The corruptions of journalism were on full display when CNN's Fareed Zakaria turned to Robert Rubin this past Sunday for advice on how to fix the financial crisis that he, as much as anyone, caused. I was trapped on a treadmill in front of an overhead television and unable to turn the thing off in time to avoid this assault on my mental and physical health.
As a result I was forced to hear Rubin, Bill Clinton's treasury secretary, insist that he always favored regulating toxic derivatives and is therefore not at all responsible for the ensuing economic meltdown. He was responding to the sole critical question from the CNN host, who quoted a question by New York Times columnist Paul Krugman: "Did all the senior members of the [Obama] economics team have to be protégés of Robert Rubin, the apostle of financial deregulation?" Unfortunately, Zakaria just rolled over when his guest simply lied in response:
"First of all, I am not the apostle of financial deregulation. Quite the contrary. On derivatives ... I developed a deep concern about the systemic problem that was created. When I was back at Goldman Sachs, it was a concern I had ... a concern I had when I was in government. And in fact, when I wrote my book in 2003, I was so concerned about it that I actually included that discussion in there."
Zakaria ended the show recommending it as his book of the week: "He wrote a great memoir that covered his two distinguished careers, both ... on Wall Street and in Washington. ... It was written with Jacob Weisberg, a great writer, the editor of Slate, and the two men weave a compelling tale that has many lessons for today."
To be charitable, I will assume that Zakaria has not actually read that book, which omits any discussion of the radical deregulation legislation that Rubin ushered through Congress and got the president to sign. Bill Clinton is on record stating that he got bad advice from Rubin and his handpicked successor, Lawrence Summers, on derivatives regulation: "On derivatives, yeah, I think they were wrong and I think I was wrong to take it," Clinton told ABC News last April 10.
Rubin and Summers were responsible for forcing Brooksley Born out of the Clinton administration because as chair of the Commodity Futures Trading Commission she had the temerity to suggest regulating the mortgage-backed securities that eventually proved to be so toxic. Instead, Rubin and Summers pushed the Commodity Futures Modernization Act, which Clinton signed into law in his last month in office, categorically exempting those suspect derivatives from any government regulation.
By then, Rubin had moved on to a $15-million-a-year job at Citigroup, which became a prime exploiter of the subprime housing market. As a result of its massive involvement with toxic securities, Citigroup, with Rubin in a leading role until early 2009, had to be bailed out by the federal government with a $45 billion direct investment and a guaranteed Fed protection for $306 billion in potentially toxic assets.
Citigroup, a merger of the old Citibank and Travelers insurance company, was made legal only by the Financial Services Modernization Act, which Rubin backed while treasury secretary. Then, in one of the most egregious conflicts of interest in U.S. history, he went to work for the new bank, which took advantage of the changes in the law to buy up the infamous subprime lenders, beginning with Associates First Capital. The Economist magazine wrote of that purchase that "it extends Citi's already huge credit card operation to a lucrative new niche (price insensitive, if default prone, borrowers)" and questioned whether investors would see Citi's bold new venture "as something smart, such as ‘evolved credit extension,' or something seamy such as loan-sharking."
Rubin was a major proponent of the firm's seamy expansion into the mortgages that proved to be toxic, and by 2007 Citigroup was the second-largest subprime servicer, after the only slightly more infamous Countrywide. As The New York Times pointed out on Nov. 22, 2008, after a decade of flattering portraits of the man, finally acknowledging Rubin's role in Citi's disgrace: "The bank's downfall was years in the making and involved many in its hierarchy, particularly [CEO Charles O.] Prince and Robert E. Rubin, an influential director and senior adviser."
There is much more, and I haven't even touched on Rubin's shameful role in Enron's shenanigans. Enough said, though, to question not only Zakaria's journalism but, far more important, Barack Obama's leadership in first turning to Rubin as a key campaign adviser and then putting his disciples in charge of the U.S. economy.