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Not Too Big to Jail: Why Eliot Spitzer Is Wall Street's Worst Nightmare

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Spitzer vs. Wall St. by Vanity Fair

Before Eliot Spitzer's infamous resignation as governor of New York in March 2008, he was one of our fiercest champions against Wall Street corruption, in a state that had some of the toughest legislation for controlling the banks. It may not be a coincidence that the revelation of his indiscretions with a high-priced call girl came less than a month after he published a bold editorial in the Washington Post titled "Predatory Lenders' Partner in Crime: How the Bush Administration Stopped the States from Stepping in to Help Consumers."   The editorial exposed the collusion between the Treasury, the Federal Reserve and Wall Street in deregulating the banks in the guise of regulating them by taking regulatory power away from the states. It was an issue of the federal government versus the states, with the Feds representing the banks and the states representing consumers.

Five years later, Spitzer has set out to take some of that local regulatory power back, in his run for New York City comptroller.   Mounting the attack against him, however, are not just Wall Street banks but women's groups opposed to this apparent endorsement of the exploitation of women. On August 17th, the New York Post endorsed Spitzer's opponent and ran a scathing cover story attempting to embarrass Spitzer based on the single issue of his personal life.

Lynn Parramore, who considers herself a feminist, countered in an August 8th Huffington Post article that it is likely to be in the best interests of the very women who are opposing him to forgive and move on.   His stand for women's reproductive rights and other feminist issues is actually quite strong, and his role as Wall Street watchdog protected women from predatory financial practices. As New York Attorney General, he was known as the "Sheriff of Wall Street." He is one of the few people with not only the insight and experience to expose Wall Street corruption but the courage to go after the perpetrators.

Targeted for Take-down

The February 2008 Washington Post article that preceded Spitzer's political travails was written when the state attorneys general were being preempted by the Federal Reserve as watchdogs of the banks. Critics called it a case of the fox guarding the hen house. Spitzer wrote:

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. . . . 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. . . . [A]s New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. . . .

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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. . . . The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). . . . 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.

Less than a month after publishing this editorial, Spitzer had been exposed, disgraced, and was out of office. Greg Palast pointed to the fact that Spitzer was the single politician standing in the way of a $200 billion windfall from the Federal Reserve, guaranteeing the toxic mortgage-backed securities of the same banking predators that were responsible for the subprime debacle. While the Federal Reserve was trying to bail them out, Spitzer was trying to regulate them, bringing suit on behalf of consumers.3 But he was quickly silenced, and any state attorneys general who might get similar ideas in the future would be blocked by the federal "oversight"then being imposed on state regulation.    

A Rooster to Guard the Hen House

In a July 2013 article titled " Why Eliot Spitzer's Return Terrifies Big Finance," Professor Thomas Ferguson wrote of Spitzer's bid for comptroller:

Suddenly, the Masters of the Universe were staring at their worst nightmare: the prospect of a comeback by the only major politician in the U.S. whose deeds -- and not simply words --prove that he does not think corporate titans are too big to jail.

Who, when the Justice Department, Congress, and the Securities and Exchange Commission all defaulted in the wake of a tidal wave of financial frauds, creatively used New York State's Martin Act to go where they wouldn't and subpoena emails and corporate records of the malefactors of great wealth, winning convictions and big settlements.

Who in 2005, as New York State Attorney General, actually sued AIG instead of thinking up ways to hand it billions of dollars of taxpayers' money. . . .

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And who in 2013 with business as usual once again the order of the day, is promising to review how the Comptroller's Office, which controls New York City's vast pension funds, does business with Wall Street and corporate America.

Yves Smith, writing on her blog Naked Capitalism on July 25th, expanded on this threat. She noted that private equity [PE] investment managers had persuaded their clients that their limited partnership agreements [LPAs] were a form of "trade secret," and that nobody was looking closely at whether PE firms were complying with the fee and expense provisions of their agreements:

Public pension fund investors have almost universally acceded to the demands of PE firms to exempt the LPAs and cash flow reports from state FOIA laws, which keeps the eyes of the press and the public off the documents.

