1) His role in Citi's downfal
2) His role in Citi's bailout
I've already posted about him saying:
1) He needs to account for his actions
2) He, at least, admits the CDOs, etc., were meant to be risky.
I don't think he's going to be very happy that Yves Smith is on his case:
"This ought to be a celebratory event, the scrutiny of a powerful player in the financial system who heretofore seemed immune to criticism. And what is interesting about the spotlight on Citigroup consigliere and board member Robert Rubin is that, unlike Greenspan, the reassessment is starting while he would still appear to have his hands on the reins of power. After all, he is still on Citi's board; his protege Timothy Geithner is slotted to become Treasury Secretary, his buddy Larry Summer is head-of-the-National-Economic-Council-in-waiting."
It's a healthy sign, but I wouldn't hold a celebration just yet. Robert Rubin might yet have the last laugh, and, if you don't know, having the last laugh is awfully pleasing.
"Yet if the reaction in New York is any indication, the outrage about the speed and size of the second Citigroup rescue is considerable, and a recent Wall Street Journal piece fingered Rubin as a moving force behind Citi's disastrous strategy to take on more risk in debt markets in pursuit of profit and better competitive rankings. And the only consequences to Rubin will be (hopefully) lasting damage to his reputation. But he gets to keep his cash and prizes."
Yes, Yves, this is where you need to read Kohelet.
"Rubin refuses to take an iota of responsibility for the bank's tsuris (and that also comes from the Goldman playbook. The firm always circles the wagons and admits nothing). Get a load of this:
Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank's main operations even though he was one of its highest-paid officials.
"Nobody was prepared for this," Mr. Rubin said in an interview. He cited former Federal Reserve Chairman Alan Greenspan as another example of someone whose reputation has been unfairly damaged by the crisis.
Yves here. Unfairly damaged? Is this what leadership amount to in America? You have the power, you get the perks, but you only take credit for the good stuff?"
That's about it. That's the system. I see this playing out like the S & L crisis. A few token prosecutions, but a whole pirate ship full of fraud, negligence, and fiduciary mismanagement will be swept under the rug, to be exhumed long after all the pirates have received their ultimate reward or punishment.
It's a damned shame we can't change it. Still, we need to buckle up. Tough times ahead everyone.
"A very simple psychological construct places people on a spectrum of internalizing versus externalizing (boldface ours):
When something goes wrong, we look for answers as to why-what caused this? How we deal with setbacks has enormous implications for how we feel about ourselves during these difficult times. Some people take the responsibility onto themselves-"it must have been because of something I did or didn't do." We can call these people internalizers because they internalize the responsibility. This can lead to feelings of depression if one's self-esteem takes too much of a beating. However, sometimes there is also the promise of a brighter future-"maybe I can do this differently next time so it turns out better." Other people are more likely to place the controlling factor outside of themselves-"it must have been someone else." We can call these people externalizers. In some cases, they will act out in anger over a bad situation. Externalizing frees them of any feelings of self-criticism or guilt, but it also leaves them powerless over the situation unless circumstances change. So, the price they pay is that they don't learn anything new.
Salesmen are typically externalizers. "
Read Bullshit Artists, veering towards criminals.
"Note the uncanny parallel in word choice with Rubin in this tidbit:
The self-talk of the Externalizer is all about the defectiveness of others and the "unfairness of it all."
Back to the Journal:
Its [Citi's] troubles have put the former Treasury secretary in the awkward position of having to justify $115 million in pay since 1999...
Yves again. Please, his pay should have been questioned long before now. He did not have his name on any deals, and he claims not to have gotten his hands dirty. Indeed, he contends the problem was not the strategy, but the execution, and by implication he had nothing to do with that.
Are we expected to buy that? Did any firm that went out on the risk curve do well? The only reason Goldman was less damaged for a while was that two traders told the management committee that they thought subprime was way overvalued and the firm put on shorts that exceeded its long position. That was serendipity (combined with some intellectual flexibility in the top ranks)."
