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Bob Rubin Just Wants to Be Cuddled

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If we've made any progress as a nation since the crisis, it's that people these days know the word "derivatives." They may not know exactly what it means, but that's okay, because as I like to tell them, the most powerful men in the world didn't really know a whole lot about them until the damned things blew up the financial system.

Then I often wind up explaining how I got to learn this early on, after the company where I'd been employed trading energy derivatives blew up and I took a job at Harvard, where former Treasury Secretary Larry Summers had just been named president. My job was at Harvard Management Company, which "manages" the university's twenty something billion dollar endowment. They used to have thirtysomething billion, but from what I saw they weren't the most stringent risk "managers," specifically when it came to derivatives.

Derivatives aren't conceptually that complicated: they're mainly just side-bets that the price of some other thing will rise or fall over a certain time horizon based on some "underlying asset". That's why they are called derivatives: their value is derived from another asset - like a stock, a commodity, etc. -- the stuff Eddie Murphy learned about in the movie Trading Places.

What's tough, especially if the bet at hand is -- unlike what Murphy was getting into -- thinly traded, is putting a price on a derivative; that's where the fancy math (and even fancier creative accounting) comes in. On any trading floor, at the end of the day you've got to count your money and reconcile your book (the way most mere mortals have to balance their checkbooks) and make an attempt to calculate your risk (you know like, trying not to spend more money than you have!). There are a few major algorithms the industry uses to try and do this for derivatives, but they're all just basically guesstimates. Depending on data, models, and who is handling (or manipulating) the data and models, etc., things can get pretty bogus (or what we called in the business GIGO - "garbage in/garbage out" - sort of like what the rating agencies have been doing a lot lately! Moodys and S&P were paid by banks to use some GIGO models and data to slap AAA ratings on lots of funky derivatives!)

In my humble opinion I have earned my right to say that; I got a PhD. in applied math from Harvard and an MBA from London Business School. But Larry Summers should have drawn the same conclusion back in 1998, after the implosion of a little hedge fund run by some of the Nobel geniuses who formulated the most widely-celebrated of all derivatives models, threatened a trillion dollar run on the banks.

But don't let me get off track. The thing is, what we were obviously dealing with at Harvard was not guys who understood the math but didn't appreciate (as in the case of Long Term Capital) the limitations of the sophisticated financial engineering models. We were more dealing with guys who understood neither one and sometimes really didn't seem to care. Guys like that get into derivatives purely and simply for all the fancy creative accounting opportunities they afford, but you've got to remember that kind of mentality had just sunk my last employer, and many of Enron's smartest guys in the room were a lot smarter than the guys I worked with at Harvard Management Company. So long story short, following the example of Enron's own Sharron Watkins, I tried to blow the whistle on some shenanigans and serious derivatives and risk management issues by detailing them in an email and fax to Larry Summers. Even though he held the lofty perch of president, Summers was well-known to be deeply involved in the financial strategies of the Harvard endowment fund; still, I naively figured he'd be removed enough from the trading floor politics to recognize good intentions for what they were. Instead, those good intentions got me quickly fired, but as a consolation prize they helped win me a modest settlement when I subsequently sued for wrongful termination.

My lawyer and I felt that one of the main reasons Harvard was forced into a legal settlement is because they had no legal justification for firing me once they found out my boss had just given me an excellent job performance review and a very nice bonus. So to avoid an embarrassing public legal fight, they settled. Anyway, I moved down to Miami Beach to teach, consult and be closer to my family in New Orleans. I founded a small math "edutainment" firm dedicated to encouraging math achievement in disadvantaged communities, and generally enjoyed life from thereon.

Okay now, fast forward five years later and we get to the good stuff.

