Rubin the Hero Jude Wanniski September 24, 1996

Memo To: David Sanger, The New York Times
From: Jude Wanniski
Re: Bob Rubin profile

Your zillion-word profile of our esteemed Treasury Secretary in Sunday's business section was beautifully written, as usual, and I read every word. Rubin certainly came across as a wonderful, charming fellow, a powerhouse in the Clinton administration, and a man who should get a lot of credit for the President's success as well as the economy's. I have only a few quibbles:

1. With the long bond at 7%, the bond market is not much better than it was when Rubin became Treasury Secretary. It's a bit lower, but it had been coming down from the peak to which the Fed had driven it in a vain attempt to wring inflation out of the system. The price of gold was at $383 when the tightening began and it was there when the tightening ended. Instead of giving Rubin credit for something that did not even happen, you might have asked why the yield on the 30-year bond, which hit a low of 5.87% in October 1993 on Lloyd Bentsen's watch at Treasury, and was at 6% at one time on his, has climbed back up to 7%. I give the President much credit for the strength of the bond market since he was elected, given his support for Greenspan. Rubin may get some of that because of the role he played in the White House prior to Treasury days, although I'm not aware of it. In my view, Rubin's support of the 1993 tax increase was unfortunate, and that it led to the rise in the gold price to $383 from $350 at the outset of the administration, and caused the weakening of bonds when Greenspan accommodated the tax rise with easier money. The long bond won't behave while the manic Phillips Curve enthusiasts are in such key positions of power.

2. The "credit" Rubin gets for cleaning up the mess in Mexico is dubious, in that the mess was in large part created by his Undersecretary, Larry Summers, and his pals at the IMF, the World Bank and the big Wall Street banks, including Goldman Sachs. Yes, Rubin was not yet at Treasury when the peso devaluation was shoved through the gullible Zedillo administration in Mexico City. The "bailout" was unnecessary, as many of us pointed out at the time, in that the Bank of Mexico need only have sold peso assets out of its portfolio to restore the peso's value. I believe this was one of the greatest financial scandals in American history, and the Clinton administration was complicit in it. If you would like my testimony before House Banking, I will be happy to send it along. The people of Mexico have not yet recovered from the fiasco. I find it shameful that this administration would be boasting of having cleaned up the mess it made. Republicans are of course in no position to take credit for it, having agreed to sweep the whole matter under the rug on behalf of the Wall Street banks.

3. You give Rubin credit for the weakening of the yen (strengthening of the dollar), to 110 from 82. This is baloney. You did note that Treasury failed in its first attempt to boost the dollar, although you did not point out that its intervention was sterilized by the Fed. The yen weakened only when the Bank of Japan began injecting yen liquidity into its banking system.

4. A Democratic administration and Treasury Secretary that presides over falling real wages and living standards really does not deserve any bouquets. The Clinton administration has made life easy and enjoyable for Goldman Sachs and its partners, but its base constituency of poor black and brown men still file into the prisons at a rate faster than they file out. You could have noted Rubin's opposition to cutting the capital gains tax after he hosted many fundraisers for Clinton in '91 and '92 among entrepreneurs where this promise was made. At the same Rubin fundraisers, Clinton promised to restrain the trial lawyers in their frivolous lawsuits, another promise he welched on with Rubin's blessing.

5. You noted Rubin's disdain for foreign travel. If you would have asked me, I would have said Rubin also has missed an opportunity to restrain the evil deeds of the IMF throughout the developing world. The Haitian economy is just one example of this administration's neglect of the global poor. We've spent several billion dollars there and have not contributed one good idea on how to get the economy on track.

These are only minor quibbles, of course. If not for these, Rubin does belong up there with the great Treasury Secretaries of yore.