I’ve only met Eliot Spitzer once, back when he was the state Attorney General. I was part of a group presenting the findings of a study of racial patterns of police stops in the city. (See here for a writeup of our findings.) Spitzer asked a few questions during the meeting, and I was impressed by his intelligence. Maybe that’s how people feel after meeting Bill Clinton, I dunno.
Recently, I had an opportunity for another interaction with Spitzer, this time indirectly, when Sarah Binder, John Sides, and I wrote a brief discussion of an article he wrote in the Boston Review on government’s proper role in the market. Spitzer argues for a clearer definition of the role of government as a setter and enforcer of rules in the financial marketplace; as he puts it, “even though private companies compete, only government can ensure that there is competition. Everybody in business wants to be a monopolist. There’s nothing wrong with wanting more market share. That’s how you make money.” He has lots of good stories:
When an investment bank does an IPO, and the IPO is hot—the stock is going to jump on that first day of sale—they give some of these hot stocks to the CEOs of their clients. Why? To keep them happy, so they stay as clients. As attorney general I said that should not be permitted; it violates the fiduciary duty of the CEO to the company. If the investment bank wants to give away something of value to keep a company as a client, it should give it to the shareholders, not the CEO. There’s an uglier term for spinning: commercial bribery. In 2002 we negotiated a global deal and outlawed it. People got outraged. One extremely powerful regulator today, a Peter-Principle-on-Steroids survivor, asked me then, “Don’t CEOs have any rights anymore?”
Spitzer makes a pretty convincing case that the current system (in which rich dudes pass multibillion dollar favors back and forth to each other) isn’t good. I mean, sure, we all help out our friends, but I think there’s a difference between giving your brother-in-law the contract for paving your parking lot, and these big-money financial deals.
I think the conservative argument against Spitzer’s position would be that, sure, it would be great to have an impartial referee but that, realistically, the government is itself a special interest, and that in the economic realm businesses might need more protection from the government than from each other. I’m guessing that, in response to this particular argument, Spitzer might say that, yes, government corruption (or simply inefficiency or even well-meaning but obstructive regulations) are indeed a concern, but that such concern can best be addressed by more clearly defining the role of government intervention in the financial system, rather than by first denying such a role and then rushing in with the occasional trillion-dollar bailout.
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