It's October 2007. I've just finished my morning jog on beautiful, sun-drenched Miami Beach and I'm getting a smoothie and a pastry at my usual place, Epicure Market. The subprime mortgage crisis is heading into full-swing mode; Jim Cramer had just done his crazy thing on TV, and you can feel the sky starting to fall all around you -- and that's a literal thing in Miami, where the cranes stopped on a lot of half-finished skyscrapers, the type where a few years back you'd hear about people flipping condos three times before the project even broke ground. (If there's ever a time that I don't regret leaving finance, it's now.) Anyway, I'm in line for the checkout, and a very familiar looking guy gets in line behind me. It's one of those situations where I'm not sure if I eyed him or he eyed me first, but I noticed him shortly when I turned to the left to swipe my debit card. He was standing right behind me in the checkout line - only a few feet away. He looked very familiar and famous, and while that's no rarity in Miami, it is when you realize it's because the guy looks like the former Treasury Secretary -- but maybe no, he's maybe not tall enough? -- and then somehow you finally just blurt out,

"Hey, you look just like Bob Rubin!"

He looked startled. A little smile.

"Whoa, you are Bob Rubin!"

And what do you know, I'd crossed paths with my second former Treasury Secretary! But this one was a whole lot more receptive. I introduced myself and mentioned Phat Math, we made some small talk and how much he loved Miami Beach, where he'd grown up and where he was visiting his ailing father, how relaxed it was around here compared with New York where all anyone talked about was the economy, that sort of thing, shook hands. He told me he chaired a community outreach nonprofit, I told him about my work in derivatives, that sort of thing. Later in the day one of my colleagues suggested I send former Treasury Secretary Rubin a formal letter with my resume, and a bit of information on our work helping kids do math. And lo and behold, a few weeks later Mr. Rubin started calling me back.

It took a few rounds of phone tag for him to get in touch, because he didn't want to leave a cell phone number -- as he said on one voice mail message he left at my office (over a 14 month period he left quite a few other voicemails on my cell and home numbers) he was "for practical purposes unreachable" -- but after that I told my secretary to patch him through to my cell if he called again, and boy did he call again.

It was a hellish season back at the Citigroup office; a few days after that first call a powerful analyst had put out a damning report all but declaring Citigroup insolvent, some regulators were already calling to break up the bank and the disgraced CEO Chuck Prince was negotiating his golden parachute.

But none of this seemed to require Bob Rubin to actually do very much. On November 1 he called me four times as I was leaving for a conference in Raleigh; first while I was packing, then in the cab to the airport, then again before I went through security, then again when I was supposed to land. When I had to put the phone away he acted like a little kid who'd been told it was bedtime, and said he would call me again when I got to my destination.

"Don't you have work to do, Mr. Chairman?" I joked during our third call.

"I'm the chairman of the executive committee," he specified.

"What the hell does that mean?" By then I was confused.

"It means the word 'chairman' is in the title and I get paid very handsomely, but I don't have any actual managerial responsibilities." He seemed pleased.

"Well excuse moi," I shot back. "Nice work if you can get it!"

Three days after this chat, Prince resigned, forcing Bob Rubin to add an additional chairmanship -- of the board -- to his business cards. But he kept calling me all the while, and by December some of my friends, late mother and siblings knew about my unlikely "phone buddy" relationship with the former Treasury Secretary. He seemed kind of lonely and lost, I told them; like he didn't have a lot of close friends, and if anyone back at the office had been in the mood to joke around it wasn't going to be with him. That sounds like a cliché, but living on South Beach you often find that rich and famous people often conform to rich famous people clichés. When Bob Rubin would say -- and he said it a lot -- that all he wanted to do was retire and go fishing, I believed him. Later I learned (via Charlie Gasparino's book The Sellout) that after leaving the Clinton Administration he had interviewed with Hank Greenberg to work for AIG, and Greenberg had scoffed that he wanted $8 million a year just to travel the world, and that seemed to be what he'd been doing all those years at Citigroup.

He flew down to Miami to visit his father again on Christmas Eve. When he called he seemed disappointed to learn I was in Alabama, visiting my family in Mobile (where most of them eventually moved after losing their homes in Hurricane Katrina.) I politely explained that when you want to have a meeting with someone, it helps to inform her ahead of time. "Yes, ma'am," he said, and sure enough, a few days later he called to make a dinner date for January 10 at the Setai on South Beach.

