We must admit, we reacted with some glee when Spitzer started writing for Slate. This, we thought, would be a golden opportunity to continue to enjoy the former Governor's many and frequent missteps, and we felt no compunction about skewering Spitzer given his position as the nexus of the largest disparity between authoritarian self-righteousness and personal moral purity in the Hemisphere. We hoped that Eliot would wade into the muck again and sink himself. He has.
As you know from our recent linkage, Spitzer has drafted Judge Posner to his anti-market cause, seemingly to bang the worn drum on mutual fund fee abuses. Our suspicions were first raised when Spitzer quoted Posner without naming the case he was sourcing, properly citing his source or providing a working link to the text of the opinion on which he relied to assert:
So when I read an opinion authored by Judge Posner saying that the market is arguably incapable of either setting CEO compensation or determining mutual-fund fees, my first reaction was to put the document down, rub my eyes, and check the authorship again. Then I read on, with increasing incredulity--and pleasure.
You wouldn't know that Spitzer is talking about an obscure opinion that is almost a year old because his citation is so conveniently sloppy that it is impossible to track down unless you are a bit more of a Posner aficionado than most Slate readers. In fact, Spitzer is talking about a dissent from the panel's rehearing denial of Jerry N. Jones et. al v. Harris Associates. That's not important. What is important, but unsurprising, is that Spitzer's allegation that Posner has somehow forsaken his Law and Economics roots is not just wrong, but is such a tortured interpretation of the text that it makes the likes of Troopergate look ethical.
Spitzer asserts:
[Posner] then examined the conflicts inherent in the process of CEO compensation determination, concluding that "[c]ompetition ... can't be counted on to solve the problem because the same structure of incentives operates on all large corporations and similar entities, including mutual funds" [emphasis added].
Here's the actual quote:
Competition in product and capital markets can't be counted on to solve the problem because the same structure of incentives operates on all large corporations and similar entities, including mutual funds. Mutual funds are a component of the financial services industry, where abuses have been rampant, as is more evident now than it was when Coates and Hubbard wrote their article. A business school professor at Northwestern University recently observed that "business connections can mitigate agency conflicts by facilitating efficient information transfers, but can also be channels for inefficient favoritism." She found "evidence that connections among agents in [the mutual fund industry] foster favoritism, to the detriment of investors. Fund directors and advisory firms that manage the funds hire each other preferentially based on past interactions. When directors and the management are more connected, advisors capture more rents and are monitored by the board less intensely. These findings support recent calls for more disclosure regarding the negotiation of advisory contracts by fund boards."
It is pretty obvious to anyone who reads on occasion that Posner is indicting the non-market based structure of incentives and "inefficient favoritism" as the issue here. Calling for more disclosure is about as free-market as apple pie. This is probably why The Spitz decided to elide that section and mutilate the first clause.
Posner later makes a simple point. That being, if, as a court, you rely on the "industry standard" as a guide for mutual fund fees, you enshrine that standard as a "floor" and prevent the functioning of the market to lower those fees. This is hardly radical stuff and is, in fact, typical Posner, just as Spitzer's interpretation is typical Spitzer.
We understand that Slate must have wanted to inject a bit of controversial buzz by bringing on the Spitz. Unfortunately, what began as a good instinct has devolved into a rather sadly pathetically cry for attention and a restoration of hopelessly lost relevance with badly out of context arguments from year old dissents to en banc rehearing denials.
The irony of Dealbreaker lecturing the former governor on the ethics of legal scholarship is not lost on us. We wonder if it is lost on Slate. Slate, please, find another court jester. Spitzer is dusty.
Judge Posner Wrote What? [Slate]
Earlier: Eliot Spitzer Gets Off On Reading About Policing Executive Compensation
Posted by Anal_yst , Apr 15, 2009 1:12PM
How's it feel to get your ass handed to you, eh, Spitzy?
At least EP would have the courtesy to remove her socks, before giving you such an unforgiving analpounding.
Posted by guest , Apr 15, 2009 1:25PM
Not really an obscure opinion - the Supreme Court granted cert. Spitzer missed that, too.
Posted by Equity Private , Apr 15, 2009 1:31PM
The Supreme Court granting Cert has little to do with a dissent on the rehearing denial.
Posted by guest , Apr 15, 2009 2:26PM
I'd like to inquire about Equity Private's law school credentials. Which law school did Equity Private attend, and when did he graduate ?
I'm betting on University Of Phoenix Online, with a degree in Associate of Arts in Criminal Justice:
http://www.phoenix.edu/online_and_campus_programs/degree_programs_description.aspx?progversion=255&location=0&zipcode=
Posted by guest , Apr 15, 2009 2:39PM
TLDR, EP.
