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
November 29th, 2008 at 12:04 pm
I guess I’m a virtual nobody:
“This universe was populated with pollyannas, perma-bulls, overtly political economists, and Wall Street cheerleaders.”
They all bow to their leader…Larry Kudlow.
My prediction the other day that this will be the worst year in S&P history (-43% in 1931) is off to a good start. QID up 12% YTD. Understatment of the year by Dylan Ratigan…”sub-prime may be starting to affect tech stocks”…starting? QQQQ way underperformed every index today. Many top QQQQ stocks have short ratios of about 1/2!!!! Short of a lifetime.
Posted by: Steve Barry | Jan 4, 2008 4:12:34 PM
November 29th, 2008 at 12:15 pm
People who rise to positions of power and prominence tend to have one trait in common: they are very skilled at blaming others and/or deflecting criticism.
There is at least one person who will fully agree with the proposition that “nobody was prepared for the crisis of 2008”. And that would be Alan Greenspan.
November 29th, 2008 at 12:33 pm
It’s odd that those in positions in power and prominence didn’t see this coming when about 95% of Barry’s readership knew full well it was coming. The only uncertainty for most of us was how “it” would play out given the adminstration’s penchant for spin and interference.
At least it looks as though Rubin will not be in the War Room in the Obama administration. Of course there are always new mistakes to be made, and new leaders to make them.
Can anyone else tell me what happens when you see low-grade corporate paper yielding 20% at the START of a recession? From what I know about the ongoing but incomplete process of deleveraging and increasing corporate bankruptcy rates, is it possible that we will see high-yield instruments at record yields – 30% or more by the time this is over? That would be higher than the 1930s, but then the bubble in credit in 2007 was much bigger than that in the 1929.
November 29th, 2008 at 12:37 pm
into the big “just as full shit as the rest of them” pile.
truer words, could have not be spoken.
~
back to an earlier idea: “Names names(of journos/”analysts”) so that that they can understand that they can’t be understood”, it, may, better behoove us that we start naming those that compose that, said, above, pile..
November 29th, 2008 at 12:51 pm
“Mistakes were made.”
November 29th, 2008 at 12:59 pm
I notice that everyone talks about the ultra low rates that caused the bubble but few add on to the end the cranking of rates from 1% to 5 1/4% to actually prick the bubble. In the ’20’s it only took a one percent move to pop the credit bubble(many argue and I agree that is what started the ball rolling to start the crash of 29′) but they made sure it would happen this time with a much sharper move. I’ve got to think that Greenspan and later Bernanke knew what they were doing as they cranked the rates so sharply
November 29th, 2008 at 1:01 pm
Some economists certainly saw this coming but even the relatively few better known names — Dean Baker, Nouriel Roubini, Jaime Galbraith initially and, a bit later, Paul Krugman, Joseph Stiglitz and Paul Volcker — were ignored, accused of various methodological or logical errors, rejected, mocked as ‘liberal’ by the usual suspects, etc.
Quite predictably when money is being made, particularly by the powerful, no one wants to hear the other side of the argument much less acknowledge its empirical or logical validity but what I’ve always found curious is how those who were wrong are not only not excluded afterwards but those who were correct continue to be marginalized in various ways even when their accuracy is acknowledged; e.g., we hear that some very smart, competent people are on the Obama economic team but that certainly doesn’t include any of the names above and, AFAIK, everyone on that team is similar to Rubin, they ‘didn’t see it coming’ either; even the separate economic advisory council, with the exception of Volcker, includes none of those names nor anyone else who ’saw it coming’ AFAIK.
Odd; in fact some might say it seems downright perverse.
November 29th, 2008 at 1:06 pm
I’m just glad Rubin is being taken to task seemingly across the internet board this morning.
Now, as to how this all play’s out, there’s an interesting Clif Droke article at safehaven this morning on the super cycle worth reading, imo.
http://www.safehaven.com/article-11950.htm
November 29th, 2008 at 1:08 pm
It is beginning slowly, but the demands for accountability will come. They will especially grow when the damage done by the current throwaway bailouts becomes evident.
