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

by Ron Suskind

  That deep knowledge is a blessing and a curse, and hearing Podesta’s elegant rendering of how Obama draws people out and creates a “space where solutions can happen,” Daschle paused, thinking it over. Yes, Podesta—another, if slightly lesser, Obama expert—had spoken the truth. But Daschle, speaking today with rare candor, spun it. “I’m seeing glimpses of that.” He explained that in the campaign “I saw a man who listened. Sometimes people misunderstood that listening as an acquiescence to their point of view” and that, as president, on health care and other issues, “I think that same approach is happening on a larger scale. And again I think people are confusing that. I think what needs to happen is he needs to be very engaged. It really does require constant vigilance so that we can come to closure on some of these things.”

  Of course, Daschle had no idea that Obama had, that very week, embraced DeParle’s Massachusetts-like plan, nudging the his grand initiative away from actual health care reform—and with it Daschle’s longtime passions for reforming the medical delivery system and reining in costs through government-forced efficiencies—and inexorably toward health insurance reform.

  All the same, he knew, as few others could, how overwhelmed Obama was at this point, and how “he’s got ten wars at once. But that’s part of leadership: he’s gotta sort it out. If he wants health care to be part of his legacy, he’s gotta do it. Pay the dues. I know all of these other things are important, but in the next four or five months it’s going to be worth it to the country if we focus and stay on the offensive. Because he only has a short window.”

  A fully animated Daschle was now almost pleading.

  “He doesn’t have the luxury of coming back to this a year from now.”

  12

  Nowhere Man

  When Obama selected his B-team, he left in his wake a slew of jilted economists. The group was characterized largely by progressive, Keynesian thinkers, who soon enough began to question whether the stimulus was sufficient, and who launched forward from there in a wide expanse of op-eds, lectures, and interviews assessing and criticizing the president’s first one hundred days.

  With that milepost just two days away, Obama, on the evening of April 27, invited this Greek chorus of the noisy and moderately disaffected for a dinner at the White House.

  For most in this group, a call from the White House, any call, was something to pine for; when it came, they tended to drop everything. Especially Joseph Stiglitz. Generally uninvolved during the campaign, the Nobel-winning economist hadn’t heard a peep since Obama became president. His wife, phoned in her Pilates class that morning by Summers’s assistant, managed to get the message to Joe—arguably the world’s most cited economist—by midafternoon, just in time for him to jump on a train to D.C.

  For most of the others, the invites were a bit more decorous—coming a week ahead—and at 7:00 p.m. they gathered around the curve of a table in the residence. A Mensa murderers’ row: Stiglitz; Harvard’s Ken Rogoff, a specialist in the history of financial collapse; Jeffrey Sachs, Columbia University’s globe-trotting guru of globalism; and Paul Krugman, whose daily blog and twice-weekly columns on the New York Times editorial page were quickly becoming the platform for a progressive government-in-exile. Across the table were Summers, Geithner, and Romer, protectively clustered around the president. Of course, all the economists knew one another. Krugman, Summers, and Sachs, in fact, were once graduate students together at MIT, where they had to work out the mathematical proof of how three people can each be the smartest person in a room at the very same instant.

  Over roast beef and salad, with lettuce that Michelle had grown in the White House’s organic indoor garden, they carried on a somewhat tamer, private corollary of a conversation that had been conducted in public for months. This was early, though. Questions—what exactly was Obama thinking?—had started to harden into criticisms only in the past month or so, following the AIG bonus scandal, revelation of the billions in counterparty payments, the unconvincing surprise and then outrage voiced by both Obama and Geithner (who said that he didn’t remember much about the bonuses), and the announcement of the coming stress tests.

