02/24/2009 05:12 am ET Updated May 25, 2011

Eliot Spitzer on Obama, Paterson, Wall Street and Madoff

In his first interview since his resignation in March 2008, on this week's 7 Days Eliot Spitzer has more sharp criticism of Wall Street, ideas for the new president, and waves a cautionary flag for his successor. Paterson picked a new senator this week because Spitzer picked him over two years ago. Joining us after were Arianna and Katrina vanden Heuvel.

Interview with Eliot Spitzer, January 24, 2009, from Air America's 7 Days

MARK GREEN: How do you think the President has done so far in his Transition, Inaugural Address, and first days?

ELIOT SPITZER: The transition was masterful. He has brought on board wonderfully talented, sophisticated individuals, who will be the ones day to day that will be pulling the levers of power in an extraordinarily tough moment both internationally and domestically. I think there are few transitions that have occurred at greater moments of crisis, perhaps, and none since Roosevelt has faced this sort of trauma that the nation is facing right now. He handled that with the grace and aplomb that defined his candidacy, having assumed office with an inaugural address that did not have the poetry that, perhaps, some had hoped for but had the substance that framed where we need to go. And I think in the long run that is just as important, if not more important. He has begun by setting a tone of transparency and determination. So we're off to a good start. But it'll get tougher every day as the expectation bar, that is so high, is going to be tough to match, or meet, or surpass. And the economic issues will begin to sink in and the economy is, really, still in free-fall.

GREEN: Speaking of his appointments, they've been all people of great talent but largely moderate insiders. Is that a problem or an asset?

SPITZER: It is both. And I don't say that to try to bridge the chasm that is defined by your question. To many people, what is needed now is the experience and the wisdom of having been at the vortex of power. And, certainly, you get that with a Larry Summers, and Tim Geithner, and keeping Gates at defense. Others, and I'll put myself in this camp-- were hoping for perhaps a bit more in the sense of change agents who would have looked at the last decade, 15, 20, 30 years, perhaps, in terms of the larger arc of public policy. And recognized that there were fundamental flaws in some of the policies that have been embedded in what has been done. We want some voices that will be at the top who will be the change agents that we want when it comes to domestic economic policies, environmental policies. And certainly there are some scattered in the cabinet; like Carol Browner - with an energy and environmental portfolio--there are others. But I think there will be a dynamic that emerges that requires both the talent and experience that he has brought, but also, hopefully, some of those he'll be willing to push and say a mere continuation of the trend line that we've been on. Certainly is not what the nation needs or is hoping for.

GREEN: What would you suggest that President Obama should focus on in the next few days and weeks?

SPITZER: The economy really is the driver that he has to confront. It is what is generating the volatility in the marketplace and enormous uncertainty economically and psychologically in the nation. The economy is as much a consequence of the psychological sense of fear and concern that has gripped the nation, as anything else. His masterful skills at communication should come into play now. He should explain to the public what he's doing to rebuild the economy, and the stimulus package will be the centerpiece of that proposal, so hopefully he will, whether it's in the State of the Union or before, explain to the nation why that will jump start the economy. And there the balance has to be--I will say very clearly that the tax cut part of this is a bit unfortunate. I think that that will neither be stimulative, nor transformative. What I think the President needs to explain is how the dollars being spent will both get the economy moving, but also transform it so that we are very prepared to compete in a very different way.

GREEN: You mean not the middle-class tax cuts that he ran on but the kind of business tax cuts that Bush sought?

SPITZER: I am skeptical. Remember last year we had a stimulus package with some middle class tax cuts? What did it do for the economy? Really virtually nothing. It is not going to move spending forward in a way that will create jobs. And, yes we need to get money into the pockets of real people. There were other ways that may have been more useful for that, but I think the dollars should be spent on some of the ideas that have been out there--talk about rebuilding the energy infrastructure, talk about building the schools, talk about saying to the auto industry that we will build the infrastructure for electric car stations so you can charge electric automobiles. We will expect you now to produce electric cars so that five years from now, ten years from now, that will be the standard rather than the exception.

GREEN: You wrote a piece this week for Slate in that the SEC and GM are both dinosaurs. What did you mean?

