Stephen Friedman, chairman of the Federal Reserve Bank of New York, stepped down from his post late Thursday. The 71-year-old came under fire when a regulatory filing revealed that he upped his stake in Goldman Sachs Group (NYSE: GS) during late 2008, when the bank holding company was under the New York Fed's supervision.

"Today, although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper," wrote Friedman in his letter of resignation. "The Federal Reserve System has important work to do and does not need this distraction."

In his book The Wall Street Self-Defense Manual, disgraced former Merrill Lynch (NYSE: MER) internet stock analyst Henry Blodget explained his downfall this way:

If missing the top had been my only mistake, I would have survived . . . I also made a more serious mistake, however, which was to write a lot of emotional unprofessional e-mails, especially during the heat of the crash. Later, amid the wreckage, when the press, public, and regulators began calling for blood, my emails did me in . . . I was accused by New York State Attorney General Elliot Spitzer of having made remarks in e-mails that were "inconsistent" with my research (popular translation: "privately trashing stocks he was public recommending"). Along with others, I agreed to pay a humongous fine and be barred from the industry.

Cue the ironic music: Blodget has since experienced a comeback of sorts a blogger and columnist for Slate.com. Now that Spitzer's career is over after a gigantic scandal and guess where he'll be writing a column? Yep: at Slate.com with old friend. Is Slate planning to sell tickets to its Christmas party? Perhaps they could auction them off to raise money for people who lost money in the NASDAQ bubble, or perhaps pay for counseling for former prostitutes, or both.

They say that when one door closes, another opens. Well, it looks Eliot Spitzer, the disgraced former governor of New York, is going to put that idea to the test.

Word is that Spitzer is now thinking about starting an investment fund focused on distressed properties. With the housing bubble continuing to deflate and more people losing their houses every day, there certainly should be plenty of opportunities.

Of course, real estate is in Spitzer's blood. His father, Bernard Spitzer, is a New York City real estate mogul, worth an estimated $500 million. Rents in some of his buildings on Fifth Avenue are reported to be in the $50,000 range -- and that's per month. Even so, Eliot Spitzer has been quoted as saying that he wants "to take his father's real estate company to the next level."

It's not hard to imagine that Spitzer must have some pretty complicated motivations. He has a lot to make up for, and maybe by making a lot of money, even more than his father, he'll be able to redeem his name and his professional standing. He is rumored to have met with labor officials to discuss investing in the fund, so some of the profits might actually help some average working Americans rather than just the usual multi-millionaires. That would be quite a feat in itself.

And maybe by achieving a great success in real estate investment, Spitzer can redeem himself in the public eye. For now, it's impossible to mention Spitzer without searching for a punchline about high-priced hookers. Success with cheap houses may offer Spitzer a way out of that embarrassing situation.

It was just an average Wednesday night for me-researching potential stock plays, working on some blog posts and catching up on many overdue emails, all to further my goal of becoming Cramer 2.0-when I saw a post on EliteTrader.com that linked to The Smoking Gun exposing Governor Spitzer's call girl "Kristen" as 22-year-old Ashley Alexandra Dupre. Apparently, Kristen was/is her professional name. Always one to jump when opportunity knocks, I raced to dig up everything I could on Ms. Dupre to post on my blog and break some news of my own. What happened next might or might not blow your mind.

Several websites had already linked to her MySpace profile (owned by News Corp. (NYSE: NWS) so I went there and grabbed her photos to add to my story. The other sites had used the photos, too, but the pictures were all tiny and spread out over multiple pages (no doubt to increase their hits and subsequently their Yahoo! (Nasdaq: YHOO) ads, so I saw opportunity in providing them all on one page just as they were. But I didn't stop there.

I also searched other social networks like Facebook and bingo, she had a profile there! That would be "my exclusive." A few more clicks and the post was published. Within minutes, Google (Nasdaq: GOOG) has indexed my article and while I was late to the party, my "Facebook Exclusive" made my story unique and the hits tumbled in. I'm used to 200-ish visitors/hour, but thanks to this one simple post, 1,500 people visited my site within the first 45 minutes. And that's when things got interesting.

New York Gov. Eliot Spitzer today ended a once-promising political career that some thought could have ended in the White House. In a televised spectacle almost OJ-like in its scope, Wall Street's mortal enemy resigned after being linked to a prostitution ring.

Spitzer, who never had a problem with low self-esteem, didn't seem contrite during his initial public apology to his wife. He was more graceful today though not as apologetic as the media says he should have been. Spitzer at least seemed sorry.

"In the past few days, I have begun to atone for my private failings," he told the media throng. "From those whom much is given, much is expected."

Spitzer added that he was "deeply sorry" and that he looks upon his short time in office with "a sense of what might have been." His resignation is effective Monday. Lt. Gov. David A. Patterson will take over.