November 29th, 2008 at 1:15 pm
BR, you blame Rubin and Greenspan for the repeal of Glass Steagall. Can you explain why you believe this has contributed to the current crisis? I don’t know that I’ve seen anyone make a clear connection for that. To be fair, I think those who claimed that its repeal has helped were too early in declaring victory. But I’d like to see someone clearly lay out an argument for why the repeal directly led to this financial crisis.
~~~
BR: No sir. The duty is on you to disprove it.
Res Ipsa Loquitor: For the better part of 3/4s of a century, the original Glass Steagall laws kept the brokerage business and the banking business separate. That seemed to work out fine. We avoided a meltdown the entire time.
Then some idealogues — and a $100 million in lobbying money — managed to get Glass Steagall repealed. Banks and brokers get together, shortly thereafter, they leverage up and . . . well, you know the rest.
You think it had NOTHING TO DO WITH THIS MESS? You prove it. You have the burden, not I . . .
November 29th, 2008 at 1:38 pm
To Rubin “nobody” = anyone outside of his “brilliant” elite circle of group thinkers and backslappers.
November 29th, 2008 at 1:41 pm
@DL: “People who rise to positions of power and prominence tend to have one trait in common: they are very skilled at blaming others and/or deflecting criticism.”
You hit the nail on the head. It’s probably one of the top three things required (if not THE top thing) to be successful in the corporate and political worlds.
November 29th, 2008 at 1:50 pm
Now, as to how this all play’s out, there’s an interesting Clif Droke article at safehaven this morning on the super cycle worth reading, imo.–karen, above
http://www.safehaven.com/article-11950.htm
X2
~~
who even knew of “Coin”?
also, though I have a soft spot for ‘longwaves’, Droke’s Conclusions, if not his Premises, should well, and thoroughly, considered..
November 29th, 2008 at 2:08 pm
Its_Science
Repealing the ‘33 Act would have been fine had doing so allowed regulation of SIVs and CDOs. For example, if Wachovia Securities goes under, it hurts the parent company’s earnings, but customers’ deposits aren’t in any danger because of the subsidiary relationship. That was the whole point in the first place: investing carries risk, and banks should not be in the risk-taking business.
By repealing Glass Steagall and not regulating instruments such as MBSs, we find ourselves in the current mess. There’s a whole shit-ton of risk involved when your counterparty can post $5 and receive a portion of the interest on $100; something Rubin and his ilk either willfully ignored or didn’t understand (I know for a fact, for example, that certain money-center banks were allowing counterparties to assume up to 20x leverage, thereby jacking their yields up to 20%, on CDOs that were purportedly 85% AAA securities. Of course, why those bonds were AAA is a whole nuther can of worms, but I digress).
In short, Banking Act still in place = no CDOs, no MBSs, no SIVs, no housing bubble (or, at the minimum, an above-trend price appreciation without a 1200 sf house in the bum-fuck San Fran burbs going for half a mil), no-banking-industry on the precipice of collapse, etc.
There were good reasons for repealing the act provided the spirit of the legislation remained in-tact. That didn’t happen, and here I sit with cash stuffed in the cushion of my couch (j/k. Or am I? Oh, I found a quarter. GREAT SUCCESS!!! Honey, let’s go to Best Buy now…)
November 29th, 2008 at 2:16 pm
Karen:
Thanks for the read. My two cents:
I am a bit skeptical about the precision in the timing of the predictions. The one thing that none of those who use waves for predictions gets into is the question of what causes the cycles. And by that, I don’t just mean labelling them. It may not be necessary to know the cause if you really can pick them out on a chart somehow, but thinking about that question has made me skeptical of economic predictions that use them.
