Rubin's Citi Resignation: Stint Was a Bad Reputational Risk / Reward Bet

You can read about it here and elsewhere. Robert Rubin remains in my pantheon of heroes, he may be the best risk arbitrageur ever, and I don't know all the details.

But . . .

In my opinion, by taking the job at Citi (C), Rubin made a bad bet, a bet a good risk arbitrageur would not have made. Not in terms of money or doing interesting work, but in terms of his reputation.

Having gone from risk arbitrageur to co-head of Goldman Sachs (GS) to the best treasury secretary since Hamilton, he stood to gain very little from taking on the weird non-operational consigliere role he fashioned for himself at Citi. Whatever new heights the company reached, the CEO would have taken much of the credit.

On the other hand, if something started going wrong, his good name would inevitably be tarnished in the ensuing mess, with him being, by design, powerless to change things. No matter how likely the former case was relative to the latter, I don't think it was ever a positive expected value bet for his good name.

Comments

[PastTense:]

Wall Street types are willing to sell their good name for several million dollars.

Jan 11 03:12 PM

[User 335312:]

Do you think the great secretary will give back the millions of dollars he extracted from the economy without producing anything?

Jan 11 04:23 PM

[FormerRubin...:]

You are right that if things had gone very well, RR would not have been able to take credit. And when things went very badly, RR took some of the blame. But RR's decision was not irrational; he was betting on two other possibilities: things could have gone slightly well (the preferred outcome for him), or things could have gone slightly badly (in which case he could have blamed it on other people).

In other words RR was short volatility. But as we all know, volatility exploded...

So yes, I had to revise my opinion of RR down somewhat. He was not as prescient as I thought. But I think his decision to join Citi was a priori reasonable.

Jan 11 06:04 PM

[Kinabalu:]

"he stood to gain very little from taking on the weird non-operational consigliere role he fashioned for himself at Citi."

This one should lie at the feet of Citi's worthless board. Paying a hundred million dollars to an advisor (over several years) with no operational responsibilities is, prima facie, a stupid deal. I can't fault RR for taking this deal, and as an arbitrageur, it's a classic position to want to be in. If his advice is good he probably makes more, if bad...at least he still makes money.

Jan 11 06:26 PM

[User 335382:]

A bad reputational risk for Rubin? NO! A bad reputational risk for Citi.

Their emperor was running around naked for years. Some intern must have come into the office recently and said "Hey, why is that Rubin dude running around naked?"

Rubin is a clown. I would say Madoff had a good reputation as well. There's another emperor...

Jan 11 07:26 PM

[Moon Kil Woong:]

Obviously Rubin likes money. What's a reputation compared to a nice cushy sofa padded with tens of millions of dollars. I shed 0 tears for his loss of a good name.

If anything it makes him even more popular with banker folks who have all the money now. He probably couldn't give a rats ass about the rest of the common folk.

Jan 11 10:13 PM

[Anthony Alfidi:]

People like Rubin get board seats for their conections, not their competence. Did he even show up to meetings?

He had a great run at Goldman, but even star performers can get over the hill (not just in sports) if their past successes blind them to systemic problems. Since everybody on the inside of this closed system missed Citi's problems while they were building, it falls to "outside" advisors (how Rubin saw his role at Citi) to catch them.

Jan 12 02:43 AM

[ironpants:]

Another crook. No malfeasance goes unrewarded.

Jan 12 06:48 AM

[monday1929:]

Robert Rubin is a mere "fixer". He misjudged risk either criminally or incompetently, criminally tried to delay the SEC investigation of the Enron criminal off-book entities created with Citi's help. He looked good during a Delusional credit boom, like many of his criminal buddies.
He should be tried for treason, along with others, and if found guilty, hanged by the neck until dead. The damage done to this country by the criminal bankers amounts to treason and financial terrorism.

Jan 14 08:23 AM