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.
[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