In his new book, 13 Bankers, economist Simon Johnson traces a major shift in Democratic policy thought to the moment, in 1995, when President Bill Clinton decided to embrace Robert Rubin as Treasury Secretary.
After its resounding defeat in the 1994 Congressional elections, many insiders felt that the Democratic Party needed to turn to the left and advocate more populist economic policies. Rubin, however, favored the administration’s centrist course, maintaining a pro-business stance and focusing on deficit reduction. Clinton sided with Rubin, confirming the Democrats’ transformation into a market-0riented party that could be trusted by Wall Street.
Two of Rubin’s proteges from that time, Larry Summers and Timothy Geithner, now play a huge role in shaping Obama Administration policy towards Wall Street, having overseen the crafting of the financial regulation effort now working its way through Congress. Rubin, meanwhile, has gone into effective hiding since the financial crises began, effectively undermining Citigroup, the company where Rubin landed after leaving government service. Rubin’s role in establishing the regulatory framework for Wall Street before the crises is well known. His role within Citigroup in contributing to the collapse is less clear. Today, in a hearing before the Financial Crises Commission, a former executive of Citigroup testified that Rubin was in fact central to creating an environment at the bank where careless lending practices were tolerated.
Here is the Associated Press’s take on the testimony:
A former executive of Citigroup Inc. is telling a panel investigating the roots of the financial crisis that he warned former chairman Robert Rubin and other bank leaders about the coming mortgage crisis back in 2006. Richard Bowen says other Citigroup executives were violating the bank’s own risk management standards starting in 2006. He says he discovered in the middle of that year that over 60 percent of the mortgages bought and resold by subprime subsidiary Citifinancial Mortgage were defective. Bowen was chief underwriter for the division. Bowen says he issued many warnings to management about the mortgage risk starting in 2006, and e-mailed Rubin in November 2007.
The Wall Street Journal has more on Bowen, who has broken from Wall Street’s “no-snitch” culture. It sure would be interesting to hear Rubin testify.