Confidence Men: Wall Street, Washington, and the Education of a President

by Ron Suskind

  When Obama won his Senate seat in 2004, Daschle was losing his, after twenty-eight years.

  One coming, the other going, they became fast friends, and Daschle persuaded much of his staff, from Rouse on down, to move from the most powerful office in the Senate to that of the bright young man from Illinois. This was unheard-of. First off, skilled and seasoned staffs in the Senate—and Daschle’s was about the best—have never been known to be transferrable. But this one was. Daschle became Obama’s mentor, with Obama’s new chief of staff, Rouse, as his guide.

  Obama leveled with them both when he arrived, telling Rouse, “I know what I’m good at and I know what I’m not good at. I can give a good speech.” He continued, “But I don’t know how to build a large staff and negotiate the potential pitfalls of being a relatively high-profile newcomer to the Senate.” They set up a game plan for Obama. Rouse was a legendary memo writer. He handed Obama a black notebook, the “Senate Strategy,” laying out how Obama would stay quiet, work hard, and try to learn the rhythms of how laws are made. Options were developed based on whether he decided to run for president. But they are all thinking of when—when would he run.

  Everyone was. So to map the realm of possibility, and build up favors in the event of a dash for the presidency, Obama went on the road in 2006. He gave speeches, and wooed the auditoriums and banquet halls as every Democratic senator’s handsomest-ever friend, and that’s before he opened his mouth. Then it was time for decisions and—in what would soon become a storied encounter—he and Daschle sat in the kitchen area of a pricey Washington restaurant. Obama wanted to know if Daschle thought he was ready, wondering if he shouldn’t wait and get more experience. After all, Obama had only one year actually walking the halls of Congress before he went on the banquet circuit, and of course he needed a lot more experience before becoming president. But the system was busted, terribly, and in this age of 24/7 pie fights that pass for political discourse, having a thin record for others to shoot at, to attack, may have been the only way to move forward. Daschle had just finished a race where Republican John Thune and his ops research staff picked at Daschle’s twenty-six years of votes like the vulture at Prometheus’ liver. All Daschle did, day after day, was try to explain away mischaracterizations of his record trumpeted on cable, online, and in ads, until he collapsed in defeat.

  And maybe it was true—that there was simply no way a senator with any experience could win the presidency anymore, considering that none had managed it since John F. Kennedy. Obama, of course, was never able to fully internalize that answer. Within a year, he was already focused singularly on the presidency. By early 2008 he had been running for elective office for much of his adult life, mostly as a one-man show.

  Now, after Pennsylvania, his managerial nascence was showing—and Pete Rouse, flying to Chicago, knew it.

  He understood how Obama operated from moments when no one was looking, how unflinchingly loyal he was to everyone around him—grateful, really, that they were doing what they could on his behalf. His instincts were to always push for consensus, and then affirm it, usually with some trenchant twist that would make it his own. But Rouse knew that Obama, comfortable reaching for the sweeping concept, and trying to spot paths of historical consequence, was fairly easily managed. Which was what had been happening. He’d been deferring too much to political consultant David Axelrod and David Plouffe, his campaign director, and the wider staff. He was the candidate. They were the managers. So, fine, manage me. I’ve got plenty to keep me occupied.

  Obama turned to Rouse, as the group beckoned from the other room. “Pete, what can I do here that I’m not doing?”

  “Barack,” Rouse said, looking hard at his friend. “You need to take ownership of this campaign.”

  Obama nodded. Ownership. Got it. That night was a big one in a little-noted area that often defines the fortunes of leaders: management skills. For all his intellectual firepower, Obama had none. Over the next few hours, and next few days, a new structure was set up. There would be a nightly phone call, led by Obama, with the senior staff, no matter where he was or what else competed for his time. The agenda for each night would be drawn up by Anita Dunn, who’d worked for everyone from Jimmy Carter to Daschle, had run Obama’s precampaign political action committee in 2006, was now a political consultant, and had been called on by Obama to assist the campaign in early 2007. Axelrod was upset; he was being usurped. Despite his respect and affection for Axelrod—the man who had taken him to the Senate and now the precipice of the Democratic nomination—Obama, with Rouse’s support, insisted. Dunn was in.

