Welcome to the Deep Dive. We're the place that
digs into the sources so you can get right to
the insights. That's right. Today, we are looking
at Robert Rubin. I mean, that name just brings
up the whole 90s economic boom, doesn't it? It
really does. The ultimate insider. You know,
the guy who went from the absolute top of Wall
Street right into the heart of Washington, D
.C. power. And we're diving deep into his career
arc today. It's quite something. Oh, absolutely.
We're talking, what, 26 years? Climbing the ladder,
Goldman Sachs. Then he becomes the key guy for
Clinton's economic policy. Yeah. Serves as Treasury
secretary. And then there's the whole Citigroup
chapter right before the 2008 crash, which brought
a ton of scrutiny. Exactly. That's the core of
our mission today, laid out in the source material.
We need to tackle this paradox. Yeah. How does
the same person get called literally the greatest
secretary of the Treasury since Alexander Hamilton
by a sitting president? While also getting blamed.
pretty heavily in some quarters, for pushing
deregulation, policies that many argue paved
the way for that massive 2008 meltdown. It's
like the two faces of modern American finance
and government all in one person. Totally. On
one side, you've got the undeniable wins, right?
Yeah. Turning the deficit around, the 93 Deficit
Reduction Act, managing those international crises.
He gets huge credit for the prosperity of the
90s. Huge credit. But then the other side, his
legacy is just... Tangled up with, well, two
really big regulatory debates. The fight against
regulating derivatives. And the push to get rid
of Glass -Steagall. You really have to dig into
the thinking behind both sides of his career
to understand the full picture. Okay, let's build
that foundation. Start at the beginning. How
did Rubin even get the kind of credibility to
bridge that gap between Wall Street and Washington?
He wasn't born into pop sex. No, born in New
York City in 1938, then moved to Miami Beach.
But his academic record was, well... Stellar.
Harvard College, summa cum laude in economics,
1960. That's top tier. It really is. And his
path after that shows this kind of intellectual
searching. He actually started Harvard Law. Oh,
yeah. And dropped out after three days. Wow.
Kind of amazing, right? Shows he wasn't afraid
to just change course. He traveled, studied at
the London School of Economics for a bit. LSE,
okay. Then eventually circled back to law, got
his LLB from Yale in 64. So a top -notch legal
education, too. He started out as a lawyer, though?
Yep, at a really prestigious firm, Cleary Gottlieb.
But that wasn't his final stop. The big move
came in 66. That's when he joined Goldman Sachs.
Right. And not just anywhere in Goldman, but
in risk arbitrage. Explain that a bit. What exactly
is risk arbitrage? Well, it's basically high
stakes betting on whether mergers and acquisitions
will actually go through. You're analyzing the
deal, the regulations, the personalities. It
takes incredible analytical skill. And a stomach
for risk, I imagine. Definitely. And a deep understanding
of, well, uncertainty, how to calculate odds
when things aren't clear. That skill set became
fundamental to everything he did later. And he
wasn't just passing through Goldman. He stayed
for... 26 years. 26 years. Climbed all the way
up. By the early 90s, he was co -senior partner
and co -chairman. That's the absolute peak. What
did that mean at Goldman back then? You have
to understand, Goldman in that era, it had this
partnership culture. Very focused on... Long
term client relationships, institutional reputation,
sort of prudence. Right. So for Rubin to reach
the top, it wasn't just about being a brilliant
trader. It showed he could manage huge amounts
of capital, huge amounts of talent under intense
pressure. He was basically the leader of the
firm that kind of defined Wall Street integrity
at that point. So he carried that weight, that
experience and that specific risk manager mindset
with him when he went to Washington. Exactly.
And it wasn't just the finance. He was politically
active, too. A committed Democrat. Right. The
sources mention he was New York finance chair
for Mondale in 84. Yeah. And he chaired the host
committee for the Democratic National Convention
in 92. These weren't just, you know, writing
checks. It showed he could organize, mobilize
serious resources at a high level. Made him pretty
indispensable when Clinton won. OK, so Clinton
wins in 92. Rubin is perfectly positioned. And
Clinton creates this new thing, the National
Economic Council, the NEC. Brand new structure,
yeah, 1993. And Rubin is its first ever director.
