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

by Ron Suskind

  But times had changed. After HR 1586, the bill most reviled and feared by the thirteen bankers, passed the House, Markey, again from the well of the chamber, added that “by the early 1990s it was already clear that the derivatives markets were too risky to remain unregulated and now the chickens have come home to roost. By passing this bill today, the House is sending a strong signal that this type of behavior will not be tolerated. What we still need to do, however, is take up a comprehensive package of financial market reforms to address the recklessness that led us to our current crisis.”

  As for the “type of behavior” that “led us to our crisis,” Markey could cite the moment he saw the culture shift, like some geological event.

  It was in 1988, after the 1987 stock market crash, and the prosecution of insider trading and various securities frauds was well underway. “Something very basic, very fundamental, had changed on the Street, and we on the subcommittee couldn’t put our finger on what was different,” Markey recalled. So they decided to bring in an expert. Dennis Levine, one of the major Wall Streeters convicted of securities fraud, was serving time in New Jersey. Markey’s staff got in touch with the Bureau of Prisons and arranged to have him transported for an afternoon to a subcommittee conference room. Levine, who couldn’t be forced to cooperate, was asked what the subcommittee could do to persuade him to come. He said he’d do it for a McDonald’s Big Mac, fries, and a chocolate shake. Once a self-proclaimed “Master of the Universe,” those were the things he’d found he missed the most. Soon enough, Levine, in prison blues, was eating his Big Mac and describing how the rewards on Wall Street had suddenly grown so large, and the opportunities for self-dealing and misuse of insider information—so-called informational advantage—so widespread, that it would only get worse. “He said, we were ‘just at the very start,’ ” Markey recalled, “and that they’d figured out how to turn the investing of others people’s money into a kind of game, where they were constantly changing the rules in a way that was subtly fraudulent, against the basic principles of fairness or fiduciary duty. He said that with this much money to be made for doing very little, it was worth the risk of getting caught doing what you had to do, but that they were working on lowering that risk as well, with lawyers working overtime to make sure many of these activities were legal, or at least hard to prosecute.” After an hour, Markey said that he and the committee members had heard enough and asked the felon what might be done. Levine, sucking on his shake, thought this over for a minute or two, and then said, “You need to send out a slew of indictments, all at once, and at three p.m. on a sunny day, have Federal Marshals perp-walk three hundred Wall Street executives out of their offices in handcuffs and out on the street, with lots of cameras rolling. Everyone else would say, ‘If that happened to me, my mother would be so ashamed.’

  “Levine was saying we should take a dramatic stand on principle to reverse the direction we were moving in . . . before things progressed any further and the problems got even bigger,” Markey said. “Culture is destiny and the only way you create real change is by acting in a way that changes the culture.”

  Presidents are among the few mortals who are sometimes graced with chances to change a culture. Throughout a windswept March, the country had been working to dislodge some of the era’s prevailing certainties about markets being efficient, about people—economically, at least—getting what they deserve, along with the concomitant belief that financial barons are brilliant and indispensable, and manufacturing executives are dinosaurs.

  With the eyes of the country on him, Barack Obama ended the month by shielding Wall Street executives against these winds of cultural change, while he fired a man who had effectively managed four hundred thousand workers in their making of seven million cars a year—without ever bothering to meet him. At the same time, he agreed to try to bail out Chrysler, and eventually GM, by adopting the practices and principles of private equity in the use of government funds.

  Improbable combinations, blended solutions, the integrating of opposites.

  This was the Obama method, in his life and in his work. But he hadn’t gotten elected simply to search for this clever version of the middle ground. He’d been elected at a time of peril to change the country’s course.

  By that measure, it would be easy to conclude that he missed some opportunities to show that America hadn’t necessarily gone from a country that makes things to one that makes things up, and that facing the consequences for one’s actions, at the heart of both a working democracy and effective capitalism, knows no boundaries. When the bankers arrived in the State Dining Room, sitting under a portrait of a glowering Lincoln, Obama had them scared and ready to do almost anything he said.

