A Plea For Financial Calm

Eliot Spitzer: We Have Experienced A Failure Of Capitalism - Not The Failure Of Capitalism

(The New Republic)  Eliot Spitzer is the former governor of New York.

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The national ideological tilt has shifted fast, away from libertarianism and toward broad support for interventions like the new federal "pay czar," who will oversee banker compensation for bailout recipients. Such a sudden and dramatic reversal suggests that ideology has not been moored to steady principles. Instead, we have grasped too quickly at ephemeral data points and permitted our worldview to be shaped by panic. In this haze of hyperbole, we have an obligation to discern the more modulated truth. Indeed, if we now quickly move from lax regulatory enforcement to heavy-handed bureaucratization of our economy, we will be just as lost a decade from now as we are today.

To understand the shape of our response to the crisis, we must understand the crisis itself. We have experienced a failure of capitalism--not the failure of capitalism. We know markets are still the best way to allocate resources and to set prices and wages. But the first and essential corollary to any theory of markets should hold that they are fragile and must be protected. No matter how frequently large swaths of the world loudly shout, "We love the market!," virtually nobody does. In the absence of rigorous enforcement of rules, market players seek monopoly power and unfair advantages; they take risks at the undisclosed expense of others, or violate fiduciary duty. None of this means these actors are "evil" or "immoral." But their actions demonstrate that self-interest, unbridled by enforcement of rules, will destroy the very market so many people so ostentatiously claim to adore.

So, we can now dispose of that old canard that self-regulation preserves the integrity of markets. There is essentially no evidence that any self-regulatory entity--from the Securities Industry Association to the New York Stock Exchange--ever revealed or resolved a single structural flaw in the market place. Rather, they papered over and rationalized away all the bad behavior they witnessed.

But there was supposed to be another group designed and empowered to root out malfeasance and protect the commonweal: a large cadre of government regulators. There’s a widespread assumption that these regulators were improperly armed to adequately protect the public, without sufficient statutory firepower or resources. That, of course, is supposedly being corrected in a wave of reform. Since the crisis broke, we have been treated to a vast array of proposals that remake government organization charts and create agencies with new names. This renovation, however, doesn’t begin to solve our regulatory problems.

The truth is that multiple existing agencies already have, as part of their core responsibility and legal authority, the obligation to protect consumers and oversee financial markets. Take the Fed’s failure in addressing the issue of excessive leverage, which posed a "systemic risk"; or the Securities and Exchange Commission’s inaction while blatant abuses stared it in the face. The regulatory failures of the past decade were in large part failures of will and ideology, not power.

Our market has been--and will continue to be--undermined by regulators who are intellectually or ideologically unwilling to confront powerful market players. Too many of our regulators have been tarnished by the culture of Washington, where the constant movement between government and the private sector has created a fear of disrupting the status quo. It is an environment where stringent enforcement--the very type we needed--jeopardizes future confirmations, alienates potential clients, and engenders social ire. This cozy world isn’t exactly corrupt. Rather, it perpetuates an insidious process of socializing the regulators and the regulated alike. Everyone emerges accepting a way of doing business that ultimately fails the public and the economy. Groupthink has prevailed, leading to an ideological conformity that forecloses challenges and alternative theories.

Effective regulation requires a more intellectually nimble regulator--a regulator that won’t be duped by all the cosmetic changes offered by firms. After all, trading vehicles will be renamed, leveraged assets will look slightly different, but the underlying issues that jeopardize the economy will remain the same: excess debt, leverage, and lack of integrity.

The answer is only partly to place constraints on the ability of people to rotate back and forth between the public and private sectors--to jam up the "revolving door." The deeper answer requires asking the tough question of regulators: So what did you do about it? This is a question that must be asked by Congress. And there are similarly tough questions that must be asked of everyone hired at these agencies in the future--questions that help identify contrarians and independent minds. This is a metric that is tougher to measure than the quality of a law school attended or the rank one attained in a corporation, but it is vastly more important.

As we emerge from the crisis, there will be a temptation to over-learn lessons. The old system socialized risk and privatized gain. In our rush to reverse the damages wrought by this imbalance, there are many proposals (some of them already implemented) that bureaucratize decision-making and sharply limit private gain. There's the application of Sarbanes-Oxley to venture-capital firms, which has been neither effective nor useful, and has perhaps inhibited capital flows. And we have already added a federal "pay czar" to determine compensation for bailed-out bankers.

But, once again, we’re missing the opportunity. Instead of adding bureaucracy, we should be using the government to help invigorate shareholders to police companies. They should be empowered to control executive compensation, eliminating all the conflicts that now encumber those decisions.

Shareholders, like all stakeholders, will make a better determination about the use of their capital than bureaucrats who don’t ever suffer the downside of a bad investment. We need to facilitate opportunities for shareholders to actually participate in key decisions, and to deny those whose interests are not aligned from hijacking them. Strangely, we’ve heard a lot about executives and bureaucrats in this moment of reform. But shareholders, a force integral to the integrity and vitality of markets, have largely been left out of the discussion. We need them now more than ever.

[s57g67l]

HaHaHaHaHaHaHa Eliot Sptizer discussing lack of integrity . . . .

