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The Tally Ho

Saturday, February 05, 2005

Spitzer on SS Reform and Corporate Responsibility

The following is from New York Attorney General Elliot Spitzer's speech at the National Press Club, 31 January 2005.
The first is that the business leadership in the nation right now is pushing back against the effort to ensure codes of conduct, ethical behavior, objecting to Sarbanes-Oxley, objecting to the SEC’s effort to mandate disclosure, and certain behavior patterns -- the business leadership is saying “Enough, we got the lesson, back off.”

Second, the Chamber of Commerce, the U.S. Chamber, which is pehaps the preeminent - or styles itself as the preeminent voice for business leadership - is going to court to challenge the SEC’s capacity to issue the regulations relating to mutual funds, board behavior, accounting rules, and other series of rules that the SEC believes are essential to ensure integrity in the capital markets.

Third, that the president of the Chamber of Commerce, in a rather direct attack on the cases that my office has made, said recently that he felt that we were targeting individuals for honest mistakes. In an issue that I’ll come back to, Rick didn’t mention the settlement with Marsh today in “honest mistakes” and we’ll get back to that.

And fourth, there has been an enormous effort, sponsored by some of the business leadership, to pre-empt states, and my office in particular - pre-empt us from our capacity to bring the types of cases that we have been bringing over the past number of years.

Now what is this all about? Really this is a debate about the role government should play in defining the boundaries of appropriate business ethics; defining what it means to participate in our economy; and what the expectations are for our business leadership; and who is supposed to enforce those boundary lines.

Now, the interesting thing about this debate is that everybody invokes the same heroes. Everybody these days -- and for good reason, maybe it’s because of the biographies that have just been written -- harkens back to Alexander Hamilton, everybody harkens back to Teddy Roosevelt. These are the two icons, the two individuals whom we all praise and say, “They understood what government should do. They understood how the economy should function. They understood how to make the marvel of the private sector generate wealth that we so desperately want.”

And the interesting thing is that a hundred years ago is when Teddy Roosevelt was running and was elected president -- of course, he assumed the presidency after the assassination of McKinley, so he didn’t run for the presidency in 1900 -- but 1904, a hundred years ago, when he ran for the presidency, he had just had a term or a first couple years where he had become the scourge of business. Teddy Roosevelt had attacked the cartels, attacked illegal behavior, and he was reviled by business leadership. So the irony is that those who now invoke him, if they actually looked back at what he did, and what their predecessors in the business community said about him a hundred years ago, perhaps would re-think their holding him out as an icon. If any of you were to listen to the few remnant speeches that he gave that are on tape -- and a friend of ours gave us some CDs of great speeches of American history-- we listen to it, remarkable things that he was saying, about the failure of ethics in the business leadership, and the peverse effect on our economy of the cartels that he was pursuing.

On the rising costs of premiums
Now, one footnote to the insurance issue. The President of the United States, whom we all respect, is out there right now, attacking the many problems that drive premiums higher. And they’re problems, many of them. There are a multitude of problems. I have not heard a single word from the White House saying maybe premiums are higher because the insurance companies formed an illegal cartel. They pled guilty to it. The record is overwhelming. It is out there. Not a word. Not a single word. Everybody else is the causative factor. The insurance industry has corruption that is rife throughout it, rife. It touches every line of insurance that is purchased. Every line. And we will keep going until we find it.

Another case that we made, the Paxil case: pharmaceuticals. Not to bore you with details, but Paxil is a drug that was being prescribed for off-label use to adolescents, and GlaxoSmithKline, the company that makes it, was saying to the world, "It is safe and efficacious." Those are their words.

Well, the problem is, they had done five studies. One of them found it was marginally better than a placebo. The other four found, in combination, either that it was no better and/or that it generated suicidal tendencies among adolescents. Did they tell people that? No. They didn't. If I were a parent of an adolescent who had been prescribed this drug, or if I were a doctor considering whether or not to prescribe it, I would want that information.

So we sued them. We sued them -- not to say, "Take the drug off of the market." That's not my prerogative, it shouldn't be my decision. We sued them on the theory that the information, the clinical testing data, should be revealed to the public. And we said, simply, “Create a Web site. Post this data, so that people will have a full array of information, so they can make informed judgments." And they agreed, of course. They agreed, they said, "Fine." And that Web site now exists. And Forest Labs has agreed to do the same thing, and other pharmaceutical companies are getting pressured to do the same thing, because it makes sense. Getting pressured from the medical journals and the doctors who do the testing, because it makes sense.

Two observations: Where has the FDA been on this issue? Nowhere. Silence. It's simply a matter of decency, disclosure and integrity. And yet this FDA has not said a word about revealing this critically important data so that doctors can make informed judgments. And not to come back to my favorite editorial page, but the Wall Street Journal editorial page, in an editorial where they called me Paxil Man, which I thought was, you know -- I don't know how to take it, but there I am. They said, and this is a quote, they said, "The system is working exactly as it should." A system which is denying doctors and patients the critically important information about the known side effects of these drugs? And look at the array of testing data that has since come into the marketplace. It has led to changed decisions about what pharmaceuticals should and should not be out there in the marketplace. And yet they, the paragons of honesty and integrity in the free market said, "The system is working exactly as it should." Ridiculous. Flat out ridiculous.

On Social Security
We are going through a debate right now relating to the privatization of Social Security. And I would ask people this question: You have an administration that failed to protect investors, failed to protect them, and yet they are the administration that is saying, "Take the safety net that we have and invest it in a system that was fundamentally broken, before others stepped in to try to save it."

If this administration had said to the public, five years ago, "Do you know what? There are flaws. We have to protect you. We have to protect you before we ask you to invest your safety net in the system," I'd be more sympathetic. But while on the one hand they are saying, "The system does not need to be fixed, there was nothing wrong with it," they fought against the changes that we wanted. And then they say, "Take your savings and put it into that very system." Where would we be if those who are retiring had had their money in Enron and WorldCom? Where would we be? And that is the fundamental tension in what they are saying. Now, as a lawyer, I can tell you there is nothing worse than not making your best argument, except for one thing -- having the other side steal it from you.

And now I will be a partisan Democrat. Because as President Bush embraces the ownership society, and tries to claim that he is the one that is making it possible for the middle class to succeed and save and invest well, I say to myself, "No, that's not right. It is the Democratic Party, historically, that created the middle class, that protected middle-class investments, that made it possible to invest with integrity and transparency. We are the party of the ownership class that created that wealth."

The Republican Party cloaks itself right now in the language of the market, but really speaks for an ossified status quo. We as Democrats are the ones who are standing up saying, "We believe in the market. We understand the market. But the market will not survive if we do not understand its flaws, and do not understand where government has to enforce the rule of integrity."

Personally, I don't see a way that Pitaki will be able to hold on to be elected for a fourth term if his opponent is Elliot Spitzer. With Sen. Charles Schumer deciding to stay in the Senate - AG Spitzer has a clear path.


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