  An hour later, they were upbeat, ready to fly home and commence business as usual.

  The thirteen bankers, and especially the half dozen titans from New York, returned to their corner offices that afternoon with very strong feelings about one man in Washington: Tim Geithner.

  “The sense of everyone after the big meeting was relief,” said one of the bankers. “The president had us at a moment of real vulnerability. At that point, he could have ordered us to do just about anything, and we would have rolled over. But he didn’t—he mostly wanted to help us out, to quell the mob. And the guy we figured we had to thank for that was Tim. He was our man in Washington.”

  In public life, constituencies are important. Geithner now had one: the powerful but reviled leaders of the nation’s largest banks. He’d have been loath to claim their backing, just as they’d have known not to be demonstrative with support. It was, after all, a bond of mutual desperation: both Geithner and his silent backers were fighting for survival. As one banking lobbyist said, “If Tim were fired, we’d be in trouble; we knew that.” Of course, he’d have plenty of job offers in New York.

  Calls for Geithner’s resignation, which first appeared after the February 10 press conference, had grown into a subject of mainstream discussion in the two weeks after mid-March’s AIG explosion.

  Axelrod and Jarrett looked on warily to see who might be joining the chorus. Geithner was getting attacked from both the far right and the far left—a dangerous combination. And congressional Democrats were on the phone filled with concern. Line it all up—from TurboTax, to the first press conference, to the AIG bonuses—and it was difficult not to pose a question about Obama’s judgment in placing so much faith in this man to handle the most important challenges facing the country. Something had to be done. Geithner was hurting the president.

  Obama was standing firm behind Geithner, but that clearly wasn’t enough. Geithner had to survive, or not, on his own. At 4:00 p.m., a few hours after the bankers had departed—with their “we’re all in this together” message looping through the news cycles—a delegation from the White House convened in the small conference room off Geithner’s office at Treasury. Axelrod was there, along with Sarah Feinberg, Emanuel’s top assistant. Waiting for them were senior officials from Treasury. Geithner had never appeared on one of Washington’s signature Sunday morning news shows. For this coming Sunday, March 29, he’d been booked for two of them. ABC’s This Week, with George Stephanopoulos, would be taping an interview with him at 8:00 a.m. The producers were already touting it as Geithner’s first appearance on a Sunday morning show. NBC’s Meet the Press would have him at 9:00 a.m., calling it his first “live” appearance on a Sunday show. The latter was the tougher venue, with the bigger audience. Geithner would have to stand on his own, under the hottest of lights.

  Fortunately, the week had started on a positive note. A few days before, on Monday, March 23, the Public-Private Investment Program was formally released. This, in fact, was a rollout of the many specific details Obama had promised in his February 9 press conference. They weren’t ready the next morning, as Obama had advertised—not nearly. It took six weeks to iron out the key features of the program, in consultation with other regulators and, crucially, with Wall Street pros, who offered counsel abo
ut what might excite investors.

  This time the White House had been integrally involved in the rollout: weekend leaks of the program’s strongest selling points to the investors; a column by Geithner in Monday morning’s Wall Street Journal; and, not incidentally, a very strong set of favorable reactions from top officials at some of the country’s largest banks, who were just then in negotiations over their upcoming meeting with Obama. All this, plus the weeks of calls from Treasury to Wall Street, so the program would curry a positive response, seemed to work. The further that one dug into its details, the more PPIP seemed like a giveaway to the banks. It just took a little digging. Geithner said it was a tough program, where investors would take the risk. Wall Street knew better. The market rose a stunning 497 points.

