The Three Marketeers

Economist heroes? It sounds silly unless you understand how close we came to economic meltdown last year. This close

  • Share
  • Read Later

(7 of 9)

Rubin has had his star turns as well. In late 1997 he probably single-handedly stopped a panic about Korean debt from avalanching into a U.S. market crash by working the phones, convincing international bankers that they should cut Korea a break. It was not a welcome pitch. "This is a hell of a Christmas present," one banker moaned to Rubin on Christmas Eve. But Rubin's scheme saved the banks billions because if Korea had crashed, the banks could have lost everything. "It was Bob who actually got the banks to see how it worked to their benefit," Greenspan explains. Was there any element of a threat in the calls, a suggestion that if the banks didn't play, perhaps Treasury would let Korea blow up to set an example? "There was no stick," Rubin says. "It was kind of a carrot," Summers explains with a giggle. "A variable carrot."

But why did these three men need a carrot at all? If markets work so well, why were they burning their vacations on the phone trying to convince central bankers 10,000 miles away that the world depended on a little self-restraint? The problem, the men say, is that the markets are encumbered by all kinds of imperfections. Even tiny flaws create problems. A Thai banker who breaks the rules by passing $100,000 to his brother-in-law puts the whole system at risk.

To help resolve the riddle of imperfect markets, the committee has spent six years working on an experiment. It's called the U.S. economy. The current boom is as much a part of the committee's legacy as is its battle to stem global turmoil. It was Rubin--via the 1993 deficit-reduction plan--who navigated the Clinton Administration into budgetary agreements that helped create the first surplus in 29 years. This fiscal responsibility helped lower interest rates, which kicked off a surge in business spending. Greenspan, who dovetailed his own monetary policy with those goals, let the economy build up its present head of steam. The men don't get all the credit for the boom--they're the first to say all they did was let the markets work--but on both Wall Street and Pennsylvania Avenue, they get the bulk of it.

Their success has turned them into a kind of free-market Politburo on economic matters. Clinton relies on the men to a level that drives other Cabinet members nuts. One weekend this summer, when both Summers and Rubin were on vacation, Clinton began to panic about Russia's weakness. "Where's Bob?" the President kept asking nervously in a morning meeting. Turning to White House staff members, he told them to pull together a plan. The team spent a weekend crashing a strategy, only to be shut out again when Rubin arrived back in town. An aide to Secretary of State Madeleine Albright regularly worked the phones during last summer's Russian collapse, insisting that reporters were missing the story--Albright's involvement in economic policy. No one spent an ounce of ink on it. But other Administration officials say they are comfortable with the power balance. Says Gene Sperling, head of the National Economic Council: "You are often in a situation where other people far less experienced are coming in with very simple solutions, sure things that are going to work. And here are Rubin and Greenspan and Summers, with all their knowledge and expertise, showing the most humility. That is very reassuring."

  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6
  7. 7
  8. 8
  9. 9