In a new and short book, former New York Gov. Eliot Spitzer, who made a name for himself attacking corporations while New York's attorney general, says Washington didn't go far enough to reform Wall Street and corporate mismanagement during the 2008-2009 bank bailouts.
In Government's Place In The Market, he says that taxpayers were left holding the bill for the bailouts and that Washington didn't do far enough to make executives and shareholders pay for the failure of their companies. What's more, he suggests that the stimulus should have been the recipient of more TARP money. "We should be giving money to sectors that will invest in jobs and infrastructure in a big way," he writes in the pamphlet-sized hardback hitting stores this week. "Has government intervention been appropriate and effective? Perhaps not surprisingly, my conclusion is that it has not," he writes. [See a slide show of 5 reasons TARP succeeded and 5 reasons why it was a flop.]
He raises three key questions. The first--who pays the bills for intervention? He says that Washington should have taken the bonuses of executives of bailed-out banks and prevented investors from profiting off of firm stock when the shares recovered. The second--which reforms are needed? He calls the Dodd-Frank financial reform legislation a "band-aid" and demands that regulators use the power they already have to oversee Wall Street. And on the third question about job creation, he said that money shouldn't have gone, for example, to embattled car companies but to new, job-creating technologies like electric autos.
"The success of everything I've discussed here depends on corporate governance. Corporations run the economy, as they should. But if we don't run our corporations properly, then we will not get ourselves out of this pit," he writes.
Spitzer concludes with his 10 rules to fixing the economy and corporate mismanagement:
1. Only government can enforce integrity and transparency in the marketplace; self regulation is a failure.
2. Only government can take the steps necessary to overcome market failures, such as monopoly power.
3. Only government can act to preserve certain core values in the market, such as prohibitions on discrimination.
4. Too-big-to-fail is too-big-not-to-fail.
5. We're suffering from the Peter Principle on steroids, and it will get us into deeper trouble.
6. Taxpayers have been getting the short end of the stick in everything we've been doing. The Treasury Department is not negotiating for us.
7. Risk is real, and no complex scheme of financial instruments can make it go away.
8. We have de-leveraged the wrong way, by socializing risks and privatizing benefits. The government has accepted all the debt obligations of the private sector and taxpayers now owe this money.
9. The only way to reform corporate governance is to get the owners—the shareholders—of companies involved and actually paying attention.
10. All of this is very tough; being able to diagnose a problem is a whole lot easier than mustering the will to fix it.