Bob Rubin: Out of Office but in the Loop

The economic crisis brings him back to Washington

He was there on Sept. 19, when congressional leaders clamoring for an emergency rescue package for the reeling U.S. economy huddled with Federal Reserve Chairman Alan Greenspan and Treasury Secretary Paul H. O'Neill. He turned up again on Sept. 25, when the Fed chief delivered his latest damage assessment to a closed-door meeting of the Senate Finance Committee. Who is that tall, angular man in the dark suit? None other than former Treasury Secretary Robert E. Rubin. Although his day job is chairman of the executive committee at Citigroup Inc. (C ), his sideline seems increasingly to be as shadow Treasury Secretary for wary Hill Democrats.

Why wary? With President Bush's popularity sky-high in the wake of the Sept. 11 terror attacks, Democratic congressional leaders want to make sure that a raft of Republican tax ideas--from slashing capital-gains rates to permanently trimming corporate taxes--don't get rammed through in the feverish mood of national crisis. The unflappable Rubin, a critic of George W. Bush's first round of big tax cuts, is viewed as just the sage presence the party needs to argue for progressive-style tax relief. Democrats would prefer to focus on temporary aid that targets low- and moderate-income groups over top-tier taxpayers and corporate interests.

Over the past few months, Rubin has given occasional policy briefings to Democratic members of the House Ways & Means Committee and other party groups. "Bob likes to keep his hand in," says an associate. Then came Terror Tuesday and its wrenching economic shock. With terrified lawmakers issuing frenzied calls for up to $180 billion in new spending and tax stimulus, both House Speaker J. Dennis Hastert (R-Ill.) and Minority Leader Richard A. Gephardt (D-Mo.) thought it was time to cool things down and bring in the wise men. Thus it was no surprise when Rubin was asked to come along when the first bipartisan Hill group met with Greenspan to discuss economic options.

In the initial talks, Rubin aligned himself with Greenspan and O'Neill by urging lawmakers to wait a few weeks before enacting any rescue plan. That stopped the tax-cut express cold, buying valuable time for the White House to assess the economy's prospects more deliberately. Afterward, O'Neill called Rubin's role "wonderful," adding that "we need to take advantage of every smart mind that we can bring to bear on these problems." Citigroup Chairman and CEO Sandy Weill thinks O'Neill and Rubin can together help rebuild public confidence. "I just wish [Rubin] would spend more time in our office," he jokes.

PURCHASING POWER. With the stock market showing signs of stabilizing two weeks after the terror strike, policymakers now are trying to assemble an economic response package that could easily grow from the $55 billion in emergency spending already in the pipeline to upwards of $100 billion. Rubin's role now will be to back up Democratic leaders who want the bulk of any new tax breaks to be temporary and to focus on stimulating consumer spending. "He thinks there's more to be done on the demand side than the supply side," says Senator Charles E. Grassley (R-Iowa), ranking Republican on the Senate Finance panel.

Rubin typically has been closemouthed about his participation in the ongoing economic dialogue. He did not respond to calls from BusinessWeek for comment. But sources close to the discussions say that Democrats view him as a crucial element of a consensus plan to help the economy fight off what many forecasters now say is a bona fide recession.

And that in itself is a bit ironic. In 1993, Rubin was vilified by the Democratic Left for ensnaring Bill Clinton in a "bond-market strategy" that elevated deficit reduction over party interest groups' calls for new social spending. Ultimately, Rubin's predictions of the bonanza entailed in lower interest rates silenced the opposition and won him a place in the Democrats' pantheon of economic stars. That, more than anything else, explains why Citizen Bob has been drafted for his latest economic rescue mission.

By Lee Walczak, with Lorraine Woellert, in Washington, and Heather Timmons in New York

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