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)

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Ellen Brown's article explains the Oligarchical, N... by Clarc King on Tuesday, Aug 20, 2013 at 8:01:18 PM
Agreed on the need to repeal Glass Steagall.  ... by Ellen Brown on Tuesday, Aug 20, 2013 at 8:10:15 PM
need to be controlled, there are those who cannot ... by Paul Repstock on Tuesday, Aug 20, 2013 at 8:28:22 PM
As Bill Black says, without government regulation,... by Ellen Brown on Tuesday, Aug 20, 2013 at 9:26:45 PM
Some one with THE PUBLIC'S INTEREST AS PARAMOUNT!... by James Tennier on Wednesday, Aug 21, 2013 at 9:54:30 AM
Mr. Spitzer's previous efforts did not result in "... by Paul Repstock on Wednesday, Aug 21, 2013 at 12:27:36 PM
I think the government's interest and the public i... by Ceric on Wednesday, Aug 21, 2013 at 11:10:12 PM
Or more specific to your assertion; Are you an Ame... by Paul Repstock on Wednesday, Aug 21, 2013 at 11:26:27 PM
... the public does not elect officials that act i... by Ceric on Wednesday, Aug 21, 2013 at 11:45:34 PM
real choices in a real variety of lines of work, a... by Jill Herendeen on Tuesday, Aug 20, 2013 at 8:53:55 PM
I don't suppose you caught "Kristen's" centerfold ... by Ellen Brown on Tuesday, Aug 20, 2013 at 9:19:36 PM
No personal experience here though I watch a lot o... by James Tennier on Wednesday, Aug 21, 2013 at 10:07:24 AM
prefer us to be stuck with more useful (to THEM) &... by Jill Herendeen on Wednesday, Aug 21, 2013 at 5:00:54 PM
It is interesting in looking at this whole issue f... by Burl Hall on Wednesday, Aug 21, 2013 at 4:57:25 AM
This should take you to a George Carlin skit that ... by Burl Hall on Wednesday, Aug 21, 2013 at 5:06:01 AM
Eliot had an Achilles heel that the opposition exp... by Cynthia Piano on Wednesday, Aug 21, 2013 at 9:12:58 AM
I'm writing from outside the USA, so I can't talk ... by Guglielmo Tell on Wednesday, Aug 21, 2013 at 11:53:42 AM
Even from the distance of the UK mainland, I am ro... by Chris Templeton on Wednesday, Aug 21, 2013 at 1:54:35 PM
". Many who have been vociferous in criticizing ... by Lance Brofman on Wednesday, Aug 21, 2013 at 2:27:05 PM
Very perceptive Lance: that's the smartest insight... by Mark Whittington on Wednesday, Aug 21, 2013 at 4:11:28 PM
". As with the regulatory fallacy, both left and... by Lance Brofman on Wednesday, Aug 21, 2013 at 2:29:52 PM
Deregulation was not the cause of the financial cr... by Tom James on Wednesday, Aug 21, 2013 at 2:39:24 PM
We can assume that there are greedy people. That i... by Ceric on Thursday, Aug 22, 2013 at 8:30:31 AM
would be to overturn Citizens United. If we can do... by Tom James on Thursday, Aug 22, 2013 at 9:34:16 PM
Thanks, I totally agree, overturning Citizens Unit... by Ceric on Thursday, Aug 22, 2013 at 10:27:37 PM
One thing that you never see mentioned in the NY p... by Gary Murphy on Wednesday, Aug 21, 2013 at 7:25:54 PM
I was thinking of a different "Kristen," Ashley Du... by Ellen Brown on Wednesday, Aug 21, 2013 at 9:45:33 PM
So I understand that the Bush administration had t... by Ceric on Wednesday, Aug 21, 2013 at 10:54:30 PM