In October 2008, I posted a column (“Robert Rubin’s Free Ride“) complaining that the economic tailspin then underway had done astonishingly little to dent the halo of Robert Rubin, treasury secretary under President Bill Clinton. Since then, Rubin has vacated his rainmaker/consigliere position at Citigroup, where over the course of a decade he reportedly earned more than $115 million while (he always insisted) incurring no, absolutely no, management responsibility, hence no blame for the company’s $45 billion bailout last fall by the federal government.
In my earlier column, I noted that as treasury secretary, Rubin was responsible for three bad decisions: to block the regulation of derivatives championed by Brooksley Born, chair of the Commodity Futures Trading Commission (who recently said, as graciously as can be imagined, “I told you so” while collecting a Profile in Courage Award from the John F. Kennedy Library Foundation); to urge Clinton in 1996 to reappoint Alan Greenspan as Federal Reserve chairman, clearing the path for 10 costly years of indifferent regulation of the financial sector; and to repeal Glass-Steagall, the 1933 law that excluded commercial banks from investment banking (and vice versa). This last decision did not play an appreciable role in creating the banking crisis, but, in the bank consolidation that resulted, it created ample future opportunities for banks to extend too much credit to companies whose stock their financial arms are trying to sell, and—perhaps even more worrisome—is creating even more corporate entities that will henceforth be deemed “too big to fail.”
Rubin has never accepted more than token responsibility for these blunders. Evan Thomas (co-author of The Wise Men, a group biography of leading Cold War policymakers) and Michael Hirsh summarized Rubin’s view cogently in a November 2008 Newsweek story (“Robert Rubin’s Detail Deficit“):
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.
You might ask: What do you expect? The man has been out of government for a decade, and his position at Treasury compelled him to consider the big picture, not the regulatory minutiae. But President Bill Clinton held an even higher position, one that compelled him to consider an even bigger picture, and he, too, has been out of government for a decade. Yet in a May 31 profile by Peter Baker in New York Times Magazine (“The Mellowing of William Jefferson Clinton“), Clinton displays infinitely more capacity for self-criticism on these matters than Rubin. Clinton rightly rejects as “just a totally off-the-wall crazy argument” that the Community Reinvestment Act, to which significant legislative and regulatory changes were made on his watch, is responsible for creating abuses in the subprime lending market. (For details about why Clinton is right, see “Subprime Suspects” by Slate’s Daniel Gross and “ Too Small To Fail” by Phillip Longman in the November/December 2008 Washington Monthly.) But Clinton gives, Baker writes, “some credence to” the view that repealing Glass-Steagall was ill-advised because it’s accelerated the creation of institutions deemed too big to fail. And on regulation of derivatives and letting himself get suckered by Alan Greenspan, Baker writes, Clinton “pleads guilty.”
Alan Greenspan, the Federal Reserve chairman, opposed regulation of derivatives as they came to the fore in the 1990s, and Clinton agreed. “They argued that nobody’s going to buy these derivatives, we’ll do it without transparency, they’ll get the information they need,” he recalled. “And it turned out to be just wrong; it just wasn’t true.” He said others share blame, including credit-rating agencies that underestimated the risk. But he accepts responsibility as well. “I very much wish now that I had demanded that we put derivatives under the jurisdiction of the Securities and Exchange Commission and that transparency rules had been observed and that we had done that. That I think is a legitimate criticism of what we didn’t do.” He added: “If you ask me to write the indictment, I’d say: ‘I wish Bill Clinton had said more about derivatives. The Republicans probably would have stopped him from doing it, but at least he should have sounded the alarm bell.’ “
By “they,” I presume Clinton means not only Greenspan but also Rubin and Rubin’s deputy and successor, Lawrence Summers—now director of President Barack Obama’s National Economic Council—who rounded out the triumvirate that Time magazine dubbed in February 1999 “The Committee To Save The World.” Neither Rubin’s nor Summers’ name appears in Baker’s otherwise excellent piece. (Summers hasn’t been especially forthcoming with mea culpas, either, but at least in Summers’ case his public statements about what needs to be done appear to reflect some implicit recognition of his earlier mistakes.) Rubin’s Zen-like capacity to avoid mention whenever such matters come up remains one of those phenomena, like gravity, for which the physical sciences may never sufficiently account.
Clinton concludes by asserting that he never would have let the housing bubble grow as big as it did (Baker: “never mind the high-technology bubble that burst on his watch”) and would have stepped in to prevent the market free-fall that ensued. Even with these self-justifying caveats, though, Clinton has gone much, much further than Robert Rubin in accepting responsibility for helping to create the United States’ worst economic calamity since the Great Depression. Remind me: Which one is the politician?
(Clinton has also gone much further than George W. Bush, whose responsibility is infinitely greater than either Clinton’s or Rubin’s. But the idea that Bush would ever take adequate responsibility for his many blunders is so laughable that it hardly seems worth considering.)
[Update, June 1: I was unaware when I wrote this column that the Times’ David Leonhardt had four days earlier posted a raw transcript of Clinton’s economic mea culpa on his “Economix” blog. (That’ll teach me to read the Times on newsprint!) From this I learn two things:
1.) The “they” Clinton refers to when discussing opposition to regulation of derivatives seems to be not Greenspan, Rubin and Summers but rather congressional Republicans. (It’s hard to be certain because Clinton’s phrasing is a little unclear.) 2.) In introducing the derivatives point, Clinton says, “I think Bob Rubin and Larry Summers and those guys have gotten a little bit of a bum rap on this lately.” This is awfully generous, but if he, Clinton, deserves blame for not taking on the congressional Republicans who opposed regulating derivatives, then certainly Rubin and Summers deserve at least as much blame for actively discouraging Clinton from doing so, and most especially for blocking Born, a fellow Democrat and Clinton appointee, when she sought to do so.
In general, Clinton’s mea culpa comes across as more reluctant and ambivalent in the raw transcript than it does in Baker’s published magazine piece. Still, Clinton does accept responsibility for the recession to a far greater degree than Rubin ever has.]