There’s a lot not to like about former Clinton Treasury Secretary and former Citigroup CEO Robert Rubin since, along with former Federal Reserve Chairman Alan Greenspan, these two probably did more than any other two people on the planet to create the mess that we find ourselves in today.
However, there is some small redemption for Rubin given the views he expressed on the Fed’s latest round of money printing last Friday in his address to a forum on monetary policy at the University of Chicago Booth School of Business as detailed in this WSJ story.
“The real issue is, what were the risks and rewards of QE3? There’s a widely held view that the benefits of QE3 have been relatively limited,” Mr. Rubin told an audience that included several Fed officials. At the same time, “these vast flows of capital have gone up the risk curve and created what may well have been excesses, that now as we know are tending to unravel — and that has a destabilizing effect.”
Mr. Rubin also said he is not as confident as top Fed officials who say they can absorb the high level of reserves in the banking system when the time comes to tighten monetary policy by simply raising the rate the central bank pays for holding excess reserves.
“I don’t think there are any magic wands,” Mr. Rubin said.
David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy and a WSJ contributor, then asked Mr. Rubin what the Fed should do about monetary policy at the current juncture.
Mr. Rubin’s answer elicited laughter from the room of Wall Street and hedge fund economists: “I think I would do what the Fed seems to be doing, but I don’t know what the Fed is doing. I hope they know what they’re doing.”
A much better response to Mr. Wessel – and an answer that I probably won’t ever forget – came from GMO’s Jeremy Grantham who, when asked a similar question some time ago quipped, “Well, I wouldn’t start from here.”