He's there for two really crucial years. I was
appointed the NEC. Wasn't that Treasury's job?
Well, yeah, but economic policy was kind of scattered
before then. Treasury, Commerce, OMB, Council
of Economic Advisors, they didn't always pull
in the same direction. The NEC was meant to be
the central hub. Coordinate everything, budget,
tax, trade, even stuff like poverty policy. Get
the whole administration singing from the same
economic hymn sheet. Sounds like a recipe for
massive turf wars. Cabinet secretaries aren't
known for giving up power easily. Oh, absolutely.
It could have been a disaster. But the sources
really credit Rubin's unique combination of skills,
his intellect, his calm temperament. And his
sheer credibility coming from Goldman. Exactly.
Robert Strauss, the old Democratic hand, apparently
said anyone else in that job would have been
a disruptive force. Rubin wasn't just another
political guy. He understood the finance, the
markets, the global stuff. He could talk turkey
with anyone and synthesize it for the president.
And what was his first big push? What did he
prioritize? Fiscal discipline. Right out of the
gate, he strongly urged Clinton, look, we've
got to tackle the deficit. even if it means politically
tough choices like raising taxes. Which was not
the traditional Democratic playbook at the time.
Not at all. This led directly to the 1993 Deficit
Reduction Act. Rubin was a chief architect. And
his big push was for tax increases on the upper
income folks. Which Republicans hated, obviously,
the whole tax hikes kill growth argument. The
classic supply side argument, yeah. They insisted
it would stifle investment. So how did Rubin
sell it? What was the logic for taking that political
hit? It was all about the bond market. This is
where his golden background was key. The argument
was, if we pass this, even with the tax hikes,
it sends a signal. A signal to who? To the bond
traders, the markets. signals that the administration
is serious, dead serious, about controlling debt
and inflation. Ah, the bond market vigilantes.
Exactly. The theory was, if you convince them,
long -term interest rates will come down. And
if rates come down... Then businesses invest
more, people borrow and spend more, and the economy
grows. Precisely. And that's pretty much what
happened. Rates fell, growth picked up, and eventually
that deficit vanished. They called it the confidence
dividend. That success must have cemented his
position. Absolutely. By late 94, he's nominated
for treasury secretary, confirmed in January
95. Wait for it. 99 to 0 in the Senate. 99 -0.
That's basically unheard of. Tells you everything
about the respect he commanded across the aisle
at that point. His reputation for competence
was just sky high. And his time as treasury secretary,
95 to 99. Those are the boom years. Really the
peak of that 90s expansion. The numbers are kind
of staggering when you look back. Like what?
OK. From when he joined the administration until
he left, unemployment dropped from 6 .9 percent
down to 4 .3 percent. Wow. The budget went from
a $255 billion deficit to a $70 billion surplus.
Incredible turnaround. And inflation stayed low
the whole time. So you can see why Clinton would
say he was the greatest Treasury secretary since
Alexander Hamilton. He delivered. Prosperity
and a balanced budget. The political holy grail.
But his influence wasn't just domestic. He got
deeply involved in global crises, too. That's
where the Committee to Save the World nickname
came from. Right. Time magazine cover. What was
the first big test? Almost immediately after
taking office in 95, the Mexican peso crisis,
Mexico was right on the brink of defaulting.
Could have destabilized emerging markets everywhere.
How'd they handle it? Congress wasn't going to
approve a bailout quickly. No time for Congress.
Rubin, Greenspan at the Fed, and Clinton made
a bold move. They used the Treasury's exchange
stabilization fund, usually for propping up the
dollar, to give Mexico $20 billion in U .S. loan
guarantees. Risky move politically, right? People
must have screamed about taxpayer money. Oh,
big time. Huge gamble. But it worked. Mexico
didn't default. Nope. They stabilized, recovered
pretty quickly, and paid back every cent of the
loans. And get this, the U .S. Treasury actually
made a profit of about $580 million on the interest
and fees. Wow. Okay, so that really burnished
his reputation as a crisis manager. Absolutely.
