by Ron Suskind
Sailfish was leveraged ten to one, modest for a hedge fund and much less than many of the broker-dealers such as Lehman Brothers and UBS. But Naro’s crisis would soon be everyone’s, and so he had to hurry. It started, and ended, with the phrase “You have to hold your own shit.” No one would want to sell CDOs in a declining market as buyer interest fell off. So, instead, you held your bad assets and tried to unload everything else at a high enough price that it could offset the perilous combination of your leverage and the declining value of your “shit,” which would eventually have to be “marked” publicly as . . . well, shit. If you couldn’t sell the gems of your portfolio, quietly, quickly, and at a reasonable price, you might well go bust.
This was the drop in “asset values” Wolf had written about in his memo. The panic he mentioned was starting to take hold, and spread, even faster than he had predicted. As the couples settled in on the peaceful aft deck of the yacht—which Naro had named Le Rêve, French for The Dream—its owner was screaming. A manager at Sailfish, who had meticulously built up profitable positions for the fund, was hesitating. He couldn’t bear to give up his gems, so to speak, at just any price: to sell into a thin market, with few buyers. So he was allegedly “painting the market,” a legally questionable (though rarely prosecuted) activity where a trader stealthily makes a flurry of purchases in one area to create the illusion of buying activity and thereby draw other buyers in before dumping his securities. Naro was now screaming at the manager’s boss, whom he told to fire the SOB and take over the trading himself.
“Do you hear me? You fire the fuck, and you dump it all yourself, at whatever price you can get!”
Of course, Naro was actually living inside the “financing dilemma” that Wolf had foretold and that others were quietly fearing as credit tightened all spring and summer. Sailfish couldn’t roll over its debt. It needed cash, and fast. So it sold securities, to raise cash as collateral for loans. Naro had been on the phone for days trying to borrow $800 million from JPMorgan. After a week of asset dumping, the value of his funds, which had performed well for much of the year, was slipping fast. They had dropped more than 10 percent in just a few days. Once that became known, his investors would flee. Simply put, Naro was fighting for his life.
As Le Rêve slipped from the mouth of Long Island Sound and into the open Atlantic, Wolf was trying to keep the conversation upbeat. So was Shulman, who later would settle a civil suit brought by the New York attorney general for alleged insider trading arising out of his own panicked selling. They were supposed to be sailing the East Coast for these three days. The boat was loaded with gourmet food and fine spirits, and the wives, all friends, had been looking forward to this for much of the summer. Naro’s wife had already excused herself to try to calm her husband down. Wolf, summoning what good cheer he could, talked about his kids and generally kept things light.
But it was impossible. They were holed up together on the boat, where Sal’s screams of pain into his cell phone echoed across the blue waters. Wolf excused himself and made for the terrace atop the ship, with its small onboard swimming pool.
Naro spotted him. “Wolfie, where the hell are you going?”
“Where am I going? I’m going to call Barack to tell him a shit storm is coming.”
“I’m dying here, and he’s calling Obama,” Naro grumbled to his wife, turning back to his phone.
Wolf paused on the pool deck. He had spent plenty of time with Obama, but he’d never seen himself as someone who should be giving the candidate advice. The senator had plenty of smart advisers. That wasn’t Wolf’s role. He was just a supporter—who sometimes joked he had a “nonsexual crush” on the skinny guy. He would have taken a bullet for the senator.
Now he saw a bullet coming, and he knew he was seeing it early—maybe before anyone else close to Obama.
“Hey, happy birthday, young man,” Wolf said a moment later into the phone. It was Obama’s forty-sixth.
The two chatted and laughed for a few minutes, talking a little sports, as they often did, and asking after each other’s wives and kids. Then Wolf took a deep breath.
“I hate to bring you bad news on your birthday,” he said, “and you know I’ve never advised you; that’s not my role. But you need to see what I’m seeing, from where I sit.”
Then Wolf laid it out, straight and simple: how UBS was leveraged up, more than most, but certainly not in a class alone; how all the big shops—Lehman, Goldman, Morgan Stanley, Citigroup, Merrill Lynch, and Bear Stearns—were living on short-term credit, leveraged to the hilt, which “means they have no margin, no cushion, to take a significant loss.” Then he described the nightmare’s haunting spirit: all those derivatives bets on mortgage-backed securities.
