The Three Marketeers

MICHAEL O'NEILL FOR TIME
MONEY MEN
Greenspan, left, Summers, center, and Rubin are facing a global economy that has obliterated the models

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Spending time with them is like sitting in on a meeting of the M.I.T. economics faculty, a kind of miniature world in which everyone has his own idiosyncrasies and idea-wrestling is the pastime. The conversation is by turns uproarious and serious. They may not finish one another's sentences, but they clearly can finish one another's thoughts. And there is tremendous camaraderie. "Let me tell you this about Alan's tennis game," jokes Summers, an occasional opponent on the court. "He is very good [pause] for his age." Says Greenspan, with a broad grin designed to mask what is either sarcasm or a psych job: "Larry is really almost as good as a professional player."

DIANA WALKER FOR TIME

TAG TEAM
Summers and Rubin regularly brief Clinton. The President has done his best work behind the scenes, keeping politics well away from the delicate economy

Greenspan has a theory about what holds them together: "In analytical people self-esteem relies on the analysis and not on the conclusions." That must be it. The three men have a mania for analysis that has bred a rigorous, unique intellectual honesty. In the Reagan Administration economic policymaking was guided not by analysis but by conclusions--specifically a belief in so-called supply-side economics. No matter what the data showed, the results among Reagan-era economists like Arthur Laffer were always the same: tax cuts and less regulation were the solution. Rubin, Greenspan and Summers have outgrown ideology. Their faith is in the markets and in their own ability to analyze them. "It's unusual," Greenspan says. "In Washington usually you come to the table, and everyone meets, and no one changes their mind. But with us, you have something else."

This pragmatism is a faith that recalls nothing so much as the objectivist philosophy of the novelist and social critic Ayn Rand (The Fountainhead, Atlas Shrugged), which Greenspan has studied intently. During long nights at Rand's apartment and through her articles and letters, Greenspan found in objectivism a sense that markets are an expression of the deepest truths about human nature and that, as a result, they will ultimately be correct.

Greenspan jokes that Rubin, with his background in arbitrage, may be slightly more skeptical because of his experiences with market imperfections. But they all agree that trying to defy global market forces is in the end futile. That imposes a limit on how much they will permit ideology to intrude on their actions. So despite different political backgrounds, they have the ability, rare in Washington these days, to preclude partisan considerations from their discussions. In the same way that the threat of mutually assured destruction helped Kissinger replace Washington ideology with Realpolitik, the shadow of a massive economic meltdown has helped the committee sell a market-driven policy that could be labeled Realeconomik.

Yet in places like Malaysia, where one of those market imperfections led to a collapse that has impoverished millions, the intellectual beauty of Realeconomik is less appreciated. And the committee's fire brigade, the IMF, has been harshly accused of pumping gasoline on the flames. Faced with currency runs in many nations last year, the IMF pushed governments to raise interest rates (to persuade investors to hold on to their currencies) and slash deficit spending. But the IMF now says the formula may have been too harsh. The worsening of the crisis, explains critic Jeffrey Sachs, from Harvard's Institute for International Development, was "a predictable consequence of draconian measures that increase panic rather than reduce panic."

The IMF has taken particular heat because even as these nations suffer, the U.S. and Europe continue to grow. The committee believes that the IMF remains a key international tool, especially as it works to clean up the abuses that led to the current mess and makes it easier for investors to get back into those developing markets.

That means trying to reduce volatility where possible. Many countries are at the mercy of international lenders who can decide, if they feel nervous, to jerk billions of dollars from country to country. This would be like having your bank pull your mortgage because your banker heard you'd had a bad day. The solution to the problem, the men believe, is more honesty on the part of borrowers--so banks know what they are getting into--and more caution on the part of banks. While some economic thinkers--notably Soros and Malaysia's Mahathir--have lobbied for more dramatic controls, Rubin warns that simply locking capital in place can often become a substitute for much needed reform, delaying an inevitable correction. As for the impact of speculators, who have been torched by politicians around the world, Rubin says they are a part of the crisis but a much less important factor than the real economic problems of the countries they hit.

To operate effectively in this new world, Rubin has remade the Treasury into an organization that is "more like an investment bank," says Tim Geithner, the 37-year-old Under Secretary for International Affairs. Unlike past Secretaries, who wanted decisions presented as thumbs-up, thumbs-down recommendations, Rubin wants debate. "He is a master at eliciting opinions," says David Lipton, a former Treasury official. The emblematic Treasury encounter is what Rubin calls a "rolling meeting," which cruises from one corner of the globe to the other as aides sprint in and out of the room. Says Lipton: "Often in meetings Rubin will cut right through the hierarchy, reach down to one of the youngsters at the table and ask what that person thinks. It creates a whole lot of energy--and an awful lot of fresh thinking."