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.
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