by Ron Suskind
For White House tacticians, like Emanuel, these were not pertinent matters. New polling showed that, unlike the debacle of the 1990s, the principal villain in the 2000s was no longer seen as government bureaucracy, but rather insurance profiteering. Leaning heavily on polling is common practice in virtually every administration, but as health care began to kick off in earnest, and the stakes were set, Emanuel and the political team became hyper-reliant on the polls.
Joel Benenson, Obama’s head pollster, summed it up best in a speech at the Economic Club of Canada. Talking about the proposed “public option,” a plan in which the government would set up an autonomous federal insurance program to compete in the market, Benenson said, “Initial reaction to it [years ago] wasn’t as positive as it is now . . . But we figured out that people like the idea of competition versus the insurance company, and that’s why you get a number like seventy-two percent supporting it.”
From a broader strategic assessment, this should not have been a surprise. As costs and pressures on the health care system rose, anger at the insurers would have to rise as well. That’s their business model. They get paid to be the buffer—to be hated—so the doctors and hospitals don’t have to be.
Rather than seizing this opportunity, the White House—without a clear strategic model on health care reform—blinked. Using insurers as the tip of their spear to drive down costs—the very thing providers had been fearing since the March summit—was not to be, even now, as Ignagni tried to put the spear in their hands. For the White House to align itself with insurers was seen as politically untenable. Just look at that poll data.
On May 14, DeParle told the New York Times’ legendary health care reporter Robert Pear that the president, in his forceful statements on both Monday and Wednesday, was confused. “The President misspoke,” she said. Then, a few hours later, she called back to say, now it was she who had just misspoken. “I don’t think the president misspoke,” she now said. “His remarks correctly and accurately described the industry’s commitment.”
The providers flip-flopped; now the White House had matched them. The hospitals, doctors, drug companies, and device makers were joyous. To them, the message was clear: the White House was not serious about cutting health care costs.
Peter Orszag worked several late nights on his specially ordered, back-channel report for the president on the fiscal crisis. The nut of the report: in case of a failed Treasury action driven by fears of a widening and unmet U.S. deficit, the government would immediately need to launch some revenue-generating programs. Those programs would have to be not only potent money raisers, but also seen as prudent by the bond markets. One action that would meet those dictates, Orszag wrote, was a strong tax on certain financial transactions. Though Wall Street was against this, most economists—and “show me the money” deficit hawks in the bond community—thought this was a good idea. Twenty years ago, Larry Summers did, too. So Orszag made sure to cite Summers’s old paper in his footnotes.
The president received the report on May 15. It took just a few days for Summers to hear about it. He found out through Emanuel.
Orszag looked up from his desk. Summers had stormed over from the White House to Orszag’s office, and his face was red with rage. It looked like he was about to burst a blood vessel.
He told Orszag he’d found out about the paper. He told him that he, Peter, knew the rules, no matter what the president had said. Everything was supposed to go through NEC. Then its chairman, Lawrence A. Summers, blew a gasket.
“What you’ve done is IMMORAL!” he shouted and stormed out.
Gary Gensler quietly caught the 6:00 p.m. train back to Baltimore on May 26 and, like most days, sat alone reading documents on trading strategies, even though it was a big day—maybe one of the biggest days of his life. He had been sworn in as head of the CFTC.
It had been a whirlwind two weeks of backroom deals, starting on the thirteenth. That’s when Cantwell lifted her hold on him. It was all part of her final play to use the confirmation process to press forward on key policies. She told the White House that if they wanted her to lift her hold on Gensler, they’d have to affirm that all derivatives, including the over-the-counter derivatives, would have to be moved to open exchanges.
Gensler huddled with Summers, Geithner, Emanuel, and the team at Treasury. Though Geithner had been equivocal on such a move, Gensler had not been: after that first check with Geithner—“did you really mean what you said?”—Gensler stated in his testimony that electronic exchange trading was a key reform, even if it might mean billions in lost revenue to Wall Street. Acting as a liaison between Cantwell’s office and the White House, Gensler crafted a position that would be acceptable to Cantwell. Senator Bernie Sanders might fuss—his anger at Wall Street and its many alumni in D.C. was visceral—but he’d eventually go along with Gensler’s appointment as well.
In a press conference back on May 13, Geithner released an outline for the financial reforms being contemplated by the administration, including electronic exchanges, with public prices, for derivatives. “Significant gaps in the basic framework of oversight over critical institutions” had helped cause the financial crisis, he told reporters. “A series of comprehensive reforms to create a stronger system, less vulnerable to crisis, with stronger protections for consumers and investors” would now be worked out with Congress.
Finally, after repeated threats from Congress, a policy—on what many argue is among the most complex and crucial issues preventing another financial disaster—took shape.
Cantwell happily lifted her hold on Gary Gensler.
Negotiations between the White House and Bernie Sanders progressed for the next week, but Cantwell had been the tough one. Bernie just needed to take a stand to make a point. His hold was finally lifted, and Gensler was approved by the Senate—the last of Obama’s thirty-two major appointments to cross the threshold. The vote was a bipartisan 88 to 6.
