The ‘Sheriff of Wall Street’ who exposed bankers’ lies

0:00Brooke Masters: He's done something unbelievably stupid. He starts taking out big bundles of cash from his bank account. This gets reported to the FBI, who then promptly set up a sting. They actually initially think, oh, maybe he's taking bribes. And so they set up a sting to figure out what's going on, and they discover he's going to the Emperor's Club. The Emperor's Club, what's that? Is that like all these New York clubs they have, like the Metropolitan Club or the Century Club? No, sadly for him, it was a high-class escort service. Oh, damn.

0:38Today, on the story of money, the rise and fall of a man who made his name taking on America's biggest banks in the early 2000s and who transformed the way that Wall Street was policed. He was a politician hailed as a future presidential contender, a moral crusader who promised to clean up investment banking's cultural greed, but also a man who, in a spectacular twist, was brought down by his own secret and somewhat sordid double life. I'm talking about Eliot Spitzer. As New York's Attorney General in the late 1990s and early 2000s, he transformed financial regulation, exposed conflicts of interest, and forced some of the most powerful financial institutions in the world to change their ways.

1:30In fact, his nickname was the Sheriff of Wall Street. And for a while, few people were more feared in American finance. Until it all came crashing down with a sex scandal. So you might wonder, why would anyone want to talk about Eliot Spitzer today? Well, the reason is that in spite of all his flaws, many of the problems he warned about back then have never gone away. In fact, some people might say we actually need another Eliot Spitzer right now, but without the scandal. Now, Robin's away this week, but here to tell the Spitzer story is my FT colleague, Brooke Masters. Hello, Brooke. Great to have you here.

2:13So, Brooke, your day job is at your US managing editor of the FT in America, a job I used to have myself some time ago. But tell us why you are so well-placed to talk about Eliot Spitzer.

2:25Brooke Masters: Well, back in the early 2000s, I was covering Wall Street and white collar crime in New York. And Eliot Spitzer was the biggest thing since sliced bread. I mean, he was dominating the news and he was enforcement back then. And I not only covered his cases, I got so interested in it, I wrote a book about it and called Spoiling for a Fight, which is a reference to how pugnacious he was. Well, Spawning for a Fight is a great title and it also explains why we're talking about this right now because one of the questions is, do we need another big fight today? So, welcome to the story of money from the Financial Times with me, Gillian Tett.

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3:48So we know how Eliot Spitzer's story ends. Plot twist, spoiler, in an embarrassing sex scandal. But when Spitzer's career first took off in the early 2000s, he was seen as a white knight and was very popular with the public. And taking on Wall Street, as he did later, requires a lot of guts. So, Brooke, tell us where did Spitzer come from And why did he feel this burning need to go to war with Wall Street?

4:19Brooke Masters: Well, Elliot Spitzer is a classic New York privilege story. His dad was a very, very successful real estate developer. He built many of the big apartment buildings in Manhattan. And the Spitzers raised their three kids to be highly competitive, highly combative, and incredibly smart. Friends who used to come over for dinner said it was absolutely frightening to be at the dinner table with them. And so Elliott goes off and has a proper, you know, preppy education. He goes to Horace Mann. He goes to Princeton. He goes to Harvard Law School. He then takes an interesting side turn and starts working for the Manhattan District Attorney's Office.

4:57Brooke Masters: And this is the beginning of his sort of crusade. And while he's there, he does a bunch of stuff. But the most interesting thing he does is he and a colleague convinced the Manhattan DA that they could get the mafia out of the garment district in New York. Now, the mafia has been there for decades. And they have this really clever idea where they set up their own little company that is making clothing. And the Gambino family dominated trucking in the garment district. And so if you wanted to get your cloth in and your clothing out, you had to pay them. And so they set up their own little clothing company.

5:33Brooke Masters: And the Gambinos come knocking to demand their money. And of course, they have the whole place wired. They arrest the Gambinos and they work out a deal with them where the Gambinos agree to leave the garment district. And so the mafia's influence is pulled out of the garment district because of this clever idea Spitzer had. Wow. Sounds a bit like a version of The Sopranos, but with a rather positive twist at the end. Exactly. He's doing really well. And he decides with his daddy's money, he wants to be attorney general. So he runs for what is essentially the top law enforcement job in New York, but it's elected.

6:06Brooke Masters: He runs in 94, loses unbelievably badly, then spends the next four years of his life driving around New York State, making friends with people, meeting voters. And in 1998, he wins. And that makes him attorney general starting in early 1999. So that requires a lot of guts and tenacity because a lot of people, after losing so badly, would have just said, hey, let's go and work for Goldman Sachs or some big law firm or have a nice cushy life, particularly given his pedigree. But he's clearly got a strong sense of public service. But tell us why in the early 2000s, around the turn of the century, he decided that that was the right moment to go after Wall Street.

