In an Uncertain World by Robert Rubin, Jacob Weisberg Page A
Authors: Robert Rubin, Jacob Weisberg
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related to why I was even posing the possibility of not following through on this program we had already agreed to. Leon said that he didnât think that option was viable. The administration was committed to a plan of action and had to stick with it even if the chance of failure had increased. The cost to the administration of reversing courseâin terms of lost credibilityâwould be enormous. I, on the other hand, imagined the congressional hearing where Iâd be called to account, with one of our very vocal critics leading the inquisition.
So, Mr. Secretary, you thought that there was only a small chance that sending billions of dollars of American taxpayersâ money would help? And you sent the money anyway?
That discussion illustrates a difference between making decisions on Wall Street and in government. There is a strong impetus to stick with presidential decisions, even when circumstances change, because the world is watching to see if you keep your commitments. Credibility and reliability are powerful values. Thus, changing direction may sometimes be worse than proceeding with something that could be wrong. In the private sector, reliability and credibility are also very important, but you can change course much more easily. When a Wall Street trader decides to cut his losses or a corporate head cuts back in a troubled business, no one complains about inconsistency. Nonetheless, there are times when high-profile government decisions should be reversed despite the damage to credibility. I didnât think that was the case here, but I did think the issue should be raised.
On March 9, the day we were to release the first $3 billion loan, the peso fell dramatically, closing for the first time at more than 7 pesos per dollar. Rumorsâin this case accurateâcirculated on Wall Street that we were contemplating not releasing the money on schedule. Despite the commitment of additional funds from the World Bank and the policy reforms that Ortiz was about to announce in Mexico City that evening, we were all deeply concerned that market confidence simply wasnât going to rebound. But when the time came to decide, we approved the release of the money.
The roller-coaster quality of that period was caught for me by the visit Larry and I paid the next day to the hearing room of the Senate Banking Committee. As I was answering questions, including hostile ones from Senators DâAmato and Lauch Faircloth (R-NC), my staff kept slipping me notes about the peso, which was rising even more dramatically than the prior dayâs fall. Larry, who was testifying alongside me, passed me a note saying, âI think this thing might actually work.â While one of the senators was talking, I scribbled back a response: âI think it might.â Once again, though, our optimism was short-lived. The March 10 rally was followed by a steady decline. A month later, we went through the same agonizing decision again about whether to disburse the second $3 billion loan.
By mid-May, the Mexican central bank data we saw showed the first, very tentative signs that the program was beginning to work, although markets didnât seem to reflect much progress and still looked fragile. We sent a memo to the President that pointed to some encouraging indicators. The Mexican economy was in a severe recession, but the countryâs trade deficit had turned into a surplus, the stock of outstanding Tesobonos had been reduced substantially, and the peso had recovered somewhat. Anticipating the success of our rescue package, Thomas Friedman, the Pulitzer Prizeâwinning
New York Times
columnist, described it in his May 24 column as âthe least popular, least understood, but most important foreign policy decision of the Clinton presidency.â
Alas, Friedman was getting ahead of himself just a bit. The roller coaster continued for the next few months. With the policy measures imposed by Zedillo, the financial and
So, Mr. Secretary, you thought that there was only a small chance that sending billions of dollars of American taxpayersâ money would help? And you sent the money anyway?
That discussion illustrates a difference between making decisions on Wall Street and in government. There is a strong impetus to stick with presidential decisions, even when circumstances change, because the world is watching to see if you keep your commitments. Credibility and reliability are powerful values. Thus, changing direction may sometimes be worse than proceeding with something that could be wrong. In the private sector, reliability and credibility are also very important, but you can change course much more easily. When a Wall Street trader decides to cut his losses or a corporate head cuts back in a troubled business, no one complains about inconsistency. Nonetheless, there are times when high-profile government decisions should be reversed despite the damage to credibility. I didnât think that was the case here, but I did think the issue should be raised.
On March 9, the day we were to release the first $3 billion loan, the peso fell dramatically, closing for the first time at more than 7 pesos per dollar. Rumorsâin this case accurateâcirculated on Wall Street that we were contemplating not releasing the money on schedule. Despite the commitment of additional funds from the World Bank and the policy reforms that Ortiz was about to announce in Mexico City that evening, we were all deeply concerned that market confidence simply wasnât going to rebound. But when the time came to decide, we approved the release of the money.
The roller-coaster quality of that period was caught for me by the visit Larry and I paid the next day to the hearing room of the Senate Banking Committee. As I was answering questions, including hostile ones from Senators DâAmato and Lauch Faircloth (R-NC), my staff kept slipping me notes about the peso, which was rising even more dramatically than the prior dayâs fall. Larry, who was testifying alongside me, passed me a note saying, âI think this thing might actually work.â While one of the senators was talking, I scribbled back a response: âI think it might.â Once again, though, our optimism was short-lived. The March 10 rally was followed by a steady decline. A month later, we went through the same agonizing decision again about whether to disburse the second $3 billion loan.
By mid-May, the Mexican central bank data we saw showed the first, very tentative signs that the program was beginning to work, although markets didnât seem to reflect much progress and still looked fragile. We sent a memo to the President that pointed to some encouraging indicators. The Mexican economy was in a severe recession, but the countryâs trade deficit had turned into a surplus, the stock of outstanding Tesobonos had been reduced substantially, and the peso had recovered somewhat. Anticipating the success of our rescue package, Thomas Friedman, the Pulitzer Prizeâwinning
New York Times
columnist, described it in his May 24 column as âthe least popular, least understood, but most important foreign policy decision of the Clinton presidency.â
Alas, Friedman was getting ahead of himself just a bit. The roller coaster continued for the next few months. With the policy measures imposed by Zedillo, the financial and
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