There is an article in the New York Times on the fall of Citibank that has some startling admissions, but none more shocking than this:
They never factored that housing prices would drop? Really?
Citigroup's risk models never accounted for the possibility of a national housing downturn, this person said, and the prospect that millions of homeowners could default on their mortgages. Such a downturn did come, of course, with disastrous consequences for Citigroup and its rivals on Wall Street.
[W]hile Mr. Rubin certainly did not have direct responsibility for a Citigroup unit, he was an architect of the bank's strategy.
In 2005, as Citigroup began its effort to expand from within, Mr. Rubin peppered his colleagues with questions as they formulated the plan. According to current and former colleagues, he believed that Citigroup was falling behind rivals like Morgan Stanley and Goldman, and he pushed to bulk up the bank's high-growth fixed-income trading, including the C.D.O. business.
Former colleagues said Mr. Rubin also encouraged Mr. Prince to broaden the bank's appetite for risk, provided that it also upgraded oversight -- though the Federal Reserve later would conclude that the bank's oversight remained inadequate.
Once the strategy was outlined, Mr. Rubin helped Mr. Prince gain the board's confidence that it would work.
After that, the bank moved even more aggressively into C.D.O.'s. It added to its trading operations and snagged crucial people from competitors.
No wonder Wall Street media is standing there with pitchforks and torches calling for Rubin's head this morning. A WSJ op-ed wonders "Why are Robert Rubin and other directors still employed?" New York Post says "Citi of Fools: Negligent bank board must quit."
Yes, it's incredible that nobody required Rubin and the board to resign as a condition of the Citibank bailout. But I tend to look at these final days as the BushCo crooks holding their final heist, taking advantage of the fact that something must be done immediately to keep the economy from hurling into a ditch. They have the ability to impede anything from happening, and they're holding us all hostage and demanding the right to steal as the price of their acquiescence. What's Obama supposed to do? If he calls bullshit, the fragile markets could tumble. He's in a position where he really has to just do what he can.
What I'm more concerned about is the key place Rubin still occupies in Team Obama:
Geithner, Summers and Orszag have all been followers of the economic formula that came to be called Rubinomics: balanced budgets, free trade and financial deregulation.
There are many who are arguing that ideology is not important, and that Obama is prizing competence over philosophical perspective. Glenn Greenwald does a nice job of arguing that competence is largely a function of ideology -- and from a pragmatic perspective, progressives (who are almost entirely left out of Obama's key administration appointments) got a lot of things right.
When I argued the other day that Obama was delivering exactly what he'd promised, it wasn't because I thought the people he was appointing were more "competent" than progressives would have been. There is no way you can make the argument that Nobel laureate Paul Krugman, or Nouriel Roubini, who have been consistently right about the economy and where we were headed, would not be more "competent" than Bob Rubin, one of the high priests of deregulation who got us into this mess.
Rubin is there because he makes the People Who Matter comfortable, who would panic if Krugman were in a position to call high-level bullshit. It has nothing to do with superior competence.
Jane Hamsher blogs at firedoglake.com