Eliot Spitzer, George Bush, and Wall Street: Hey, NY Times: What's The Real "Breaking News" Story?

Greg Palast was the first reporter to raise the potential connection between Eliot Spitzer being exposed for using prostitutes and his being the only voice against the Bush administration's planned bail out of Wall Street with billions and billions of taxpayer dollars. You can read Greg's March 14th article here.

One reason I am drawn to this story is that The Wall Street Journal ran a very interesting analysis by Alan M. Dershowitz on March 13th ("The Entrapment of Eliot Spitzer"). Here's the key part of Dershowitz's article:

There is no hard evidence that Eliot Spitzer was targeted for investigation, but the story of how he was caught does not ring entirely true to many experienced former prosecutors and current criminal lawyers. The New York Times reported that the revelations began with a routine tax inquiry by revenue agents "conducting a routine examination of suspicious financial transactions reported to them by banks." This investigation allegedly found "several unusual movements of cash involving the Governor of New York." But the movement of the amounts of cash required to pay prostitutes, even high-priced prostitutes over a long period of time, does not commonly generate a full-scale investigation.

We are talking about thousands, not millions, of dollars. We are also talking about a man who is a multimillionaire with numerous investments and purchases. The idea that federal investigators would focus on a few transactions to corporations -- that were not themselves under investigation -- raises as many questions as answers.

Even if Mr. Spitzer's derelictions were serendipitously discovered as a result of routine, computerized examination of bank transactions, the dangers inherent in selective use of overbroad criminal statutes remain. Money laundering, structuring and related financial crimes are designed to ferret out organized crime, drug dealing, terrorism and large-scale financial manipulation. They were not enacted to give the federal government the power to inquire into the sexual or financial activities of men who move money in order to hide payments to prostitutes.

Once federal authorities concluded that the "suspicious financial transactions" attributed to Mr. Spitzer did not fit into any of the paradigms for which the statutes were enacted, they should have closed the investigation. It's simply none of the federal government's business that a man may have been moving his own money around in order to keep his wife in the dark about his private sexual peccadilloes.

Dershowitz says "There is no hard evidence that Eliot Spitzer was targeted for investigation," but Spitzer was definitely in the Bush administration's face, so to speak.. having just published his own OpEd piece in The Washington Post, "Predatory Lenders' Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers", on February 14th. Here's an extensive excerpt from what Spitzer wrote:

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

Hard evidence he was targeted? No. Reason he might have been? Only further investigative reporting can answer that question.

But then there's the curious nature of how The New York Times broke the Spitzer story, which was brought to my attention by Mark W. Adams at Dispassionate Liberal. Here's the part of this report that caught my eye:

Somebody at Justice found someone at the New York Times with as much integrity as Judy Miller, and "leaked" the name of Client 9. Somebody at the Times decided that a headline saying "Spitzer was caught with a hooker" wasn't nearly as productive as saying he was "linked to a prostitution ring." They didn't just want to expose a crime here. They wanted Spitzer destroyed.

Come on. Didn't they make it sound more like he was a pimp and not a john? And wasn't that exactly what the headline writers at the NY Times wanted? This was overkill.

I distinctly remember the use of this "linked to a prostitution ring" language when the story broke on Monday. That's how it was framed on the news channel playing in the offices of the Congresspeople I happened to be visiting. I remember first thinking to myself "He's running a prostitution organization on the side?", not "He went to see a hooker?".

Why did the Times use such language? Maybe their Public Editor can help answer that question.

I am writing this today because the only thing I've heard on the Sunday talk shows is about Eliot Spitzer's "crime"... his dysfunctional personality... (Actually, David Brooks wrote a brilliant analysis, The Rank-Link Imbalance, on this subject the other day)... and how we, Americans, should be happy to be rid of him.

While I am not condoning Spitzer's use of prostitutes in any way... what I am suggesting is that perhaps we should not be so quick to celebrate Eliot Spitzer leaving the American stage. He and his fellow State Attorneys General were on to something when they attempted to protect the American consumers from predatory lending several years ago.

The vastly under-reported story of how the Bush administration blocked that effort... combined with the fact that the Bush administration and the Federal Reserve has now done the exact opposite: acted to protect the banking/investment industry with $200 billion (and more to come?) of our money... is being drowned out by the Spitzer prostitution story.

Hey, NY Times... how about making how the Bush administration actively blocked efforts to protect Americans from predatory lending... and any possible connection between that story and Eliot Spitzer being caught... your next Breaking News story?

In referring to Eliot Spitzer's February 14th Washington Post essay, Greg Palast writes:

Spitzer wrote, "When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably."

But now, the administration can rest assured that this love story -- of Bush and his bankers -- will not be told by history at all -- now that the Sheriff of Wall Street has fallen on his own gun.

