Today, President-Elect Barack Obama named the key members of economic team including Timothy Geithner as Treasury Secretary and Larry Summers as head of the National Economic Council. Notably, many in Obama’s economic circle are acolytes of former Clinton Treasury Secretary Robert Rubin, the subject of much talk in the wake of the bailout of Citigroup. Rubin, a revolving door spinner between Wall Street and Washington, began his career at Goldman Sachs, moved to the National Economic Council, then Treasury, and in 1999, left government and joined Citigroup. Rubin’s story provides a telling story about the conflicts of interest that can occur when a high-ranking official moves so seemlessly between the public and private sector.

In this New York Times article addressing Citigroup’s economic troubles, Rubin appears as a key player, in both the deregulation that allowed the bank to become so large and unwieldy and as an adviser to the bank urging riskier behavior:

The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser.

Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bank’s current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.

When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.

…

But while Mr. Rubin certainly did not have direct responsibility for a Citigroup unit, he was an architect of the bank’s strategy.

In 2005, as Citigroup began its effort to expand from within, Mr. Rubin peppered his colleagues with questions as they formulated the plan. According to current and former colleagues, he believed that Citigroup was falling behind rivals like Morgan Stanley and Goldman, and he pushed to bulk up the bank’s high-growth fixed-income trading, including the C.D.O. business.

Former colleagues said Mr. Rubin also encouraged Mr. Prince to broaden the bank’s appetite for risk, provided that it also upgraded oversight — though the Federal Reserve later would conclude that the bank’s oversight remained inadequate.

Once the strategy was outlined, Mr. Rubin helped Mr. Prince gain the board’s confidence that it would work.

The conflict of interest line is often easy to draw when involving revolving door moves from Washington to K Street. When high-powered officials move into other parts of the private sector they still maintain large amounts of influence in Washington, and have just as much of a need to influence officials as lobbyists. (Citigroup’s lobbying expenses are close to $6 million for the year.)

In Rubin’s case, the industry into which he went has fallen into complete turmoil roiling not only economic markets but politics in Washington. Yet, Rubin remains a top transition adviser to President-Elect Obama and, as noted above, his proteges are among Obama’s top picks for economic positions.

Despite Rubin’s hand in the current crisis and his revolving door tale, the line between his work and the new Obama appointments is not so clear. While Rubin came from the private sector, Geithner, Obama’s Treasury pick, does not. Geithner has spent nearly his entire career in the public sector from positions in the Treasury Department, the IMF, and the New York Federal Reserve. This is quite a change of pace from the recent history of Treasury Secretaries. All three of President Bush’s Treasury Secretaries were CEOs, with the current occupant Hank Paulson, like Rubin, the former CEO of Goldman Sachs. Going back more than 30 years, only George Schultz, Treasury Secretary under Nixon, and Larry Summers came into the job without a stint in the private sector. (They both came from acadamia.)

As Rubin’s revolving door tale shows, conflicts of interest can pop up during government service and for years to come afterwords. The importance of controling these kind of situations is seen in the types of appointments like Geithner’s and the revolving door restrictions that Obama has said he will implement.

For more discussion of revolving door policies, see this Sunlight Policy Review post from last week.