Wednesday, 30 April 2008

On the Significance of Bob Rubin Being a Citi Consigliere

I read somewhere that about 70% of non-sport content in the US papers is PR generated. The New York Times interview with the former US Treasury secretary Robert Rubin that I mentioned below is the proverbial "Exhibit A" in that regard. Laudatory adjectives abound: “elder statesman”, “Yoda” (the wise ass from the Star Wars), “corporate and political wise man,” “consigliere” and, in conjunction with Alan Greenspan, “Olympian duo”.

Olympian duo.

Rubin and Greenspan.

OLYMPIAN DUO.

The only way to top that would be to include Larry Summers in the mix and call the trio “The Committee to Save the World.” And the only way to top that would be to add Curly and Moe to Larry and call the bunch “The Committee to Restore Dignified Conduct”. And do that in earnest.

I am not being facetious.

Take “consigliere”; we learned from the article that “people” in Citi went to Rubin to “get a dose of wisdom.”

As popularized and defined by the Godfather movies, the function of a consigliere in a crime family is giving advice. The function grows from the realization that violence is not an end in itself but a means towards an end. (You recognize Von Clausewitz’s observation that war is a continuation of politics by other means.) The end is making money through a business; a violence prone business, perhaps, such as prostitution, but business nevertheless. The consigliere maintains the business orientation of the enterprise by constantly reminding the thugs that thuggery must be subjugated to the exigencies of making money. Force, after all, as Karl Marx pointed out, is an economic factor. Only the pathologically depraved will have an apparatus for the application of force without any economic benefit to result.

A multi-trillion dollar financial behemoth is supposed to have its orientation in place – and firmly. The high ranking Citi executives in charge of multi-billion dollar business lines are expected to be intimately familiar with the ins and outs of their operations at both strategic and tactical level. Without operational responsibility, in fact, it is impossible to develop a strategic vision. The existence of a consigliere in Citigroup is affront to its senior executives.

“Lighten up,” I hear you saying. “It is not that consigliere was Rubin's job title. The term is used affectionately. And don’t lose sight of the big picture. At the end of the day, the point was to give a $15 million a year sinecure to one of ‘our crowd’. (How do you suppose Glass-Steagall was repealed?) With Rubin’s insistence on not having any operational responsibility – polite way of saying that he didn’t want to do any work – consigliere seemed an easy, handy title. So, really, lighten up. There is such a thing as over interpretation, you know.”

I know.

What sort of advice would Rubin give? His actions as a Treasury secretary to correct a perceived imbalance in dollar-yen relation offer a clue. Again, from the newspaper of the record (Sept 22, 1996):


Mr. Rubin’s first, tentative efforts to bolster the dollar … failed; the intervention was washed away by investors who knew that the governments did not have the resources to outbid them. So he and his deputy … retreated … Then, when the dollar had fallen off the front pages and the market’s attention was elsewhere, they ambushed the currency speculators, ordering the Treasury to buy dollars. The idea was to sow so much uncertainty about the Treasury’s tactics that no big speculators or hedge funds would risk being caught with a huge position in yen.
In Vol. 1 of Speculative Capital, I pointed out the irony of the US Treasury secretary fixing the exchange rate of the dollar against the yen by sowing uncertainty about their exchange rate!Recall from Part 1 of the “Credit Woes” series that:

The manager of speculative capital turns into its agent, someone who nominally “runs” the speculative capital but must in fact follow its “agenda”.[Emphasis added.]
As a life-long currency arbitrageur, Rubin is the personification of speculative capital. Like Oedipus, his deeds are inflicted upon him rather than committed by him.

By assigning the role of consigliere to him, Citi sealed its fate. Prince’s much ridiculed statement that Citi had to keep dancing as long as music continued was Rubin’s, in spirit if not in exact words. What followed in terms of losses in the ABCP-CDO arbitrage chain was preordained.