I have no Problems with what he did. But he did prosecute people for the same victimless crime. It should be perfectly legal IMHO.

AIG was never regulated properly because the trade in Credit Default Swaps is not an insurance trade. Credit Default Swaps are a kind of insurance, but the law does not define them as such. Moreover, the main AIG unit that was dealing in CDS's was based in London in case the Fed's did begin to try to regulate CDS's. Thus the state regulators who normally regulate insurance had no oversight over the Cradit Default Swap trade, and AIG was free to sell as much CDS as it wanted to, and it was a very profitable trade as long as the insured bonds and derivatives were holding up.

Now on to the Wall Street mess. One of the first people Spitzer brought down was Hank Greenberg, CEO of AIG, in May 2005. And the charges brought against Greenberg were securities fraud and violations of insurance and securities laws. Spitzer's charges forced Greenberg to resign, but after further investigation, the charges were dropped for lack of evidence.

Where there is smoke, there is fire, and Greenberg was obviously playing fast and loose with insurance regulations at AIG, but Spitzer's investigations had nothing to do with CDS's or derivatives. What brought AIG down was perfectly legal. They sold CDS on bonds and other securities for Lehman brothers and other investment banks (Goldman, Merrill, Morgan). AIG primarily sold the stuff to hedge funds on the corporate bonds that the hedgies had bought from the investment firms. What caused the acute crisis this fall was that, with the market tanking, the hedge funds figured out a way to make a quick buck. They decided that they could short sell the investment banks like Lehman in order to make them fail, causing the corporate bonds that the hedgies had bought to become worthless, so that the hedgies could collect on the insurance (CDS's) that they had bought from AIG on said bonds. Now this should be illegal, just like burning your house down to get an insurance payout is illegal, but since CDS's are not defined by law as insurance, it is perfectly legal.

What most people on Wall Street say is that Spitzer exacerbated the problems by driving Greenberg out of his position as CEO of AIG. According to most insiders, Greenberg was the only person who truly understood the complexities of that insurance company, and he would have found a way to hedge more against CDS losses if he had remained CEO. It is also claimed that Greenberg wouldn't have been so stupid about AIG's CDS's exposure as Sullivan, the new CEO, was. That he wouldn't have committed AIG to so many CDS's– that he understood, like Warren BUffett, who is also in the insurance business, that CDS's were basically a weapon of financial mass destruction.

This is obviously pure conjecture, but it is true that many people on Wall Street and at AIG blame Spitzer for having taken down Greenberg, and there are rumors (who knows if there is any substance to them) that it was Greenberg that was responsible for exposing Spitzer's identity as Client 9.

My own feeling about the crisis is that Spitzer would not have been able to forestall the meltdown whatsoever. State regulars, as I said, could not regulate CDS, so Spitzer had no authority over their trade, even if he understood how they functioned, which most outsiders did not in 2005. In reality the crisis was caused by three things: 1) real estate brokers in the heartlands selling houses to people who couldn't pay for them 2) bundling mortgages into securities, that were fraudulently rated by Moody's and S&P as triple A rated, for sale across the world to banks who had no idea what they were buying, since up until that point the US real estate market had been relatively dependable, and most importantly 3) the trade in CDS, which is basically unregulated insurance. Insurance companies did not have to have the capital and cash reserve rules that state regulators forced them to have with other types of insurance, so they could sell as much CDS as they wanted at whatever price they wanted. Spitzer surviving would not have had any bearing on any of these three causes.

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I guess I was going to say that I find it quite amazing that no journalists have bothered to go ask Spitzer what he thinks of what has occurred on Wall Street now, since he left. There is a good story for you Phil

I think the larger context is that most coorporate actors have morphed into sharks. Grab what you can and devil take the hindmost. You dont want to be a shark? Would you rather get eaten?

This has been coming on for quite some time. At least ten years ago a friend who was an accountent for small businesses told me he didnt like it any more because no one wanted him to do an honest job.

So what it comes down to is that modern capitalism systematically unravels the 'social contract'. I dont know the details but I suspect it has to do with approaching the resource limits on growth. If you see no long term future for your coorporate investment it is rational to get what you can whatever way you can. Free idea. Someone should write a book.