Who remembers the schadenfreude?

It was only a week ago—it feels like another era— that financial news publications rushed to put up the most comprehensive story about Wall Street’s joyful reaction to the fall of Eliot Spitzer.

“It’s Schadenfreude time on Wall Street,” the Journal wrote.

“Wall Street on Spitzer: ‘There Is a God,’” read the headline on The New York Times’s Dealbook, a Wall Street chronicler.

Portfolio posted a me-too version:

Listen carefully, and you might just hear howls of laughter rising from Wall Street as the allegations of New York governor Eliot Spitzer’s involvement in a prostitution ring sinks in.

I’m still trying to figure out the headline—“Spit-Take on Wall Street”—but I’m sure it’s very sophisticated.

Anyway, that was last week. This week, we’re taking a brief break from an emergency on Wall Street the likes of which people in the know say they have not seen in their lifetime.

The Wall Street Journal editorial page, not often quoted favorably here, properly focused the markets’ attention earlier this week, using the words “panic,” “rout,” and “maximum danger” in a single sentence.


In the credit market panic that began in August, we have now reached the point of maximum danger: A global run on the dollar that could become a rout.

But with our economic futures hanging on the outcome of government rescue efforts, it’s worth looking back to the business-press’s response to the self-destruction of Wall Street’s erstwhile sheriff.

The schadenfreude story was everywhere, and rightly so. Wall Street really did feel that way. Coverage included wall-to-wall quotes and images of Kenneth Langone, Spitzer’s arch-nemesis, who gave The New York Times, The Wall Street Journal, and anyone with a notepad or microphone the same talking point:

I have never had any doubt about his lack of character and integrity—and he’s proven me correct.

He feels vindicated. Good for him.

Of course, this is from the chairman of the New York Stock Exchange board committee that approved a pay package for Dick Grasso that shocked the conscience of the country—$189 million, “one of the richest pay packages in the history of
American business,” The Wall Street Journal said in a May 2004 news story. This, mind you, to head a nonprofit.

That pay package, readers will remember, was one of Wall Street’s most closely guarded secrets, until an enormous Journal scoop in May 2003 cracked it open, riveting the country’s attention on executive compensation practices in public companies across the spectrum. Why was the amount of his compensation guarded like some nuclear targeting code? Because it was a disgrace, of course.

Last week, Grasso’s neighbors came out of the woodwork, as in the Journal story:

Andrew Sabin, a friend of Mr. Grasso’s who lives near him on Long Island, said he spoke briefly with Mr. Grasso’s wife, Lori. “I said I’d buy Dick some champagne,” said Mr. Sabin, owner of precious-metals firm Sabin Commodities. “I’m sure he’s happy. I’m sure everybody on Wall Street is happy.”

Match the word of this obscure Long Island commodities broker against that of John Bogle quoted here in a very good Journal story that ran inside last week and provided some welcome balance:

Mr. Spitzer “had an enormously positive impact on the securities industry,” said John C. Bogle, founder of mutual-fund firm Vanguard Group and a frequent critic of Wall Street practices.

Bogle is much more than a critic, by the way; he’s financial-services industry giant.

Grasso himself didn’t comment, but couldn’t quite keep his mouth shut, either, producing this attribution gem:

Mr. Grasso couldn’t be reached for comment, but a person familiar with his thinking said Monday that Mr. Grasso felt bad for Mr. Spitzer’s family.

Actually, the person was not so much familiar with Mr. Grasso’s thinking as his feelings, which is even more impressive.

The point is, though: Grasso has a big heart. The man’s a goddamn saint.

And then there are these yarns of Spitzer’s supposedly hideous abuses of power, which never seem to amount to much. Here’s the Journal’s account:

Critics said he bullied opponents, threatening to publicly reveal embarrassing details of a company’s business or an executive’s conduct to force management changes or headline-grabbing fines. In the case against Mr. Grasso, lawyers working for Mr. Spitzer asked the former Big Board chairman in a deposition about personal relationships and collected information about Mr. Grasso’s spending habits and his family’s travel.

Threatening to reveal a company’s business conduct? Wow. And asking questions in a deposition about relationships and family travel? That is mean.

And John Whitehead—I don’t know how the man survived. Spitzer was just so darned mean to him, as Time explains:

In December 2005, former Goldman Sachs chairman John Whitehead, who was then chairing the Lower Manhattan Development Corp., alleged that Spitzer tried to bully him after Whitehead wrote a Wall Street Journal Op-Ed criticizing the attorney general’s zealotry: “I will be coming after you,” Spitzer allegedly told Whitehead, who said he immediately took notes of the conversation. “You will pay dearly for what you have done.” (Spitzer’s communications director Darren Dopp, who later left the administration under an ethics cloud, denied Whitehead’s account.)

It is indeed terrible to raise one’s voice, especially to a former Wall Street executive, who would be unfamiliar with coarse language or bullying of any kind.

And these are examples of Spitzer’s worst behavior, remember.

Indeed, Spitzer’s fall brought to the surface many outrageous acts and heinous crimes, inflicted not just on business-news figures, but —much worse—on business-news reporters.

David Weidner of Marketwatch reveals:

Back in 2006, Spitzer’s gang tried to intimidate me. His spokesman accused me of mischaracterizing a comment that Spitzer made, comparing upstate New York to Appalachia. At that point, it became clear that the only thing that could stop the runaway Spitzer fanaticism would be the soon-to-be governor himself.

