Days of Fire: Bush and Cheney in the White House

by Peter Baker

  At Rice’s instigation, Russia agreed to pull out of Georgia but not from its breakaway republics. The war was over, but the relationship between Bush and Putin that had started with soul gazing seven years earlier was broken. Russia suspended cooperation with NATO and later recognized the independence of South Ossetia and Abkhazia. Bush shelved a civilian nuclear agreement he had spent years negotiating with Putin.

  As soon as that crisis was resolved, along came another one. On August 18, Pervez Musharraf resigned as president of Pakistan to avoid impeachment, throwing the American war on terror into uncertainty. For years, Bush had stuck with Musharraf despite his undemocratic reign, tempering his commitment to his freedom agenda in the name of a seemingly loyal ally in the war on terror. But ultimately, Musharraf proved unreliable, never fully able or willing to clean out the tribal areas that remained a safe haven for al-Qaeda and the Taliban. Now Bush would have to find out whether he could work more effectively with Musharraf’s untested successor, Asif Ali Zardari, widower of the assassinated Benazir Bhutto.

  WITH TIME RUNNING out, Bush grew unusually reflective, and he watched the contest to succeed him with a certain jaundice. One summer day after a meeting, one of Bush’s national security aides, William Luti, began chatting with him.

  “What’s the one thing that surprised you most?” Luti asked.

  Bush answered without hesitation. “How little authority I have,” he said with a laugh.

  Then, turning serious, he added, “The other thing that surprised me—whoever steps into this office, whether it’s Obama or McCain, they’re going to learn there’s a big difference between campaigning and governing.”

  Bush had no advance warning when John McCain announced his running mate on August 29, and as he happened across a television report, he thought he heard the announcer say “Pawlenty.” Only after a moment did he understand that McCain had picked not Tim Pawlenty, the governor of Minnesota, but Sarah Palin, the governor of Alaska.

  While Palin initially energized many Republicans, the outgoing president was underwhelmed.

  “I’m trying to remember if I’ve met her before,” he told his staff. “I’m sure I must have.” He added sarcastically, “What is she, the governor of Guam?”

  Ed Gillespie told him that conservatives were enthusiastic.

  “Look, I’m a team player. I’m on board,” Bush replied.

  After a few minutes, he directed the conversation back to Palin. “You know, just wait a few days until the bloom is off that rose,” he warned. “This woman is being put into a position she is not even remotely prepared for. She hasn’t spent one day on the national level. Neither has her family. Let’s wait and see how she looks five days out.”

  Cheney was no more impressed. McCain, he lamented to associates, had made a “reckless choice” at a time when leadership mattered for the country.

  With both Bush and Cheney insisting on attending the convention, the McCain campaign told the White House to keep the president’s speech to ten minutes. Go light on the Bush record and praise the nominee, the White House was told. Bush grew irritated. When he read a draft of the speech, he came across a line extolling McCain for seeing the wisdom of a surge in Iraq before Bush’s own cabinet, which he took as a slap at Rice.

  “You really want me to say that?” Bush asked aides.

  Gillespie argued that it was important, but Bush took it out.

  The final indignity came when a hurricane named Gustav threatened the Gulf Coast just as Republicans gathered in St. Paul for the convention, prompting McCain to cancel the first night—as it happened, the night when Bush and Cheney were to speak. After Katrina, the last thing any Republican wanted was to be politicking while another killer storm ravaged the American coast. In effect, weather had accomplished what McCain could not. When the hurricane passed with relatively little damage, McCain resumed the convention without Bush or Cheney anywhere to be seen. Bush still wanted to go in person, but the McCain campaign said he could appear via video. “From stem to stern, President Bush resented the fact that we used that as an excuse to knock him off,” recalled Wayne Berman, the Bush friend who was working as a McCain fund-raiser. Bush took out one more line from his speech, one praising McCain for “not chasing the public opinion polls.” As far as Bush was concerned, that would not be honest.

