Bloomberg Attacks

With the presidential election now only two years away, Mayor Bloomberg is wasting no time in laying down a marker against one of his possible challengers in national politics, New York's presumptive governor, Eliot Spitzer. That's what we take from the mayor's remarkable op-ed piece in yesterday's Wall Street Journal. It was all the more dramatic because the co-author who threw in with him against Mr. Spitzer was none other than the senior Democrat in New York State, Senator Schumer, who has emerged as a key figure in national Democratic politics.

Messrs. Bloomberg and Schumer warned that New York is in danger of losing its title as financial capital of the world. Messrs. Bloomberg and Schumer know why, too — excessive regulation that discourages new economic activity here and that slows the activity that's already happening. The pair was too polite to mention Mr. Spitzer by name or to refer directly to his rampages up and down Wall Street, but New Yorkers are nothing if not savvy. They know how to read between the lines, despite avowals from the co-authors that they didn't intend to criticize Mr. Spitzer.

Not to be too hard on the hapless Mr. Spitzer. His abuses of New York's Martin Act and his tenuous pursuit of Richard Grasso under the nonprofit corporation laws are not the only threats to New York's standing as the world's financial capital. Messrs. Bloomberg and Schumer cite an out-of-control legal system featuring securities class actions run amok (whose tort bar has been ladling money into Mr. Spitzer's gubernatorial campaign) and an accounting system that has not kept pace with international standards. Yet first on their list of the ills facing American business is the horde of federal and state regulatory authorities with which American companies must contend if they're going to tap New York's capital markets. If Mr. Spitzer reads no other paragraph in the Bloomberg-Schumer column, he will not want to miss this one.

"What lessons can we learn from other nations' regulatory systems?" Messrs. Bloomberg and Schumer ask. Comes their reply to their own question: "Currently, there are more than 10 federal, state and industry regulatory bodies in the U.S. The British have only one such body. Industry experts estimate that the gross financial regulatory costs to U.S.companies are 15 times higher than in Britain. Beyond cost savings, the British enjoy another advantage: While our regulatory bodies are often competing to be the toughest cop on the street, the British regulatory body seems to be more collaborative and solutions-oriented."

The mayor and the senator are echoing concerns that have been heard in the business world for some time. In a survey released yesterday, PricewaterhouseCoopers found that 73% of the board members of American financial services companies find they spend less time on strategic business issues than on compliance matters. Others have criticized what is all too often the failure of American regulators to fully weigh the costs and benefits of proposed new rules. That point will be one of the subjects of discussion for a private committee styled the Committee on Securities Market Regulation and headed by R. Glenn Hubbard of Columbia and John Thornton of the Brookings Institution, as these columns reported in September.

By implication, Mr. Spitzer is guilty of failing on all fronts. As attorney general, he has been the most aggressive state-level regulator in the country (we hesitate to use the phrase "regulatory authority" because it's unclear by what authority other than New York's troublesome Martin Act he has acted). He has been a prime mover in the regulatory rat race Messrs. Bloomberg and Schumer bemoan, finding illegality in things like mutual-fund market timing where none existed — witness the acquittal of Theodore Sihpol — and then leading the charge, bringing the Securities and Exchange Commission in his wake while trying to keep the federal authorities from stealing his thunder.

In respect of distracting boards, no doubt board members at, say, the American International Group or, say, the New York Stock Exchange, to name but two, would have something to say about Mr. Spitzer's regulatory role. Mr. Spitzer's cost-benefit analysis has consisted mainly of a calculation of the political benefits he could reap from his investigations. Members of the business community have long shaken their heads at the state of American business regulation generally and at Mr. Spitzer in particular. The newly publicized interest of Messrs. Bloomberg and Schumer, however, shows that these matters are of concern to all New Yorkers and not just to the pinstriped classes on Wall Street.

What the mayor and Mr. Schumer seem to appreciate is that the city's economy and America's depend on the wealth the financial services industry creates. The city and national treasuries are dependent on the tax revenues that wealth generates. This is something the young shaver, as the British would call Mr. Spitzer, will no doubt get a better appreciation for if he wins the election next week. He will argue that it's good for capitalism to have honest markets, and we agree. As do the mayor and the senator.

What Messrs. Bloomberg and Schumer are raising is the question of judgment, and all eyes will be on Mr. Spitzer to see whether he will finally stop trying to kill New York's golden goose. Not even Mr. Schumer — a senator who endorsed Mr. Spitzer — thinks it's a good idea to put a dagger through the heart of New York's financial engine. It's to the senator's credit that he has crossed party lines to join a Republican mayor who is crafting a platform on which to make a run for the presidency that may yet pit him against none other than a new and exceptionally ambitious governor.