6:45Brooke Masters: Well, I think you need to think about the fact that Teddy Roosevelt is his sort of idol. And Teddy Roosevelt went after the biggest businesses in his day. And Spitzer decides he's going to do the same thing. He has this sort of progressive streak that we will tame big business to protect the little guy. And if you think back to 1999, early 2000, that's the dot-com bubble. And we are in a period where every terrible internet company in the world is going public, selling shares to the public, taking mom and pop's money, and then basically they have no business model, they lose money and lots of people start to lose a lot of money.

7:24Brooke Masters: And Spitzer asks the question, why is it so many terrible companies, their shares are getting sold to ordinary people, and who is it that are the bad guys here? And he decides it's Wall Street. Now, one of the reasons, one of the many reasons why this story is so relevant for today, right now, is because lots of people see parallels between the dot-com bubble and what's been happening with AI and big tech recently. But a lot of people will say, why is it up for Eliot Spitzer to be doing this? Why is he bothering to do this, rather than the regulators who normally jump in, like the Securities Exchange Commissioner?

8:01Brooke Masters: It's actually a very interesting parallel then and now. At the time, the Securities and Exchange Commission was run by Republican appointees who believed in a hands-off approach and allowing business to do business and giving Wall Street a bit of a free hand. And that is absolutely what we're seeing again today. Harvey Pitt was the chairman back then. Today we have Paul Atkins, who actually was at the commission at the time then too. And they both took the view that government should be less involved. So laissez-faire kind of thing. Very laissez-faire. And the assumption that the industry can just kind of regulate itself and self-correct.

8:35Brooke Masters: Exactly. And that the government's more likely to screw it up than not. And of course, one of the ideas behind that is the idea that, you know, if there are excesses, you have discipline because smart investors see the excesses or the fraud and basically weed it out, which works well with big investment players, but not small ones, of course. Right. And particularly in the dot-com era, shares were getting sold directly to the public and lots of day traders and ordinary people would watch on TV and these analysts would come on and say, you need to buy Pets.com or BlueNile.com or the latest thing that was selling groceries online.

9:08Brooke Masters: and people would buy the shares and then eventually they'd lose their money. Now it's more complicated in that more people are, they are partly investing in individual companies, but they also own index funds. And so they're ending up having to own companies whether they want to or not. So, and we'll come back in later on about the parallels for today and why they matter so much. But, you know, Spitzer decides he's going to go to war with Wall Street, very brave given his pedigree and things. And he starts off with one of the most storied and highly respected companies, Merrill Lynch. Tell us why.

9:41Brooke Masters: He and his right-hand man, a guy named Eric DiNallo, have been looking into what are the conflicts of interest that might be leading banks to take public companies and sell shares to the public, companies that basically have no business model. They literally had no way of ever becoming profitable. They become convinced that there is something really wrong going on where Wall Street is making so much money bringing these companies public that they are not thinking through what happens next. And there are a couple of settlements with investors, small settlements, like one lawyer sues Merrill Lynch.

10:17Brooke Masters: And they see one or two of those involving Merrill Lynch. And they think, let's go ask Merrill Lynch for their records and see what's going on. And this seems so primitive. But back in 2001 and 2002, when they're starting to do this, people were just starting to use email as their main form of communication. There's no text really. It's very hard for the younger generation to actually imagine this. I mean, hey, kids, if you're listening, try to imagine a world where there was not just no Instagram and TikTok. There was almost no email. And so what he says, give me all your emails that are related to this.

10:49Brooke Masters: And it's a fishing expedition to a certain extent. But there are these existing settlements. They know there's something. And because people hadn't thought through emails, they were writing all kinds of stuff. And so basically what's happening is the way the Wall Street money machine works is, you know, company, you know, let's say Blue Nile, which said it was going to sell diamonds, comes to a bank and says, we want to go public. The bank helps them do all the paperwork, gets paid a lot of money for this. The bank's analysts who are writing stock reports about companies will write, Blue Nile is the greatest thing ever.

11:27Brooke Masters: You should buy it because it's selling for$10 now and it'll be worth$300 next week. And they would go on TV. This is the start of when CNBC and 24-hour cable is growing. And lots of bored people or gullible people, including my poor grandmother, would sit and watch these analysts tout the latest stock. and then go buy it. And so my grandmother got this crush, frankly, on Henry Blodgett, who was the hottest analyst of the time. He was this good-looking, blue-eyed, blonde-haired, Ivy League-educated guy, spoke very clearly, and he made himself famous by saying at the time Amazon was going to go from$100 to$400 per share.

