Spitzer Strikes Right Where He Should

This past weekend, several of the newspapers wrote a recap of my friend New York Attorney General Eliot Spitzer's allegations against the insurance companies. Several of these writers even suggested that Spitzer at last has overreached himself.

After reading all this, and after having several people ask me about it Saturday at our financial fair with WOR, I believe I need to explain a few things: first, how Wall Street really works and second, what Eliot is really like.

First, I have to tell you that I feel like a total chump. To think that I was a key player in the financial services industry in New York for two decades and that I never once took a multi-million-dollar kickback from the insurers for steering business their way.

I never ripped off the mutual funds for big bucks or stole net asset values from the ignorant moms and pops out there. I never published or shopped corrupt stock research in return for seven-figure bonuses from corporate finance. And I never hid gigantic commissions from customers, jammed crummy investment managers down their throats for big back-end fees or rigged a billion-dollar insurance bid with a cartel of backroom buddies to make sure that the customer overpaid me for the job.

What kind of fool was I? I wasn't one. I was honest. And did I have a premonition that one day, my completely incorruptible best friend from Harvard Law School, Eliot Spitzer, would be elected state attorney general and would put an end to all of these business-as-usual practices? Every one of those methods of profiting by taking advantage of the customer had become established practice in the regulation-starved ultra-free markets until Spitzer came along. It wasn't wink and nod stuff, either; the big guns, the famous CEOs, the financial royalty, ordered much of it. You couldn't advance at some insurance or stock brokerages or mutual or hedge funds if you didn't throw the game against the customer. That's how corrupt things had gotten and how failed the regulatory environment became.

I would love to think that I saw it coming. It's true that at Harvard Law, I was obsessed with the reruns of The Untouchables, a television series where Robert Stack played an Eliot on the show, and often joked to my square-jawed classmate that he could be the logical heir to that other iconoclastic Eliot on the small screen. But that Eliot never succeeded to the extent that our Eliot had in busting up the mobs and cartels that truly gripped business. And with last week's amazing kimono-opening of the crooked insurance industry, Spitzer's proven himself to be far more lethal to the corrupt practices of Wall Street than Ness was to the gangsters of Chicago.

But the truth is that no one saw any of this coming, including Spitzer. Because, until email, the single-most important law enforcement tool since the wire tap, we knew there were dishonest people, we just didn't know they were in charge or had been blessed by the higher-ups. Without email, it was too preposterous to prove or extend the crime upstairs. I don't know anyone, for example, including major clients of Marsh & McLennan (MMC - commentary - Cramer's Take), who ever suspected that they were being as ripped off as they were. Heck, I don't know anyone who thought you could rig the whole insurance system. It was too big, too difficult to fix, with too many players, too many mouths to keep quiet, too many consciences to corrupt.

Or so we thought.

We have dozens of enforcement agencies that could have put a stop to the incessant brokerage corruption, but until Spitzer, the regulators either were too eager to please the industry, in part because they always knew they would go back to work in it, or because they simply weren't sophisticated enough to understand how pervasive the chicanery was. I can give you instance after instance where financial service folk tried to buffalo Spitzer only to discover that he knew more than they did about the practices going on under their roofs. He was too smart to be fooled by the "we always act in our customers' interests" line and he understood how juries would read email, so it never got there; the industry had to cave well ahead of the courtroom.

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Listen to Cramer's RealMoney Radio show on your computer; just click here. Click here to buy Cramer's latest book, "You Got Screwed!" Click here to order Cramer's autobiography, "Confessions of a Street Addict."