Skip to main content

Bob Is My Co-Pilot?Robert Rubin Called Fed Chief The Day After The Fed Refused To Cut Rates In August

  • Author:
  • Updated:

What has happened to Ben Bernanke? The supposed inflation hawk who everyone said was hellbent on overcoming the inflationist tinge attached to the nickname Helicopter Ben seems to have undergone some sort of road-to-Damascus conversion to the “punch bowl caucus” faith, the Central Tenant of which now proclaims that Solution To The Problem of Bad Debt Is More Credit.
In early-August he was one of those guys who famously drove Jim Cramer to pound the desk while hollering “They know nothing!” Ten days after the August meeting, however, he cut rates at the discount window and a month later the Fed cut its Fed Fund’s target rate beyond the expectations of most investors and economists. It’s widely expected to cut rates again at the end of October.
How did Bernanke go from knowing nothing to faithfully adhering to punch-bowl orthodoxy? Presumably didn’t receive the new faith from watching “Stop Trading” on CNBC. So who got to Bernanke?
New reports reveal that the day after the Fed’s August meeting, he got a call for Robert Rubin. The former Treasury Secretary who is now chairman of the executive committee at supposedly told Bernanke he did the right thing by not cutting rates in August. But we’re not sure what else he said. And we’re frankly quite skeptical about the notion that Rubin just calls the Fed chief to tell him he’s doing a great job.
Rubin has long been a backer of Wall Street bailouts. He engineered the Mexico bailout in the mid-nineties, the Korean bailout of the late nineties and was widely believed to have had a hand in the bailout of Brazil in 2002. (He’s also said to have made some calls on behalf of Enron suggesting to that maybe Moody’s shouldn’t downgrade the company.) Of course, in each of these bailouts, much of the money that was at risk in the debt and currency crises was owed to Wall Street.
So what else did Rubin tell Bernanke? Citigroup won’t comment on the conversation. So, you know, maybe he really did just call to say “Good job, buddy. Keep it up.”
Besides, there’s probably no need to pin it all on Bailout Bob. Bernanke's schedule lists 35 Fed conference calls from Aug. 9 to Aug. 31, including at least two during the central bank's summer retreat at Jackson Hole, Wyoming, according to a report based on information obtained under the Freedom of Information Act by Kenneth H. Thomas, a lecturer at the University of Pennsylvania's Wharton School in Philadelphia, and first reported on by Bloomberg. And we all know that there are plenty of guys like Robert Rubin hanging around, people who can do things like get on calls with Ben Bernanke, and who seldom sway from the punch-bowl faith.
Bernanke Spoke With Rubin as Credit Crisis Worsened [Bloomberg]