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CNBC TRANSCRIPT: FORMER NEW YORK GOVERNOR ELIOT SPITZER LIVE ON CNBC'S "SQUAWK BOX" TODAY

WHEN: TODAY, THURSDAY, MAY 7

WHERE: CNBC'S "SQUAWK BOX"

Following is the unofficial transcript of a CNBC interview with Former New York Governor Eliot Spitzer today on CNBC's "Squawk Box."

All references must be sourced to CNBC.

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QUICK: WELCOME BACK EVERYONE FOR YEARS HE WAS KNOWN AS THE SHERIFF OF WALL STREET JOINING US FOR HIS FIRST CNBC APPEARANCE SINCE STEPPING DOWN AS GOVERNOR OF NEW YORK, ELIOT SPITZER.

SPITZER: MY PLEASURE. THANK YOU FOR HAVING ME.

QUICK: THIS IS YOUR FIRST APPEARANCE SINCE YOU RESIGNED ABOUT 14 MONTHS AGO. YOU'VE BEEN ON A MEDIA BLITZ RECENTLY, COVER OF "NEWSWEEK," ALOT OF DIFFERENT TALK SHOWS. WHY ARE YOU CHOOSING NOW TO STEP INTO THE PUBLIC'S EYE?

SPITZER: FRANKLY, I DIDN'T SEEK IT. PEOPLE HAVE BEEN SEEKING MY VIEWS ON CERTAIN ISSUES AND TO A CERTAIN EXTENT I'VE BEEN WILLING TO OFFER MY VIEWS ON A FINANCIAL CATACLYSM THAT COULD HAVE BEEN PREVENTED IF THERE HAD BEEN A REGULATORY FRAMEWORK THAT WAS ROBUST WHERE PEOPLE DID THEIR JOB AND HAVE A SENSE OF RESPONSIBILITY IN THE CORPORATE BOARDROOM INSTEAD OF A SENSE OF GREED. WE'VE SEEN A BREAKDOWN OF CAPITALISM, WE'VE SEEN A LIBERTARIANISM DRIVEN BY AN ALAN GREENSPAN WORLD VIEW THAT WAS DESTRUCTIVE TO THE LIFESAVINGS OF AMERICANS WHO BELIEVED THE RHETORIC COMING OUT OF WALL STREET AND WASHINGTON, AND THEY HAVE BEEN THE VICTIMS.WHAT WE'RE SEEING TODAY CONTINUES TO BE THE VICTIMIZATION OF THE MIDDLE CLASS. THE MIDDLE CLASS IS STILL SUBSIDIZING THE BIG BANKS THAT ARE BURNING OUR MONEY, THE BIG CORPORATE CEOs BURNING OUR MONEY. NOT ONE BANK CEO HAS BEEN REMOVED EVEN THOUGH WE'VE GIVEN THEM $1 TRILLION. WE'RE ABOUT TO GIVE THEM TENS OFBILLIONS OF DOLLARS.THIS PRETENSE IT'S PRIVATE MONEY. IT'S NOT PRIVATE MONEY.THE FED HAS BEEN SLIDING IT INTO THESE BANKS THROUGH HIDDEN MECHANISMS, LOWERING INTEREST RATES. THIS NOTION OF CONVERTING THE PREFERRED TO COMMON STOCK. THIS IS ALL FLIM FLAM. IT IS THE SAME SCAM AND IT SHOULD NOT BE CONTINUED.

QUICK: I WANT TO ASK YOU MORE ON THIS BUT BEFORE WE GET TO THAT. THERE ARE PEOPLE WHO HAVE BEEN UPSET BECAUSE OF THE EVENTS, WHO USED TO LOOK AT YOU AS ATTORNEY GENERAL AND SAW YOU AS ELLIOTT NESS. THERE'S A LOT OF OUTRAGE ABOUT YOUR OWN CIRCUMSTANCES. KEN LANGONE, HAD THIS TO SAY AFTER HE FOUND OUT ABOUT YOU STEPPING DOWN.

LANGONE: YOU KNOW WE ALL HAVE OUR OWN PRIVATE HELLS. I HOPE HIS PRIVATE HELL IS HOTTER THAN ANYBODY ELSE'S.

QUICK: OBVIOUSLY, HE WAS VERY ANGRY AT THAT POINT ABOUT THE INVESTIGATION LOOKING INTO HIS POINT. BUT YOU DO HAVE PEOPLE WHO SAY, WHY SHOULD WE LISTEN TO YOU AS A MORAL AUTHORITY?

