NYACK, N.Y. — I’ve got a suggestion for the health of America.
Let’s move Wall Street out of New York. Or at least let’s get it
outside the jurisdiction of the New York Attorney General.
Last week’s 360-point drop in the Dow was fueled by the
announcement of NYAG Andrew Cuomo that he is subpoenaing Fannie Mae
and Freddie Mac for information on all mortgages they had bought
from Washington Mutual as part of a general investigation into
mortgage loans. Fannie Mae stocks fell 10 percent, Freddie Mac 8.6
percent, and Washington Mutual a whopping 17 percent, turning what
was already a bad day into the worst drop in over a year. Cuomo has
decided that the reason for the mortgage meltdown is — you guessed
it — big-time fraud.
All this is just a search for scapegoats. The reason we’re in a
mortgage meltdown is this. For years the federal government and
everyone else has done everything possible to encourage people to
buy their own homes. One of the biggest liberal criticisms of the
market was that low-income people — particularly blacks and
Hispanics — were excluded from ownership through “blackballing,”
“red-lining,” and other forms of discrimination.
So the banks and mortgage markets responded. They invented
“sub-prime” loans for high-risk customers and tried to spread the
risk by bundling them into broader financial instruments.
Eventually the market became overextended and we’re all suffering
the consequences. Only demagogues like Andrew Cuomo think this has
anything to do with legerdemain.
In any case, Washington Mutual is a Seattle company while Fannie
Mae and Freddie Mac are headquartered in Washington. Why does NYAG
Cuomo have jurisdiction? Only because the stocks are nominally
bought and sold in Manhattan.
All this was too much for MSNBC correspondent Jim Cramer, who
lashed out at Cuomo, calling him a “communist.” “The most important
man in America for the stock market — and I mean it negatively —
is Andrew Cuomo, the New York State Attorney General,” Cramer told
viewers. “I’m getting tired of the New York State Attorney General
being the most important man in America.”
Peter Lattman, writing for the Wall Street Journal’s
“Law Blog,” was quick to point out that Cramer never made the same
criticism of former NYAG now Governor Eliot Spitzer, who was a
classmate and close friend of Cramer’s at Harvard Law School. But
maybe somebody else should. Spitzer pioneered the role by bashing
Wall Street all the way to the governor’s mansion — where he has
already proved to be one of the biggest disasters in the state’s
history. If Spitzer and Cuomo succeed in doing to the country what
they’ve already done for New York, we’re in deep trouble.
TO CALL NEW YORK STATE “politically dysfunctional” is to test the
meaning of the term. Upstate New York is probably the most
depressed economy in North America. Every major city is
depopulating. There hasn’t been a new telephone area code assigned
in years. People are selling their houses for less than they paid
for them twenty years ago.
The Mayor of Buffalo recently suggested dissolving the city and
joining Erie County. The reason is simple. As a city in New York
State, Buffalo is required to shoulder one-quarter of the Medicaid
costs incurred by its population. New York politicians cooked up
this scheme in 1969 as a great way to “leverage” Medicaid funds
from the federal government. The more we spend, the more they have
to spend. What a racket!
As a result, New York now spends $44 billion a year on Medicaid,
$10 billion more than second-place California, even though the
Golden State has almost twice as many people. With only 6 percent
of the nation’s population, New York spends 15 percent of all
Medicaid dollars. Half the state’s spending is provided by
local governments. New York City’s Medicaid spending — $4.3
billion — exceeds the entire municipal budget of every
city in the country except Los Angeles and Chicago. Poor old
Buffalo now spends close to 100 percent of its tax
revenues on Medicaid and still can’t keep up. That’s why it
wants to dissolve itself and join Erie County. (Erie County, by the
way, isn’t particularly anxious to have it.)
In light of all this, you’d think New York politicians had
something to occupy their time. But no, virtually nothing is
happening in Albany these days (which, considering what has already
happened, may not be that bad). The entire state is paralyzed
because after only ten and a half months in office Governor
Spitzer, the former “sheriff of Wall Street,” has been so wounded
by his own intemperance that people are already talking about who
will succeed him in four years.