12:08Brooke Masters: He was actually right about that, but he also said that about every other company. And so he had this whole kind of groupie fandom out there who were retail investors, who'd never really been exposed directly to this kind of stuff in their own sitting rooms, suddenly going, wow, we love this stuff, and suddenly pushing up the share prices higher and higher. Exactly. And they were just rushing and buying everything. And what's crucial now about the fact that it's the email era is while Henry and his friends are doing this, and his competitors, it's not just him, people at every banquet are doing it, They were also writing emails privately about the companies and talking about them.

12:48And there are a bunch of very salty emails that Spitzer gets his hands on, including ones where somebody asks, you know, what's the point of this company other than investment banking fees?

12:59Brooke Masters: And the answer is nothing. And Blodgett would refer to a company as POS, which means piece of excrement, in his emails and then go on TV and say, you should buy it. So you could actually see the hypocrisy. There's a lovely line in your book about the fact that people, the investigators originally thought that POS stood for something completely different, didn't they? They thought it meant positive because he was touting. He was positive. Short for positive POS. Yes. Yes. And it took them a while to figure out that that's what was going on. I think they actually had to get somebody internal to come tell them that.

13:35So if you ever felt confused by all the jargon that your own interns, trainees, kids are using, don't worry, you're not alone. I mean, yeah, no, the investigators had no idea what POS stood for. So did you ever get to know Henry Blodger? Did you ever meet him?

13:49Brooke Masters: Actually, Henry and I were in French class together in high school. Are you serious? Yes. And so we ran across each other again in the course of this case. So I have to ask a killer question. How was his French? I think not very good because he's a year older than I am and he was in my class. So basically Spitzer starts amassing this body of evidence, which shows the extreme clash between what people are saying in public and in private, or if you like to be blunt about it, the extreme hypocrisy. And what did he do then? He opens negotiations with Merrill Lynch and says, you know, I can see that, you know, you have said one thing in public and something else in private.

14:29Brooke Masters: I think that's securities fraud. And that's actually quite powerful, particularly in the state of New York, which has, Every state has a law against securities fraud, as does the national government. New York's law happens to be written in a way where it's very strong. You don't have to show you were intentionally committing fraud. You just were committing fraud. And so Spitzer has this really powerful weapon, which said, if I can just show this gap, I can bring a case against you. and under this law, which is from the 1920s and had not really been used, and it has never truly been tested because it's such a scary law that everybody always settles when somebody brings a Martin.

15:08Brooke Masters: It's called the Martin Act. And he goes to Merrill and says, I have the Martin Act. I have these emails. Give me a bunch of money and settle. So what actually happens? Because he called the lawyers in, didn't he, in a very old-fashioned way and tried to flip a whole sort of dynamic on them in the meeting. Exactly. Normally, Wall Street has the best lawyers in New York. All the big firms work for them. They have the high-powered lawyers. But Spitzer calls them in, the lawyers for Merrill Lynch, and says, you know, sits them down. He has this office where he likes, it becomes legendary in these cases.

15:43Brooke Masters: He sits people down in his conference room. And there's this couch he puts the people he's going to be demanding things from on. And the couch has really soft cushions. And so you sink into it. I hate sitting in that. I used to talk to him a lot. And I hated that couch. You really feel like your knees are going to your ears. And so they're already like they're uncomfortable. And then this, you know, Spitzer waltzes in. And you have to remember he's big. He's got this big jutting chin. And he leaves with his chin. And he is aggressive. And his ears kind of stick out. And he was a pugnacious guy.

16:18Brooke Masters: And he looked pugnacious. And he goes in and says, you will settle. or your CEO is going to end up going to jail. So he's standing up while they're sitting down. I think he may have been sitting, but they're in this stupid couch. So he's definitely towering over them and leaning over them. And of course, that's the very opposite of what they teach you to do on Wall Street, which is if you're on a trading desk, you're actually taught to stand up so that you actually sound more confident. And all those movies about Wall Street always have people standing up and shouting at each other. So suddenly these lawyers are sitting down like school kids on a couch, being lectured by essentially Spitzer.

16:53Brooke Masters: And from their point of view, this is insane. State regulators, even if they have the Martin Act, they're not supposed to be regulating securities. The SEC and Washington do that. Who is this guy, from their point of view, asking this stuff? And so they resist, and they also assume this is going to follow the usual American way of dealing with cases involving Wall Street, where basically when the SEC does it, they say, here's the case against you. You get some time to tell us why we're wrong and we'll negotiate and it'll take a couple of months and it'll all be secret. And Spitzer is like, I want an answer now.

17:30Brooke Masters: And they're like, no, you know, give us some time. And they think they're going to have time. And they are, you know, they're going back to their client, which is, which is Merrill Lynch and the CEO to, you know, sort of develop their negotiating position. They think they have time. And Spitzer is saying to Danalo, go to the courthouse and file. He's not interested in waiting. You know, they were caught completely cold. It sounds a bit like in a funny kind of way echoes of what, say, President Trump has done in terms of changing the tactics and communication style and blowing up the long established norms and traditions and just trying to use communication to get the world on his side.

