Spitzer's Mixed Signals

So why was Governor Eliot Spitzer of New York in Washington when he was caught on a wiretap arranging to meet with a high-priced prostitute at a Washington hotel on the night before Valentine's Day?

He was scheduled to testify the next day before the House Financial Services Committee on the decidedly unsexy topic of bond insurance.

Some of the details of those calls are in an affidavit that was part of an indictment that was unsealed in federal court in Manhattan last week and published by the Smoking Gun website.

Now that the Times has identified Spitzer as "Client 9" in the affidavit, his testimony to Congress on the following day can be read in a whole new light:

SPITZER: The best way to stop the subprime mess would have been at step one, at the point of origination, before the vast reservoir of bad debt was created. It didn't happen.

AFFIDAVIT: At approximately 9:36 PM, Temekea Rachelle Lewis aka "Rachelle," the defendant, using the 6587 number, received a call from "Kristen." During the call Lewis told Kristen that "he," a reference to Client 9 was at the hotel.

SPITZER: Clearly, we would not be here today if the mortgage brokers and lenders and appraisers had maintained reasonable standards.

AFFIDAVIT: Lewis told "Kristen" that Client 9 should be giving her "extra, that that extra should be deposited into [REDACTED.]

SPITZER: We must understand the moral hazard risks that it entails so we can properly identify and control those risks....

AFFIDAVIT: Lewis continued that from what she had been told "he" (believed to be a reference to Client 9) "would ask you to do things that, like, you might not think were safe."

SPITZER: This whole sequence of transactions has now come unraveled. The bond insurance companies are the thinnest point of defense. Although the insurers believe they have enough capital to pay eventual claims, the securities they insured have been downgraded in expectation of defaults.

AFFIDAVIT: "Kristen" said that she liked him, and that she did not think he was difficult.

by Jeffrey Cane