  At 9:54 p.m. on September 2, before the broadcast networks began their one-hour live coverage, Bush’s image was projected on a large screen above an empty stage with an empty lectern at the Xcel Energy Center in St. Paul. The delegates greeted him politely as he became the first sitting president to miss his party’s convention since Lyndon Johnson stayed away from Chicago in 1968. Speaking by satellite from the White House, Bush offered dutiful praise of the nominee and no celebration of his own eight years in office.

  “My fellow citizens, we live in a dangerous world,” he told the Republican crowd. “And we need a president who understands the lessons of September the 11th, 2001—that to protect America, we must stay on offense, stop attacks before they happen and not wait to be hit again. The man we need is John McCain.”

  He made light of McCain’s maverick streak, but with a little bit of an edge. “John is an independent man who thinks for himself,” Bush said. “Believe me, I know.”

  Eight minutes later, he was done.

  Cheney did not speak at all.

  Once Bush’s image faded from the screen, none of the marquee speakers for the rest of the convention mentioned his name during the nightly prime-time hour. Indeed, overall, Democrats uttered the word “Bush” twelve times as often at their convention. On September 4, Republican delegates were shown a video about September 11 that included images of Rudy Giuliani and Donald Rumsfeld but none of Bush. In his acceptance speech shortly afterward, McCain thanked “the president,” without naming him, for his leadership “in these dark days” and for “keeping us safe from another attack.” But he made no further reference to Bush, and when it came to the turnaround in Iraq, McCain credited “the leadership of a brilliant general, David Petraeus.”

  After the Republicans finished partying without him, Bush took a quiet field trip to tour the battlefield at Gettysburg with some of his old Texas crowd, including Alberto Gonzales, Karen Hughes, Karl Rove, and Margaret Spellings. After taking solace in so many Abraham Lincoln books, Bush on September 5 made the pilgrimage to the site of the defining moment of Honest Abe’s presidency.

  In front of the Virginia monument, Bush listened as one of the tour guides, Jake Boritt, described how Lincoln saw Lee’s strike deep into Union territory as an opportunity.

  “Well,” Bush asked sardonically, “did the president say, ‘Bring it on?’ ”

  “DO THEY KNOW it’s coming, Hank?” Bush asked Henry Paulson.

  “Mr. President,” Paulson said, “we’re going to move quickly and take them by surprise. The first sound they’ll hear is their heads hitting the floor.”

  Their heads hit the floor on September 7. With Bush’s authorization, Paulson seized control of Fannie Mae and Freddie Mac, the two housing giants that were funding more than two-thirds of the home loans in America, and fired their chief executives and boards of directors.

  The stunning move, at that point the most drastic intervention into the private financial markets since the Great Depression, caught much of Washington by surprise and underscored how rapidly the crisis spawned by the housing market was spreading. It also demonstrated how worried Bush was to so easily abandon a lifetime of free-market conservatism.

  Fannie Mae and Freddie Mac were government-chartered private corporations with the twin missions of making a profit for shareholders and encouraging home ownership for those who otherwise would find it beyond their reach. Trying to compete in an overheated housing market flooded with subprime mortgages, the two firms were overextended and having trouble raising capital; their shares were off by 90 percent from their highs in the last year. If they had to pare back, it could send mortgage interest rates soarin
g and push the economy even further to the brink.

  The sweeping move by Bush and Paulson was not the end of the crisis, though. Within days, Paulson was back telling Bush that another storied Wall Street brokerage was on the brink of failure, this time Lehman Brothers. Paulson, Ben Bernanke, and the president of the Federal Reserve Bank of New York, Timothy Geithner, plunged into a frenetic, all-hours effort to stop the bleeding and find a buyer, fearing that a Lehman collapse would be the string that pulled apart the whole fabric of the nation’s banking system. By the end of the weekend, they were at an impasse. British regulators would not let Barclays buy Lehman, and Bank of America opted to buy Merrill Lynch instead. They had no choice but to let Lehman go down.

  “What the hell is going on?” Bush asked Paulson when he reached him on Sunday, September 14. “I thought we were going to get a deal.”

