Rubin to Fed: Examine Roots of Credit Crisis

The Federal Reserve took historic steps earlier this week to save investment bank Bear Stearns, in an effort to stop panic from infecting Wall Street. But the credit crisis isn't just a problem for the investment community, says former Treasury Secretary Robert Rubin, it is also "a Main Street problem" that could affect all Americans.

As such, Rubin says policymakers must examine the series of events — and the failures in the regulatory process — that led to the current crisis of confidence in financial markets in order to prevent a similar crisis in the future.

"There were a goodly number of observers who felt over the last three, four, five years that excesses may well have been developing in the financial markets ... but I don't know of anybody who foresaw the combination of circumstances that has occurred here," says Rubin, who serves on the executive committee of Citigroup, another financial institution hit by losses in the mortgage market.

Rubin cites the confluence of events that allowed things to spin out of control — including historically low interest rates and ratings agencies that gave top marks to complex financial instruments with risks that weren't clearly understood. The market relied on those ratings.

"All evidence suggests that should not have been done," he tells Renee Montagne.

"The question," he says, "is what can we learn from this and what do we do moving forward?"

According to Rubin, although the Fed has taken various steps to calm skittish investors and lenders, and Congress has adopted a stimulus plan, the risk of worsening financial conditions is such that policymakers should be proactive and aggressive in addressing the situation.

"If it were only a Wall Street issue, I don't think anybody would be terribly worried about it except people on Wall Street," he says. "But if there are problems in the credit markets, and if credit extenders aren't willing to extend credit, and mortgage availability dries up, that affects vast numbers of Americans. And that's what all this is about, that is the focus of these various policy measures by the Fed."