SPITZER: We often, for understandable reasons, divide our analysis of organizations along the lines of public sector/private sector. And we bring a completely different set of critiques to the organizations based on that divide. What I'm trying to suggest here is that both the SEC and General Motors suffered the same frailties and flaws, which is that they are organizations that thrived 30, 40 years ago in a very different economic context. They ossified and grew stagnant. And neither one of them were able to adapt to a new marketplace. The failure to transform is what I think happened to the SEC, so it didn't understand what were the new challenges in the new marketplace that it needed to confront to restore integrity to the capital markets--and to General Motors, which didn't understand how changing consumer demands, changing cost structures, changes from international competition were affecting its marketplace. The inability to change brought each one of those down to the point where General Motors market cap is less than Tonka toys. That bounces around, of course, but even with the infusion of federal loans, General Motors is teetering. The SEC has been an abject failure, I think almost everybody now agrees, for the last 15 to 20 years. It has simply failed to understand what needs to be done to insure integrity to the marketplace.

GREEN: You prominently went after Bush's first SEC chairman Harvey Pitt for saying he wanted a "kinder, gentler SEC."

SPITZER: But we ended up with Chris Cox at the end, who was ideologically perhaps even, worse in a sense that he was viscerally opposed to the sort of interventionist - not regulation - but enforcement. A quick point: the SEC doesn't need more people, it doesn't need more laws, it needs a will to act. That has been overlooked. Whenever there's a failure they say: "Well, give us more people." They have 3500 people more, by a factor of probably a hundred, than I had when we were doing cases in the AEG's office. They didn't know where to look, or how to act to be tough. They don't need more laws either, they just need to enforce the laws on the books.

GREEN: Do you blame the SEC for missing the Madoff scandal?

SPITZER: Yes, but I think that isn't the larger failure. They certainly should have found it. When they examined his books all they needed to do, and of course it's easier with hindsight, was say, on any given day, we want to see the list of trades you executed and we want to see who has custody of the shares and where they are. I mean, a simple due diligence question would have revealed that there was nothing behind the wall, that this was a Potemkin Village.

GREEN: I want to ask you about the financial regulatory system. You did so much work over on Wall Street. The Washington Post had an article on the front page this Thursday, I want to read two paragraphs: "At least 30 banks, since 2000, have escaped federal regulatory action by walking away from the federal regulators and moving towards state supervision taking advantage of a long standing system that allows banks to choose between federal and state oversight, according to a Washington Post Review. The financial crisis has pushed regulatory reform high on the agenda for the incoming Obama administration. Tim Geithner, the incoming Treasury Secretary, sounded the theme at his confirmation hearing this week, calling for a "stronger, more resilient system." How would you reregulate the financial system, which people now are saying maybe the government will take over the financial system? What are the top reforms?

SPITZER: What you need is to bring within the reach of government regulators and most importantly, in terms of risk management, the entire non-bank, banking sector that has been developed over the last fifteen or twenty years. By that I mean all the hedge funds, all the credit default swaps, all of the sophisticated pools of capital and trading mechanisms and trading platforms, over which government has refused to exercise the control that it needs to exercise in order to ensure that you don't have the sort of potential implosion that we saw over the last year.

GREEN: Do you think President Obama will do a version of that?

SPITZER: I will be shocked if they don't do that. I think there is now a consensus, and if you want to see a very good articulation of this, towards the end of Paul Krugman's book, The Return of Depression Economics, he describes how the evolution of capital has moved itself outside the reach of some of these regulators. Now, the SEC could still get the individual trading violations and trading transactions that were there. But some of the traditional banking regulators did not have the reach over the hedge funds, over some of the sophisticated pools of capital offshore, and also the credit default swaps and all those very clever trading mechanisms that were developed. Those are the pools of capital that generated the grotesque leverage that, in a down draft in the market, can really bring the whole system to its knees.

GREEN: How do you think Governor Paterson--who's new Governor because you chose him as your Lieutenant Governor-- is doing? And what do you think of the open Senate seat, considering that Caroline Kennedy has removed her name from consideration?

SPITZER: Well, I would say that David has been confronted with a very difficult set of economic circumstances. When you're an executive, whether you're running a company or government entity, whether city or state, the budget obviously weighs heavily upon you because you need to balance the budget and the dramatic decline in revenue is what David has had to deal with. So he has needed to make very difficult choices. Do you cut in community development funds? Do you cut education, cut healthcare? Do you increase taxes? He is trying to navigate a way in various alternatives in budget season and it's in budget season. As it approaches April 1, he will be buffeted by demands from every quarter. Everybody wants more and his obligation will be to say no.