The winding drama of Gensler’s nomination, stretching back five months, caught the attention of a few reporters, mostly with the business press. But the lack of coverage in such a busy time belied the importance of the issues at hand.
The push-and-shove between the progressive senators Cantwell and Sanders and the White House, and the interplay of interests and personalities, was a lesson in the subtle ingenuity of the American form of government. If Gensler wanted this job, Cantwell made clear, he’d have to speak loudly and clearly. Gensler did. He said, in endless hearings before the Senate Finance Committee, that mistakes were made at the end of the Clinton era, something Summers and Geithner would never say. He said that regulating the $600 trillion derivatives market, where one $50 tank of gas supports $5,000 in derivatives trades, is the most important thing that can be done in this period to change a “Wall Street culture that has permeated” the economic life of the country. He said he’d push this trading out of the back room, the profitable shadow lands of over-the-counter trading, and onto exchanges, where the fundamental laws of transparency—of subjecting products to the tireless comparative judgments of bang-for-your-buck Americans—would reign.
In fact, by day’s end he had gone further than any of the surprised progressives expected, especially from someone worth roughly $20 million from his eighteen years at Goldman Sachs. They couldn’t quite figure out what had happened.
But those traveling on the Amtrak train out of Washington with Gensler that night might have been granted a clue. On the outskirts of Baltimore, Gensler hopped into a newspaper-and-coffee-cup-littered “station car” and then stopped by a Mexican restaurant for takeout.
His house, looking like an old dowager of plaster and unfulfilled promise, stately but in need of some loving care, sat in the middle of untended fields, ten acres in any direction. “I’m home—dinner!” he shouted, stepping into the dark foyer. Upstairs, stocking feet were already hitting the floor.
The hallways on the way to the kitchen were filled with paintings—large, sweeping canvases—a few of them depicting a rav
en-haired woman with delicate features. That’d be the mother of the raven-haired teenaged girls, now crowding into the kitchen, talking buoyantly about their day.
The self-portraits were of Francesca, an accomplished artist, before she got sick. She died in 2006 after a five-year battle with cancer, and Gary made sure those paintings were hung where everyone could see them, every day.
People tend not to change much in their productive middle age, especially when they live within certain strong, self-sustaining communities that provide their basic needs, where their friends and livelihoods and core assumptions reside in some workable combination. To take a stand that creates a breach within that community is quite rare. The cost is just too high.
But that’s what Gensler was now doing with one of country’s most powerful, self-sustaining, play-for-keeps communities: Wall Street. Its ethos and ethics had altered the way people thought about hard work, honesty, self-reliance, and fair practice—what de Tocqueville once called America’s admirable and accessible “bourgeois virtues.” Wall Street had bet against people who believed in those sleepy mores, and year after year, it had won huge.
That Gensler, once numbered among its leaders, had now publicly turned on the Street was stunning enough; the rarity of such turn-and-fight moments had been a key to Wall Street’s long run of success. Anyone credible enough to have a real effect would have to have made a lot of money, which he’d then have to claim was ill-gotten. On top of this he’d have to suffer a “you’ll never have lunch in this town again” sanction from bustling New York. A lot to ask of anyone. But Gensler’s challenge went beyond even that: if he became a crusader for reregulation, knowing what he knew, he could really hurt Wall Street.
There were those in New York who were already shorting such fears and chalking the whole mess up to naked ambition—something that would surely guide one of their own—by suggesting that Gensler had said whatever he had to say to get the job. That it was all talk.
Yet, if they had been around Gensler’s kitchen table that night, a night made for self-congratulatory revelry, they’d have had cause for deep concern.
Because Gary Gensler fell into one of those discrete categories of people who create lasting change in Washington’s marketplace of ideas. They tend to be either old and revered, like Volcker, who could use his unassailable credibility, and the freedom of advanced years, to say convincingly what others couldn’t; or like Elizabeth Warren, a mold-breaking oddity who’d emerged from nowhere to catch the public’s imagination, a bit like Obama himself; or someone whose priorities had been altered by tragedy, and who had become suffused with the heroic zeal that sometimes emerges from grief.
Gensler was in that third category. The best day of his life, he’d often say, was the day he met Francesca, and many of his worst were littered over the five years of running between hospitals, as he learned hard lessons about risks that can’t be managed and things even money can’t buy.
And that’s why, in the past two years, he’d so often be seen running for trains, or grabbing teacher calls midmeeting, pulling himself away from the complex, oh-so-important discussions of Washington’s policy mandarins about the economy or the financial system or the endless tinkering with incentives to make people do something unwillingly, or unwittingly, in society’s wider interests. In fact, so much of the middling intellectual competitions in Washington’s policy shops of this era were about managing risks and the things money could buy, just like those in the competing capital to the north. Many of the analyses that Obama was having difficulty mastering to Summers’s dissatisfaction would, no doubt, be in this category.
But adversity had forced Gensler to glimpse something larger. That was why he’d spent a few hours pushing around this morning’s swearing-in so that all three girls could be there, and not miss their most important classes; and why he made sure, though he didn’t need to, that they’d wear something stylish when they stood next to him as he raised his hand and swore to uphold the Constitution and the laws of the land.
