Robert Rubin is the wrong guy to blame for the financial crisis.

The thinking behind the news.
Jan. 5 2011 6:18 PM

In Defense of Robert Rubin

He's the wrong guy to blame for the financial crisis.

(Continued from Page 1)

I do think Rubin deserves criticism for not pushing his entirely accurate view of the danger of the derivatives harder. By the time the collapse of the massive hedge fund LTCM put a spotlight on the issue in 1998, he had built up tremendous political capital. Had he been more vocal about his worries, he might have a least made people more aware of the problem, even if no legislation passed. But Rubin was not wrong about the risk of unregulated derivatives, nor was he opposed to regulating them. To the contrary, he was prophetic about the risk and correct in his prescription.

Rubin took these views back to the private sector with him. Many a Citi executive sat in his corner office listening to the same apprehensions I heard so often about the mispricing of risk, the excesses in the credit market, and the danger of relying on mathematical models. But Rubin did not make decisions at Citigroup. His role was as a representative to clients and foreign officials and as a strategic adviser to CEO Sandy Weill and to Weill's successor Chuck Prince. After his service in government, Rubin wanted a position that would allow him to stay abreast of what was happening in the financial world while remaining involved in the public policy issues that animated him. He wanted to be able to take public positions at odds with his firm's interests and the views of other executives. He did not want management authority and had no one reporting to him.


Here again, there is a valid criticism that is far different from the one most often made. Rubin's problem wasn't power without accountability—it was accountability without power. I'm not sure he fully appreciated the risk, evident in hindsight, that he would be blamed if things went badly wrong, as they might have in any number of possible ways, at the world's largest financial institution. But even if he'd had a more conventional kind of authority, it's unrealistic to think Rubin could have prevented the mistakes that necessitated a government bailout. The assumption that the rating agencies knew their business, a key enabler of the subprime meltdown, is analogous to the view before the Iraq war that Saddam Hussein had WMD. There are a lot of people now who scoff about what an obvious fallacy that was and not many who can point to doubts expressed at the time. But even if Rubin had better understood the risks Citi traders were taking and been in a position to do something about it, he almost certainly would not have said, "sell the AAA-rated CDOs." Nor would anyone else have.

While Rubin bears no meaningful responsibility for the financial collapse, he has had, as Business Week noted in a recent article, significant impact on the recovery. The Obama administration's response has been led by a series of his disciples—Summers, Timothy Geithner, Peter Orszag—who have dealt with the crisis using the tools and lessons they learned responding to the Mexican and Asian crises of 1994 and 1997. In those instances, the problem of moral hazard had to take at temporary backseat to stopping financial contagion. Once markets were stabilized, they could take on systemic issues. That describes the current moment as well, with the Obama team pivoting from what has been their highly effective crisis response to longer-term issues of fiscal balance, future crisis prevention, and establishing the conditions for long-term growth. For a second time, Rubinomics seems to be working.

A version of this article also appears in this week's issue of Newsweek. Like Slate on Facebook. Follow us on Twitter.



More Than Scottish Pride

Scotland’s referendum isn’t about nationalism. It’s about a system that failed, and a new generation looking to take a chance on itself. 

What Charles Barkley Gets Wrong About Corporal Punishment and Black Culture

Why Greenland’s “Dark Snow” Should Worry You

Three Talented Actresses in Three Terrible New Shows

Why Do Some People See the Virgin Mary in Grilled Cheese?

The science that explains the human need to find meaning in coincidences.


Happy Constitution Day!

Too bad it’s almost certainly unconstitutional.

Is It Worth Paying Full Price for the iPhone 6 to Keep Your Unlimited Data Plan? We Crunch the Numbers.

What to Do if You Literally Get a Bug in Your Ear

  News & Politics
Sept. 16 2014 7:03 PM Kansas Secretary of State Loses Battle to Protect Senator From Tough Race
Sept. 16 2014 4:16 PM The iPhone 6 Marks a Fresh Chance for Wireless Carriers to Kill Your Unlimited Data
The Eye
Sept. 16 2014 12:20 PM These Outdoor Cat Shelters Have More Style Than the Average Home
  Double X
The XX Factor
Sept. 15 2014 3:31 PM My Year As an Abortion Doula
  Slate Plus
Slate Plus Video
Sept. 16 2014 2:06 PM A Farewell From Emily Bazelon The former senior editor talks about her very first Slate pitch and says goodbye to the magazine.
Brow Beat
Sept. 16 2014 8:43 PM This 17-Minute Tribute to David Fincher Is the Perfect Preparation for Gone Girl
Future Tense
Sept. 16 2014 6:40 PM This iPhone 6 Feature Will Change Weather Forecasting
  Health & Science
Medical Examiner
Sept. 16 2014 11:46 PM The Scariest Campfire Story More horrifying than bears, snakes, or hook-handed killers.
Sports Nut
Sept. 15 2014 9:05 PM Giving Up on Goodell How the NFL lost the trust of its most loyal reporters.