Why Robert Rubin Isn't to Blame for the Meltdown

Seldom does a Sunday pass of late without Frank Rich, The New York Times columnist, taking a potshot at Robert Rubin. But I've been having a hard time understanding what Rich and others who are angry at Rubin are angry about. Sometimes they claim he blocked financial regulation when he served as Treasury secretary under Bill Clinton. Sometimes they blame him for not preventing the troubles at Citigroup. Sometimes they argue that he has too many disciples in the Obama administration, that he was overpaid, or that he's not sorry enough for whatever he did.

None of these complaints makes much sense in light of Rubin's record and his oft-stated views. Let me stipulate that I'm hardly an unbiased observer. I helped Rubin write a memoir published in 2003, and I continue to think that his philosophy—fiscal responsibility, an appreciation of both the power and limitations of markets, and pragmatism in responding to their periodic failures—remains the right approach to economic policymaking. What follows, however, is my view, not his.

To me, the most wrong-headed accusation is that Rubin prevented effective regulation during the Clinton years. His view has always been that the financial system needs to be protected from market excesses. Rubin regarded derivatives as risky because of the way they could magnify market moves and implicate interconnected financial institutions.

His answer to the problem was capital, margin, and disclosure requirements—the core of the Senate reform bill. But Rubin thought it would be politically impossible to pass new regulations because of the intensity of the opposition from his former colleagues on Wall Street. He also faced disagreement from Fed chairman Alan Greenspan and skepticism from his own deputy at the Treasury, Larry Summers. Rubin goes into this at length in his book, noting that Summers ridiculed the kind of comprehensive margin requirements Rubin favored as "playing tennis with wooden rackets." I think Rubin deserves criticism for not pushing his accurate view harder, but he was neither wrong about the risk nor opposed to regulation.

Rubin took these views back to the private sector. Many a Citi executive sat in Rubin's corner office listening to his apprehensions about the mispricing of risk, the excesses in the credit market, and the danger of relying on mathematical models. But Rubin did not make decisions at Citigroup. His role was as a representative to clients and foreign officials, and as a strategic adviser to CEO Sandy Weill and to Weill's successor, Chuck Prince. After his service in government, Rubin wanted a position that would allow him to stay abreast of what was happening in the financial world while remaining involved in the public-policy issues that animated him. He did not want management authority and had no one reporting to him.

Here again, there is a valid criticism that's different from the one most often made. Rubin's problem wasn't power without accountability—it was accountability without power. I'm not sure he fully appreciated the risk, evident in hindsight, that he would be blamed if things went badly wrong. But even with a more conventional kind of authority, it's unrealistic to think he could have prevented the mistakes that necessitated a government bailout of Citi. The assumption that the rating agencies knew their business, a key enabler of the subprime meltdown, is analogous to the view before the Iraq War that Saddam Hussein had WMD. There are a lot of people who now scoff about what an obvious fallacy this was and not many who can point to doubts expressed at the time.

While Rubin bears no meaningful responsibility for the financial collapse, he has had significant impact on the recovery. The Obama administration's response has been led by a group of his disciples—Summers, Timothy Geithner, Peter Orszag—who have drawn upon the lessons learned from the Mexican and Asian crises of 1994 and 1997. In those instances, the problem of moral hazard had to take a temporary backseat to stopping financial contagion. Once markets were stabilized, officials could take on systemic issues. That describes the current moment as well, with the Obama team pivoting from what has been its highly effective crisis response to longer-term issues of fiscal balance, future crisis prevention, and establishing the conditions for long-term growth. For a second time, Rubinomics seems to be working.

Jacob Weisberg is chairman of the Slate Group and author of The Bush Tragedy and In an Uncertain World: Tough Choices from Wall Street to Washington.