Rubin’s reputation dimmed after the U.S. bailed out New York-based Citigroup with $45 billion and American International Group Inc. had to be propped up because of losses on derivatives. When Rubin was President Bill Clinton’s Treasury secretary, he fought efforts to regulate derivatives.

Greenspan in October 2008 told House lawmakers that the financial crisis revealed a “flaw” in his free-market ideology. Greenspan, who stepped down as Fed chairman in 2006, said he was “partially” wrong for opposing oversight of derivatives.

  

Citigroup Adviser Rubin Said to Face Queries From Crisis Panel

By Ian Katz and Jesse Westbrook

 

Feb. 27 (Bloomberg) -- Robert Rubin, the former U.S. Treasury secretary who later advised Citigroup Inc. as the bank piled up subprime-mortgage losses, may soon face his first public grilling on the 2008 financial crisis.

The Financial Crisis Inquiry Commission, investigating the worst economic slump since the Great Depression, plans to ask Rubin to testify in April, said two people with knowledge of the commission’s decisions. The panel may summon former Federal Reserve Chairman Alan Greenspan and former Citigroup Chief Executive Officer Charles O. Prince in its review of companies and regulatory lapses that fueled excessive speculation in the real-estate market, said the people, who declined to be identified before the hearings are announced.

Rubin, 71, has been perceived as “bullet-proof” because his Citigroup job was “framed as if he was only there to give advice,” said Charles Geisst, author of “Wall Street: A History” and a finance professor at Manhattan College in Riverdale, New York. “Unless they’ve actually got some stuff where he advised on some surreptitious deal that went bad or his advice was purposely misleading, they’re going to have a very difficult time with him.”

Rubin’s reputation dimmed after the U.S. bailed out New York-based Citigroup with $45 billion and American International Group Inc. had to be propped up because of losses on derivatives. When Rubin was President Bill Clinton’s Treasury secretary, he fought efforts to regulate derivatives.

FCIC Chairman Phil Angelides and Vice Chairman Bill Thomas, in an interview Feb. 25, wouldn’t confirm whether Rubin will be asked to appear. The commission, created by Congress, plans to seek testimony from those who’ve been “major leaders” in government and on Wall Street, Angelides said.

‘Major Participants’

“It is striking the extent to which many major participants in this meltdown have not been called upon to answer questions either in public or private,” Angelides said.

Rubin, through an aide, declined to comment. Greenspan, 83, through his assistant, said he would be pleased to testify if asked. Prince, 60, declined to comment through a spokeswoman.

The request for Rubin and Prince to testify may show the FCIC is focused on Citigroup, which has lost $23.9 billion since 2008. Citigroup investors including Smith Asset Management’s William Smith criticize Rubin for collecting more than $110 million in pay over a decade while failing to steer management away from decisions that triggered losses.

Rubin, chairman of Citigroup’s executive committee from 1999 until 2008, became the bank’s chairman for five weeks after Prince resigned in November 2007. Rubin retired as senior counselor to the bank in January 2009.

Rubin, Obama

Barack Obama named Rubin to be an economic adviser during the 2008 presidential campaign, and two Treasury protégés, Lawrence Summers and Timothy Geithner, are top officials in the White House. Summers, 55, is chief economic adviser and Geithner, 48, is Treasury secretary.

When Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein, JPMorgan Chase & Co. CEO Jamie Dimon, Bank of America Corp. CEO Brian Moynihan and former Morgan Stanley CEO John Mack testified to the panel last month, no one from Citigroup appeared.

Former U.S. Securities and Exchange Commission Chairman Harvey Pitt said the hearing was a “parade of soundbites” that failed to shed light on why companies such as Lehman Brothers Holdings Inc. failed, and U.S. taxpayers had to spend $700 billion rescuing the financial industry.

Thomas and Angelides said the first hearing was an introduction before the staff completed extensive probing and investigation. That will change as the panel examines additional companies and individuals, the two men said.

‘Hard Slog’

“We had our initial hearing and now we are in the hard slog of the research and investigation,” Angelides said. “The hearings will be stops along the investigatory trail.”

In the late 1990s, Rubin as Treasury chief and Greenspan as Fed chairman successfully blocked attempts by Brooksley Born, head of the Commodity Futures Trading Commission, to study regulating over-the-counter derivatives. Born is an inquiry commissioner.

Congress passed a law in 2000 keeping over-the-counter derivatives unregulated. That allowed for rapid growth in products such as credit-default swaps, contributing to the $1.7 trillion in losses banks have suffered since 2007.

Greenspan in October 2008 told House lawmakers that the financial crisis revealed a “flaw” in his free-market ideology. Greenspan, who stepped down as Fed chairman in 2006, said he was “partially” wrong for opposing oversight of derivatives.

Prince testified to Congress in March 2008, taking responsibility for Citigroup’s reliance on “inadequate” models that proved “wrong” in assessing the risk of mortgage securities.

To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.