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Robert Rubin was sworn in as the seventieth U.S. Secretary of the Treasury in January 1995 in a brisk ceremony attended only by his wife and a few colleagues. As soon as the ceremony was over, he began an emergency meeting with President Bill Clinton on the financial crisis in Mexico. This was not only a harbinger of things to come during what would prove to be a rocky period in the global economy; it also captured the essence of Rubin himselfshort on formality, quick to get into the nitty-gritty.
From his early years in the storied arbitrage department at Goldman Sachs to his current position as chairman of the executive committee of Citigroup, Robert Rubin has been a major figure at the center of the American financial system. He was a key player in the longest economic expansion in U.S. history. With In an Uncertain World, Rubin offers a shrewd, keen analysis of some of the most important events in recent American history and presents a clear, consistent approach to thinking about markets and dealing with the new risks of the global economy.
Rubin's fundamental philosophy is that nothing is provably certain. Probabilistic thinking has guided his career in both business and government. We see that discipline at work in meetings with President Clinton and Hillary Clinton, Chinese premier Zhu Rongji, Alan Greenspan, Lawrence Summers, Newt Gingrich, Sanford Weill, and the late Daniel Patrick Moynihan. We see Rubin apply it time and again while facing financial crises in Asia, Russia, and Brazil; the federal government shutdown; the rise and fall of the stock market; the challenges of the post-September 11 world; the ongoing struggle over fiscal policy; and many other momentous economic and political events.
With a compelling and candid voice and a sharp eye for detail, Rubin portrays the daily life of the White House-confronting matters both mighty and mundaneas astutely as he examines the challenges that lie ahead for the nation. Part political memoir, part prescriptive economic analysis, and part personal look at business problems, In an Uncertain World is a deep examination of Washington and Wall Street by a figure who for three decades has been at the center of both worlds.
|Publisher:||Random House Publishing Group|
|Product dimensions:||5.25(w) x 8.00(h) x 1.04(d)|
About the Author
Robert E. Rubin spent twenty-six years at Goldman Sachs, rising to co-senior partner, before becoming director of the White House National Economic Council from 1993 to 1995, and U.S. Treasury Secretary from 1995 to 1999. He is currently a director of Citigroup. He and his wife, Judy, live in New York City, as do their two sons.
Jacob Weisberg is the editor of Slate and the author of In Defense of Government.
Read an Excerpt
The First Crisis of the Twenty-first Century
ON THE EVENING OF January 10, 1995, I stood on the Great Seal woven into the carpet of the Oval Office and swore to uphold the Constitution of the United States as Secretary of the Treasury. Confirmed earlier that day, I had been waiting all afternoon for the official document that would allow me to take the oath of office. Once the papers arrived from Capitol Hill, a small group of family, friends, and colleagues assembled at the White House for a hasty ceremony.
As soon as the formalities were over, I said good-bye to my wife, Judy, and our other guests and remained behind with President Bill Clinton, Treasury’s top international official, Larry Summers, and a few of Clinton’s senior advisers, for an emergency meeting about the financial crisis in Mexico.
I told the President that the Mexican government faced an imminent threat of default and that, in the hope of preventing it, we were recommending that he support a massive, potentially unpopular, and risky intervention: providing billions of dollars to the Mexican government to avoid a collapse in its currency and economy. Then I asked Larry to explain the situation in more detail. It took him ten minutes to spell out our essential analysis and recommendation, which we’d finished formulating in a meeting with Fed chairman Alan Greenspan hours earlier. If our government didn’t step in to help, and help quickly, the immediate and long-term consequences for Mexico could be severe. But the real reason for acting was that critical American interests were at stake.
The alternatives to the massive intervention we were recommending were not promising. If Mexico defaulted on its foreign obligations, Larry and I went on to explain, the flow of capital out of Mexico would probably accelerate and the peso would collapse, likely triggering severe inflation, a deep and prolonged recession, and massive unemployment. And that would surely have a substantial impact on the United States. Mexico was our third-largest trading partner, which meant that many American companies and workers would be hurt. We presented estimates that a Mexican default could increase illegal immigration by 30 percent, a half-million additional refugees a year. The flow of illegal drugs could intensify as well.
