Every firm in New York wanted Rubin’s golden name, but Sandy Weill of Citigroup pursued him relentlessly with just the right offer: Rubin would sit at the top of the bank’s empire as chairman of the executive committee, the in-house consigliere, shaping strategic decisions but bearing no responsibility for day-to-day operations. For this he would be paid fifteen million a year in salary and guaranteed bonus plus stock options (he was a reasonably commercial person), and he would get to use Citigroup’s corporate jets for fishing trips and other expeditions. (Citigroup, the world’s largest financial services company, had been created the year before from the merger of Citicorp and Travelers, a deal that would not have survived under Glass-Steagall, but Glass-Steagall no longer existed, though Rubin had nothing directly to do with its repeal and no one could justifiably accuse him of being paid back handsomely by Citigroup, though critics inevitably did.)
Rubin fished and read and advised senators and talked with foreign leaders and wrote his autobiography while he ran meetings of Citigroup’s executive committee. He was a wise man, and his hair remained thick and his body thin. He had fingers in all parts of the establishment, joined the boards of Ford, Harvard, and the Council on Foreign Relations, became an important figure at Brookings, advanced the careers of his many disciples in business and government. He warned against fiscal recklessness and short-term investing. He basked in the glow of the longest economic expansion in American history, even as it faded out.
For it turned out that Rubinomics had not made much difference after all. The years 1993–99 barely slowed trend lines that had been in place for a generation. Between the late 1970s and 2007, years when Rubin held positions in senior management at Goldman Sachs, the White House, the Treasury Department, and Citigroup, the financial sector grew spectacularly, and the rules and norms that had kept it in check collapsed. Financial companies doubled their share of corporate profits in America, and salaries in finance doubled as a share of national earnings. The top 1 percent more than tripled its share of national income, while the income of those in the middle rose by only 20 percent, and the income of those at the bottom stayed flat. By 2007, the top 1 percent owned 40 percent of the nation’s wealth, the bottom four-fifths just 7 percent. The period when Rubin stood at the top of Wall Street and Washington was the age of inequality—hereditary inequality beyond anything the country had seen since the nineteenth century.
In his capacity as resident wise man, he urged Citigroup, as he had once urged Goldman Sachs, to take more trading risks with its huge balance sheet. He also advised that the risks needed to be carefully managed. After that, he didn’t pay much attention while, between 2003 and 2005, Citigroup tripled its issuing of collateralized debt obligations and mortgage-backed securities stuffed full of bad loans from places like Tampa, where people whose incomes had been flat for years had all their wealth in their houses and used them as cash machines. By late 2007, the bank had forty-three billion dollars in CDOs on its books.
Most of it turned out to be worthless, and in 2008, when the financial crisis hit, Citigroup practically became a ward of the state. Its losses reached sixty-five billion, it needed two huge helpings of bailout money, and it was the only bank that the U.S. government seriously considered nationalizing.
Rubin had spent his career trying to harmonize his and Wall Street’s interests with America’s, and when that became impossible in 2008, he disappeared. He refused almost all interview requests, and on the few occasions when he spoke publicly, he brushed aside any blame. “I don’t feel responsible, in light of the facts as I knew them in my role,” he said. “Clearly, there were things wrong. But I don’t know of anyone who foresaw a perfect storm.” Even Alan Greenspan admitted that he had been wrong, but the pride that had always been masked by humility would not allow Rubin to do it.
In January 2009, having earned $126 million for his decade of advice, doubling his net worth, Rubin resigned his position at Citigroup. In April 2010, he was called to testify before the Financial Crisis Inquiry Commission in Washington. The panel included Brooksley Born, and when she asked Rubin about regulating derivatives, Rubin hastened to agree with her every word. He did not appear calm and steady. Sitting in his rumpled suit at the witness table, he looked anxious and red-eyed, as if he hadn’t slept well. He explained to the commission, “The executive committee of the board, which you just referred to my being chairman of, was an administrative body. It didn’t have a decision. What it did was it met between board meetings. Those meetings were very infrequent. And it wasn’t a substantive part of the decision-making process of the institution.”