18:07Because the next thing that Spitzer does is go to the public, isn't he? He makes all of this transparent, much to the horror of the way that Wall Street had traditionally operated.

18:17Brooke Masters: Exactly. I mean, they file a case and immediately hold a press conference. And, you know, Spitzer was really good at this. Like he had blow ups of the most embarrassing emails, like the one where the analyst is like writing, we are losing people money and I don't like it. You know, I am not a management whore. and so he's got those on big blow-ups and it makes for great, you know, great video. So all the TV stations come. And remember, this is New York, so you have the New York Post, which can go hog wild with fun headlines. And so he's immediately washing Wall Street's dirty linen in public in a way that they completely did not expect.

18:57And a way, frankly, that no one's done for many years. I mean, possibly during the Mike Milken scandals this happened, possibly during the 1920s, But the fact he's doing this with a combination of a new form of electronic communication and immediacy into people's living rooms is really powerful.

19:13Brooke Masters: It's absolutely powerful. There's also a weird misstep he's done, which is he didn't realize that when he filed a fraud case against Merrill Lynch, that triggers a relatively obscure federal statute that briefly meant that Merrill could no longer be in business because you can't have a fraud. It's complicated. You can't manage money if you have an open fraud case. And so Merrill has to call the SEC, who is their main regulator, and the SEC calls Spitzer and said, do you realize that hundreds of millions of people who have been using Merrill Lynch as their money manager can't use them unless you stop this?

19:48Brooke Masters: So he had no idea this was going to happen. This tells you how new he is to this game. I mean, he's caused an absolute catastrophe. And so he then withdraws his case, having already gone public with it, and says, you know, we're going to have time to negotiate. Because if there isn't an active case, then Merrill Lynch can keep managing money. So how, obviously, how do Merrill Lynch respond and the other Wall Street banks? And how does the public respond more crucially? Merrill, I mean, basically within a couple of weeks has completely caved. They reach a settlement where they pay a big fine. They agree to put new Chinese walls in where the analysts who are writing the stock recommendations that are made public are in a separate part of the business than from the investment bankers who are bringing the companies public.

20:31Brooke Masters: So that inherent conflict of interest where somebody who's supposed to be giving investment advice is actually getting paid to tout a company. So they put in this Chinese wall and they also start setting up a system where there's going to be independent analysts. The rest of Wall Street is like, how could Merrill settle? This is insane. And presumably they're all scared because it looks like Spitzer is going to come after them as well because it wasn't just Merrill doing this, was it? No, it absolutely wasn't just Merrill. And actually at the press conference where Spitzer announces the Merrill settlement, he says, I'm coming for the rest of you.

21:01Brooke Masters: And guess what? I've enlisted all the other state attorney generals from around the country. So California and Massachusetts and Connecticut are also starting to do this stuff. Meanwhile, the public is largely incredibly supportive of Spitzer because, again, if you think back on the time he's doing this, we have just had the dot-com crash where people have been watching their shares and their holdings go up and up and up and up. And they had just absolutely collapsed. I mean, the Nasdaq was down something like 40 percent from its high. And so there are a lot of people nursing a lot of losses. And this is the era when Americans have first started to have what are known as 401k plans.

21:39Brooke Masters: And so they have their retirement money in the stock market and they can see what happens to it day to day. So many people who have previously really not followed the ups and downs of the stock market now can see it in their own retirement pots. And so they are furious. I mean, they stop Spitzer on the street to slap him on the back and say, you go. So he was incredibly popular on the street. I mean, you could not go around New York with him because, again, I was with him without getting stopped at this period. He's so popular. And yet the folks on Wall Street on the trading floors are like, think he is absolutely.

22:12Brooke Masters: I mean, it closed in over his head. He had no idea what he was doing. He, you know, this isn't his job. You know, the federal government is really the main regulator of stocks. And so there's the disconnect between how hated he is on Wall Street itself and the general public. What's really interesting, you could see it walking down the street because his office was right in the middle of Wall Street. So the financial district is all around him. And if you're walking down the street, ordinary people and tourists are slapping him on the back. And like every fifth person that was somebody who actually works on Wall Street, usually the guy in the suit, and they're like sneering at him.

22:47I'm sure they're ready to spit on him or whatever or give him the finger, middle finger. that kind of time-honored New York way of dealing with things we don't like. But in terms of sort of what actually happens as this dramatic settlement with Merrill Lynch then, you know, basically takes hold, he then goes after the other banks as well, doesn't he? He ends up with a kind of basically attack or a settlement with all the banks or most of the big banks in quite dramatic fashion.

