To call Robert Rubin an overpaid riverboat gambler would be to do a disservice to riverboat gamblers. To be sure, Rubin's salesmanship, arrogance, and cold lack of remorse fit the mold. But no card sharp ruined as many lives as the former Treasury Secretary and Citigroup executive has done, and nobody of that despised class ever had as much political influence - even now.
There's no substitute for seeing Rubin questioned in person, as I did at last week's Angelides Commission hearings. Rubin's hauteur and utter lack of remorse were breathtaking. He began by saying "I hope my experience ... can be helpful to this inquiry." But his appearance wasn't a chance for Commissioners to bask in his wisdom: It was a perp walk. And his "nobody saw it coming" defense made the blood run cold. He all but said "gosh, fellas, sorry I'm not psychic."
Robert Rubin could take apology lessons from Tiger Woods. He broke the economy and got rich in the process, and he has no regrets. Yet, for all of that, members of the Obama Administration still call Rubin frequently for advice. Why not? As the Sunlight Foundation points out, his acolytes dominate the White House economic team. Does anybody really doubt that this kind of coziness contributed to the poor oversight of Citigroup while Tim Geithner was at the New York Fed?
Even after cratering the economy and nearly demolishing his employer, costing ordinary Americans billions directly and trillions indirectly, Robert Rubin still "matters." In fact, he -- along with the equally blundering Alan Greenspan -- is about to lecture the rest of us on deficit reduction. Having raided the economy to benefit his friends, now Rubin and friends will no doubt propose putting the elderly on a dog food diet to pay for it. But with their record of failure, listening to them is like getting sailing lessons from the captain of the Exxon Valdez.
If there is one thing we need to accomplish for the good of our economy, it is the permanent discrediting of Robert Rubin. His policies fostered economic disaster, and in business he was a clever but irresponsibly reckless gambler. (British economist John Kay makes a very plausible case for regulating credit default swaps as gambling, not as banking or insurance. That sounds about right, morally as well as economically.)
Rubin began his career working in arbitrage at Goldman Sachs. The easiest way to define arbitrage is as a way to make money from imperfections in market functions, when something sells for a different price in two different parts of the global or national economy. Arbitrageurs don't contribute anything economically and they don't invest in people or companies who do. They exploit inefficiencies. It was often touted as a low-risk way to make money, but when the unexpected happens you can lose big -- and the unexpected always happens sooner or later. It happened in 1998, in fact, when the Russian ruble collapsed. An arbitrage company run by fellow insiders, Long Term Capital Management, collapsed and was bailed out in a deal arranged by Federal Reserve Bank of New York. But that cautionary tale went unheeded by Rubin and his government entourage.
Rubin was Treasury Secretary by then. His appointment was momentous in one way: It was the first time in history that the Treasury Secretary came from the "new banking" world -- the one that functioned parasitically, using "innovative" tools to make money without any real connection to business activities that build a sound economy. His appointment was a victory of the unreal economy over the real.
As Treasury Secretary, Rubin fought tooth and nail to ensure that key (and explosive) new financial instruments went unregulated. Credit default swaps -- especially the highly risky "naked CDS" -- grew exponentially during his tenure (and that of fellow Goldmanite Henry Paulson, who followed him). Then he went back into banking, as a highly paid Board member and executive at Citigroup with a role that the Wall Street Journal described as "murky."
Rubin's lack of conscience was most striking last week when he claimed he bore no responsibility for Citigroup's failure because his role at the company was "strategic." That's exactly the point: Citi's most monumental failures under Rubin's guidance were strategic. Consider its $26 billion of exposure to subprime and exotic mortgages in a two-year period, which unlike other banks they chose not to hedge because they had what's usually called an "appetite for risk." Then there's its purchase of big pieces of Ameriquest in 2007, diving into a business it should have realized was toxic after Bear Stearns' meltdown.(Ameriquest had also been forced to return $325 million in overcharges to its customers in 2006, as prosecutors made special note of its predatory lending practices.That should've been a warning, too.)
Citi held huge amounts of its assets off the balance sheet (up to $1.1 trillion at one time), which allowed it to become overleveraged (by about 56 to 1) by the end. It used an outside consultant, who apparently advised it to commit itself even more deeply in risky financial instruments. For anyone who believes "strategic" leader Rubin wasn't involved in these decision, the testimony of Richard Bowen was damning. Bowen sent an unheeded memo to Rubin on Citi's reckless behavior that was captioned "URGENT-READ IMMEDIATELY-FINANCIAL ISSUES."
That was Rubin's "Bin Laden Determined to Strike in US." It demonstrates that he either knew about the reckless risks and did nothing, or he didn't care.
These are some of the reasons why business journalist Charlie Gasparino reported online and in his book on the topic that Citi insiders blame Rubin for the company's disastrous collapse. They should hold him responsible. He was.
As for the taxpayers' bailout of Citi, the popular wisdom has it that the government made its money back from Citi. That's bull, as Dean Baker has already pointed out. What's more, now the government has a moral hazard. It can reduce the deficit and look good to voters by pursuing policies that benefit Citi, a company in which it owns considerable stock. (Citigroup stocks have climbed from about $3 to about $4, a 33% increase -- wanna bet other people are thinking that way too?)
Robert Rubin's gambling career ended with other people paying his debts. Not that he doesn't have a good side. He's generous with his time and his money on behalf of worthy causes, and he was a voice for progressive policies (other than financial) in the Clinton Administration. But, as Dolly Parton observed, "a gambler just can't seem to stop/until he loses all he's got." Or, in the case of Robert Rubin, all that you've got.
Reports by Gasparino and others that Rubin feels a sense of guilt were belied by his behavior last week, and even by his appearance: He hasn't "aged," as this Wall Street blog claimed. In fact, he looks great for 70. Rubin's the Dorian Gray of the financial meltdown: Middle-class families are the ones who will age, weighed down by unemployment and bills they can't pay, while he stays perpetually youthful. A lack of conscience can do wonders for your skin tone.
Robert Rubin could have expressed remorse and spent the rest of his life making amends for what he's done, but he made a different moral choice last week. That's why, for the sake of the country, we must remove his influence from public life forever. Let's hope his credibility isn't "bailed out" by the Administration. He doesn't deserve it. His policies were misguided, his business life was reckless and greedy, and he has shown no sense of responsibility for the consequences of his actions.
Richard (RJ) Eskow, a consultant and writer, is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard blogs at:
Website: Eskow and Associates