Game Change

by John Heilemann

  Obama attempted to retain his balance through the outbreak of Palinmania. When his team’s first instinct was to criticize Palin’s selection, he dialed them back. He counseled them repeatedly to keep their eyes (and train their fire) on the top of the ticket. When Jarrett informed him of a series of meetings she’d had in New York with frantic Democrats in that first week after the conventions, Obama said, “Just tell them to calm down.”

  A couple of days later, Jarrett received a viral email that pictured Obama staring forward sternly and pointing in the direction of the camera. Above his head were the words “EVERYONE CHILL THE FUCK OUT,” and below that, the message “I GOT THIS!” She forwarded it to Obama.

  “That’s what I was trying to tell you!” Obama replied.

  Yet Palinmania and the media dynamics it unleashed were a quantum force that even the Democratic nominee could not resist entirely. The day before Palin set off back to Alaska, Obama was in Virginia, too, and he offered an observation about McCain’s new message of change. “I guess his whole angle is, ‘Watch out, George Bush—except for economic policy, health care policy, tax policy, education policy, foreign policy, and Karl Rove—style politics—we’re really going to shake things up in Washington,’ ” he said at a rally. “That’s not change. That’s just calling something [that’s] the same thing something different. You know, you can put lipstick on a pig, but it’s still a pig.”

  The McCain campaign was perfectly aware that Obama was making no allusion to Palin’s lipstick-on-a-pit-bull convention line; the lipstick-on-a-pig phrase was common parlance, particularly in politics. But the team saw a “Celeb”-like chance to clog up the cable airwaves, harness the right-wing freak show to its advantage, and keep Obama and his people on defense. Within hours, McCainworld accused Obama of referring to Palin as a pig and demanded an apology, and the story exploded as planned.

  Obama’s frustration with the media was intense, but the next day, he felt he had no choice but to respond—by calling for an end to the absurdity, even as he fueled both it and the dominance of Palin in the campaign discourse for another day.

  All through the campaign, in moments of annoyance at its triviality, Obama would tell Axelrod that when it was over he planned to write a book entitled This Is Ridiculous. And the lipstick-on-a-pig imbroglio was definitely that. But there was no denying one brute reality: a week after the conventions, McCain had pulled even in the polls again. Some even had him a little bit ahead. Obama smirked and reprised for Axelrod another of his favorite sayings: “This shit would be really interesting if we weren’t in the middle of it.”

  Chapter Twenty-One

  September Surprise

  OBAMA SH OWE D UP AT Axelrod’s office wearing jeans, a leather jacket, and his White Sox cap. It was September 14, a rainy Sunday afternoon in Chicago, and Axelrod had called a small circle-the-wagons meeting to talk about how to turn things around after ten solid days of pounding. The candidate wasn’t supposed to be there, but when he heard about the meeting, Obama decided to hijack it. He had just gotten word that the apocalypse was nigh.

  He began by letting his people know that he wasn’t entirely happy. Since the Republican convention, his campaign had been too much on its back foot, was playing subpar ball. The ads, the messaging, the strategy, the tactics—all of it needed to be stronger. The first of his three debates with McCain was less than two weeks away, in Oxford, Mississippi. “I’ve got to perform,” he said. “But we’ve all got to sharpen our message.”

  Obama thought the campaign needed to be more forceful and pointed in offering a contrast with McCain on the economy, and shift the focus away from Palin. Larry Grisolano had come to the meeting pushing a proposal: two-minute TV ads with Obama addressing the camera directly, laying out his economic agenda. Obama immediately approved it.

  The American economy had been in recession since the end of 2007, driven there by the collapse of the mid-decade housing bubble and the subprime mortgage market. By September, the financial system had spiraled into an ever-deepening crisis, as one venerable institution after another buckled under crushing losses. The investment bank Bear Stearns had gone belly up in March. Merrill Lynch and the insurance titan AIG were imploding. The federal government had just seized control of the foundering mortgage giants Fannie Mae and Freddie Mac. And now Lehman Brothers, one of Wall Street’s most storied firms, was on the brink of bankruptcy.