SPITZER BECAME A FOLK HERO by “going after Wall Street” during the
dot-com collapse. His main tool was New York State’s 1921 Martin
Act, which, ostensibly because it only seeks civil penalties,
allows all sorts of abrogation of Constitutional rights. As one
legal scholar put it, “people called in for questioning during
Martin Act investigations do not have a right to counsel or a right
against self-incrimination. Combined, the act’s powers exceed those
given any regulator in any other state.”
Spitzer used Martin to expose Merrill Lynch for touting stocks
it was trashing in company emails. He caught hedge fund manager
Edward Stern for late trading. Good for a few headlines but hardly
the cause of the dot-com bust. His chef d’ouevre, however,
was going after Hank Greenberg, the long-time CEO of AIG. A veteran
of Omaha Beach and Korea, Greenberg was an honorable businessman, a
generous philanthropist, and a true New Yorker who kept most of
AIG’s offices in Lower Manhattan while the rest of the insurance
industry was leaving. Unfortunately, this only made him a juicier
target for Eliot, the prep school boy from Riverdale who rode down
on the subway to throw a few stones at the office towers in
Manhattan.
Spitzer’s basic charge was that AIG had averaged returns and
exaggerated its reserves by 1 percent in order to “defraud”
investors. The company was sound but Spitzer’s charges dropped
AIG’s stock $15 billion and Greenberg was forced to resign. When
John Whitehead, the former head of Goldman Sachs, wrote an op-ed in
the Wall Street Journal defending Greenberg, Spitzer got
him on the phone — according to Whitehead — and warned him, “‘You
will pay the price….You will wish you had never written that
letter.’”
You’d think this might have tipped off New York voters that they
were dealing with a psychopath. But no, taking on Wall Street makes
you a folk hero in New York and so Spitzer was elected governor
with 65 percent of the vote. He had not been in office three months
when the carnage began.
NEW YORK STATE GOVERNMENT is run by three people — the governor,
the speaker of the assembly, and the majority leader of the senate.
Legislators do little more than make regular runs to Albany to put
in their “member items,” the budget lines that bring back goodies
to their constituents. The legislature holds no hearings, has
barely functioning committees, and only votes when and how their
leaders tell them. New York has no ballot initiatives or any other
way that the populace at large can intrude on what transpires in
Albany.
The best voters can do is split the legislature between
Republicans and Democrats, which they have for more almost fifty
years. The governor therefore holds the balance of power. Spitzer
already had the ally he needed, Sheldon Silver, Democratic Speaker
of the Assembly, but that wasn’t enough. In a rerun of his Wall
Street days, Spitzer decided to defame upstate Republican Joe
Bruno, majority leader of the senate, by dispatching the state
police to prove Bruno was using state planes for personal business.
(He wasn’t.) When the story got out, Spitzer claimed to know
nuthin’ from nuthin’. Not even his closest allies believe him. (See
Michael Goodwin and Fred Siegel’s excellent account in the Weekly Standard.)
When Spitzer finally got around to presenting his agenda for the
state, it turned out to include one exciting innovation — giving
driver’s licenses to illegal aliens. The arithmetic here is simple:
driver’s licenses + motor-voter laws = more votes for Democrats.
Somehow this didn’t go down so well with the legal
population, however, and Spitzer was once again besieged on all
sides. He finally relented this week — although not before
dragging Hillary Clinton down with him.
So how did New York end up with the most regressive state
government in the country? New Yorkers are so enamored with their
own “progressivism” that they fail to note the rest of the country
has long since zipped by them in making government responsive to
voters. Their participation consists solely in sitting around
watching the three-man carnival in Albany. Amidst this boredom, the
best show in town is watching yet another attorney general bash his
way to the governor’s mansion by going after Wall Street. (Another
Governor Cuomo — doesn’t that sound exciting?)
The important thing is to protect the rest of the country from
all this. Either Wall Street should pick up and move to a less
hostile environment (it’s already happening) or perhaps somebody
down in Washington should take note that there really is such a
thing as the Interstate Commerce Clause.
