"Poverty wants some things, luxury many, avarice all things." -- Abraham Cowley, 17th-century English poet.
OLEAN -- The intrepid attorney general of this state, Eliot Spitzer, has been taking a lot of sanctimonious crap lately over his battle with the greedmeisters of Wall Street. I rise to defend him.
I first met him a few years back when I was covering Congress, and he was one of the few public officials who even tried to protect the average American's privacy rights.
Spitzer, at the time at least, slowed down big banks which, without pause or your knowledge, were selling your Social Security numbers, net worth, financial statements and contact information to any ambitious huckster with enough money to establish mailing lists for his seed catalog, mail-order pants business or get-rich-quick scheme.
Now Spitzer is in the news again. Last week, he announced that 10 leading investment banks were forking over $1.4 billion to settle civil charges that their stock analysts were shilling for corporate clients and promulgating phony and misleading stock research. Several state attorneys general had followed Spitzer's lead in bringing the actions.
The announcement included the news that regulators were barring former stock "analysts" and Wall Street princes Henry Blodget and Jack Grubman from the business. You remember these guys. They were just two of the incredibly influential characters who would drive stock prices up with silver-stitched stock reports and fervent "buy" recommendations, while at the same time e-mailing friends and close colleagues with observations that the very same stocks were such "dogs" and "junk" and "crap" that to praise their worth was like putting "lipstick on a pig."
The motive of the furtive stock "analysts," who received mammoth fees, was to attract well-heeled corporate clients for other lucrative business ventures -- initial public offerings and such -- by enriching their executives and other insiders through making the market price of their company stocks soar.
The fact that some of the stocks touted by these "analyst" connivers were grossly over-valued and nearly worthless didn't seem to bother Wall Street. Joe Sixpack gets screwed? Who cares?
Americans got suckered by the millions. When the bubble burst two years ago, more than $7 trillion in national wealth went up in smoke. Poof.
Spitzer had hardly gotten the $1.4 billion announcement out of his mouth when Wall Street bigwigs from the settling investment banks started weighing in with pious commentary. None of the huge firms had been made by Spitzer or the Securities and Exchange Commission to admit to actual guilt.
Philip J. Purcell, chairman and CEO of Morgan Stanley, asserted he was not concerned about his firm's conduct and said, "I don't see anything in the settlement that will concern the retail investor about Morgan Stanley. Not one thing." So Purcell's outfit ponied up $125 million in settlement over something he wasn't concerned about -- just a gesture of good will, one is expected to believe.
Stanley O'Neal, Merrill Lynch's influential CEO, wrote an opinion piece that -- without naming Spitzer -- focused on such zealous prosecutors and regulators as foes of capitalism and our very way of life. Merrill Lynch had to cough up $100 million in the settlement. O'Neal complained all investment means tolerating risk and whined that such officials were actually teaching investors that, if they lost money in the stock market, "they're automatically entitled to be compensated."
The thing I like about Spitzer is he always fires back at such nonsense.
He blistered the likes of O'Neal: "Indeed, you did not want to tolerate risk, because what you did was shift the risk to unknowing investors while you got the fees up front."
Spitzer said Purcell's remarks were, contrary to a stated lack of concern, deeply troubling. SEC Chairman William Donaldson -- who replaced the ineffective Wall Street lapdog Harvey Pitt -- also returned fire. Donaldson said Purcell's remarks reflected a "troubling lack of contrition" and that he was "deeply troubled" by this lack of concern. The allegations contained in the civil accusations were, said Donaldson, "extremely serious."
Purcell, who "Forbes" magazine's Dan Ackman says displays "a history of foot-swallowing," promptly got religion and, by the end of the week, had officially withdrawn his lack of concern. He said it was "deeply troubling" that anyone would think he wasn't deeply troubled. Really.
So, all these Wall Street rich boys are deeply troubled. So what?
Here's so what. They ought to be deeply worried, too.
