Glass-Steagall. This1933 law prevented commercial banks from doing investment banking (and vice versa). In his 2002 book, The Roaring Nineties, Nobel Prize-winning economist Joseph Stiglitz (an adversary of Rubin's in the Clinton White House) identifies Rubin as a prime mover in the 1999 repeal. The principal argument in favor of repealing Glass-Steagall was that financial institutions—most notably, Citigroup, where since 1999 Rubin has been a sort of rainmaker/consigliere—had already worked out ingenious ways to circumvent it. New York Times financial columnist Joe Nocera recently pointed out that repeal of Glass-Steagall enabled Citigroup, J.P. Morgan, and Bank of America to survive while stand-alone investment banks Bear Stearns, Merrill Lynch, and Lehman Bros. went belly-up. The argument against Glass-Steagall's repeal was that it would encourage banks to extend too much credit to companies whose stock their financial arms were trying to sell. It has yet to be demonstrated that this conflict of interest contributed to the current meltdown. But as the crisis accelerates the sort of mergers made possible by the 1999 repeal—according to Nocera, the big banks that just received a $125 billion investment from Treasury are already saying, entre famille, that they will spend the money not on loans but on mergers—opportunities for such abuses will multiply. Another problem with bank consolidation is that it will create more financial institutions deemed "too big to fail." As Robert Reich recently observed in his blog, if government needs to bail out giant corporations because their failures would wreck the entire economy, that's an excellent reason not to allow these corporations to become so big in the first place.
Rubin's genius for avoiding bad press is legendary. In a rare critical piece about Rubin in the March 2007 American Prospect, Bob Kuttner wrote that in reviewing newspaper and magazine features published about Rubin during the previous two decades, he "literally could not find a single feature piece that was, on balance, unflattering." Kuttner missed a column I wrote in 2002 complaining about the scant coverage given to a sleazy phone call Rubin made to a Treasury undersecretary about Enron just before that company went bust. (Citigroup was one of Enron's biggest creditors.) But I take his point: As far as most journalists are concerned, Rubin walks on water. The man's ability to do so even as the deregulatory culture he helped foster comes crashing down—the only significant knocks I can find are in one column by Robert Scheer, one by Robert J. Samuelson, and one by Harold Meyerson—is nothing short of extraordinary.
Rubin's Teflon is so scratch-proof that Barack Obama can enlist him to represent his campaign on CBS's Face the Nation without worrying that John McCain's ever-more-desperate campaign will make an issue of it. The program's host, Bob Schieffer, asked not a single question about Rubin's roles in blocking Born's proposal to regulate derivatives, in reappointing Greenspan, or in repealing Glass-Steagall. Fareed Zakaria did a little better on GPS (the awkwardly titled CNN show he hosts; click here for Part 1 and here for Part 2), remembering at least to ask Rubin whether he regretted his deregulatory policies during the Clinton administration. Rubin replied that regulating derivatives would have been politically impossible. Zakaria didn't follow up by noting the well-publicized collapse of Long Term Capital Management. On neither show was Rubin asked what role he may have played in Citigroup's loading up on mortgage-backed securities polluted by subprime loans. Zakaria (who is thanked in the acknowledgments to Rubin's memoir for reviewing the manuscript) set the tone at the start of his interview by quoting Clinton's description of Rubin as "the most effective Treasury secretary since Alexander Hamilton."
It's time to reconsider that judgment. Rubin has been widely touted for Treasury secretary in an Obama administration, but in the GPS interview Rubin wisely removed himself from consideration. Perhaps he knows that Senate Republicans would never question him as gently as Zakaria and Schieffer did.