Obama was quiet, taking it in, asking for a definition of this, an explanation of that. Wolf knew this stuff backward and forward—he had lived it—and he was gaining confidence with every active verb.
“Listen, Barack, this isn’t about natural ups and downs of economic cycles, of growth followed by recession and then rebound. I think what we’re looking at could be a once-in-a-lifetime kind of thing.”
He needed to say it more clearly.
“This is a market-driven disaster that could crush Wall Street and with it the whole U.S. economy.”
Wolf paused, suddenly self-conscious, high atop the flying deck of a sparkling era soon to end.
“I mean, Barack, I just thought you should know.”
“Happy birthday, huh?” Obama said, ever cool. He paused for a moment. “Hey, Robert, you’re an adviser now. Call Austan Goolsbee. Okay? And let’s keep talking, you and me, just like this. Deal?”
“Deal.”
Barack Obama had been given that rarest of gifts: a glimpse of the future. The rest of the world, the political world at least, was still rooted in the past.
The senator was slated to speak that night in Atlanta, at the Southern Christian Leadership Conference, an organization founded in 1957 by a young reverend named Martin Luther King, Jr., in the wake of the Montgomery Bus Boycott. Soon after its founding, it had become the organizing fist of Southern clergy—those fierce, clear-eyed pastors who would march into bayonets and swinging billy clubs leading prayers. Fifty years later Obama would stand before them as an emblem of what they had achieved.
King himself, in the last years of his life, turned his attention to what he termed “economic justice.” In his 1967 book, Where Do We Go from Here, he championed a “guaranteed income” to turn the country’s impoverished into active consumers with enough to live modestly. He wrote that “the contemporary tendency in our society is to base our distribution on scarcity, which has vanished, and to compress our abundance into the overfed mouths of the middle and upper classes until they gag with superfluity. If democracy is to have breadth of meaning, it is necessary to adjust this inequity.”
King’s attempt to make a moral case for not just equality before the law, but a greater equality of distribution, led some civil rights leaders such as Bayard Rustin to break with him. He appeared to be crossing into dangerous, uncharted territory. Undeterred, King gave a speech at Washington’s National Cathedral on March 31, 1968, reaffirming that equal opportunity and economic possibility were issues of moral reckoning.
“One day we will have to stand before the God of history, and we will talk of things we’ve done,” King said that night. “Yes, we will be able to say we have built gargantuan bridges to span the seas. We built gigantic buildings to kiss the skies . . . It seems to me I can hear the God of history saying, ‘That was not enough! But I was hungry and ye fed me not. I was naked and ye clothed me not.’ ”
A few hours before, the leadership of the SCLC persuaded King to return to Memphis to support the striking garbage workers. King was reluctant to go, but felt, he told aides, that the need “to push forward the nonviolent struggle for economic justice” was too great.
He booked rooms at the Lorraine Motel and left Washington for Tennessee.
&
nbsp; Barack Obama, in just a few days, had caught sight of an emerging catastrophe that would again draw together the issues of economics and justice. No one in Washington’s power structure had been presented with a similarly dire and credible prediction from an actual captain of a Wall Street bank, the latter group having too much at stake for that level of candor. And such a “market-driven” tidal wave would surely be headed for the dense shoreline that, only days before, Krueger and the economists had so aptly described: rickety structures—freshly painted with easy credit, but rotted beneath—that housed so much of the country’s economic livelihood. Did government, in its weakened state, have the power to hold a catastrophe at bay? If such a tidal wave wreaked devastation, might it recast basic moral equations by which power and wealth had long been distributed, and perhaps even herald a rebirth of the public ideal?
