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Under the Dome by Joel Wood Moral Hazard

In the end, Spitzer unmasks his last victim: himself.

By  Joel Wood

Topicality always being the goal, I had decided to write about the most interesting and depressing news of the month—the convictions of a handful of brokerage and reinsurance executives as the latest chapter in the saga of insurance investigations. I have some pretty strong views but decided that discretion being the better part of valor, I would keep my trap shut and write about something far more mundane and purely in the government affairs arena. Then on the afternoon of my deadline, the Eliot Spitzer news broke.

Makes it hard not to comment.

I’ve seen friends and political acquaintances humiliated by sexual revelations over my years in Washington. Schadenfreude is not a good instinct, but the dark prurient side that lurks within did get the best of me on the Monday afternoon of Spitzer’s downfall.

The issues here are not the sexual peccadilloes of the governor of New York; I couldn’t care less (oh well, maybe that’s an exaggeration). What is relevant is the hubris of the man, juxtaposed against the relative offenses of those against whom he crusaded—the deep delving into the personal life, for example, of Dick Grasso. And more important than that, the price paid by the innocent who were never even accused—those who lost jobs and saw their pensions devalued when their company stock was pummeled by the “Sheriff of Wall Street.”

On Valentine’s Day, I wrote (for the Council Edge online newsletter) my take on having witnessed Spitzer testify that day before the House Financial Services Committee on the subject of bond insurance and its role in the subprime mortgage crisis. I caught plenty of guff from several Council members for the headline: “In Praise of Eliot Spitzer.” I’d reflected on how commanding the governor was, how confident and studied in the complexities of sophisticated financial instruments.

For all of the grief he had brought down on our sector of the insurance marketplace, the guy looked and sounded fantastic. Turns out, of course, that he apparently had a good reason for being so chipper that morning, having just come from Room 871 of the Mayflower Hotel, $4,300 poorer.

I’ll leave it to Gail Sheehy and other pop-psych journalists to postulate on the link between power and privilege and recklessness and hypocrisy. But having been in a room a few times with him (most recently at the Saturday night Gridiron Club white-tie soiree, where he looked buoyant even though he had had learned the day before that his life was about to be upended by the prostitution charges), I can understand how the feeling of indestructibility had gone to his head.

In February 2005, only months after the broker compensation inquisition had blared into the headlines, my friend Mark Hofmann of Business Insurance invited me to be his guest at the National Press Club, where the Lord High Executioner (as The Wall Street Journal’s editorial page had dubbed him) was the featured speaker. He was on his game, starting his speech by wondering aloud why anyone continues to communicate by e-mail.

It would be unfair to say that the crowd of about 300 of Washington’s top journalists appreciated his presentation. They adored him. Whipping the crowd into a frenzy, he catalogued a long list of corporate malfeasance, and the Fourth Estate heads bobbed up and down.

When it came time for questions, I waited for the first critical one. It was the functional equivalent of the “Saturday Night Live” skit mocking press treatment of Sen. Barak Obama (“Are you comfortable?” “Do you need another pillow?”).

Still in the throes of the broker compensation crisis, I suppose I was feeling suspect in that room because I was the lobbyist for his targets at the time, so I kept my own little question to myself. Now that the matter is winding down, and in the aftermath of two executives being convicted on one count each, I still recall the question that I hungered to ask.

“Here are the facts, General. You have an army of interns who rifle through thousands of people’s e-mails looking for dirt. They find evidence that a handful of brokers engaged in bad behavior (specifically, onerous bid-rigging), and you in turn conflate those charges into broad allegations against the industry. You threatened an Arthur Andersen-style criminal indictment of the corporation, refusing to negotiate with its chairman, forcing management changes, extracting a fine of your choosing, driving down billions in market capitalization, and teeing up a mountain of litigation for your political supporters in the plaintiffs’ bar. Years later, thousands will have lost their jobs and financial stability. Would you please comment on the moral relevance of the crimes committed and the price being extracted?”

And a new one today: “Given your public posture of personal moral rectitude, do you feel any differently toward those who have been on the receiving end of your invective?”

Wood is the Council’s senior vp of Government Affairs. Joel.Wood@LeadersEdgeMagazine.com

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