SPITZER: I'M NOT SURE PEOPLE SHOULD. I'LL LEAVE THAT TO THEIR JUDGMENT. I APOLOGIZED.I HAD FLAWS. I NEVER SAID I DIDN'T. I'VE BEEN VERY OPEN ABOUT THAT. I SPENT A YEAR OR MORE DEALING WITH THOSE, WITH MY FAMILY, WITH RESPECT TO KEN LANGONE, WE HAD SUED HIM FOR HIS INVOLVEMENT IN GIVING DICK GRASSO $139 MILLION FOR RUNNING A NOT FOR PROFIT. ONE OF THE MOST EGREGIOUS EXAMPLES OF CORPORATE PAY ABUSE THAT I'VE SEEN. PEOPLE SHOULD GO ONLINE AND FINDTHE WEB REPORT, DAN WEBB, FORMER FEDERAL PROSECUTOR, COMMISSIONED BY THE NEW YORK STOCK EXCHANGE BOARD, READ IT AND REACH THEIR OWN CONCLUSIONS ABOUT THE PROPRIETY OF THAT ISSUE. I THINK HE SPEAKS FROM A VERY DIFFERENT WORLD VIEW IN TERMS OF CORPORATE CEO BEHAVIOR AND HE HAS JUSTIFIED CORPORATE CEO PAY THAT MOST PEOPLE IN THE WORLD THINK IS NOT ONLY ABUSIVE BUT BORDERS ON THEFT.

QUINTANILLA: YOU NO LONGER HAVE THE BADGE, RIGHT?

SPITZER: CORRECT.

QUINTANILLA: YOU STILL THINK THERE'S A ROLE FOR YOU TO PLAY AS A COP EXAFICIO?

SPITZER: I WILL LET PEOPLE MAKE THEIR OWN JUDGMENTS AND FRANKLY AS YOU GUYS CALLED AND SAID, DO YOU WANT TO COME ON THE SHOW? I SAID NO FOR MANY, MANY MONTHS, AND I SAID YES THIS TIME TO ARTICULATE SOME VIEWS THAT PERHAPS DESERVE TO BE HEARD SOME INSIGHTS THAT I CAN PROVIDE.

HUFFINGTON: ELIOT, I'M REALLY GLAD YOU'RE ON THE SHOW. I FEEL YOUR PERSPECTIVE IS SO FRESH. I WROTE A BOOK IN 2003, AND YOU'RE A LEADING CHARACTER IN IT BECAUSE YOU WERE LEADING THE CHARGE AGAINST IT. MANY OF THE PEOPLE WHO NOW SOUND ALMOST QUAINT.THE AMOUNTS OF MONEY THAT WE'RE TALKING ABOUT WHEN WE'RE DEALING WITH GLOBAL CROSSING AND ENRON AND THE CULPRITS OF THOSE YEARS ARE TINY COMPARED TO THE AMOUNTS OF MONEY WE'RE DEALING WITH NOW. ON TOP OF IT, AT THE TIME, IT WAS THE SHAREHOLDERS THAT WERE ON THE HOOK. RIGHT NOW IT'S THE AMERICAN TAXPAYER THAT'S ON THE HOOK FOR TRILLIONS OF DOLLARS.

SPITZER: THAT'S RIGHT.

HUFFINGTON: SO HOW CONCERNED ARE YOU THATWE'RE GOING TO EXPRESS OUR OUTRAGE. WE'RE GOING TO MAKE A FEW COSMETIC CHANGES, AND THEN WE'RE GOING TO GO BACK EXACTLY WHERE WE WERE?