23:12Brooke Masters: Exactly. He, I mean, he marshals the other attorneys general and the SEC now joins in because they realize if they don't get on this train, they're going to get left behind. And they put together what is known at the time as the global settlement. I love the fact that Wall Street imagines it is global. It is the world. But anyway, leave it outside. Well, to be fair, Credit Suisse and UBS and Barclays are all part of it. Right. So$1.4 billion settlement. Which in those days was quite a lot of money. It was the biggest ever. It was the biggest ever at the time. And so they end up in 2003 finally hashing this whole thing out.

23:45Brooke Masters: And so all the banks agree to put in these Chinese walls and pay a bunch of money and give money back to their investors. And it was supposed to change Wall Street for good. And in many ways, it did make it a bit cleaner. The analysts are now separated from the bankers. There are disclosures, like when you get an analyst report that says this is the greatest company ever, it will say at the bottom, you know, Goldman Sachs seeks to do business with this company. Or Goldman Sachs actually does business with this company. So it's a little bit clearer. And for a while, the settlement also called for, you know, there were literally babysitters who had to listen to the analyst calls when they were talking to the media or the public to make sure they didn't say something inappropriate.

24:27Wow. So at this point, of course, everyone now knows what POS stands for. But it could also stand for presidential operating style, couldn't it? I mean, because by this point, he begins to be talked about as a potential future president.

24:42Brooke Masters: He does. Particularly, actually, he brings a second set of cases against the mutual fund companies, which are the people who really do manage retirement money. And he finds this very complicated scam that's going on, where basically they're shaving pennies off the dollar. And he ends up getting$3 billion of settlements that actually get sent back to people. And the two cases together really make him a hero at a time, you have to remember again, there aren't a lot of Democrats who are doing very well. This is, you know, pre-Obama. We're miles before Barack Obama shows up. So the Democrats are in disarray.

25:18Brooke Masters: You know, Bush wins this overwhelming re-election victory in 2004. And so people are looking around for who could be the Democrat. A bit like now. I mean, you know, everyone's desperately trying to work out who could be the next presidential contender for the Democrats. And absolutely, Spitzer wanted to be the first Jewish president. He had complete ambitions. Of course, he's incredibly wealthy because of his dad, so that helps a little bit in giving it. And he's got this great purchase in New York, which is the biggest media market. And he's taking on the bad guys. And he brings a series of cases.

25:50Brooke Masters: Those two are the big famous ones. And then he brings some other ones where he goes after CEOs of AIG, the big insurance company, and Marsh, the big insurance broker. And he's definitely feeling in his oats and he's very powerful. And he runs for governor because why not? So going from being sheriff of Wall Street to essentially trying to become governor of New York, I mean, it sounds in many ways like a very logical progression because he's seen as a man of the people, even though ironically he's been born with a silver spoon in his mouth. So what happens when he runs for governor? He wins overwhelmingly.

26:21Brooke Masters: He's incredibly popular. It's a walkover of an election because he is a hero. And he's just like Teddy Roosevelt. He's done the next step. He's gone from enforcer to New York governor. And he's absolutely dreaming of the presidency at this point. The election was 2006. So early 2007, he takes office as governor. And he's thinking big. So there he is. He's in the governor's office. He's in the hot seat. He's adored by everyone. what could possibly go wrong. Listen on.

27:16Invest like the future is watching. Visit nuveen.com slash future to learn more. Investing involves risk. Principal loss is possible.

27:30So we're back and we love the story just as Spitzer is riding high. He has essentially won extreme popular support by taking on Wall Street. He has just won the New York governor's race by a landslide. He's now sitting in the office. And then two things start to go wrong. Tell us about the first one about his governing style.

27:56Brooke Masters: He turns out not to be a very good governor because this is a guy who's gotten where he's gotten by using the power of the courts and subpoena power to force people to do what he wants. That does not work when you are the governor negotiating with the state Senate. And so he threatens people and nothing happens. And he's really struggling to get stuff done. Perhaps because things are not going well. Who knows? Somewhere around here, he then does the other terrible thing, which is he secretly starts using a high-priced escort service. What is it about the number of powerful, successful men who end up being tripped up by this kind of stuff?

28:36I mean, that's another material for another episode. But how does that come out?

28:40Brooke Masters: Well, what happens is he does something unbelievably stupid, which is he starts taking out big bundles of cash from his bank account, like a relatively small Long Island bank. And in the U.S., there's a law that if you take out$10 ,000 worth of cash, the bank has to file a report because that's weird. You know, anything above that needs to be tracked. He starts taking like$9 ,900 out, which he, as a law enforcement person should know, also triggers a report because it's clearly what's called structuring. You're avoiding the$10 ,000 limit. And it's a relatively small bank. And he's the governor of the state.

29:19Brooke Masters: And so the bank is probably the most exciting thing that happened there in 15 years. They file a report saying, like, the governor is doing weird things. And they don't just file the report. they could follow up with a phone call like saying, we've just filed a report. And, you know, was he doing that? I mean, as you said, it was incredibly stupid. Was he doing that because of a sense of entitlement that, you know, no one could touch him? Was it just because he was so blind? Was it because he was so arrogant? I mean, what made him do that? Because you would have thought such a rookie error if you are the former regulator in charge of these banks.

