Software Nerd

Wednesday, September 06, 2006

Who is persecuting Grasso?

New York's AG, Spitzer, has learnt from Guliani's experience: prosecuting rich guys is a good route to political office. The typical "average-Joe" does not follow these cases very closely. He assumes that a sizable part of getting rich is that one scams other people, and is happy that the government goes after the worst "excesses".

Many of the cases that Spitzer is prosecuting involve the notion of "insider trading" or involve "false reporting". One would not expect "average Joe" to begin to understand why those notions are faulty. However, there is one case where the issues appear clearer: the case of Mr. Grasso, once the chairman of NYSE. This case is about whether a CEO was paid too much; surely the U.S. electorate can see that this is none of the government's business... I won't hold my breath.

Mr. Grasso is being asked to return bonuses paid to him by his employer, NYSE. This is not a case of a shyster CEO reaping a huge salary while running an organization to the ground. Grasso did a good job, the NYSE's board praised him repeatedly, and when he left the exchange was in good shape. The NYSE did well, but the case would have us believe that Grasso still did not deserve the salary.

What law, you may wonder, gives the government a say in Grasso's salary from a private organization? The basis for the case is a law that disallows unreasonable pay by non-profit organizations, which the NYSE was at the time. As happened with the recent opitons-backdating cases, a concept created for tax-law comes back to bite, allowing the government to meddle where it ought not to. [Aside: The government is using tax-law as a reason to have the IRS read Church sermons.] The argument seems to be: since we took away less of your money (as tax), we're going to tell you what to do.

There is, however, something I find more despicable than average Joe's complacency and also worse than Spitzer's relentless climb to governorship of NY on the backs of business-folk. It is this: the people who asked Spitzer to go after Grasso.

These were none other than the new management of the NYSE, in the form of Mr. Reed, once chairman Citigroup. (Aside: Reed was displaced at CitiGroup by a much abler Mr. Weill . Later Weill fell victim to Spitzer. No, I don't smell conspiracy; merely two different type of people with different ethical outlooks.) Businessmen like Mr. Reed -- often with motives they believe are ethical -- are responsible for sanctioning little bureaucrats like Spitzer. They bend over and ask to be whipped. For shame!

Updated (Nov 27th, 2007): There's a book out, with more details of Grasso's rise and fall. Here's a WSJ review.



  • What is your take on the origin of the SEC's trade-through rule? It seems to me a blatant subsidy for the NYSE, enacted by the SEC with the complicity of Congress. Did Grasso press for such a rule on his watch?

    By Anonymous Christopher, at 1:53 PM  

  • In general I don't like rules like tell people how they should do business with each other. I would be for the idea of default assumptions that can be made when the contract is silent.

    By Blogger softwareNerd, at 1:20 PM  

  • So, if it turns out that he pressed the SEC to adopt a mandatory trade-through rule during his tenure, then those of us who believe in real capitalism might want to look at the subsequent developments with some detachments.

    For if he was actually a government-crony pretending to be a capitalist, a very common genus, then his present troubles may be said to be the result of an internicene struggle among the cronies.

    By Anonymous Christopher, at 6:34 AM  

  • No, I would not look upon it with detachment. This isn't about Grasso; it is about government setting salary rules.

    By Blogger softwareNerd, at 4:59 AM  

  • Wow...this is disgusting. What a bunch of utter bs.
    I kinda threw up a little in my mouth when I read this.

    By Blogger The CrazyHumanist, at 11:53 PM  

  • "This isn't about Grasso; it is about government setting salary rules."

    At least some of it was about, in your words, "different types of people with different ethical outlooks." My point is only that Grasso's "outlook" may be more similar to that of the other side in the present litigation than you've indicated.

    By Anonymous Christopher, at 12:40 PM  

  • This comment has been removed by a blog administrator.

    By Blogger softwareNerd, at 5:31 AM  

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