My Spidey sense starts twitching when he talks.
From CNBC, December 3:
"Keep October 1987 Black Monday crash in mind: Former Treasury Sec., Goldman chair Robert Rubin’s message to the market"
- Former Treasury Secretary and Goldman Sachs co-chairman Robert Rubin says when he talks to people in the markets, he tells them, “There is one date you ought to keep in mind: Oct. 19, 1987.”
- Issues like the rising national debt and lack of willingness to do anything about it remind him of moments when people simply stop listening and pay the “ultimate serious consequences” at a later date.
- “The timing is impossible to predict and it is possible we can just keep doing things that are unsound, but that seems to me a very unsound bet to make,” Rubin said at the CNBC CFO Council Summit in Washington, D.C., on Wednesday.
The market has been consumed in recent weeks by concerns about tech stock valuations and an AI bubble in the making. But for former U.S. Treasury Secretary and former Goldman Sachs co-chairman Robert Rubin, market complacency runs much deeper than any current debate over whether record market highs can be sustained by a handful of growth stocks. In his view, debate over the current AI boom and whether it will resemble the financial crash or dotcom bubble misses the point. October 1987, and what is known as “Black Monday,” is the historical comparison he is asking the market to focus on.
Rubin has been outspoken about the risks the U.S. economy is running related to the increase in government debt, and he expanded on those concerns at the CNBC CFO Council Summit in Washington, D.C., on Wednesday.
Recent estimates from the Congressional Budget Office put the debt held by the public at 99.8% of gross domestic product for fiscal year 2025. That is twice the historical average of 51% over the past 50 years. But Rubin noted that long-term average masks a trend that has been worsening more recently. In 2000, the same ratio was at 30%.
The CBO projects that it will rise by another 20 percentage points over the next decade, but Rubin sees that forecast as optimistic. “More realistic estimates,” he says, “are substantially higher.”
He cited work from the Budget Lab at Yale that forecasts a debt to GDP ratio closer to 130-140%, not counting tariffs.
The effects of the rising debt are just barely beginning to be felt. Constrained spending on public investments and national security, as well as some impact on interest rates, are likely already related to the debt load, he said. And to a very limited extent, Rubin added, business confidence may have also taken a hit.
But the “ultimate serious consequences,” which Rubin said he believes are “highly likely to be out there,” lead him back to October 1987.
“When I talk to people in the markets, I say there is one date you ought to keep in mind: Oct. 19, 1987,” Rubin told CNBC senior finance and banking reporter Leslie Picker at the Summit.
He said that for years before the October 1987 crash, conditions were considered to be “highly in excess and nothing happened in the markets.”
The result: “People stopped listening,” Rubin said.
And then the Dow Jones Industrial Average was down over 22% in one day on Oct. 19, 1987.
The most current outspoken market voice on the AI bubble is short seller Michael Burry, who recently closed his hedge fund but has started a newsletter to expound on his views and warned on Wednesday that within two years the AI stock bubble could unwind.
On that infamous October day, Rubin noted that no specific action triggered the crash other than “just markets being out of sync with reality.”
In the current economic environment, Rubin said he thinks there is a “quite high probability” that eventually actions will have to be taken that lead to adverse consequences, though it is the debt and not the AI valuations that he is thinking about mostly, such as the government attempting to “inflate its way out” of the problem — monetizing the debt to finance the purchase of new bonds. “But the timing is impossible to predict,” Rubin said. “And it is possible we can just keep doing things that are unsound, but that seems to me a very unsound bet to make,” he added....
....MUCH MORE
Plus Video - https://www.cnbc.com/video/2025/12/03/former-treasury-sec-robert-rubin-on-markets-october-1987-like-risk.html
Our last post on Mr. Rubin was March 4's "Robert Rubin Blames Trump for Most Uncertainty in 60-Year Career" which garnered a "Huh.*" introduction and a lengthier than usual outro:
In 2008 the Fed had to bail out Mr. Rubin's employer, Citigroup, to the tune of billions of dollars.
If Interested here's a nice introduction to what the three amigos did in:
"The Economists' Hour, A Powerful New Economic History"
The Essential Larry Summers: How He and Alan Greenspan Laid the Groundwork for the Financial Crisis and Larry Lost $1.8 Billion for Harvard
Today In Irony: Robert Rubin Reviews A History Of the Fed (yes the same fed that rescued citi)
And our application of an older econ paper to understanding the meta-narrative of why Rubin's co-conspirator at Citi, Chuck Prince, was able to say with a straight face:
“When the music stops, in terms of liquidity, things will be complicated. But as
long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
—Citigroup CEO Chuck Prince, July 9, 2007
Speaking of Robert Rubin: "The Optimal Design of Ponzi Schemes in Finite Economies"
This is a paper from 2002 that accurately predicted the events of the Great Financial Crisis, 2007 - 2009.
TL;dr: You don't play in the late stages of a pyramid or Ponzi scheme unless you know there will be a bailout.
From the Social Science Research Network:
This version is not available for download but the 1998 version is:Posted: 1 Oct 2002There are 2 versions of this paper
Abstract As no rational agent would be willing to take part in the last round in a finite economy, it is difficult to design Ponzi schemes that are certain to explode. This paper argues that if agents correctly believe in the possibility of a partial bailout when a gigantic Ponzi scheme collapses, and they recognize that a bailout is tantamount to a redistribution of wealth from non-participants to participants, it may be rational for agents to participate, even if they know that it is the last round. We model a political economy where an unscrupulous profit-maximizing promoter can design gigantic Ponzi schemes to cynically exploit this "too big to fail" doctrine. We point to the fact that some of the spectacular Ponzi schemes in history occurred at times where and when such political economies existed - France (1719), Britain (1720), Russia (1994) and Albania (1997).Keywords: Ponzi schemes, bubbles, bailouts, moral hazard
SSRN download page (33 page PDF)
Previously on Robert Rubin and his role in the financial disaster, the bank bailouts and the $126 million he pocketed from Citi when big C got bailed:
"The Economists' Hour, A Powerful New Economic History"
