Analysis

Eliot Spitzer on the Cuomo Report: Serve Subpoenas

You might have heard about a little report from New York Attorney General Andrew Cuomo this morning. With all the subtlety of a sledgehammer─it's titled No Rhyme or Reason: The 'Heads I Win, Tails You Lose' Bank Bonus Culture, for chrissakes─it gives the most detailed accounting to date of the Wall Street bonus fiasco, showing that, as they were losing billions, a whopping 4,793 lucky folks took home bonuses of $1 million or more last year.

It's grist for the rage mill, to be sure, but is it a game changer? To find out, I checked in with another man making noise about regulation these days: Eliot Spitzer, once known as "Lord High Executioner" among the Wall Street crowd for the delight he took in making their lives difficult. Here's what he had to say about the matter:

So I take it you’ve heard about this Cuomo report?
Is that the one about the poor investment bankers struggling to pay their bills?

That’s it. It’s a sad tale.
Yeah, like Dickens.

My basic question is:after all this, why is it still so hard to regulate these guys?
Setting pay is a quintessential private-sector activity. The question is, how do you do it properly and fairly? Whose voice should be heard?Take the public bailout out of the equation for a moment, because let’s hope that’s not a permanent fixture. These are bigger issues. Why have compensation committees failed so utterly? Why have shareholders never been able to rein this in?

Were you surprised by the size of these numbers?
Nah, this is old news. Eight years ago I was talking about this issue, though it didn’t get the same attention it has today. But the escalation of bonuses and pay is well known. We investigated these kinds of things. The SEC never wanted to do anything with it.

Right, but even when you add that public element back into the equation, still no surprise?
No, because the firms have made it very clear that they want to pay back the TARP money as soon as they can.

Neil Barofsky’s report last week indicated there’s still a big question mark regarding how the TARP money was actually used. How much of it do you think could have gone into these bonuses?
That’s only one question. There are plenty of others. Why did Goldman get $12.9 billion back? That’s 100 percent back on its AIG counterparty, which is $12.9 billion as part of the first $82 billion that AIG received. That whole transaction was to me fraught with questions that deserve to be answered. There are thousands of questions that should be asked and answered about this.

Why does it seem to be so hard to actually do that?
It’s not. It’s very easy to ask them. It’s very easy to answer them if you want to.

Why aren’t we getting the answers, then?
Maybe we don’t have people who want to answer them.

Within the administration, you mean?
It could be the SEC, it could be Treasury. Beats me. But these are easy questions to ask and answer.

How much of this is just a matter of getting Treasury to open up their books?
Or of getting the banks to open their books. You serve 10 subpoenas and you say, “We want answers, and we want ’em tomorrow morning.” It’s not that tough.

So now that the report is out, what’s the next step here?
I don’t know if there will be one. There should be one. Congressional hearings could get at this pretty quickly, so hopefully that will happen.

But say you’re attorney general and you just issued this report. What’s your next move?
Well, I didn’t like to put out reports without actually doing something. That’s why we brought the Grasso case [Richard Grasso was the former head of the New York Stock Exchange whose compensation was the subject of a lawsuit by Spitzer]. That’s why we pursued executive compensation. We got disgorgement of funds that had been received in the context of hot IPO shares that were improperly given to CEOs. And we won those cases. Those are the things that should happen. Whether they will? Who knows; I’m not in the business anymore.

And that’s not happening because of human relationships that are just too cozy? If Neil Barofsky has to rely on self-reported information.…
I don’t know what the rules are in terms of where he could get information, so I don’t want to say anything that may not line up there. But for us: we dropped subpoenas, we got information. And then, you know, you make your case. It’s not that hard.