Eliot Spitzer's Great Big (Bad) Idea

Eliot Spitzer’s political rebirth, like Anthony Weiner’s, has gained headlines for the candidate’s past sexual peccadilloes. But voters willing to forgive Spitzer for the prostitution scandal that sank his governorship ought still take pause before elevating him to the position of comptroller.

The city comptroller is essentially the Big Apple’s accountant, auditing the city’s books and overseeing its employees’ five pension plans. It’s the latter role that appeals to Spitzer, who hopes to leverage the pension funds’ $140 billion in assets to exert political influence over American business.

That’s not a guess. In a December 2011 opinion piece in the online magazine Slate, Spitzer explicitly called for channeling the Occupy Wall Street protest movement into a "We Own Wall Street" effort by "enlist[ing] a few savvy and courageous state and city comptrollers" to "fundamentally alter" corporations’ practices.

Chief among Spitzer’s ideas is pressuring publicly held companies into ceasing all attempts "to sway the course of legislation or regulation in Washington or any state capital."

Even those troubled by the role of money in politics — and by the Supreme Court’s Citizens United decision holding that corporate political spending is speech protected by the First Amendment — ought to question Spitzer’s idea.

The vast majority of studies show that companies’ political efforts generally help their shareholders. In this case, the shareholders in the city’s pension funds are the police officers and firefighters and teachers who rely on the funds’ holdings for their retirements.

Spitzer’s idea is one that has been considered and rejected by shareholders at many large US companies. As I noted in my most recent finding for the Manhattan Institute’s Proxy Monitor project, summarizing the 2013 proxy season, 20 percent of shareholder proposals introduced at the Fortune 250 public companies’ annual meetings this year have targeted corporate political spending and lobbying. None passed, and on average 82 percent of shareholders rejected these proposals — including 96 percent of shareholders considering Spitzer’s idea of an outright ban on corporate political spending.

If shareholders aren’t signing on to Spitzer’s idea, what’s the worry? Companies, especially those that sell products to the general public, can be bullied. In March, Pepsico agreed to state Comptroller Thomas DiNapoli’s demands to modify its lobbying practice, even though a shareholder proposal introduced at the company last year, seeking the same thing, was opposed by 93 percent of shareholders voting.

And we’ve seen Spitzer effectively act as a bully before. As attorney general, he mastered the art of trial by press conference.

In March 2005, the board of American International Group, under intense pressure from Spitzer, sacked longtime Chairman and CEO Hank Greenberg. But for all his bluster, Spitzer never filed criminal charges. (On July 12 of this year, Greenberg filed a defamation lawsuit against the former AG.)

Those aware of AIG’s subsequent collapse and bailout may be tempted to say "so what" — but perhaps not, were they to understand how Spitzer’s ousting of Greenberg was a key contributor to AIG’s later crisis.

AIG’s financial-products group, which Greenberg had long watched like a hawk, wrote as many credit-default swaps over the nine-month period after he left as it had in the previous seven years combined. Greenberg’s successor, Martin Sullivan, admits that instead of risk oversight, his focus was "on other priorities," including Spitzer’s probes.

Given AIG’s massive swap position that prompted the federal government’s takeover of the company, the 2008 financial crisis bears Eliot Spitzer’s clear fingerprints.

The sad fact for New York’s public employees and taxpayers is that Spitzer’s "new" idea isn’t novel. Since 2006, city Comptrollers Bill Thompson and John Liu have sponsored a majority of shareholder proposals at the Fortune 250 that were pushed through the nation’s state and municipal pension funds.

And what do New Yorkers have to show for it? The city’s five pension funds posted a dismal 1.4 percent return in 2012 before rising 12.3 percent in the latest fiscal year, when the Dow Jones Industrial Average bounced 16.3 percent. But despite overweighting investments in risky equities and high-yield bonds to juice returns, the city’s funds have trailed their benchmarks over three- and five-year windows.

Spitzer promises more of the same, on steroids. We ought to think twice before signing up. Playing politics with public-employee pensions is not a risk that New York’s civil servants, nor its taxpayers, can afford.

This piece originally appeared in New York Post

This piece originally appeared in New York Post