  Financial economics was hardly an area of expertise for Obama, nor had he said much about the unfolding crisis during the campaign. But behind the scenes, he was building relationships with a handful of influential financial figures: former Federal Reserve chairman Paul Volcker, former SEC chairman William Donaldson, and UBS Americas chairman Robert Wolf, who was one of Obama’s most prodigious fund-raisers and had become his go-to guy on questions involving the money markets.

  Over the weekend of September 13 and 14, Wolf was among a clique of bankers and policy makers, including Treasury Secretary Hank Paulson, locked in a marathon meeting at the New York Fed, wrestling with the fate of Lehman. Every so often, Wolf would step out and phone Obama with status reports. Obama was also in touch with Paulson, to whom he’d started to reach out as the crisis worsened. By Sunday, the picture that Wolf and Paulson were painting wasn’t pretty. Lehman was likely to go under the next morning, with potentially calamitous fallout on Wall Street and stock markets around the world.

  At the meeting in Axelrod’s office, Obama revealed nothing specific about what he was hearing. But he told the room that an event might be coming overnight that would change the political landscape dramatically, turning the final two months of the campaign into an all-economics-all-the-time affair.

  If this event happens, the country may be in for a bad stretch, he said. We’re going to have to deal with it in some way, because the impact could be devastating. I told Paulson that we’d be cooperative and try to help out the administration. We’re not going to mess around playing politics. In any case, the right politics here, I think, is to behave responsibly.

  Obama knew that economic issues favored the Democratic side in the campaign. But these external forces were too unpredictable for comfort—especially with the race so close and the Palin surge still in effect. Obama’s confidence wasn’t shaken, but his voice betrayed concern. “It’s a very volatile situation,” he said. “We could still lose this thing.”

  THE NEXT MORNING, Lehman announced it was seeking Chapter 11 protection, after the government declined to intercede to save the firm. The filing set in motion the largest bankruptcy in American history. It triggered a financial panic that would provide Obama and McCain with a real-time test of political temperament, skill, and leadership. And it marked the start of an extraordinary ten-day period that would more or less decide the election.

  McCain greeted the day of Lehman’s demise at a rally in Jacksonville, Florida. The Dow was already plunging its way toward a five-hundred-point decline between the opening and closing bells. “There’s been tremendous turmoil in our financial markets and Wall Street, and it is—people are frightened by these events,” McCain said. “The fundamentals of our economy are strong, but these are very, very difficult times.”

  In his maladroit way, McCain was trying to heed the advice of his chief economic adviser, Douglas Holtz-Eakin, who had counseled him not to talk down the economy and assured him that its underlying strength—its workers, its factories—was intact. McCain, indeed, had uttered the same line before and it had gone unnoticed. But in the context of Lehman, “fundamentals” was a gaffe of historic proportions.

  Matters fiscal and monetary were always the weakest policy link for McCain, which he had admitted publicly more than once. Holtz-Eakin begged him to please stop saying that aloud, particularly in light of its truth, but there was no hiding McCain’s rudderlessness over the next three days, as he lurched from blunder to blunder.

  On Tuesday, McCain declared the financial situation “a total crisis”—an effort to clean up the “funda
mentals” mess that instead looked like an abrupt about-face. That same day, he stated his adamant opposition to a proposed federal bailout of AIG; the next morning, after the bailout had been announced, he flipped to reluctantly supporting it. The day after that, he attacked SEC chairman Chris Cox, saying, “If I were president today, I would fire him,” only to have it pointed out that no president, real or hypothetical, has that power. Making an awful week worse, one of McCain’s main economic surrogates, former Hewlett-Packard CEO Carly Fiorina, went on MSNBC and observed, “I don’t think John McCain could run a major corporation.” (With that, Fiorina provoked an unnamed McCain adviser to give to CNN.com one of the priceless blind quotes of 2008: “Carly will now disappear.”)

  The Obamans could barely contain their glee. Their boss’s reaction shifted quickly from incredulity to disdain. When he first heard about “fundamentals,” Obama said to Axelrod, “Why did he say that?” Three days later, after the Chris Cox episode, a friend emailed Obama asking what he thought explained McCain’s wild swings and oscillations.

