THE BUDGET IMPASSE : Controversy Brews Over Treasury Secretary’s Strategy to Avoid Default : Cabinet: Some Republicans question Rubin’s use of a Reagan-era law to borrow from two trust funds to make interest payments on nation’s debts.

It was last Sunday night in the Treasury Department’s big conference room, the one with the fireplace and grandfather clock, that Robert E. Rubin gave the go-ahead.

The time had come for extraordinary actions to avoid an embarrassing, unprecedented--and imminent--default on the nation’s debts, the Treasury secretary concluded. The key was a Ronald Reagan-era law that seemed to provide authority to borrow from other trust funds in such a crisis.

“I’ve felt that default should be unthinkable and off the table,” Rubin explained in an interview Thursday.

Soft-spoken, modest and slightly rumpled, Rubin has landed in the hot spotlight of the budget debate, serving as White House point man in a tussle with Congress over the national debt.

Day after day, Rubin and his Treasury lieutenants have been on the front lines of the budget war, faxing letters to the media, warning the public about what they say are the dangers of GOP plans, crafting strategy, promoting the White House line of attack.

In the process, the Wall Street investor-turned-Cabinet official has neutralized the most frightening weapon that Republicans thought they held over the Administration--the danger of a default. And his stewardship of the debt-limit crisis has provoked a harsh, sometimes personal backlash.

“You are seeing one of the greatest efforts at dissemination of false information that I’ve ever seen in my life,” declared Kenneth G. Langone, a New York investor and Republican fund-raiser.

“Halloween scare tactics,” Majority Leader Bob Dole (R-Kan.) grumbled on the Senate floor.

House Speaker Newt Gingrich (R-Ga.) announced at one point that he didn’t even want to deal with Rubin on the issue any more.

Other critics have described his strategy as unconstitutional, his words as dishonest, his political maneuvers as unbefitting to the head of the nation’s Treasury.

Bob Rubin?

Indeed, the rise of the 57-year-old official through the Administration hierarchy--from a Wall Street supporter to White House insider to secretary of the Treasury last January--was fueled by an almost universal sense that he was an “honest broker,” a unifying figure without the giant ego that is common in the political world.

Co-chairman of the Goldman Sachs investment firm before joining the Administration, Rubin brought with him a coveted asset, a reputation for financial savvy that soothed Wall Street and added credibility to Clinton’s early budget recommendations.

“I think the laugh line of the year is Bob Dole calling Bob Rubin ‘too political,’ ” one government official said. “When we’re hearing things like that, we’ve reached Mars.”

Rubin also is a thoughtful student of the odds in politics and finance.

Immediately upon assuming the role of Treasury secretary, he had to consider the odds that Mexico’s financial crisis would spill over to other emerging nations and ultimately threaten the U.S. economy as well. Rubin recommended a bailout and found money in a special Treasury fund when Congress balked.

“When I told Treasury that Congress was going to delay a little longer and my recommendation was to act then, Rubin acted instantaneously,” recalls Rep. Jim Leach (R-Iowa), chairman of the banking committee. “In my judgment, he acted very responsibly.”

But if Mexico provided Rubin a taste of controversy, the debt-limit episode has been the full course, with the Cabinet official at center stage in a contest over the Republicans’ most ardently sought domestic priorities.

The GOP goal was to force the White House to choose between two unthinkable options: accepting the Republican spending plan or facing the first U.S. default in history.

Working with lawyers at Treasury and the Justice Department, Rubin concluded that the law gave him the authority to help the Administration out of the predicament by tapping into two civil service retirement funds without expanding the official debt.

“The debt limit has never been used like this before,” he said in the interview. “There’s never been talk of default.”

“This is very, very serious business,” he added.

With Rubin’s plan in place late Sunday, Clinton vetoed the debt-limit increase Monday. On Wednesday, Treasury officials tapped into the trust funds, a strategy that in theory could enable the nation to avoid debt-limit problems for many months.

The GOP default threat was foiled. “By avoiding default we also avoided having the President put in a coercive situation,” Rubin said.

Not that Republicans were pleased: “As far as I’m concerned, it’s a potential violation of the Constitution to start with. And if it’s not, he’s taking the policy decisions for borrowing and spending--which have always been a responsibility of Congress--to the executive branch,” said Rep. Nick Smith (R-Mich.).

Others say Rubin exaggerated the likelihood of default, manipulated the timing and tried to frighten the public to help Clinton gain a political edge in the budget fight.

Yet financial markets have mostly yawned over the affair, not believing that a default was likely. Long-term interest rates actually have fallen, reflecting the view that a deal to balance the budget was far more likely than a fiscal disaster.

Some question whether Rubin knew all along that “the unthinkable” default never would happen, because he commanded the tools necessary to avoid it.

“The Administration sort of overplayed the default card, creating a sky-is-falling mentality,” observed Michael Boskin, a Stanford University professor who served as chief White House economist during the George Bush Administration. “I think there’s been something of a backlash against Secretary Rubin on Capital Hill because of it.”

Rubin responds that the legal question was complex and only by Sunday night were the lawyers satisfied that America’s financial condition satisfied the dictates of the somewhat vague statute.

Asked about the barbs aimed his way, Rubin sought to dismiss the whole topic.

“My job is to manage the finances of the United States of America,” he said. “All the rest of it is swirl; it’s Washington, it’s not where my focus is.”