  Several of the economists had all but foretold the financial crisis and felt they’d not been given due credit or, at the very least, thought their precognition earned them the privilege of an audience with the president. The issue of credit was especially acute for Stiglitz. His Nobel, awarded in 2001, was for his work showing how markets can spin out of control when “imperfect information” is shared unequally by parties to a transaction, often giving an unfair advantage to one participant. This is, more or less, the business plan for much of the subprime and derivatives market. Or, in Stiglitz’s words, “Globalization opened up opportunities to find new people to exploit their ignorance. And we found them.”

  But at dinner, the famously acerbic Columbia professor was polite, happy to see Obama again in the flesh, making his points about why the stimulus should have been significantly larger, closer to $2 trillion, to fill the hole in the economy caused by the great crash. That comported with Romer’s number about the size of the downdraft back in December, which was what brought her to the original estimate of $1.2 trillion, deriving from the view that each $1.00 of stimulus results in about $1.50 of GDP growth.

  Rogoff was putting the finishing touches on a book with University of Maryland professor Carmen Reinhardt called This Time Is Different: Eight Centuries of Financial Folly, which looked at the remarkable similarities between bubbles and busts in sixty-six countries across centuries. He described the pattern over the roast beef: politicians ease regulations governing the financial system, which frees banks to use that latitude to lend and borrow money to crank up profits, which draws foreign investors and their cash to the exuberant country, which creates bubbles in commodities or real estate or stocks. Rogoff, on a darker note, mentions data on the aftermath of “financial crisis recessions,” and how often policy makers overlook this one particular difference—a real one—in estimating how long and hard a recovery may be. Such estimates were not fully factored in the projections the administration made in December.

  But this was Obama’s show, and he moved around the table calling on people—Summers and Sachs, then Geithner, then Krugman—sometimes referring back to one of them and what they’d said. He said he mostly wanted to hear from his guests but spoke a bit himself, talking about his urgent desire to help the economy and the financial system, but defaulting to the position of Summers (mostly) and Geithner (always) that “my first principle, is to do no harm.”

  He then offered, to one and all, his most compelling “good listener” look—the thing that Daschle noted—and, as they spoke, the economists struggled to detect whether they’d gotten through to him, and if he seemed to be agreeing with any of what they’d said. One “yes, you’re right!” and maybe the might of government would find a new direction.

  That didn’t happen. But all of sudden there was a ruckus, and in loped Paul Volcker, short of breath and mumbling about how long he’d sat on the tarmac in New York. Axelrod, who’d taken Volcker’s chair when he didn’t show, leapt up, and the giant Volcker slipped in just in time for dessert. Still puffing, he said nothing, and the president continued his rounds, well along into a second loop.

  Obama’s Socratic approach left one participant feeling slighted. Romer, the sole female economist, reached down for her purse, took out a business card, and scribbled, “Either he acknowledges me soon or I’m leaving.” She passed it under the table to Summers, sitting next to her. She knew every one of the economists here. She had sat on panels with them, had spoken at testimonials for some of them, and she might as well have been serving them the food. Summers, who could do his math as well as Romer—they’d run in the same circles for twenty years—read the note and passed it along under the table to Geithner, who read it himself, and then waited for a moment to pass it to Obama.

  “Let’s see now, Christy,” the president said lightly, a moment later.
“We haven’t heard from you yet.”

  Romer cooled down quickly, invisibly, and after a moment she queried Krugman, an old friend, about Japan. He had written a column about how Japan, like the United States, had gone to zero interest rates. She knew that the president still felt there was no way to get more bang out of monetary policy, considering that rates couldn’t go below zero, and now she egged Paul on to explain that if a fear of inflation can be created, people will expand borrowing at the same low rates, thinking that zero rates won’t last much longer. Of course, this is what Romer had explained to the president in her job interview, when he’d opened with “we’ve shot our wad on monetary policy,” referring to zero interest rates. He didn’t seem to have retained it.

  “That’s very interesting, Paul,” Obama said, looking with rapt fascination at the contrarian, and a suggestion of policy filled the room.

