In Defense of Robert Rubin

Article excerpt

Byline: Jacob Weisberg

Why he's not to blame for the meltdown.

Seldom does a Sunday pass of late without Frank Rich, The New York Times columnist, taking a potshot at Robert Rubin. But I've been having a hard time understanding what Rich and others who are angry at Rubin are angry about. Sometimes they claim he blocked financial regulation when he served as Treasury secretary under Bill Clinton. Sometimes they blame him for not preventing the troubles at Citigroup. Sometimes they argue that he has too many disciples in the Obama administration, that he was overpaid, or that he's not sorry enough for whatever he did.

None of these complaints makes much sense in light of Rubin's record and his oft-stated views. Let me stipulate that I'm hardly an unbiased observer. I helped Rubin write a memoir published in 2003, and I continue to think that his philosophy--fiscal responsibility, an appreciation of both the power and limitations of markets, and pragmatism in responding to their periodic failures--remains the right approach to economic policymaking. What follows, however, is my view, not his.

To me, the most wrong-headed accusation is that Rubin prevented effective regulation during the Clinton years. His view has always been that the financial system needs to be protected from market excesses. Rubin regarded derivatives as risky because of the way they could magnify market moves and implicate interconnected financial institutions.

His answer to the problem was capital, margin, and disclosure requirements--the core of the Senate reform bill. But Rubin thought it would be politically impossible to pass new regulations because of the intensity of the opposition from his former colleagues on Wall Street. He also faced disagreement from Fed chairman Alan Greenspan and skepticism from his own deputy at the Treasury, Larry Summers. Rubin goes into this at length in his book, noting that Summers ridiculed the kind of comprehensive margin requirements Rubin favored as "playing tennis with wooden rackets." I think Rubin deserves criticism for not pushing his accurate view harder, but he was neither wrong about the risk nor opposed to regulation.

Rubin took these views back to the private sector. Many a Citi executive sat in Rubin's corner office listening to his apprehensions about the mispricing of risk, the excesses in the credit market, and the danger of relying on mathematical models. …