A crisis in Mexico might also hurt us indirectly, by affecting other countries. Fears of a Mexican default were already producing wobbles in developing markets throughout the hemisphere, a phenomenon that came to be known as the "Tequila Effect." Such a chain reaction could lead investors to pull back from emerging markets around the world indiscriminately. That, in turn, could affect economic conditions in the United States–since roughly 40 percent of our exports went to developing countries. According to an estimate made by the Federal Reserve Board, a Mexican default and the consequent "contagion" that was possible could, in a worst-case scenario, reduce growth in the United States by 1/2 to 1 percent a year. We weren’t proposing intervention for the sake of Mexico, despite our special relationship, but to protect ourselves. That was our case for asking Congress to provide billions of dollars in loan guarantees, as part of a package to be coordinated with the International Monetary Fund (IMF).
As Treasury Secretary, I avoided using words such as "panic" and "meltdown," preferring less vivid terms such as "contagion" and "loss of confidence." I’d learned while working in the White House as director of the National Economic Council (NEC) that the words public officials use can make an enormous difference, and that was even truer at the Treasury. I had to describe what was happening in Mexico accurately without being inflammatory. A meltdown, though, is precisely what we were worried about–and not only because of its effect on current economic conditions. With the implementation of the North American Free Trade Agreement (NAFTA), Mexico was hailed as a role model for developing countries pursuing economic reform. The public failure of that model could deal an enormous setback to the spread of market-based economic reforms and globalization.
But there were arguments against intervention as well, which we also laid out for the President. I emphasized that, for a variety of reasons, our rescue package simply might not work. What’s more, intervention would almost surely be criticized as "bailing out" wealthy American and European investors who had speculated on developing markets. Putting public funds on the line was likely to be massively unpopular and politically risky. Leon Panetta, the White House chief of staff, was even more blunt in warning Clinton about the downside risk. Leon favored intervention, but he told Clinton that a failed rescue effort could cost him the election in 1996.
When we finished our presentation, the room was heavy with a collective sense of how big a problem this had rapidly become. Larry had tossed out a figure of $25 billion as the amount of U.S. assistance that might be necessary. George Stephanopoulos, a senior adviser to the President, said that surely we meant $25 million. No, Larry said, we meant "billion with a B." That was more than the annual budget of the Department of Justice, enough to buy a fleet of B-2 "Stealth" bombers.
Sitting on a sofa in the Oval Office during my first hour on the job, I was answering questions from the President that I had been asking others only a couple of weeks before. Larry had phoned me in December, while I was on vacation in the Virgin Islands, to bring me up to speed on the unfolding Mexican situation. I didn’t know much about Mexico’s economic problems, and I didn’t understand why a peso devaluation was urgent enough to interfere with fishing. I assumed that Mexico was one of a large number of countries with similar problems and that Larry, a consummate professional in the field of international economics, would take care of whatever needed to be done. But I intended to be a hands-on Secretary, and I liked that Larry was including me, even though I was still in the netherworld of being designated but not yet confirmed as Treasury Secretary.
It didn’t occur to me that day that Mexico’s problems would shortly blossom into a full-blown economic crisis that embodied the heightened risks of a more global economy. In retrospect, the Mexican episode also offers much insight into the Clinton presidency. The Bill Clinton I watched come to the aid of Mexico was one the public too seldom saw. His seriousness of purpose, his depth of substantive understanding, and his keen intellectual quest for the right decision on Mexico are a continuing reminder to me of the way in which he remains, in important respects, a misunderstood figure. At a broader level, the dilemma Clinton faced with Mexico suggests to me that our politics may not be well suited to coping with the new risks of the global economy.
GETTING MY ARMS AROUND a problem like the Mexican crisis meant thinking about it as systematically and dispassionately as possible. The situation, as I rapidly came to understand following my preconfirmation conversation with Larry, was this: After the outgoing Salinas government had spent over $15 billion in a futile attempt to prop up the peso at the fixed rate of around 3 pesos per U.S. dollar, the newly installed government of Ernesto Zedillo had, in late December 1994, surrendered to overwhelming pressure in foreign exchange markets and allowed the Mexican currency to float freely. With only around $6 billion of its foreign exchange reserves left and far more than that in short-term debts coming due, Mexico had little choice. But with the government no longer providing support, the peso fell rapidly to around 5 pesos to the dollar. As the Mexican currency continued to slide, doubts grew about whether the government would be able to repay its debt, much of it very short term and linked to the dollar. Fearing a possible government default, investors were selling Mexican bonds, as well as the peso. In sum, Mexican authorities had lost control of their country’s finances.
