August 2006

Spoiling for a Fight: The Rise of Eliot Spitzer

Eliot Spitzer has risen to national prominence during his tenure as the attorney general of New York. Hailed as the “most powerful man on Wall Street,” Mr. Spitzer’s corporate investigations and vigorous litigation have left a mark on everything from mutual funds to the music industry. According to recent polls, he is expected to win the New York gubernatorial race this November.

In Spoiling for a Fight: The Rise of Eliot Spitzer (Times Books, July 2006), Washington Post staff writer Brooke A. Masters offers the first book-length account of Mr. Spitzer and the impact of his aggressive corporate prosecutions. In the book, Ms. Masters draws on her behind-the-scenes access to Mr. Spitzer’s operation and staff, as well as numerous interviews with officials, executives, and attorneys.

At this August event, AEI scholar Michael S. Greve and Ms. Masters discussed the book and Mr. Spitzer’s redefinition of the role of attorney general. The Honorable William H. Pryor Jr., of the United States Court of Appeals for the Eleventh Circuit, and a former attorney general of Alabama, moderated.  

Brooke A. Masters
Washington Post

Eliot Spitzer’s approach to white collar crime reminds me of an aggressive, Progressive Era–lawyer trying to adjust government orientation to the market. One of the aims of this book is to address whether General Spitzer’s understanding of economics is as misguided as his progressive predecessors’ views were.

When he came into office, General Spitzer disdained federalism and “states’ rights” as throwbacks to pre-civil rights era culture, but New York’s Martin Act (of 1928) quickly taught him that state powers could be greatly conducive to his aims. The Martin Act,  New York’s rather broad antifraud statute, declares that fraud is illegal and is determined by the New York attorney general. General Spitzer turned his version of federalism to his advantage.

General Spitzer’s rise combined the Martin Act, brilliant theater, and some fumbling on the part of the Securities Exchange Commission (SEC). His first big set of cases, against brokerage houses whose analysts publicly pitched stock that they privately disparaged, cast him as the people’s champion fighting a corrupt corporate America. However, the case may not have been as slam-dunk as it appeared. Furthermore, if the SEC had intervened once Mr. Spitzer had made his allegations, we might not be discussing Eliot Spitzer at all today. As it was, this set of cases put him on the map. He subsequently focused his energies on mutual funds and then on insurance company bid-rigging. These cases reinforced his image as popular defender.

Still, he is not anti-business. He has learned the lesson of Arthur Anderson--wanton accusations against giant corporations will likely put them out of business, killing off many jobs. When Spitzer speaks as a candidate for governor, he even seems keen to reinvigorate business in New York. We might say that the attorney general’s office is ill-suited to his talents, as he is trying to write policy with prosecutorial tools. It will be interesting to watch his policymaking if he becomes governor. Whether he goes down in flames or becomes a new progressive success story, he is going to be an extremely important figure in American politics.

Michael S. Greve
AEI

Spoiling for a Fight: The Rise of Eliot Spitzer is an insightful, fair-minded book. It paints such a balanced and vivid picture of Mr. Spitzer that it may only confirm what one thinks of Mr. Spitzer before one reads the book: if you like him before, you will like him after. If, like me, you were scared of him before, the book will confirm your fears.

For me, Eliot Spitzer is the archetypal demagogue because he is smarter than he lets people believe. He admits to playing national regulator, but his “method of last resort” approach deceives: General Spitzer knows that the power to say the system is broken is also the power to run the system.

More than that, his legal tactics are extortionary and imprudent. Bullying CEOs with jail time while saying that he is just “enforcing the law” mangles the benefits of prosecutorial discretion. He aims to impose his ways of doing business more than to punish the guilty, and his ways of doing business are questionable. The efficiency gains of policies set by settlement-driven litigation seem suspect when compared to the decades-old practices that he ransacks. 

His lack of discretion creates poor definitions of both violations and remedies, leaving business in doubtful fear and giving lay investors the impression that a culture of fraud, rather than their own foolish investment, was the root cause of the bubble burst.

AEI research assistant Will Wilson prepared this summary.