We are fast approaching an important but underappreciated anniversary: Robert Rubin’s 20th year of extraordinary proximity to political power in Washington. This is not a milestone to be celebrated.
Not only was Rubin secretary of the Treasury under President Bill Clinton, but the next three secretaries in Democratic administrations -- Lawrence Summers, Tim Geithner and (assuming he is confirmed) Jacob Lew -- have Rubin’s fingerprints on them. This is a cause for grave concern -- assuming, of course, you care about whether it’s right for Rubin to have such a long stretch of political influence.
I do, and here’s why: When Rubin was an arbitrager at Goldman Sachs Group Inc. in the 1980s, and again when he was in the executive office of Citigroup Inc. in the 2000s, he was one of the leading purveyors of the kind of irresponsible behavior that led to the financial crisis of 2007 and 2008. Not only has Rubin refused to take a shred of responsibility for his actions, but he has also managed to win the hearts and minds of two of our last three presidents. That’s no mean feat, and it says much about the cozy relationship between Washington and Wall Street.
Rubin comes by his interest in political power honestly. His maternal grandfather, Samuel Seiderman, was a big part of the Democratic machine in Brooklyn a century ago. Seiderman was “a lawyer, an investor in real estate, a political activist, and a major figure in his Brooklyn world,” Rubin wrote in “In an Uncertain World,” his 2004 memoir. “Family legend has my grandfather and his colleagues sitting around in the basement of what I remember as their enormous house at 750 Eastern Parkway and choosing judges.”
Rubin’s own political career developed after Treasury Secretary Henry Fowler came to Goldman Sachs in 1969, becoming the first Treasury secretary to leave government and join a Wall Street firm. While most people at Goldman Sachs ignored Fowler, Rubin befriended him, and in return Fowler introduced Rubin to Robert Strauss, the Washington powerbroker who became the treasurer of the Democratic National Committee in 1971. Strauss taught Rubin two important principles about politics. First: Money is the mother’s milk. Second: Always follow through. That is, if you say you are going to raise money for a political party or candidate, make sure to do it.
Rubin took Strauss’s advice to heart. In addition to proving himself adept at rising through the ranks at Goldman Sachs, he was also adept at raising money for Democrats. As a thank you, Rubin was offered his first job in politics, with the Council on Wage and Price Stability at the end of the Carter Administration, but turned it down.
In 1982, Strauss asked Rubin to raise money for a congressional campaign dinner. He raised more than $100,000 for the dinner himself -- $20,000 came from his own pocket; another $40,000 came from investors he had made money for through some arbitrage deals -- and then found himself in demand. While at Goldman Sachs, Rubin worked for the presidential campaigns of Walter Mondale in 1984 and Michael Dukakis in 1988 (where he first met Summers and Gene Sperling, the current head of the National Economic Council).
In 1990, after Rubin became a co-senior partner of Goldman Sachs with Steve Friedman, Strauss threw a dinner party for him in Washington to celebrate. In mid-1991, Rubin and his friend David Sawyer had a series of dinners in New York for potential Democratic candidates for the 1992 election. They had one for Arkansas Governor Bill Clinton, and Rubin was blown away. In no time, Rubin was in Clinton’s camp.
The rest is history -- a history that continues to this day. In January 1993, Clinton appointed Rubin as head of the National Economic Council, a position he created especially for Rubin. To take the post, Rubin left Goldman Sachs, leaving Friedman to run the firm by himself. (The consequences of that decision -- for Friedman and for Goldman Sachs -- are a whole other story.) Two years later, Clinton appointed Rubin to the Treasury, taking over from Lloyd Bentsen. Rubin held the position until July 1999, when his protege Summers took over.
Geithner, who went from the New York Fed to Treasury in 2009, was another Rubin protege. And while Jack Lew is not nearly so identified with Rubin as Summers and Geithner, the two men knew each other well during Rubin’s nearly eight years in Washington during the Clinton administration, in which Lew had several jobs.
And it was Rubin who recommended that Todd Thomson, then Citigroup’s global head of wealth management, hire Lew as a managing director in 2006, a position he held for nearly three years. (It’s worth noting that another close Obama adviser, Michael Froman, also worked for Rubin both in Washington and at Citigroup.)
Why does this bother me so much? In addition to the natural concerns of allowing one (unelected) person to have so much influence in the halls of power for so long, Rubin’s role in the recent financial crisis deserves greater scrutiny. At Citigroup, by his own design, Rubin had no responsibility for any business unit at the bank, and no one reported to him -- he served as a consigliore to Sandy Weill and John Reed, the two Citigroup co-chief executives.
Yet in his eminence grise role he encouraged Citigroup’s traders to step up their risk-taking, in ways similar to what he had done at Goldman Sachs. In the end, Citigroup’s losses totaled more than $65 billion, and the bank received $45 billion in bailout money plus another $300 billion in government guarantees for its sketchy mortgage-related assets. By the time of the bailout, in the fall of 2008, Rubin was the chairman of the board. But he has continuously refused to accept any responsibility for what happened at the bank.
He has said that while he did encourage more risk-taking, he also called for an increase in the internal monitoring of that risk. “I don’t feel responsible, in light of the facts as I knew them in my role,” he said in 2008. “Clearly, there were things wrong. But I don’t know of anyone who foresaw a perfect storm, and that’s what we’ve had here.” Two decades at the levers of power, and he wants us to see him as a victim of circumstance.
Yet his sway continues, and it goes well beyond the Treasury. He is co-chairman of the Council on Foreign Relations in New York and a founder of the Hamilton Project, a policy institute inside the Brookings Institution in Washington. In short, he is on the verge of outdoing even his 94-year-old mentor, Bob Strauss.
Rubin’s father lived to be 101 years old. Bob Rubin is 74. There’s no question he will retain his influence for a long time, unless our elected officials decide enough is enough.
(William D. Cohan, the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase. The opinions expressed are his own.)
To contact the writer of this article: William D. Cohan at firstname.lastname@example.org.
To contact the editor responsible for this article: Tobin Harshaw at email@example.com.