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Megan McArdle

Megan McArdle - Megan McArdle is a senior editor for The Atlantic who writes about business and economics. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and The Economist. More

Megan was born and raised on the Upper West Side of Manhattan, and yes, she does enjoy her lattes, as well as the occasional extra-dry skim-milk cappuccino. Her checkered work history includes three start-ups, four years as a technology project manager for a boutique consulting firm, a summer as an associate at an investment bank, and a year spent as sort of an executive copy girl for one of the disaster-recovery firms at Ground Zero … all before the age of 30.

While working at Ground Zero, Megan started Live From the WTC, a blog focused on economics, business, and cooking. She may or may not have been the first major economics blogger, depending on whether we are allowed to throw outlying variables such as Brad Delong out of the set. From there it was but a few steps down the slippery slope to freelance journalism. She has worked in various capacities for The Economist, where she wrote about economics and oversaw the founding of Free Exchange, the magazine's economics blog. She has also maintained her own blog, Asymmetrical Information, which moved to The Atlantic, along with its owner, in August 2007.

Megan holds a bachelor's degree in English literature from the University of Pennsylvania and an M.B.A. from the University of Chicago. After a lifetime as a New Yorker, she now resides in northwest Washington, D.C., where she is still trying to figure out what one does with an apartment larger than 400 square feet.

Eliot Spitzer resigns

By Megan McArdle
Mar 12 2008, 12:27 PM ET Comment

I read liberal blogs defending Spitzer and spinning conspiracy theories about his downfall, and all I can think is "Really? You really want to hitch your wagon to this fallen star?" Why on earth? They were investigating him for a perfectly legitimate reason: he had a suspicious pattern of withdrawals from his bank account, and the Feds are supposed to keep an eye on that sort of thing in people who are elected to public office, because we all have a legitimate public interest in clamping down on official corruption. I think "structuring" and "money-laundering" charges are repugnant. The Mann act is garbage. Prostitution, drugs, and arranging homosexual liasons should be legal, though the airports have a perfect right--and good reason--to keep it out of the restrooms. But Eliot Spitzer was caught doing something that, regardless of its moral status, is in fact illegal, and which, moreover, he was more than happy to prosecute others for engaging in. (Though to be fair, since he only went after the purveyors, perhaps he somehow genuinely believe that the johns did nothing wrong in buying what they were selling.) Yes, he did so because it was his job to uphold the laws of the state of New York. Call me crazy, but as the governor, I think it may also have been his responsibility to follow them.

To be sure, many people--including, yes, me--are taking glee in Spitzer's downfall even though we think all his actions should be legal. There you are: having people you disagree with revealed as stunning hypocrites is emotionally satisfying. Plus there's a positive side (I mean, beyond New York State possibly getting a decent governor). If this makes everyone rethink our nation's ridiculous prostitution laws, Eliot Spitzer will finally have made a lasting positive contribution to his country.

But I also think that many of the reasons people are defending him--that he was a good governor and took on Wall Street--are fundamentally wrong. Eliot Spitzer was a terrible AG, and a terrible governor. He had even more difficulty than Rudy in understanding that the executive office does not simply confer more power than that of prosecutor, but different power; he treated those who disagreed with him as perps. His reform agenda died on the vine, and no, not just because of Republican obstructionism; he had vast troubles building coalitions, which is why no one is offering him any sort of public support, not even of the tepid "family tragedy, let's move on" variety: the man has no friends in Albany. And that's because he is, at heart, a petty tyrant. Sometimes you need a petty tyrant--Rudy did good things for New York before he went totally off the rails. But Eliot Spitzer's agenda was not fighting crime and taking on out-of-control unions; he was trying to build, not destroy. For that, you need help.

His attacks on Wall Street, meanwhile, were more about grabbing headlines than catching criminals. Some of the things he took on were real abuses, like the disgusting abuse of equity research and retail networks to pump up the stocks of investment banking clients. Others were much more dubious--a pointless-seeming war against insurance brokers for wrongs that were at best trivial. Some of his more bizarre prosecutions, and the weird settlements he demanded, made it clear that he didn't have the understanding of markets to effectively be the financial regulator he set himself up as.

Worse was how he did it. He couldn't make cases--the highest profile case he brought to trial basically ended with an acquittal on all counts. Yes, securities cases generally settle, but not like Spitzer's--precisely because the cases are generally a hell of a lot stronger than any of Spitzer's, cases where the prosecutors had some hope of proving that someone had actually done something illegal. Spitzer was able to do this through the power of the Martin Act, which gives the New York State attorney general practically despotic powers to go after fraud. Among the provisions: the prosecutor does not have to prove that there was intent to commit fraud, that any transaction took place, or that anyone was actually defrauded; he can interrogate potential defendants with no rights to an attorney or against self incrimination; he can keep the investigation secret or make it public, just as he pleases; and can subpoena just about anything. Practically the only limitation on the AG is his goodwill and sense of fair play. Eliot Spitzer was not overgenerously endowed with either.

Banks and others came to the table because Spitzer would launch these investigations and then use a carefully orchestrated series of press releases and leaks to torpedo their stock price. But many of the more spectacularly incriminating sounding excerpts from subpoenaed documents were so misleadingly taken out of context that they would have been grounds for a libel suit if he'd been a journalist. Don't get me wrong--many of them were guilty. But this kind of tactic doesn't distinguish between the guilty and the innocent; anyone in a credit-dependent industry whose stock value is plummeting would have to negotiate, because Spitzer's inquiry could shut them down. (Can and did, in some cases--indeed, he apparently nearly shut down Merrill's asset management business until a judge reversed the order.) Often, these shaded into personal vendetta--Dick Grasso's pay package seems like he was grossly overvalued, but what business is it of Eliot Spitzer's how much a private body pays it's CEO? This has nothing to do with the reasons we regulate financial markets.

Moreover, all his quick settlements screwed the investors he was supposed to be protecting. The unjust settlements extorted money from those firms' shareholders and dumped it into state coffers. And the just ones did nothing for investors: the money went to the states, not to the people who had allegedly been defrauded. Shutting the investigations down quickly forestalled discovery that would have helped clients sue. Eliot Spitzer got the headlines; investors got nothing.

Felix Salmon argues that it was a good thing that Eliot Spitzer put the fear of God into Wall Street, and I take his point--the cozy practices that had become common by the end of the nineties needed to change. But it's not clear to me that these prosecutions gave them anything but a fear of Eliot Spitzer. Whoops. In a liberal democracy, it matters how you punish people for their crimes--"they got Al Capone for tax evasion" is not a triumph, it's tyranny.

And yes, that applies to Eliot Spitzer too--now that he's resigned, I hope he gets off with community service and a fine. Though in a slightly more perfect world, the johns would serve time and pay fines at least as stiff as the prostitutes get.



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