Back in college almost 40 years ago, after taking differential equations and various physics courses. Well, actually taking differential equations twice since I spent that semester when I first took it discovering the wonders of the Digital PDP-10 and playing chess, it became pretty obvious that many of the systems of the world exhibit the characteristics of harmonic oscillators, i.e. systems whose actions produce waves if plotted on graph paper. And, why not? Such systems show up all over physics, electronics, and biology.
A simple demo of a physical oscillator is here:
http://demonstrations.wolfram.com/DrivenDampedOscillator/
You can download the player and fiddle with it. It allows you to change various factors to see the effect they have on the oscillation.
I became interested in Kondratieff waves and spent hours in the college library reading the publications of the Foundation for the Study of Cycles instead of doing useful things.
http://www.foundationforthestudyofcycles.org/
I also later took some advanced course that included a theorem whose name escapes me at the moment, which states that you can always find patterns in a long series of random data. So, you have to be skeptical in seeing cycles in series data points.
Also, one has to take into account the fact that the period (length of the cycle) and amplitude (height of the cycle) of physical or electronic harmonic oscillators can be changed by varying inputs and various parameters. For example, in old fashioned capcitor-inductor oscillators used in radios, you changed the frequency by changing the capacitance. Even biological cycles can be changed somewhat by external means, e.g. changing the cycle of daylight artificially can affect plants and animals. The Pill is used to adjust cycles in some cases.
I finally came to the conclusion that economic markets very likely do act like driven harmonic oscillators, but the the large number of driving forces and parameters, e.g. money supply, interest rates, production, consumption, etc., affecting that cyclical behavior are so varied, and some have been monkeyed with so much by governments in ways that have likely distorted the period of the cycles, that it is pointless trying to use them for prediction down to a year, much less month. And this does not even factor in the possibility of multiple cycles caused by relatively independent inputs all occurring simultaneously.
Hope I didn’t get too pedagogical. It’s my biggest vice besides sloth and gluttony.
November 29th, 2008 at 2:25 pm
and while we’re on the subject of seeing dead people, did any of you watch this?
http://www.cnbc.com/id/15840232?video=935472423
you need to stay with it to the end.
November 29th, 2008 at 2:28 pm
Mike,
worry not, about the pedagogy, at least it was in synch.
though, even Droke agrees with your point(s), see: “With the 6-year and 10-year cycles up, history shows that this cyclical configuration is benevolent for the economy if money supply is increasing.”
note the ‘if’..it’ll be a Big One, and, more seriously, not the only one..
November 29th, 2008 at 2:34 pm
Thanks Karen. Just watched the end. Don’t have the stomach or time to watch the whole thing. The title of the clip says it all for me. Need to hit the gym right now.
Why is my first thought when watching Maria (“who am I to judge?”) Bartiromo (who are you to judge??!) – how in the world did she become a so-called “star” in the financial media? It just boggles the mind.
She has to be the biggest star gazer and sychophant in the business and that’s saying a lot. I think I just answered my own question right there.
November 29th, 2008 at 3:57 pm
Byno,
Thanks for the response. I understand the desire to keep deposits safe from excessive risk taking. However, I’m still not sure I see the direct link from the repeal of GS as a root cause of the current crisis. Today’s problems stem from the bursting of the housing bubble and lack of trust between banks due to their MBS holdings. BR provided a good explanation for the bubble, and there is no mention of Glass Steagall. The only thing I would add to his explanation is that regulations of capital requirements favored holding MBSs to simply holding whole mortgages and placed too much trust in the ratings agencies’ assessments of risk, which helps to explain some of the demand for such securities (regulatory arbitrage).
Securitization of mortgages began before the repeal of GS in 1999. Here’s one example. So, I don’t quite believe the statement that “In short, Banking Act still in place = no CDOs, no MBSs, no SIVs, no housing bubble.” Also, the repeal of GS didn’t cause the Fed to lower interest rates earlier this decade, allowing for such low ARM teaser rates that really accelerated the bubble (see the BR link above). Your call for increased regulation on MBSs, etc, may have merit on its own, but I think the direct link from the repeal of GS as a root cause of the crisis is weak. It may, however, prove to exacerbate the crisis.