SPITZER: YOU ARE EXACTLY RIGHT, ARIANNA.WHAT HAS BEEN HAPPENING IS WE HAVE HAD THE MOST MASSIVE BAILOUT OF CORPORATE AMERICA, ALL FUNDED BY TAXPAYERS. ALL OF THE ENORMOUS LEVERAGE AND DEFAULTS AND OUTRAGEOUS BEHAVIOR OF CEOs HAS BEEN ABSORBED BY TAXPAYERS. EVERYONE SAYS WE'VE DELEVERAGED.WE HAVEN'T DELEVERAGED. WHAT WE'VE DONE IS SHIFT THE OBLIGATION FROM THE BACKS OF THE CORPORATIONS OVER TO SHAREHOLDERS. WE'VE LEVERAGED THE FUTURE OF OUR KIDS TO THE TUNE OF TRILLIONS AND TRILLIONS OF DOLLARS. I'M NOT EVEN SURE WE'RE SEEING COSMETIC CHANGES AT THIS POINT. WE STILL HAVE THE SAME BANKING SYSTEM IN PLACE THAT GOT US INTO THIS MESS. I HAVE NOT SEEN ANY CHANGES IN TERMS OF BEHAVIOR, ANY CHANGES IN TERMS OF RATIONALIZATION. GOLDMAN IS NOT ON THE LIST TODAY SUPPOSEDLY IN TERMS OF NEEDING ADDITIONAL CAPITAL? WHY IS THAT?THEY GOT $12.9 BILLION AS ONE CHECK IN THE AIG, THE CONDUIT PAYMENT, WHEN AIG WAS BAILED OUT FOR $173 BILLION IN AGGREGATE. $12.9 BILLION WENT TO GOLDMAN. WHY?NOBODY'S ASKED THE FEDERAL RESERVE WHY THEY DID THAT, WHY THEY SIGNED OFF ON THE COUNTERPAYMENT. TO YOUR POINT ABOUT THE QUAINTNESS OF THE NUMBERS, WHEN WE HAD OUR CASE WITH AIG FOR FINANCIAL FRAUD, THEY SETTLED WITH US AT THE TIME WAS THE SINGLE LARGEST FINE THE COMPANY HAD PAID IN HISTORY FOR FINANCIAL FRAUD. IT DOES SOUND QUAINT, $1.4 BILLION.THAT'S NOT EVEN A FOOTNOTE TO THE NUMBERS WE'RE TALKING ABOUT. THE HAPPY TALK WE'RE SEEING IS -- BECAUSE I HAVEN'T SEEN JOB FIGURES THAT MAKE ME FEEL GOOD.I HAVEN'T SEEN CAR SALE FIGURES THAT MAKE ME THINK CONSUMERS ARESPENDING.I HAVEN'T SEEN HOUSING PRICES COMING BACK.THE ONLY NUMBERS PEOPLE LOOK TO TO MAKE THEMSELVES FEEL GOOD IS THE BANKS ARE SUPPOSEDLY SOLVENT.THAT'S BECAUSE WE GAVE THEM $1 TRILLION.

HUFFINGTON: TOMORROW WE'RE GOING TO HAVE THE JOBS NUMBERS, AND THEY'RE SUPPOSED TO BE BETTER THAN THE MARCH NUMBERS.WHERE ARE THE NEW JOBS REALLY GOING TO COME FROM IN THE KIND OF MAGNITUDE THAT WE NEED TO TURN THE ECONOMY AROUND?

SPITZER: ARIANNA, THAT IS WHAT WORRIESME VERY DEEPLY. I DON'T SEE THEM COMING IN THE MANUFACTURING SECTORS AND SECTORS THAT CREATE MIDDLE CLASS JOBS AND THAT CREATE SAVINGS OVER THE LONG HAUL.WHERE I DO SEE THEM COMING ARE IN SECTORS THAT ARE QUASI-PUBLIC, EDUCATION, HEALTHCARE, AND GOVERNMENT. THE LONG RUN, YOU CANNOT SUSTAIN AN ECONOMY BASED ON GROWTH IN THOSE SECTORS BECAUSE THOSE SECTORS, DIRECTLY OR INDIRECTLY,ARE SUPPORTED BY TAX DOLLARS. WHAT WE NEED ARE PRIVATE SECTOR JOBS THAT PERMIT REAL VALUE ADDED SAVINGS AND WILL CONFRONT OVER THE LONG HAUL, THE BALANCE OF PAYMENTS DEFICIT THAT WE HAVE WITH THE REST OF THE WORLD BECAUSE THE REST OF THE WORLD HAS BEEN BAILING US OUT.

QUICK: LET'S GO BACK TO THE BANK STRESS TEST SO MUCH GROUND WE JUST COVERED HERE. THE BANK STRESS TEST OUT TODAY, THERE ARE PEOPLE WHO SAID THE GOVERNMENT DID A VERY GOOD JOB OF WALKING THIS FINE LINE OF TRYING NOT TO COMPLETELY TANK THE MARKETS OR CREATE A RUN ON THE BANKS, AND MAKING SURE THERE'S SOMEBODY LOOKING AT THE BOOK YOUR CONTENTION IS THEY SHOULD HAVE BEEN LOOKING AT THE BOOKS FOR A LOT, LOT LONGER.