“I don’t know that you can have it both ways,” said Philip Angelides, the chairman of the commission. “You either were pulling the levers or asleep at the switch.”
Rubin said that, as a board member, he couldn’t have known all the positions held by the biggest bank in the world.
“You were not a garden-variety board member,” Angelides replied. “To most people, chairman of the executive committee of the board of directors implies leadership. Certainly, fifteen million dollars a year guaranteed implies leadership and responsibility.”
Rubin mentioned that he had refused a bonus in 2007 (not out of any sense of guilt, but selflessly, so that the bank could use the money for other purposes).
Angelides said, “You’ll be the only one in the end who can make an assessment of your responsibility.”
When the three-hour hearing was over, Robert Rubin hurried from the room.
JEFF CONNAUGHTON
Connaughton didn’t notice the bubble. In 2007 he sold his Mexican condo, tripling his purchase price for a huge profit. With that and his big payday from the firm’s sale, he began looking for another vacation property, another condo to flip. He kept hearing about a stretch of coastline in Costa Rica called Mal País, a surf paradise with world-class beaches. Gisele Bündchen, the Brazilian supermodel, had built a house there, and it was becoming an off-the-map vacation sanctuary for Hollywood stars. Prices were soaring. He flew down that summer and looked at a pair of spectacular adjacent properties on a hillside over the Pacific. He decided to buy both, thinking to build a house on one, flip it, and, with the profit, build a villa for himself on the other lot.
One of Connaughton’s clients at Quinn Gillespie was Genworth Financial, a private mortgage insurer. People there began telling him about an epidemic of foreclosures around the country. They warned him not to buy real estate until 2009 at the earliest. Biden was running for president again, and Connaughton joined the campaign and traveled to Des Moines, where a city councilman told him that one of the top three issues in Iowa was foreclosures. Connaughton relayed the message to a Biden staffer: the growing housing crisis should be a focus. (In the seventies, when Biden was still a freshman senator, Hubert Humphrey advised him, “You have to pick an issue that becomes yours. You should become Mr. Housing. Housing is the future.”) The idea went nowhere. The candidates weren’t talking about foreclosures.
Connaughton ignored the warnings, too. In the fall of 2007, at the top of the market, he closed on the Costa Rican lots for almost a million dollars. He knew that the land was overvalued, but he expected it to become even more so. When the price of Dutch tulips is doubling every month and you think you can get in before it quadruples, is that rational or irrational behavior? “It was greed,” he said.
For fifteen years, Connaughton had raised more money for Biden than anyone else in Washington, and he joined Biden’s second presidential campaign as treasurer of its political action committee, Unite Our States. The effort was doomed from the start. Biden was basically winging his stump speech, which was essentially his résumé—outstanding at one stop, disjointed the next. And he still hated the money game. When a young staffer got into his car one day, holding a list of names, and announced, “Okay, Senator, time to do some fundraising calls,” Biden said, “Get the fuck out of the car.” He believed that strong debate performances would bring him more money than persona
l calls. The politician who had converted Connaughton to his cause thirty years earlier with a speech in Tuscaloosa was a consistently powerful presence onstage with his more popular rivals, Hillary Clinton, John Edwards, and Barack Obama. But he was nowhere in the polls.
Connaughton spent December in Iowa. Every two years, members of Washington’s permanent class migrated to various spots around the “real America,” where “real people” lived, and campaigned for their team. They built chits that way, and they got back in touch with what it meant to be a member of a party. In 2000, Connaughton held a Gore sign at an intersection in Wassau, Wisconsin, at six in the morning, while all the black motorists and half the women gave the thumbs-up, white men shot him hateful looks, and a school bus driver with a load of children in back actually flipped him off. In 2004, he spent three weeks knocking on doors around South Dakota for Tom Daschle, the Senate minority leader—ten hours a day, bone-tiring work. The poverty shocked him: many trailers in Rapid City had rotted-out floors exposing the dirt below. The nicer mobile homes were voting Republican: “Daschle’s gone Washington.” He met Lutheran women who thought the senator’s position on abortion was hypocritical—one thing in South Dakota, another in Washington—and who were so passionate that they came closer to converting him than he did to converting them. Abortion was one of the very few issues that could blow up on a politician back home—no one knew or cared how a senator voted on the Private Securities Litigation Reform Act.
