This Holman Jenkins, Jr. WSJ ($) Business World column examines New York attorney general Eliot Spitzer’s latest propoganda campaign . er, I mean, lawsuit in which he seeks to recover a substantial portion of the rather large $200 million in compensation, pension and related benefits that the New York Stock Exchange Board of Directors bestowed on Richard Grasso, the former president of the Exchange. The entire column is good reading, and here are a few tidbits to pique your interest:

The board was chock full of the country’s leading business people, folks like Goldman Sachs Chief Henry Paulson, Bear Stearns’ James Cayne and former New York Comptroller Carl McCall. They voted unanimously to approve Mr. Grasso’s pay knowing full well its magnitude, Mr. Spitzer’s subsequent attempt to lay down a smokescreen for their benefit notwithstanding. Mr. Spitzer lauded himself Monday for taking on the national problem of overpaid CEOs. By leaving the board out of his suit, though, he’s given directors everywhere an all-purpose defense. To wit, I was too dumb, lazy, clueless, indifferent, gullible etc. to know what I was doing.

Mr. Jenkins then examines the nature of the NYSE, the reason that its members paid Mr. Grasso so well, and why they turned on him quicker than a New York minute:

The NYSE is owned by seat holders who show up on the premises every business day. Their livelihood depends on the place. They elect its board. They know what a telephone is for. They have every means and incentive to wield their collective clout to make sure their interests are being served.
Now some NYSE “specialist” firms will tell you they were afraid of Mr. Grasso; they didn’t really know what was going on. If pressed on why they bungled a matter so close to their own interests, they shrug their shoulders like an errant teenager and say they aren’t sure why they didn’t keep a closer check on things.
So we’ll answer for them: They stood back because Mr. Grasso was serving their needs marvelously. Consider the years 1995 through 2000, when the handful of small, little-known businesses that control floor trading pocketed profits of $2.12 billion. The average yearly return on their invested capital: a princely 21.35%. Mr. Grasso’s retirement payoff after 35 years at the exchange may have been gross and unsightly, but it was a small fraction of the riches he helped to preserve for the New York Stock Exchange’s most privileged constituents.
It’s also perfectly obvious why they turned on Mr. Grasso in his moment of political mugging. Anything that brings scrutiny on the inner workings of the exchange, willy nilly, is an invitation to powerful customers who’ve been fighting to eliminate the specialists in favor of a cheaper, more transparent electronic trading system.

Finally, Mr. Jenkins then turns to the motivation of Mr. Spitzer, who has made quite a name for himself extracting “settlements” from various businesses:

New York’s Attorney General, heir to a local real estate fortune, has specialized in presenting his wealthy business targets with both a problem and a solution, the latter involving writing a big check with their firm’s money. He may not exactly provoke gratitude (except among CEOs more than usually afflicted with Stockholm Syndrome) but he’s seen as someone with whom business can be done.
His political ambition is zeppelin-like, lurching over Manhattan in unmoored, alarming fashion. He was obviously eager here to limit his political risk by portraying the NYSE’s famous board as victims rather than culprits in the Grasso pay scandal. But no judge or jury will fail to understand that he’s giving them a pass for his own political interests.
Mr. Grasso understands this too, and has semaphored that he will drag them into court, forcing them to choose between pleading gullibility, inattention and incompetence or undermining Mr. Spitzer’s case. True, even a court victory might not get Mr. Grasso his good name back, but more than a few would applaud his show of resistance to a budding demagogue.

Spitzer’s case against Grasso is beyond absurd. No one held a gun to the head of the NYSE Board or its compensation committee when it approved Mr. Grasso’s compensation and related benefits. The NYSE is not bankrupt, so its creditor interests are not in a position to challege the Board’s decisions regarding management compensation. Perhaps the Board members made a bad, lazy or incompetent decision in compensating Grasso to such a liberal extent, but that’s a reason to replace Board members, not to persecute Grasso.
Spitzer’s purge on Wall Street has become so misguided that Mark Haines of CNBC joked the other evening that “the government might as well throw all of Wall Street in prison and release anyone they find innocent.” Mr. Jenkins hits the nail on the head in pointing out that the real purpose of this lawsuit is the promotion of a demagogue’s agenda rather than the protection of any public interest.
Finally, the always insightful Professor Bainbridge comments on this foolishness here. Professor Ribstein’s equally interesting observations about this mess are here.