Any other thoughts on this?
November 29th, 2008 at 5:14 pm
What concerns me is: Why do we continue to listen to the same people who got us into this on how to get out of it. They were wrong then and are wrong now. Here’s a good piece on the topic.
See, “The Smartest Guys in the Room.” http://subprimeforum,blogspot.com
November 29th, 2008 at 5:15 pm
What concerns me is: Why do we continue to listen to the same people who got us into this on how to get out of it? They were wrong then and are wrong now. Here’s a good piece on the topic.
See, “The Smartest Guys in the Room.” http://subprimeforum.blogspot.com
November 29th, 2008 at 6:32 pm
“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.”
Barry,
Couldn’t agree with you more about Rubin. I’m glad he doesn’t have a post in the incoming administration.
But, you’re typing too fast. That, or you need an editor.
November 29th, 2008 at 6:38 pm
Obviously, Greenspan pursuing ZIRP was a huge factor behind the housing bubble. But, I would make the argument that while it would have caused prices to appreciate above-trend, low interest rates alone could not create the housing bubble.
It’s hyperbole to suggest that none of the structured products we see today would exist apart from repealing G-S. If I’m not mistaken, I think Salomon Brothers did the first of these deals with IBM back in the early 80’s. But, the abuses that resulted could not have taken place with just a modicum of oversight.
I think the most succinct way I can put it as this: If I’m Nationsbank, and it’s 1990, I can sell MBSs to Lehman, but the risk only goes in one direction. Conversely, if it’s 2000 and I’m BofA, I can buy the crap that I’m peddling to the I-banks because I too am an I-bank. Pre-GS, crappy loans were PE and I-banker problems. Post-GS, crappy loans became everyone’s problem.
November 29th, 2008 at 7:21 pm
“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.”
Agreed. I have lost respect for this guy. He sounds like Bush, “Not my fault”.
November 29th, 2008 at 7:30 pm
“
notIt ain’t my fault [did I do that?]”LOL WUT (Crosses fingers, hopes this works)?
In his defense, though, Rubin does have better hair than me, so he’s got that going for him.
November 29th, 2008 at 7:31 pm
Well, I guess posting pics of Silk the Shocker doesn’t work on Wordpress.
November 29th, 2008 at 8:31 pm
Just as full of shit as the rest of them…and 115 millions in compensation for being so.
How much would he be worth if he was really good?
November 29th, 2008 at 9:28 pm
You should read what Yves Smith has to say over at nakedcapitalism.com on the subject of Robert “Nobody could’ve seen it coming” Rubin. He provokes her to positively operatic levels of invective.
http://www.nakedcapitalism.com/2008/11/mirabile-dictu-rubin-takedown-by-wall.html
Sample: “Is this what leadership amount to in America? You have the power, you get the perks, but you only take credit for the good stuff?”
November 29th, 2008 at 9:45 pm
What I think is amazing is that all these “wiz kids” in Wall Street, AAA Ratings companies, and overpaid CEO’s etc, etc, couldn’t figure this out. Or at least now they claim they didn’t know, or no one told them.
The somebody to figure out the problems were given the least voice.
It was the common sense used everyday by mortgage banking workers that had integrity. Our voices of concern was met with disciplinary actions, blackballing, and terminations as “uncooperative”. The warnings were there, they just didn’t listen.
