Few top government officials, whether elected or appointed, have managed to emerge as unscathed from the Washington, D.C. spotlight as former Treasury Secretary Robert Rubin. And Rubin did better than escape without scratches—he ended his term of office with his image enhanced.
Wall Street and the financial press practically beatified him for his role in overseeing the global economy through difficult times and working in tandem with Federal Reserve Chair Alan Greenspan to keep the US economy working smoothly.
Rubin orchestrated the bailout of foreign bankers and investors in connection with the Mexican and Asian financial disasters, and crafted or helped implement domestic policies that ensured the overwhelming portion of benefits from economic growth would go to the rich—but none of this managed to sully the reputation of the Secretary Rubin.
When he stepped down from his Treasury post this past summer, Rubin left unfinished a legislative effort to re-write the nation's banking laws. Misnamed "financial modernization" legislation was really a deregulatory initiative—reminiscent of the S&L deregulation that led to a corporate crime spree, the collapse of the industry and the subsequent taxpayer bailout of epic proportions.
The centerpiece of the deregulatory bill, which different fragments of the finance industry have pushed for a decade and a half, is the repeal of the revered Glass-Steagall Act, which bars companies from owning banks and insurance companies or securities firms at the same time.
Although powerful interests have long backed the new legislation, it has repeatedly failed to make it through Congress because of a maze of intra-industry disputes, turf fights between different parts of the federal regulatory structure, and the concerted efforts of consumer and community development advocates.
Another failure seemed possible or likely this fall, especially as Senate Banking Chair Phil Gramm, R-Texas, refused to compromise on privacy and community development issues.
Another failure, however, was not acceptable to one company above all—Citigroup. The product of the merger between Citibank and Travelers, Citigroup is operating in apparent violation of the bar on common ownership of banking, and insurance and securities, thanks to a loophole that provides for a two-year transition period.
Enter Robert Rubin. According to a report in The New York Times, Rubin helped broker the final compromise language on financial deregulation.
And while he was brokering a deal between Congress and the White House, he was also, according to The New York Times account, negotiating his own deal with Citigroup. A few days after the banking deal was finalized, Citigroup announced it was hiring Rubin as a de facto co-chair of the corporation.
This chronology and these arrangements raise serious issues about whether federal ethics statutes and informal Clinton administration rules have been violated.
Rubin told The New York Times that he was proud of his work in preserving the Community Reinvestment Act (CRA), an important law that requires banks to make loans in minority and lower-income communities in which they do business. In fact, the final version of the bill significantly weakens CRA: It provides for no ongoing sanctions against holding company banks that fail to meet CRA standards, it lessens the number of CRA examinations, and provisions of the bill will discourage community groups from challenging banks' CRA records.
And the weakening of the CRA is only one element of the finance industry's deregulatory wish list which is included in the compromise legislation. The bill will:
- pave the way for a new round of record-shattering financial industry mergers, dangerously concentrating political and economic power;
- create too-big-to-fail institutions that are someday likely to drain the public treasury as taxpayers bail out imperiled financial giants to protect the stability of the nation's banking system;
- leave financial regulatory authority spread among a half dozen federal and 50 state agencies, all uncoordinated, that will be overmatched by the soon-to-be financial goliaths;
- facilitate the rip-off of mutual fund insurance policy holders by permitting mutual insurance funds to switch domicile states -- thereby enabling them to locate in states where they can convert to for-profit, stockholder companies without properly reimbursing policyholders (a conversion of tens of billions of dollars);
- permit the new financial giants to share finance, health, consumer, and other personal information among affiliates, compromising consumer privacy; and
- allow banks to continue to deny services to the poor (Congress rejected an amendment requiring banks to provide "lifeline accounts" to the poor, so they would have refuge from check-cashing operations and the underground economy).
Robert Rubin helped deliver this ticking time bomb of a bill to Wall Street, first while in Treasury and then while in negotiations to land a top spot at the finance industry's largest and highest-profile company. He may well escape unscathed yet again, but it is sure to blow up on the rest of us.
Russell Mokhiber is editor of the Corporate Crime Reporter. Robert Weissman is editor of the Multinational Monitor. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy.