So serial sexter Anthony Weiner is in the race for mayor of New York, and it gradually develops that, despite past conduct that would seemingly be completely disqualifying, he is actually a credible candidate against a field of people who seem to have no idea what the job of mayor is about. If Weiner's conduct is not disqualifying, then I guess nothing is. On Sunday, Eliot Spitzer joined the race for New York City Comptroller.
The problem with Spitzer is that his sexual escapades are far and away the least significant instances of his disqualifying conduct. The New York Times and the Wall Street Journal both ran editorials on Monday reviewing some of the Spitzer history, and John Podhoretz weighed in today in the New York Post. It's good to be reminded of this stuff.
The Times editorial at first seems scathing, until you read the others and realize that as usual the Times has missed most everything important. Here is the key section of the Times editorial:
Desperately needed reforms were thwarted, opportunities lost — and it was more than a sexual scandal that made Mr. Spitzer’s truncated governorship an exceptional debacle in a capital city that is debacle central. It was that he saw himself as a “steamroller” instead of a leader, that he stoked alienation and resentment in his allies as well as his adversaries, the opposite of what a competent politician should do.
And then there's this howler:
This was the man who built a solid record and shiny reputation as a hard-charging attorney general.
So you need to turn to the Journal to be reminded of how truly awful this man was, and it didn't begin when he became governor. Starting with his time as AG, the Journal reminds us that Spitzer:
- Held a press conference announcing that he was going to indict AIG and its CEO Maurice Greenberg, then never did it but used the threat to force Greenberg out of the company. After Greenberg's departure AIG risk management went off the rails, leading to massive losses in the mortgage derivative markets, a government bailout, and loss of more than $100 billion of shareholder value. In my view, there is nothing unfair in blaming Spitzer for that debacle.
- When John Whitehead (former Goldman Sachs CEO and senior State Department official) published an op-ed standing up for Greenberg, Spitzer called Whitehead and said "I will be coming after you. You will pay the price. This is only the beginning and you will pay dearly for what you have done."
- Spitzer brought a case against former NYSE head Dick Grasso seeking return of Grasso's lump sum pension payout of $138 million. The case ended in complete victory for Grasso in the courts and a debacle for the NYAG.
- Spitzer forced a management decapitation at Marsh & McLennan that again led to massive loss of shareholder value. He also began a criminal prosecution against senior insurance brokerage executives at Marsh. After a 10 month trial, the executives were acquitted on all but one charge. Then, well after sentencing, it came to light that the NY AG's office had withheld some 700,000 documents from production, which the judge found would have been "invaluable" to the defense. These disclosures led to vacation of all the convictions.
I guess that's what the New York Times refers to as a "solid record and shiny reputation as a hard-charging attorney general." And even the Journal leaves out Spitzer's shake-downs of the investment banking industry for the supposed sin of having securities analysis and investment banking under one roof. And then we get to the worst one of all, when Spitzer was governor, using the state police to gather dirt on political opponents. Really, this guy could not be topped.
But, you ask, the office Spitzer is now running for is New York City Comptroller. This is not a prosecutorial position, nor an executive position. Maybe it doesn't matter if Spitzer is an odious human being?
It does matter. The main jobs of the Comptroller are two: (1) sole trustee of the five pension funds for City workers, and (2) conducting audits of the City's mayoral agencies. Here are a couple of examples of what an ambitious, self-aggrandizing bad guy with those responsibilities can do.
The five City pension funds have assets in the range of $100+ billion. They are very large shareholders in many publicly traded companies. Now let's say that the stock of some publicly traded company drops suddenly. Many plaintiffs' law firms will promptly bring complaints alleging that there has been a fraud. Under the securities laws, the right to be the "lead plaintiff" in these cases goes to the shareholder who owns the largest number of shares bought during the class period. The "lead plaintiff" then picks a law firm to be "lead counsel" and that firm gets the lion's share of the legal fees. Some of these cases generate legal fees in the tens of millions of dollars, sometimes even over $100 million.
The New York State pension funds are known for regularly claiming their position as "lead plaintiff," and the City pension funds have also played in this sandbox to some degree. Why do they do it? Because the plaintiffs' law firms make huge amounts of money off these cases, are deeply indebted to the government functionaries who can cause big pension funds to select them, and are thus fantastic sources of political contributions. Alan Hevesi (former New York State Comptroller recently released from jail) perfected this game (although Hevesi went to jail for yet something else). Also, great opportunity for headlines when a big case settles. "SPITZER WINS $100 MILLION SETTLEMENT FOR PENSION FUNDS!!!!!!"
Well, you say, they are just vindicating their rights as shareholders and getting payments to which they are entitled. What's wrong with that? The answer is that nobody pays attention to the fact that the same pension funds are almost inevitably also on the paying ends of these settlements. Here's how it works. Suppose a class action alleges that because of wrongful disclosures all shareholders of Citigroup who bought stock during 2012 have been defrauded. The NYC pension funds turn out to be the entity that bought the most Citigroup shares during 2012, and they become lead plaintiff. But they also bought lots of shares in 2011, 2010, 2009, 2008 and on back. They are entirely likely to own many more shares of Citigroup bought outside the class period than in it. Now Citigroup settles the case by putting up some hundreds of millions of dollars. As shareholders who bought outside the class period and still own that stock, the pension funds are on the paying end of this.
Do the NYC pension funds receive more than they pay in such a settlement? To figure that out, you need all the dates and amounts of stock that they bought and sold and what they still own. Of course they don't disclose that information to the public, so nobody but them can tell. Given that legal fees and expenses take at least around 25% of the settlements, and that the dates of stock purchases are substantially random, I find it hard to believe that the funds can be net gainers in most of these settlements. I have never seen anyone make an actual calculation, and the information to do so is hidden. This is a great area for big corruption. No one is on to it. Yes, this is a huge reason why a self-aggrandizing guy who recognizes no personal limits should not be New York City Comptroller.
And how about the audit function? That gives a self-aggrandizing guy endless opportunities to get in the news and upstage the mayor. Sometimes it's justified. Would Comptroller Spitzer confine himself to issues of actual merit? No chance.