  It was a lesson in management, care of Rouse. There are certain things the boss needs. And if he doesn’t demand them, it’s no one’s fault but his own. The campaign righted itself from there. Obama began to understand the dynamic operating beneath him, some of it dysfunctional. The nightly calls solved next-day problems before they occurred, and the calls would be continued, religiously, through the presidential transition.

  A first lesson. There would be many more to come.

  Reflecting on this period in an Oval Office interview, Obama divided the management issue, like most others, along the great before-and-after divide of his life.

  “I distinguish between the campaign and the presidency,” he said. “In each one there were different phases. In the campaign, my management evolved partly because my position in the race evolved and my prospects evolved—in the same way that my secret service protection kept evolving.” He described how his detail grew from eight agents to forty, after Iowa, to a “massive enterprise by the time I won the nomination,” and that “the same was true of the campaign” staff.

  The president ran through the campaign’s evolution: the core team of David Axelrod and David Plouffe; the eventual need to bring in Pete Rouse and Valerie Jarrett, to make sure everyone was “more disciplined”; and onward through the primaries and into the general election, as the campaign grew and became more organizationally complex. To be sure, he, as the candidate, was the one being managed down to the frenetic minute. But he needed to “own” it and guide it. As president, atop the most complex managerial organism on the planet, it would become much more difficult.

  Carmine Visone looked out of his twelfth-story window at one of Lehman Brothers’ Midtown Manhattan offices. On a warm late-April day, they’d put out the awning and the outdoor tables at Bice, his favorite Italian restaurant.

  This was his seasonal ritual, for years. Reserve the corner table on the street, and watch from his office window. And at the appointed time, see if his lunch date had arrived and been seated. He hated to wait. Now he’d always show up five minutes after his dining companion, usually someone from another investment bank or real estate trust, had settled in, just in time for the Pellegrino to be served. As the manager of Lehman’s vast real estate portfolio, Carmine had, he felt, at fifty-nine, waited plenty in his life. Let the other guy fuckin’ wait.

  If Greg Fleming was in an ideal perch to see the debt mess and enter a strange kind of footrace with Hank Paulson for Bank of America’s favor, Carmine was the guy who had been around long enough to see exactly what had gone wrong from the bottom up.

  But he’d never have called himself an old-timer. That he’d worked hard to preserve his youth was understandable: he’d been at Lehman for longer than some of his current colleagues had been alive. It was a different company and a different world back in 1971, when he filled out his application for a job as a bookkeeper, working in Lehman’s basement.

  As a young tough on the streets of Brooklyn, Visone had gotten into his fair share of trouble, so it was a bit unexpected when he landed on his feet with a job at Lehman. His father was a bricklayer, an Italian immigrant who taught Carmine to assess value with the fundamental premise that “you’re fucking worthless—you want to be something, you find something of value, take it into your hands, and hold on tight.” As a young man and a big one at that, Carmine worked out furiously to transform himself, as a bodyb
uilder—he once won the “Mr. Tall Brooklyn” title—and then worked his way up from there. When he was made a managing director at Lehman in 1988, he had been at the company seventeen years.

  Dick Fuld, who had joined the company in 1969, two years ahead of Carmine, took him aside.

  “You know, Carmine,” he said, “I think this will be the last time a guy like you is named managing partner.”

  Carmine wasn’t sure if he meant it to be a compliment, but he knew what Fuld was saying. It didn’t take a rocket scientist. By then, the entire baby boom talent pool had started racing to the Street, and most of them had never met a bricklayer.

  “Thanks, Dick,” Carmine said, taking it as a kind of congratulations.

  There was more truth in Fuld’s remark than the future CEO himself probably even realized. Certain differences between Carmine and his fellow managing partners would emerge only later. For one, Carmine couldn’t embrace the idea that he was worth what he was getting paid. Looking over a bonus check in 1993 with his wife, Kathleen, he wondered aloud, “What more do we need?”

