Less than a year after being forced to resign due to a scandal involving a prostitute, New York's former governor and attorney general, Eliot Spitzer, emerged from his self-imposed political exile to put in his two cents about how to prevent another economic meltdown. While one is tempted to tell the former crusader to go back to his cave, the problem is that his critique is right on target!
In a Nov. 24 op-ed in "Newsday," headlined "Capitalism Needs Some Rewiring" (click here for the full article), Mr. Spitzer identified a trio of deep, "structural" problems that President-Elect Obama and Congress will have to tackle, citing "misconceptions about what a 'free market' really is, a continuing breakdown in corporate governance, and an antiquated and incoherent federal financial regulatory framework."
In particular, his take on the supposedly "free market" resonates with me, given the fact that whenever government takes its eye off the ball, the players start making up rules as they go along, or play with no rules whatsoever, and end up ruining the game for everyone--especially we spectators--leaving Uncle Sam to clean up their mess and bail out the offending individuals and institutions.
"For long stretches of the past 30 years, too many Americans fell prey to the ideology that a free market requires nearly complete deregulation of banks and other financial institutions and a government with a hands-off approach to enforcement," wrote Mr. Spitzer. "Those of us who raised red flags about this were scoffed at for failing to understand or even believe in 'the market.'"
He noted that when his AG office, along with the Department of Justice, "warned that some of American International Group's transactions were little more than efforts to create the false impression of extra capital, we were jeered at for attacking one of the nation's great insurance companies, which surely knew how to balance risk and reward. And when the attorneys general of all 50 states sought to investigate subprime lending, we were blocked by a coalition of the major banks and the Bush administration."
He added that "time and again, those who tried to enforce the basic principles that would allow the market to survive were told that the 'invisible hand' of the market and self-regulation could handle the task alone."
However, he concluded, "no major market problem has been resolved through self-regulation, because individual actors care only about performing better than the next guy, doing whatever is permitted--or will go undetected."
He said that "those who truly understand economics do not preach an absence of government participation. A market doesn't exist in a vacuum. Rather, it's a product of laws, rules and enforcement. It needs transparency, capital requirements and fidelity to fiduciary duty. The alternative, as we are seeing, is anarchy."
I agree with Mr. Spitzer on this one. From personal experience, playing basketball in the schoolyard without a referee can be a brutal experience, governed by the "No harm, no foul," mentality. Running an economy under such a philosophy leads to the kind of chaos we're experiencing today.
Mr. Spitzer has may other good ideas to share. I urge you to read his full article and think carefully about what he says.
"As the rules of modern capitalism are rewritten over the next year, those who benefit from the enormous flow of cash being spread throughout the U.S. economy must be expected to compete within a system of rules that creates a true market--based on sound, skilled regulation, vigorous corporate governance and transparency," he said.
Amen!
Unfortunately, his personal miscues undermine his credibility and message, keeping him on the outside looking in. It's a shame the government cannot tap his considerable intellect and legendary persistence to play a role in reforming our out-of-control economic system, abused by far too many who should have known better.
"Although mistakes I made in my private life now prevent me from participating in these issues, I very much hope and expect that President-Elect Obama and his new administration will have the strength and wisdom to do again what FDR once did," he said.
What a waste!
Of course, President-Elect Obama, with his open-minded "Team of Rivals" approach to governing, might one day forgive Mr. Spitzer his past, mostly personal transgressions and put him in a position to make a difference once again...perhaps as a National Insurance Superintendent, should Congress ever approve federal regulation.
What do you folks make of what he said?