And that became the playbook, more or less, for
the next wave of crises. The Asian financial
crisis in 97, Russia, Latin America. Yep, 97,
98. He worked closely with the IMF, his deputy
Larry Summers. pushing U .S. policy responses,
often demanding reforms in those countries in
return for aid. It was that period juggling all
those global fires that led to the time cover.
Rubin, Greenspan, Summers, the Committee to Save
the World. Seemed like they could do no wrong
on the economic front back then. Domestically,
the capstone was probably the Balanced Budget
Act of 1997. Negotiated that deal with the Republican
Congress. Again, shows his reach. But you mentioned
something else often overlooked, his focus on
urban policy. That doesn't sound like typical
Treasury Secretary stuff. He's a really interesting
part of his legacy, though. He wasn't just about
deficits and exchange rates. He was a big advocate
for getting investment into distressed communities,
both urban and rural. How? What did he actually
do? Well, he pushed to expand the Community Reinvestment
Act. the CRA making banks invest locally. More
specifically, he really championed community
development financial institutions, CDFIs. They're
specialized institutions designed to lend and
invest in places traditional banks often ignore
inner cities. poor rural areas. He pushed for
more funding for them, more creation of them.
Trying to connect Wall Street know -how to poverty
fighting. Kind of, yeah. Using market mechanisms,
he also helped expand empowerment zones, enterprise
zones, basically tax breaks for businesses investing
in those areas. Was this a long -term interest
for him? Seems like it. It fits that pro -growth
Democrat label. Believing markets could work
for social good is structured right. And it wasn't
just talk. When he left Treasury, one of the
first things he did was join the board of LISC,
the Local Initiative Support Corporation. What's
LISC? Focuses specifically on coordinating investment
in neglected communities. So that commitment
seems pretty consistent throughout his career.
OK, so we've painted the picture of the boom
years, the successes, the Hamilton comparisons.
Now we have to pivot to the other side of the
legacy. The policies that drew heavy criticism
later on. Right. And the sources point to two
main areas during his Treasury tenure. First,
that battle over derivatives regulation. Yeah,
this kicks off in 1998. Brooksley Bourne, who
is heading the CFTC, the Commodity Futures Trading
Commission, she proposes bringing oversight to
the market for over -the -counter, or OTC. Credit
derivatives. These are the complex financial
instruments that blew up in 2008. Largely, yes.
Credit default swaps, things like that. They
weren't traded on public exchanges. There were
private deals between big institutions, often
with huge amounts of leverage involved. And nobody
really knew the total exposure. And Born wanted
to regulate them. What was Rubin's reaction?
He, along with Alan Greenspan at the Fed, strongly
opposed her. Fiercely. The line usually quoted
is they said it would cause chaos. But what was
the actual reasoning? Why did they think less
regulation was safer? It really came down to
a belief in market sophistication. The argument
was, look, these are big, smart institutions
trading with each other. They don't need the
same protections as like retail investors. OK.
Their specific points were roughly one. regulation
would kill financial innovation, which they thought
is crucial. Two, it would just drive the trading
offshore, making U .S. markets less central,
less liquid. Three, and this is the ironic one,
they argued it would mess up how institutions
hedge their risks, potentially making the whole
system less stable, not more. So they genuinely
believe that trying to regulate these complex
contracts would actually backfire and increase
risk. That seems to have been the core belief,
yes. They pushed back so hard. Rubin, Summers,
Greenspan. They didn't just stop Boren's proposal.
They actually recommended Congress specifically
exempt the CFTC from having authority over these
derivatives. And Congress listened. They did.
That recommendation became part of the Commodity
Futures Modernization Act of 2000. Explicitly
carved out OTC derivatives from regulation. And
why was that specific exemption so critical when
we look back at 2008? Because that unregulated
market just exploded in size and complexity.
Credit default swaps especially created these
hidden links between banks, insurance companies
like AIG. Nobody knew who owed what to whom if
things went bad. So when the housing market turned...
The whole house of cards came down. The true
scale of the risk, hidden in those unregulated
contracts, suddenly became terrifyingly clear.
