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Below is an excerpt from the latest issue of The Institutional Risk Analyst. You can get access to the library of past issues of The IRA as well as our bank stress index ratings for all US banks at www.irabankratings.com. Appreciate the comments from readers on this piece.

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Meanwhile, our friend Achim Duebel in Berlin is buying one year Greece with a 10% yield. He sees the "roll risk" as basically in the hands of President Nicholas Sarkozy of France and Angela Merkel of Germany. Can't disagree.

Achim reminded us the other day that Germany, the Netherlands and Austria are basically the lone fiscal grown-ups in the EU, with the rest of the euro zone behaving like, well, Americans. This is significant because in the face of signs of fiscal probity in Europe, the US seems determined to plunge into ever greater fiscal stimulus and inflation.

Nor could we quibble last week when our friend Joan McCullough at EastShore Partners identified the "QE2" appearing on the horizon. But we wonder, do America's friends in Europe, Asia and the parts in between understand that it is still Robert Rubin and his cohorts who are steering the American political economy toward hyperinflation and economic dissolution? As the distraction of Europe wanes, the folks in China who feel queasy at the thought of overnight REPO for Treasuries are absolutely going to love U.S. policy for the dollar under the firm hand of Bob Rubin.

It comes as a surprise to many people that, despite the fiasco at Citigroup (NYSE:C) and his role in causing the subprime mess (See "The Subprime Three: Rubin, Summers and Greenspan," The Institutional Risk Analyst, April 28, 2008), Rubin remains inside the circle at the White House. Nearly two decades after first migrating to Washington, he apparently is still calling the shots of U.S. financial and economic policy with the full support of President Barrack Obama. Working through his favorite marionettes, Treasury Secretary Tim Geithner and Economic Policy Czar Larry Summers, most recently Rubin managed the defense of Wall Street following the great crisis.

No matter what Secretary Geithner says or when he says it in public, you can be sure that those utterances have the full knowledge and approval of his handler Larry Summers and their common political owner and sponsor, Robert Rubin.

A modern day colossus, Rubin effortlessly bestrides the worlds of political and finance, and mostly without leaving a trail of slime that often betrays the average political operator. Rubin stood at the right hand of Alan Greenspan on the famous February 1999 Time cover entitled: "The Committee to Save the World." Not an entrepreneur like Pierpont Morgan, Rubin is a mixture of banker, politician and global technocrat, a super fixer of sorts, but with a proper sense for public-private partnership. Case in point: The famous letter from Rubin to Goldman Sachs clients when he first went to the Clinton White House saying that just because he was in Washington didn't mean he wouldn't be looking after them.

Mr. Rubin Goes to Washington

President Bill Clinton famously called Rubin the "greatest Secretary of the Treasury since Alexander Hamilton," yet another example of the former President's generosity. There's probably a couple of dozen names on the list of the less than 100 Treasury chiefs who've served since the inception of the U.S. we'd put in front of Rubin. How about Albert Gallatin, Salmon Chase, Carter Glass, William McAdoo, Andrew Mellon and Henry Morgenthau to start?

In fact, reasonable people might call Robert Rubin the chief architect of the financial crisis and also of Wall Street's grand strategy to minimize the political damage from the subprime crisis. From his mismanagement of the U.S. Treasury's dollar policy in the mid-1990s to his bailout for Mexico (for Goldman Sachs and other Wall Street dealers), to the rescue of Citigroup and AIG in 2008, Rubin has met or exceeded the most demanding expectations for duplicity from our public servants.

Recall the comment by former Fed Chairman Alan Greenspan about "cringing" when Rubin spoke about the need for a strong dollar and you get the idea. Yves Smith has a great summary of this period of Rubin's career in her book Econned, BTW, in the last Rubin hit in the index. Emboldened by the cash surpluses from Social Security contributions pouring into the Treasury and the related silly talk about the US redeeming all outstanding public debt, in the 1990s Rubin transformed himself into a deficit hawk. And using the considerable network of connections and money that is the chief asset of Goldman Sachs, Rubin became part of the permanent government that still runs Washington today.

