged

as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of

the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side

of consumers.

The writer is governor of New York.

Additional reader comments:

So don't give me this stuff that Spitzer was forced to resign from sex in the city. The banks forced em out along with Prick Head Bush.

Time for a reality check people. This is the start of the agressive all out action by big brother to move the security and Prosperity

Partnership forward. We have been duped. Big Brother is ready for ya too. Look at all these jail cells waiting for all us "Terrorists" The

terrorists are the bankers and corrupt global elite. WAKE UP PEOPLE - YA HAVE A FEW MONTHS B4 SHIT HITS THE FAN - Boycott the banks, mass

defaults on loans would screw these pricks, althought the big brother bakers want just like in history gone by to suck up the little guys

real cheap. This is part of global conspiracy!!!!

http://www.spp.gov/

Time to REVOLT, otherwise our rights will be further lost. We the people by the people and for the people. NOT This Wall; Street,

Corporate Big Brother crap, becuase these greedy pricks in banking and government can't get it right. Is it time to take to the streets or

what?

[oldtimer verzekeringen]

I Think it is the time to keep cool and wait
for the outcome of the measures recently taken by newly elected government.