He may not be the sort of man who gets the attention of the ordinary citizen, or the sort of man one talks about down the Dog and Duck on a Friday night, but New York Attorney General Eliot Spitzer, wannabe Democrat politician and formidable lawyer, is making quite a name for himself as a legal terror of big Wall Street businesses, launching a flood of suits against insurers, brokerages, fund management companies and banks.
Some of his suits may have an element of justice behind them and no doubt he has calculated that bashing the Gordon Gekko classes makes for good copy and will no doubt endear him to the sort of folk who regard Michael Moore as a political seer. To the rest of us, however, who make a living in the financial markets, his zeal is troubling. Take the recent so-called “scandal” surrounding the case of mutual fund firms which allowed certain types of quick-fire trades to happen in and out of their funds. The activity, while not illegal, is considered harmful because it can damage the long term investments of ordinary investors. Well maybe, maybe not. I find it worrying, however, that the cumulative impact of Spitzer’s energies will be to push up the costs of doing business in the U.S. capital markets, and drive many smart would-be financiers into other fields.
We tend to forget that despite high-level scandals such as the collapse of energy giant Enron, the world economy has greatly benefitted from the efficiencies and new products driven by the entrepreneurs of the modern age. My worry about the whole raft of laws spawned in recent years, such as Sarbanes-Oxley or even the awful Patriot Act, is that financial innovation will be curbed. And as a result, many businesses will shun the public listed stock market and choose to go private instead if that is the way to avoid the glare of the Eliot Spitzers of this world.
Regulatory growth is not a sexy subject, I admit, but let’s not forget that the destruction of wealth and entrepreneurial morale will end up biting us in the economic behind if we don’t take a full regard to the effects.
Traditionally, the New York DA has bashed a few businessmen as a means of elevating their status so they may run for Mayor.
Rudy Guiliani did just this a few years back. By jailing Michael Milken (and putting Drexel Burnham Lambert out of business) he sent a clear pro-Democrat, anti-business message. Leona Helmsley was his other high-profile ‘kill’.
Got justice?
EW
To me it’s just an example of Statism begetting more Statism. All the retirement money is now bound up in these vehicles due to the laws and regulations limiting how money can be saved with tax deferral. People look for a way to defer tax (the initial invasion into private sector) and have a few options. But the options spring mainly from regulation as to how to save legitimately (only certain types of investment). The money then floods in, and now more regulation is needed to protect ‘investors’ (i.e. the sheep who push their money into one of the threadbare options available to them).
The same goes for insurance as well as many others. Statism breeds Statism. Taxation, Savings, Insurance, Credit, Money, Inflation, Interest, and Investment Returns are now all bound up together with tight Federal control and oversight. This is exactly what they want. The concept of a person’s labor becoming goods,services, and savings has been perverted beyond any sensible recognition. The Federal Government is now the Insurer-Creditor-Fiduciary On High. All this does is administer the last kill shot to individual freedom and diversity, and severality of risk and reward.
I wouldnt get too worked up about Eliot; everyone here in New York knows he’s trying to make himself look good for his run for governor.
A lot of folks figure he might be grooming himself to run for Prez as well.
What a putz.
akaky:
This fellow New Yorker would get worked up about it. George Pataki may not be very good, but having Eliot Spitzer as Governor would be even more ghastly.
And this going after business is done by Attorneys General of both parties. Remember that it was the Republican, Dennis Vacco, who went after Procter & Gamble for alleged price fixing when the decided to have a trial run over whether no longer issuing coupons would be viable. (And yet, Vacco was vilified as being of the “far right” solely because he thought the First Amendment allowed protesting outside abortion clinics….)
Returning to Enron and like scandals….the main point to remember that it wasn’t any state or regulatory body that caught them out in the first place. The market, albeit too late to prevent the unfortunate consequences to investors and employees, did what it always does and ensured the fiscal truth was eventually revealed.
What these scandals show for regulators is not that they need to proactively ensure the morality of a corporations business dealings. Rather ensure that through rigid accounting standards and prompt and truthful disclosure the market has all the facts to judge that morality for themselves.
I’d find it difficult to harden my heart to Mr. Spitzer.