Dear me, Yves. Don't you know that "When you're slapped, you'll take it and like it." ? I pretty much look like Peter Lorre now, it's happened so often to me. Perhaps we should remember this line more often, "I couldn't be fonder of you if you were my own son. But, well, if you lose a son, it's possible to get another. There's only one Maltese Falcon. ". That's quite true.
"Back to the Journal:
Mr. Rubin said his pay was justified and that there were higher-paying opportunities available to him. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said.....
Yves again. Yes, and I could make a lot more money dealing drugs, or better yet, providing financing to terrorists (one of my buddies says they make an absolute fortune). The issue is did you deliver value to Citi that bore any relationship to what you were paid? What you could have made elsewhere doing something different is a distraction from the question at hand."
That's not a very good defense. No. When you use that kind of reasoning, it shows you're very bothered by the position you're in as far defenses and explanations go.
"To Rubin again:
Mr. Rubin said it is a company's risk-management executives who are responsible for avoiding problems like the ones Citigroup faces. "The board can't run the risk book of a company," he said. "The board as a whole is not going to have a granular knowledge" of operations.....
They do at Sandater, in fact, they consider that to be the board's most important responsibility. They meet twice weekly. Investment banks, when they were private, had management committees that similarly watched risks like a hawk. So "can't" is counterfactual. "Generally don't" is more accurate. The wipeout in the banking industry strongly suggests that this deliberate inattention to one of the most important determinants of profits and long-term survival was a fatally flawed policy."
Bob needs a little remedial modal logic. And remember:
"Joel Cairo: I certainly wish you would have invented a more reasonable story. I felt distinctly like an idiot repeating it.
Sam Spade: Don't worry about the story's goofiness. A sensible one would have had us all in the cooler. "
"Back to the Journal:
The decision has been blamed in part for Citigroup's problems, including the growth of its CDO holdings amid signs the mortgage market was unraveling. Mr. Rubin doubts that's true. "It was not an inflection point," he said, but "I just don't know what would have happened" if the decision had been different.
At the time, Mr. Rubin was saying in speeches that most assets were overvalued. He would quote a noted investor he knew as saying that "the only undervalued asset class in the world is risk."
Yves again. So he denies that the CDOs or the assumption of more risk had anything to do with Citi's near death experience, despite the evidence in the form of huge writewdown on recent positions. And at the same time he was supporting Citi's bigger bets, he was saying externally, in public, that assets were overpriced and investors were not getting paid enough for risk assumption? It will never happen, but I would love to see a great litigator like David Boies have a go at Rubin under oath."
The noted investor was himself. He has a bad habit of speaking of himself in the third person.
"There is much more in this article, but it illustrates a pathology operative in our society. Why have we gravitated to leaders and advisors who built Potemkin villages and tell us that is progress, and then deny that they have any responsibility? This pattern has become widespread in Teflon CEOs and public officials. And the converse delivers better results. Jim Collins, in his book Good to Great, found that the CEOs of the very best performing companies were modest, shared credit for what went right and took blame for failures, the opposite of the Rubin/prevailing US pattern. And they also paid themselves modestly by modern standards.
Read the entire article, if you have the stomach for it. "
Sorry luv, can't do it. I feel like Tom Waits this morning: "I hate to throw up, it was such a beautiful breakfast and I'd like to hold on it for a little while."
And I think that CEOs talk more like this:
"Kasper Gutman: Well, sir, what do you suggest? We stand here and shed tears and call each other names... or shall we go to Istanbul?
Joel Cairo: Are you going?
Kasper Gutman: Seventeen years I've wanted that little item and I've been trying to get it. If we must spend another year on the quest... well, sir, it will be an additional expenditure in time of only... five and fifteen seventeenths percent. "
As for my blog, I just got the following comment:
"By Gad, sir, you are a character. There's never any telling what you'll say or do next, except that it's bound to be something astonishing. "
Here was my comment on Yves Smith's blog:
Don said...