  “The British aren’t prepared to approve,” Paulson said.

  “Will we be able to explain why Lehman is different from Bear Stearns?” Bush asked.

  “Yes, sir. There was just no way to save Lehman. We couldn’t find a buyer even with the other private firms’ help. We will just have to try to manage this.”

  Even as they dealt with Lehman’s bankruptcy, the government had to make its largest intervention in the private sector to date, pumping a staggering $85 billion into the insurance conglomerate AIG on September 16 in exchange for 80 percent control. AIG was more than an insurance firm. It had ties to every major bank, and if it went down, so would the system.

  “How did we get to this point?” Bush asked during a meeting in the Roosevelt Room that afternoon.

  “If we don’t shore up AIG, we will likely lose several more financial institutions. Morgan Stanley, for one,” Paulson said.

  Bush was baffled that a single firm had become so important. “Someday you guys are going to have to tell me how we ended up with a system like this and what we need to do to fix it,” he said.

  Events were moving at a head-snapping pace, each hour bringing more news pointing to a complete meltdown of the nation’s financial system. Years of reckless decisions by everyone from unqualified home buyers to profit-hungry investment banks were coming to a head at the eleventh hour of the Bush presidency. “He was pissed off at the banks,” Ed Gillespie recalled later. Bush had foreseen problems with Fannie and Freddie and tried to head them off. Still, his own regulators had sat back as Wall Street created ever more exotic and risky investment schemes. How much this was Bush’s fault would be debated for years, but there was no question it was unraveling on his watch and he had to stop it.

  The crisis came at a time when Bush, Cheney, and their teams were all but wiped out. Nearly eight years of terrorism, war, natural disaster, and scandal had taken their toll. Bush’s Texas friend Charlie Younger noticed that Bush had “stopped saying he was glad to be president.” Those last months, Younger said, “it got him and he did not enjoy being president.” Bush himself later said he felt like “the captain of a sinking ship.”

  Still, Bush recognized that he was in a better position to confront the catastrophe than his successor would be. He understood by now the levers of government and, moreover, could do what was necessary without worrying about political fallout.

  When Karen Hughes called one morning to offer consolation, he was stoic.

  “Mr. President, what else can go wrong during your presidency?” she lamented.

  “Well, it’s a good thing we’re here to deal with it,” he said.

  The economic anxiety had erased any goodwill Bush had earned by turning Iraq around. On September 17, as stock markets were tumbling and banks were failing, Bush welcomed David Petraeus back to the White House. Petraeus was about to take over as commander of the entire Middle East operations from Central Command, based in Tampa, Florida.

  In the Oval Office, Bush gave Petraeus presidential cuff links and posed for pictures with his family. The two men started joshing about mountain biking and whether Petraeus could keep up. The president had triggered the general’s hypercompetitive spirit.

  “Mr. President, do you have a death wish?” Petraeus asked jokingly. “Do you realize who you’re talking trash with here? If you weren’t the president of the United States, we could provide a workout that you could write off on your income tax as education.”

  Bush gave as good as he got, boasting about how he had taken out Jim Zorn, the Washington Redskins coach, and left him in the dust. Before it was over, he had challenged Petraeus to a biking contest.

  THE LIGHT INTERLUDE was short-lived. The next day, Bush was scheduled to make a fund-raising trip to Alabama and Florida but canceled it to meet in the Roosevelt Room with his economic team. Henry Paulson sat across from the president with Ben Bernanke to his right and Timothy Geithner to his left. Bush was flanked by Joshua Bolten on his left and Ed Gillespie on his right. A moment of truth had arrived. The time for piecemeal fixes was over, the advisers told him. Slapdash rescue efforts for this or that institution were no longer going to hold things together. The Federal Reserve on its own could do no more. Paulson and the others told Bush it was time to go to Congress for extraordinary authority to tackle the underlying problems. They had in mind an eye-popping $500 billion to purchase toxic assets from endangered financial firms.

  “What happens if we don’t?” Bush asked.

