March 21, 2008

A Reader Comments

Jeremy Koulish writes:

From the second letter below:

"What we don't applaud is children of privilege who use public office as a vehicle to engage in purposeful destruction of other people's lives all in the interest of personal political gain."

But what they DO applaud is financial institutions engaging in purposeful destruction of other people's lives all in the interest of personal financial gain.

I would say that about sums up the issue.

March 19, 2008

Wall Street Shouts Back!

I've been inundated with letters today in response to my WSJ letter in which I complained about the widespread cheering of Eliot Spitzer's demise as the "Sheriff of Wall Street." In my view, this man was flawed and a bully. Still, he brought a lot of very bad people to justice. It seems to me many are in denial about this plain fact. Perhaps it's just politics. I don't know. But here are a couple examples of the negative letters I've received (I've also had positive ones, none of them from Wall Street though). I'm just including the first letters and sparing you the further correspondences. I'm reprinting these two anonymously so readers can get a taste of just how deeply the disease of denial really is on this issue:
Your letter to the Wall Street Journal starts with the premise that Spitzer used his position to force criminals to justice. The premise is false. Spitzer abused his position as attorney general and New York's incredibly vague Martin Act to bully corporations into submitting to blackmail. Spitzer's prosecutions of the underlings did not generally succeed and he didn't even try to indict Hank Greenberg.

I cheered too at the downfall of this disgraceful politician.
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Greetings Dr. Friedland,

I read with interest your letter to the WSJ this morning and, if the facts were as simple as you described them, then indeed I would agree with you. The reality of the situation was actually the exact opposite of what you described. We on the street were “cheering” the downfall of a consummate hypocrite whose self righteousness and zealotry were only exceeded by his sense HE was above the law. We applaud people who do “have the guts and acumen to force criminals to justice”. What we don’t applaud is children of privilege who use public office as a vehicle to engage in purposeful destruction of other people’s lives all in the interest of personal political gain. As you do not live in the NYC area, I can understand how you may not hear as much about what this man has done to others over the course of his career. The following link will offer some details on the dark side of Mr. Spitzer well beyond his sexual escapades (which I could personally not care less about). Spitzer did some good things over the course of his career, but he's not even close to the crusader for all that is good and just which you describe. Skirting campaign contribution laws and lying about it, using State Police to spy on political opponents, and engaging in witch hunts are also reflective of his true character.

http://en.wikipedia.org/wiki/Eliot_Spitzer

An exceedingly high percentage of us “Wall St. folks” are highly ethical, highly motivated, and hard working people. We detest anyone who brings shame upon our industry and we strongly support anyone who truly strives to improve transparency and enforce ethical behavior. Without trust, we are done. My opinion is that all of Mr. Spitzer’s crusading against the evil doers of Wall St had nothing to do with his belief in the virtues of right vs. wrong, but rather had everything to do with his own personal agenda and sense of privilege.

Notice the common theme? It comes up in the others as well. It's the notion of the value of Spitzer's accomplishments somehow completely undermined by a personal agenda, abusing the power of his office, and a sense of privilege rooted in a wealthy childhood. I'm afraid all this is rather moot when the point I'm making is that this man did more than anyone to bring very powerful and respected white-collar criminals to justice. Was Wyatt Earp flawed in these ways? Certainly! Is Bat Man? Of course! 

He wasn't the morally pure Lone Ranger on a white horse. But for all his failings, he sure tried (and often succeeded) in cleaning up much of the financial establishment. To condemn him absolutely is to cynically exploit an easy opportunity to deflect attention from the real criminals on Wall Street. It's the kind of denial we still see today across the industry with respect to the sub-prime mortgage crisis. Many if not most of those who defaulted should never have been given an adjustable rate home loan and the lending banks knew they were likely to default. But instead of exercising restraint, they leveraged themselves with too much risk and when the housing bubble burst, the entire scheme unravelled. 

