[Blogging way over my head — fair warning.]
So, who was in charge of Citigroup when it was taking on unsustainable risk the past few years? Bob Rubin.
Who was a big advocate of using derivative products to stabilize markets and control risk? Bob Rubin.
And whose protégés are going to be heading up Obama's economic team? Bob Rubin.
Now, none of this means that Geithner and co. are necessarily cut from exactly the same cloth as Rubin. And in contrast to what we've usually seen from the Bush adminstration, we might expect this group of folks to be more ideologically flexible, and to actually adjust their beliefs and strategies in reaction to new and unexpected realities. In other words, they may have all learned something. I'm particularly hopeful that they'll all recognize the harmfulness of the ability of derivatives to obfuscate risk, rather than actually get rid of it.
Still, skepticism and scrutiny are warranted. I am not one to complain that there aren't enough “progressives” in Obama's appointments; but his folks so far certainly don't get a free pass — they've got something to prove.
BTW, Brad DeLong's got an interesting post defending Citi and Rubin, essentially saying they're victims of the broader dynamic.
p>There seems to be a general notion that anybody, in any way whatsoever, associated with CDO’s did so through a dastardly combination of a distinct lack of brain cells and an excess of hubris. The response by Paulson and Bernanke, to the crisis has added to this general feeling of ill will towards anybody in the financial markets. In the case of Paulson and Bernanke, this ill will is well deserved as they have consistently been inconsistent: Paulson, it seems, prides himself on being able to turn on a dime, and demonstrates this pivoting ability at every conceivable opportunity; Bernanke, has long ago exhausted whatever tools he has in his arsenal, save his public pronouncements and there he often seems to be looking backwards.
p>Rubin, on the other hand, certainly doesn’t deserve the levels of enmity earned by Paulson and Bernanke. From what I can tell (and the DeLong article you cite is further support of the notion that) Citigroup was more than diligent and careful in assessing and buying risk. The DeLong article makes the case that, absent the global nuclear meltdown, Citi would be in a tough, but not unrecoverable position. From a strictly financial view-point, the past month and a half has been apocalyptic and one wonders how any bank, never mind one of the biggest, can ‘scape without, at least, singed eyebrows…
p>Not to say that the actions of Citi, like continue the sports leasing millions, etc… are all that smart but that’s really a peripheral issue.
Brad Dulongs blog is extremely interesting and certainly fills in many of the gaps in my knowledge of CitiGroup, with one exception he misses a titanic point in the history. In 2007 Citigroup purchased ABN AMRO the country’s second largest mortgage writer. At the time this was not in trouble and it was not a bailout position as a matter of fact they purchased it at the beginning of 2007 just as the Sub Prime was beginning to rear it’s ugly head so can we assume they had eyes open and on the mark. No I do not see it instead it was chasing profits at any cost. Unfortunately we may not be able to trace the model they were using to write sub prime notes yet the acquisition speaks volumes for Citibank’s demise post Rubinomics. It should be considered when you evaluate the bailout and the need for it. I would ask one question where is the plan on what they are going to do with the money. I would carefully point out at this time that the chance of a CitiGroup bailing out Main Street with the 20 Billion is slime to none since their only hope in regaining investors is to turn higher profits and thus the need for higher returns then are currently available here int he US. This is true for all of the Large Banks that have received funds.
p>The Math is simple when you look at the return on their investment which we can all agree is falling, Mortgages are down, Credit cards higher default rates, and businesses struggling to maintain cash positions to deal with suppliers and payroll are taping into cash reserves as well, where does a bank make the money to cover over head and to strengthen their cash position? Well they can start a huge ad campaign looking for new deposits ala GMAC or they can go where there is a hope to earn higher returns Commodities are down not much there. I see a strong migration out of the US of available capital in the hopes that their are some diamonds in the rough to make a quick turn around on.
p>So I am not in favor of bailing out Citibank until Henry and the administration shows us a plan or they bailout the Auto Industry and keep the bail out money here in the US
p>As Usual Just my Opinions
an interesting read from an insider’s perspective
Rubinomics was largely absent from the campaign. It was the idea that by raising taxes you will cut the deficit which will lower interest rates and spur the economy. It didn’t really happen but the deficit hawkery remained a part of the Clinton plan.