GREEN: How is he balancing this?

SPITZER: Well, I think he's beginning to articulate the overarching theme that he will ask for shared sacrifice across all sectors. Education, healthcare are the two biggest spending arenas for state government in New York and elsewhere, as well. And everybody will have to tighten their belt. It will not be easy. There's some talk also of a tax increase for those at the upper end of the income spectrum and, you know, it's about time we did that.

GREEN: Do you have any comment on the U.S. Senate appointment process or the result?

SPITZER: Well look, the result we don't yet know as we tape this interview. I'm sure by Saturday David will have announced his selection. I think there has been a bit too much chatter about the whole process. Again, I don't want to critique anybody, but I just wish it were done. I think New York State needs a senator. We need somebody to get down to DC, contribute to the national debate and to begin to speak on behalf of the state in terms of its more traditional parochial interests of New York getting its fair share of federal spending.

GREEN: A final personal question--how do you spend your time? do you have any regret that you're on the sidelines during this time of national hope in Washington and economic crisis in New York?

SPITZER: Spending time reading, participating in the family business, doing the writing that you referred to for Slate, which I thoroughly enjoy, and watching the political process move forward. Sure, it's never fun to be on the sidelines, when you and I both know the feeling and excitement of being a participant, but I think as citizens, we can look with enormous pride at the transition and the ascension to power of somebody of enormous talent, whose very election once again demonstrates the enormous resilience and strength of our nation.

Interview audio can be found at

Panel Discussion with Arianna Huffington & Katrina vanden Heuvel

GREEN: Because the big big news was the swearing in of the first black, urban, urbane, constitutional law professor as president, I was almost too overwhelmed to closely listen to the inaugural address -- and it didn't help that we were freezing in the Orange Section. But let's get to it -- was it more prose than poetry or a monumental liberal break with everything that Bush conservatism stood for?

ARIANNA HUFFINGTON: I thought it was a real sermon for America to grow up. For me, the centerpiece of the speech was when he quoted scriptures and about how it was time to put aside childish things. He didn't just mean that in a superficial sense that a lot of people have taken it to mean. Be more bipartisan. Be more civil. I think he meant it in terms of our priorities, as he said. We have to make the hard choices. Responsibility, honesty, all of the old values he brought up. And I thought this was a very powerful message, because as he said, although you can look at Wall Street and the greed of a few, you cannot just attribute what happened to them, you need to look at what we've all done.

GREEN: But when he said we need an "era of responsibility," I was deflated because that was exactly Bush's slogan when he announced for president in 1999. It seemed to imply that we're all at fault rather than bad policies.

HUFFINGTON: I mean, absolutely it was public policy. I think the speech was an indictment on the Bush years and the Bush decisions. But the fact that so many people have lived beyond their means on credit card debt, the fact that, as he says again and again and he said in the campaign, so many people are wasting away watching TV, rather than parenting. All of those things which, you may think are sermons by Bill Bennet, but why should they be sermons only by Bill Bennet?

KATRINA VANDEN HEUVEL: I didn't read it as a sermon, I have to say. I read it as a somber, yet powerful, forceful, and hopeful speech that was exactly right for a moment, which is defined by hope and fear and equal measure. I thought it was a wonderful rebuke and opening to a new era. Especially those great lines about, quote: "we reject as false the choice between our safety and our ideals". And yes, there is a little bit of bristling at the summon to a new era of responsibility, but he yoked it to the idea of a government, and stamped his version of what government's role should be. It's not a post-ideological one, I don't think. It's one that understands that the measure of government is not size, but how it actually improves the conditions of peoples' lives.

GREEN: Bob Shrum disdains what he calls "Liberal Derangement Syndrome" of nit-picking Obama for ideological transgressions. So what should be the responsibility of liberal media going in to this new, historic period?

HUFFINGTON: I think the responsibility of any magazine, site, or radio show that is in the news business, is to actually speak truth to power. And if Obama, Harry Reid, or Barney Frank does anything which we don't approve of, just say so. They shouldn't be holding back. I don't agree with that at all. But to be expressing disappointment prematurely is what I don't get. Wait for people to act. I mean, when I was reading yesterday about Barney Frank being the one who interfered with a bank in Massachusetts that got TARP funds even though it didn't meet the qualifications. That is appalling and that should be stopped. And we should be clamoring against it just as loudly as if it had been John Boehner or anybody in Congress who did that.