Ex-Treasury Secretary Assesses Recession Risk

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Former Treasury Secretary Robert Rubin says he is in favor of a stimulus package to address recent turmoil in the U.S. economy, but he warns that people should be cautious about using the word "recession."

The current director and chairman of the Executive Committee at Citigroup speaks to Michele Norris about the economic downturn.

In the Financial Times Wednesday, billionaire financier George Soros writes that a recession in the developed world is all but "inevitable." Do you agree with that assessment?

There are a lot of different views on that, and there are some people who think that it's a high probability [and] other people who think that it's more likely we'll have a relatively sharp slowdown, but that we'll avoid recession. I really don't know. I've been around these things for a long, long time, and I think it's very hard to judge exactly what's going to happen. But what I do think is that the risks have gotten high enough so that what our political system should be doing is acting very proactively to try to minimize the probability of recession, and if we have recession, to try to keep it as short and shallow as possible.

So if we are headed into a downturn — you hear the word recession batted about almost every day now — how severe might it actually be?

I think people need to be careful about the language that they use. I think almost all economists agree that the economy is slowing down. Where people differ is whether that's going to remain a slowdown but something short of the kind of more serious slowdown that's often characterized as a recession, or whether we really do get into serious difficulty. And I think it is impossible to have a judgment that you're going to have a very high level of confidence in, but I think what one can say with a fair measure of confidence is that the risk has increased.

And it's gotten to the level which calls for policymakers to be very active in all of the various ways they can be to try to address these risks and minimize the probability of serious difficulty — or if we have it, minimize the severity and length of that difficulty. And that means the [Federal] Reserve Board and it also means the administration and Congress [will need to act] in a whole host of areas including, but not limited to, the stimulus that's now being discussed.

Is it possible that a stimulus package, in this case, just won't get things done?

I think that if they put in place a stimulus that is well constructed and if they do it quickly, and if it's really focused on trying to have an effect now and getting the greatest effect that they can get for the dollar[s] they spend, I think it will almost surely have a meaningful effect.

I just want to be clear I understand you. If you were whispering into the president's ear, as you have done in the past, what would you be telling him?

I would say to him that we should have a stimulus in the area that they're talking about, which is somewhere — they're talking about $140 billion, I believe — but anywhere from $100 billion to $140 billion. I believe a good part of it should be tax rebates that are focused predominantly on lower- and middle-income people. I think ... the full rebate should go to the 50 million low-income workers who pay payroll taxes but, in some cases, don't pay any income taxes, in other cases, pay very small income taxes.

And I think you probably also should have some measures in there that would also have very immediate effects such as extending the unemployment insurance time, additional food stamps, measures of that kind that will have effect on ... the demand of the economy right away.

Difficult question to ask to you in particular, but do you feel any personal responsibility for what we're seeing right now because of Citigroup's involvement in the mortgage market or because of Wall Street's involvement or posture overall?

[T]his is really sort of a current manifestation, if you will, of what has been the whole history of financial markets, which is one of excess leading disruption. And then, it seems to me, the key, once these things happen, is to focus quickly, both within each institution and also systematically in terms of our overall economic system, and try to address the immediate problems.

I ask the question not necessarily because your hands were on the levers, but you're seen as one of the wisest of the wise men on Wall Street. And I wonder if you ever wish that you had perhaps spoken up or raised this issue?

I actually did raise them for years in my speeches. If you go back over the speeches I gave for the three or four years before this occurred, you'll see a lot of reference to the underweighting of risk and the developing of excesses. But if you're running trading rooms, you've got to run them every day and you've got to be in the business every day. And the kinds of views that others have around you of that kind may factor into what you're doing. But fundamentally, you can't go out of business. You can't stop doing business. And that's how the system just continues to move along that way.

Also, you can be very wrong about those judgments. Alan Greenspan in 1996 very famously said the markets are experiencing irrational exuberance. I happened to agree with him at the time. I thought so, too, but the Dow went up 50 percent from that level and never came back down to that level again. So I think the answer to your question is there were quite a few people, and I was one of them, who had these concerns and expressed them. But if you're actually running businesses, which I did at one time [20 or more years ago], you can listen to all that but fundamentally you've got to be in there every day, engaging in what's going on. Otherwise, you're not in the business.



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