Insurance News

With AIG, Spitzer is Sheriff of Wall Street redux

Posted on: April 5, 2009

Eliot Spitzer has a few words to say about the AIG bonus brouhaha: I told you so.

The former New York governor battered American International Group with charges of corruption long before his own dizzying downfall in a prostitution scandal. He has used this latest financial scandal to strike his old populist, Sheriff of Wall Street themes and, just maybe, mend his reputation ��” though critics contend that he bears a share of the blame for the insurance giant’s historic near-collapse.

Spitzer says the AIG bonus issue is “penny ante” compared to the billions of the insurer’s bailout money funneled to bad banks, and that Treasury Secretary Timothy Geithner owes America an explanation, quickly.

As for all those politicians piling on AIG this week? Been there. Done that.

“We pursued AIG and Wall Street’s structural failures in a way that others shied away from because it was politically unpalatable for them to address those issues,” Spitzer told host Brian Lehrer Wednesday on WNYC Radio in New York City. “Now it is the flavor of the month. Everybody is jumping up and down serving subpoenas, beating their chests trying to be tougher than the next person.”

On CNN Thursday, Spitzer said his initial probes came from AIG’s “effort from the very top to gin up returns whenever, wherever possible and to push the boundaries in a way that would garner returns almost regardless of risk.

“Back then I said to people, AIG is the center of the web,” he told CNN’s Fareed Zakaria.

Spitzer pursued AIG for years when he was New York’s attorney general. The company eventually announced in 2006 that it would pay $1.64 billion to resolve allegations that it used deceptive accounting practices to mislead investors and regulatory agencies. AIG’s veteran chief executive officer, Maurice “Hank” Greenberg, was forced to resign in 2005 after a long and contentious, sometimes ugly battle with Spitzer.

“He obviously believes history has vindicated him,” said John Coffee, a professor of securities law at Columbia University, “and wants to remind America that he was there first.”

The tough talk raises the question about whether Spitzer, who now tends to his family’s real estate business, is mounting a comeback bid.

It would be a long shot. The trail for a married politician caught soliciting high-priced prostitutes would likely be prohibitively steep. For someone like Spitzer, who became governor largely because of his Mr. Clean reputation, it would be even tougher.

And anyway, when he resigned last March, Spitzer promised to work for the common good “outside of politics.” Spitzer politely declined to talk about AIG or other issues when contacted Thursday by The Associated Press.

“I’ve got a day job now,” he said.

Coffee suspects Spitzer is more concerned about reclaiming a legacy than mounting a comeback. Jeffrey Stonecash of Syracuse University’s Maxwell School said the recent comments fit Spitzer, a natural crusader zealous about rooting out financial crimes.

“He really does have a strong moral streak, as weird as that may sound given what happened to him,” said Stonecash, who teaches political science. “This provides him an opportunity not only to express that concern, but maybe to resurrect himself.”

Clearly, Spitzer’s year in the wilderness not dampened his appetite for a fight.

Writing for the online magazine Slate this week, Spitzer contended the real disgrace with the AIG bailout is not the $165 million in bonuses to executives, but the billions in AIG bailout money that was funneled to the insurer’s trading partners ��” that is, shaky banks that taxpayers are already bailing out.

“The appearance that this was all an inside job is overwhelming,” Spitzer wrote in Slate. “AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.”

Spitzer’s comments have the side effect of highlighting controversies about his dogged pursuit of AIG and Greenberg. Critics, mostly on the political right, claim that by forcing out Greenberg and creating turmoil at AIG, Spitzer laid the groundwork for the debacle roiling the country today. They note that Spitzer eventually dropped some of his charges against Greenberg, that Greenberg hasn’t been found guilty of other charges, and that Greenberg continues to fight back in court.

Spitzer seems unconcerned. Even as he declined to talk to the AP, he indicated he was not done with AIG.

“I’ll be writing more about it,” he said.

In 2002, AIG gave $5,000 to Eliot Spitzer’s second campaign for attorney general. State records show the company has given nothing to his successor in that job, Andrew Cuomo, who is now hitting AIG over the bonuses.

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Copyright © 2009 The Associated Press. All rights reserved.

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