He was, if I recall, the man responsible for busting those sanctimonious prigs at the record companies who, when they are not persecuting college kids for downloading music, are busy themselves ripping-off musicians and songwriters.
Spitzer recovered somewhere in the region of $50 million in royalties these frauds had illegally withheld, so he can’t be all bad.
Big business can be just as much our enemy as big government.
Wrong. Big business doesn’t carry guns.
GCooper has a good point. I did not mean my original posting to imply that Spitzer has little red horns coming out of his head. Some of the targets of his zeal deserved it. My problem is about the fact that his actions are spawning a raft of government rules which could harm the supposed beneficiaries — ordinary investors. And Spitzer seems quite content with that outcome.
I am not against rules governing commerce. The basic common laws against theft and fraud must be enforced.
The trouble is that a lot of laws, like anti-trust, anti-insider dealing rules and the market-timing fund rules do not fit with what is natural justice, but are parts of a deluded attempt to impose a “perfect competition” model on the dynamic marketplace.
rgds
when they are not persecuting college kids for downloading music, are busy themselves ripping-off musicians and songwriters.
Of course everyone knows that college kids have a right to any music for free (you seem to ignore that the ‘kids’ being ‘persecuted’, by and large, are huge downloaders), and musicians and songwriters have a right to have their products distributed at rates they set.
Unless you are saying that record companies are not adhering to contractural agreements and underpaying royalties intentionally (i.e. defrauding), then I don’t see what the problem is. Music is sold under license, with rights reserved, so copies obtained are not contracturally legal. If someone wants to strike it rich and sell their rights (and future output) to large companies for the chance, then they should know what they are getting into. If you want to be BIG, and you ally yourself with a powerhouse, don’t cry after the fact when you don’t like the results, whether you are indebted to them if you’re a failure, or you don’t like the split if you’re a success. Entering ignorantly into contracts is your own fault. Again, intentionally underreporting units to lower royalty is fraud and something else altogether.
I don’t love Big Music all that much, but then again I’m not an aspiring musician or songwriter who wants to hit the BIG time,and I largely hate the mass music as a consumer. If you want to be a star, then you pay the price. It never ceases to amaze me how people think they have a right to be a huge superstar categorically. They can remain ignorant to business practices, the loans backing recording and tours. THEY are the talent, so it should just come to them.
It’s not that hard to stay away from Big Business if you really want to. There are plenty of indie labels or self financed releases, and artistes don’t have to RECORDING artists, they can simply be PERFORMING artists.
As for the persecuted kiddies, it never ceases to amaze me how much they can afford for hardware (computers, hard drives, ipods etc etc) but are simply indigent when it comes to ponying up 50 cents or a buck for a specific song by the specific artist that they can make and store several (if not infinite) copies of FOR THEIR OWN USE.
Toolkeen writes:
“Unless you are saying that record companies are not adhering to contractural agreements and underpaying royalties intentionally (i.e. defrauding), then I don’t see what the problem is.”
That’s presicely what I am saying.
Curiously, it is also precisely what went on.
You’d have done us a service if you’d bothered to find out something about the case before launching such a verbiage strike.
I’ve mostly supported Spitzer’s efforts at tackling white collar crime. Markets work best when information is accurate, and most of his targets have been those that used deception in their business dealings. But he lost me when he and some of his AG buddies decided to sue(Link) the largest power-generating companies in the US for contributing to the greenhouse effect. Now that’s political!
I’ve got no sympathy for those mutual fund companies. First, they illegally allowed some big clients to trade after hours, to the detriment of other investors in their mutual funds. Second, they permitted market-timing. That is not illegal, except that they said in their prospectuses that they would not allow it and pursuing an investment policy contrary to your own prospectus, that IS illegal under the rules of the Investment Company Act under which all American open-end mutual funds operate. They can tell it to the judge as far as I’m concerned.
Jack, the problem is not that it was wrong for Spitzer to go after the market timers. The problem is that in all these cases, Spitzer seems to be a fan of ever rising regs on business. Quite how the ordinary investor benefits is a mystery. That said, if a firm is in breach of a contract, then sue the buggers. I am not an apologist for a lot of Wall Street shenanigans, rest assured.