To hear the media tell it, the headline-grabbing settlement agreement between crusading New York Attorney General Eliot Spitzer and scandal-rotted Wall Street investment banks is a cause for investor celebration -- a towering, game-winning home run belted out of the park by the new Sultan of Shareholder Swat.
Actually, it's a boneheaded error. A botched play of Billy Buckner proportions.
Spitzer dropped the ball in so many ways, it's hard to know which to criticize first. Let's start with the fact that none of the flimflam men behind the high-level financial swindles will have to do any time behind bars. The settlement doesn't include the criminal indictment of a single person or institution. Even though Spitzer vowed to "restore integrity" to Wall Street and claims to have the goods on the banks and bosses, he suddenly developed a terminal case of ice-cold feet.
The sweetheart deal also slams the door on an investigation that had only begun to plumb the depths of Wall Street's nefarious ways. And, perhaps most galling of all, the settlement doesn't require any of the wrongdoers involved to admit any wrongdoing. This kid-glove treatment of Wall Street crooks provides a profound example of how we continue to operate under two vastly different sets of rules in this country -- one for a select group of elites and one for the rest of America.
When I asked Spitzer if he was concerned about this disparity, he replied: "While I would prefer to have a statement of wrongdoing, the firms never admit wrongdoing because it would drive them to bankruptcy." So? Isn't the genius of capitalism to let the free market -- not the attorney general of New York -- pick winners and losers depending on how they play the game? Break the rules, and you lose.
Professor Paul Lapides, director of the Corporate Governance Center at Kennesaw State University, describes the sleaze-geist thus: "I used to tell my students that if you commit a white-collar crime, the time will come when you will serve your time. Now I tell my students, if you commit a crime, commit a big one."
Lapides adds, "If you commit a big enough crime, you'll probably have to return only some of the money, and you won't have to do any jail time. Is America a great country or what?"
When common criminals are allowed to cop a plea, they plead guilty first as part of the bargain. Crooks in pinstripe suits, on the other hand, even those caught red-handed, don't have to come clean. It's the ultimate privilege -- and the ultimate insult to our intelligence. What good is finding a smoking gun if the guys who fired it are allowed to pay a small fine, step over the bloody body and reload?
Between them the 10 banks party to the settlement will have to cough up $900 million -- a drop in the bucket when you consider the billions in their collective annual profits, not to mention the hundreds of billions their scams cost investors.
In Time's hagiographic "Crusader of the Year" piece on him, Spitzer compared his efforts to those of a highway patrolman. "The cases against Wall Street are like stopping someone speeding on a highway," he says. "The other cars slow down for a while, and then, after a certain number of miles, they speed up again. The question is, How many miles before they start speeding again?"
The truth is, once Wall Street's lead-foots find out how cheap the ticket is they won't even bother slowing down at all. In fact, even as the final details of the settlement are being hammered out, the major investment firms continue to deliver glowing research reports about companies that also -- coincidentally, I'm sure -- just happen to be their banking clients.
So why did the heretofore heroic Spitzer, who previously dared to go where both the SEC and Congress feared to tread, settle for such a toothless settlement? Could it be that he finally bought into the Street's dire warnings that if he went too far, he'd torpedo the already sputtering U.S. economy? The theory being, I suppose, that fraud, deception and stock manipulation are essential elements of a thriving economy.
Or did Spitzer see how quickly Wall Street's moneymen turned their backs on Carl McCall's run for New York governor after he started digging into improprieties at Citigroup, and did he then decide that taking on some of the most powerful people in the country might not be the best strategy for a man considering a run for governor himself? It wouldn't be the first time that a would-be leader's reforming zeal lost out to the gradual process of capitulation to capital.
Whatever the reason for Spitzer's premature capitulation, the sad fact is that, despite his claim that it "will permanently change the way Wall Street works," the settlement will do next to nothing to eradicate the culture of greed, corruption and unethical behavior that has come to dominate Wall Street.
And until that happens we can't expect investors to truly put the scandals behind them and jump back into the market with both feet.