In the run-up to the adoption of a broad new U.S. financial regulatory reform bill, Senior Writer Frances Denmark checked in with Eliot Spitzer, the combative former public servant, who is no stranger to battles in the financial reform arena. As New York State attorney general from 1999 to 2006, Spitzer racked up a number of high-profile criminal prosecutions and civil actions against investment banks, mutual fund companies, hedge funds and insurance companies.
Prominent among them was the 2003 separation of equity research and investment banking, along with a total $1.4 billion in penalties from Merrill Lynch, Goldman Sachs and eight other banks. But he was knocked off his perch in the gubernatorial reign that followed when in March 2008 it was discovered he had frequented prostitutes. Neither broken nor unbowed, and looking to reinvent himself, Spitzer, 51, will be cohosting a CNN evening news program beginning this fall with Kathleen Parker, a Pulitzer Prize–winning conservative columnist for the Washington Post, the network announced in late June. In his spare time, Spitzer has also been helping out in his father’s commercial real estate company.
1. As New York’s attorney general, you played a high-profile role in the regulation of financial enterprises.
And that clearly worked so well.
2. Sarcasm aside, why do you say that?
Many people misunderstand what regulation is supposed to do. First, we always enforced simple principles of integrity — conflict of interest and deceptive practices, whether in mutual fund fees or insurance commissions — and that came back to a very simple notion of violations of fiduciary duty and deceptive marketing.
3. Do you think the Obama administration’s reform efforts have been on target?
The need to impose new boundary lines in the financial sector is, at this point, apparent to all. The meltdown we have suffered from is a result of gross abuse by financial services actors who completely misunderstood the risks they were taking and have largely been able to escape the pain they created. What was initially proposed by the White House was vapid and pointless. [Treasury Secretary Timothy] Geithner and [presidential economic adviser Lawrence] Summers have never quite understood what needs to be done because they are very much creatures of the old system that they have been defending.
4. Are you more optimistic about the impending congressional legislation?
The public discussion about the need for regulatory reform has moved in a good direction in terms of what is likely to happen to proprietary trading and derivatives platforms. Where it misses is in the general acceptance of too-big-to-fail institutions that will still have an implicit federal guarantee behind them. Some of it [regulation] is in the bill, but more of it will have to come from the Federal Reserve and Treasury. That’s where the regulatory power existed, and that’s where it wasn’t used.
5. Do you think the Glass-Steagall Act should be reinstated?
You can’t put that genie back in the bottle. But people realize the merger of commercial and investment banking did not work out as they’d hoped. Banking is supposed to be boring. When banking is exciting, something’s wrong. Banks are supposed to collect money and allocate it to sectors of the economy that will grow. If instead they’re creating computer-driven algorithmic trading patterns that are way beyond my sophistication and capacity to understand, then we’re not succeeding in what we want to do.