SPITZER: WHEN I FIRST HEARD THAT EVERYBODY IS EXCITED THE FED AND THE TREASURY WERE GOING TO BE DOING STRESS TESTS, I SAID, WAIT A MINUTE. WHAT HAVE THEY BEEN DOING FOR THE LAST TEN YEARS? IT'S ALMOST AFTER YOU WENT TO THE DOCTOR FOR A CHECKUP, AND AFTER TEN YEARS, HE SAID I'M GOING TO CHECK YOUR BLOOD PRESSURE AT THIS TIME. WHAT REGULATORS WERE SUPPOSED TOBE DOING THROUGHOUT THE LAST DECADE WAS ASKING THAT VERY SIMPLE QUESTION, WHAT IF? WHAT IF YOU HAVE A DEFAULT RATE THAT INCREASES? WHAT IF INTEREST RATES GO UP? WHAT IF UNEMPLOYMENT RATES GO UP? WHAT IF CREDIT CARD DEFAULTS CONTINUE TO INCREASE BECAUSE SPENDING IS LOWER.WHATEVER THE METRIC MAY BE, WHERE HAVE THEY BEEN? UNTIL WE SEE HOW THEY'RE MEASURED OR QUESTIONS THEY ASK, WE DON'T KNOW IF THESE STRESS TESTS ARE REAL. UNDERSTAND THAT EVERY PROJECTION THAT HAS COME OUT OF EVERY MAJOR GOVERNMENT ENTITY OR GENERAL MOTORS OR PRIVATE SECTOR AS WELL OVER THE LAST YEAR HAS BEEN FUNDAMENTALLY WRONG. IF YOU LOOKED AT THE VERY FIRST GENERAL MOTORS BUSINESS MODEL LAST DECEMBER WHEN THEY WERE COMING FOR A FEDERAL BAILOUT, I THINK THEY SAID 16 MILLION CAR SALES THIS YEAR. WE KNOW THAT IS OFF LIMITS BY A MAGNITUDE OF 2-1 GIVEN WHERE THE MARKET IS.WHAT WERE THE PRESUMPTIONS?WHAT IS THE UNEMPLOYMENT RATE PRESUMED IN THE STRESS TEST? WHAT WERE THE INTEREST RATES?WHAT WERE THE DEFAULT RATES? DID THEY GENUINELY DO A STRESS TEST THAT'S A REAL STRESS TEST?

KERNEN: WHAT WOULD HAVE BEEN THE RED FLAG IN SEEING THIS SYSTEMIC RISK IN 30-TO-1 LEVERAGE?

SPITZER: YOU JUST SAID IT, 30-TO-1.

KERNEN: WHERE WAS IT WHEN YOU WERE

SPITZER: I HAVE NO IDEA

KERNEN: DID IT GET ANYWHERE NEAR 30 TO ONE? WAS IT THERE YET?

SPITZER: I DON'T KNOW BECAUSE REMEMBER WE ARE NOT A BANK RATE WHEN I WAS IAG, WE TRIED TO LOOK AT THE BANKS, AND WE WERE STOPPED BY THE OCC. THE OFFICE OF CONTROL OF THE CURRENCY.

KERNEN: SOMEONE AS ZEALOUS AS YOU WERE AS AIG --

QUINTANILLA: WHAT WOULD YOU HAVE DONE?3 0-TO-1, HOW IS THAT AGAINST THE LAW?

SPTIZER: THAT'S THE PROBLEM IT'S AGAINST JUDGMENT, AND THE FED CAN STEP IN AND SAY TOO MUCH BECAUSE THE FED HAS THE CAPACITY -- THAT'S WHY PEOPLE SHOULD LOOK AT THE FED AND THE ARTICLE I WROTE IN THE SLATE YESTERDAY, SLATE.COM. I'LL BE PROMOTIONAL IN IT.TAKE A LOOK AND SEE WHO RUNS THE FED. THE FED HAS BEEN RUN BY THE CEOs OF THE VERY BANKS THAT GOT US INTO TROUBLE.I'M DEEPLY TROUBLED.

QUINTANILLA: IF YOU WERE ATTORNEY GENERAL NOW AND YOU HAD AN ARMY OF PEOPLE WORKING FOR YOU, WHERE WOULD THE LOCUST OF YOUR INTEREST BE? WOULD IT BE THE NEW YORK FED? AND IF SO WHERE WOULD THE LEGALITY BE?