Many executives lost their jobs over such bad judgments. On the other hand, many more lost their shirts when they declared bankruptcy and their homes were repossessed. These defaulting borrowers were surely to blame for overextending their means. But the gatekeepers here, that is to say the banks, are the ones who made it all possible. So the culture of blatant disregard for the common good seems alive and well on Wall Street. One of the letters I received said I was calling the culture of Wall Street sociopathic. Well, that's actually not what I had intended to say at first. But now that I think about it, perhaps that's not too far off from the truth. It's in fact the case made by the excellent film The Corporation.

March 13, 2008

Wall Street "Cheers" Spitzer's Fall

I'm finally back after almost four months without posting. Sorry to all you legions of avid readers! I've simply been too busy lately with teaching and writing.

I had to dash off a letter to the WSJ about Wall Street cheering the demise of Eliot Spitzer. Turns out it got published (my third in the WSJ on business ethics within a year). Here it is:

To the Editor:
I was aghast to read the headline: Wall Street Cheers As Its Nemesis Plunges Into Crisis (A1 3/11) on Eliot Spitzer's fall from grace. You report that Spitzer as New York Attorney General "was the single most visible force trying to weed out abuses and bring down wayward chief executives" and that he "pummeled Wall Street kingpins" (Spitzer Engulfed in Sex Scandal, A1 3/11).

It's astonishing to me that the evident majority on Wall Street sees itself as so far above the law that it can publicly cheer at the demise of this man for having the guts and acumen to force high-powered criminals to justice. This attitude is obviously so ingrained that those now cheering seem oblivious to the fact that they really have no right to do so, lest they mean to condone the scandalous actions of so many of their peers, or "kingpins" as this newspaper chose to call them. What this says to readers is that the culture of callous disregard for the law in pursuit of greed is alive and well on Wall Street.

Despite Spitzer's numerous successes in reeling-in corporate crime, the need for business ethics is evidently greater now than ever.

The truth is, were it not for Eliot Spitzer, many more white-collar criminals would still be in business. For example, Spitzer helped build the case against Bernard Ebbers who, thanks to him is now right where he belongs: rotting in jail for the rest of his life for raiding his telecommunications empire Woldcom to smithereens—a swindling in which thousands of employees lost their shirts with nothing left to retire on. And like Enron, it was a scam entirely brokered by the Wall Street minions of back-slapping bankers at J.P. Morgan Chase, Merrill Lynch, Morgan Stanley etc. up to their necks in conflicts of interests. Unfortunately, Spitzer had to make tough decisions in order to build his cases against CEOs, having to let most who should have been caught in the web off the hook with mere wrist slaps. Still, he fined these brokerage firms and investment banks 1.4 billion in 2002 for their part in cooking the books of publicly-traded corporations.

It's clear that all those who merely had to pay fines are still fuming, with no remorse for their crimes. This suggests that for all Spitzer's valiant efforts, many are likely still blithely flouting the law. As it happens,
the Ethics Resource Center in Washington D.C. has just released its yearly survey of corporate ethics across the country, showing a disturbingly marked return to pre-Enron levels of corruption.

I would not be at all surprised if it turns out to be key Wall Street players who got the feds to expose Spitzer's structured prostitution payments. Alan Dershowitz makes a decent case for that theory in today's WSJ. To his argument, I would add that no other high-profile client of the Emperor's Club was exposed besides Spitzer. That's surprising and suggests that the investigation was a hit job by the DOJ against this once powerful rising star of the democratic party. It certainly would not be the first time the Bush administration politicized the administrative branch of government.

Ultimately,
Spitzer may have been overly hostile to his targets, and obviously somewhat of a hypocrite (though at least not a thief), but to the common man he was a hero who dared bring the powerful to answer for their crimes. That's precisely why he was elected governor by a landslide. Now that he's gone, it may be a good day for Wall Street kingpins, but it's a dark day for justice, that is to say, for the rest of us.