Should some of the same people who helped get us into this Wall Street meltdown mess be relied upon to get us out? And is it OK if the colleagues and mentors of the new Obama economic team make millions and maybe billions along the way? President-elect Obama seems to think that the answers to those two questions are "yes," and "yes"--and his appointments today proved it.Tim Geithner, the pick to be the next Treasury Secretary, is the current president of the Federal Reserve Bank of New York, where he was intimately involved in all the bailout decisions of the past year, including the decision to bailout AIG, the insurance giant.
Back in October, right here on FOX News, I noted that the CEO of Goldman Sachs, Lloyd Blankfein, was in the room when the bailout decision was made--a decision which, according to The New York Times, protected a $20 billion Goldman Sachs position with AIG. And, of course, Goldman Sachs is the Wall Street firm once headed by the Treasury Secretary Hank Paulson. I compared that incestuous financial relationship to the Teapot Dome scandal of the 20s, but the Obamans don't seem to agree.
Meanwhile, in the words of the Competitive Enterprise Institute economist Jon Berlau, Geithner means "More of the same... more bailouts, more lack of transparency in the bailouts, and more corporate welfare. ... In choosing Geither, Obama might as well have nominated Hank Paulson to another term!"
So when Obama said today of the man he's nominated to lead the Treasury Department, "He will start his first day on the job with a unique insight into the failure of today's markets," the President-elect was more right than he knew.
But there is one figure that looms above them all, a man who was once the boss to both Geithner and to Larry Summers (who was named today to chair the National Economic Council inside the White House) and is the leader of the dominant political-economic school of thought in the Democratic Party today. And that man is Robert Rubin, Treasury Secretary for Bill Clinton and currently the Chairman of the Executive Committee at Citigroup.As The New York Times puts it this morning, "It is testament to former Treasury Secretary Robert E. Rubin's star power among many Democrats that as President-elect Barack Obama fills out his economic team, a virtual Rubin constellation is taking shape." A "Rubin constellation"--how 'bout that?
But wait just a second here. Democrats might think that Rubin is some sort of financial rock star, but he also helped lead a deeply troubled financial giant, which bet heavily--and badly--on the subprime mortgage market; Citi's stock has plummeted 90 percent over the last year.
Here's a sobering assessment from an article in Sunday's New York Times, "As chairman of Citigroup's executive committee, Mr. Rubin was the bank's resident sage, advising top executives and serving on the board while, he insisted repeatedly, steering clear of daily management issues."
But as the Times noted:
"While Mr. Rubin certainly did not have direct responsibility for a Citigroup unit, he was an architect of the bank's strategy. In 2005, as Citigroup began its effort to expand from within, Mr. Rubin peppered his colleagues with questions as they formulated the plan. According to current and former colleagues, he believed that Citigroup was falling behind rivals like Morgan Stanley and Goldman, and he pushed to bulk up the bank's high-growth fixed-income trading, including the C.D.O. business. ... Once the strategy was outlined, Mr. Rubin helped [former CEO Charles] Prince gain the board's confidence that it would work.
And then, asked if he had made any mistakes at Citigroup, he answered, "I've thought a lot about that. I honestly don't know. In hindsight, there are a lot of things we'd do differently. But in the context of the facts as I knew them and my role, I'm inclined to think probably not."
But now, of course, Citi is a big winner; just last night it received a $300 billion or so (nobody really knows) financial guarantee from Uncle Sam. And the stock, which was below $4 a share on Friday, is now up to around $6. That's a 50 percent increase.
Not bad one for one day's worth of politicking in Washington. And of course, there's much more of that, where that came from.