SPITZER: UNDERSTAND THERE'S A BIG DIFFERENCE BETWEEN ILLEGALITY AND BAD JUDGMENT.PEOPLE ARE LOOKING FOR CASES TO BE MADE TO SAY, YOU BROKE THE LAW. BAD JUDGMENT DOESN'T BREAK THE LAW.IT'S JUST BEING STUPID. WE ALL KNOW ABOUT THAT.WE'VE ALL HAD OUR MOMENTS, AND AS I SAID AT THE VERY TOP, ME INCLUDED. BUT JUDGMENT IS MUCH MORE IMPORTANT. WHAT THE FED SHOULD HAVE BEEN DOING OVER THE YEARS, WHAT THE TREASURY DEPARTMENT, OCC, ALL THESE GOVERNMENT ENTITIES OVER THE YEARS SHOULD HAVE BEEN DOINGIS SAYING LEVERAGE LIKE THAT WILL FAIL. READ A BOOK.I'VE BEEN PROSTILATIZED ABOUT THIS BOOK, JOHN KENNETH GALBREATH, A SHORT HISTORY OF FINANCIAL EUPHORIA, WRITTEN AFTER THE '80 CRASH. IT'S BRILLIANT. IT DESCRIBES EXACTLY WHAT'S HAPPENED. THE EUPHORIA THAT MAKES PEOPLE BELIEVE THAT THE SORT OF LEVERAGE WE HAVE CAN WORK.IT NEVER DOES.

QUICK: DO YOU THINK THIS IS A LESSON WE'VE LEARNED AFTER EVERYTHING THAT'S GONE DOWN?

SPITZER: NO.THE SCARY THING ABOUT READING HIS BOOK IS PEOPLE DIDN'T LEARN IT AFTER THE DUTCH BOLT, AFTER THE SOUTH SEA COMPANY.WE HAVE SUFFERED THROUGH THESE BUBBLES EVERY TEN YEARS, AND IT IS DANGEROUS AND HAZARDOUS, AND THIS TIME IT'S MORE CATACLYSMIC BECAUSE OF THE FALLOUT.

HUFFINGTON: AND, ELIOT, GIVEN HOW LITTLE REGULATORS DID, WHY NOW THE IMPETUS TO REGULATE HEDGE FUNDS AND PRIVATE EQUITY GIVEN THAT THEY'VE DONE SUCH A TERRIBLE JOB REGULATING COMMERCIAL BANKS, INVESTMENT BANKS, CREDIT CARD AGENCIES?

SPITZER: LOOK, THERE IS AN UNDERLYING LEGITIMACY TO THE ARGUMENT THAT WE HAVE CREATED A NONBANK BANKING SECTOR WITH ENORMOUS LIQUIDITY AND WE NEED TO KNOW WHAT IS GOING ON THERE BECAUSE THAT SECTOR, THE HEDGE FUNDS, THE PRIVATE EQUITY ENTITIES CAN EXACERBATE THE UNDERLYING PROBLEM.HAVING SAID THAT, TO A GREAT EXTENT THIS IS FINGER POINTING BECAUSE THE COMMERCIAL BANKS DON'T WANT PEOPLE TO LOOK AT THEM. THEY ARE THE ONES WHO FUNDAMENTALLY CREATED THIS MESS. FUNDAMENTALLY CREATED THE LEVERAGE. SECURITYIZED THE BAD DEBT.IT ALL BEGAN WITH SUBPRIME DEBT, AND THAT'S WHAT WE TRIED TO LOOKAT, AND THE OCC SAID, NO, YOU CAN'T. WE SAID BACK TO THEM, IF WE'RE NOT, YOU BETTER HAD BECAUSE THIS IS UGLY STUFF AND CAN BE A CANCER IN THE SYSTEM. WHEN THE REGULATORS DIDN'T DO WHAT THEY SHOULD HAVE DONE AT SUBPRIME DEBT, SECURITIZATION, RATING AGENCIES, COMMERCIAL BANKS, NOW THEY NEED A CULPRIT. THEY'RE SAYING HEDGE FUNDS. HEDGE FUNDS NEED TO BE REGULATED AT LEAST TO THE EXTENT OF WHERE IS THIS MONEY GOING, MAKING SURE THEY'RE NOT PLAYING IN THE MARKET IN A WAY THAT WILL BE FUNDAMENTALLY DESTRUCTIVE. THAT'S NOT WHERE THE PROBLEM IS.

HUFFINGTON: BANKS CONTINUE TO HAVE VICTORIES.LAST WEEK, THEY SUCCEEDED IN DEFEATING THE CRAMDOWN PROVISION IN THE BANKRUPTCY BILL.