  Two months before, Summers might not have thought to pass Romer’s note along, but her grievance, along with those of other senior women, had recently spilled into the open. There was a nascent gender struggle in the White House. The women, Romer included, were tired of preparing for group meetings and watching the men talk to one another. Obama seemed to favor the men—especially Summers and Emanuel—and not the strong and accomplished women sitting nearby.

  If Romer appeared to lead what one top official called “the women’s movement,” it may have been because of the added burdens of her regular exposure to Summers.

  Two months earlier, after several key economic meetings from which she was excluded, Romer had gone to Emanuel’s office saying she’d have none of it. He assured her she’d be included from that point forward and not have her access to key meetings or to the president interrupted. But many days there were issues. Summers seemed to take joy in trying to humiliate her in the morning economic briefing. “Sometimes it seemed like he was trying to make her lose her composure, and a few times he definitely succeeded,” said someone who came to the morning briefs. “The president had a kind of ‘now, now, Larry, be nice’ response, which seemed to make Christy even angrier.”

  After one meeting, she stormed out of the Oval Office, letting out an audible gasp of distress in the hallway. Said one observer present: “Whether or not the president heard her, he didn’t react.”

  When a task would come up, Obama would almost reflexively say, “Tim and Larry will handle that, always Larry and Tim, and I sort of wondered, aren’t I supposed to be the third leg of the stool?” Romer later recalled.

  Romer went to Valerie Jarrett, who had recently hosted a dinner for Romer with the First Lady and a few other women on the senior staff.

  Jarrett told her that Obama’s inner circle during the campaign was mostly men and that, with more women in top positions in the White House, the women’s issues were “something we’d have to work through.”

  It was soon clear that it wasn’t just Romer. The president had hired an array of strong-willed, accomplished women who felt the same way Romer did: ignored. Jarrett, one of the few West Wingers who had actual executive experience, started a women’s group and opened lines of communication. Soon the complaints started to build. Many focused on Emanuel and Summers, both notoriously brusque, but even more abrupt and dismissive with women, several of the female staffers complained. There was a roundelay of lunches and dinners between several of the women and Larry and Rahm. When Orszag heard his name might have come up, for being dismissive to Nancy-Ann DeParle, he engaged as well.

  Orszag, while sympathetic to the concerns of Romer and the other women, added another interpretation: “I think part of the problem was the lines of organization were so jumbled from the start that no one was quite sure of their role, or what they were supposed to be doing. What is the economic team? What is the health care team? What’s our financial reform team? Often people weren’t sure where they were supposed to be, who was leading some initiative, who should be included or not, consulted or not.”

  On the morning of May 7, Obama walked with a small contingent from the Oval Office next door to the Eisenhower Executive Office Building—until recently called the Old Executive Office Building. It was time to deliver the federal budget for 2010.

  The past was catching up to him, over and over. After a brutal budget season, where he had to cut back on a wide array of priorities, the president faced a final indignity: over the weekend, projections of the deficit had risen one last time, by $90 billion.

  For the fiscal year ending September 30, essentially Bush’s last budget, the deficit rose from a February projection of $1.75 trillion to $1.84 trillion. For Obama’s fiscal year 2010 budget delivered today, the projected deficit rose from $1.17 trillion—a number arrived after the president agreed to what he considered “basic essentials”—to $1.26 trillion.

  That amounted to a deficit of 12.9 percent of GDP for the current year and 8.5 percent for next year, 2010—percentages that represented the largest since World War II and well beyond what economists roundly recommend, which are deficits no larger than 3 percent. With the new projections, Obama would now get under 3 percent at the very end of his current term, in 2013.

  Each element of the three-part, budgetary equation—the size of the deficit, the projected condition of the economy, and the amount health care costs were expected to rise—was being factored every few days. On the second point, Romer’s office issued a preliminary report supporting Obama’s claim that the two-year, $787 billion stimulus package would save or create 3.5 million jobs by the end of 2010. In terms of health care, though, the news got worse, as Treasury released revised numbers showing that the administration’s major proposal for raising revenue to pay for health care reform—a 28 percent limit on deductions for those in the two top income tax brackets—would only raise $267 billion, about $50 billion less than had been projected.

