Nothing like the prospect of someone with a high profile and a track record of going toe to toe with powerful interests and rich enough not to be beholden to party machinery to bring out all sorts of hacks and score-settlers.
The announcement by New York’s former attorney general and governor Eliot Spitzer that he wants to re-enter politics after frequenting ladies of negotiable affection has elicited a brass-knuckle response from Wall Street and union leaders. The post Spitzer is seeking, that of New York City Comptroller, wields far more behind-the-scenes power than most voters realize. It’s not hard to anticipate that Spitzer would shake up a lot of the cozy feather-bedding that takes place in most government treasurer’s offices.
Amusingly, the New York Times has done an unintended bit of self-reporting, in both describing and acting out on how the city’s elite are trying to expel Spitzer like some sort of pathogen. From a July 8 story:
The surprise decision by former Governor Spitzer to run for citywide office startled and galvanized the city’s political establishment, which worried aloud about handing the TV-savvy and self-financed candidate a new megaphone….Behind the scenes, they began to lay out a blueprint for undermining Mr. Spitzer’s bid for comptroller….
They quickly zeroed in on what they claimed were Mr. Spitzer’s vulnerabilities: an out-of-control ego; his lawbreaking patronization of prostitutes, which led to his resignation as governor in 2008; and his combative, go-it-alone style.
Strikingly, Democratic leaders drew parallels between Mr. Spitzer and Mr. Weiner, trying to lump them together as two wayward men obsessed with reclaiming power and unworthy of redemption, in a direct appeal to women voters who may decide the races.
These very same talking points are dutifully picked up in the Grey Lady’s editorial the very same day, Spitzer Redux. But close reader will tell the self-styled paper of record has a bit too much at stake: the typically studied seriousness is frayed, and there’s more than a little bit of foaming at the mouth in evidence.
So why the barely contained apoplexy? It isn’t just that Spitzer has the potential to wrestle the comptroller’s seat away from the Democratic party designee, Manhattan borough president Scott Stringer (in New York, with ~70% registered Democrats, many races are decided in the primaries). Al the focus on personality issues conveniently sidesteps why the job is important, and why having an overqualified guy like Spitzer take it up could be very salutary. The Financial Times helps clear up what would otherwise remain a mystery if you were so naive to believe that the Times really does publish all the news that is fit to print. The New York Comptroller manages a huge pile of pension assets and Spitzer intends to take a hard look at how they are managed:
Mr Spitzer made his name by taking on Wall Street as New York attorney-general, tackling abuses at banks who had made their stock research departments servant to the interests of their investment bankers, at the cost of retail clients.
He has said that he would attempt to shake up oversight of spending in the city, but the comptroller’s role in overseeing five public pension funds that collectively manage almost $140bn could again provide a national stage to agitate for reform. “There are so many things that we would want to do,” Mr Spitzer told the Financial Times, with fees paid to money managers and corporate governance high on the agenda…
Pension funds negotiate fees individually with asset managers, but a high-profile campaign could prompt greater movement. Simon Lack, author of the Hedge Fund Mirage, said “fees paid by pension funds are worthy of close scrutiny by Mr Spitzer, were he to become comptroller”.
The former governor also said that there is plenty for institutional investors to do in their role as owners of corporations responsible for hiring and firing directors. “Pension funds, endowments, they have permitted excesses, the role of activism is one of oversight,” says Mr Spitzer. “This is activism, it is about the quality of directors, of oversight of institutions”.
To give an idea of how effective Spitzer could be, activist (well less activist of late and scandal-ridden to boot) Calpers manages roughly $235 billion. Spitzer, with his established media access and moxie, could give other fund managers air cover to take bolder steps to negotiate harder on fees and take on lavish executive pay. And critics can’t accuse Spitzer of overstepping in going this route. The pink paper notes that the current comptroller, John Liu, was active in some corporate governance battles, including trying to split the chairman and CEO role at JP Morgan.
One widespread problem is that government fund managers are often paid according to the performance of their funds. In theory, that should provide the right incentives, but in practice, what instead has taken place is that for some of the biggest fee-paying types of funds, namely private equity funds, the government funds have accepted valuation methods that overstate fund performance but are widely accepted since the putative overseers profit from this abuse. Spitzer, who is independently wealthy and has no interest in staying in the fund management industry, is one of the few people who could take this practice on. A related issue is that index funds (and most large pensions put their equity portfolios into indexes funds) pretty much never take any interest in compensation levels or other corporate governance in stocks they own to replicate the index. Given that executive overpayment is rampant, Spitzer could also take the lead in insisting that index funds throw their weight behind reining it in (say by going after the worst 5% or 10% both via naming and shaming and seeing if they can adjust their index replication strategies to exclude some of them).
