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The Mensch & Schlemiel of the Week


Noun, informal. A decent, upright, mature and responsible person.


Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser.


Mensch of the Week:

Robert Rubin

Co-chair, Council on Foreign Relations Former U.S. Treasury Secretary

Earlier this month, Robert Rubin spoke to CNBC about a comment made by Sandy Weill, his former colleague at Citigroup (NYSE: C). Mr. Weill said, in essence, that it would be wise for the U.S. government to split up financial institutions that are “too big to fail.”

Any matter that involves public and private interaction tends to be complex, not to mention controversial. Though many have railed against the “cozy” relationship between government and commercial entities, the interdependence of these two groups doesn’t always mean one side understands the other. Maybe the economic and regulatory problems highlighted by the Great Recession are just as much a product of this lack of understanding as they are of government/Wall Street cronyism?

Luckily, there are people like Robert Rubin, who have a depth of experience on both sides of the public/private divide. Mr. Rubin spent years as an executive with Goldman Sachs and later Citigroup, but also served as the Treasury Secretary during the Clinton years. Such a resume affords him a unique insight into the complex world of financial regulation.

Mr. Rubin challenges Mr. Weill’s assertion as too simplistic:

One important question is, If I take the risk from here, where is it going to go?

Of course, the attitude that something is “complicated” and deserves “careful consideration” is a popular response among opponents of change–of any kind. While the “it’s complicated” defense is sometimes just a vote in favor of inaction or complacency, it can also be the most prudent course. After all, knee-jerk regulatory changes have a way of causing more problems than they solve.

Mr. Rubin shows he is aware of both the necessity and risks of financial regulation, as he shows in his comments about another regulation prompted by the recession, Basel III:

Tim Geithner probably had the best answer of all when he said the answer to systemic risk… ‘too big to fail,’ is capital, capital, capital. The problem is, as Basel III people are finding right now, when you increase your capital requirements beyond a certain point you limit lending.

Sure, more capital on hand will help ensure stability among banks, but what about the industries depending on available debt? Imagine what tighter lending would do to the commercial real estate market, REITs included?

Mr. Rubin supports the embattled Dodd-Frank Act while admitting to its flaws, a sign that he is one of those rare people who recognize shades of gray in this arena. The ability to discuss an issue as controversial as bank regulation without overt partisanship or oversimplification is the only way to resolve it.  Let’s face it, the best way to prevent a repeat of 2008-09 is to gain a clear understanding of, not just the problem, but its possible solutions, as well.

Schlemiel of the Week:

The Dodd-Frank Act

While we’re on the subject of complicated financial regulations and over-sized banks, it’s worth looking at the  always controversial Dodd-Frank Act (see artist’s rendering, right).

Though introduced in 2010, Dodd-Frank remains a political lightning rod for a number of reasons: the law is complicated, commonly misunderstood, and (in the opinion of some) a classic example of government overreach.

As opposite ends of the political spectrum have battled over Dodd-Frank’s scope and limitations, the law has changed significantly. There was the addition of the Volcker rule, and more recently, attempts to reinvestigate and potentially refine this rule.

Plus, let’s not forget the consortium of red states suing the federal government over Dodd-Frank, alleging parts of the law violate states’ rights and the Constitution’s call for separation of powers.

All of this is to say Dodd-Frank has become a political football.

It’s not going away, of course–sorry, accountants–but there is certainly a chance it will be significantly weakened. Whether or not this is a good thing, I suppose, will depend on one’s industry.

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