Now, I say "date," but even with our budding "buddyship" I did not really realize at the time that this was a "date." He was an extraordinarily wealthy and powerful (much older) man who spent his days traveling around in a Citigroup jet and I was a math/finance geek who'd been covered in five miles of sweat and no makeup the one time we'd met in person. Now, I clean up pretty nice for dinner in South Beach with the former Treasury Secretary, but maybe it didn't matter; later he would remind me that the first time we'd met I had something written on my backside. (I promise you, I had not even noticed when I picked up a few pairs of gray sweatpants on clearance at Victoria's Secret that the words "Pink University" were screen printed on the behind, but give the man credit for being observant.)

After all the effortless phone bantering, dinner did feel a bit surreal and awkward in the way of a high school Homecoming dance dinner; we spent a lot of time sort of giggling. (It might have been easier if I'd had some of his wine, but like the sitting Treasury Secretary Hank Paulson I was raised as a Christian Scientist and don't drink alcohol.) We talked less about the economy than Barack Obama's victory the week before in the Iowa caucuses. (My friends and I felt it was all the white midwestern encouragement black voters needed to turn out in record numbers and seal his victory; Rubin still thought Hillary Clinton would pull through and supported her just about all the way.)

I brought up my stint at HMC, and he informed me mysteriously that he'd "vetted me," whatever the hell that meant. (I've had to attain security clearances for some research posts and fellowships at Boeing, NASA and various defense labs over the years; had he gotten my file somehow?) We shared the intimidating experience of enduring freshman year at elite East Coast colleges as public school kids from the south -- he'd gone to Harvard from Miami and I'd gone to Vassar from a New Orleans housing project -- but his college experience seemed more daunting than mine; my sense of kids from fancy private schools up north was that they talked a good game only until you realized they didn't know what they were talking about.

I also remember teasingly inquiring as to whether he'd flown in on a Citigroup jet again. (He'd called me from one in December.) "It's one of the perks," he replied a bit sheepishly.

Things were much more relaxed by the time I walked him back to the Ritz - which was along the way to my South Beach condo. When we passed a homeless man along the way he made a bit of a show of opening up his fat leather billfold and producing a dollar -- "There but for the grace of God..." he remarked melodramatically -- and I gave him a lot of heat for that, because who exactly did he think he was kidding? I said give the man a job. Heck, you're the head of a bank! But when we reached the hotel entrance, the tension returned. He got this funny look on his face, and asked:

"Do you want to go upstairs and...cuddle?"

So that's what this is about. For a moment I was totally speechless and had to dig into my Harvard trained PhD brain to figure out what the hell he meant by "cuddling"! What can I say; once a teetotaling math geek, always a bit slow to pick up on signals from the menfolk. So the former Treasury Secretary had a "crush" on me! And not long afterward the former Treasury Secretary had his tongue down my throat and hands everywhere sort of like an octopus. But as soon as the thought entered my mind -- the former Treasury Secretary has his tongue down my throat?! -- I came to my senses a bit and awkwardly went back home before we both got too carried away. This is to say, I said to myself that there would be no other former Treasury Secretary appendages entering any other of my orifices.

But there were dozens more phone calls from Bob Rubin over the next year, and one more dinner -- this time in a private dining room in his Ritz Carlton hotel suite. Yes, I am sorry to confess, human weakness got the best of both of us and there was more "cuddling". However, when I finally came up for air and came to my senses, I bluntly - in his face - asked the obvious "So, are you married?" question. Of course, I'd read his memoir and figured Google would let me know if he'd officially split from his (very attractive) wife, but I'm also vaguely aware how much time and money it can take for these things to make the transition to "official" from "de facto." But his reply suggested that either his marriage was far from any stage of finished, or that he was just kind of creepy.

"Have you ever been married?" is how he answered.

