Ex-Currency Trader Rubin Is Still Making Bets

Treasury Secretary Robert E. Rubin borrowed a page from his days at Goldman, Sachs & Co., catching traders off guard last week by selling billions of dollars to halt the slide of the Japanese currency.

It was a perfect trading-floor move. In the days before the move, Rubin had suggested he wasn’t about to prop up the yen. Then he struck--sending the dollar skidding as much as 6% for its worst one-day loss since 1994.

The stakes are far higher, though, than Rubin’s risking the capital of the world’s biggest investment banking partnership. Currency traders could spoil his bet that the U.S. can help Japan and other Asian nations by braking the yen’s decline.

“Rubin realizes what he’d have sacrificed in terms of credibility if this doesn’t work,” said Pierre Ellis, senior economist at Primark Decision Economics Inc. in New York. “This would not have been allowed to happen unless he believed there was some sort of a fundamental change in Japan that would stop the dollar’s rise against the yen.”

In many ways, Rubin, 59, is the right man at the right time, analysts say. Now that the Cold War is over, economic and financial issues have moved to the forefront as countries compete for investment, not territory. And that’s why Rubin is one of President Clinton’s top advisors.

“Financial issues now have a much more direct impact on political and social stability,” said Robert Hormats, who held posts in the Carter and Reagan administrations and is now vice chairman of Goldman Sachs. The U.S. is “the preeminent financial power. We’re the central mobilizer of resources. Bob Rubin, given his background in the financial markets, occupies the central role. He’s really at the top.”

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Hormats called Rubin “the most significant player on the global financial scene since [Henry] Morganthau,” who was President Franklin D. Roosevelt’s Treasury secretary during the Depression and World War II.

Rubin was co-chairman of Goldman Sachs from 1990 until he joined the Clinton administration as head of the National Economic Council in January 1993. He earned his spurs by persuading Clinton in 1993 to abandon an election-year pledge to raise spending and instead push for an austere budget aimed at bringing down the federal deficit.

Bond investors applauded the move, and U.S. interest rates fell, giving a boost to an economic expansion that continues to this day.

Rubin became Treasury secretary in January 1995 after Lloyd Bentsen retired. It wasn’t an easy time to take over currency policy. The dollar was trading at 125 yen when Clinton took office on Jan. 20, 1993. A month later, Clinton and Bentsen started talking about how a weaker dollar would help the U.S. shrink its trade deficit with Japan.

Traders took them at their word. They started selling dollars, and the currency plunged. It took eight currency market interventions by the U.S. and other nations to push the dollar higher.

Given the huge stakes involved in currency and other financial markets, it’s no wonder that Rubin watches what he says. He tells a story about a time when he was co-chairman at Goldman: As he was walking by the currency desk, he said that he thought the gold market looked interesting. He later learned that based on those comments, traders took a big position in gold.

That experience taught him it’s important to be careful about what he says. Rarely, for example, does he acknowledge that he meets weekly with Federal Reserve Board Chairman Alan Greenspan. And he never talks publicly about what’s discussed.

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Early in his term as Treasury secretary, Rubin won a battle to be the only one in the administration permitted to talk in public about the dollar. Another rule is that no one in the Clinton administration is allowed to criticize Greenspan and the Fed. On Rubin’s desk in his office at the Treasury is a sign that reads, “The buck starts here.”

Rubin likes to stick close to home. He never formally moved to Washington and lives during the week at a hotel. On weekends, he commutes to his Manhattan townhouse or his home in Westchester, New York. His wife, Judy, who was an aide to former New York Mayor David Dinkins, remains in New York.

One thing Rubin will never be known as is a fashion plate. He wears only solid blue or blue pinstriped suits and white button-down shirts. He has a habit of leaving his suit coat buttoned at all times, even when sitting or relaxing on a couch.

He’s also not much for contemporary culture. He didn’t recognize Aretha Franklin when she sang at the White House. In an Oval Office conversation about the singer Jimmy Buffett, Rubin expressed puzzlement, aides say, and asked if the singer was financier Warren Buffett’s son.

The secretary’s performance so far “sets a high standard” for the job, said Greg Mastel, vice president at the Economic Strategy Institute in Washington.

With the fate of the Chinese yuan more important than Chinese missiles right now, “oftentimes the State Department is a less important force,” Mastel said.

Mastel said Rubin has benefited by picking his spots. “In terms of China, Russia, Japan, he concentrates on the economic major issues. He’s not going to wade in and solve all the problems” in the U.S. relationship with those countries.

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Richard Haass, a member of President Bush’s National Security Council who is now director of foreign policy studies at the Brookings Institution in Washington, said the notion that the Treasury now runs foreign policy is “fashionable but wrong.”

“We still face a whole menu of threats from the potential for major conflicts,” including the Korean peninsula, the Persian Gulf and terrorism, Haass said.

Although he has won praise from Wall Street investors for the way he’s handled international crises, Rubin hasn’t won all his battles. He lost in the effort to keep full control of the IRS under the Treasury. He’s advocated $18 billion in additional funding for the International Monetary Fund without results so far. And he also was a strong advocate for the president’s fast-track trade authority, without success.

Time will tell whether last week’s shocker for currency markets proves to be a winner or loser.

The Treasury secretary offered only a limited explanation about what looked to be his flip-flop on the intervention issue, saying the dollar sales were made “in the context of Japan’s plans to strengthen its economy.” That’s a sign he’s willing to bet Japan is now more serious about dealing with its economic problems.

Still, he knows as well as anyone that there are no guarantees. “What I have said consistently and is my strongly held view is that, ultimately, currencies follow fundamentals,” Rubin told reporters at the White House on Thursday. “And that is going to be true in Japan as well. And Japan has to deal with fundamental problems.

“The key then becomes their actions and taking the very difficult steps that they’re going to have to take to deal with the very large challenges they have. And that is what this is all going to be about in the final analysis.”