29:55Brooke Masters: I honestly have never gotten a good answer. I've asked. There is no good answer. There were conspiracy theorists who think that somehow he was set up. But, I mean, the reality is he did this. I mean, there's been a lot of people who really wanted him to basically be taken down. Exactly. And so lots of people have thought, well, surely it must be a banker who leaked it. Exactly. I mean, but best one can tell is this gets reported to the FBI, who then promptly set up a sting. They actually initially think, oh, maybe he's taking bribes. Maybe this is bribes. And so they set up a sting to figure out what's going on.

30:27Brooke Masters: And they discover he's going to the emperor's club. The Empress Club, what's that? Is that like all these New York clubs they have, like the Metropolitan Club or the Century Club? No, sadly for him, it was a high-class escort service. Oh, dear. And he's meeting prostitutes, and there's some fairly graphic descriptions, and they catch him on tape. And he's wearing his little black socks, and he never takes his socks off when he has his encounters. He's moving too fast. And it should be reminded, this guy has an extraordinarily beautiful, smart wife. He does. I mean, Zilda is a wonderful wife. I know.

31:00In fact, I rented an apartment from her, not from her, but through her, through a friend of hers. And she's wonderful. And anyone from the outside would say, why on earth, when you've got this amazing wife, would you, you know, do this kind of thing?

31:13Brooke Masters: And, you know, nobody I know, and I spent a lot of time with a lot of people around him, has ever come up with a complete answer. But it may partly be that he got this incredible high of taking on Wall Street successfully and things are not going well. And maybe the risk taking, who knows? Maybe it's just human frailty. I mean, unfortunately, around the Epstein scandal, we saw all kinds of examples of powerful, successful people who should have known better and had so much to lose if this kind of thing became public. And yet they still got pulled into all kinds of ancient vices. It's extraordinary, you know, how frail human psychology and morals can be under pressure.

31:55Brooke Masters: It is true. But so what happens from then on is that they catch him on tape, and then basically the New York Times stumbles on the fact that there's this case involving this prostitution ring, and there's a reference in the documentation to Client 9, and he's Client 9. And they make the connection that this case that's going through is about him. He himself is not charged, but it becomes public that he's Client 9 in this prostitution ring. And he ends up giving this absolutely awful press conference with poor Silda, his wife, standing next to him. I remember his press conference really well. I was in London by then, and I was supposed to be cooking dinner, and I literally burnt the kids' dinner because I was so mesmerized.

32:37Brooke Masters: Spitzer is standing there. He's absolutely pale and pasty, and next to him, Silda was standing there, and she's doing that stand-by-your-man thing and looking absolutely sick to her stomach, and it was absolutely awful, and he ends up resigning. But I have disappointed and failed to live up to the standard I expected of myself. I must now dedicate some time to regain the trust of my family. I will not be taking questions. Thank you very much. And I think it's interesting to think whether these days he would have resigned because standards have changed so much. Well, because, you know, in the current era with, you know, under President Trump, I mean, you know, this kind of scandal has happened and bubbled and people are notably not resigning.

33:21I mean, it's very, very striking all over the place.

33:23Brooke Masters: Although it is worth remembering that very few of those people had presented themselves as lily white law enforcement people. People who, I mean, Spitzer's image was, I am the good guy. I am pure. You know, I stand for, you know, honesty and transparency and all that. So it was a lot worse for him. He later sort of presented this as a case of him being a bit like Icarus, who just flown too close to the sun and then got burnt. Do you think that's a fair way of putting it? I think that's feeding into the paranoia that somebody set him up and did it. I mean, he did soar very high, but there is no reason why somebody who is governor needs to be seeing prostitutes.

34:01Brooke Masters: I think the part of him being a lousy governor is closer to the Icarus thing that I think in the end, he probably he I'm not sure even if he hadn't had a sex scandal, whether he ever would have made it to president because he turned out not to be very good at negotiating with other politicians. And that's more Icarus. The sex scandal, like sidecars, that's just done. Except it obviously made very spicy content for a lot of newspapers and made the issue of financial regulation, which can often seem very boring, suddenly seem like front page news all the time, which, you know, who would have guessed and the tragedy.

34:38But so, you know, so he's risen high. He then collapses. Tell us first what happened to him afterwards, because, you know, he went on something of an apology tour, didn't he, to try and resuscitate his career later on?

