Every day the morning paper brings a fresh example of the flotsam bubbling to the surface following the collision of corporate greed and post-Enron reality: Golden boy executives forced to walk the plank, formerly high-flying companies "restating" fraudulently inflated earnings, internal e-mails exposing the depths to which Wall Street firms have sunk to boost their bottom lines.
Yet the word emanating from on high -- from the well-appointed congressional committee rooms of Washington to the elegant dining rooms of L.A. -- is that the worst is behind us. Yes, they say, Enron was a bit of a wake-up call, but let's not overreact. We've learned our lesson, so please pass the truffle sauce and let's move on.
And, more than likely, that's exactly what we'd be doing were it not for Eliot Spitzer, the crusading attorney general of New York, whose investigation into conflicts of interest in the investment banking world is ruffling feathers from Wall Street to Capitol Hill.
His probe has so far uncovered shocking evidence that analysts at Merrill Lynch gave investors misleading stock recommendations in order to help promote companies their firm's investment bankers were doing business with. It has also forced the sheep-in-wolf's-clothing Securities and Exchange Commission to actually begin to do its job and launch its own inquiry into the matter.
The result? Well, surprise, surprise, Spitzer is now being told to back off and leave the matter to the big boys in Washington. While being careful not to cross jurisdictional swords, SEC chairman Harvey Pitt gently reminded Spitzer that "only the federal government can set nationwide standards." And Rep. Richard Baker, whose capital markets subcommittee held hearings on conflicts of interest on Wall Street, cautioned Spitzer: "It is essential that the SEC now lead the concluding phase of this inquiry." Concluding phase? Baker thinks the inquiry is wrapping up while Spitzer, who is after fundamental reform, knows it has barely begun.
So now he's having to both take on the bad guys -- and the guys who are supposed to protect the public from the bad guys. If Congress and the SEC had done their jobs, there would be no need for Spitzer.
The good news is that he is a man on a mission and won't be easily deterred. "Nobody can force me to pull back," he told me, "and I have no intention of doing so." As for the urgings of Pitt and Baker, Spitzer doesn't pull any punches: "The hearings conducted by Mr. Baker were pointless. They didn't ask the right questions and they didn't produce the kind of evidence necessary to bring about real reform. As for the SEC, it clearly didn't step up and prevent these abuses from occurring."
Spitzer is savvy enough to realize that he won't be able to overhaul the way Wall Street does business without the support of the public -- and its outrage. That's why he released those damning Merrill Lynch e-mails, in which the firm's analysts privately trashed companies as "a piece of crap" (and other, less publishable, synonyms) while publicly urging investors to buy shares in the same companies. The e-mails also show that the highly touted "Chinese Wall" between Merrill Lynch's stock researching analysts and its stock promoting investment bankers was more of a wide-open gate. "The whole idea that we are independent from banking," wrote one analyst, "is a big lie."
Spitzer's gambit has paid immediate dividends, shaming Merrill Lynch's CEO, David Komansky, into offering a mea culpa -- albeit a mealy-mouthed one. "Anything that happens on my watch," said Komansky, "I'm responsible for. Those e-mails were embarrassing to me and I truly regret that they ever happened." Notice that he doesn't regret the out-and-out fraud the e-mails reveal; he regrets the e-mails. How much do you bet that the newest Merrill Lynch employee-training session is something on the lines of "Making the delete key your new best friend"?
Komansky's carefully calibrated contrition was the very model of the latest in P.R.-approved damage control: Apologize quickly, accept responsibility, and put the past behind you. Only you don't really apologize, and you don't really accept responsibility. It also doesn't hurt to hire high-profile power players to help guide you through the crisis. To that effect, Merrill Lynch has retained Rudy Giuliani as an advisor. Maybe he can give them Mike Milken's number.
But all the apologies and damage control in the world won't make this problem go away. Too many people were lied to and financially devastated along the way. Since the Merrill Lynch e-mails were made public, lawyers across the country have been inundated with calls from angry investors looking for restitution.
"Merrill Lynch used to be the gold standard for how an investment banker should do business," Philip Aidikoff, president of the Public Investors Arbitration Bar Association, told me. "Now, at my firm alone, we're getting 40 to 45 calls a day from Merrill customers who feel they've been duped."
So Merrill Lynch has gone from gold standard to "crap" pusher. And it's not alone. To pull our corporate culture out of the muck, it's going to take more than public contrition and nonstop mea culpas on CNBC, which, given the current volume, may have to turn itself into the Self-Flagellation Channel. It will take some CEOs paying a real price for fraud, and securities regulations with real bite.
Stay tuned, this one is far from over.