SPITZER: A HORRENDOUS VOTE, AND THE PUBLIC SHOULD BE OUTRAGED. BECAUSE ONCE AGAIN YOU SAW THE DEMOCRATIC PARTY FAILED ON THIS ONE 12 DEMOCRATIC SENATORS RAN AWAY FROM WHAT WAS A VERY SIMPLE NOTION, PERMIT BANKRUPTCY JUDGES TO REFORM MORTGAGES THAT WOULD HAVE LENT ADDITIONAL PRESSURE, WOULD HAVE KEPT PEOPLE IN THEIR HOMES, WOULD HAVE STABILIZED THE HOUSING MARKET. BUT THE BANKS, WHICH HAVE JUST GOTTEN $1 TRILLION OF OUR MONEY DIDN'T WANT IT. 12 DEMOCRATIC SENATORS DIDN'T DOANYTHING.THERE WASN'T ENOUGH PUSHBACK FROM THE WHITE HOUSE.I DON'T GET IT.

KERNEN: THE GOVERNMENT LOST THE GRASSO CASE, NO?

SPITZER: NO.WE WON A SUMMARY JUDGMENT THAT SAID HE WAS OWED, HE HAD TO PAY BACK $100 MILLION. THEY APPEALED SAYING WE, THE EXCHANGE, CONVERTED FROM A NOT FOR PROFIT TO A FOR PROFIT STATUS.SINCE WE'RE FOR PROFIT, WE DON'T HAVE JURISDICTION.

KERNEN: NOBODY IS VINDICATED.

SPITZER: NO READ THE WEB REPORT, READ THE SUMMARY JUDGMENT MOTION. NO QUESTION, BEING PAID $139 MILLION FOR NOT FOR PROFIT.

KERNEN: YOU ARE JUST AS TOUGH AS EVER.

HUFFINGTON: THANK GOD

KERNEN: I WANT TO ASK YOU A QUESTION.

SPITZER: YES, SIR.

KERNEN: I DON'T KNOW HOW YOU TAKE THIS.ELIOT SPITZER, THE ATTORNEY GENERAL, WOULD YOU HAVE PROSECUTED ELIOT SPITZER, THE GOVERNOR?

SPITZER: NO.

QUINTANILLA: WOULD YOU HAVE PROSECUTED ALAN GREENSPAN FOR MONETARY PROBLEMS?

SPITZER: NO.THIS IS JUDGMENT.

KERNEN: WHY NOT?

SPITZER: THIS IS JUDGMENT.

KERNEN: YOU REMEMBER THE STEAM ROLL COMMENT?

SPITZER: NO.

KERNEN: WHAT DO YOU MEAN NO?

SPITZER: THESE ARE JUDGMENT CALLS. THAT'S WHY THIS ISN'T -- THE LAW AND REGULATION ARE DIFFERENT THINGS. REGULATORS OF THE FED SHOULD HAVE GONE INTO THE BANKS AND SAID, GUYS, THIS IS GOING TO BE DANGEROUS. CALM DOWN. WE CAN'T EXTEND CREDIT TO YOU AND GIVE YOU ALL THIS MONEY AT 30-TO-1 LEVERAGE WHEN WHAT UNDERLIES IT IS SO BAD. YOU DON'T REGULATE THE MARKETS BY SAYING YOU'RE BREAKING THE LAW. YOU REGULATE THE MARKETS BY SAYING JUDGMENT IN HISTORY TELL US THAT LEVERAGE IN 30-TO-1 WILLFAIL AND THE FALLOUT WILL BE VERY BAD. IF YOU READ ALAN GREENSPAN'S AUTOBIOGRAPHY, YOU SEE HE'S A LIBERTARIAN ANN RAND AS THIS ICONIC INTELLECTUAL FIGURE. THAT DOESN'T HELP IN THE CONTEXT OF SOMEONE WHO RUNS A BANKING SYSTEM AND YOU NEED TO SET RULES. READ RICHARD POSNER'S ARTICLE, RICHARD POSNERWHO IS A VERY CONSERVATIVE JURIST, SEVENTH CIRCUIT. HE HAS AN OP-ED IN TODAY'S WALL STREET JOURNAL I WROTE A SLATE ARTICLE ABOUT HIM A COUPLE OF WEEKS AGO WHICH QUOTE SOME OF HIS DECISIONS HE IS NOW SAYING THINGS, WHEN WEWERE SAYING THEM A COUPLE YEARS AGO, PEOPLE THOUGHT WE WERE CRAZY.HE SAYS THE MARKET CAN'T SET CEO COMPENSATION, TOO MANY CONFLICTS OF INTEREST. SAME THING I'M SAYING NOW ABOUT THE FEDERAL RESERVE BANK, WHERE THE MEMBERS OF THAT BOARD HAVE BEEN THE SAME CEOs OF THE BANKS WHO WERE THE ONES WHO WERE PREVENTING THE FED, OR SOMEHOW THE FED DIDN'T DO THE EXAMINATIONS IT SHOULD HAVE DONE.

