Rubin: ‘Nobody Was Prepared’ for Crisis of ’08

“What came together was not only a cyclical undervaluing of risk [but also] a housing bubble, and triple-A ratings were misguided. There was virtually nobody who saw that low-probability event as a possibility.”

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With that line, former Treasury Secretary Robert Rubin, and current Citibank board member, shredded what little reputation he had left. Rubin’s attempts at defending his tenure at Citi struck me as totally disingenuous.

While some may uncritically accept that nonsense as fact, we know better. Many people had been warning of housing busts, excess credit creation, and derivatives for quite some time. Quite a few people were discussing this. Warren Buffett had warned about derivatives years prior. Even Merrill Lynch, and their savvy chief economist David Rosenberg, noted in August of 2004 the potential damage the housing and credit boom and bust could cause.

Rubin blamed financial system, not any errors of his own at Citi. And his defense of Greenspan is, in my opinion, the work of a guilty conscious. He and Greenie both supported, and even pushed for:

• Repeal of Glass Steagall

• Exempting of Derivatives from Regulation

• Encouraging Citi to take on more leverage in 2004

• Ultra-low interest rates during, and after the 2001 recession

All of these are factors directly related to the subsequent leverage boom and bust.

Here’s part of the Journal piece:

“Mr. Rubin, senior counselor and a director at Citigroup, acknowledged that he was involved in a board decision to ramp up risk-taking in 2004 and 2005, even though he was warning publicly that investors were taking too much risk. He said if executives had executed the plan properly, the bank’s losses would have been less.

Its troubles have put the former Treasury secretary in the awkward position of having to justify $115 million in pay since 1999, excluding stock options, while explaining Citigroup’s $20 billion in losses over the past year and a government bailout of at least $45 billion…

Since 1999, the bank has lurched from crisis to crisis, first with regulatory authorities, then with investors who grumbled that the bank lacked a strong strategy and was bloated.”

The Journal notes that Mr. Rubin was “deeply involved in a decision in late 2004 and early 2005 to take on more risk to boost flagging profit growth.”

Thus, today Mr. Rubin officially gets moved out of the column of intellectual heavyweights, and into the big  “just as full shit as the rest of them” pile.

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See also
Rubin Agonistes
http://www.ritholtz.com/blog/2008/11/rubin-agonistes/

Source:
Rubin, Under Fire, Defends His Role at Citi
KEN BROWN and DAVID ENRICH
WSJ, NOVEMBER 29, 2008
http://online.wsj.com/article/SB122791795940965645.html