Bob Rubin: The Nexus of Big Gov't & Wall St.

Charlie Gasparino Big Government November 11, 2009

For anyone who thinks that big Wall Street and Big Government aren't joined at the hip, promoting policies and laws that keep each other fat and happy often at the expense of the American taxpayer, consider the career of Robert Rubin.

Rubin, of course, is largely gone from the public scene after spending 10 disastrous years as a board member and senior executive at Citigroup, the banking giant that epitomizes all that is wrong with American finance, and before that, a largely successful run as Treasury Secretary in the Clinton Administration, which he joined after running another controversial bank, Goldman Sachs. But his legacy looms large, mainly because I believe he was one of the reasons why the financial crisis occurred in the first place.

Citigroup, with nearly $1 trillion in customer deposits, is and always was Too Big To Fail, meaning that because of its size and scope, and the fact that it safe keeps FDIC insured customer deposits, the Federal government wouldn't just let the bank implode as it did Lehman Brothers.

Too many people would be hurt, and not just the Wall Street types. That's why during the height of the financial crisis, policy makers in both parties threw hundreds of billions of dollars at Citigroup to save it from going bust.

Despite all of this, as I show in my new book about the financial crisis, The Sellout, Rubin advocated policies at Citigroup that put the massive bank in jeopardy, and with that put the entire financial system in peril. He was one of the strongest supporters for the bank to begin taking more risk through bond trading, which ultimately led to the firm's downfall, and its government bailout. He had a seat on the Citigroup board, but from that vantage point, he never saw how the firm's risk profile was growing out of control. He was a senior executive at the firm with the lofty title of "Chairman of the Executive Committee," and yet he has time and again explained to me that he had "no operating responsibilities" to monitor the bad behavior that got the firm in trouble in the first place.

More than that, Bob Rubin helped kill the very law that would have prevented Citigroup from being a company in the first place, and would have saved taxpayers a lot of money. The law is known as Glass-Steagall, named after Depression era lawmakers who believed it was a pretty good idea not to mix the risk taking of investment banking and trading, with traditional banking practices such as safeguarding deposits and making loans to small businesses.

Wall Street had made a concerted effort to eliminate Glass-Steagall since at least the early 1980s when the business model of the financial business began to change from one that provided advice to customers"”individual investors and corporations-to one that was focused on taking risk, namely trading complex bonds and derivatives where the returns are much larger.

Rubin at the time was at Goldman Sachs. He wasn't one of Glass-Steagall's fiercest opponents, at least at first. When he went to the Clinton Administration as a top economic adviser and later as Treasury Secretary he was still on the fence; published reports show him speaking both in favor and against the law's continued existence.

By the time he had announced that he would resign from Treasury in 1999, the now infamous Citigroup deal had been announced with John Reed the CEO of Citicorp and Sandy Weill who ran the brokerage giant Travelers Group shocking the world with the mega merger, which was technically illegal since Glass-Steagall was still in effect.

But not for long. Rubin had now fully joined the Wall Street gang in pushing for the law to be dumped. And it was, and as it was, Rubin took his private sector job with Citigroup, the biggest beneficiary of the end of Glass Steagall.

Robert Rubin isn't the only reason why Glass Steagall was killed; Wall Street had had been showering their favorite Congressmen and Senators from both parties with campaign contribution and buying their votes. The theory of Citigroup was widely accepted in business circles as the future of the financial business; combining commercial and investment banking services under one roof and allowing firms to sell all sorts of products was a step forward toward "financial modernization."

Nor is Rubin the only beneficiary of the revolving door of Big Government and Wall Street. But his career is useful in showing the problems that this unholy alliance between major financial firms and our ever-expanding government are one of the major contributing factors to last year's financial meltdown.

Citigroup, with its mandate now in hand, and with Rubin approving the effort, became one of the biggest creators of mortgage bonds, the main vehicle used by government bureaucrats of both parties to transform home ownership from something that must be earned to something close to a civil right. With Wall Street buying these loans en mass from the banks to pack into their ever-riskier bonds, lending to so-called "subprime" borrowers became an accepted practice fully sanctioned by the federal government. When Citigroup couldn't sell the bonds to investors, it horded them on their balance sheet, earning the high interest rates the bonds threw off.