  As the team settled that Friday afternoon in the Treasury secretary’s conference room—Geithner was finishing up a call in his office—Axelrod reached out for Krueger’s hand. “I don’t know anything about you,” he said, without a smile, “but the fact that you’ve been nominated and are about to be confirmed shows that you pay your taxes.” The comment was, at best, half in jest. As Obama’s fiercest protectors, Axelrod and others on Obama’s political staff were increasingly concerned that Geithner was a liability who not only stood in the way of tough, and politically advantageous, measures against Wall Street, but also drew the charge that the administration was in Wall Street’s back pocket. He was a lightning rod, and the sparks were starting to hit Obama. Their view: botch the Sunday shows and get ready to pack your bags.

  Geithner arrived and slumped into a chair. After a rough couple of weeks, he was tetchy and reflective. “Look, I don’t want people feeling sorry for me. I don’t want sympathy. I don’t want anyone sending me Rudyard Kipling poems,” he groused. “It’s a tough job; I’m doing everything I can.” He told them he’d just heard from his mother. “She said, ‘Tim, remember the summer you worked at that bar and the owner said you weren’t exactly the best bartender? Well, maybe this is like that, and this job just isn’t for you.’ ” He shook his head. “My own mother!”

  Treasury’s spokeswoman Stephanie Cutter—a longtime operative among the Democrats, who’d worked atop the Kerry presidential campaign—was at her wit’s end. She’d taken Geithner to a media trainer to improve his onscreen demeanor to little effect. Before meeting a delegation of reporters and photographers to roll out PPIP earlier in the week, his collar was hopelessly askew. Gene Sperling, an assistant Treasury secretary, offered him a collar stay, but he had only one. One is better than none, Geithner figured, and emerged at half-mast.

  “I grew up under Bob Rubin,” he’d regularly quip to the staff, “which means I’m in public only when absolutely necessary.” But therein lay a key difference: Rubin’s appearances, though rare, fit with a set of unspoken assumptions. With the exception of Summers’s one-year term in 1999, almost all the Treasury secretaries since the 1970s had been well-polished CEOs, wealthy men. Geithner was a public servant who wore poorly fitting off-the-rack suits and got his hair cut, for less than $20 a pop, at a barbershop—a favorite of African Americans from the area—a few blocks from Treasury. Meanwhile, everyone thought he’d once worked for Goldman Sachs. No, Treasury officials would tell reporters at every turn: he’d been a public servant all his life. But none of it had any effect. Assumptions are powerful once they settle. At a time when the president talked frequently about restoring confidence in the future of the economy and the soundness of the markets, he had a Treasury secretary who offered his own unique counterpoint: as an inarticulate, poorly tailored, uncertain young man—late thirties or so, it seemed—who was walking proof that all you need in life is to have once worked for Goldman Sachs.

  After running through some expected questions, and appropriate answers, Axelrod cut to the marrow. “On Meet the Press, you’ll be asked if you’ve discussed your resignation with the president.”

  Geithner was startled.

  “Well, I’ll say no,” he said. “Because I haven’t.”

  On Sunday, Tim Geithner hunched forward across the Meet the Press interview table, his large hands in front of him, like someone ready to fend off a blow. He survived twenty minutes of live questioning. At the end, the host, David Gregory, dropped the anvil: about calls for Geithner’s resignation.

  Tim Geithner was finally ready.

  “David, when I came into this job, I knew two things. One is I knew we were starting with a set of enormously complicated challenges and a deep sense of anger and frustration about the burden Americans were bearing because of a long period of excessive risk-taking. And I knew we were going to face really tough choices. We were going to have to do things that are going to be deeply unpopular, hard to understand. We’re not going to get it perfect everywhere. But this is a great privilege for me, a great honor to help this president do what it takes to help get this economy back on track.”

  Gregory nodded as, no doubt, did thirteen bankers, or their strategic aides, watching across the country. He’d passed.

  “Secretary Geithner, good luck with your very important work.”

  11

  Unresolved

  In early April, Obama’s economic team congregated in the Oval Office for the morning briefing.

  All the key players were there, except Geithner. After a few moments, the president talked about a resolution plan for Citigroup as a key item in his arsenal, and wondered how close it was to completion. Christina Romer and Larry Summers glanced at each other. They had been talking for nearly a month about how the Treasury Department seemed to be ignoring the president’s clear, unequivocal orders involving Citigroup.

  Geithner and his team were moving forward with their own favored policy, the stress tests, but they had done virtually nothing about a plan to wind down Citigroup.

  Romer’s mind raced. Wouldn’t the president want to know if his orders had been ignored? Especially concerning one of the most important crises he would face in office?

  “I’m sorry, Mr. President,” she said, summoning her courage, “but there is no resolution plan for Citi.”

  Obama looked at her, stunned. “Well, there better be!” he said.

  Romer immediately felt Emanuel’s gaze. Something was clearly amiss.

  When the meeting ended, Emanuel and Summers huddled. A short time later, Summers took Romer aside.

  “You did something very consequential there, telling the president that there was no plan for Citi,” Summers said. “Rahm was incensed that you told him that. That Tim wasn’t here to defend himself. But I defended you. I told Rahm, ‘She’s right!’ ”

  Treasury would in fact never move forward to carry out the president’s wishes about Citigroup, as a potential first step in a wider restructuring of the banking sector.

  The whole point of the executive enterprise is to carry forward the wishes of the president. “He’s the duly-elected representative of the people. None of the rest of us are,” said a top White House official on the subject. “We’re there, at least we’re supposed to be there, to serve at his pleasure, to carry out his will—because he carries the will of the people. Right around this time, you could see that starting not to happen.”

  When questioned later about the matter, Geithner initially said that a proposal for possibly closing Citi, as a first step to doing the same for other banks, was never seen as a “real alternative to the stress tests . . . there was no real alternative to the stress tests.” The resolution of Citi or other banks was instead an issue to be seriously broached only “if the stress tests didn’t work, and they did,” and that most of the people in the room on March 15 “don’t understand anything of what was happening about the substance of the choice, so they’re crafting their memory . . . they’re trying to create memory with the benefit of hindsight.”

  But in a half-hour interview largely on this matter, Geithner began to reveal the strategic complexities of his “plan beats no plan” dictum.

  After praising Romer as a fine economist
, he said she was of “no value on policy issues” of “financial rescue” and that “Larry and Rahm were the only ones that mattered in the debate. Larry’s problem was that he had no alternative, ever,” to the stress tests. “He was never willing to commit to an alternative, never came up with an alternative strategy.”

  But then Geithner went through the chain of events and meetings on this most portentous issue, saying that the consensus recollection “was largely true,” from the president’s ardor, starting in late February, to look at alternatives to solely relying on the “stress tests”—the only plan under way at that point. “He forced me and everyone to look at this thing from all angles, chew it over” and make everyone “go through that test: what is the alternative plan? Those who don’t like it [the stress tests], what are you for?”

  The problem, of course, was that the policy-making horsepower, in this instance, was at Treasury and the Fed, both of which were in concert to push forward a chosen policy that almost every other key person in the government was concerned about, from the president on down.

  Geithner recalled a typical meeting in this period. “We’d be in the Oval Office, the president was worrying, the world was still burning, people wanted to light me on fire, and the president would say, ‘Tim, what I want to know is, are you confident this plan [the stress tests] is going to work.’

  “Normally, Larry would answer before I answered. He’d say, ‘Mr. President, I’m closer to you on this. I want to be tougher.’ And I’d say, ‘There’s nothing certain in life, but I’m very confident that our plan has a much better chance of working than any alternatives.’”

  But, as Larry and Christina worked the phones in early March to try to gather the information they’d need to field, at very least, a strong counterproposal—if not the kind of fully rendered alternative plan that only Treasury could provide—Geithner felt the duo accentuated the financial crisis and actually “fed some of the pressure. They were perceived by the market as indulging in a lot of loose talk about haircuts [to investors holding debt in the banks] and that was very damaging to the markets.”