Alan Reynolds

The aftermath of the $1.4 billion shakedown of Wall Street brought a new batch of media-hungry politicians and regulators trying to upstage each other. Leaders of the Senate Finance Committee rushed into a ritualistic witch trial, rehashing old news to get free political publicity.

The new bit players read their lines from a script written by New York's self-appointed czar of stock market research, Elliott Spitzer. Commenting on remarks by the CEO of Merrill Lynch, Spitzer said: "Do they get it yet? You see the Stan O'Neal op-ed piece and you think they don't get it. ... What we have alleged about your company is that you committed fraud."

That "don't get it" remark was imitated ad nauseum by people who obviously don't get it. Democratic Sen. Paul Sarbanes of Maryland discovered, "Some CEOs on Wall Street just don't get it." Stephen Cutler of the SEC warned, "We're not going to assume they do get it." Robert Glauber of the NASD promised, "Those who don't get it are going to get it." And Dick Grasso of the NYSE said, "If people fail to get it, they won't be in the business."

I began to wonder if anyone would ever get it. Then I appeared on a Wall Street Week panel with Hedrick Smith, who said, "If there's really fraud then somebody should go to jail." He almost got it. But what if there isn't really fraud? The Economist got that just right: "It is still not clear what the investment banks have done wrong, legally speaking. If the law was broken, then firms and their employees should have been prosecuted. If it was not, then the fines and bans seem hard to justify."

If Spitzer really believes what he says -- that entire corporations are guilty of fraud -- then he has failed in his primary duty. A prosecutor's main job is not to campaign for governor but to prosecute criminals. Failure to prosecute, in turn, proves Spitzer and his lackeys never had any evidence they dreamed might stand up in court. If there really had been fraud, prosecution would not be optional. No prosecution proves either there was no fraud or the prosecutor is incompetent. Since Spitzer cannot prove fraud through legal due process, he is obligated as a matter of minimal professional ethics to stop making fraudulent allegations.

Alan Reynolds

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