The silent supremo who sprang a surprise

Robert Rubin caught the markets cold last week, but in supporting the yen he has staked his credibility
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The Independent Online
US TREASURY Secretary Robert Rubin used all the experience he gained at Goldman Sachs to catch traders off guard on Wednesday by selling billions of dollars to halt the fall of the Japanese currency.

It was a perfect trading floor move. In recent days, Mr Rubin had suggested he was not about to prop up the yen. Then he struck, sending the dollar skidding as much as 6 per cent for its worst one-day loss since 1994.

The stakes are high, though. The dollar's rebound of more than a yen the next day shows that currency traders could spoil his bet that the US can help Japan and other Asian nations by halting the yen's decline.

"Rubin realises what he'd sacrifice in terms of credibility if this doesn't work," said Pierre Ellis, senior economist at Primark Decision Economics in New York. "This would not have been allowed to happen unless he believed there was some sort of a fundamental change in Japan that would stop the dollar's rise against the yen."

In many ways, the 59-year-old Mr Rubin is the right man at the right time. Now the Cold War is over, economic issues have moved to the forefront as countries compete for investment, not territory.

"Financial issues now have a much more direct impact on political and social stability," said Robert Hormats, who held posts in the Carter and Reagan administrations and is now vice- chairman of Goldman Sachs. The US is "the pre-eminent financial power. We're the central mobiliser of resources. Bob Rubin, given his background in the markets, occupies the central role. He's really at the top."

Mr Rubin was co-chairman of Goldman Sachs from 1990 until he joined the Clinton administration as head of the National Economic Council in January 1993. He earned his spurs in the same year by convincing Mr Clinton to abandon an election pledge to raise spending and instead push for a fiscally austere budget to bring down the federal deficit. Bond investors applauded the move, and US interest rates fell, giving a boost to economic expansion that continues to this day.

Mr Rubin became Treasury Secretary in January 1995 after Lloyd Bentsen retired. It was not an easy time to take over currency policy. The dollar was trading at 125 yen when Mr Clinton took office in January 1993. A month later, Mr Clinton and Mr Bentsen started talking about how a weaker dollar would help the US shrink its trade deficit with Japan. Traders took them at their word. They started selling dollars, and the currency plunged. It took eight currency market interventions by US and other nations to push the dollar higher.

Given the huge stakes involved in currency and other financial markets, it is no wonder that Mr Rubin watches what he says. While walking by the currency desk at Goldman, he recalls, he said aloud that he thought the gold market looked interesting. He later learned that based on that remark, traders had taken a big position in gold.

Now he is very coy. Rarely, for example, does he acknowledge that he meets weekly with Federal Reserve Chairman Alan Greenspan. And he never talks publicly about what they discuss.

Early in his term as Treasury Secretary, Mr Rubin won a battle to be the only one in the administration permitted to talk publicly about the dollar. Another rule is that no one in the Clinton administration is allowed to criticise Mr Greenspan and the Fed. On Mr Rubin's desk is a sign that reads "the buck starts here".

Although the job has evolved to include international diplomacy almost daily, Mr Rubin does not like to travel, and he did not foresee his current role on the world stage. "I guess I see the job a bit differently," he said in 1996. "My job is to stay in Washington and run the Treasury."

He likes to stick close to home. He never formally moved to Washington and lives during the week in a hotel. At weekends, he commutes to his Manhattan townhouse or his home in Westchester, New York. His wife, Judy, who was an aide to former New York Mayor David Dinkins, remains in New York.

One thing Mr Rubin will never be known as is a fashion victim. He wears only solid blue or blue pin-stripe suits and white button-down shirts. And he is not much for contemporary culture; he did not recognise Aretha Franklin when she sang at the White House. In an Oval Office conversation about the singer Jimmy Buffett, aides say that Mr Rubin asked if the singer was financier Warren Buffett's son.

But the secretary's performance in his job "sets a high standard", said Greg Mastel, vice- president at the Economic Strategy Institute in Washington. With the fate of the Chinese yuan more important than Chinese missiles right now, "often the State Department is a less important force," he added.

Mr Mastel believes Mr Rubin has gained by picking his spots. "In terms of China, Russia, Japan, he concentrates on the economic big issues," he said. "He's not going to wade in and solve all the problems" in the US relationship with those countries.

Richard Haass, a member of President Bush's National Security Council, says the idea that the Treasury now runs foreign policy is "fashionable, but wrong".

"We still face a whole menu of threats in terms of the potential for major conflicts." He said these included the Korean peninsula, the Persian gulf, and international terrorism.

While he has won praise from Wall Street investors for the way he has handled international crises, Mr Rubin has not won all his battles. He lost the effort to keep full control of the Inland Revenue Service under the Treasury, he's advocated $18bn (pounds 10.8bn) in extra funding for the International Monetary Fund without results so far, and he was a strong proponent of the President's fast-track trade authority without success.

Time will tell if last week's shock for currency markets proves is a winner or loser for Mr Rubin. He offered only a limited explanation for what looked to be his flip-flop on the intervention issue, saying the dollar sales were done "in the context of Japan's plans to strengthen its economy". That indicates he is willing to bet that Japan is now more serious about dealing with its economic problems. But as a former currency trader, he knows there are no guarantees. "What I have said consistently is that, ultimately, currencies follow fundamentals," he said. "And that is going to be true in Japan as well. And Japan has to deal with fundamental problems."

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