Posted by guest , Apr 15, 2009 3:03PM
too res, didn't ipsa
Posted by Equity Private , Apr 15, 2009 3:21PM
"I'd like to inquire about Equity Private's law school credentials. Which law school did Equity Private attend, and when did he graduate ?"
Better work on getting my gender right first before you ask after the pedigree on my JD/MBA.
Posted by guest , Apr 15, 2009 3:34PM
@4, you forgot to ask where she got her credentials in advanced avionics (per her "how to fake your own death" piece from a little while back)
Posted by guest , Apr 15, 2009 3:36PM
Nice analysis, EP.
Posted by Equity Private , Apr 15, 2009 3:48PM
"@4, you forgot to ask where she got her credentials in advanced avionics (per her "how to fake your own death" piece from a little while back)"
Again, he'll have to get my gender right if he wants to ask about my pilot's license.
Posted by guest , Apr 15, 2009 4:42PM
Wow, anyone who relies on DB for legal analysis should off themselves this instant. Sorry, EP, you're clueless.
Posted by Equity Private , Apr 15, 2009 5:13PM
Feel free to enlighten us with your scintillating defense of Spitz- or your witty and dynamic legal re-interpretation of the Posner dissent (at your convenience, of course).
Whatever the content of your discussion, this was hardly legal analysis in the first instance, by the way, for either side. This had more to do with the plain meaning of Posner's prose, the butchering hack editing job by Spitzer in a weak "I told you so" attempt and the sad obsession with the continuing attention of the public eye by same.
Calling me "clueness" without addressing any of the above content whatsoever is, of course, itself quite "clueless." But then, that's easier to do than actually read the dissent and expose Spitz to some critical thinking (for a change) isn't it?
Posted by guest , Apr 15, 2009 5:38PM
EP, you're a simpleton idiot. Spitzer and Posner are highlighting the same issue, albeit from a slightly different manner. Spitzer makes two points: 1) that the directors themselves tend to be CEOs, therefore they have an incentive to set large compensation precedents; and 2) that because CEOs usually appoint the directors there is an inherent conflict of interest. He then goes on to conclude that because this structure is embedded across the industry, market mechanisms cannot be relied on to correct this issue.
Posner's conclusion is essentially the same, although he focuses on the "connections" between the agents that are supposed to check each other, and the favoritism that results from those connections -- favoritism that obviously translates into failure of fiduciary responsibilities. Disclosure, as you point out, is NOT what he's calling for as a remedy. He's not as stupid as you. Disclosure, by itself, doesn't correct structural conflicts. You need actual structural adjustments.
Posted by guest , Apr 15, 2009 6:36PM
EP, it's okay to be wrong (from page 4 of Posner's dissent):
"The panel bases its rejection of Gartenberg mainly on an economic analysis that is ripe for reexamination on the basis of growing indications that executive compensation in large publicly traded firms often is excessive because of the feeble incentives of boards of directors to police compensation. [numerous citations] Directors are often CEOs of other companies and naturally think that CEOs should be well paid. And often they are picked by the CEO. Compensation consulting firms, which provide cover for generous compensation packages voted by boards of directors, have a conflict of interest because they are paid not only for their compensation advice but for other services to the firm—services for which they are hired by the officers whose compensation they advised on."
It's hard to argue that Spitzer is offering a "tortured interpretation" of this point.
Posted by guest , Apr 15, 2009 6:57PM
What 2 said. This case is hardly "obscure":
1. It is going up to the SCOTUS.
2. It got attention in the legal media because it pitted Posner against Easterbrook.
3. There has been a wealth of academic commentary on it.
Posted by guest , Apr 16, 2009 4:25PM
"Posner is indicting the non-market based structure of incentives and 'inefficient favoritism' as the issue here."
In other words, the supposedly free market in CEOs actually has many market defects in the form of "inefficient favoritism", the fact that the market can't go below the "floor", and other problems pointed out by Posner. In other words, "the market is arguably incapable of either setting CEO compensation or determining mutual-fund fees" -- exactly what Spitzer said.
The long blog post actually doesn't contain any analysis showing that Spitzer misread Posner. It is just empty nonsense complaining about the lack of cite (heard of lexis word search? do you think Slate should bluebook their articles?) and confusion about the many ways to point out market defects. But conservatives are often unable to see market defects. Posner's training in antitrust usually prepares him better than other conservative types to spot market defects.
I don't see Spitzer as mischaracterizing Posner at all. But I sure see EP mischaracterizing Spitzer.