That is until reality set in, as it did last year when the entire financial system, burdened by investments in these mortgage bonds on their way to default, Wall Street, began to collapse and the economy fell into the Great Recession, now with 10.2% unemployment that shows no signs of letting up. Citigroup was the biggest casualties of the collapse; its risk takers had lost so much money that it needed tens of billions in guarantees and handouts, as well as the government becoming the bank's largest shareholder.

When the dust finally cleared, it became obvious that the demise of Glass-Steagall allowed the risk-taking traders at Citigroup to jeopardize nearly $1 trillion worth of customers deposits, which is the main reason the feds had to spend so much bailing it out. With that, Bob Rubin's Wall Street career was over. He was forced to resign from the Citi board and the firm itself with his reputation in tatters, but not without earning more than $100 million.

There are plenty of media types who blame last years implosion and the bailout on greedy bankers, but that's only part of the story. Wall Street needed a co conspirator, and for me, that co-conspirator is Big Government. They are an odd couple; the ultimate free marketers teaming up with the bureaucrats. But as I show in The Sellout, the relationship worked, at least for them.

As for the rest of us, we're still paying the price.

Email this to a friend | Print | Share on Facebook | Tweet this |

Tags: Citigroup, depression era laws, Financial Crisis, Glass-Steagall, Goldman Sachs, great recession, housing bubble, John Reed, mortgage-backed securities, Robert Rubin, Sandy Weill, Too Big To Fail, Travelers Group Posted Nov 11th 2009 at 6:37 am in Economics, Featured Story, History, News, Politics | if(wp_logged_in) document.write('Edit |'); 2879817 Commentshttp://biggovernment.com/2009/11/11/robert-rubin-the-nexus-of-big-government-and-wall-street/Robert+Rubin%3A+The+Nexus+Of+Big+Government+and+Wall+Street2009-11-11+13%3A37%3A30Charles+Gasparino

GA_googleFillSlot("bh_post_before_comments");

This website uses IntenseDebate comments, but they are not currently loaded because either your browser doesn't support JavaScript, or they didn't load fast enough.

2879817 Commentshttp://biggovernment.com/2009/11/11/robert-rubin-the-nexus-of-big-government-and-wall-street/Robert+Rubin%3A+The+Nexus+Of+Big+Government+and+Wall+Street2009-11-11+13%3A37%3A30Charles+Gasparino joedee1969 - November 11th, 2009 at 1:41 pm

Nothing is more big government then this health care bill. Don't worry , it won't pass because of the war in The Democrat Party and what side won:

http://americaspeaksink.com/2009/11/the-democrat-...

Cowboy Logic - November 11th, 2009 at 1:58 pm

Excellent article. People are not aware of how tightly Wall Street and Big Government are joined.

davewolfgang - November 11th, 2009 at 2:07 pm

If it weren't so disastrous – it would be funny how these guys KNOW how to make money the Capitalistic way (and some of them are VERY good at that – more power to them at that), …but… now that they HAVE theirs, they sure don't want anyone else to get up there.

James - November 11th, 2009 at 2:17 pm

The corporatism for wall street firms is something all of us don't want. We need to effect some change NOW. The president better come through…

Charles Gasparino: Robert Rubin: The Man at the Nexus of Big Business and Big Government | Proinvests.com - November 11th, 2009 at 7:30 am

[...] Cross-posted from Big Government [...]

kadaka - November 11th, 2009 at 2:37 pm

So the individual cannot trust big government, and now big financial business is suspect aw well? Well, more than we had previously suspected.

What can we do? Stay local. People have somewhat more trust of their local politicians, since it is their own community that elects them and they are more accessible and accountable. Compared to your US Senator, at least. Likewise we should keep our finances local, small neighborhood banks where perhaps you can still ask to speak with the upper management, even the head.

