Shortly after I learned of Spitzer’s resignation, I was at dinner with
several Italian lawyers. At the table next to us at a lovely restaurant
near the Trevi Fountain sat the leading director of soft core porn
movies in Italy. (Note to wife: I didn’t recognize the director, my
companions did). The Italian lawyers were puzzled that resignation was
the obvious response to a sex scandal in the U.S. The Italian public
wouldn’t be especially alarmed about this kind of revelation, they said:
they expect it from their politicians.
It seems to me that the key issue in the US (and I suspect Italy and
elsewhere too) is the relationship between the scandal and the
politician’s public persona. There are three possible connections.
First, the misbehavior may simply fit a politician’s “live
and let live” reputation. Think Bill Clinton, and in Italy, Berlusconi.
Second, the behavior may reveal deep hypocrisy– a disconnect between the
public image a politician creates for himself and his actual behavior.
(I’ll stop naming names here, but examples come immediately to mind).
The final possibility is that the scandal involves actions that don't
actually fit the politician’s ordinary behavior. It is a mistake. I
suspect that Spitzer falls into this last category, and that he will in
time successfully reestablish his reputation for general integrity.
But even if I’m correct about this, the disconnect between his
misbehavior and his unapologetic use of his own powers to punish others
during the Wall Street scandals underscores the serious dangers of
giving regulators unbridled power. Unbridled power is essentially what
the Martin Act (a broad New York fraud provision) provides, and Spitzer
made full use of it. I generally think Spitzer’s campaign to clean up
Wall Street was a good thing, but some of his prosecutions (particularly
after the initial scandals) were wrongheaded and destructive. Spitzer’s
use of his powers has launched dozens of imitators in state attorney
general offices across the country. And in New York, the Martin Act has
been dusted off to look for likely suspects in the subprime crisis (in
several instances, banks who were themselves among the biggest losers
when the credit markets froze up).
Just as we should think twice before singling out Spitzer for
heavey-handed prosecution, so too should we (and the prosecutors acting
on our behalf) be careful not to turn the hunt for subprime misbehavior
into a search for scapegoats. Perhaps that is the key lesson, in the
U.S. at least, of Spitzer’s fall.