Panel with Robert Rubin & Laura Tyson – Finance at a whole other level

Mellody, Robert Rubin and Laura Tyson

Mellody, Robert Rubin and Laura Tyson

Rubin: The most complex uncertain and dangerous time.  What happened was, cyclicality & other forces have combined with a crisis of confidence & anxiety/uncertainty to create a perfect storm.  Greenspan refers to it as a “100 year event”.

 

Recommended reading: Rubin’s book to explain what’s happening now

Laura Tyson: historical perspective: from 2002-2007 – we had the biggest economic expansion in our history combined with very slow employment growth.  The rich got richer, but the median family got squeezed.  In addition – American families didn’t save very much.  Rather, they borrowed against their homes.  Most of America didn’t participate in expansion  Also – it was a big factor that new financial products came out – leverage credit default swaps – that were fully “insured” against risk, but there was no regulation against the insurance.  Plus – the sub-prime mortgates got a AAA rating to make investors feel even more secure in their acquisition of these securities.

Recommended watching This American Life: Planet Money.  Does a great job of making this all understandable

Question: now that the $700B has been authorized, how to work with it.  Analogy they made was that it’s like building the plane while flying it.

Rubin suggested that they’ll do the best they can with but will be imperfect at best.  However, in years from now, pundits will look back and “predict the past with perfect accuracy”.

Suzi observation: it’s such an interesting challenge for Hank Paulson – there’s so much distrust in power because of its abuse throughout Bush’s presidency – but that Paulson needs some flexibility and authority so that he can act swiftly.  Shared that the expansive jurisdiction given to Paulson in the bailout bill was actually crafted by the members of congress.

They pointed out that a large part of the $700B will be an infusion of capital and that the treasury is going to buy back the distressed inventory.  Tyson also believes there needs to be an economic stimulus package. 

Question from the moderator: What would they tell Obama to do first?

Mentioned that congress will probably have to come back.   Also thinks that, just after the election, there will be a place to involve the Obama team prior to the election.  Historical perspective – FDR wasn’t inaugurated until March, but let Hoover stew in his mess until he came into office rather than helping in the lame duck months.

 Tyson liked Obama’s priorities:

  1. Financial crisis
  2. Stimulus
  3. Energy

Ask whether we were in a depression?

Crisis is also a crisis of confidence – not just a substantive problem.

Rubin different points:

  • The credit market is a bigger issue than the stock market.
  • There are usually mechanisms that right the boat on their own (and we don’t always know how or when they’ll work).  Ie – in Mexico. 
  • Middle class vision remains the key.  The pressure on the middle class has to be alleviated.

Moderator question: what should Obama’s “moonshot” be?

Energy alternatives & efficiency.  Also has to solve healthcare. 


My question: what’s the elevator spiel on what Obama will do for the economy:

  • We need to jumpstart the economy now – we need to spend money to grow our economic demands – need to solve the financial crisis, but have to also get things going forward!
  • Analogy of why we need to not waste our time pointing fingers:
  • If your house is burning down, you have to put the fire out before you investigate how it started.  Will ultimately need to:
  • Reduce systemic risk and still optimize for market based economics.  One thing that makes this especially hard is the influence of interest groups. 

Rubin pointed out that there’s no such thing anymore as “too big” to fail – now it’s “too interconnected” to fail.

Tyson recommended Lawrence Cartells book on the US economy and pointed out that the book shows that the US economy has grown more under democrats and is much more evenly distributed across income levels.  Also talks about the 1990s big expansion (under Clinton).

Question from the audience about tax code not benefiting business

Tyson responded that our global competitiveness isn’t based on our tax rates.  The longer term solution is innovation & education, not lowering our tax rates.  After this crisis, we will need people to have a more savings oriented mindset, – consume less and save more.

Rubin: 7.5 years of lowering taxes instead of investing in our future has gotten us where we are.

 

 

 

Moderator’s final question: what is your 1 piece of advice to Obama:

  • Tyson: Keep sight of your vision
  • Rubin: Sequence carefully and put forward that which is attainable

 

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