Tuesday, April 05, 2005

Spitzer dope-slaps the Journal

Some in Wall Street are now using New York Attorney-General Elliot Spitzer's name as a verb. Your car breaks down? You got Spitzered. You accidentally hit Reply-All for a sensitive e-mail? You just Spitzered yourself. You've been indicted for deliberately misleading investors? You were probably Spitzered by Spitzer himself. Now the Wall Street Journal, that paragon of publications, has been Spitzered (subscription required), in its own op-ed pages no less. And boy, was it satisfying to observe.

I've had a subscription to the Wall Street Journal for over a year. For the most part I'm pleased with its quality. I especially like when its articles discuss entrepreneurs, innovation, and market trends. I'm also a big fan of Walter Mossberg, the Journal's personal technology correspondent. But my stomach consistently turns whenever I venture to the back pages of section A, where its op-ed material resides. While, I am fervently pro-business and side with Republicans on many issues, the WSJ editorial columns take it to an ugly extreme.

For one thing, they are extremely partisan. Of course newspapers are not supposed to be impartial on their op-ed pages. But there is a difference between partiality and partisanship. The columns are so invariably in favor of Republicans and disdainful of Democrats, and so shrill in their tone, that they read like they were written by lobbyists instead of editors with strong, reasoned opinions. This compares poorly with other conservative publications, like The Economist, which will freely denounce conservatives, whether they be Republican or Tory, if they are acting corrupt, bigoted, or otherwise unseemly.

The Journal op-ed pages are also blindly supportive in their promotion of business interests. I believe strongly in letting businesses freely pursue profit, just as I believe in letting individuals freely pursue happiness. And I'm staunchly opposed to governments meddling in those pursuits excessively. However, businesses, just like individuals, are capable of stealing; and stealing is not okay. The Securities and Exchange Commission and other federal watchdogs have been lax in their enforcement of white collar crime; although they've improved after the Enron scandal. Elliot Spitzer has picked up the slack by prosecuting investment banks for tainted stock research, mutual funds for illegal trading practices, and now the insurance industry for price-fixing and improper accounting (just to name a few). On behalf of honest business-people and deceived investors everywhere, The Wall Street Journal should be aghast at the criminals and thankful to the Attorney General. Instead they accuse him of "overreach", and excuse the wrongdoers for just conducting business as usual. Spitzer finally struck back in a letter to the Journal, which to their credit, the editors printed today. He had four broad points:

"First, rather than "killing the goose that laid the golden egg,"...enforcement of the rules has helped level the playing field for honest corporations and has encouraged competition based on performance and value, not impropriety. The evidence is clear that the companies involved in these scandals were well aware of their wrongdoing. In fact, they had consciously decided to descend to the lowest common denominator based on the belief that competitors would violate the rules even if they didn't It was only when government stepped in to enforce legal and ethical boundaries that this downward spiral was stopped and true competition was restored.

Second, enforcement of the rules has helped prevent continued misallocation of capital. One of the less obvious effects of the investment banking scandal was the harm done to large, well-established corporations. The stocks of these companies languished in the face of competition from unfairly hyped dot-com stocks. These companies were reporting honest numbers and playing fairly, but they just couldn't attract the capital they needed to grow and create jobs. That wasn't good for them or for the economy overall...

Third, enforcement of the rules has helped maintain investor confidence. If people think the market is rigged, if they feel victimized by fraud and anticompetitive behavior, they simply won't invest. They'll pull out of the markets as quickly as they can...

Fourth, balanced enforcement has strengthened individual companies as well as the markets. This may seem counterintuitive, but many of the companies that were the targets of enforcement actions by my office in the last several years have emerged stronger after reforms were implemented."
While government shouldn't put undue constraints on business, we do need it to, as Spitzer wrote, "ensure that there is integrity, transparency, and fair play in the markets." There is a strong precedent for this. Spitzer compared his enforcement today with the trust-busting of Theodore Roosevelt at the beginning of the 20th century. Heck, even Adam Smith, the father of modern capitalism, thought governments should prevent monopolies and other market-distorting maladies. So why is the Journal so quick to defend the insurance industry's price-fixing?

The Wall Street Journal op-ed department needs to break out of its "team sports" attitude toward public discourse. We already gets enough of that from cable news (read Fareed Zakaria's excellent column on the matter). Meanwhile, the London-based Financial Times is looking more and more appealing.


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