DealBook reports that many on Wall Street are experiencing a heavy dose of schadenfreude at the demise of New York Governor Eliot Spitzer's political career. After all, this is a guy who made his name as the "sheriff of Wall Street," conducting a high-profile campaign of charges and settlements that exposed widespread malfeasance in the financial markets.

Disgraced former analyst Henry Blodget, who was exposed as a shill for investment bankers, posted a New York Post story on Spitzer's downfall on his blog, and other enemies Spitzer made during his anti-corruption crusade are coming out of the woodwork to cast their stones.

But here's the thing: the fact that Eliot Spitzer has a fondness for unsafe sex with $5000 prostitutes doesn't make Henry Blodget any less of a cheater, nor does it detract from the tremendous public good that Spitzer did in exposing self-serving shenanigans in the New York financial district -- even if his motives and character were less than pure.

Spitzer was 100% right when he said in his brief statement that "politics in the long run is about individuals. It is about ideas, the public good and doing what's best for the state of New York."

As Herb Greenberg wrote on his blog, this scandal is an "absolutely pathetic end to a brilliant career."

Let's not allow a prostitution ring to distract us from the need to expose corruption on Wall Street

Folks on Wall Street must be pinching themselves to make sure the past 24 hours aren't a dream.

First, the reviled Eliot Spitzer was caught up in a prostitution scandal that will probably cost him his job as governor of New York. A day later, the markets had their biggest gains in almost five years after the Federal Reserve said it would inject $200 billion into the financial markets that have been pummeled by concerns over subprime mortgage crisis.

Since good things come in threes, what's next? A repeal of Sarbanes-Oxley, maybe an abolition of the capital gains tax? Why not abolish the IRS and SEC while you're at it and let capitalism run free as an unregulated bird? If you are going to dream, dream big!

But getting back to today, people gobbled up stocks as if they were eating their last meals on death row. Nine stocks gained for every one that fell on the New York Stock Exchange, according to Bloomberg News, which noted that financial shares, including Citigroup Inc. (NYSE: C), had their biggest gains since January and that Exxon Mobil Corp. (NYSE: XOM) gained the most since October 2002.

Given our society these days, should we really be surprised by crusading Governor Eliot Spitzer's prostitution scandal? These days it seems like all our heroes let us down, whether they be superstar athletes like Roger Clemens (steroids) and Michael Vick (animal cruelty), widely held technology stocks like Google (NASDAQ: GOOG) (less clicking, 40% drop in stock price) and Apple (NASDAQ: AAPL) (imperfect, 40% drop in stock price) and once-pillars of the finance industry Merrill Lynch (NYSE: MER), Citigroup (NYSE: C) and Bear Sterns (NYSE: BSC) (all had too much exposure to subprime mortgages and municipal bonds).

Mind you, in no way do I condone Spitzer's behavior -- the night before Valentine's Day no less -- but in the grand scheme of things, he's done a whole lot more good than he's done bad. You might even say it takes a criminal to know one! He'll probably be forced to resign and while sad, it should motivate him like never before to gain back the respect he once had.

For all the value and integrity we place on sports, it's really nothing more than entertainment. In no way can I defend Vick, but Clemens clearly loves his sport and simply could not let anything stop him from being the best. While it's sad that his career will be forever marred, it's a great lesson to teach kids to never cheat -- no matter what.

New York Gov. Eliot Spitzer, who crusaded against corporate malfeasance, apparently lived in a glass house. He should immediately resign in the wake of his near-admission that he was caught up in a reported prostitution scandal.

Spitzer made a somewhat perfunctory televised mea culpa, saying, "I apologize first and most importantly to my family. I apologize to the public, to whom I promised better... I am disappointed that I failed to live up to the standard I expected of myself."

That's just not good enough.

Spitzer, who reports allege is AKA Client 9, was captured on a federal wiretap, "confirming plans to have a woman travel from New York to Washington, where he had reserved a room," according to the New York Times, which broke the story. He was no passive victim here.

The irony here is inescapable. Spitzer made a national name for himself crusading against the evils of Wall Street. He had a knack for getting some of the biggest companies in the world including Merrill Lynch & Co. (NYSE: MER), American International Group Inc. (NYSE: AIG) to knuckle under to his demands without having to try his case in court.

The New York Times reports that New York Governor Eliot Spitzer will give a press conference this afternoon to announce his involvement with a prostitution ring. This is something I would expect to see on the cover of a tabloid, not the Times.

Spitzer informed his most senior administration officials that he had been involved in a prostitution ring. Just last week, federal prosecutors arrested four people in connection with an expensive prostitution operation. Administration officials would not say that this was the ring with which the governor had become involved.

Stay tuned for Spitzer's press conference for word on whether any of those four people implicated Spitzer or whether Spitzer will resign. No word on how his wife and three children feel. In January, Vanity Fair wrote after reviewing Spitzer's tough first year in office "Ask Jim Cramer of CNBC's Mad Money, Spitzer's pal from Harvard Law School, about the guy [Spitzer] and he is uncharacteristically speechless." No doubt Cramer would also be speechless about Spitzer's latest news.

