Crime Means Never Having to Say You’re Sorry
hear the media tell it, the headline-grabbing settlement agreement
between crusading New York Attorney General Eliot Spitzer
and scandal-rotted Wall Street investment banks is a cause
for investor celebration—a towering, game-winning home run
belted out of the park by the new Sultan of Shareholder Swat.
Actually, it’s a boneheaded error. A botched play of Billy
Spitzer dropped the ball in so many ways, it’s hard to know
which to criticize first. Let’s start with the fact that none
of the flimflam men behind the high-level financial swindles
will have to do any time behind bars. The settlement doesn’t
include the criminal indictment of a single person or institution.
Even though Spitzer vowed to “restore integrity” to Wall Street
and claims to have the goods on the banks and bosses, he suddenly
developed a terminal case of ice-cold feet.
The sweetheart deal also slams the door on an investigation
that had only begun to plumb the depths of Wall Street’s nefarious
ways. And, perhaps most galling of all, the settlement doesn’t
require any of the wrongdoers involved to admit any wrongdoing.
This kid-glove treatment of Wall Street crooks provides a
profound example of how we continue to operate under two vastly
different sets of rules in this country—one for a select group
of elites and one for the rest of America.
When I asked Spitzer if he was concerned about this disparity,
he replied, “While I would prefer to have a statement of wrongdoing,
the firms never admit wrongdoing because it would drive them
to bankruptcy.” So? Isn’t the genius of capitalism to let
the free market—not the attorney general of New York—pick
winners and losers depending on how they play the game? Break
the rules, and you lose.
Professor Paul Lapides, director of the Corporate Governance
Center at Kennesaw State University, describes the sleazegeist
thus: “I used to tell my students that if you commit a white-collar
crime, the time will come when you will serve your time. Now
I tell my students, if you commit a crime, commit a big one.”
Lapides adds, “If you commit a big enough crime, you’ll probably
have to return only some of the money, and you won’t have
to do any jail time. Is America a great country or what?”
When common criminals are allowed to cop a plea, they plead
guilty first as part of the bargain. Crooks in pinstripe suits,
on the other hand, even those caught red-handed, don’t have
to come clean. It’s the ultimate privilege—and the ultimate
insult to our intelligence. What good is finding a smoking
gun if the guys who fired it are allowed to pay a small fine,
step over the bloody body, and reload?
Between them, the 10 banks party to the settlement will have
to cough up $900 million—a drop in the bucket when you consider
the billions in their collective annual profits, not to mention
the hundreds of billions their scams cost investors.
In Time’s hagiographic “Crusader of the Year” piece
on him, Spitzer compared his efforts to those of a highway
patrolman. “The cases against Wall Street are like stopping
someone speeding on a highway,” he says. “The other cars slow
down for a while, and then, after a certain number of miles,
they speed up again. The question is, how many miles before
they start speeding again?”
The truth is, once Wall Street’s leadfoots find out how cheap
the ticket is, they won’t even bother slowing down at all.
In fact, even as the final details of the settlement are being
hammered out, the major investment firms continue to deliver
glowing research reports about companies that also—coincidentally,
I’m sure—just happen to be their banking clients. So why did
the heretofore heroic Spitzer, who previously dared to go
where both the SEC and Congress feared to tread, settle for
such a toothless settlement? Could it be that he finally bought
into the Street’s dire warnings that if he went too far, he’d
torpedo the already sputtering U.S. economy? The theory being,
I suppose, that fraud, deception, and stock manipulation are
essential elements of a thriving economy.
Or did Spitzer see how quickly Wall Street’s moneymen turned
their backs on Carl McCall’s run for New York governor after
he started digging into improprieties at Citigroup, and did
he then decide that taking on some of the most powerful people
in the country might not be the best strategy for a man considering
a run for governor himself? It wouldn’t be the first time
that a would-be leader’s reforming zeal lost out to the gradual
process of capitulation to capital.
Whatever the reason for Spitzer’s premature capitulation,
the sad fact is that, despite his claim that it “will permanently
change the way Wall Street works,” the settlement will do
next to nothing to eradicate the culture of greed, corruption,
and unethical behavior that has come to dominate Wall Street.
And until that happens, we can’t expect investors to truly
put the scandals behind them and jump back into the market
with both feet.