Near the Pine Ridge reservation, a Native American woman told Connaughton, “You only care about us once every four years.” It burned a hole right through him because he knew it was true—the plight of people like her moved him every presidential election cycle, and then he forgot about them. He tried to organize a donation of computers to community centers in the poor areas, but no one in the Daschle operation followed up. Out here in the middle of the country he felt no energy, none of the entrepreneurial spirit of the coasts and big cities, as if all the molecules had come to a rest. At night he would collapse at his hotel, where the bar was crowded with Washington lobbyists who were temporarily in South Dakota for the same reason. That November, Daschle lost.
On the campaign trail in 2007, Connaughton began spending occasional time with Biden. Once, before a fundraising event, they were alone together—Connaughton mustering his usual smile, saying how good it was to see the senator, crisply informing him about the group he was about to address. Biden suddenly looked at Connaughton with a question in his eyes, as if to ask, “Why are you like this with me? Why aren’t we friends?” And he even started to say something. “Why are you, why can’t we…?” Connaughton left Biden’s words hanging in the air. In three seconds the hosts would walk in, and, more than twenty years after “Just gimme what you got,” there was too much to say, and it was probably too late.
A campaign like Biden’s was an exercise in collective self-delusion. Ted Kaufman, who was a senior adviser to Biden, told Connaughton, “In a presidential campaign, you’re either faking it or you’re dead.” On January 3, 2008, Connaughton monitored the Iowa caucus vote at a high school near Waterloo. About eighty people stood in Barack Obama’s corner, sixty in Hillary Clinton’s, and six in Joe Biden’s. He finished fifth in Iowa, with 0.9 percent, and dropped out that night. He requested from his staff a list of the people who had helped his campaign the most. Connaughton ranked third.
He had been faking it for a long time, and what he felt was overwhelming relief. He closed an imaginary ledger on three decades of his life. He was done with Biden.
Later that month, Connaughton flew down to Costa Rica and went out for dinner with his architect and an American developer. The developer had just come from meetings of the loan committees of Lehman Brothers and Merrill Lynch in New York. “Both companies are technically insolvent,” he said.
“What? I don’t believe it,” Connaughton said.
The developer explained that the banks were sitting on assets whose current value was exceeded by their liabilities. Connaughton still resisted. If it was true, everything he had learned in business school about efficient markets, everything he had learned in law school about the standards of disclosure at banks, about the professional duty of the lawyers and accountants they hired to reveal material information and protect investors, was bullshit. He believed in those institutions—he had to.
“I predict we’re going into a three-year recession,” the developer went on. Connaughton continued to argue. Much later, he wished that the man had reached across the table, seized him by the jacket, and shouted, “I know you just met me, but think hard about this: both firms are technically insolvent. Believe me, you need to act! Sell everything you own before it’s too late!”
When he returned to Washington, Connaughton picked up a new book titled The Trillion Dollar Meltdown, by a former banker named Charles R. Morris. It argued that overleveraged banks and debt-strapped consumers with unaffordable mortgage payments were creating a credit bubble that would soon pop and create a global financial calamity. Connaughton read the book and tossed it aside.
That March, Bear Stearns failed. Connaughton kept an eye on his stocks, where he had most of his wealth in a globally diversified portfolio. The markets were falling, but not precipitously. He expected at most a 10 percent correction. It was never easy to time getting out and back in just right. He stayed put as the Dow dropped toward 10,000.
In September, Lehman Brothers went bankrupt, the rest of Wall Street poised to perish with it. Charles R. Morris’s meltdown—now two trillion dollars—happened faster than anyone could have imagined. Within a few months, Connaughton’s stock portfolio and his property in Costa Rica had lost almost half their value.