p>Rubin’s main purpose there was to head off any new New Deal in the Clinton admin.
p>Personally we have seen stimulus after stimulus and they don’t seem to be working. It’s hard to be confident however that the bankers are going to save the economy.
when Clinton took over in January 1993, economy was largely coming out of recession. Obama will be taking office going into recession. Was interesting listening to Finneran this morning with Warren Tolman and a caller talking about tax selling in December due to impending capital gains increases. Tolman blew off the caller with comments to the effect that “who has any capital gains in this economy?” A fundamental misunderstanding on his part of investing/the economy, which hopefully is not shared by others who will supposedly be trying to get us out of this mess.
in between commercial breaks on WEEI (don’t tell Entercom that us long term commuters know their schedule to a tee).
Though this diary does not fall precisely into this category I am amazed at the concern and criticism of some that Obama is taking on too many Clinton people. In general, Democrats with expertise probably worked for Clinton and the federal government is to complex an institution to reinvent the wheel with every new presidency. Specifically with regard to the economy I’ll take all the Clinton people we can get. Clinton presided over the longest period of economic growth ever in our history, enhanced by simultaneous job growth AND low inflation. They must have been doing something right!
America does not have a center-left party. It has a radically right wing party and a centrist party. The centrist party therefore is going to be the party that will stay out of the bedroom, competently manage the economy and national defense, and thats about it. People expecting the government to come in like a white knight and save the nation from all its woes, many of which are self inflicted, are expecting too much from the Obama administration.
p>It is incredibly impractical to get an FDR style “New New Deal” or renew LBJs “War On Poverty” when we are in the middle of a two front war and a massive recession. Obama has to ensure stability and continuity and get the economy growing again. If he can get peace and prosperity in his first term I say he has accomplished quite a lot and will go down as a great President considering how bad off we were when he started.
p>But those of you expecting this country to go from Bush where I think all of us agree we are in pretty atrocious shape to a liberal utopia overnight should lay off the recently decriminalized pipe your smoking and return to reality.
it will prove a pragmatic party, in which case we will get the New Deal that we need. And things will get better over time.
p>If “centrism” is an ideology, and these guys are its apostles, then we are in trouble. But maybe this time it really is about competence.
p>Peace and prosperity in four years–I just don’t think so. Progress in that direction maybe if we don’t screw up.
The discussion of Centrist or Right or Left seems premature. I realize we have been conditioned by 8 years of King George but be honest he has had very little input in the over all policies of the Executive branch he has merely been the guy running around with the pen giving out what he thought were autographs.
p>With Obama we have a truly intelligent President who will control his cabinet. He appears to be bringing all points of view to the table and in the cases thus far he has tapped the best and the brightest but to say they will rule over him I think is a grave mistake. Barack has shown the ability to listen learn and then make up his mind on the best course, I applaud him in being his own man which is why I voted for him and worked for his election. So far I think there is little to be disappointed in let’s see what policies come out of his tenure before we predict the course.
p>As Usual just my Opinion
What we got was business as usual. Oh well, the last depression lasted only ten years. Happy 2019!
Basically, the worst Republican ideas of the past 40 years all rolled together. Or am I off on this?
p>In any case, I believe that Obama’s appointing these folks for two reasons:
1. He wants experienced people to prevent early stumbles
2. He wants to go hard left, and feels that these righties will find weaknesses in his plans before they see the light of day.
Most famous for saying women can’t do math or some such thing. Think he’ll bring a fresh perspective to things or what?
As an Economist my opinion is that Larry Summers is the brightest man in the room unfortunately like many bright people, they consistantly walk around with their foot in their mouth! His comments were a disgrace and his lack of a from the heart appology only suggest he has no social grace what so ever.
p>Larry looks like he is being positioned to take over for Ben Beranke at the Fed which may be a good place for him because hopefully he will not have to make any more public speeches. The change will certainly be an improvemnet since Ben a scholar of the Depression has been a huge disappointment IMHO. His anticipation and handling of this mess has been little more then an new never before seen film of the Keystone Cops.
p>As Usual just my Opinions