Rubin’s Detail Deficit

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Rubin did not support lower-level federal bureaucrats when they tried to impose more controls on derivatives back in the late '90s. But that's because such regulation was "not politically doable"—the industry itself would have resisted it, and Republicans and Wall Street free marketers were riding high in the late Clinton era. "The view I have now, which I've had for 20 years, is that derivatives are useful in normal times but create substantial risk in stressed times," he says, adding that he had long supported large increases in margin requirements on derivatives trading. Now he thinks these changes may actually happen. Rubin says he has also warned for years against under-pricing risk—that is to say, making it too easy to borrow vast sums to make financial bets that might not pay off.

Indeed, Rubin has often been a model of fiscal probity. He set up the Hamilton Group, a think tank aimed at keeping Democrats from spending too wildly and running up dangerous deficits. He has been advising President-elect Obama to be careful when it comes to launching a giant stimulus package. It's a good idea to pump money into the economy during a recession, he argues, but it's just as important to turn the spigot off once the economy improves—lest the massive deficits cause high interest rates that can throttle the economy all over again.

Rubin always sounds statesmanlike, but he suffers from an affliction that has seized earlier wise men. They become icons, revered for their wisdom; asked to serve on university boards (Rubin is a member of the seven-person Harvard Corporation) and trotted out to impress clients. As time goes on, they know less about the details (and in the financial world, the details are everything), but at the same time their attitudes sometimes harden. Acheson was a great secretary of state under Harry Truman, but brought back to advise JFK and LBJ, he was too much of a hard-line hawk. Beneath Rubin's modesty there lies a substantial ego and an almost Rumsfeldian certainty that he has done no real wrong. Rubin may not fully grasp what he has helped bring about—that the unregulated markets he and Greenspan embraced so completely a decade ago are out of control. Maybe Obama understands Rubin's limitations. Last week, when the president-elect created an outside board of economic advisers, he did not pick as its chairman Bob Rubin—the obvious choice. Rather, he named Paul Volcker, Reagan's Federal Reserve chairman and the man who guided the nation through the last really serious recession in the early '80s.

With Matthew Philips

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Posted By: ok4u @ 12/05/2008 10:15:33 AM

Rubin, Democrat, mentor of those Democrats Obama has selected to repair the problem, very highly paid millionaire chairman of Citigroup, was not hauled before Congress to bring a plan for recovery. No, instead Citigroup receives a bailout free of any hassle. Oh.
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Posted By: LaVern @ 12/04/2008 4:20:53 PM

I don't believe anybody that is going to run our banking system should come from the Investment Bank System. They should come from the Commercial Bank World, especially the small well-run rural banks. That's why I believe Robert Rubin's selection on the Obama Team was a poor one. I would have liked to have seen Robert Reich chosen instead because he knows a lot more about how to establish jobs in this country. Not have an INVESTMENT BANKER, working as a HEDGE FUND DEALER, selling CREDIT DEFAULT SWAPS, which Mr. Rubin, himself, says he doesn't understand. Two quotes from the article, "Rubin's Detail Deficit" by Evan Thomas and Michael Hirsh in the December 8 issue, "Everyone agrees we have to save Citi, so we're throwing hundreds of billions at it because it was so poorly managed, and yet there's Robert Rubin sitting right there in the middle of it and he's been looked to as a wise man," says Dean Baker, cofounder of the Center for Economic and Policy Research, a left-leaning think tank in Washington. "It's outrageous. We're turning to the same people who made this mess in the first place." The second quote: "Rubin is thoughtful, good-humored, convincing--but perhaps he protests too much. He may not have been the architect of the financial world that has been imploding for the last year or so. But he was, as the great Cold War Secretary of State Dean Acheson once wrote of his own role, "present at the creation." At Treasury, Rubin was a proponent of loosening the Depression-era laws barring banks from becoming investors, and he opposed attempts to regulate those newfangled (and hard-to-understand) financial instruments called derivatives." If our legislators are going to give all these corporations bailout money, they better TAX THE HEDGE FUND DEALERS, particularly the ones headquartered offshore and put on a surcharge to pay for this. We can't keep borrowing from Social Security. It's criminal.
Yours truly, Disgusted Middleclass Taxpayer, LaVern Isely
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Posted By: Holly Garfield @ 12/02/2008 8:52:06 PM

I notice that for the past eight years the country has had a split White House/Congress politcal party situation. Neither party has been particularly blameless. Both the White House and Congress have been actively supporting deregulation. I still like my idea that deregulation must fail, and that failure is known to the regulators when they deregulate. If deregulation were workable then the regulations would never have been created in the first place.

The 'leopard', the humans running businesses, does not change his spots. If you have a man-eating leopard, then put that leopard in a cage, the man eating will stop. But if you notice that the leopard hasn't eaten anyone for years you don't use that as justification for removing the cage. We 'caged' the financial 'leopard' after we had the Great Depression. Then we had no depressions for years and used that as an excuse to 'uncage the leopard.' Now the 'leopard' is feasting again.