Ha Ha Ha Ha Ha Ha Ha Ha

[noloyalisti]

Spitzer was the politician that had the nads to blow the whistle on the Wall Street crooks who drove our economy into depression. The big corporations, essentially a criminal mafia, did what they had to do.

It the 98% of us in a class war with the 2% elite who are raping and pillaging the earth.

[ubrew12]

Spitzer: "The regulatory failures of the past decade were in large part failures of will and ideology, not power. "

What Spitzer is saying is that the LEGISLATIVE branch of government (i.e. Congress) gave the executive branch all the leverage it needed to prevent this debacle from happening, but the EXECUTIVE branch of government (i.e. GW Bush) chose NOT to use it. Translation: Along with the Iraq War ($2 trillion and 5000 Americans killed over NOTHING of strategic value), a DOUBLING of the NATIONAL DEBT, from $5.5 trillion to a whopping $11 trillion, and the Katrina DISASTER, GW BUSH IS PERSONALLY (as head of the executive branch of gov't for 8 years) RESPONSIBLE for the WORST MELTDOWN in the American Economy in 80 years. Truly, history MUST record this man as a Category 5 hurricane all his own: devastating to America and Americans and an abject historical lesson for future 'leaders': Bush was everything they should seek NOT to be. He's a PERFECT negative lesson.

Spitzer says we need to return power to shareholders. This is absolutely true. How a group of people could OWN a company and somehow get eclipsed from deciding its future is beyond me. NO ONE ELSE really cares, really fundamentally cares, if the company is profitable or not. Whatever confluence of forces have combined to deflate the power of shareholders in a companies management, while inflating the power of the management and the gov't, has acted to destroy these companies and our economy that depends on their continued profitability. But activist gov't can serve to open the alarms over rampant corporate greed. But, if the gov't doesn't believe that is its role, no alarm will be raised. Republicans OWN this depression, our massive debt, and our outsourced jobs and destroyed infrastructure. Without an activist government, these are the inevitable outcomes of a capitalism given over to greed.

[sbelknap01]

In March of 2008, Eliot Spitzer was reported to be a client of a prostitution ring under federal investigation and two days later he resigned as governor citing 'private failings'. I choose not to reward his behavior while in public office. Surely there are other persons of consequence who can be paid for their thoughts.

[ubrew12]

You're the sort of person who would ask an astrologer for advice about astronomy.

[sjc_1]

I think capitalism can work fine when it is well managed. It is the hands off anything goes situations that make for a mess. You have to have rules that are well enforced, everyone knows that. If you do not, then only the cheaters prosper and it is not cheating because they repealed all the laws. It works out very nicely for them, it is everyone else that gets the shaft.

[noloyalisti]

If we let the right wing corporate Supreme Court uphold Corporate Personhood, we WILL have fascism and this financial situation will get much, much worse for us.

[hologram5]

That's the way it is now. Look how bill collectors and small claims work. When you are summoned, your name is in all caps. This is corporate law, not constitutional. It is illegal for them to buy/sell your debt back and forth. This is only legal in a corporate setting. People are not aware and that is why they get away with it. Stand up and fight corp law. Tell them as "Private, Sovereign Citizens" you are NOT bound by corp law and therefore all debts bought and sold under your name are illegitimate debts.

[bzzpd]

We are 82.7 Trillion dollars in debt $538,000.00 dollars for every working American in the USA.
153,500,000 people work in the United States.
Look on (usdebtclock.org).
Add up the on the book debt and the off the book debt. It is 82.7 Trillion dollars.
We are bankrupt.

Capitalism is a joke played upon listless people who don't watch these corrupt goons.

[rightbehind]

Looks like CBS is cutting back on blogs. May have to change my home page.

[rightbehind]

As for the court turns out the justices can be removed by impeachment. Takes I believe a 2/3 vote in the senate. The democrats almost have it now. Another 8 republican senate seats will do it and they are in a position to Impeach the judges. These are definitely right wing activist judges ruling from the bench. The democrats need to get a national secure and verifiable voting system in place. No more 6000 votes showing up in an Ohio district with less than 1000 voters registered. Check out the story, "republican IT guru dies in plane crash on this site".

[noloyalisti]

The problem is this is not the first time. When you give greedy big corporations the power to run the media, the military and the Congress, you are just asking for it.

Starting with the disaster of deregulation and privatization started by Reagan, to the free-trade disasters of Clinton, to the ridiculous disastrous failed policies of Bush (tax cuts for the top 1%) and Greenspan, we now have big corporations running everything. The Supreme Court, pushed hard to the right by Bushoccio is now set to uphold one dollar equals one vote which directly benefit big corporations even more.

Nothing could be more ridiculous and costly for the American people.

[rightbehind]

The only American People in the minds of conservatives is those with money. The rest are a resource.

[rightbehind]

BTW keep them hungry you keep them working. Keep them poor you keep off the resort beeches. These people are not stupid and know what their doing. The court, What they can't make up for in the populous they make up for in dollars. That's why the voting system integrity should have been first priority to the democrats. Then the conservatives could spend as much as they like and it wouldn't matter unless it's on an IT guru. Check out Republican IT guru dies in plane crash this site.