View all Articles
Commentary By Steven Malanga

Rehabilitating the Disreputable Eliot Spitzer

When F. Scott Fitzgerald observed that there are no second acts in American life, he obviously couldn’t have had before him the example of Eliot Spitzer and his adoring media. Once dubbed the Crusader of the Year and the Sherriff of Wall Street, Spitzer was to the mainstream media the embodiment of an exciting new kind of Democrat, a tough-as-nails moderate who might revive the party nationally under the banner of what Fred Siegel and Michael Goodwin have dubbed “Spitzerism.”

Although Spitzer’s escapades with high-priced call girls brought his career crashing down in 2008, the financial crisis that began to unfold just a few months later proved an unexpected platform for the man who once referred to himself as a “f***king steamroller” to resurrect his career with astonishing speed. Amid calls that we needed Spitzer to tame Wall Street, Slate gave him a column, he started appearing as a regular guest on radio and TV shows about the crisis, and now he is apparently being considered by CNN to co-host a prime-time nightly news and opinion show. Ever the humble one, Spitzer has privately admitted to friends that he’s not quite ready to tackle public office again, though at this rate anything seems possible.

Yet the media portrait of Spitzer is largely a myth which ignores his many failings, including not only ethical lapses outside of the call girl episode, but also his largely ineffective tenure as attorney general and his stint as governor, which was mercifully cut short by the scandal even as Spitzer’s own party was manhandling him in Albany.

Spitzer rose to prominence in the post-Enron era of investigations into wrongdoing in markets thanks to the power of a 1921 New York law known as the Martin Act which grants prosecutors in the Empire State far greater authority than others have, including broad powers of discovery and a light burden of proof which designates certain acts to be ‘fraudulent’ automatically, whether or not there is any evidence that a broker or firm intended to defraud anyone.

New York’s big brokerage firms quickly figured out that in the hands of a crusading and ambitious attorney general the Martin Act could be devastating to them, because no firm can survive an indictment, much less a conviction. Quickly, Spitzer won a series of high profile settlements against the likes of Merrill Lynch, Credit Suisse First Boston and Citigroup.

But after a few brief Spitzer victories, the game changed when a number of individuals accused by the crusading AG of misdeeds decided, unlike the firms themselves, to go to court, where they won acquittal. In fact, though he was considered the Sherriff of Wall Street, Spitzer won no major court cases involving Wall Street wrongdoings.

Those court victories stiffened the resolve of others Spitzer attempted to intimidate into settlements, notably the New York Stock Exchange’s CEO, Dick Grasso, and AIG’s long-time chairman, Hank Greenberg. Though Spitzer drove them both from office, a New York State Court of Appeals ultimately dismissed all claims by Spitzer against Grasso in a high-profile compensation case, while 2005 charges against Greenberg alleging fraudulent business practices were eventually dropped for lack of evidence.

Spitzer has emerged as an expert in the media on the financial crisis, yet it is arguable that with the AIG case he had a hand in bringing on catastrophe. Greenberg had managed AIG’s risks effectively for decades as its chief executive. After Spitzer forced him from office a wounded AIG under new management turned to increasingly riskier businesses, including piling up mountains of derivatives tied to the subprime mortgage market which ultimately sunk the firm and wounded the worldwide financial system.

While making a national name for himself, Spitzer was lackluster in pursuit of rampant public corruption in New York. In mid-2005, the New York Times ran a revealing investigative series chronicling the depth of Medicaid fraud going on right under Spitzer’s nose. Using nothing more than a garden variety laptop computer, the Times noted that it was able to track obvious patterns in Medicaid billing that revealed widespread cheating by health providers, estimated at $4 billion annually. The paper’s editorial page noted that, “As one former prosecutor said, the pursuit of Medicaid fraud by Gov. George Pataki and Attorney General Eliot Spitzer is now so lax that New York State’s Medicaid program almost begs people to steal.”

Spitzer was blind to a lot more wrongdoing right under his nose. In one hilarious incident, he teamed with that other public ‘reformer,’ state comptroller Alan Hevesi, to announce an effort to rein in New York’s out-of-control public authorities. But what Spitzer missed was the widespread corruption going on in Hevesi’s office itself, which has resulted in indictments of key figures over influence peddling, thanks to subsequent investigations by current New York Attorney General Andrew Cuomo.

Elected New York’s governor on the strength of his reputation battling Wall Street, Spitzer’s record in Albany wasn’t just unimpressive; it was downright embarrassing, which is quite an achievement considering his brief tenure. Although he stormed into office with a big voter mandate, Spitzer wasn’t even the most powerful Democrat in his own party in New York. In his first year in office he was rolled over by public sector unions and their allies in the state legislature, who managed to pass a porcine state budget that raised spending 11 percent.

Without the equivalent of a Martin Act to whip recalcitrant legislators into line, Spitzer’s administration quickly spun out of control. In July of 2007, just six months after Spitzer took office, the New York Post revealed that members of his administration had directed the state police to investigate a legislative opponent. A subsequent ethics inquiry found that four of Spitzer’s top aides had acted improperly in employing the police on what was essentially a political snooping affair.

Suddenly, Spitzer’s outbursts like his infamous “steamroller” remark, or his threat that “I will be coming after you,” made against retired investment banker John Whitehead after Whitehead defended Hank Greenberg, took on new meaning. Spitzer’s favorable rating among New Yorkers plunged to just 36 percent.

Thus, Spitzer’s stock was already pretty low when the New York Times revealed that he was under investigation for using high-priced prostitutes engaged through an escort service, the very same kind of service that he busted several times while Attorney General.

Spitzer, in other words, was not some essential political leader brought down by a single lamentable vice. His downfall was, rather, an illustration of Heraclitus’ observation that character is destiny. As the New York Sun observed before Spitzer’s resignation: “Over almost a decade in politics, Governor Spitzer has developed a troubling relationship with the truth,” starting with his earliest political campaigns, financed surreptitiously by his father. “Mr. Spitzer lied repeatedly about how he repaid a $4 million bank loan that he funneled into his campaign account before confessing late in the 1998 race that he had borrowed millions of dollars from his wealthy father,” the Sun observed.

New York’s voters long ago soured on Spitzer because they witnessed his repeated failings. Only the press still loves him.

This piece originally appeared in RealClearMarkets

This piece originally appeared in RealClearMarkets