ST. LOUIS (Alpha Found) - Today it was the turn of another Fed bigwig to be grilled during a session of the Financial Crisis Inquiry Commission. Robert Rubin, former US Treasury Secretary under Bill Clinton was given a working over that left him "visibly shaking" according to news reports.
Rubin, once hailed as a genius of geniuses, landed a plum job at Citi. He was scoring $15 million a year excluding stock and other compensation. What was he doing for $15 big ones each year? Well, according to his own testimony, he role was, "defined from the outset as engaging with clients across the bank's businesses here and abroad; to meet with foreign public officials; to serve as a resource to the bank's executives on strategic and managerial issues".
That's a quaint way of saying he was well compensated for a fat rolodex. Influence peddling has its value, but there is something very unseemly about a taxpayer funded rolodex being parlayed into personal gains of this magnitude.
Nevertheless, it was a strikingly nebulous job description and Rubin has clearly been uncomfortable talking about it; if not embarrassed. Indeed, Rubin instinctively reached for his security blanket, Bill Clinton, with a fawning reference to the "longest expansion in American history". At that moment in the testimony, it was utterly clear that Rubin was incompetent as a financial expert and a witness. He attributed that "longest expansion" to just two factors: deficit reduction and critical public investments. Huh?
Little wonder then that Rubin failed to identify the most proximate cause of the credit crisis as Alan Greenspan did a day before - the frenzied purchase of securitized mortgage assets by Fannie Mae and Freddie Mac at the behest of their Congressional masters. Acting sympathetically, banks like Citi scooped up oodles of mortgages despite being warned - Robert Rubin specifically - about the lack of appropriate documentation and high levels of risk.
Rubin claims to have been blind-sided by the confluence of factors that erased trillions of dollars of wealth. "Almost all of us involved in the financial system...missed the powerful combination of forces at work and the serious possibility of a massive crisis."
He expresses regret for that, but fails to explain how it was possible for such a richly resourced sector to have been drinking the Kool-Aid. It was not as if there were not thousands of financial industry outsiders as well as insiders warning about the manic asset inflation years ahead of the crisis. Yet it is men like Rubin who are held up as the mightiest minds (Walter Isaacson described him as one of the "most brilliant and honorable wise men of our era") who see no need to escape the salon culture they soak themselves in.
Did Rubin learn no lessons from Long Term Capital Management's implosion, which was a prototyping for the chaos that arrived? How can he honestly claim, as he did in his testimony, that, "the financial system is subject to more severe downside risk than almost anyone had foreseen". You saw it in LTCM, Secretary Rubin...
Amusingly, Rubin says that Citi actually did no worse than its peers - as long as you ignore the collateralized debt obligations that took it to death's door. Yeah, those super senior CDOs that spawned $30 billion in losses. That's much like economists who refuse to include food and energy in inflation calculations. Consumers surely don't need to eat or drive, do they?
Rubin praises himself for saving Citi, and extols the virtues of Chuck Prince and Vikram Pandit for making changes. Yet this is the same Rubin who earlier said the financial industry has a problem forecasting and modeling.
Alarmingly, Rubin indicates that Citi, and presumably its competitors - are incapable of self-restraint. He wants the government to constrain leverage; he wants the government to regulate derivatives; he wants the government to make a black and white ruling on when you are really too big to fail (AIG) or not really too big to fail (Lehman); he wants consumer protection for the financial system.
It is not unkind to say the man is incoherent. And he had the chutzpah to promote his 2003 book during the testimony!