  Like everyone in New York, he passed his share of homeless people on the street. Their ranks had grown over the years, he noticed. New York had become a city of startling disparities. If you really believed that compensation was a dollar vote on your intrinsic and indisputable value, you might have looked past them. After all, there must be some reason they were on the street and you were wearing a Zegna suit.

  But Carmine couldn’t manage it, couldn’t in good faith agree with the market’s decisions about how vastly different some lives were valued compared with others. So he and Kathleen rented a U-Haul truck, drove it to one of those giant supermarkets in suburban New Jersey, and loaded it up with food. Then they began driving the streets of New York passing out food to the hungry. Night after night, year after year, Carmine drove the streets in his trucks—first a van, then a panel truck, then a big one, with a cab and a trailer. At times he would stick around for a bit, after handing out the food.

  “I like to watch them eat,” he said to Kathleen one night. “That’s my weakness, I guess. I need to touch something that’s real, and there’s nothing as real as hungry people having something to eat.”

  With a night-school degree from Pace University, Carmine made partner through a tireless career-long search for value—for something he could touch and convince others to invest in, something, or someone, that could pass his father’s brutal crucible.

  That was how he met Sonny. Sonny was Carmine’s best client, one of Lehman’s best, and for a time the largest converter of rental apartments into condominiums in the country. Sonny’s story was classically American in its basic lesson about success: anyone can achieve it. Coming to the United States from Israel at eighteen, with no education beyond high school and no money to speak of, Sonny proceeded to give Horatio Alger a run for his money. For years Carmine told Sonny’s story—a kind of nutritiously humbling fare—to younger colleagues, who he felt tended to draw untested self-confidence from their bonuses and prestigious degrees.

  Sonny, on other hand, was a guy even Carmine’s father would have loved. He and his brother started out leasing an apartment together in LA, driving cabs to make rent. It was the 1970s, and the concept of apartments “going condo” was just taking hold. Pooling cab fares, Sonny and his brother eventually took out a loan to buy their first condo—a single unit. They worked out the math of the transaction, bought another condo, and flipped it. In time they had moved on to purchasing a small building. In this way they gradually built up their assets. Then they had an idea: a plan to convert apartments in cities that hadn’t yet caught the condo fever.

  Their stratagem was ingenious. The brothers would go to a town such as Milwaukee, look at rental prices, and, from these, calculate how much a mortgage might cost. Then they would set an imaginary price—“Two-Bedroom Condos Starting at $195,000”—which is exactly what a quarter-page ad in the Milwaukee Journal would say the next day. The local number listed in the ad would go to an answering machine in some hotel room they’d booked for a few weeks. Sonny and his brother would be long gone, back to LA, and a local Wisconsinite they’d hired would check the machine after a week or two. If there were five messages, that was the end of it; seventy messages, however, meant they’d head back to Milwaukee looking for an apartment building to buy. This was how, city by city, Sonny spread across the country.

  He had a rule that Carmine liked to quote: “Buy low. Sell low—and a little.” It meant don’t get greedy. You don’t want to hold on to inventory; you want to move it. No one, after all, can predict the future.

  By 2004, Carmine estimates, Sonny was worth a billion dollars. Carmine himself, at that point, was managing Lehman’s $50 billion real estate portfolio. The portfolio had been built up over years and was not part of the more recent mortgage derivative free-for-all. No, these were properties Lehman owned or financed for select investors. There tended to be an owner of record, so to speak, that was either the bank or one of its customers.

  As New York real estate had been steadily appreciating, Sonny had been buying it—until suddenly he wasn’t. Carmine talked it over with his old pal, noting that the price for residential properties, $110 per square foot, still had some upside and might go as high as $140. Sonny agreed with him but said he’d had enough of all that. He told Carmine that he’d “done fine in New York and it was foolish to stay until the bitter end, looking for the very tiptop and then trying to get out before everyone else.”