All of us working on the problem agreed that Mexico, now essentially cut off from private lenders, almost surely could not solve the crisis through its own policies alone. The Mexican government’s bond auctions were attracting few bidders, even at dollar interest rates approaching 20 percent. In the short term, the private sector was very unlikely to produce loans on the scale needed to prevent default.
Nor, with requirements this large, could the international financial institutions–the IMF and World Bank–arrange a rescue on their own, as they had in many other cases. Michel Camdessus, the French managing director of the IMF, was unknown to most Americans despite his tremendous influence. Skillful and audacious, Camdessus was prepared to weather the anger of his organization’s European shareholders to make a stabilization loan to Mexico of unprecedented size. But the sums needed exceeded the IMF’s available capability. The only realistic chance of avoiding disaster was help from the United States. The questions for me then became the possible consequences of financial chaos and default in Mexico, the danger of the program failing, and the possible costs of that failure.
What has guided my career in both business and government is my fundamental view that nothing is provably certain. One corollary of this view is probabilistic decision making. Probabilistic thinking isn’t just an intellectual construct for me, but a habit and a discipline deeply rooted in my psyche. I first developed this intellectual construct in the skeptical environment of Harvard College in the late 1950s, in part because of a yearlong course that almost led me to major in philosophy. I started to employ probabilistic decision making in practice at Goldman Sachs, where I spent my career before entering government. As an arbitrage trader, I’d learned that as good as an investment prospect might look, nothing was ever a sure thing. Success came by evaluating all the information available to try to judge the odds of various outcomes and the possible gains or losses associated with each. My life on Wall Street was based on probabilistic decisions I made on a daily basis.
This was the background I brought to the question of whether we should intervene in Mexico. With an enormous number of competing considerations, the key to reaching the best possible decision was identifying all of them and deciding what odds and import to attach to each–probabilistic decision making at work. Doing that also meant recognizing that our knowledge would never be as complete or perfect as I–or the rest of the team at Treasury–would like. Moreover, even with the most systematic and thorough work, a decision, though informed by the facts and analysis, would never emerge automatically from the yellow pad on which I scribbled notes. The final component of decision making was the intangible of judgment. The process of decision making that we evolved in the Mexican crisis–and that I would use over and over again in my time at Treasury–was familiar to me from my life in the private sector. But the range of considerations was much broader. For example, we had to think about the damage that a failed intervention could do to America’s credibility. If we attempted to help Mexico and did not succeed, our backing would be a less useful tool in some future crisis.
Success had dangers as well. Even if our efforts helped stabilize Mexico, we might create a problem of what is known as "moral hazard." Investors, after being insulated from the consequences of risk in Mexico, might pay insufficient attention to similar risks the next time, or operate on the expectation of official intervention. In Mexico, investors had become complacent, following a herd mentality in buying short-term dollar-linked bonds throughout 1994 without paying sufficient attention to the danger that the central bank’s currency reserves might not be sufficient to maintain their promised convertibility into dollars. We worried that our program to prevent Mexico’s failure might encourage investors to make similar mistakes again in the future.
It was my good fortune to be able to think through these issues with Alan Greenspan and Larry Summers. In our backgrounds, our professional training, and our temperaments, the three of us were alike and very different. Alan is a conservative free-marketeer and an economist grounded in both macro policy and an acute empirical understanding of the American economy. Before entering government, he had his own private-sector consulting firm and traded actively for his own account. He is a precise man with an exceedingly good and understated wit. Larry, whose parents are both Ph.D. economists and who has two uncles who won Nobel Prizes in economics, was one of the youngest professors ever to receive tenure at Harvard. He is a forceful, self-assured theoretical economist with a good feel for the practical, both in politics and in markets. I had a pretty good conceptual understanding of economics, had spent a career in trading operations and management on Wall Street, and had been involved in Democratic politics. People who know me are familiar with my distrust of definitive answers and my habit of asking questions. While our personalities differed, they meshed–perhaps because our analytical approaches to a problem like Mexico proved highly compatible. Equally important was the spirit in which we worked. Though none of us is without ego, there was a remarkable lack of it in our meetings. Each of us tried to work with the others to find the best answer, not to show off his intellect or defend preconceived notions. Another crucial component of our relationship was the mutual trust we developed. For four and a half years, Alan, Larry, and I had breakfast or lunch at least once a week, along with many other meetings and discussions. After I resigned in 1999, Larry and Alan continued the tradition. To the best of my knowledge, nothing any of us said in any of those private meetings ever leaked out. (For this book, they gave me permission to refer to these conversations.)