When King spoke of giving democracy its full “breadth of meaning” by altering economic inequity, he was in the midst of his own struggle with a certain duality—between the transcendent character who stood at Lincoln’s feet to tell of “a dream . . . deeply rooted in the American Dream” and the man who spent the ensuing years of his life walking the flat earth struggling to conjure the righteous actions with which to make real that earlier day’s effusion of noble purpose. A week after that National Cathedral speech, King’s death in Memphis would leave behind the image of a man, as familiar now as an old friend, giving voice to an expansive dream, perhaps big enough to bridge America’s own duality between noble ideal and, at times, ignoble action—between principle and practice, word and deed.
Obama acutely understood how people painted their longings onto his welcoming presence, yearnings he would try to harness in the service of tangible change. If he could manage it, he might finally cash King’s promissory note—to stand, his right hand raised, on the other end of the Mall—as the culmination of a centuries-long struggle for civil equality and as the torchbearer for King’s second dream, of equality of opportunity upon which to found a truer democracy. Obama had seen the longing in the eyes of his crowds, and though he had not yet found a way to tap this longing, he understood, on some level, that his fortunes rested on how he could craft his narrative and himself into a sure vessel for that hunger.
The forces of change were now in play. Obama finished up the conversation with Wolf, his Wall Street informer, and turned his attention to polishing that night’s speech. Like so many he had given, it would strive to conjure the spirit of King—or at least the spirit embodied in that well-worn image of the man. But now those hard questions of economic justice gathered around him, those questions of the second, less familiar King. They gathered in the air like the clouds of a coming storm.
3
Sonny’s Blues
Eight months after Robert Wolf sounded the alarm from the flying deck of Le Rêve, Barack Obama found himself in Manhattan, tucked in the backseat of a black SUV, the UBS chief by his side, dodging potholes on Third Avenue. They had been talking regularly since Obama’s birthday, and in many ways Wolf had turned out to be the gift that kept on giving.
UBS had taken heavy losses that fall, and Wolf, ahead of the curve in grasping the nature and implications of the crisis, had seen himself promoted to president and CEO of UBS Americas. In the meantime he had been working with Obama to demystify the machinery of Wall Street. Alongside the intellectually nimble Austan Goolsbee, Wolf was part of a team that helped Obama and his twenty-six-year-old speechwriter, Jon Favreau, draft a prescient speech on the country’s financial perils, which the senator had delivered at NASDAQ in mid-September. It had all been there in the speech: a new framing of the country’s financial dilemma.
“Amid a crisis of confidence, Roosevelt called for ‘a reappraisal of values,’ ” Obama had begun. “He made clear that in this country . . . ‘the responsible heads of finance and industry, instead of acting each for himself, must work together to achieve the common end.’ ” It was this idea of common cause, the senator continued, that we needed to restore. Then he laid out a plan of attack: to investigate the subprime market, ensure transparency in trading, and regulate the rating agencies. Everything flowed from the underlying point that no one can exercise sound fiscal judgment “if the information is flawed, if there is fraud or if the risks facing financial institutions are not fully disclosed.” With this speech, Obama had suddenly leapt ahead of everyone in Washington—at very least the other presidential hopefuls, out stumping through the cornfields of Iowa. There was concern inside of Obama’s camp about what his many Wall Street contributors would think about the speech, and then surprise at how they’d embraced it. It was a damn nice rundown, Obama thought, one of his best, highlighting what was only just dawning on the national consciousness: that Wall Street and Main Street had grown inextricably and dangerously intertwined.
The NASDAQ speech received scant coverage. Obama was trying, at that point, not to show signs of desperation, but the circumstances were even testing his preternatural calm. He told Valerie Jarrett, the Chicago businesswoman who’d introduced him and Michelle and had become his close personal adviser, that he needed her in Iowa, and she put aside her business commitments to be at his beck and call. At least now he would have someone to commiserate with in the worst moments, such as the September night when he called the home of an Iowa power broker, someone whose support he needed, only to have the man’s teenage daughter answer, saying, “I’m really busy with my homework,” and then hang up. He turned to Jarrett, wondering if this could get any harder.
It would, and then there’d be a first break. Finally, an opening.
