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Less than a year after being forced to resign due to a scandalinvolving a prostitute, New York's former governor and attorneygeneral, Eliot Spitzer, emerged from his self-imposed politicalexile to put in his two cents about how to prevent another economicmeltdown. While one is tempted to tell the former crusader to goback to his cave, the problem is that his critique is right ontarget!

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In a Nov. 24 op-ed in “Newsday,” headlined “Capitalism Needs SomeRewiring” (click here for the full article), Mr. Spitzer identified a trio ofdeep, “structural” problems that President-Elect Obama and Congresswill have to tackle, citing “misconceptions about what a 'freemarket' really is, a continuing breakdown in corporate governance,and an antiquated and incoherent federal financial regulatoryframework.”

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In particular, his take on the supposedly “free market”resonates with me, given the fact that whenever government takesits eye off the ball, the players start making up rules as they goalong, or play with no rules whatsoever, and end up ruining thegame for everyone–especially we spectators–leaving Uncle Sam toclean up their mess and bail out the offending individuals andinstitutions.

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“For long stretches of the past 30 years, too many Americansfell prey to the ideology that a free market requires nearlycomplete deregulation of banks and other financial institutions anda government with a hands-off approach to enforcement,” wrote Mr.Spitzer. “Those of us who raised red flags about this were scoffedat for failing to understand or even believe in 'the market.'”

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He noted that when his AG office, along with the Department ofJustice, “warned that some of American International Group'stransactions were little more than efforts to create the falseimpression of extra capital, we were jeered at for attacking one ofthe nation's great insurance companies, which surely knew how tobalance risk and reward. And when the attorneys general of all 50states sought to investigate subprime lending, we were blocked by acoalition of the major banks and the Bush administration.”

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He added that “time and again, those who tried to enforce thebasic principles that would allow the market to survive were toldthat the 'invisible hand' of the market and self-regulation couldhandle the task alone.”

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However, he concluded, “no major market problem has beenresolved through self-regulation, because individual actors careonly about performing better than the next guy, doing whatever ispermitted–or will go undetected.”

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He said that “those who truly understand economics do not preachan absence of government participation. A market doesn't exist in avacuum. Rather, it's a product of laws, rules and enforcement. Itneeds transparency, capital requirements and fidelity to fiduciaryduty. The alternative, as we are seeing, is anarchy.”

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I agree with Mr. Spitzer on this one. From personal experience,playing basketball in the schoolyard without a referee can be abrutal experience, governed by the “No harm, no foul,” mentality.Running an economy under such a philosophy leads to the kind ofchaos we're experiencing today.

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Mr. Spitzer has may other good ideas to share. I urge you toread his full article and think carefully about what he says.

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“As the rules of modern capitalism are rewritten over the nextyear, those who benefit from the enormous flow of cash being spreadthroughout the U.S. economy must be expected to compete within asystem of rules that creates a true market–based on sound, skilledregulation, vigorous corporate governance and transparency,” hesaid.

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Amen!

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Unfortunately, his personal miscues undermine his credibilityand message, keeping him on the outside looking in. It's a shamethe government cannot tap his considerable intellect and legendarypersistence to play a role in reforming our out-of-control economicsystem, abused by far too many who should have known better.

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“Although mistakes I made in my private life now prevent me fromparticipating in these issues, I very much hope and expect thatPresident-Elect Obama and his new administration will have thestrength and wisdom to do again what FDR once did,” he said.

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What a waste!

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Of course, President-Elect Obama, with his open-minded “Team ofRivals” approach to governing, might one day forgive Mr. Spitzerhis past, mostly personal transgressions and put him in a positionto make a difference once again…perhaps as a National InsuranceSuperintendent, should Congress ever approve federalregulation.

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What do you folks make of what he said?

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