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 Drag yourself away from the sordid details of Tuesday's papers -- tabloids were invented for days like this -- and reflect for a moment on other aspects of Eliot Spitzer and his record. Spitzer's legacy on Wall Street will hang on the analyst scandals, which rocketed him to fame. While it's true that he acted like a bully, leaked like a colander and rarely took a case to court unless he was forced to, the darker truth is that he did have an important issue with tainted research.
There were serious conflicts; research had been distorted by the bullish
enthusiasm of the tech bubble; retail investors, no matter their own greed and
stupidity, were ill-served; and the problem of how to fairly communicate analysis
is relevant to our mass investing times.
But face it: Spitzer blew it. Yes, he got enormous headlines for himself, and he got himself to Albany. But he utterly failed to resolve any of the deeper issues. What's the difference between journalism and research? How do you remove "conflict" from an enterprise that is, by its very nature, subjective? How do you support an enterprise if you destroy its economic basis? How do you support a business in which its target retail customers refuse to pay? Is a level playing field possible in a zero-sum game like investing? Indeed, Spitzer did not, as The New York Times editorial offered plaintively Tuesday, "make the world fairer for ordinary shareholder." That's a huge myth, continually re-inflated by the same folks who made Spitzer a god-like figure. Instead, Spitzer bullied Wall Street firms (no mean feat) to put up a settlement they could easily afford, and left the research business on life support. It's pretty hard to find anyone these days who thinks retail is better served today than in the '90s, with all its conflicts. Research on Wall Street has shrunk dramatically (and probably will get even slimmer as layoffs loom), or migrated to the buy side, mostly to hedge funds and institutions. Many smaller companies lack research coverage. The retail crowd is forced to turn to "independent" research houses, which may be legit or may be sketchy, or use the mass product of personal finance media: the magazines, the cable shows the slick TV touters who populate high cable channels deep into the night. Spitzer only made the key issue worse: How do we cultivate a mass investing audience without pitting them against professionals? That question again rises with the subprime mess. What could a New York AG have done? Well, at risk to his budding political career and reputation as an untouchable g-man, he could have fought out some of these cases in court, rather than seeking settlements. He could have talked about the dangers of the market, and the deep uncertainties of any investment advice, instead of pretending it was simple theft. He could have talked about the kind of universal complicity created by a bubble. But most importantly, he could have worked a lot harder to insure that research had a real economic basis, instead of racing off to score greater triumphs for the little guy by chasing Spitzerian scapegoats like Dick Grasso or Hank Greenberg. In other words, he could have stopped pandering to the media and acted like a statesman.
But he didn't. And now he'll probably never have the chance. - Robert Teitelman See story from The New York Times See story about Grasso leaving NYSE from TheDeal.com See archives of Grasso stories from TheDeal.com TheDeal.com coverage of SEC and Spitzer's AG investigations into IPOs and equities research Spitzer sues telecom CEOs -- September, 2002 Merrill ends Spitzer investigation with $100M settlement -- May 21, 2002 CategoriesComments Deal Video
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The love, trust and respect Spitzer knowingly destroyed with his wife and daughters will be his ultimate punishment! That's assuming he has a conscience which will feel their agony