In November, during a nationally televised debate in Philadelphia, Clinton bungled a question on whether she supported New York governor Eliot Spitzer’s plan to give driver’s licenses to illegal immigrants. She’d fudged and flip-flopped, as the other candidates piled on. At last she’d lost her storied composure, bitterly remarking to moderator Tim Russert, “You know, Tim, this is where everyone plays gotcha!” The next day she’d compounded the slip-up, releasing a video of the other candidates—all men, of course—ganging up on her, implying that the attack had more to do with sexism than her front-runner status.
Maybe it was Clinton-fatigue in the end. Or maybe Americans just like a hard-fought contest and the story of an underdog comeback. Whatever its cause, this shifting tide would carry Obama to victory in Iowa two months later, to yet another occasion for delivering a brilliant speech on national television and summoning his particular brand of magic. As he stepped onto a stage in Des Moines the night of his triumph, the gaze of the nation adjusted itself and refocused. Before them was a black man, who had just won in a 95-percent-white state, thundering, “We are one nation, we are one people, and our time has come!”
The cheers of “O-ba-ma! O-ba-ma! O-ba-ma!” rose like a roaring surf, such that he had to stop and wait, and flash the thousand-watt smile—couldn’t help himself—before going on, proceeding to talk about expanding health care coverage, cutting taxes on the middle class, and ending the war in Iraq. But as he continued in his distinctive manner—precise and lyrical, heartfelt and gently clipped—the audience waited for him to move past these policy points, for him to weave his story once again into the broader story of the nation and thereby make his victory theirs.
In three paragraphs Obama wove it tight:
“Hope is what led a band of colonists to rise up against an empire. What led the greatest of generations to free a continent and heal a nation. What led young women and young men to sit at lunch counters and brave fire hoses and march through Selma and Montgomery for freedom’s cause.
“Hope”—the cheers drowned him out—“hope is what led me here today. With a father from Kenya, a mother from Kansas, and a story that could only happen in the United States of America. Hope is the bedrock of this nation. The belief that our destiny will not be written for us, but by us, by all those men and women who are not content to settle for the world as it is—who have the courage to remake th
e world as it should be.
“That is what we started here in Iowa and that is the message we can now carry to New Hampshire and beyond. The same message we had when we were up and when we were down, the one that can change this country—brick by brick, block by block, calloused hand by calloused hand—that together, ordinary people can do extraordinary things. Because we are not a collection of red states and blue states. We are the United States of America. And at this moment, in this election, we are ready to believe again.”
Clinton would fight on, drawing on her seasoned political skills, her pluck, and a crack staff, but there was no way she, or anyone, could ultimately match, or in the end catch, Obama. Not now. Not after his come-from-behind victory and dazzling speech in the Iowa heartland. He had officially become a vessel for hope, an emblem of the very comeback a bruised and battered nation, emerging from a dark decade, pined for. As his crowds began to swell, the question became one of whether this brilliant construct, a man who seemed to fuse together so many disparate elements of the wildly diverse country, could handle the waterfall of inchoate yearnings crashing down on him.
This question was put to the candidate soon after, when in March a YouTube clip of his longtime spiritual leader, Chicago reverend Jeremiah Wright, became an overnight cable news sensation. The clip showed Wright, a man who had officiated at Obama’s wedding and his daughters’ baptisms, swapping out “God bless America” with “God damn America” in a fit of wild-eyed, white-robed histrionics.
Obama was compelled to respond to Wright’s tirade, and he did, once again in an extraordinary speech. The address spoke directly to where he, Obama, fit in the nation’s struggle with the “original sin” of slavery and its bitter harvest of racial strife. But it did something far more profound in placing the candidate at the meeting point of a still largely segregated America, in a unique position to speak hard-nosed yet sympathetic truth to black and white America alike. From this vantage point, Obama seemed to promise, implicitly, to heal the wounds that still divided us. Those well-worn stanzas about a father from Kenya and a mother from Kansas were now widened into a full symphonic expression of unity overcoming mistrust. Obama paired Reverend Wright’s angry rants to the dark suspicions of his beloved grandmother—“who would often express fears of black men and uttered stereotypes that made me cringe”—explaining that he could not “disown” either one. They “are both a part of me,” he said, just as it was clear that they were both part of a still-divided nation aching for wholeness.
