Why is the financial world freaking out over the possibility of former New York State Governor Eliot Spitzer becoming New York City’s Comptroller? Professor of Political Science at the University of Massachusetts Thomas Ferguson laid it out in his article republished at naked capitalism:
Who, when the Justice Department, Congress, and the Securities and Exchange Commission all defaulted in the wake of a tidal wave of financial frauds, creatively used New York State’s Martin Act to go where they wouldn’t and subpoena emails and corporate records of the malefactors of great wealth, winning convictions and big settlements.
Who in 2005, as New York State Attorney General, actually sued AIG instead of thinking up ways to hand it billions of dollars of taxpayers’ money.
Who brought a suit over the Gilded Age compensation package Stock Exchange head Richard Grasso had been awarded by his chums on the board.
And who in 2013 with business as usual once again the order of the day, is promising to review how the Comptroller’s Office, which controls New York City’s vast pension funds, does business with Wall Street and corporate America. With his incisive questions about Wall Street’s fee structures and criticism of the passive stances most pension funds take to skyrocketing executive compensation in the companies they invest in, Eliot Spitzer is the last person on earth Wall Street wants to see in that slot.
The chorus of outrage from Wall Street pundits and media over Spitzer’s return after embarrassing exit from the governor’s office after his out of state tryst with prostitutes (omg, he had the nerve to use his own money) and, according to a New York Times article, his out of control ego and combative, go-it-alone style.
Prof. Ferguson dismisses the hyperbole as a “smoke screen” for the real objections that Spitzer would stop Wall Street from using the city’s pension funds to make profits for the 1% while cheating the workers out of a lifetime of investment. Spitzer as an activist for the 99% scares the crap out of them.
The compelling case for activism in the Comptroller’s Office by somebody of Spitzer’s intelligence, knowledge, and experience rests mostly on quite different grounds. As Spitzer has observed, most pension funds put up little or no resistance to management’s soaring claims for compensation. These come massively at the expense of investors as a group; pushing back would benefit investors in general and, obviously, beneficiaries of City pension funds. At a time when the air is filled with sometimes dubious claims of pension fund inadequacies, increasing returns to the City pension funds would be a real triumph. You can be sure, however, that the threat to ever-escalating executive salaries fuels a lot of the animus to Spitzer within much of big business and finance.
No less important, though, is another reality to which Spitzer has alluded to from time to time. Wall Street overcharges for financial advice and pension funds often find it expedient to tolerate this, rather than shop vigorously around. Studies of pension funds returns routinely note the frequency with which high fees accompany relatively shoddy performance, often over many years. It is high time attention was focused on this situation; Spitzer would likely do that.
And the Office of the Comptroller has subpoena power, that’s a lot of power:
First, part of the comptroller’s job is ensuring that private sector employees working on city projects are paid the prevailing wage. If an employer, for example a construction company, is reported to be paying workers below-market rates, the comptroller can open an investigation and subpoena payroll records if the employer won’t cooperate.
In addition, the comptroller has the authority to review all legal settlements entered into by the city’s corporation counsel. Last fiscal year, the city paid $486 million to settle lawsuits filed against its agencies or employees, the comptroller’s office said in a report last month. The settlements were for cases such as malpractice at city hospitals or police misconduct.
That’s just for starters.