QUINTANILLA: EASIER FOR YOU TO SAY THIS NOW THAN IT WAS WHEN YOU WERE GOVERNOR, WHEN THIS WAS ALL GOING ON.

SPITZER: I SAID IT WHEN I WAS AIG.REMEMBER WHEN I WAS AIG, I WAS SAYING THESE THINGS, AND PEOPLE WERE THROWING BRICK BATS AT ME, SAYING YOU DON'T UNDERSTAND THE MARKET. WAIT A MINUTE, GUYS --

QUINTANILLA: BUT THE POLITICAL CONTEXT OF A GOVERNOR WHO NEEDS REVENUES TOCOME IN, YOU SAY MAYBE THE TOUGHEST JOB IN THE COUNTRY RIGHT NOW.

SPITZER: BEING GOVERNOR IS, I THINK --LET ME PICK UP ON THAT.BEING A GOVERNOR -- AND THIS IS WHY I HAVE REAL SYMPATHY -- I FEEL YOUR PAIN FOR GOVERNORS. THEY'RE NOT THE MOST SYMPATHETICGROUP ARGUABLY.EVEN ARNOLD SCHWARZENEGGER'S NUMBERS ARE IN THE LOW 30s. JON CORZINE, A WONDERFUL GOVERNOR IN NEW JERSEY, A GREAT GOVERNORGOVERNOR, DOING THE GOOD HARD THINGS. NUMBERS ARE IN THE TANK. WHY? REVENUES DOWN 20%.PEOPLE EXPECT YOU TO FUND EDUCATION AND HEALTHCARE. IF ANYTHING, DEMAND IS UP FOR THOSE SERVICES. YOU CANNOT PRINT MONEY THE WAY THE FED DOES. YOU CANNOT RAISE TAXES BECAUSE PEOPLE SAY WE DON'T HAVE THE MONEY TO PAY. YOU'RE IN A BIND. YOU'RE TRYING TO DEAL WITH A NEGATIVE SUM GAME, AND YOU CAN'T WIN.

QUINTANILLA: IN THAT CONTEXT, WERE YOU REALLY GOING TO KICK BANKS IN THE TEETH?WERE YOU REALLY GOING TO KICK REGULATORS IN THE TEETH?

SPITZER: REMEMBER ALL THROUGHOUT THIS I SAID WHEN MOST OF THOSE AROUND WALL STREET WERE SAYING THE PROBLEM IS TOO MUCH REGULATION, WHAT WAS I SAYING?I WAS SAYING YOU GUYS DON'T GET IT. THE PROBLEM IS THE LACK OF JUDGMENT, TOO LITTLE REGULATION. CEO COMP WAS THE SMALL ISSUE, IT WAS EMBLEMATIC OF THE LARGER PROBLEM, WHICH IS THAT CEOs HAD ARROGATED TO THEMSELVES UNBELIEVABLEPOWER. SHAREHOLDERS HAD ABDICATED. WHOLE SEPARATE ISSUE OF CORPORATE GOVERNANCE. THE WHOLE ECONOMY NEEDS TO BE JUMP STARTED, AND NO ONE WAS TALKING ABOUT IT.

HUFFINGTON: REMEMBER HARVEY PETE AT THE TIME CAME IN AND SAID, THIS IS NOT YOUR JURISDICTION. A LOT HAS TO BE DONE ON THE FEDERAL LEVEL. IT CAN'T BE DONE ON THE STATE LEVEL. IT'S INTERESTING YOU MENTION AYN RAND BECAUSE I FRANKLY THINK AYN RAND WOULD BE TURNING IN HER GRAVE RIGHT NOW. FOR HER, BUSINESSMEN WERE SUPPOSED TO BE DOING WELL BY DOING GOOD. SOMETHING HAPPENED HERE. THE CONNECTION BETWEEN SUCCESS AND REWARD HAS GONE. HERE CEOs ARE BEING REWARDED FOR FAILING.

KERNEN: YOU THINK IT'S BUSINESS AS USUAL TOO.WE'VE GOT A NEW ADMINISTRATION.THE OLD BOYS ARE STILL IN CHARGE.IT'S A SYSTEMIC PROBLEM. WHAT IF WE GET RID OF THE TOO BIG TO FAIL.