A Frontline report later directly linked that
failure to regulate to the severity of the 08
crisis. It's a tough look in hindsight. How did
Rubin explain it later? Well, his defense post
-crisis acknowledged the risk. He said he'd been
worried about systemic risk from derivatives
even back in his Goldman days. But he claimed
the politics would have made this impossible
to regulate back then. Which points to that tension,
right, between what a risk manager sees and what
a political player thinks they can actually get
done. Even Clinton later said the advice he got
against regulation was wrong. He did say that
in 2010, yeah. Though apparently advisors later
tried to nuance that, saying Clinton might have
been mixing up specific proposals with the general
anti -regulation vibe from Greenspan and Rubin.
Still, the bottom line is they didn't regulate.
And that had massive consequences. OK, that's
derivatives. The second major policy shift tied
to his legacy is the end of Glass -Steagall.
Right. The old Depression -era law separating
commercial banking, taking deposits, making loans
from investment banking, underwriting stocks,
bonds. Rubin, as Treasury Secretary, was on record
saying it was obsolete. Right. Outdated for the
modern financial world. He was. But it's important
to remember, Glass -Steagall had been weakening
for years before the final repeal. Regulators
like the Fed had already been granting exceptions,
letting commercial banks do more and more investment
banking stuff through the 80s and 90s. So the
wall was already crumbling. Pretty porous by
the late 90s, yeah. But the thing that really
forced Congress's hand was a specific deal. The
Citicorp Travelers merger in 1998. Exactly. Sandy
Whale, the CEO of Travelers, which was insurance
and investment banking. engineered this massive
merger with Citicorp, a huge commercial bank.
Creating Citigroup. Creating Citigroup. And this
new behemoth was technically illegal under Glass
-Steagall as it stood. They got a temporary waiver,
but everyone knew the law had to change to accommodate
this new reality. The lobbying pressure was intense.
And this is where the timing gets awkward for
Rubin. Very awkward. Rubin resigns as Treasury
Secretary in July 1999. Okay. The Graham -Leach
-Bliley Act. which officially repeals Glass -Steagall,
is signed into law by Clinton in November 1999.
Larry Summers is Treasury Secretary by then.
Right, but... Robert Rubin joins the leadership
of Citigroup, the direct beneficiary of the repeal,
in October 1999, just weeks before the repeal
becomes official law. Oof, that looks bad. It
looks terrible to critics. The whole revolving
door narrative. He always maintained the timing
was coincidental, that he'd made his decision
to join Citi earlier. But the perception was
unavoidable. The guy overseeing the dismantling
of the rules goes straight to the company that
benefits most from the dismantling. OK, let's
follow him to Citigroup then. He joins in late
99 as chairman of the executive committee. What
did that actually involve? What was his job?
Well, according to The Wall Street Journal, his
role was famously. Murky. Murky. Yeah. He was
on the board, involved in high -level strategy,
management discussions, operations, but apparently
had no line responsibilities. Meaning he wasn't
directly managing traders or loan officers. Exactly.
He was more like a senior advisor, a statesman,
meeting with government officials globally, bringing
in big clients, advising the CEO, using his immense
experience and, frankly, his contact list. That
access must have been incredibly valuable to
Citi. Hugely valuable. But it also led to problems
almost immediately. The Enron situation in 2001.
Right. Enron was a huge Citigroup client, and
it was cratering, facing a credit downgrade that
could be fatal. And Rubin got involved. He personally
called a high -ranking Treasury official in the
Bush administration, asking if they could somehow
persuade the rating agencies to hold off on the
downgrade. Wow. Using his old connections for
his new employer. That's exactly how it looked.