Rubin worked first at the White House as economic policy boss, then after the abortive 1994 election sweep by the Republicans, at the Treasury. He oversaw the bailout of Mexico in December 1994, thereby bailing out Goldman Sachs and the other banks which held Mexican exposure. Then was forged the core gang of Rubin, Larry Summers and Timothy Geithner which comprises the Rubin political tendency today. Summers was the chief minion in those days and ran political interference for Wall Street after Rubin's departure in 1999. Lesser minions of Rubin today in the Obama White House include Jason Furman, a deputy to Summers on the National Economic Council and likely candidate to be the next head of the Office of Management and Budget. He would replace yet another Rubin protege, Peter R. Orszag.

One of the most powerful and least known Rubin proteges is Michael Froman. Michael has an unusual "dual brief" which is he reports to Summers on the National Economic Council and reports to Gen. Jones on the National Security Council. He sits at the nexus of global finance and geopolitics. He is the main "Sherpa" on G-20 and point person on reflating the world through the intermediation of the new global central bank (IMF) and the new global currency (SDR's) under the auspices of the new global board of directors (G20); all unelected and perfectly unaccountable, of course.

The fact that Froman reportedly blew up the alternative investing division at Citi before he left seems not to have slowed down his career in government. And the fact that no one has ever heard of him (versus Summers, Geithner, Orzsag, others) is just the way he and Rubin like it, says an NSC insider. Froman's end-game scenario for the dollar collapse is to kick the problem upstairs and flood the world with SDR's. Notice that the IMF has leveraged its balance sheet for the first time in history using the euphemistically named "New Arrangements to Borrow" or NAB. Stay tuned for high velocity NABs.

Through eight years of George W. Bush and two decidedly non-Wall Street Treasury chiefs in Paul O'Neill and John Snow, the Rubin machine worked opportunities on Wall Street and groomed its new front-man, Timothy Geithner. Geithner served as Under Secretary of the Treasury for International Affairs from 1998 to 2001 under Secretaries Rubin and Summers, where he was "a principal adviser and member of the executive branch's senior team." Geithner then spent a couple of years at the IMF gaining credibility (and dodging his personal income taxes) before being made President of the Federal Reserve Bank of New York in October of 2003.

Geithner was chosen for the key Fed job by that subset of the Council on Foreign Relations which seemingly controls the Fed of New York board, a fact that the latest financial reform legislation leaves undisturbed. The selection of Geithner was made by a search committee headed by Pete Peterson, senior chairman and co-founder of The Blackstone Group, who fortunately did not need to look far. Rubin, Summers and Fred Bergsten all reportedly "advised" Peterson on the selection of Geithner, according to the FRBNY.

Geithner has been effectively an operating asset of Rubin for the past two decades and especially after the former Treasury Secretary left Washington in 1999 to join the board at Citigroup. As we reported prior to Geithner's nomination as Treasury Secretary, during his tenure at the Federal Reserve Bank of New York Geithner would often speak to Robert Rubin on the telephone for hours at a time, a practice we are told by a reliable source inside continues even to this day. What are they talking about?

The Citigroup Bailout

During the period when Secretary Geithner headed the Fed of New York, Rubin was on the board of Citigroup, a bank that would eventually be rescued at great cost to the taxpayer and C shareholders. But what is frequently missed is that Rubin and the board knew or should have known about operational problems at Citigroup as early as 2003. Not even two years after Rubin arrived on the board of Citigroup as a senior adviser to Chairman Sanford Weill, the largest subprime lender in the U.S. almost cratered.