But during the same months, his political stock rose to its peak. On November 4, Joe Biden was elected vice president of the United States. By the end of the year, Connaughton was headed back into government.
TAMMY THOMAS
In early 2008, a little over a year after Tammy lost her job at the factory, a man named Kirk Noden asked her to meet him for coffee. Noden was a professional organizer. He had grown up not far from Youngstown, gone to college at Kent State, and worked organizing neighborhoods in Chicago and Birmingham, England. When he returned from overseas in 2006 and came to Youngstown, he tried to do what he had done in other places, following the Saul Alinsky model of community organizing: round up the troops in your group, march down to city hall or the local developer’s office, and shake the tree to get resources for the neighborhood. That approach came out of an earlier era, the middle of the twentieth century, when power was more consolidated and centralized in the cities. After a year of trying, Noden realized that the model was irrelevant in Youngstown. There were no resources to be shaken loose. The tax base had collapsed. The mayor had very little power. Industry was a ghost of its former self. The centers of power were elsewhere—in some ways, they were spread around the globe. Youngstown was so damaged, beyond anything he had expected, that it forced Noden to think in a new way.
He consulted with the Wean Foundation—old steel money from Warren—which, unlike other elites and institutions, had moved beyond nostalgic illusion and was pursuing rather radical ideas for the resuscitation of the Valley. In the summer of 2007, Noden and Wean decided to start a new community organization, the Mahoning Valley Organizing Collaborative, which would become the basis for a statewide effort to fight the causes of decline—the loss of jobs, inequities based on class and race—as well as the effects. All the large institutions in Youngstown were distrusted, because they had failed: industry, unions, banks, churches, every level of government. The only way to bring about change in the Valley was block by block.
Noden began looking for organizers to hire ahead of the formal launch in the spring of 2008. Joel Ratner, the president of Wean, told Noden about a woman he had met through her work at the Salvation Army, where she was leading workshops for single mothers in an internship funded by the foundation while pursuing her bachelor’s degre
e in sociology at Youngstown State. “You ought to meet her,” Ratner said. “She might be a gold mine.”
Noden got in touch, and he and Tammy arranged to meet one April afternoon at the Bob Evans restaurant near her house.
The first thing Tammy noticed as Noden drank his coffee was that this fresh-faced white guy looked like a thirteen-year-old (he was in his thirties). When he mentioned the possibility of a job at a new organization, she was skeptical. She still had a year to go for her degree, she was struggling in her classes, and to be honest, she was already a little disillusioned with the world of social services. There was so much infighting—they seemed to be about maintaining their existence instead of serving folks.
Noden explained what it would mean to be a community organizer: she would teach other people to hold those in power accountable. It was something Tammy had never imagined doing. “What do you mean?” she said. “This is the kind of place where the congressman goes to jail, the sheriff goes to jail. You’re going to hold them accountable?” And then she thought about it and added, “Somebody does need to do it.”
Noden asked about her childhood, the neighborhood she grew up in, did she remember the mills, what was it like to work in the factory while raising three kids. She wasn’t used to talking about herself this way but she did her best to answer his questions, saying how her neighborhood had been safe when she was coming up because of the mob, how that changed with the street gangs and crack—though she assumed he knew some of the answers already.
And what made her angry?
Well, people liked to say the east side looked like Beirut, and she would think—without saying—“What do you mean? This is where I’m from.” And she told him, “I’m pissed that I have to raise my kids, get them educated, and get them out because there’s no opportunity here.” Her older daughter was living in Orlando, her son was thinking of moving to North Carolina, and the younger daughter wanted to go live with her sister. After the Delphi buyout the girls tried to get their mother to move to Florida. “I am going to have to get on a plane to go see my kids. It shouldn’t be like that. They should be able to grow up and buy a home in this community. My grandmother worked too hard for my neighborhood to look the way it does. She cooked and cleaned in a lot of houses and now they’re going downhill. I remember when I was little my grandmother would take me downtown to go shopping.”
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