by Mark Silva
Eliot Spitzer, former governor and attorney general of New York, made a name for himself fighting the white-collar excesses of Wall Street - until he made a name for himself as the customer of an excessively expensive call-girl ring.
Now Spitzer is writing columns for Slate and appearing on shows like WNYC's Newsroom, as he did today - calling the controversial AIG bonuses "the flavor of the month...'' and "pocket change compared to the amount of unregulated money AIG is passing along to other banks.''
Spitzer, speaking with WNYC's Brian Lehrer, recalls action that he had taken as New York's A.G. that led to a $1.4 billion settlement with the insurance conglomerate.
"We were approached by some sources who said that AIG, which was at the time guided by Hank Greenberg as CEO, was, to speak in street vernacular, juicing its books by creating false reinsurance contracts that would appear to add capital to its balance sheet,'' Spitzer said. "Now that sounds all very complicated, but what it really means is they were playing games with their accounting in order to look stronger than they were...
"These contracts, it was alleged, were designed to make them look better in the eyes of Wall Street,'' he said. "We investigated, brought a civil case to settlement of $1.4 billion.
"At the time, $1.4 billion seemed like a lot of money. It was the biggest financial settlement ever,'' Spitzer said. "The board removed Hank Greenberg because he invoked the Fifth Amendment, when he was asked about this. Four people were charged criminally and convicted for basically playing games. But it led us to inquire and to probe into the inner workings of the company and what we saw was a mess.''
Lehrer asked about the government's bailout of AIG, wondering if it was necessary "precisely because they are so intertwined with the big banks and all this money on their toxic assets, that if AIG were allowed to fail like Lehman Brothers, the whole financial market would really collapse way beyond what we've seen so far?
"Let's go back to where we were last fall, right after Lehman had failed which is, almost universally viewed, as having been a policy error,'' Spitzer said.
"You had Bear Stearns, you then had Lehman on the cusp and I think what really happened is that Washington said, we have to show that somebody can fail, that we won't bail everybody out,'' he said. "The whole discussion of too big to fail is a separate discussion. I think policy was fundamentally flawed to let these banks get that big without putting real constraints upon them.
"Either you are too big to fail and we regulate you, or we break you up so you are not too big to fail. You can't have it both ways, too big to fail, without the regulation...
.
"Parts of AIG needed to be preserved, some of these contracts needed to be stabilized, you couldn't have another credit crisis such as that happened after Lehman failed, but that doesn't mean that you write a check for $173 billion, 100 cents on the dollar, to cover all these contracts,'' he said.
. He was asked if the attorney general's office had seen the credit default swaps at the company and the risk that they represented when it was examining AIG.
"We were not looking at that part of the company,'' Spitzer said. "We were looking at their reinsurance contracts with Gen Re, but what we saw was a company, when you peeled back the first layer of the onion, that was without anything close to adequate controls and adequate structure to know what was going.
"The way they put their financials together was something that was absolutely beyond what was acceptable, which was why they paid a fine of $1.4 billion.''
Spitzer's work on Wall Street helped him win election as governor of the Empire State, until his dalliances with Empire VIP escorts cost him his job. He quit.
Comments
This is the game played by Wall St. After the republicans coddled these very same people approving their actions, they now seek to harness the anger for a little political gain. Typical republican move.
Posted by: bill r. | March 18, 2009 4:17 PM
We were not looking at that part of the company,'' Spitzer said. Apparently he wasn't looking at it as deeply as he was his call girls. Could you imagine Silva treating David Vitter, who never used tax fraud to hide his "dalliances," as Spitzer did, so civilly? "until his dalliances with Empire VIP escorts cost him his job. He quit." Yes, Spitzer "quit," he wasn't forced out by the media firestorm or anything.
Posted by: Jeff | March 18, 2009 4:23 PM
Yes, Eliot tripped over his ---k big time.
Not the first man to do so.
Anyhow, that doesn't mean he didn't recognize and take action against financial crimes.
Which, mirabile dictu, now seem so much more, er, important, impactful, significant, ah, proximate whatever to the economy than his ---k-tripping.
Posted by: ornery | March 18, 2009 4:57 PM
It's less complicated than allowing the entire AIG array of insurance businesses to go bankrupt.
The trouble comes from one division - a hedge fund bring back Glass-Steagall - separate the hedge fund businesses and investment businesses from all of the banks and other entities - and let that losing sector of the economy finally implode on itself without compromising all of the other legitimate businesses - that is why we enacted Glass-Steagall in the first place - to protect ourselves from the kind of systemic risk that we face right now.
Posted by: Bill/Jeff | March 18, 2009 5:12 PM
Spitzer is nothing more than the kid who got beat up in high school who went looking for revenge.
I worked on Wall Street when this idiot was on his populist crusades, essentially bullying companies into submission. He's proud of his "convictions", but he fails to mention all the cases that were dismissed. Most of his "victories" were settlements with companies who found it easier to pay a fine than litigate against the limitless resources of the NYS AG office.
Spitzer should stick to what he does best: marrying ugly and banging hot.
http://www.blogtalkradio.com/The CouncilofThree
Posted by: John | March 19, 2009 1:16 PM
From the Stonezone:
The idea of former New York Governor and Attorney General Eliot Spitzer criticizing the AIG bailout and bonus in a recent column for SLATE is ironic: Spitzer is responsible for the economic condition of the company for which they need a bailout.
In fact, Spitzer's crackdown on Wall Street caused the firms to increase leverage because he took away the ability for them to make money in research and underwriting, and they looked for other ways to make money-like securitizing subprime mortgages.
In fact, if Spitzer hadn't removed Maurice "Hank" Greenberg from AIG, the company would never have crashed. Greenberg was a much more conservative investor and had tighter risk management rules that were suspended by the company only after Spitzer drove Greenberg out over charges that proved bogus in the courts.
The billion dollar investment in credit default swaps which were not hedged brought the company and the economy down. This insurance was written only after Greenberg was forced out and never would have been written under Greenberg's risk management rules. Thus, Eliot Spitzer is partially responsible for the current economic crisis, not some Boy Scout crying an early warning.
This is so typical of his reign as Attorney General where he blackmailed companies by press release, threatening to destroy your company's value unless you pled to infractions you hadn't actually committed. Most saw the futility of winning in court after Spitzer had destroyed their company so they settled. When cases actually went to trial most were dismissed or those Spitzer apprehended were acquitted.
Spitzer's assault on the New York Stock Exchange's Ken Grasso, Ken Langone and Greenberg, while not also pursuing NYSE board member Carl McCall for fear of offending key African American political leaders, stands out as the kind of perverted justice Spitzer pursued. Spitzer made base-less charges against Greenberg, drove him from the company and set the stage for AIGs collapse.
Posted by: Erin Giacomo | March 25, 2009 3:00 PM
Spitzer was set up, and you know it Mark! He was making trouble for OK for Dick (Cheney) to have DC madames pricey girls come out to his McLean digs for a little "recreation", for ex-gov Ehrlich to do the same, for dozens and dozens of Repukes ditto, without a ripple, but for Spitzer it was a BFD? Easy--George's cronies found his oversight of WallSt. inconvenient, so sleazy GOP thugs were brought out from under their rock to do their "magic." GOP=mafia, disgusting!
Posted by: JanisL | March 27, 2009 11:31 PM
Erin Giacomo said it well. AIG's implosion had Spitzer's fingerprints all over it. Sooo ironic and typical that he's now trying to somehow benefit from it. Even the most friendly media spinsters (as above) won't be able to rehabilitate him - the public has seen his true identity.
Posted by: Charles Dow | March 30, 2009 7:33 PM