November 29th, 2008 at 10:38 pm
Will you move Jamie Dimon to the same pile? He, too, in recent months has claimed much the same ignorance to credit risk as Mr. Rubin (thus earning my vote as the world’s worst liar). Likewise, within the past couple weeks CNBC’s Gasparino asks a very relevant question: Is JPM any less exposed to credit risk than C? The answer is no. So, why the throttling of C’s shares? Simple. That’s the face of financial warfare…
~~~
BR: Soon
http://www.ritholtz.com/blog/2008/07/about-those-companies-brought-down-by-rumors/
November 30th, 2008 at 3:28 am
They’re just tormenting you folks. They have the power. They have the power to destroy the financial system. They know it. They know very little can be done about it by ‘little people’ like us. Finally, they know that the little people who have taken five minutes to study basic economics or read Barry’s blog also know it. So they thus come out and say the most outrageous thing knowing that the little people will start doing cartwheels. That all adds up to them tormenting you folks. That’s the one power they have that you can take away from them. Don’t let it get to you.
Be a contrarian. Learn to laugh in the face of madness. It is the best thing to do considering the leaders and rulers are such and tell such great jokes
BTW, speaking of mad jokers, is there anybody out there that hasn’t seen The Dark Knight yet? What a painting that is! They nailed the picture of evil perfectly that time. If you want to see what wants to take over the world then there you have it. If you don’t believe me then look at what Mexico and its drug wars are descending into. It also shows what a farce government centralized totalitarian control and a reactionary state is as well. What a painting….what an essay. A++
November 30th, 2008 at 9:35 am
“dumber then the law permits” and “criminal neglect” are two phrases that springs to mind when I think of Rubin and his ilk….
November 30th, 2008 at 10:21 am
IMO the real issue is not vilifying Rubin, but questioning whether he represents American management, i.e. “can we run anything?”. Look at the auto companies, look at AIG, look at the Bush administration, look at the military services in Iraq, look at our infrastructure, etc. It appears that we are making a loud sttement that we are incompetent.
Now I do not think this has to be, I am only saying this is where we are at.
November 30th, 2008 at 10:24 am
karen said:
Now, as to how this all play’s out, there’s an interesting Clif Droke article at safehaven this morning on the super cycle worth reading, imo.
reply: Sorry, but life and economics don’t exist because the Cycles and patterns foretell them. Random acts, self preservation, and self interest combine to form economies and the patterns that describe them.
If your hand is on a hot stove, a cycle didn’t predict it and it doesn’t take a cycle to predict that you will remove it quickly. Now, just translate that little analogy to a bigger picture and you have reality. Our lives are not controlled by Godlike cycles or patterns that force themselves onto us and do what they will with us. Perhaps we should pray to the Cycles and ask for their forbearance and for good crops this year.
I tried reading that piece and gave up quickly. It is over intellectualized gobbledygook. Hint: Some people who sound smart … aren’t.
November 30th, 2008 at 10:25 am
“just as full shit as the rest of them” pile.
That’s one big-ass pile you got going there…..
November 30th, 2008 at 10:35 am
larster Says:
November 30th, 2008 at 10:21 am
larster, kindly, wake up. those goons were not hired to manage for ‘Success’, they’re ‘hitmen’ getting paid to do a Job, at which, they’ve been, tremendously, Successful..
November 30th, 2008 at 10:39 am
Rubin is full of it!
The fantasy wealth he and his ilk created during his stewardship at C with the MBS/CDS Ponzi scheme made it possible for him to walk out the door with hundreds of millions. I hope he is eternally dogged with civil lawsuits or what ever for the pile of steaming shit he helped create.
Rubin and any one else that attemps to brainwash us that they didn’t see this comming (Dimon) are just opposite ends of the same turd.
If it wasn’t for the fraud of underlying value in these so called investment insterments those fucks could not aquire the obscene amount of money they have.
The should be arrested for fraud and if found guilty, shot.
What they have done is the equivilent of a financial 9/11!
BR a virtual high five to you on your response to the G/S post above!
November 30th, 2008 at 10:50 am
Bergette,
Good Call, here it is, in full:
Its_Science Says:
November 29th, 2008 at 1:15 pm
BR, you blame Rubin and Greenspan for the repeal of Glass Steagall. Can you explain why you believe this has contributed to the current crisis? I don’t know that I’ve seen anyone make a clear connection for that. To be fair, I think those who claimed that its repeal has helped were too early in declaring victory. But I’d like to see someone clearly lay out an argument for why the repeal directly led to this financial crisis.