  Obama had explanations for all of this loaded into the teleprompters in the Eisenhower Building’s press room, but he was dealing with an audience—the world’s bond markets—that really didn’t really care much for explanations.

  That was what was worrying him today. Like so many companies—including many that had faced trouble on Wall Street—the United States had recently become intently focused on the challenge of rolling over its debt. The level of U.S. debt held by foreign countries was unprecedented. The leverage that this might give them, and especially China, over the United States had been a much discussed fear since the Great Panic of ’08. Over the past few months, though, another question had arisen: What if the United States held a Treasury auction and no one came? It seemed as though the so-called indirect buyers of T-bills, mostly foreign countries, were not showing up in their usual numbers and the U.S. government was having to pick up the slack.

  With today’s shifting numbers, Obama was growing concerned. He’d been briefed on the T-bill issue by Orszag, and how the disfavor of foreign T-bill buyers could be disastrous. He remembered, as many did, the notable exchange between Alan Greenspan and Bill Clinton in 1993, revealed in Bob Woodward’s book The Agenda, when Clinton asked if his presidency would be determined by how he was seen by the bond market. Greenspan said, in fact, it would. Clinton eventually balanced the federal budget and became a darling of the bond markets, which graced the U.S. economy with about 2 percent in credit costs, which it had been holding back under the assumption that the federal government would never get its fiscal act together. When it did, and interest rates fell, borrowing and economic growth surged.

  Now the United States, from the federal government to corporate offices to kitchen tables, was suffering from an inverse equation. With household debt at nearly 130 percent of GDP—up from 68 percent in 1992—sluggish growth, and enormous federal deficits up another $90 billion, what was needed was a massive deleveraging. But not while the economy was limping. With the bad fiscal news he was about to deliver, Obama wondered how the next Treasury auction would go. Maybe no one would show.

  As he and five officials from OMB milled about in a wai
ting room near the press center, Obama turned to Orszag with a request. “I’d really like you to write me a memo.” The memo would detail what Obama’s options were in the event of a fiscal crisis. What do we do in terms of policy adjustment to restore our credibility? Obama added: “And I’d like you to give it to me directly.”

  Orszag looked at him quizzically, making sure he’d heard right: the president wanted a memo that wouldn’t get read first by Summers or Emanuel, or circulated by the White House’s staff secretary, as was the traditional process. Orszag’s mind raced. He knew that the new president had a great deal to learn, and might be resistant to the training program that both Emanuel and Summers were keeping him bound to.

  “I hope that won’t cause too much of a problem,” Obama said, with a half-smile. “I don’t want to get you into trouble.”

  “No, sir,” Orszag said. “Will next week be soon enough?”

  Obama nodded and, with a trace of uncertainty, added, “I guess I’m allowed to do this, right, to ask you for a memo?”

  “Well,” Orszag said, “you are the president.”

  Barack Obama nodded. Yes, he was actually the president. Then he walked into the glare of cameras to deliver that day’s dose of bad news.

  On May 8 the man hastily selected to be deputy Treasury secretary, after the nomination of Rodg Cohen was withdrawn, sat in front of the Finance Committee for his confirmation hearing. Neal Wolin, another in the long procession of Bob Rubin acolytes, had spent six years at Treasury during the Clinton administration and, as general counsel, headed up the team of lawyers that drafted Gramm-Leach-Bliley, which officially dismantled Glass-Steagall. His hearing was scheduled for a Friday, which, strategically speaking, is a good time to slip a nominee through: many senators travel to home states on Fridays. This was what Maria Cantwell was planning to do when one of her aides said Wolin was coming up. She was terse: “If I’m going to stay, you’d better pull together some strong material for me to grill him with.”