What People are Saying About This
Destined to be one of the most important books, as well as one of the most enjoyable and enlightening, published in our time.
You must read Rubin on finance as you would read Kissinger on diplomacy...bound to be a future guide for global investors, bankers and finance ministers.
Engrossing and thoughtful.
Forthright and fascinating...Rubin has written the kind of book that important figures in history should write but seldom do.
Bob Rubin takes us behind the closed doors and into the nerve center of Wall Street, the White House, and the Treasury Department during a historic time in the global economy. It's a fascinating and highly instructive tale told by a man who is uniquely qualified to guide us through these monumental political and economic challenges.
[A] gem of a book.
It's a hell of a book. As Secretary of the Treasury, Bob Rubin ranked with the best. This drama-packed account of his years on the job should be read by all who are interested in what happens when politics and economics intersect
Compelling...[Rubin] goes behind the scenes at [the] White House [and] Goldman...a gripping political drama.
Most Helpful Customer Reviews
Very smart. Fun read and interesting to financially minded people.
This is a very useful read. The book provides deep insight into the analysis and difficulty associated with making economic policy, and will hopefully contribute to efforts to deepen debate over the role of government in economic terms. I think many will be shocked by how volatile the international financial markets really are. Beyond the economic issues, Rubin provides lots of insight into the essential differences in government decision-making vs. business decision-making which eludes to the many problems associated with 'privatizing' the government. But the book is dull, and Rubin himself appears unusually dull. The attempts at humor in the book seem forced and uncomfortable. Having spent most of his life in financial services companies, he has rarely/never invested in the markets because he does not feel that the risks are manageable. From this perspective it is difficult for him to pass himself off as a visionary, and therefore 'Rubinomics' seems to be more of a reiteration of traditional macroecomics that something truly new. While some would like more saucy secrets about the Clintons, I was most disappointed with his complete omission of a discussion of the two issues of why he joined Citi and the repeal of the Glass-Steagall Act. It is difficult to imagine that he was for repeal of the act based on his other views, and Citi was the principal short-term benefactor of the repeal. This along with his controversial phone call from Citi to treasury requesting intervention from the US government in support of Citi's interests in Enron is highly questionable, and I think the book would have provided a lot if he had gone into this. I would strongly encourage reading this book for its intellectual value.
Globalization, budget deficits, trade deficits! What does all this mean and how does it affect YOU! This is a must read book for everyone! It examines the importance of global policy and how poor economic policies will cost the future of America. You might not agree with everything he says, but it is a book that easily leads you into the realm of politics/economics. I don¿t think Rubin¿s main goal of the book is to demonstrate what is right and wrong when it comes to economic policies. His main goal is to get people involved in these issues and not let political sweet talks result in bad economic decisions that affects our future.
This book is at once (a) a story of Robert Rubin's career; (b) an exciting rendition of the ideas, meetings, and actions that guided us through several very frightening economic crises that arose on Rubin's watch; and (c) Rubin's views of what is needed to make the world a better place. For me, the (b) aspect was the most fun. No mathematics appear in the book, but a mathematical background on the part of the reader is helpful in understanding some of the ideas and discussion relative to the use of economic parameters, and ideas pertaining to probability estimates. In general, Liberals will probably like Rubin's take on the nature and consequences of the interaction of economics and politics, and Conservatives will not. But the problems were real, and the stories about how they were addressed are exciting and educational. It is obvious throughout the book that Rubin admires President Clinton's intellect and his ability to bond with people. Clinton's personal shortcomings are discussed only to an extent that gives the story flow. The other side of Clinton, the one that was able to fathom the concepts and understand the crises well enough to provide solid guidance at several key junctures, has probably been underappreciated. If the Bush tax cuts end up generating enough revenues to make up for them, then we may be able to say that some of Rubin's reservations about the dangers of supply-side economics are unwarranted. But it may take 10 years to find out.
Rubin¿s observations of the financial markets are generally informative but dull. Disappointedly, his political biases color the usefulness of the book. He is a Clinton apologist of the first order. More space is devoted in the book to his fly-fishing than Clinton¿s impeachment trial, the events leading up to it and the impact it had upon the country. Yet, much space is devoted to criticizing those opposing his socio-economic views. All in all, a forgettable book with little new to offer.