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Obama criticized for economic team’s link to failed bank chief

By Edward Helmore

As Barack Obama prepares to announce the appointment of Hillary Clinton as Secretary of State this week, the first notes of dissent over the President-elect's choices are being heard across America.

The loudest complaints concern his economic team's ties to Citigroup, the banking behemoth that all but collapsed last weekend. In particular, criticisms are mounting over the role to be played by Robert Rubin, a director at Citigroup and President Clinton's former treasury secretary.

Obama, who last week called for a massive stimulus package to prevent the US economy from 'falling into a deflationary spiral', has taken several protégés of 70-year-old Rubin as advisers, among them Timothy Geithner as treasury secretary, Lawrence Summers as senior White House economics adviser and Peter Orszag as budget director, even as Rubin himself has been defending his key role in deregulating the financial markets and steering Citigroup towards taking greater trading risks to expand its business and reap higher profits.

'Nobody was prepared for this,' Rubin said yesterday. Like several other banking CEOs and former Federal Reserve chairman Alan Greenspan, he indicated that the current financial crisis was caused by a buckling financial system - not mistakes of leadership or policy-making.

But with criticism of Rubin and loyal 'Rubinistas' threatening Obama's Washington debut, there is increasing concern that the President-elect's emphasis on appointing Clinton-era officials - a shadow Clinton term, as it has been called - could backfire as the very people who undertook financial deregulation in the Nineties are now directed to re-regulate a decade later.

'Where's the diversity on the economic team? It's not only all from the same small club, but from the club that brought us the deregulation that has a lot to do with the economic collapse,' said Robert Kuttner, the co-founder of the liberal-leaning American Prospect magazine.

The growing fury over the bailout of Citigroup largely focuses on Rubin's role. In a damning post-mortem of Citigroup's rush to risk, the New York Times labelled Rubin 'an architect of the bank's strategy' and described him as having 'pushed to bulk up the bank's high-growth fixed-income trading'.

Rubin, the paper said, led the bank into a risky gamble on investments, including securities backed by sub-prime mortgages. With a base Citigroup salary of $115m, excluding stock options and bonuses, Rubin's defence that he had no 'operating' responsibilities at the bank is not widely accepted. 'He still has a fiduciary responsibility as a board member,' said William Smith, a New York money manager. 'He has overseen the entire meltdown, yet been compensated as an operating employee, while bragging about having no operating responsibility.'

Rubin has countered that his pay was justified. 'I bet there's not a single year where I couldn't have gone somewhere else and made more,' he told the Wall Street Journal. He turned down his bonus last year, telling the board the money could be better spent elsewhere.

For Obama, the selection of Rubin acolytes suggests vulnerability. Yet defenders of the Rubinistas say it is not policy that binds them but their braininess.

But for Obama, who promised 'change you can believe in', the selection of Rubin protégés - what one critic called the 'essence of the Washington-New York finance axis of power' - has raised eyebrows. While Rubin may be unwilling to accept responsibility for the decisions that led to Citigroup's downfall, he concedes that he did understand the risky financial decisions it was making. 'If you look back from now, there's an enormous amount that needs to be learned,' he said yesterday.

Source:  Guardian

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