Rubin's the Tip of the "Profit Growth" Iceberg. I don't blame critics for pouncing on Robert Rubin's Wall Street Journal defense of his conduct as a member of the Citigroup board. Given that Rubin was paid handsomely, his failure to see financial meltdown on the horizon was just that--failure. Instead of claiming that "no one saw it coming," Rubin should confess that he blew it.

While he's at it, Rubin should admit that his whole project of deregulating the financial sector was a disaster. Rubin was one of the most important figures behind the really bad ideas of tearing down the walls between banks and brokerage houses and protecting the derivative market from regulation. He should just admit that he's wrong and move on.

But contrary to all the commentary I've seen, I don't think deregulation is the ultimate cause of the financial meltdown.

Instead, the underlying cause is the demand for constant "profit growth" on the part of CEO's, Boards of Directors, institutional stockholders, the stock market in general, and the business media.

Rubin was a player here as well.

The Journal notes that Mr. Rubin was “deeply involved in a decision in late 2004 and early 2005 to take on more risk to boost flagging profit growth.”

"Flagging profit growth" is an interesting turn of phrase. A company can't just make profits, it has to continually increase its profits. The implication is that Citigroup was flagging because its profits were not increasing at as high a rate as those of its competitors. If companies are seeking continual profit growth, they will focus on new enterprises rather than mature enterprises where profits have levelled off. They'll take on more risk in their new enterprises because high levels of risk create opportunities for the high levels of profit demanded by the market. And they'll be more susceptible to initiatives that look like sure things but turn out to be gigantic Ponzi schemes.

Like all the financial instruments based on sub-prime mortgages.

We can flail Robert Rubin all we want, but financial constituencies have insisted on "profit growth" for well over a decade and the demand for more profits has had a distorting and ultimately extemely damaging impact on the American economy.

As a result, dialing down the demand for "profit growth" has to be an important element in restabilizing the economy.