An op-ed in today's Wall Street Journal wonders (subscription required) whether Eliot Spitzer's high-profile demands for change at AIG (NYSE: AIG) and Marsh & McLennan (NYSE: MMC) did more harm than good:

"In both cases, Mr. Spitzer issued ultimatums to the company boards that they had to replace their CEOs, or else he'd indict the company," the paper says. "Both companies have struggled ever since."

Before we get on Spitzer too hard, it's worth noting that almost all companies see their stock prices go down following the announcement of investigations and charges. News items like this generally reflect serious problems at the company -- and mark the first time investors become aware of certain issues that the company hadn't previously disclosed. If regulators worried about driving down share prices by launching investigations, they wouldn't be able to launch any investigations! Ultimately, investors are protected by zealous enforcement of the law.

However the notion of an Attorney General essentially installing at executives at public companies is frightening one and hopefully the failure of Mr. Cherkasky -- his resignation as CEO prompted a 5% run-up in the stock -- will put an end to experiments like this one for a long time to come.

Ideally institutional shareholders would lobby for strong upper management replacements in the face of scandal.

TheStreet.com's Jim Cramer says Bernanke's laissez-faire "policy" is at the heart of the mortgage crisis.

Spitzer's right. Believe me, much of what is happening in the bond market world in the insurance of bonds is about Darwin and laissez-faire and Ayn Rand. It is about letting the marketplace rule, and of letting capitalism run wild and roughshod. That's why I was so glad to hear Eliot Spitzer say as much on CNBC this morning.

Sure, many of the people who took these mortgages shouldn't have. But we have known since time began that you can fool people who aren't clever and who are greedy, so you have to protect them from themselves.

That's not what we did. Instead, we figured that the marketplace will take care of everything, that capitalism produces the best result.

New York governor Eliot Spitzer may be a lawyer by training, but he must harbor secret aspirations of becoming a financier. He will tell Congress today that the problems at bond insurance companies could become "financial tsunami" if they are not fixed.

Spitzer has a point. As Reuters points out, "if insurers are downgraded by ratings agencies, investors that can only hold top-rated bonds may have to sell billions of dollars of securities, lifting borrowing costs for cities and consumers alike." Banks might also have to write-down the value of any of these bonds that they hold on their balance sheets.

The debate now is whether the private sector should handle this on its own with banks including Citigroup (NYSE: C) providing financing to insurance firms such as Ambac (NYSE: ABK). The banks already have credit problems that could make those investments difficult.

If Spitzer truly wants to avoid what be feels will be a catastrophe he needs to say that New York State will provide the bond insurers some financial guarantees and capital. Then the banks are likely to come in.

Douglas A. McIntyre is an editor at 247wallst.com.

TheStreet.com's Jim Cramer says AIG's Sullivan joins the "formers" at Citi and Marsh & McLennan as Eliot Spitzer's appointee failures.

Three strikes, and Spitzer's guys should all be out.

That's my thoughts about this Martin Sullivan/AIG (NYSE: AIG) (Cramer's Take) scandal. Remember that Sullivan was basically appointed to run AIG by Eliot Spitzer after he kicked out Hank Greenberg for a laundry list of bad deeds. Just like Chuck Prince was appointed to run Citigroup (NYSE: C) (Cramer's Take) when Spitzer booted Sandy Weill, and Mike Cherkasky was appointed to run Marsh & McLennan (NYSE: MMC) (Cramer's Take) when Spitzer axed Jeffrey Greenberg.

All three men were brought in to clean up the mess. Both Prince and Cherkasky were lawyers who were way over their heads as operators.

Prince presided over the destruction of a great American bank -- although it was kind of a re-destruction in light of how bad it was in 1990 -- when he allowed billions in off-balance-sheet borrowings that he simply did not understand.

Merrill Lynch & Co. (NYSE: MER), Deutsche Bank AG (NYSE: DB), and Bear Stearns Cos. (NYSE: BSC) have been subpoenaed by New York Attorney General Andrew Cuomo as part of an investigation of "related to the packaging and selling of debt tied to high-risk mortgages," according to the Wall Street Journal (subscription required).

Among the information Cuomo is seeking is about the super cozy relationship between the banks and the credit-rating agencies, the paper said.

This is big.

Cuomo, the son of former Gov, Mario Cuomo, is a politically ambitious guy. His predecessor Eliot Spitzer made his mark exposing the sleazy practices of Wall Street analysts and brought down former New York Stock Exchange honcho Richard Grasso.

Sure this is a fishing expedition, but Cuomo is a captain of a mighty big ship. The banks better strike a deal with him fast or else they are going be in for a tough slog.