34:52Brooke Masters: A bit. I mean, basically he resigned. And then over the next couple of years, he tries being a TV host. He tries to run for a city office, New York City Comptroller, which is a financial office, which would have, if he had been able to pull that off, he might have been able to get back into sort of some way of being a good guy in finance. He loses that. He has another mini sex scandal where he's caught sucking the toes of somebody in a hot tub. And it's not a full on sex scandal, but it just reminds everyone just how sordid the whole thing was. I mean, it's really tragic because you say Sildur's wife, you know, is wonderful.

35:28There was a period when they were very openly and visibly trying to present themselves as, you know, soldiering on together as a family. I remember seeing them over dinner together and, you know, they were talking a lot about, you know, trying to, you know, enjoy life together upstate and that kind of stuff. But in the end, unfortunately, it couldn't work, could it?

35:48Brooke Masters: No. And you have to remember, during this period, he has three daughters, tween to, you know, I think late teenage. And I think some of that just has, I mean, that just must have just weighed on him. I mean, our hearts shouldn't bleed too much. He still is from this fabulously wealthy family. What he then does is he takes over his father's real estate business, which he still runs, and it's profitable. They live well. He invested in a company that rates analysts and stock analysts, so he's sort of still got a little bit of a hand in that. I mean, he's got a comfortable life, and he periodically pops up, but I don't think he will ever have the same sort of gravitas.

36:27Now, one thing that's obviously clear all these years later is the lesson about its rise and fall in terms of the riskiness of, you know, using high class escort agencies. That lesson clearly hasn't been learned by large numbers of people on Wall Street or elsewhere because we've seen things like the Epstein scandals and other things like that. But what about the bigger lessons about finance and where things are going or not going? Do you think that the financial world has learned lessons from the Spitzer scandal?

36:59Brooke Masters: The most important thing is he really pointed out that when there are conflicts of interest on Wall Street between the banks and end users of financial products, the banks will always go with their own self-interest. That happens in the financial crisis in 2008. And every time new products happen, you know, banks have gone from saying that crypto is garbage to crypto is wonderful because they can sell you crypto. And maybe they've really had a genuine change of heart and crypto is wonderful. But who knows? I mean, when in doubt, in the end, financial institutions put their own profits ahead of ordinary people.

37:35Brooke Masters: And that's why they are a regulated business. You know, there are we have rules in this country for what you can do with a financial product and how you can sell it and the care you have to take in selling it to ordinary people. And that's really important. And I think Spitzer helped highlight that. I don't think we will ever completely get away from the self-interest problem. And so what you need, you kind of need every 10 or 15 years, you need someone, maybe not as dramatically as Spitzer, who keeps reinforcing, like, there are rules, you have to follow the rules, and you have to, you know, there have to be protections for individual investors.

38:11And that point's very interesting, because of course, we're in another era right now, a bit like at the turn of the century, where, you know, Republicans are back in power, and they have been ripping up many of the rules that were keeping American investors safe. And in fact, what's even more striking is that under the second Trump term, we've actually seen the Consumer Financial Protection Bureau basically rip the shreds. We've seen all kinds of other rules taken apart. Do you think we need other spitzer today?

38:39Brooke Masters: I think there is a big hole developing where Wall Street and now hedge funds and not just the investment banks anymore, but the private credit firms and private equity firms have been given a bit of a free reign to say, do what you do. And if nobody is watching, my personal view from having now lived through too many of these is that without guardrails, bad things happen. And so while I can understand the deregulatory impulse, because sometimes there are too many regulations, if you just say free-for-all, go have at it, bad things will happen. And you do want a cop on the beat. And whether they have to be as pugnacious as Spitzer or whether they could – there's some halfway house, I don't know.

39:24Brooke Masters: But a completely copless street, Wall Street, seems like a terrible idea. Absolutely. I mean, in many ways, the only people who are actually trying to, you know, expose wrongdoing right now are the media. And one of the many ironies in the story is that Henry Blodgett, after he is shot into the headlines because of his POS email, he then faces his own series of, you know, attacks and censure and stuff like that, leads the industry. And then he pops up as someone who's doing all kinds of interesting ventures, including funding a media or running a media outlet and creating one. So, you know, the world has a very strange way of going full circle after all this.

40:04Nothing like being pilloried in the press to then end up creating your own media outlet after that. But I'm curious, you wrote this wonderful Lunch with the FT back in 2009 where you interviewed him. And you say at the end, now 50, his hair has a few new grey flecks and the wrinkles around the eyes are a bit deeper than they were during his glory years when you were talking to him so much, both during the extraordinary rise and then afterwards for your book. We shake hands and he walks off slowly, a man who has all the time in the world, which, of course, he never had when he knew him initially.

40:41Given that he has all the time in the world now, what do you think he would say today, both about his own rise and fall, but also about where he sees the biggest dangers for Wall Street today?

