Robert Rubin Should Be Doing Hard Labor: Instead He's Trying to Resurrect Himself

Dean Baker, an economist who in 2002 warned that a dangerous housing bubble was developing, writes:

As Treasury Secretary, Robert Rubin put in place all the pieces that set up the economy for the disaster that we are now living through. He pushed legislation that weakened regulation of the financial sector; he cheered on a stock bubble that eventually grew to $10 trillion and he established an over-valued dollar as a matter of official policy.

He then left to take a top job at Citigroup where he was able to enjoy the fruits of his labor. He earned well over $100 million in the decade after he left the Clinton administration. In the fall of 2008, when Citigroup was saved from bankruptcy with a taxpayer bailout, Rubin quietly slipped out the back door (with his money), resigning from his position at Citigroup.

It may not seem just that someone like Rubin would be allowed to live out his life in luxury after the policies that he promoted and personally profited from led to so much suffering for so many people. But that is the way things work in the United States these days.

However, what is even more infuriating is that he doesn't seem to have any intention of going away. He is still pontificating on the economy and desperately trying to rewrite history to exonerate himself.

The column is linked.

US debt a phantom menace

Yesterday the New York Times reported that the United States is borrowing trillions of dollars under terms that seem "too good to be true" just as a "spending explosion" on benefits programs like Medicare and Social Security is set to begin.

In a series titled "Payback Time: Debt Bomb," the Times details the magnitude of our nation's borrowing and warns of an impending and monumental reality check:

"The government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government's tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically."

Replete with charts and stupefying figures (Americans must pay off more than $1.6 trillion in debt by March 31, 2010), the piece states that there is "little doubt that the United States' long-term budget crisis is becoming too big to postpone."

Au contraire, says Times columnist and Nobel Prize-winning economist Paul Krugman, who warned about the very fear mongering about the deficit that the Times was engaged in:

"Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence."

Krugman cites a recent interview during which President Obama warned that "if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."

Krugman's response: "What? Huh?"

"The concerns Mr. Obama expressed become comprehensible if you suppose that he's getting his views, directly or indirectly, from Wall Street.

Ever since the Great Recession began economic analysts at some (not all) major Wall Street firms have warned that efforts to fight the slump will produce even worse economic evils. In particular, they say, never mind the current ability of the U.S. government to borrow long term at remarkably low interest rates -- any day now, budget deficits will lead to a collapse in investor confidence, and rates will soar...

A better model [for our current economic plight], I'd argue, is Japan in the 1990s, which ran persistent large budget deficits, but also had a persistently depressed economy -- and saw long-term interest rates fall almost steadily. There's a good chance that officials are being terrorized by a phantom menace -- a threat that exists only in their minds.

Read Krugman's full piece here.

Likewise, economist Dean Baker, who was one of the first to recognize the housing bubble years before it burst, scoffs at the Times's over-hyped debt reporting. Baker's post -- titled, "In Just a Decade the U.S. Interest Burden Could Be as High as It Was in 1992!!!!!!!" -- notes that there is "no evidence presented in this article that the rise in interest rates will place the U.S. government in a situation where it will be unable to pay its bills and no one cited in this article makes such a claim."

Incidentally, today's Wall Street Journal features more evidence that the Obama administration is rejecting Krugman's advice. "The White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit," the Journal reports, citing administration officials.

Geithner's plan will make Wall Street richer!

Dean Baker, one of the first economists to argue that the housing bubble was unsustainable, writes that the experts who missed the housing bubble (EMHB) "... already wrecked the economy once." And he asks: "how many more times will they get the opportunity?"

The article is worth reading and is linked here.

Fed bails out Bear Stearns: welfare for Wall Street!

In light of the Fed's announcement that it will bail out Bear Sterns, Dean Baker, the co-director of the Center for Economic and Policy Research (CEPR) asks:

"Why is the Fed, an agency of the government, using our tax dollars to keep Bear Stearns and its rich managers and shareholders above water?

Baker continues: After all, the government supposedly doesn't have enough money to provide kids with health care and childcare, to guarantee families decent housing or to meet a long list of other needs. Why do we have the money to lend tens of billions of dollars to Bear Stearns at below market interest rates?

There are two points about this bailout that should be clear. First, this is a bailout - we are handing money to Bear Stearns. Second, we don't have to hand tens of billions of dollars to the country's richest people to save the financial system.

The politicians will try to do their best to obscure the first point. They say, "we aren't giving them money - we're lending money and we're getting interest, so the government can make a profit."

This is what politicians tell people who they think are stupid. No private bank would lend money to Bear Stearns at the same interest rate and under the same terms as the Fed. (We know this for certain; otherwise, Bear Stearns would not have run to the Fed.) When the government makes a loan at below market interest rates, it is giving away money. People on Wall Street know this very well, that is how they got to be fabulously rich: They borrow money at a lower interest rate than they lend it out.

If they can't get away with the "no bailout" nonsense, the Wall Street welfare boys will then try the route of claiming we have to bail them out in order to prevent the whole financial system from collapsing. Such a collapse could turn the recession into a depression leaving millions unemployed for years.

This is also nonsense."

Read the entire column