They knew Dad had a big job. But doing those things, and making sure to rush home on his big day to eat quesadillas with them in the messy, momless kitchen, was to make sure his girls knew something that, incidentally, many Americans were hoping to learn from their inspiring leader: no matter what, there would always be someone there watching over them.
Enough was enough, Rahm Emanuel decided. Something needed to be done. He summoned the two competing super-egos, Summers and Orszag, and told them to make peace. After all, they were each responsible for huge swaths of the federal government. And they were fighting at every turn.
After a bit of delicate negotiations, it was decided that they’d meet once a week for dinner and see how it worked.
So, that night, Orszag settled into a white-clothed table at the Bombay Club, a posh Indian restaurant across Lafayette Park, a favorite of lobbyists and White House officials.
Summers walked in, slightly late, but not impolitely so, and met Orszag at the table.
And then it was the two of them.
Orszag hoped that this time the White House would be less fraught with strife than the last go-round during the 1990s. Summers said it kind of came with the territory.
This talk of their shared history seemed to thaw things out. They both grabbed from the plate of flatbreads that everyone gets served—the restaurant is known for it—and tore corners at the discus-size breads.
“You know, Peter, we’re really home alone.”
Over the past few months, Summers had said this, in a stage whisper, to Orszag and others as they left the morning economic briefings in the Oval Office. The topics varied: taxes, deficits, the economy, economics in general.
“I mean it,” Summers stressed. “We’re home alone. There’s no adult in charge. Clinton would never have made these mistakes.”
No “adult in charge” of the world’s mightiest nation at its time of peril? It bespeaks a crisis—of a president overmatched, unable to fulfill the duties of his office, and a nightmare no one wants to acknowledge in daylight.
While Orszag wouldn’t publicly affirm Summers’s critique of the president’s abilities—saying later, “I don’t want to go there”—he wouldn’t disagree, either. He sat in meeting after meeting where the president would cover the same issue, or controversy, or policy dilemma, and “relitigate” it, in the president’s parlance, over and over. Decisions were left unmade; policies drifted without direction. It wasn’t a matter of intellectual framing. The president seemed to grasp the nature of key policy dilemmas, like a journalist, or narrator, or skilled observer. The problem was in guiding the analysis toward what a president is paid, and elected, to do: make tough decisions.
Still, Orszag admired the president both he and Summers were there to serve. He knew that if he and Summers went down this path, they’d end up fighting.
And they were here, breaking bread, to stop all the fighting. So Orszag nodded, and changed the subject.
13
Filling the Void
Rahm Emanuel was getting antsy. The emergency issues of pushing through a stimulus package and stabilizing the financial system had, he felt, been accomplished. The $787 billion stimulus was the only big-ticket item they’d be getting through Congress, at least for the foreseeable future. The stress tests, meanwhile, had the desired effect: by receiving the Good Housekeeping seal of approval from the government, an implicit grant of a federal backstop for any new investors, banks that passed the tests quickly raised capital and so did the ones that didn’t. They seemed out of danger, if not yet starting to haul in the strong profits that were sure to come.
It was a Monday in late spring when the senior staff, both policy and political, joined the president in the Roosevelt Room. Emanuel had orchestrated the meeting to discuss what “the next big thing” ought to be.
A similar meeting in February—when the president decided to go with sweeping health care reform instead of financial reform or a comprehensive energy and
environmental program—had been premature. At least that was Emanuel’s view. It was a time of crisis, of having to think day to day—“with no playbook, no blueprint,” Emanuel would later recall—of a collapsed financial system and fast-sinking economy. Now, if those twin crises had not necessarily been solved, their situations had at least been stabilized.
Emanuel felt it was the moment to make a choice about priorities. It was no secret that he thought the president had chosen wrong in making health care his top agenda item. But so little of substance had happened since February on health care that it was as though Obama had not chosen at all. That was the unspoken opening premise of the day’s discussion: hitting the “Restart” button. It was as though the February discussion were being rerun or, in Obama’s parlance, “relitigated.”
Teams advocating health care reform and a large energy/environmental program argued their sides. Then Emanuel made his play, one he’d been carefully considering over the past month: financial reform.
“I argued for financial reform for mainly political reasons,” he later recalled. “Having done a stimulus and the bank TARP, this was no money” coming from Congress. “Unlike health care or energy,” he said, a tough, sweeping plan for fundamental financial reform needed no funding, no “ask” from stingy lawmakers. Emanuel had stepped up in mid-May, with the president otherwise occupied, to get something out in public with the release of Treasury’s blueprint. It was Emanuel acting like a president, taking the helm, but it was like pulling teeth. Treasury was understaffed and unenthusiastic, and he’d gotten pushback, with Deputy Secretary Neal Wolin moaning at one point that “this stuff is really hard.” Emanuel’s response had been fierce. He pointed to a nearby desk and shouted, “Well, Neal, then sit down and start fucking typing.”
But the effort opened Emanuel’s eyes to what a plan could look like, and as he stressed in the Roosevelt Room, “We know what we have to do [on financial reform], there aren’t any great mysteries here.”
