In 1971, Rubin made partner, and shortly afterward he took over the risk-arbitrage group. Junk-bond-fueled takeovers were sweeping Wall Street. Rubin was at the center of the action, wagering Goldman’s capital on the merger frenzy. Rubin was named co-chairman in 1990, running Goldman alongside Steve Friedman. They were a formidable pair, political opposites (Friedman is an active Republican, and was George W. Bush’s chief economic adviser). Rubin, a longtime Democrat and generous fund-raiser, saw his career in finance as a means to an end. “My real desire … was to get involved in politics,” he wrote in his 2003 memoir, In an Uncertain World. Specifically, Rubin wanted to be Treasury secretary.
In tapping Rubin to run Treasury, Clinton was sanctioning a revolution in the Democratic Party, one that fundamentally redefined the party’s relationship with Wall Street. Rubin, along with Alan Greenspan and Larry Summers, believed in an enlightened capitalism, which would spread prosperity widely. This enchantment with the beneficence of markets became the dominant view in Democratic Washington, hard to argue with when the economy was booming, as it was in the second half of the nineties. Rubin recognized that derivatives posed a risk but effectively blocked efforts to regulate them and pushed for the repeal of the Glass-Steagall Act, the Depression-era legislation that prevented commercial banks from merging with investment and insurance firms (the new law essentially legalized the $70 billion merger in 1998 of Citicorp and Travelers Group that created Citigroup). This faith in the markets was at odds with progressive policy-makers like Stiglitz, Labor secretary Bob Reich, and chair of the Commodities Futures Trading Commission Brooksley Born, who all found themselves shunted aside.
When Rubin left the White House in 1999, he was the most celebrated financier in modern American history. His tenure was crowned by his handling of the Asian financial crisis and the bailout of Long-Term Capital Management. Rubin, along with Greenspan and Summers, was lionized on the cover of Time, which dubbed the troika the “Committee to Save the World.”
At just 60, Rubin was out of government and wanted to return to Wall Street. When Sandy Weill of Citigroup came calling, Rubin seemed to have the upper hand on Wall Street. He didn’t want to get his hands dirty managing or trading or doing deals. He wanted a platform that could afford him wide latitude, leaving time for him to pursue his passion for fly-fishing, write his memoirs, and help shape economic policy. Weill and Citi’s then–co-CEO John Reed agreed, naming Rubin to the newly created office of chairman.
It was a major coup for Weill, who built Citi into a financial supermarket, with trading, commercial banking, consumer banking, investment banking, and insurance all under one roof. Rubin was granted a pay package worth $33 million per year. He had access to Citi’s fleet of private jets and insisted that he have no direct responsibility in running Citi’s sprawling operation. Later, others would see this aloofness and wonder just what, exactly, Rubin was getting paid those many millions to do. “I was hoping he’d be a father figure for Salomon Brothers,” Reed told me. “Jamie Dimon was running it at the time. Sandy didn’t know anything about that, and neither did I. Bob did not play a particularly meaningful role.”
But Rubin soon demonstrated his immense value to Citi. In 2001, Roberto Hernández Ramírez, the CEO of Mexican banking giant Banamex, called Goldman Sachs and said he was looking to make a deal. Goldman pitched the deal to Rubin, and Citi went on to acquire Banamex for $12.5 billion.
And in subsequent years, as Citi found itself facing a barrage of scandals, from the Jack Grubman favor trading to Enron, Rubin couldn’t keep his hands as clean as he’d planned. In 2002, as Enron teetered on the brink of bankruptcy, news leaked that he had placed a call to Peter Fisher, a Treasury undersecretary, and floated the idea that Fisher could advise the ratings agencies to refrain from downgrading Enron’s debt. Citi was a major Enron creditor and stood to lose hundreds of millions in bad loans to Enron if the energy giant failed. It was a particularly ham-handed use of his connections—the network usually operates more subtly than that.
Though he was out of government, Rubin kept a firm hand on the policy-making tiller. From his office next to Weill’s, he worked the phones constantly, just like in his days on Goldman’s risk-arbitrage desk, dialing up Larry Summers, former Clinton national economic adviser Gene Sperling, and other economic-policy wonks. He also recruited several former Clinton aides to Citi, including former Health and Human Services deputy secretary Kevin Thurm and former Clinton budget director Jack Lew. Bob Lipp, a Citi vice-chairman at the time, wondered aloud what kind of expertise the public servants would bring to the firm, asking a senior Citi executive, “What am I going to do with these guys?” (Lipp declined to comment.)