Eliot Spitzer, who is temperamentally unable to stay out of the headlines for more than 72 hours, is back in them again. Last week, the New York state attorney general accused commercial insurance companies of bid-rigging. In response, the stocks of the biggest players implicated, Marsh & McLennan and AIG, have tanked, losing a combined $38 billion in market capitalization. More alarming for the insurers, Spitzer signaled this was just the beginning of an industry-wide investigation. For when he finds a few bad eggs, Eliot Spitzer cleans out the entire coop and changes the way it is run, as Wall Street's investment banks and mutual funds have learned to their dismay.
In the past two years, in a state filled with big egos—Gov. George Pataki and New York City Mayor Michael Bloomberg on the right, Sens. Hillary Clinton and Charles Schumer on the left—Spitzer has emerged as the most consequential political figure. He may be America's most powerful politician outside Washington. He has transformed a sleepy office into the nation's dominant regulator and re-engineer of the financial services industry—all in the name of protecting consumers.
Spitzer isn't a scalp-taker, as Rudy Giuliani was when he was a prosecutor. Spitzer doesn't like taking cases to trial. Instead, he has devised a more powerful tactic: He exploits the threat of stock declines and business losses to force industries to change.
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How has he been able to do it? A feckless Securities and Exchange Commission has responded haphazardly to five years of scandal, leaving a vacuum for Spitzer to fill. He also works with the fervor of the seriously ambitious politician. Spitzer is just as relentless as Giuliani was when he was a prosecutor. (Should Sen. Schumer decide to run for governor, the 2006 Democratic primary could see a scintillating death match between two nasal Harvard Law graduates with receding hairlines.)
But Spitzer also possesses two crucial, overlooked advantages. Thanks to Progressive-era legislation, he has more powerful prosecutorial tools than any official in the country. And thanks to his family wealth, Spitzer approaches Wall Street not merely as an antagonist but as a sophisticated customer. Unlike practically every government lawyer who tangles with Wall Streeters, Spitzer understands them and their work, because he has known them his whole life. If he's waging class warfare, it's against his own class.
Spitzer has the classic New York rich kid résumé. The scion of a family that made a fortune in real estate, Spitzer attended Horace Mann High School, graduated from Princeton (Class of 1981) and Harvard Law School, where he was an editor of the Harvard Law Review. After clerking for a judge, he worked as an assistant district attorney in Manhattan from 1986 to 1992. Spitzer was a young man in a hurry—literally. In the 1990s, I frequently saw him jogging the loop in Central Park, the same circuit favored by investment bankers and stock analysts. In 1994, the 35-year-old first-time candidate ran a disappointing fourth (out of four) in a largely self-financed Democratic primary for attorney general. After biding his time at a white-shoe law firm, he ran again in 1998, again relying on family money. This time he nipped incumbent Republican Dennis Vacco. In 2002, he cruised to re-election by a more than 2-1 margin over token Republican opposition. He quickly turned a backward office into a hotspot for legal talent.
Until the stock market crashed, challenging big Wall Street firms was generally a nonstarter for New York attorneys general. Merrill Lynch, Morgan Stanley, and their brethren were not only large employers, they were large political donors. But once the bull market ended and the conflicts of interests emerged, all bets were off.
http://www.slate.com/id/2108509/
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