The secretary has also been excessively obeisant to Wall Street. Though Rubin has bucked Wall Street by opposing a capital-gains tax cut, he comes from Wall Street, and most of his closest friends and advisers are Wall Streeters, and he generally heeds the street. During the global financial crisis, Rubin has halfheartedly warned Americans not to invest cavalierly in weak foreign economies, but anytime foolhardy American investors have been threatened, Rubin has rushed to save them. During the Asia, Russia, and Brazil crises, Rubin constructed bailout deals that benefited outside creditors above all. He insists he was not trying to help Wall Street. According to Rubin's logic, safeguarding investors in these troubled economies prevents contagion from spreading. If American investors thought they were going to lose the billions they had unwisely put in Korea, they might pull out of Latin America, Eastern Europe, or the rest of Asia.
But many economists, especially non-Americans, complain that Rubin has been far too obliging toward his old colleagues and indifferent to the poor Russians and bankrupted Koreans damaged by his decisions. (After all, when Wall Streeters say today that the Asia crisis is "over," what they mean is that American exposure is over. The economies of Asia are still a mess.) Rubin's relief for Americans has encouraged a "moral hazard"--an inducement for people to speculate excessively because they know the United States will rescue them.
The regulatory capture of Rubin by Wall Street has not only benefited Wall Street, it has also polished Rubin's reputation. When Rubin makes decisions that aid Wall Street, analysts and traders reciprocate in the financial media, telling CNBC, the Wall Street Journal, Bloomberg, et al., just how wise the good secretary is. Rubin himself probably does not care about such back scratching, but it is a lesson that heir-apparent Summers, an eager press hound, has surely absorbed. Be nice to Wall Street, and perhaps you can be a money god, too.
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