  Carmine had always thought of Sonny as a brother, but as they rose together, a key distinction between their work lives emerged. Carmine, who had treated Sonny’s money as though it were his own, was now investing huge sums for people he could only know so well—and many not at all.

  “He pulled out, plain and simple, because it was his money,” Carmine would later say. It meant the lenses through which Sonny and Carmine saw risk were wholly distinct. The two of them looked at the same numbers and saw them differently. Such was the power of incentive and—with one’s own money on the line—disincentive. These divergent perspectives were by no means unique to Sonny and Carmine, but in this case the latter’s up-the-hard-way sensibility could help him grasp the wisdom bound up in Sonny’s viewpoint, and he was big enough to thank his friend for a lesson learned.

  At this same moment in 2004, a nearly identical conversation was taking place inside the New York Federal Reserve, with Tim Geithner, its youthful chairman, at the head of the table. In October 2003, at the age of forty-two, Geithner was placed at the helm of the most powerful of the institution’s twelve branches, insofar as it oversees a collection of the most powerful financial institutions in the world. The chairman traditionally convenes an advisory board made up of representatives from big financial firms and top thinkers in various relevant fields. For the past fourteen years, an anchor of the board was Robert Shiller, one of the era’s standout economists and someone in line, many would agree, for a Nobel Prize. If Stockholm gives Shiller the nod, it would almost certainly be for his pioneering work in behavioral economics, which helped the economist craft several books articulating how the succession of ever-growing bubbles, since the 1980s, would end disastrously. But Shiller was also a key developer of one of the practical tools most widely used by investors: the Case-Shiller Index. Aside from having made Shiller wealthy enough to do without the Swedish prize money, Case-Shiller charts and projects changes in real estate values.

  At his first advisory board meeting with Geithner presiding, in 2004, Shiller described his data suggesting that home values, after having risen steadily for nearly three decades, were inflated by 30 to 50 percent. He focused specific attention on data he and his staff had unearthed showing how, over the past century, rents had tracked with mortgage payments in determining sale prices. In the early 1980s, as home values began their precipitous rise, these two lines began to diverge. Shiller, a densely educated Yale professor, and Sonny, the high-school-educated Israeli émigré
, turned out to be brethren in teasing out and trusting a commonsense measure, the cost of shelter, to use as a yardstick to assess what was real, or unreal, in the buying and selling of property.

  Around the table, the representatives from big financial institutions, and many academics who’d grown wealthy advising those institutions, looked on skeptically, figuring they had the mortgage planet properly mapped and assessed. Yes, it was true that by 2004 the FBI had issued a warning on the rampant fraud in mortgage underwriting. AIG was already telling Goldman—which had many of its former, and future, employees working at the Fed—that it was not going to underwrite any more credit default swaps, the soon-to-be-famous “insurance without reserves” that Wall Street firms and banks were selling to one another. Goldman figured that would be fine. AIG was already on the hook for billions if the mortgage-backed securities went bad. Goldman would just get other clients to write the CDSs, and it had already started hedging and swapping against the CDOs it was packaging and advertising as “safe as cash” to the investing public.

  Shiller was saying to one and all that the entire financial edifice, and the U.S. mortgage market, the bedrock of the country’s economic safety and soundness, was resting on the mother of all bubbles. Sonny, had he been present, would have agreed.

  Shiller recently recalled the meeting, how he “talked about the bubble and housing prices,” something the professor talked about at all the meetings. But, after a few minutes that day, running through his thoughts, data, and expertise on the matter of real estate, “I had this feeling, the same feeling anyone has when they are kind of violating groupthink. Here I am, talking about the bubble in the advisory committee and after a few minutes starting to feel uncomfortable about it. I’m thinking, maybe I’m sounding flaky. ‘Bubble’ was not even in the textbooks then. There is a certain image we project of scientific objectivity in the economics profession and ‘bubble’ sounded like a newspaper term.” Bubble, incidentally, is now a term economists use. And Shiller can hardly be faulted for wondering if the problem was what he was saying, or how he was saying it.