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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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
© 2008
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