Giving Credit

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Eric Dinallo, a Brooklyn native whose father wrote for the original Knight Rider, has a knack for wielding national influence from wonky state posts. In the attorney-general office’s investment-protection bureau under Eliot Spitzer, he unearthed the e-mails that exposed Wall Street’s biased-research scandal. After a turn as Morgan Stanley’s chief regulatory officer, he was appointed insurance superintendent by Governor Spitzer, and was kept on by David Paterson. Lately, he’s maneuvered to stabilize the bond-insurance industry and played a key role in the bailout of AIG. He was one of the first to sound the alarm on credit-default swaps. If Barack Obama is elected, Dinallo could be a candidate to head the SEC. He spoke to Jacob Gershman.

How is Paterson different from Spitzer?
Paterson leads by consensus. He does it through a level of empathy and empathic clarity that I find really attractive.

Have you been seeking advice from Spitzer?
Spitzer and I had a very long-term, close professional relationship. I’ve stayed in dialogue with him in his personal life.

You defended AIG’s $440,000 retreat.
I was shocked by the exoticness of the resort, and I thought it was tone-deaf. But I was not shocked by the concept that to keep the revenues going—to pay off the federal loan—you’ve got to keep your sales force intact. If we wanted a dead company, we could have had a Chapter 11 company.

Do you have staff retreats?
We have had an annual hot-dog-type picnic. Employees put up $25 apiece.

What’s the worst-case scenario for the unraveling credit-default-swaps market? The credit crisis is exacerbated by a failure of capital behind the CDS commitments. All of the ways we took reasonable, prudent credit for granted are beginning to dry up, and I think they’ll be exacerbated if the institutions that think they have cover through some of these credit-default swaps don’t. The consequence of not knowing who wrote them, what their creditworthiness is, or what their obligations are, means it’s very hard to predict what the ultimate settlements will be of the $62 trillion swaps.

What’ll happen to Wall Street?
It’s going to be a much more de-leveraged enterprise. In some ways, it could be beneficial for fiscal management because it’s less spiky. There’s less profit, but there’s also less loss.

What’s next on your plate?
We and other state regulators and the bond insurers have met and discussed how the federal financial-stability efforts could be applied to the bond-insurance industry.

Do you sometimes find your work impossibly confusing?
It certainly is very challenging.

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Giving Credit