Yeah. His defense was interesting, though. He
said, yes, he was acting as a city executive
trying to help a client. But T, he was also acting
as a former treasury secretary worried about
the systemic chaos if a giant like Enron just
collapsed suddenly. Did people buy that, the
systemic risk argument? Well, a Senate investigation
looked into it. They cleared him of doing anything
illegal, but they definitely highlighted the
massive conflict of interest. Rubin himself stood
by it, said he was genuinely worried about the
wider economy and would do it again. But it cemented
that image for critics using public service connections
for private gain. So his role was maybe murky
day to day, but he was clearly influential. And
then 2008 hits. And Citigroup is right at the
epicenter of the crisis. Hugely exposed, needed
a massive bailout. Rubin even had to step in
as acting chairman for a short period in late
2007 as things were unraveling. And the critics
immediately drew the line back to his Treasury
days. Absolutely. The argument was his policies
letting derivatives run wild, killing Glass -Steagall,
created the environment for excessive risk. And
then his presence at Citigroup, even in an advisory
role, encouraged or at least didn't stop the
bank from taking on those massive risks that
almost destroyed it. And the government had to
step in with TARP funds. $45 billion injected
into Citigroup to keep it afloat. Now, to be
fair, the sources do note that the Treasury eventually
sold its city stake and made a profit, right?
Taxpayers got their money back, plus some. That's
true. About a $12 billion profit for the Treasury
in the end. But that detail often got drowned
out by the outrage over something else. His compensation.
His compensation. Between 99 when he joined and
2009 when he left, his total pay from Citigroup's
salary, bonuses, stock options, came to around
$126 million. $126 million for a mostly advisory
role at a bank that needed a $45 billion bailout.
Precisely. That number became a lightning rod
for public anger. You had critics like Nassim
Nicholas Taleb just hammering him on this. Taleb,
the Black Swan author, what was his specific
criticism? Taleb's whole thing is about skin
in the game, accountability. He argued Rubin
made a fortune while Citi piled on risks that
blew up the system, got bailed out by taxpayers,
and then Rubin just walked away saying, oh, it
was unpredictable uncertainty. Taleb saw it as
a fundamental flaw. Massive rewards for taking
risks, zero personal penalty for catastrophic
failure. The criticism didn't stop there, did
it? There were lawsuits. Yeah, investors sued
in 2008. Said executives, including Rubin, sold
stock when they knew the price was inflated because
they were hiding the risks. How did that end?
Citigroup settled it in 2012 for $590 million.
Denied wrongdoing as part of the deal. Standard
practice. But there was also an official government
investigation. The Financial Crisis Inquiry Commission,
the FCIC, set up by Congress to figure out what
caused the crisis. They interviewed Rubin. And
afterwards, the commission voted unanimously
to refer him to the Department of Justice. For
what? For potential violation of laws related
to the crisis. Now, the DOJ didn't end up prosecuting
him or taking any action. But that unanimous
referral from the official inquiry, that's a
permanent, very public black mark on his record.
He resigned from Citigroup in 2009, right? Yes,
amidst all that fallout. So despite that really
intense period of criticism after 2008, Rubin
didn't just vanish. He's remained a pretty influential
voice, hasn't he? Oh, absolutely. Still very
active in policy circles, academia. He co -founded
the Hamilton Project back in 2006. Which is still
a major centrist economic think tank. Exactly.
He was co -chair of the Council on Foreign Relations
for 10 years, served on the Harvard board. And
today he's a senior counselor at Centerview Partners.
Which is an investment bank advisory firm. A
boutique one, yeah. So he's still very much connected
to the worlds of finance, policy, and elite institutions.
And his core economic views. Have they changed
much? Or is it still basically the 90s Clinton
era philosophy? It seems remarkably consistent,
actually. Still described as that centrist. Pro
-business, pro -growth Democrat. Still hammering
on fiscal discipline, that original 1993 focus.
Yeah. But always pairing it with a need for public
investment. How does that play out on taxes,
for example? He supports progressive taxes, likes
things like the earned income tax credit to help
lower and middle income folks. But he was strongly
against the big tax cuts under Bush and Trump,
arguing they just blew up the deficit and mainly
helped the rich. Consistent with his 90s stance.
Did he support recent Democratic initiatives?
Yeah, he backed Biden's Inflation Reduction Act.
And interestingly, he even joined that group
of former Treasury secretaries urging the UK
not to leave the EU back in 2016. So still very
much engaged on big picture economic stability
issues. But the sources suggest a major new focus
for him now is climate change. Definitely. He
calls it the existential threat of our age. This
seems to be where he's applying that long career
of thinking about risk to a totally different.
massive problem. How so? What's he proposing?
