Yesterday, Robert Rubin testified before the commission investigating the financial crisis:

But Robert E. Rubin, the former Treasury secretary, faced withering questions from the panel, the Financial Crisis Inquiry Commission, for his spare expressions of remorse. Repeatedly playing down his role as chairman of the executive committee of Citigroup’s board, he was met with anger and disbelief.

“You were either pulling the levers or asleep at the switch,” Philip N. Angelides, the committee’s chairman, told him.

After three hours of testimony, Mr. Prince emerged as dignified though blameworthy. Mr. Rubin, the consummate wise man of Washington and Wall Street, looked demoralized.

   In my recent book, "The Audacity of Greed", I devoted an entire chapter focusing on Rubin as the president of The Club that structured the financial system that collapsed. While Rubin is trying to claim he had no role in the demise of Citibank, he is lying. I quote here extensively from that chapter. You be the judge:

Another reason that the questionable judgments of Rubin have continued to avoid close scrutiny is because we have a set of uninformed people masquerading as journalists. No better example of the lack of depth of understanding among the media—and one of the reasons the traditional press is losing its grip on framing the news—can be found than in the person of Bob Schieffer, one of the “deans” of the national news shows. In the space of less than three months in 2008, Schieffer interviewed Rubin twice on Face the Nation, both times in Rubin’s capacity as an advisor to then candidate Barack Obama. It is truly illuminating to read the exchanges and see Schieffer absorb the full Rubin, their back-and-forth reflecting the dominant, mainstream and quite narrow view of economics.

During the first interview, on August 3, 2008, Schieffer asked Rubin how he would “sum up the economic system in this country,” adding that “some people say we’re already in a recession, some say we might be heading toward a depression.” Rubin responded that he had “been around markets and economic issues for a long, long time” and while it was now a “very complex, very uncertain time,” there was “a low probability that things could get considerably worse.” [the emphasis is added here]

    Then:

In the first interview in August, Rubin established his bona fides as a person who had been “around markets and economic issues for a long, long time” and again offered the myth, accepted as gospel by the traditional media, about the Clinton-Rubin years of “fiscal discipline” and economic prosperity. However, not once in either interview did Schieffer ask Rubin about the false underpinnings of the Clinton-Rubin era, about the 1990s stock market bubble Rubin oversaw and did nothing to address, about the undoing of basic regulations that might have saved trillions of dollars in wealth from being destroyed in 2008 and, not insignificantly, about Rubin’s woeful record at Citigroup, where shareholders suffered losses of more than 70 percent from the time he joined the firm in 1999 until his resignation in early 2009.12 Nor did Schieffer bother to point out in the October interview that Rubin had been wrong when he predicted in August that there was a “low probability” that the economic crisis would worsen, when, in fact the Dow had plummeted 777 points at the end of September, wiping out $1.2 trillion worth of wealth in one day. Instead, what we got was a classic traditional media show: a surface discussion about politics and policy that never demanded accountability, but was instead a great lesson in obfuscation….

At the end of 2008, Rubin was drawing a lot of flack, given the bailout of Citigroup, and the news that he had earned $115 million. at the company (not including stock options) since 1999. That’s a lot of money for someone to make whose defense against the collapse of his company, in an extraordinary November 2008 interview with The Wall Street Journal, boiled down to: I was not responsible and/or I didn’t know. The seer of the markets, the man who had forged the country’s economic destiny in the 1990s, whose links to investment banking firms went back three decades, who brought Congressional hearings to a hush as he dispensed advice roundly perceived as The Word From The Mountaintop, and who was one of the leaders of one of the largest banks in the world—in short, the president of The Club—was reduced, apparently, to being an innocent bystander as Cititgroup disintegrated around him. “Under fire for his role in the near-collapse of Citigroup Inc.,” the Journal reported, “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." The article also stated that despite the fact that Rubin was involved in the decision of the Citigroup board to ramp up risk-taking in 2004 and 2005, he was “warning publicly that investors were taking too much risk.”

Whatever you think of Rubin’s tenure at Citigroup, that last statement is simply false, as there is not a single public pronouncement that he made about investors taking on too much risk in the years leading up to the financial crisis of 2008. As a matter of fact, when he was Treasury Secretary, Rubin was well aware of the dangers of leverage and either tried to downplay those dangers or else encouraged people to look the other way.

For example, at the World Economic Forum in Davos in January 1999, in a talk that addressed the Asian financial crisis (which, ironically given today’s crisis, he called “the most serious financial crisis of the last 50 years”), Rubin said:

"Leverage throughout the international financial system has been substantially reduced over recent months, and that probably makes the financial system safer today than it was last summer. Without prejudging anything, it does seem to me that this whole question of leverage merits further examination. As a related matter, while I do not believe that hedge funds have been a significant factor in the financial crisis, their activities may well have amplified market movements in some cases for some period of time. I think questions about hedge funds should be addressed, but as part of a broader review of financial institutions generally with respect to leverage, the appropriate scope of prudential regulation, risk management and disclosure."

By acknowledging that leverage had been reduced and that it, by inference, had been a significant factor in the Asian financial crisis, you would think that Rubin would have been similarly warning us in recent years about the leverage of Wall Street firms. Yet, there is no public record of the warnings Rubin claims he made. In fact, if Rubin had learned anything from the Asian crisis, then why did he let Citigroup effectively go down the same leveraged road? Because it was someone else’s fault, he told the Wall Street Journal, saying that it was the company’s “risk-management executives” who were responsible for the problems that Citigroup faced. “The board can’t run the risk book of a company,” Rubin said, exonerating both himself and his fellow board members. “The board as a whole is not going to have a granular knowledge” of operations.Rubin made this extraordinary statement of ignorance despite the fact that the Journal article said that, “Colleagues deferred to him [Rubin], as the only board member with experience as a trader or risk manager.”

Ultimately, Rubin said that the decision by Citigroup to increase risk “followed a presentation to the board by a consultant who

said the bank had committed less of the capital on its balance sheet, on a risk-adjusted basis, than competitors.”17 So again, it wasn’t the board’s fault—a board Rubin sat on at quite a large expense to the company. Instead, it was an unnamed consultant’s fault. Despite his status as an economic leader, we are supposed to believe that Rubin was incapable of seeing the economic dangers of increased risk—which he himself had spoken against in reference to the Asian financial crisis.

In the end, the saddest part of Rubin’s defense is that he could have done so much more for himself and, more importantly, for the country, if he simply said, “I screwed up.” By virtue of his exalted status, he could, in fact, have moved us away from a failed economic vision if he had simply offered up a statement of responsibility. But, it just isn’t in his DNA to admit failure—to do so would have punctured the reputation he had worked so hard to build.

   Robert Rubin is lying.