You know the expression, politics is local? That refers to the issues, how the man-on-the-street feels about things around town. But we can now see the issues affecting the nation and the world are the ones affecting us, our true enemies operate in national, multi-national, global terms, and are trying to stretch their grasp over each and every individual one of us.

Time for a new expression: Freedom is local, tyranny is global. Vote accordingly, with your wallet as well.

Vake` - November 11th, 2009 at 2:57 pm

I think you've got this wrong. Glass-Steagal would not have prevented the financial crisis. Glass-Steagal was a regulation, and should have been struck down as nearly all regulations should be. G-S, like the FDIC, was a policy of the New Deal, an era when politcians like FDR wanted to limit the market. What caused the crisis was massive liquidity injected into the market by the Fed in the early part of this decade. The solution was to not bail out these guys and let them assume the risks.

kdj - November 11th, 2009 at 3:10 pm

@James – huh? all of us? I think you missed the whole point of the article. speak for yourself.

Corporatism itself isn't a problem. It's the government stepping in thinking they know enough about it to help it that is the problem.

Congresses plans to ensure everybody who couldn't afford home ownership had their chance, despite huge risk to the financial sector, basically held hands with the top group on Wall Street while they destroyed the economy.

Because the government decided that home ownership should be an entitlement, and renting just wasn't acceptable anymore for some reason. Just go ahead and take huge risks on lending to the poor and if it doesn't work out, we'll just buy the banks with taxpayer money. No prob.

There's no shortage of crooks on Wall Street, but corporatism isn't the problem. It was regulations that the government was happy to lift for them that let them be irresponsible with money they never should have been handling. The govt. urged the bad decisions and even threatened banks who didn't play along.

Our president does not need to save us. He has no intentions of having govt. step out of running banks, and he never will.

onecent - November 11th, 2009 at 3:22 pm

The unholy alliance between the elite banker caste and this administration is everything our Founding Fathers warned about. Jefferson warned….."I sincerely believe… that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale."

Fast forward, for all of his hyperbole Matt Taibbi's expose of Goldman Sachs is the grim reality that Jefferson warned about:

"Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy."

http://www.rollingstone.com/politics/story/288163...

James - November 11th, 2009 at 3:35 pm

You misunderstand what a bubble is. Since all of their data had any loans making money, no one wanted to get left behind and they would loan to anyone. Congress is at fault for allowing the deregulation to get pushed through, but you are fooling yourself if you think it's entitlement culture that did this. That's like saying the internet bubble was caused by congress setting up an "everyone is entitled to a fully-funded web business" culture.

Don't doubt the power of group think with investors in a private market. No one wants to get left behind, that's the fundamental flaw.

Cowboy Logic - November 11th, 2009 at 3:40 pm

Onecent, That Matt Taibbi article is excellent. I have posted it here numerous times over the course of the last two months on various threads, but I don't think people took the time to read it. It is a powerful article, and connects alot of the dots………

Sometimes, Even the Right Gets it Wrong at Awkward Utopia - November 11th, 2009 at 8:46 am

[...] a post for Andrew Breitbart’s Big Government, a conservative blog and website, CNBC’s Charles [...]

mark - November 11th, 2009 at 3:51 pm

capitalisim vs. coperatisim ….. capitalisim works, corporatisim only works for the crooks

Liberty666 - November 11th, 2009 at 5:09 pm

financial services will soon be rivaled by health insurance services if the blowbama health care comes to roost

bigfishsmallpond - November 11th, 2009 at 5:12 pm

check the origination of the Community Reinvestment Act in the 70's…. then follow the leftwing legislation from Congress in last 20 years… to see the impact and extortion on banks to lend to folks that simply had no income or money for a down payment.

These loans were Marketed and promoted by ACORN… and their 300 affiliates, all under the guise of the urban chant of "spreading the American dream" — oh yeah, forget the fact that you should have to actually work and save money for a down payment — as espoused by many cmmunity organizers like BHO.