~~~
BR: No sir. The duty is on you to disprove it.
Res Ipsa Loquitor: For the better part of 3/4s of a century, the original Glass Steagall laws kept the brokerage business and the banking business separate. That seemed to work out fine. We avoided a meltdown the entire time.
Then some idealogues — and a $100 million in lobbying money — managed to get Glass Steagall repealed. Banks and brokers get together, shortly thereafter, they leverage up and . . . well, you know the rest.
You think it had NOTHING TO DO WITH THIS MESS? You prove it. You have the burden, not I . . .
Good going BR..
peep like ‘Its_Science’ prove there’s, still, a too broad Market for pre-Masticated tidbits, and, other, associated Pablum..maybe one day he’ll figure out why he has Teeth, physical, meta-, and otherwise..
November 30th, 2008 at 11:00 am
I don’t think anybody is saying that removal of Glass Steagall was the sole cause of all this. GS was a brake. Banks were limited on how much of the bad stuff they could hold (with money gotten at 1% from Greenspan). That is why those who made a lot of money on the “bad stuff” bets had GS removed (so they could double down and make more money faster). By removing GS we allowed them to go ahead at a speed, and reach a magnitude, that they would not have been able to with GS in place. Replacing the brake of GS with other brakes could have made the repeal of GS less destructive (maybe even net positive). However, that would have required reform based on a very careful evaluation of what good and what bad GS did, not a blind “regulation-is-bad-total-freedom-is-totally-good” idealogogish approach to change.
November 30th, 2008 at 11:49 am
Yep, NOBODY predicted it. Right.
http://query.nytimes.com/gst/fullpage.html?res=9A03E6DF143DF930A25752C1A96F958260
The New York Times, November 13, 1999:
President Clinton signed into law today a sweeping overhaul of Depression-era banking laws. The measure lifts barriers in the industry and allows banks, securities firms and insurance companies to merge and to sell each other’s products.
”This legislation is truly historic,” President Clinton told a packed audience of lawmakers and top financial regulators. ”We have done right by the American people.”
The bill repeals parts of the 1933 Glass-Steagall Act and the 1956 Bank Holding Company Act…
”The world changes, and Congress and the laws have to change with it,” said Senator Phil Gramm…
”With this bill,” Treasury Secretary Lawrence H. Summers said, ”the American financial system takes a major step forward toward the 21st Century — one that will benefit American consumers, business and the national economy.”
=======================================================================
http://www.thenation.com/archive/detail/14239331
The Nation Magazine / Nov 15, 1999:
For their money, the finance industry bought not only the end of the Glass-Steagall Act but also the partial repeal of the Bank Holding Company Act. These landmark pieces of legislation, recognizing the inherent dangers of too great a concentration of financial power, barred common ownership of banks, insurance companies, and securities firms… the misnamed Financial Services Modernization Act will usher in another round of record breaking mergers… PAVING THE WAY FOR FUTURE TAXPAYER BAILOUTS OF TOO-BIG-TO-FAIL FINANCIAL CORPORATIONS.
November 30th, 2008 at 2:29 pm
I think BR and some commenters are misinterpreting my tone. I was merely asking for some cause and effect details. I even stated that GS repeal defenders were too early in declaring victory. I wanted to know whether Glass Steagall supporters thought that its repeal was a root cause of the crisis (and how) or if they think it is adding to the instability given that there is a crisis (which I think is more likely, along the lines of DeDude’s reasoning), or if they have some other conclusion that I’m unaware of.