  “We’re looking at an economy worse than the Great Depression,” Paulson said grimly.

  Bush was taken aback. “Worse than the Great Depression?” he asked. “Twenty-five percent unemployment?”

  He turned to Bernanke. “Ben, do you agree with that?”

  “I do, Mr. President.”

  Bush did not hesitate. After asking some more questions, he signed off immediately.

  “I will give you all the backing you need,” he told them. “Let’s go get it done. This is what the country needs.”

  What they were talking about went against the grain for a conservative president. “Our people are going to hate us for this,” he said in one meeting. “Boy, historians are going to have a fun time with this one,” he said at another point. But Bush had grown nervous enough that he did not let old dogma stand in the way. If Paulson said this was what was necessary, then the president was going to support him to the end.

  Bush had bonded with Paulson as he never did with his first two Treasury secretaries, seeing a fellow man of action, not a handwringer. In an administration where most cabinet secretaries were invisible, Paulson was a force of nature. He had no time for e-mail, preferring rapid-fire phone calls. He was always moving on to the next thing. If he noticed the person he was talking with understood the point of what he was saying, he often would not bother to finish the thought. For Bush, Paulson would become another Petraeus, a general he would entrust to lead his battle against dark forces. When Bush lost his standing with the public on the war, he knew Petraeus would be a more persuasive front man. If Bush could now no longer command support for his economic policies, then he would let Paulson speak for the government. “In that political environment, we needed Hank to be the voice,” said Tony Fratto, the deputy press secretary.

  But Bush worried about Paulson. The Treasury secretary had been getting by on barely three hours of sleep a night, running himself into the ground as if single-handedly trying to hold up the world of finance, an Atlas for modern times. As the meeting broke up, Bush pulled aside Michele Davis, a top Paulson adviser.

  “Tell Hank to calm down and get some sleep,” he advised, “because he’s got to be well rested.”

  Bush walked back to the Oval Office with Ed Gillespie and they stood by a sofa. Joshua Bolten came in behind them and closed the door. Bush stood there for a moment in silence, the words “Great Depression” still echoing in everyone’s ears. Then he looked at his aides.

  “If we’re really looking at another Great Depression,” he said, “you can be damn sure I’m going to be Roosevelt, not Hoover.”

  FOR BUSH, the financial crisis was not the
only worry. On September 20, he was told terrorists had bombed the Marriott hotel in the heart of Islamabad, a main gathering area in Pakistan for Americans and other foreigners to meet local contacts, more than fifty of whom were now dead. The day after that, the president watched as Prime Minister Ehud Olmert resigned in Israel amid a corruption investigation, ending any last hopes for a Middle East peace deal during Bush’s term despite twenty-five trips by Condoleezza Rice in pursuit of an enduring agreement.

  But the firestorm consuming Washington occupied most of Bush’s attention. The reaction to the Troubled Asset Relief Program that Paulson and Bernanke had proposed in a scant three-page bill was visceral and unrelenting, from Republicans as much as anyone. Even inside the White House, speechwriters joked that TARP, as it was dubbed, should be called MARX. The notion of bailing out Wall Street after it got the country into the mess in the first place had almost no appeal, especially weeks before an election. Bush needed to calm down the conservatives, and for that there could be no better ambassador than Cheney.

  Despite his conservative philosophy, Cheney expressed no hesitation about the bailout program, later calling himself a “strong supporter” of it. In fact, he and his team had little to do with the policy decision. “They were a nonfactor,” said Matt Latimer, the speechwriter. But Cheney would help sell it. He climbed into his car at 8:45 a.m. on September 23, joined by Keith Hennessey, the president’s economics adviser, and Kevin Warsh, a top Federal Reserve official, and headed to Capitol Hill to meet with the House Republican caucus. Never before had Cheney encountered such hostility from Republican lawmakers. One after another, House members excoriated the bailout. That didn’t go so well, Hennessey said in the car on the way back. Cheney was unruffled, calling it a chance for lawmakers to blow off steam. But privately, he thought three-quarters of the caucus would vote against them.