NEW YORK - In between good-natured gags about the "angularity" of his jaw line and quotes from Homer Simpson, New York Attorney General Eliot Spitzer told financial journalists here that despite record-breaking fines and penalties, the financial world is doomed to repeat its mistakes.

"There's absolutely no question the lessons will have to be learned over and over and over again," he told a packed house at the New York Financial Writers Association annual awards dinner. "Every bubble will be burst, there will be scandals, there will be false reliance and there will be problems."

Spitzer also compared the marketplace's reaction to the scandal to highway driving. "I know how I feel when I see somebody else getting a speeding ticket. Your first thought is, I'm glad it was them and not me,' and then you slow down," Spitzer said. "The question isn't have you learned the lesson forever? The question is for how long will you slow down?"

Spitzer said mutual fund firms and the financial services industry rely too heavily on the status quo and are reluctant to go against the grain. He pointed to excessive CEO compensation, which he said was 531 times greater than the average employee's salary, a 2002 figure he quoted from Business Roundtable. Notably, Spitzer added, "We will win" the case against former NYSE head Dick Grasso.

A second contributing factor to the scandals of the past few years was decaying integrity in the financial markets. "The pressures of competition have forced us down to the lowest common denominator, and if nobody will lift the bar and say this isn't working, then the marketplace will break down," Spitzer said.

The 1980s and 1990s changed the face of the marketplace, with many more average investors, most with limited knowledge of the markets, becoming more active in their own investments. "There were additional and fundamental obligations that were rightfully imposed on the investment houses when their constituents changed. They did not understand that and deal with it properly," Spitzer said.

When negotiating with one of the investment banks during the then-record-setting Wall Street analyst settlement, Spitzer said one of the firm's lawyers did not deny the allegations but, rather, used the excuse, "We're not as bad as our competitors."

It's that attitude that "manifests that they understood that everybody was playing this game and nobody wanted to stand up and say anything about it," Spitzer said. "In this context, where was the ICI? Where was the AICPA? Where was the SIA? This welter of business wizards was supposed to be there reinforcing this notion of self-regulation."

Self-regulation apparently has not worked, he said. "Frankly, I don't know what the alternative is. None of us expects the SEC to have a cop in every corner watching every trade, watching every hedge fund or mutual fund investment," he said. Self-regulation will fail if the groups that are supposed to speak with judgment and wisdom and the experience of the marketplace do not fulfill their responsibilities.

"Hopefully we have redefined what CEOs are supposed to do, what lawyers, audit committees, investment bankers, institutional shareholders are supposed to do," Spitzer said. "Each of the constituent decision makers has had its role redefined and hopefully reestablished so that the lassitude of the decade where we permitted anything to go forward is behind us. Does that mean we're going to succeed? Of course not, but at least we've turned a corner."

Governor Spitzer?

While Spitzer said he is mulling a New York State gubernatorial bid, he contends that "not a shred" of his actions have been politically motivated. "It wasn't political. It can't be political when you are in my position," he said.

"When we began this, nobody had any interest in standing with me, being near me or being supportive," he said of taking on the financial markets. "It was viewed as political suicide. People said to me, Eliot, you are taking on the single industry that is the backbone of New York City [and] New York State campaign fundraising. You are crazy to do it.'"

While joking he might open up his own investment house when his run as A.G. is done, he said he won't figure out his own future path for many months. "Probably after eight years in this job [as AG], I will have exhausted whatever creativity I might have had," he said.

Meanwhile, Spitzer said that his office is in a "much earlier stage in the insurance inquiries than most people think, which is not to say that we haven't found stuff already that is awfully interesting, but it's going to take us a long time to figure out exactly what it all means." When asked if leaking news to "certain news organizations" has helped further his prosecutions and if that method is part of an overall press strategy by his office, Spitzer gamefully replied, "And when did you stop beating your wife, right?," apparently well aware he was being asked a loaded question.

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