During the 2001-2003 mini recession, Citigroup's credit loss experience skewed almost a standard deviation higher than the large bank per group and stayed there until the end of 2005. As it turns out, this large loss event in terms of the bank's credit experience was a hint of things to come. That is, Rubin and the Citigroup board should have known in 2002 onward that there was a problem at the bank. But Rubin seemingly was too busy with other matters to know or to care. Users of the professional version of The IRA Bank Monitor may view the default series for C's subsidiary banks by clicking here. The chart illustrates that for Citigroup, the subprime crisis began in 2002. But where was Bob Rubin?

From 2003 through 2007, Rubin encouraged Citigroup to increase leverage and risk during the subprime boom, this while spending a great deal of time pursuing an agenda of global diplomacy that was largely unrelated to the bank's operations. Where were the Fed and the OCC while Rubin was AWOL from his role as board chairman? "You were either pulling the levers or asleep at the switch," Philip N. Angelides told him during hearings on the Citigroup bailout, but Rubin refused to take personal responsibility for what occurred at Citigroup or in the larger economy, according to the New York Times.

Angelides, a former California state treasurer and a fellow Democrat, did not buy Rubin's excuses. "You were not a garden-variety board member," Angelides said. "I think to most people chairman of the executive committee of the board of directors implies leadership. Certainly $15 million a year guaranteed implies leadership and responsibility." And of course Rubin was and is exercising leadership, just not the kind that is generally understood.

When Citigroup was nearing collapse in 2008, Rubin then orchestrated the bailout of the bank in order to hide the effects of his lack of attention to the bank's operational problems. During a series of telephone conversations with his former partner and another former Goldman Sachs CEO, Treasury Secretary Hank Paulson, the Citigroup bailout was agreed. Rubin's intervention saved the proverbial bacon for Rubin and the other members of the Citigroup board of directors. But also remember that Paulson's arrival at the Treasury, in and of itself, was a sign that another financial crisis was brewing on Wall Street.

Rubin remained at Citigroup through January 2009, long enough to see the bank through the most difficult part of the crisis and bailout. He was aided by his dutiful minion Geithner, who was now at Treasury but operating under careful supervision of Summers and Rubin. Geithner also facilitated the bailout of American International Group, again to the advantage of Goldman Sachs and other Wall Street dealers. Rubin then departed from the board of the badly damaged banking group and ascended into heaven.

Next Crisis: The Dollar

The end result of financial reform is inconvenience for the financial services industry and more expense for the taxpayer and the consumer. But it should be noted that, once again, Wall Street has managed to blunt the worst effects of public anger at the industry's collective malfeasance. The banks can now start to focus their financial firepower on winning back hearts and minds on Capitol Hill. All it takes is money.

Notwithstanding anything said or done by the Congress this year, operating through trained surrogates such as Geithner, Summers and others, Robert Rubin is still pulling the economic and financial strings in Washington. The fact that there is a Democrat in the White House almost does not seem to matter. President Obama arguably has a subordinate position to Rubin because of considerations of money. If you differ, then ask yourself if Barack Obama could seek the presidency in 2012 without the support of Bob Rubin and the folks at Goldman Sachs. Case closed.

For America's creditors and allies, the key question is whether the Democrats around Rubin are willing to embrace fiscal discipline at a time when deflation in the US is accelerating. That roaring sound you hear is the approaching waterfall of the double dip. With the US at the moment eschewing anything remotely like fiscal restraint and the rest of the world going in the opposite direction, to us the next crisis probably involves U.S. interest rates and the dollar.

Judging by Rubin's performance in the past, when he talked first of a strong dollar, then a weak dollar policy, and fudged the issue regarding fiscal deficits, we could be in for quite a ride. But at some point the Obama Administration should acknowledge that this particular former CEO of Goldman Sachs is still driving the policy bus. If the Republicans are in control of the Congress come next January, maybe they should subpoena Rubin to appear periodically. At least then we all can hear directly to the person who is actually making national economic policy.

Disclosure: None

Source: Country Risk: The World According to Robert Rubin (Updated)