Now, the tactic of dodging a question by posing another question might work okay for the bratty teenagers of this world, but by the time the question at hand involves holy matrimony you kind of hope a man has matured a bit. I realized something about Bob Rubin right then though, which is why I limited all our further interactions to the telephone after that evening, and why I'm telling this story now, at the risk of engaging in what my nieces and nephews would call "playa hatin'."

You see, I genuinely like Bob Rubin. He's cute and personable and we had a lot of fun. But watching him testify before the Financial Crisis Inquiry Commission last month, I felt like I'd entered the Twilight Zone. A former executive in the bank's mortgage department testified that after more than a year of trying to alert risk management to the completely corrupted mortgage practices, he'd emailed Rubin directly, with the subject heading "URGENT -- READ IMMEDIATELY -- FINANCIAL ISSUES" in November 2007, two days after he called me that day four times - including the very long phone call while I was at the Miami airport awaiting my flight to Raleigh. The email stated, in short, that the bank had lost tens of billions of dollars on subprime mortgage loans it had not yet "recognized," and could find itself on the hook for more than a hundred billion more, so blatantly had Citi flouted its own standards.

Of course, the original sin by which they were able to do all this stuff without "recognizing" it on the books in the first place was the whole "derivatives" conundrum we started with. Had the complicated derivatives with which they dumped garbage into and out of the books been overseen by any government and/or grownups, they probably wouldn't have even tried to get away with it. But Bob Rubin (along with Alan Greenspan and my old boss Larry Summers) had brutally struck down the first and last serious government plan to regulate them - the proposal advanced by former Commodity Futures Trading Commission chief Brooksley Born weeks before LTCM blew up in 1998.

But here was my old friend Bob Rubin testifying, as he has before, that he had been a longtime advocate of derivatives regulation, yadda yadda, but even that couldn't have saved us from this once in a millennium confluence of events. "You look back and say, 'Well these were obvious warning signs,' but they weren't obvious at the time. They're only obvious in retrospect."

And it was like the Gospel of Captain Obvious (Not Just In Retrospect!) revealed itself to me.

Can this country really afford to appoint bratty teenagers to positions of power and influence when they have already demonstrated to us, over and over again, that they are no more capable of taking responsibility for their actions than bratty teenagers?

What if I answer that rhetorical question with a question: Could we afford it the first time???

Then why in God's name am I still, after his pathetic FCIC performance, reading stories about how Bob Rubin "still wields tremendous influence in Barack Obama's Washington?" Why am I forever hearing how he still talks on the phone regularly to Tim Geithner, when I have fourteen (14) months of phone records to prove he'd rather be talking to me -- and not because I'm a derivatives expert?

I had to politely blow off Bob, by the way. And because there are still so few clubs in this land that wouldn't have Bob Rubin as a member, he kept calling and calling, from Citigroup jets and executive retreats and the Council on Foreign Relations, even after the TARP passed. (That day he got an earful from me.) One day in May he called my phones five or six times -- and it wasn't to discuss the merits of opening the Federal Reserve discount window! But we never cuddled again, although he did show up in Miami a few times and try, and he finally quit calling after getting himself named to the Obama transition team. I don't know, maybe I just miss the guy.

Miami wants you back, Bob! Retire!

You have served your country as Treasury Secretary, according to history successfully run Goldman, and if some are now saying you ran Citi into the ground, you and I both know you had no real responsibility there.

So in the words of the late James Brown, "please, please, please....", now go away and leave us alone. Please don't try to set any more economic policies for us. We did not elect you to do so.

Perhaps it's understandable that you'd want to polish off that tarnished legacy of yours -- but if you can't start by facing up to what you did, you aren't worth a spot on Dancing With the Stars !

Thank you for your service. Now you can go fishing - forever! And please take Summers, Greenspan, Geithner, Blankfein, and all your other Goldman frat boyz with you. Oh, and Hank Paulson, I'll look for you in church!

The very witty and talented writer Moe Tkacik contributed to this article. Thanks Moe!