Congress' effort to reform the financial regulatory system after the economy collapsed in 2008 was based on a false premise – that regulatory laws weren't strong enough already, former New York Governor Eliot Spitzer said in a speech yesterday. Regulators had power, he said, but "they just failed."
Regulators learned a lesson after the downturn, Spitzer said, but he compared it to a driver getting a speeding ticket – behavior might change for a short time before reverting back to the old way of doing things. Asked why regulators fail to take action, he said that it can be hard to stand up to powerful institutions. "The status quo is the most powerful force," he said.
Spitzer, who hosts a news analysis show on Current TV, delivered the keynote address yesterday at The National Law Journal 2012 Regulatory Summit in Washington. His speech ranged from broad theories of regulatory power to what he'd like to see Congress accomplish next year (filibuster reform).
He began with a discussion of what he called the "grand irony" – that for all the "gloom and doom" that Americans feel about the economy and state of political affairs, many of the problems facing the United States stem from a major achievement: the spread of democracy. By "winning" the ideological battle, he said, the United States has been forced to compete harder.
The "sophisticated debate" about the future direction of the United States during the recent presidential election was an affirmation of democracy, he added. Spitzer said he didn't know if politics today is more divisive than in the past, but expected the "negative-sum" situation to continue as long as the country is facing economic uncertainty. Austerity isn't fun, he said.
Despite the recent debate over the so-called fiscal cliff – mandated tax increases and spending cuts set to take place in 2013 – Spitzer said the real crisis is healthcare costs. He said he wished President Barack Obama had asked Republican presidential nominee Mitt Romney to lead an effort post-election to reign in healthcare costs, a task that would have fit the longtime business leader's skill set, he added.
Shifting to the state of the regulatory system, Spitzer said he thought history proved that only the government could enforce a certain minimum threshold of integrity in the marketplace. Private industry isn't always bad, he said, but self-regulation can only go so far. He also called for corporate shareholders to exercise more power, saying that ownership can trump regulation when it comes to promoting good behavior.
Spitzer was asked about efforts by New York regulators to go after the alleged manipulation of the London Interbank Offered Rate, or Libor, and the criticism that they had gotten too ahead of federal officials. When he was New York attorney general, he said he tried not to jump ahead of the group when he was working on a matter that involved other agencies. He said he worried there was some "jump ahead" in what happened.
Asked about the future of fiscal cliff negotiations, he said he wasn't sure where Republicans were getting leverage. He said Republicans could use the issue of the debt ceiling as leverage, but didn't think they had a strong hand to work with at the moment.
National Law Journal photo by Diego M. Radzinschi.