Spitzer has the potential to be even more of a headache to big financial firms if he finds common ground with Benjamin Lawsky, New York State’s top financial regulator.
The amusing parts is that the Spitzer enemies list on Wall Street alone is enough to curry votes for him. The almost cartoonish defender of the 1%, Kathryn Wylde of the New York Partnership, claimed that the comptroller’s required, in the words of the Times, “intense collaboration and diplomacy with the mayor’s office, the business community and municipal labor unions.” Translation: a lapdog.
And the next two critics the Times could round up were a former New York Stock Exchange executive, Robert Zito, and a presumed enemy, former NYSE director Kenneth Lagone. The Times only mentions in passing that Spitzer went after compensation levels at the NYSE, and skipped over how grotesque they were. Grasso had gotten a complex pay package in place that had key features that were hidden from the board, and set his pay at the level of vastly bigger, more complex, for profit international financial firms. Spitzer went after him because Grasso’s pay package was egregiously out of line under New York State rules for not for profits.*
The unhappy unions may prove to be a more significant obstacle to Spitzer. Spitzer crossed swords with them in his previous incarnations over charter schools and Medicare reform. And remember, the unions are deeply involved in the management of pension funds. Spitzer turning over rocks could embarrass them. As Josh Barro at Business Insider points out**:
Unions prefer a comptroller who will send a message about the pension funds along the lines of “everything will be OK if we invest wisely”—even when that’s not true.
But the powers that be have already scored a hit against Spitzer by getting his chief campaign strategist, Neal Kwatra, to abandon him.*** From the Times:
According to people close to him, Neal Kwatra, a top city political strategist who had voluntarily helped orchestrate the rollout of Mr. Spitzer’s campaign, decided to cut his ties with the campaign amid signs that some of his clients, including the city’s Hotel Trades Council, which is backing Mr. Stringer, were cool to the Spitzer candidacy.
And this appears to be having an effect. A last-minute effort in New York City in the summer heat isn’t the best time to collect signatures, and the blow to the press operation hasn’t helped.
And to see what a big job this is, I’ve enclosed a pretty indicative list of the Comptroller’s duties at the end of the post.
Spitzer has only till the end of Thursday to get the needed signatures. He also needs canvassers and it’s a paid gig.
*Grasso won on appeal under the mind-numbing logic that the NYSE was subsequently acquired by a for profit corporation and hence the pay package was not the state’s business. The then-incumbent AG Cuomo declined to pursue the case further.
** Henry Blodget, the moving force behind Business Insider, deserves major kudos for supporting Spitzer despite the fact that Spitzer was the one who ended his career as a top Wall Street analysts. It’s frankly embarrassing to see people who are still feeding from the financial services industry trough attack Spitzer out of tribal loyalty when people who have reason to hold a life-long grudge take up his cause.
*** In the interest of full disclosure, I have a personal axe to grind with Kwatra. He was recently Eric Schneiderman’s chief of staff. I went from being a Schneiderman supporter to a frequent Schneiderman critic after he sold out homeowners for the shiny toy of being one of a herd of co-chairmen (along with the now-infamous Lanny Breuer) on a Federal-state mortgage task for that was intended to and did indeed do nothing. Schneiderman had been the de facto leader of a group of state attorneys-general that was pushing for a tougher settlement, and Schneiderman’s abandonment of that group allowed Treasury and HUD to push the “get out of liability almost free” deal for the banks over the line.
Kwatra threatened me, not directly but in a sneaky, underhanded way, by calling a mutual acquaintance and telling him to tell me that the Attorney General had a long memory and would get me. The buddy did not pass the message along till months later, telling me he didn’t want to get paranoid. I was annoyed because I would have written it up instead. But in fact, this ruse of calling a third party rather than me directly was designed to create deniability. And don’t trying saying this was Schneiderman’s doing. In all my years of blogging the only time I’ve even had anyone threaten me was Charlie Gasparino, and he apparently routinely calls and yells at people who get under his skin. Even if Schneiderman was indeed pissed, the job of a chief of staff is to tell him to cool off. For a guy like Kwatra to endorse or craft and then carry out a stunt like this is a sign of bad judgment.