In his own explanation of the cause of the crisis, BR does not mention the Glass Steagall repeal. Saying that with GS in place there was no crisis, and without it there is a crisis is not a compelling story, especially given that he has already implicated other causes. I’m not a defender of the Glass Steagall repeal, but I don’t think it’s too much to ask BR to defend his assertion with some actual logic. I’d be happy to spread the word that the repeal of Glass Steagall is a root cause of the crisis if I were presented with some compelling evidence and reasoning. I just want to know how BR thinks it specifically fits into the puzzle.
Thanks to those who have resp0nded so far.
November 30th, 2008 at 2:38 pm
You were given your answer above, troll named “Its_Science.”
You just didn’t like it.
Deal with yourself – you’re wrong.. and cutely inane rhetorical tricks don’t help.
November 30th, 2008 at 2:51 pm
Rubin’s comment reminds me of Bush saying the new Orleans destruction was unimaginable after NOAA many , many government studies had predicted it and NOAA had forecast it.
November 30th, 2008 at 4:51 pm
And Mr. The World is Flat scolds us:
America: Confess your guilt. Because as long we all did it, as long as unsophisticated borrowers and subprime victims are treated in Friedman speak as equally to blame with shrewd lenders pedaling products they knew were unaffordable, then no one can ever be held responsible. To him, the bankers and brokers were not driven by avarice and self-interest but by ignorance and idiocy. How patronizing!
You know, Rubin and Friedman just don’t get it. ONE MORE TIME and ALL TOGETHER! NO TRUST = NO FUTURE for your business. The business was to give us the “business” good and hard. This is the reality that all the wordsmithing by the most convoluted spin masters and PR geniuses won’t change. They think the people are rubes. They got so full of vanity and hubris that they thought they could parade their greed and corruption in our face like it was a virtue. They didn’t realize that the position of trust they occupied had been earned by a lot of hard work and integrity after the Great Depression. So the trust is gone now. Live with it, assholes.
So here’s our message to the powers that be:
WE DON’T WANT BAILOUTS!
WE WANT JAILINS!!!
November 30th, 2008 at 5:15 pm
Hi Unsympathetic,
It’s too bad you didn’t present an argument, or perhaps we could’ve had a conversation. I find it interesting that I am the troll for stirring debate, but you are presumably not when all you have contributed to this conversation is name-calling. I think if you remove your helmet and shoulder pads, and re-read my previous comments, you’ll see that I really wasn’t advocating the repeal, but was merely looking for some answers; some of the responses I received were helpful, some were not.
Perhaps I need to make my thinking even more transparent: I think the reasoning behind the Glass Steagall regulation made sense. I have seen some pundits say that its repeal did not contribute to the current crisis. I have also seen some pundits say that its repeal did contribute to the current crisis. Neither type offers much reasoning behind such assertions (that I’ve seen). Since I saw that BR was implicating it in this post, I was hoping that he could elaborate. Is his reasoning that the repeal allowed more banks to purchase MBSs, increasing marginal demand for them, elavating the housing bubble and spreading more risk to commercial banks? And now these MBSs are eroding the capital of commercial banks, leading to mistrust, impeding lending, and worsening the crisis beyond what it would’ve been if GS stayed in place? If so, that sounds pretty reasonable to me, and I’m not sure why he wouldn’t state it (or perhaps he has somewhere and I just haven’t seen it). I was just trying to pull out a more complete story than what I had been hearing.
When I discuss these matters with my friends and colleagues, I need reasoning and facts that go beyond: when A was in place, B didn’t happen; when A was removed, B happened; therefore, the removal of A caused B. Especially when there were so many potential factors in play. That sort of reasoning is what the man in NYC uses while snapping his fingers to keep the tigers away.
I’ll just leave it at this: I would personally like to see a post dedicated to the role of the repeal of Glass Steagall in the current crisis. I think BR is capable of shedding some light on the issue and presenting very clear arguments (like the ones he presented here for the housing boom/bust) that could provide direction to what specific regulation may be needed moving forward.
December 1st, 2008 at 2:14 pm
Excellent piece Barry!! And the Democrats would be well advised to heed your advice and not try to resurrect Rubin for the next administration!!