Liberty666 - November 11th, 2009 at 5:13 pm

I followed the money during the presidential campaign of 2008, all the millions in campaign contributions came from banks, and then all the stimulous money went flowing into the banks. Banks play an important role in capitalism, equal to entrepreneurs and labor, bankers need to get their act together.

Robert Rubin: Economic Death Squad Member Profile | Amped Status - November 11th, 2009 at 12:22 pm

[...] from Big Government Email This [...]

More Featured Stories...

GA_googleFillSlot("bg_box_1"); Follow Us on Twitter Subscribe via RSS Got a Tip?Contact us GA_googleFillSlot("bg_box_2"); Live Talk on Twitter new TWTR.Widget({ search: '(@biggovt OR biggovernment) -RT -pronlinenews -davegj', id: 'twtr-search-widget', loop: true, title: 'What\'s being said about', subject: 'Big Government', width: 300, height: 500, theme: { shell: { background: '#ABCFE7', color: '#ffffff' }, tweets: { background: '#ffffff', color: '#444444', links: '#ABCFE7' } } }).render().start(); Categories ACORN Big Labor Congress Culture Defense Earmarks Economics Education Environment Exclusives Featured Story Healthcare History Justice/Legal Media Criticism News Obama Open Threads Political Humor Politics Pork Report Special State Politics Tax Reform Tea Party Technology Uncategorized Blogroll ABCNews Ace Of Spades HQ Agence France Press Althouse American Thinker Andrew Sullivan Ann Coulter Associated Press Big Hollywood Bill O'Reilly Blackfive Bloomberg Boston Globe Breitbart.com Breitbart.tv C-SPAN Camille Paglia Charles Krauthammer Chicago Tribune Christian Science Monitor Christopher Hitchens Claremont Institute Commentary Daily Gut Dana Loesch Dennis Miller Radio Dennis Prager Der Spiegel Don Surber Drudge Report Economist Ed Driscoll Financial Times Forbes Foreign Affairs Founding Bloggers Fox Nation Fox News Freakonomics Blog Gateway Pundit GayPatriot George Will Glenn Beck Hot Air Huffington Post Hugh Hewitt Human Events Instapundit Investors Business Daily Iowahawk Jawa Report Jerusalem Post John Gibson John Nolte John Romano John Tierney Larry Elder Larry Kudlow Lars Larson Laura Ingraham Law Hawk Little Green Footballs Los Angeles Times Lucianne.com Mancow Manhattan Institute Marginal Revolution Mark Levin Mark Steyn Media Research Center Melanie Morgan Michael Barone Michael Savage Michael Yon Mickey Kaus Mike Flynn Move America Forward MSNBC National Review National Review's The Corner Neal Boortz New Republic New York Magazine New York Post New York Times NewsBusters Newsweek Pajamas Media Parcbench Pat Dollard Patterico's Pontifications PoliGazette Politico Power Line PR Newswire Pravda Quincy News Real Clear Markets Real Clear Politics Reason Reason Hit and Run RedState Rep. McCotter YouTube Channel Reuters Roger L. Simon Roger Stone Roll Call Rolling Stone Rush Limbaugh Rusty Humphries Salon Sean Hannity Silicon Alley Insider Slate Smoking Gun South Park Episodes Tammy Bruce The Daily Beast The Hill The New Ledger Thomas Sowell Time Times U.K. Townhall.com U.K. Daily Mail U.K. Guardian U.K. Telegraph U.S. News USA Today Vanity Fair VodkaPundit Volokh Conspiracy Wall Street Journal Washington Examiner Washington Post Washington Times Weekly Standard WorldNetDaily var gaJsHost = (("https:" == document.location.protocol) ? "https://ssl." : "http://www."); document.write(unescape("%3Cscript src='" + gaJsHost + "google-analytics.com/ga.js' type='text/javascript'%3E%3C/script%3E")); try { var pageTracker = _gat._getTracker("UA-715222-4"); pageTracker._trackPageview(); } catch(err) {} /* This website uses IntenseDebate comments, but they are not currently loaded because either your browser doesn't support JavaScript, or they didn't load fast enough.