Scandal met with disbelief on Wall St

By Francesco Guerrera, Aline van Duyn and Daniel Pimlott in New York

One investment banker thought it was a joke and carried on with his meeting.

Others sat speechless, unable to avert their eyes from the television screens broadcasting the end of the career of one of Wall Street’s most feared foes.

News of Eliot Spitzer’s alleged involvement in a prostitution ring, and his possible resignation as governor of the state of New York, were met with stunned disbelief in the wood-pannelled offices and trading floors of downtown and midtown Manhattan.

Some could not resist taking a swipe at a man who, as New York’s attorney general, had castigated Wall Street for its ethical shortcomings.

“It’s a complete shocker,” a senior banker said. “Everyone is gossiping about it. And plenty of people on Wall Street are saying he deserved it.”

But others stressed that Mr Spitzer’s alleged personal shortcomings ought not to tarnish his legacy as a regulator.

“This is stunning. This is like finding out that Mother Teresa had been taking kick-backs,” said Henry Hu, a law professor at the University of Texas. “But I don’t think this undermines his achievements. This behaviour has got nothing to do with what motivated him to go after Wall Street”.

Some bankers noted that Mr Spitzer’s downfall had come at time when he had been co-operating with some of his former enemies on Wall Street to try to bring atability to the troubled municipal bond sector.

Harnessing his widespread contacts from his time as attorney-general, he had been making numerous phone calls to chief executives of top banks such as Citigroup, Credit Suisse and UBS in behind-the-scenes efforts to secure fresh capital to bail out bond insurer Ambac.

Eric Dinallo, the New York insurance regulator who was appointed by Mr Spitzer and who has been working extremely closely with him on the Ambac rescue, did not know about the allegations until he saw the news coverage on Monday, people working with Mr Dinallo said.

The many executives felled by Mr Spitzer’s investigations - from Hank Greenberg, former chief executive of the insurer AIG, to Richard Grasso, former chairman of the New York Stock Exchange - remained tightlipped on Monday.

But ordinary New Yorkers, as it is their wont, could not resist opining on Mr Spitzer’s situation.

Standing outside the third avenue building where Mr Spitzer had delivered his terse statement, Eric, a 36-year-old web developer from Brooklyn, drew a parallel between the financial crisis gripping Wall Street and the personal tragedy of his hitherto nemesis.

“It’s a time of reckoning for the financial industry and everyone else on top who’s shirking their responsibilities,” he said. “I thought he was one of the righteous politicians. It’s disappointing.”