That's because it's a mistake to cheese off the likes of Eliot Spitzer. Within hours of fielding all this Wall Street guff and hooey, Spitzer tossed a little prosecutorial hand grenade of his own. The $1.4 billion civil settlement, he said, could evolve into criminal charges for securities fraud and obstruction of justice -- against executives and analysts from the very same firms.
In an online discussion sponsored by the Washington Post, Spitzer replied to a question involving the word "jail" with this warning: "Just wait. The criminal actions may come in the future and the number of prosecutors around the nation who are looking into possible prosecutions is significant."
The reasoning, Spitzer continued, is this: "These (criminal) cases take longer to make than the over-arching (civil) cases against the companies, so the structural reforms were put in place first, and the individual actions will follow in the future."
Spitzer is innovative, too. He dug up the Martin Act -- a New York State law over eight decades old that gives him incredibly broad authority to probe and prosecute fraud -- to line up the offending firms like so many sitting ducks. The Martin Act, in terms of prosecutorial leeway, is even more powerful than the new federal reforms passed in the wake of the Enron collapse and the recent accounting scandals.
You have to love Spitzer's courage. When the SEC was snoring in complacency, he went forward with state interests. That effort to protect the small investor has now prompted the SEC -- which has more than 700 new lawyers, investigators, accountants and tax examiners -- to finally get in the game.
Spitzer modestly acknowledges this without taking credit.
"The SEC has a renewed sense of aggressiveness," is how he put it to the Associated Press.
So, by mouthing off, the arrogant Wall Street money-grubbers have attracted not only the continuing ire of New York's attorney general, but the awakened scrutiny of the feds. Nice going. The civil fines -- while seemingly large in total -- represent, on average, about a day's gross revenue for most of these big investment banks. That could have been shrugged off. Now it might buy somebody some tennis time at a minimum security federal lockup.
The Wall Street moguls and corporate CEOs still don't get it.
American Airlines provided a good example late in April, when -- after sucking $1.8 billion out of struggling employees in wage and benefits cuts to avoid bankruptcy -- the airline's executives admitted they hadn't disclosed the existence of huge compensation packages and a special pension trust fund for the broke firm's 45 top executives. Typical under the secret executive plan was the "retention bonus" for the top six executives, allegedly to keep them from bailing out on the troubled airline: twice their base salaries. In relation to the CEO, Donald Carty, that meant $1.6 million. (Carty had to step down in the wake of the scandal.)
In the last three decades of an orgy of mutual compensation between CEOs and their somnolent, suckup boards of directors, the average pay among the top 100 executives has rocketed from 35 times that of the average American laborer in 1970 to more than 500 times the little person's paycheck. Outrageous.
And last year, with unemployment soaring and stock prices plummeting, did it change? Did the numbers go down? No, they did not. Median pay went up another 14 percent among the top executives.
The television talking heads used to talk about all this. They used to point out the economy was unlikely to recover as long as the common man's faith in the stock market was still in tatters. Nowadays, preoccupied with war, crime and celebrity sex, the blabbers don't pay much attention to that truism. But it still exists. Most "small investors" still distrust the Wall Street greedballs. And the markets still sputter along. Is there a connection? Duhhh.
You're damn right there is. The average American doesn't like being taken for a moron.
Spitzer has guts in other areas, too. At the same time he was responding to the Wall Street apologists and pocket-pickers, Spitzer took on another pious entity: Canada.
While our friends along the northern border have been criticizing us for everything from imperialism to decadence, it seems, they have been sending horrendous air pollution our way. Spitzer last week asked a special environmental panel set up under NAFTA (the North American Free Trade Agreement) to investigate the huge pollution output of three coal-fired power plants in southern Ontario -- the remnants of which routinely drift over New York State and cause acid rain and respiratory disease. Connecticut and Rhode Island hopped on board in accusing Ontario of the same thing.
Spitzer's my man. If he runs for governor, I'm going to vote for him.
| Niagara Falls Reporter | www.niagarafallsreporter.com | May 6 2003 |