SPITZER: WE'VE GOT TO GET RID OF TOO BIG TO FAIL. TOO BIG TO FAIL IS TOO BIG. I THINK THERE IS A GROWING CONSENSUS, AND THIS WAS, AGAIN, CONSIDERED A HERETICAL THING A COUPLE YEARS AGO, BUT YEARS BACK WHEN THEY STARTED TO BUILD THE FINANCIAL SUPERMARKETS, I SAID TO FOLKS, IT'S NOT GOING TO WORK. IN FACT, IT'S HAPPENING PARTLY BECAUSE OF THE NATURAL FORCES IN THE MARKETPLACE, WHERE THE REAL REVENUE GENERATORS OF THE BIG BANKS ARE SAYING, WHY SHOULD WE BE HERE SUBSIDIZING OTHER PIECES OF THE BANK THAT DON'T MAKE MONEY? THEY'RE SPLITTING OFF.YOU'RE DEALING WITH INTELLECTUAL CAPITAL.SMART PEOPLE GO OFF AND CREATE THEIR OWN BOUTIQUES, AND THEY LEAVE. CITIBANK IS A SHELL.CITIBANK, LOOK AT THE NUMBERS TODAY, HOW MUCH CAPITAL THEY HAVE TO RAISE, AND THIS IS AFTERHOW MUCH MONEY HAS BEEN PUSHED INTO THEM? IT DOESN'T WORK AS A BUSINESS MODEL.IF WE BECOME THE GUARANTOR, FOR THE GUARANTOR, WE'RE GOING TO WANT TO TELL THEM HOW TO RUN THE BUSINESS? IT DOESN'T WORK.

QUICK: GEORGE FALL THINKS WE'RE GOING TO SPLIT THOSE UP. HE TOLD US THIS MORNING THAT CITIGROUP AND BANK OF AMERICA WILL NOT EXIST AS THEY DO TODAY.

SPITZER: THEY CANNOT WORK AS BUSINESS MODELS. THEY CAN BE SPLIT UP REGIONALLY,ALONG BUSINESS LINES, A LOT OF DIFFERENT WAYS TO DEAL WITH IT. THEY SHOULD NOT SURVIVE.

HUFFINGTON: A NEW POLL CAME UP THAT FOUND A MAJORITY OF NEW YORK VOTERS WOULD RATHER SEE YOU BACK IN OFFICE THAN YOUR SUCCESSOR GOVERNOR PATERSON.AND WHAT'S INTERESTING IS A MAJORITY OF NONWHITE VOTERS SAID THEY PREFERRED YOU.WHAT DO YOU MAKE THAT HAVE? AND I THINK GREEK VOTERS TOO.

SPITZER: WE ALWAYS LIKE LAST YEAR'S PRODUCTS. I DON'T KNOW.I DON'T READ ANYTHING INTO IT.I'M NOT GOING NEAR THAT.I WISH DAVID EVERY BIT OF SUCCESS. I HOPE EVERY NEW YORKER WILL DO ANYTHING POSSIBLE TO MAKE SURE HE'S --

KERNEN: HOW ABOUT COMMERCIAL REAL ESTATE?

SPITZER: COMMERCIAL REAL ESTATE IS A MESS.

KERNEN: YOU'RE BUYING, THOUGH.

SPITZER: WE'RE BUYING.WE'RE OPTIMISTS. WE BOUGHT A BUILDING IN WASHINGTON, D.C.

KERNEN: I WOULD TOO. THE GOVERNMENT IS GOING TO TAKE OVER, AND THERE WON'T BE ANY PRIVATE INDUSTRY.

SPITZER: WASHINGTON DC IS JUST A SEPARATE MARKET

KERNEN: THAT'S THE GROWTH CITY OF THE UNIVERSE.

SPITZER: OTHER THAN WASHINGTON, D.C., THE OVERHANG, BOTH FOR THE BANKSIN TERMS OF THE DEBT THAT'S OUTSTANDING IS A SERIOUS ISSUE, NOT SAME ORDER OF MAGNITUDE AS THE RESIDENTIAL DEBT, BUT IT'S A VERY SERIOUS ISSUE.COMMERCIAL REAL ESTATE PRICES ARE PLUMMETING.

KERNEN: I DON'T CARE WHO YOU ARE, WHETHER YOU'RE A MUSE, WHETHER IT'S JUST A VOICE, YOU'VE GOT TOCOME BACK AND GUEST HOST, I THINK.NO? YOU JUST DID IT FOR ARIANNA.

SPITZER: ARIANNA CALLED. I SAID, HOW COULD I SAY NO?

QUICK: GOVERNOR, WE WANT TO THANK YOU VERY MUCH FOR JOINING US TODAY.WE APPRECIATE THE TIME.WE DIDN'T EVEN DIG INTO COMMERCIAL REAL ESTATE.

SPITZER: I'LL COME BACK FOR THAT.

QUICK: THANK YOU. WE APPRECIATE IT.





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