Spitzer Reappears

Eliot Spitzer came out of hiding yesterday to suggest some remedies for Wall Street. Good for the Washington Post for running his op-ed.

Of course, the WSJ edit page is shocked (shocked!) he’s shown his face and rushes to denounce him:

Shame is fleeting in modern America, so it was probably inevitable that Eliot Spitzer would seek to return as an arbiter of everyone else’s moral behavior. But even we have to admit to being a little surprised by the rapidity and audacity of his attempted self-rehabilitation, courtesy of an op-ed in Sunday’s Washington Post. This guy makes Bill Lerach seem remorseful.

The guy illegally paid for sex, he didn’t take kickbacks from Wall Street or anything. His condemnations of prostitution rings might not hold water anymore, but his thoughts on finance are still worth hearing.

For example, here is some wisdom you’ll never read in a Journal editorial:

The reality is that unregulated competition drives corporate behavior and risk-taking to unacceptable levels. This is simply one of the ways in which some market participants try to gain a competitive advantage. As one lawyer for a company charged with malfeasance stated in a meeting in my office (amazingly, this was intended as a winning defense): “You’re right about our behavior, but we’re not as bad as our competitors.”

No major market problem has been resolved through self-regulation, because individual competitive behavior doesn’t concern itself with the larger market. Individual actors care only about performing better than the next guy, doing whatever is permitted — or will go undetected. Look at the major bubbles and market crises. Long-Term Capital Management, Enron, the subprime lending scandals: All are classic demonstrations of the bitter reality that greed, not self-discipline, rules where unfettered behavior is allowed.

Those who truly understand economics, as did Adam Smith, do not preach an absence of government participation. A market doesn’t exist in a vacuum. Rather, a market is a product of laws, rules and enforcement. It needs transparency, capital requirements and fidelity to fiduciary duty. The alternative, as we are seeing, is anarchy.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.