Is there no depth to which this prostitute-supporter and his gang—this gang of, um, spokespeople—would not sink?

Read the column here.

And an earlier column is here, in which Weidner recounts the conversation with Darren Dopp, Spitzer’s spokesman, whom by the way, Weidner calls “an attack dog.”

As one of the senior members of the attorney general’s PR staff, Dopp is known in the media as the man who dishes out information about investigations. It seemed unusual that an attorney general’s office spokesman would be calling about a gubernatorial campaign stop, but he was.

“That section of the speech is straight government policy,” he said. “And what we’re trying to do all across the state right now is focus on that particular problem.”

Dopp accused me of mischaracterizing Spitzer’s comment. What followed was a debate about what Spitzer meant and how it was received: Was the remark a joke? Wasn’t it? Did people laugh, or didn’t they? Would I listen to the tape? Was I even there?

The conversation made me ask myself, “Do I need a lawyer?”

Yes, and maybe a fainting couch. I mean, what is this?

Spitzer’s prostitution bust, for whatever reason, prompts Weidner to come perilously close to rewriting recent Wall Street history:

For someone like Sandy Weill, the former chief executive and chairman of Citigroup Inc. (C), the Spitzer investigations into his relationship with former star telecom analyst Jack Grubman illustrated a justice system out of whack. Weill never had his day in court. He had to fight Spitzer and his subpoena power in the papers.

Weill called the incessant leaks from Spitzer’s office “Chinese water torture” and characterized the whole investigation and public humiliation as “the darkest time of my career.”

Spitzer’s downfall doesn’t exonerate Weill, but it does force us to re-examine Spitzer’s list. Consider the other Wall Street casualties of Spitzer’s years in office, such as Henry Blodget, Frank Quattrone, Jeffrey Greenberg and Ken Langone.

Weill never had his day in court, of course, because Citigroup settled, as did Grubman, who had promoted a stock he privately predicted would “go to zero,” and published “fraudulent” research reports, among other things, according to the Securities and Exchange Commission, which joined the investigation.

If anyone needs reminding, here is the S.E.C.’s complaint against Citigroup and Grubman.

Grubman made $67.5 million between 1999 and 2002. I wonder how his clients did?

Blodget was the Merrill Lynch analyst who promoted stock he privately called “junk” and “crap,” and was permanently barred from the securities business by the S.E.C. He’s now a journalist.

Weidner continues:

Sure, there are a few scoundrels on the list. But what about the borderline guys, like the Greenbergs and Quattrone? The former was charged with bid-rigging, though his defenders say it was common industry practice. Obstruction charges against Quattrone were dropped.

Under Jeffrey Greenberg, Marsh & McLennan rigged bids and otherwise gouged commercial customers as part of its business model. The company neither confirmed nor denied it, then paid $850 million in fines and overhauled its operations. That Marsh committed extensive wrongdoing is not seriously in dispute. The fact that such practices were widespread is not exactly an indictment of Spitzer.

I discussed the father, Maurice Greenberg, whom Weidner mentions as having fending off civil charges, here.

As for Quattrone, that failed prosecution was brought by the federal government, not Spitzer, who next will be blamed for the Spanish Inquisition and the prosecution of Galileo.

The bigger picture is, as all business writers know and most of the rest of us are learning, we are living on a precipice right now. We don’t know how far we as a nation will fall, but fall we will. What is more, it is becoming apparent to many that this crisis, in particular, is to some large degree the result of serious systemic and basic business-integrity issues on Wall Street, and that’s putting it mildly.

Is Wall Street the evil empire? No. But without Wall Street, there is no Countrywide, Ameriquest, New Century, or any of the other now-defunct mortgage boiler rooms. There are no out-of-control mortgage brokerage and appraisal businesses, no compromised ratings agencies. No exploding CDO’s and CMO’s around around the world. None of this.

Moreover, a serious case can be made that if any single individual is responsible for the subprime crisis, it is Sandy Weill.

On the other hand, Spitzer, along with forty-eight other state attorneys general, tried to fight reckless lending practices at nationally chartered banks, only to be blocked at every turn by the Bush administration.


The business press, generally speaking, is only beginning to understand and internalize Wall Street’s central role in causing this calamity, a very basic fact. There are many exceptions, of course, including Gretchen Morgenson of the Times and Jesse Eisinger of Portfolio, to name two.

It’s telling that columnists far from Wall Street, including the Providence Journal’s Froma Harrop and
and Jay Hancock of the Baltimore Sun, understand the big picture, which is most of America’s view:

In short, while other regulators played pinochle during the worst wave of corporate sleaze in decades, Spitzer had the guts and—yes—the overweening ambition to expose it at its headquarters. Now the guy is humiliated and disgraced. But schadenfreude often says more about the people feeling it than those it is directed against.

Eliot Spitzer recognized, investigated, and brought to an end corrupt practices in the insurance, mutual-fund, music, and most certainly, the securities industries. Of this, there can be no serious debate.

Because of this record, Spitzer became a hero to the millions of Americans who do not work on Wall Street, and it was based on this record that Spitzer was elected governor of New York with 69 percent of the vote.

I have no problem with stories about Wall Street taking pleasure from the misfortune of an enemy. The topic is a natural.

But there must be a German word that is the opposite of schadenfreude, that means feeling sad about a friend’s fall, especially one caused by his own actions.

How about a story for the rest of us?

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.