The Magazine

Out of Control?

What Eliot Spitzer plans to do if he wins.

Jul 29, 2013, Vol. 18, No. 43 • By MICHAEL WARREN
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It’s surprising when a candidate for office tells you exactly what he’ll do if elected. It’s even more surprising when that candidate is Eliot Spitzer. The former Democratic governor of New York resigned in 2008 after being exposed as a client of a high-priced prostitution ring, but as the New York Times revealed earlier this month, he’s getting back into politics by running for an office few can even pronounce: New York City comptroller. (For the record, it sounds like “controller.”) And Spitzer is telling anyone who will listen that he wants to use the office to continue the anti-corporate crusade that has defined his public career.

Gary Locke

Gary Locke

To most observers, the comptroller’s office would seem a demotion. After all, Anthony Weiner, the former congressman who engaged in his own unusual behavior, is now the leading candidate for New York mayor, the job he always wanted anyway. Why would Spitzer settle for comptroller? Slate’s Dave Weigel gave voice to the conventional wisdom in a Twitter post soon after Spitzer entered the race: “Shouldn’t it be Spitzer for mayor and Weiner for comptroller?”

But Spitzer is thinking bigger than that. Of the comptroller position, he told the Times: “It is ripe for greater and more exciting use of the office’s jurisdiction.” If elected, Spitzer would essentially be the city’s chief financial officer, a glorified accountant responsible for New York’s $70 billion budget. But that’s small potatoes next to the comptroller’s other role of overseeing pension funds for city workers totaling $140 billion. And Spitzer, who’s now outpolling his Democratic primary opponent, has been brutally honest about what he’d like to do with that responsibility.

“That is where the power really comes from,” he recently told Jay Leno, “$140 billion worth of pension funds, which in the equity markets are a lever to control corporate governance, rein in CEO pay, make sure that the Wall Street titans are acting fairly and honestly, making sure that the market is functioning properly, making sure capital is allocated as it should be. So these are all important things that the comptroller can do.”

He “can do” it, sure, but should he? As Yale law professor Jonathan Macey says, the comptroller’s top duty is to get a good return on the city’s investment of its pension funds. “It’s a public trust,” Macey says. “His fiduciary responsibility is to maximize the returns of the beneficiaries.”

But what Spitzer is proposing instead—in interviews, in articles, and in his new book, Protecting Capitalism Case by Case—is to use the power of public-employee pension funds to influence corporate policies. Ostensibly, he’d do that for the sake of the public good. What’s more likely to happen is that Spitzer will use the city’s power as shareholder to extract concessions from corporate America that further a populist liberal agenda.

The current comptroller, fellow Democrat John Liu, is already doing just that. Consider a January 2011 letter Liu sent to the CEO of Siemens AG, the German engineering conglomerate in which the city’s pension funds invest, requesting that Siemens stop contributing to the U.S. Chamber of Commerce. The Chamber, the comptroller’s office said, “vigorously opposed environmental reform.”

“It’s not right for our shareholders’ money to support efforts that perpetuate environmental harm,” Liu wrote. “Siemens is known for green innovation, but it’s supporting a group that bends over backwards to stand in the way of environmental protection.”

That’s true enough; the Chamber has frequently opposed efforts by the EPA and Congress to regulate greenhouse gases. The Chamber’s PAC also donates heavily, though not exclusively, to Republican candidates who oppose those regulations, too. But what did any of this have to do with providing a return on investment for New York City employees’ pensions?

“Given the importance of the green economy to Siemens’ long-term business plan and the company’s reputation as a global environmental leader, we believe it is time for the Supervisory Board to formally sever the company’s relationship with the U.S. Chamber,” Liu wrote. He added for good measure: “Unlike Germany, where membership in the chamber of commerce is compulsory, membership in the U.S. Chamber is strictly voluntary.” 

So when Spitzer says as comptroller he wants to “control corporate governance,” he’ll only be redoubling current efforts. Last year, Spitzer wrote a column for Slate titled “Flawed Dimon” criticizing Jamie Dimon’s dual role as CEO and chairman of JPMorgan Chase. The post’s first sentence likely reads ominously now for the big banker: “What to do with Jamie Dimon?” The city’s top pension fund, the New York City Employees’ Retirement System, invests with JPMorgan, and earlier this year Liu led a failed shareholder proposal to oust Dimon from his position as chairman. What’s to stop Spitzer from pursuing the same goal? If his tenure as New York attorney general is any indication, he may get what he wants.

In his eight years as attorney general, Spitzer cultivated a reputation as a hardnosed corruption buster, targeting everyone from the mob to the financial services industry. Fawning journalists dubbed him the “Sheriff of Wall Street” for his crackdown on “corporate misconduct.” To reporters and the public, Spitzer portrayed himself as a pro-capitalist watchdog, someone who loved the system but had to save it from itself. To the Wall Street types he was pursuing, he was a tyrannical menace, prone to screaming threats at executives over the phone.

Spitzer’s strategy was to take advantage of a quirky, obscure New York state law called the Martin Act, which empowers the attorney general to pursue financial fraud cases almost unfettered. The law was developed during Prohibition to combat bootlegging, and Spitzer was the first attorney general in generations to use it to go after Wall Street firms. 

It began in 2002, when investigators in Spitzer’s office uncovered a routine practice by brokerage Merrill Lynch whereby brokers in the research division of the firm touted to investors failing stock of companies that were clients of Merrill Lynch’s investment banking division. Spitzer announced the investigation’s findings to the public, calling it a “shocking betrayal of trust.” The revelation was a blow to Merrill Lynch’s image as the brokerage of choice for the middle-class investor. Spitzer quickly convinced the company to settle out of court and reform its policies. He did the same with nine other banks after further investigation revealed the research/investment banking collusion was standard industry practice. All of them settled and reformed.

In fact, few of Spitzer’s cases against corporations and executives went to court, which may have been by design. The Merrill Lynch episode set the template: File charges against a high-profile company, run a campaign against it, and wait for the settlement; soon, the remaining companies in that sector find it’s in their best interest to avoid Spitzer’s scrutiny, and they settle, too. 

It didn’t matter that in the few suits that did proceed, like those against New York Stock Exchange CEO Dick Grasso and Hank Greenberg of AIG, most of the charges were eventually dropped. It didn’t matter that his responsibilities as New York’s top law enforcement officer began to blend with his political ambitions. Spitzer was Wall Street’s “top cop,” as the media put it. And besides, who’s going to side with the corporate fat cats? In 2006, the Sheriff rode the publicity all the way to the governor’s mansion.

Of course, what happened just over a year after he became governor is now the stuff of political legend. The prostitution revelations. The Mayflower Hotel. Client 9. The agonizing press conference with Silda Spitzer glaring at her husband.

So Spitzer’s return to public life looks rather pathetic, particularly since fallen politicians must do talk-show penance, and Spitzer is simply no good at it. On MSNBC’s Morning Joe, when asked about the scandal, he tried (and failed) to produce tears of contrition. On The Tonight Show, he bantered awkwardly with Leno until the comedian got to the prostitution scandal: “How can you be this stupid?”

The line got a big laugh and extended applause from Leno’s studio audience. Hands clasped, Spitzer looked downward and nodded his head, acknowledging his cue to repent for the thousandth time. That’s what it takes, after all, to rebuild a political brand.

Eliot Spitzer may be a creep. He may be a hypocrite. He may be one of the worst practitioners of mixing politics with public duty. But he’s definitely not stupid. 

Michael Warren is a staff writer at The Weekly Standard.

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