Today's NYT has a lengthy critique of the critical role that Alan Greenspan played in the creation of the ongoing economic debacle. In devastating detail, it explains how and why this Ayn Rand-trained laissez-faire apostle encouraged the metastatization of the cancer that is causing a financial meltdown of epic proportions. The article also, however, repeatedly cites Robert Rubin as one of Greenspan's chief aiders and abetters when Rubin was WJC's Treasury Secretary.
The ballooning derivative market has been a major enabler of the financial contagion that has spread worldwide in recent weeks. When that market first started its exponential growth in the late 1990s, Brooksley Born, the head of the Commodities Futures Trading Commission (CTFC), sought greater regulation of derivatives. Her efforts were vigorously resisted by both Greenspan and Rubin.
As the article puts it, Greenspan and Rubin acted as follows:
On April 21, 1998, senior federal financial regulators convened in a wood-paneled conference room at the Treasury to discuss Ms. Born’s proposal. Mr. Rubin and Mr. Greenspan implored her to reconsider, according to both Mr. Greenberger and Mr. Levitt.
Ms. Born pushed ahead. On June 5, 1998, Mr. Greenspan, Mr. Rubin and Mr. Levitt called on Congress to prevent Ms. Born from acting until more senior regulators developed their own recommendations. Mr. Levitt says he now regrets that decision. Mr. Greenspan and Mr. Rubin were "joined at the hip on this," he said. "They were certainly very fiercely opposed to this and persuaded me that this would cause chaos."
When Ms. Born left the CTFC the following year, Greenspan/Rubin reacted as follows:
In November 1999, senior regulators — including Mr. Greenspan and Mr. Rubin — recommended that Congress permanently strip the C.F.T.C. of regulatory authority over derivatives.
The following year, this goal was ultimately achieved:
The House overwhelmingly passed the bill that kept derivatives clear of C.F.T.C. oversight. Senator Gramm attached a rider limiting the C.F.T.C.’s authority to an 11,000-page appropriations bill. The Senate passed it. President Clinton signed it into law.
During the same time frame, the Glass-Steagall firewall between investment banking and commercial banking was legislatively breached. As Robert Kuttner describes in a TAP article, Rubin played a key role in that "innovation" as well:
Rubin's crowning achievement was the repeal of the 1933 Glass-Steagall Act, which had separated largely unregulated and more speculative investment banks like Goldman Sachs from government-supervised and insured commercial banks like Citi, which play a key role in the nation's monetary policy. Glass-Steagall was designed to prevent the kinds of speculative conflicts of interests that pervaded Wall Street in the 1920s and helped bring about the Great Depression (and reappeared in the 1990s).
Glass-Steagall was steadily weakened by regulatory exceptions under three administrations going back to George Bush Senior. The premise was that tearing down the regulatory walls would promote competition. But the effect was to create greater concentration and renewed opportunities for insider enrichment.
Financier Sanford Weill gradually assembled the empire of insurance, commercial-banking, and investment-banking pieces that ultimately became Citigroup, helped by indulgent regulatory policies promoted by Federal Reserve Chairman Alan Greenspan and Rubin. When Congress formally repealed Glass-Steagall, in November 1999, the act was termed in some circles the "Citigroup Authorization Act." Rubin had stepped down as treasury secretary that July. His new job, announced in late October, was chairman of Citi's executive committee. Rubin's initial annual compensation was around $40 million.
A crisis of the current magnitude obviously resulted from the efforts of many people, and Rubin did not play as critical of a role in creating it as Greenspan did. Rubin's relative culpability in this utter fiasco, however, is not the question. Why someone who played an obvious role in creating the fiasco should be trusted to play a major role in trying to fix it is the question.
There is no question that Rubin is an important economic adviser to Sen. Obama. He appeared as an Obama surrogate against Carly Fiorina of the McCain campaign on FTN in early August. When Obama gathered his economic "wise men" 3 weeks ago, Rubin was seated next to him at the meeting. As Robert Scheer noted in HuffPo in late July, Rubin protege Jason Furman, who headed the Rubin-funded Hamilton Project, is the Obama campaign's economic director.*
The ultimate reason to be concerned about Rubin's role in an Obama WH is offered in a current Forbes piece advocating as follows:
Now is the opportune time for Obama to change that--capitalizing on Rubin's unmatched credibility on Wall Street, Main Street and K Street--and tap the Citi executive to serve as the Rescue Czar in an emergency, one-year assignment.
This seems like a no-brainer to me. Someone has to manage the implementation of this $700 billion monstrosity. Rubin is the natural choice to do it, and appointing him right after passage of the bill shows the kind of foresight that Americans expect from a leader.
The very idea of Obama naming Rubin as some kind of "Rescue Czar" should scare the living hell out of every Kossack. Doing so would undermine everything that has caused millions to rally behind the Obama campaign. It would be bad politics and worse policy. It would reward both insiderism and incompetence, and it would show that Wall Street will continue to be the tail wagging the economic dog.
The stripping of CTFC regulatory authority over derivatives and the abolition of Glass-Steagall were 2 major events in the creation of this continuing disaster. Rubin eagerly supported both of those developments at the time, and I have seen no evidence that he has repudiated those prior positions. He clearly does not offer "change," and he and his philosophy are clearly things that we do not need. If Obama is to give Rubin a major role on economic policy, he should go for a trifecta by bringing Rumsfeld back as SecDef and Michael Brown back as head of FEMA.
*Firedoglake offered an interesting take on the Hamilton Project a few months back.