He was on a U .S. climate risk committee involved
in the risky business project. He's trying to
use the tools of finance and risk management
to push for climate action rather than just relying
on traditional environmental regulation. So treating
climate change like a financial risk that isn't
being properly priced by the market. Exactly.
He's got these three really specific proposals
that show that thinking. OK, what are they? First,
kind of technical. Change how we calculate GDP.
Right now, GDP measures output, but it doesn't
subtract the costs of, say, pollution or climate
damage. He says we need to revise GDP to reflect
those environmental externalities. So the headline
economic number itself would show the cost of
inaction. Right. Makes the damage visible in
the number everyone watches. Second, mandatory
corporate disclosure. Disclosure of what? Require
companies to tell their investors the potential
financial cost of the carbon they're emitting.
Ah, bringing climate risk onto the balance sheet.
Precisely. If investors can see that future liability,
they'll pressure companies to reduce emissions
far faster than regulators might force them to.
It's using market pressure. And the third proposal.
Aimed at the government itself. Include the future
costs of dealing with climate change, disaster
relief, infrastructure adaptation, all of it.
in the official long term U .S. fiscal projections.
So treat climate costs like future Medicare or
Social Security costs, making a core budget issue.
Exactly. If the government's own forecasts show
trillions in future climate liabilities, it forces
politicians to take it seriously now, not just
kick the can down the road. It connects the long
term risk to today's budget reality. It's applying
that financial risk management lens very directly.
And all this thinking, this approach, is laid
out in his 2023 book, The Yellow Pad. The Yellow
Pad, making better decisions in an uncertain
world. What's the core idea there? It basically
formalizes his philosophy of probabilistic thinking.
Probabilistic thinking. Yeah, it's the framework
he says he developed over decades, from risk
arbitrage at Goldman through those global crises
in the 90s. The core idea is you can never be
certain about the future. Every decision has
multiple possible outcomes, each with a different
probability. So it's not about being right 100
% of the time. No, it's about rigorously thinking
through all the possibilities, assigning likelihoods,
maybe literally sketching it out on a yellow
legal pad, and then making the best bet given
that uncertainty. Excepting you'll sometimes
be wrong, but aiming for the best process. Exactly.
Maximize your odds over the long run. You can
see his whole career, the successes and the criticisms
through that lens. The Mexican bailout was a
probabilistic bet that paid off. Arguably, the
deregulation of derivatives was a probabilistic
bet about market sophistication that, well, that
went catastrophically wrong. The models couldn't
handle the complexity that deregulation unleashed.
So wrapping this all up for you, the listener,
Robert Rubin's story is just this incredible
case study, the power and maybe the danger of
the financial expert in government. Yeah, he
was the architect of hugely successful economic
period. Got compared to Hamilton. Hard to argue
with the results in the 90s. But then those policy
choices, especially around derivatives and Glass
-Steagall and that revolving door move to Citigroup,
just cast this permanent shadow, especially after
2008 blew up the system he helped shape. His
career really forces you to grapple with the
connection between wonky regulatory decisions
and massive real world consequences. And it shows
how immense success and, well, contributing to
systemic failure can somehow exist in the same
legacy. And we heard about his whole philosophy
of probabilistic thinking, dealing with uncertainty.
Right. Which makes you think, given the huge
changes he saw from deficits to deregulation
to financial crisis. What about now? What's the
final question we should be asking? Well, remember
Rubin's defense on derivatives. That regulating
them might have been necessary, but the politics
made it impossible at the time. Okay, so think
about today. What are the huge, complex, systemic
risks we face now? Maybe it's the financial impact
of climate change like Rubin himself is focused
on. Maybe it's AI in the financial system. Maybe
it's something else entirely hidden. What risks
are we currently ignoring or failing to regulate
properly? Simply because, like derivatives back
then, the politics would make it impossible right
now. What's the potential cost down the road
of that political paralysis today? That's something
to really chew on.