One would have thought that the crash of 2008 would have shattered the Rubin consensus. And certainly, parts of it did shatter. Among members of the Clinton White House, the debates that had been settled a decade ago are now open again, as progressives, sidelined in the nineties, have reasserted themselves—though to what effect is still unclear. During the 2008 campaign, Obama talked boldly of reforming the financial system. But, once in office, he backed off. Austan Goolsbee, an economist who had advised Obama during the campaign, was passed over for a top job as Rubinites, including Orszag, Summers, and Geithner, moved into central posts. The rhetoric changed considerably, much to Wall Street’s chagrin; but the policies were tweaked rather than made new. “Official Washington is starry-eyed when it comes to Wall Street,” Bob Reich says. “They assume if you’re that rich, you must be smart.”
And while the crash dented the confidence of the Wall Street–Washington policy elite, the blow was far from fatal. In November 2008, Rubin attended an economic-policy meeting with Obama and senior aides in Chicago. Reich was there, and he told me that after the meeting, he confronted Rubin about the meltdown. “I asked him why did the crash happen? He said, ‘It was a perfect storm. It was a once-in-a-lifetime event.’ ” Reich, like many progressives, sees 2008 as a reassessment of the Rubin way. Why was there a complete implosion, if Wall Street is so smart, if markets work so well?”
Orszag understands what’s fueling the populist fervor. “You don’t go through a 45 percent decline in private-sector borrowing without tensions flaring,” he says. At Citi, he’s seeing the system from the inside and developing a more complex view of it, whereas the recent political debate was stripped of all nuance.
“Almost inevitably, the public will think the administration is too close to Wall Street unless it blows up Wall Street, and Wall Street will think the administration is a bunch of flaming liberals if they don’t completely shut down that populist anger,” he says. “Sometimes the small things matter a lot, the odd phrase here, the meeting there that wasn’t handled exactly right. The conversations have been very fraught over the past two years. [Bill] Daley will help on that. It’s also the case that time and moving away from crisis mode will help, too.”
Orszag told me he doesn’t see an inherent conflict between his two mentors. “I find it extraordinarily beneficial to have all kinds of conversations with people who have different worldviews,” he said.
As Orszag moved into the spotlight, his mentor receded from it. In August 2010, Rubin quietly took a job at Centerview Partners, a boutique investment firm co-founded by Democratic fund-raiser Blair Effron.
Orszag finds his new job to be a refreshing break from the bruising political battles in the White House. He’s been advising Citi’s traders on economic trends, working from Citi’s Greenwich Street trading floor, while spending most of his time learning the art of deal-making as a corporate adviser. “I want to do this new stage of my life for a significant period of time,” he told me. “When I was thinking about it at the time [of taking the job], I was thinking something like at least five to ten years.”
One cost of the vast disparity between the pay on Wall Street and everywhere else is that, all other things being equal, Wall Street gets more than its share of the good minds, and many of those it doesn’t control outright, it manages to influence—that’s the American system.
Orszag told me he doesn’t know yet how the system could change. His tenure at Citi, he said, may give answers. “Look, there is an ongoing debate. I don’t have the answer,” he said. “I’m going to exercise some modesty in terms of knowing exactly what to do about it. Over the next few years, I’ll have a better sense of how these incentives work.”
Even a man as smart as Peter Orszag may find it hard to learn that lesson in his current classroom.