40:52Brooke Masters: I think he would say that it is very dangerous for particularly the federal regulators to simply believe in the goodwill of the industry, that that is a recipe for disaster. It's worth remembering that in the analyst scandal era, the SEC knew perfectly well that there was a conflict of interest. They actually, Harvey Pitt, who was the chairman at the time, convened a meeting several months before the Merrill Lynch case became public saying, guys, this analyst thing where they're going on TV and you guys are tying their compensation to how much investment banking money you're making. That's bad.

41:33Brooke Masters: You should fix this. I'll give you like six months to fix it. Wow. And they actually said that. They knew about it. It was a private meeting. They knew there was a problem. They didn't know because in the era, they didn't think about looking at the emails and how bad the emails were. But no, they knew perfectly well there was a problem. And if you talk to people in the interest, they're like, oh, we would have gotten around to fixing it. You know, after we after, you know, mom and pop had lost all their shirts. Yeah. And after they'd collected big fat bonuses for exactly all of that. But if Spitz was around on camera now or just from your own point of view, where do you think the biggest risks for retail investors today are?

42:08Is it in crypto? Is it in AI stocks? Is it in these meme stocks, things like, you know, all these trading platforms that aren't controlled? Is it around AI and robo-advisors? Where do you see the biggest dangers for retail investors? And what should people be diving into if they want to make their name as a tough regulator now?

42:26Brooke Masters: Well, I think one of the things is this idea that we're going to open alternative assets, whether it's crypto, private credit, private equity, to smaller investors. And that's dangerous for two things. One is that those are complicated products and with long time horizons, and it's very hard to tell upfront whether you're getting a good deal. The other is that the companies that the firms that make and sell them have never dealt with retail. And so they are not used to making sure that people understand what they're buying. And so I think almost certainly that's going to end in tears. And some of the companies may do it perfectly well.

43:01Brooke Masters: They may do a good job. But there's a lot of room for either a bad actor or a lazy one to missell a lot of products to a lot of people. And I think that's true for crypto as well. I think the AI stocks are more complicated. Those companies, SpaceX and if we get Anthropic and OpenAI, those are big companies. and it's less clear to me that there will be an obvious conflict of interest in them. The other thing I think somebody wanting to make their name might want to look into is this question of whether there's circular financing going on in these big AI stocks and AI suppliers. And that reminds me of the dot-com era where there were things like the telecoms companies were incredibly dependent on the internet bubble because they were selling lots of equipment.

43:44Brooke Masters: And so you can see that that too might have a parallel. And I would say an ambitious state regulator, given that the feds are not on the beat. You know, you wonder the next New York attorney general. Well, we've got Mamdani as New York mayor, Zoran Mamdani. And, you know, the whole tenor of his government is that they're willing to take on big business and Wall Street when it suits them. Is there anyone floating in the wings who you think is coming forward? I mean, Lena Kahn's now advising Mamdani, the former head of the FTC under Biden. She's very progressive. But is there anyone who looks like they might be about to do this?

44:17Brooke Masters: I would say the progressives running New York City right now clearly could be interested in this subject. The way the laws are set up, the mayor's office is a tough place to do this from. Attorneys general have an actual role in regulating finance. And so what I would do is look around the country and for blue state attorneys general. and particularly there are two that I think have real potential as new Spitzer-esque figures, hopefully without the sex scandal. In California, you see Rob Bonda fighting back on issues of antitrust, which is another area the federal government's not fighting on.

44:55Brooke Masters: And in Oregon, what's really interesting is the state attorney general there went to his legislature and said, the feds are not prosecuting financial crimes as much as I think they should. Can I have extra money to do it. I promise it'll make more money than it costs. And he's well into that campaign. Fascinating. Well, I must say one of the other great lessons of this bit of story, aside from the frailty of human psychology and emotions and the susceptibility to be dragged and distracted by, you know, succumbing to various vices. One of the main lessons is that whenever you see retail dashing into a new product and whenever you see, I should say, you know, German and Japanese regional banks or investment groups dashing into a new product, that usually signals that the peak is near.

45:42And the fact we've seen such a big retail boom in the last year in America is very striking in terms of retail investors getting involved in all kinds of finance and all kinds of new instruments. So lots to think about, lots to watch for in terms of the question of who might actually end up being the next Spitzer-esque type character, hopefully without the scandal going forward. So just remains for me to say a very big thank you to you, Brooke. Your book, Spoiling for a Fight, I think is still very, very relevant. And it's been great having you on the show. Thank you. Thanks for having me. It's been a pleasure.

46:17So that's it for this episode of The Story of Money from the Financial Times. If you liked it, please do subscribe, comment and also like the show. And if you really enjoyed it, then come and join us at the FT Weekend Festival this September at Kenwood House in London. Robin and I will be talking to the author, David McWilliams, about what Dante thought about bankers. It's pretty damning, haha, but it will be really interesting. Details, including a special discount promo, are in the show notes. That's it. I'm Gillian Tett, and I'll see you here next week.

47:02Thank you.

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