Now, Matt Yglesias weighs in:
"Robert Rubin speaks up for himself:
“Nobody was prepared for this,” Mr. Rubin said in an interview. He cited former Federal Reserve Chairman Alan Greenspan as another example of someone whose reputation has been unfairly damaged by the crisis.
This seems like a pretty serious dodge here. Presumably the reason the top executives at a giant financial services firm get paid such extravagant salaries is that it’s their job to be prepared for the stuff that “nobody” is prepared for. If the idea is just that you make money while the market goes up, and then when the market goes down the government steps in to rescue you, probably a lot of people could do the job. And if a lot of people could do the job, there’s no need for compensation packages to run into the tens of millions of dollars. But if there is a need for compensation packages that run into the tens of millions of dollars, then people have a responsibility to prove themselves to be super-genius titans of capitalism who can navigate the shoals of the global economy flawlessly.
I don’t, personally, believe that there’s anyone like that out there. So nobody should be blamed for failing to live up to that hype. But people can be blamed for participating in the hype and profiting from it."
Nobody means " Mr. Nobody". He's saying, "Go talk to Nobody, he was prepared. Go and see how he knew, but get off my back. I'm not Nobody!".
"You... you bungled it. You and your stupid attempt to buy it. Kemedov found out how valuable it was, no wonder we had such an easy time stealing it. You... you imbecile. You bloated idiot. You stupid fat-head you."
Now, do we all feel better having assigned blame?
Brad DeLong gave a rousing defense of Rubin, which nobody, again nobody, seems to be buying. How could they? They're broke. I understood DeLong's defense to be that Rubin was paid to take risks. Very Good.
"You know, that's good, because if you actually were as innocent as you pretend to be, we'd never get anywhere. "
Here's a comment I left on his blog:
"Your defense of Sec. Rubin reminds me of a lesson I learned many years ago while playing Babe Ruth League baseball.
In a tied game, with two out, in the bottom of the last inning, I was on third base. I came up with a brilliant, if risky, plan, all on my own. I decided to steal home.
Now, I was pretty fast in those days, and I knew that my decision was the last thing anyone expected, so I convinced myself that it was a brilliant and foolproof plan.
I was thrown out. When I got to the dugout, the coach said, " What the hell do you think you were doing? ". I said, " Trying to score a run and win the game, that's my job". He replied, not that impressed, "It's not your job to be thrown out in an idiotic play".
Well, true enough. I'm not equating my risk with Rubin's, but I did learn one thing that day when we lost. That was to take responsibility for your own risks. Period.
Posts
I've noticed a change in the portrait of Rubin in the ongoing series of stories featuring him.
Last week, he was portrayed as having understood clearly that these new financial innovations were based on increased leverage and risk. In fact, he said that is how investors make more money. Which is true, but doesn't justify these particular products. However, in admitting that, say, CDOs are meant to push the envelope of risk for more profits, he did manage to clearly state a fact that many people are trying to deny in justifying their investments. Many people are trying to claim that they saw these investments as less risky.So, I found Rubin's admission very valuable.
Now, he seems to be focusing less on the risk of the products than on the financial crisis we are in, and saying that no one could have predicted the crisis we're in. However, even if that's true, it doesn't deny the fact that Citi's investments are part of the root cause of the current crisis, which are poor loans and over-leveraged investments. In other words, as he said earlier, pushing the envelope on risk.
I don't see it working, precisely because of the Citi bailout. From my perspective, he was clearly a believer in the view that if there was a financial crisis, the government and Fed had implicitly and explicitly agreed to intervene in a financial crisis, and save the major financial institutions. It is this belief in a guarantor which helped the big guys to laugh in the face of ultimate moral hazard. So, he's correct. He never predicted this. He never predicted this reaction by citizens to this bailout. After all, it was part of our system, and what we have now is just the guarantors of the system, taxpayers, paying the bill. How can he be blamed for clearly seeing how the system works, while the rest of us do not?
Don the libertarian Democrat
November 29, 2008 11:07 AM