Well, the Sheriff of Wall Street may have been silenced, but The New York Times and other papers are in a position to follow this story to its rightful conclusion. Will they? Only time will tell.
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UPDATE: Sunday 11:25pm Eastern, Revised at 1:45am

Commenting on my post, funkalicious has pointed me to the two letters received by The Washington Post in response to Spitzer's February 14th OpEd piece. I appreciate getting to see the information contained in these letters, the first of which states "The overwhelming majority of the subprime loans causing so many problems today, including the most predatory loans, were originated by state-regulated mortgage brokers and lenders." while the second says "Mr. Spitzer was also off the mark in repeatedly characterizing the OCC's actions as those of "the Bush administration." I was appointed comptroller by President Bill Clinton for a term that carried into the next administration, and the OCC's actions during my tenure were those of the OCC alone."

While I personally find it hard to believe that the actions taken by Spitzer and ALL the other attorneys general regarding national banks was somehow the product of sloppy, misdirected reasoning, the fact of the Federal Government's failure to stop these predatory lending practices remains... along with the $200 Billion (so far) bailout of Wall Street with our money. Could Washington have partnered with the 50 states' attorneys generals to protect the American people from this disaster? To me, that's another question America's financial reporters should be asking. What we know from Spitzer's OpEd piece is that in 2003 the OCC - no matter who you want to say controlled it - cut off the state's ability to protect consumers...

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

Whomever is right (and I'm leaning towards believing Spitzer based on the OCC's preemption of all state predatory lending laws), my original reason for writing this post remains. As Alan Dershowitz wrote, there is something fishy about how Eliot Spitzer was taken down, which - when added to the perhaps unrelated but very unprofessional way in which The New York Times characterized Spitzer's situation - demands further investigative reporting.

The American people deserve to know if the final chapter of the Eliot Spitzer story is exclusively about his moral failures or something much more.

Lastly, so you don't have to go to the link to read them, here are the two letters received by The Washington Post:

Misplaced Blame in the Loan Crisis

Thursday, March 6, 2008; A20

In his Feb. 14 op-ed, "Predatory Lenders' Partner in Crime," New York Gov. Eliot Spitzer tried to blame the Office of the Comptroller of the Currency (OCC), which regulates national banks, for all the current problems caused by subprime loans. Nice try, governor. The facts tell a very different story.

The overwhelming majority of the subprime loans causing so many problems today, including the most predatory loans, were originated by state-regulated mortgage brokers and lenders. That's a fact, and here's another: The OCC doesn't regulate those brokers and lenders; that's the job of the states. The national-bank preemption that Mr. Spitzer complained about -- recently upheld by the U.S. Supreme Court -- did nothing to handcuff state efforts to prevent lenders from making loans that borrowers had no reasonable prospect of repaying.

More facts: The OCC extensively regulates national banks' activities, including mortgage lending. We established strong protections against predatory lending years ago, and we enforce them rigorously. And we have been a recognized national leader in addressing problems that can arise from such nontraditional products as "payment option" mortgages.

The results: Predatory mortgage lenders have avoided national banks like the plague. The abuses that consumers complain about most -- such as loan-flipping and equity-stripping -- are not tolerated in the national banking system; nor are the looser lending practices of the subprime market.

Effective regulation of subprime mortgage lending is a job for both federal and state agencies. But the most urgent need today is for the states to use the authority they already have to effectively regulate the institutions that caused most of the problems.

JOHN C. DUGAN

Comptroller of the Currency

Washington

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Eliot Spitzer's tirade against the Office of the Comptroller of the Currency so profoundly muddles the law of federal preemption that one wonders whether he has read the many cases -- including those in which he was a losing litigant -- that have applied this rule for almost 200 years.

The rule derives from the Supremacy Clause of the U.S. Constitution and is quite simple: The states have no authority to interfere with the operations of nationally chartered banks. For Mr. Spitzer to characterize the OCC's enforcement of this rule as "an unprecedented assault on state legislatures" is nonsense.

The OCC has a good record on predatory lending. When the OCC put out the regulation that Mr. Spitzer attacked, we included strong provisions addressing such lending. The OCC was also the first federal banking agency to sanction banks for engaging in unfair and deceptive practices in violation of the Federal Trade Commission Act, and it maintains a world-class ombudsman and consumer assistance office that has helped myriad bank customers in their dealings with banks.

Mr. Spitzer was also off the mark in repeatedly characterizing the OCC's actions as those of "the Bush administration." I was appointed comptroller by President Bill Clinton for a term that carried into the next administration, and the OCC's actions during my tenure were those of the OCC alone.

At no time did we receive any direction from anyone in the Bush administration with respect to our enforcement of the long-standing rules on preemption.

JOHN D. HAWKE JR.

Washington

The writer was comptroller of the currency from 1998 to 2004.