  “No fucking discipline,” Obama replied.

  As McCain bumbled publicly, Obama was privately conducting for himself what amounted to an on-the-fly series of postgraduate seminars, holding lengthy conference calls night and day with his party’s brainiest economic savants. Many of the people to whom Obama turned were Clinton veterans: former treasury secretaries Bob Rubin and Larry Summers, former Council of Economic Advisers chief Laura Tyson. Obama also turned to Clinton himself, calling the former president several times, soliciting his advice, impressing him (for the first time, really) with his approach to the crisis.

  Obama was talking regularly with Fed chair Ben Bernanke and daily, sometimes more often, with Paulson. The treasury secretary was astonished by the candidate’s level of engagement. On one occasion, Obama kept his plane on the tarmac for a half hour after the final event of his day, with a long flight ahead of him, so he could finish a conversation with Paulson. On another, Obama called Paulson late at night at home and spent two hours discussing the intricate details of regulatory reform. As much as the substantiveness of the discussions struck Paulson, so did their sobriety and maturity. I’ll be there publicly for you at any time, Obama told him. I’m going to be president, and I don’t want to inherit a financial system that’s collapsed.

  McCain was in communication with Bernanke and Paulson, too, but to less useful effect. In one exchange with the Fed chairman, McCain compared the causes of the crisis to some recent management troubles at Home Depot. It’s kind of like that, isn’t it? he asked Bernanke. No, it’s not, a flabbergasted Bernanke replied.

  When Paulson tried to get McCain on the phone urgently, it would often take a day for his messages to be returned, and even then, it might be Lindsey Graham on the other end of the line instead of the candidate. At one point, McCain insisted on putting Palin on a call with Paulson—whereupon she proceeded to spout an assortment of populist, anti-Wall Street bromides that the secretary, a former CEO of Goldman Sachs, found weirdly off-key and completely pointless.

  In the wake of Lehman and AIG, the credit markets were frozen shut and the capital markets in disarray. Paulson and Bernanke convinced Bush that a gargantuan bailout fund was necessary to stave off disaster. The administration, in turn, gave Paulson the lead in devising and selling the idea to Congress. It had little choice. The White House had no credibility on the economy, no competence to fashion complex financial transactions, and no ability to deal with the Democrats who controlled Capitol Hill. Paulson, who had spent much of his time in office reaching out across the partisan aisle, had each of those virtues. Bush and his people viewed Paulson, said one, as “our Petraeus on the economy.”

  On September 19, Paulson and Bernanke held an emergency meeting in Speaker Nancy Pelosi’s office with a bipartisan clutch of congressional leaders. Paulson argued that, without quick and momentous action, economic Armageddon would ensue; Bernanke was visibly shaking, his voice trembling when he spoke.

  The leadership agreed to move rapidly on a bailout bill. Two days later, Paulson presented his proposal to Congress: a three-page request for $700 billion with essentially no strings attached.

  Both parties recoiled from the plan, but their respective leaders began trying to build a workable bill around it. Pelosi made it clear that House Democrats wouldn’t support the bill without a substantial number of Republican votes, to protect the Democrats if public opinion turned against it. John Boehner, the House minority leader, was on board, but after a meeting of the House Republicans on Tuesday, September 23, it was evident to Boehner that there was no support among his people for anything that resembled the Paulson plan. The next day, the point was reinforced when, in a private meeting, House Republicans hooted down Dick Cheney, who had come to the Hill to sell the bill.

  As the nature and dimensions of the dilemma became stark, all eyes in the capital shifted to McCain. The new conventional wisdom was that if the Republican nominee supported the bill, his party would rally around him and it would pass. If he didn’t, the bill was doomed. Democrats said so. Republicans said so. The media said so. The question was what McCain was thinking. And for the moment, he wasn’t saying.

  MCCAIN WAS TWITCHY THAT Wednesday morning as he and his senior lieutenants filed into his suite at the Hilton in Midtown Manhattan. McCain had a jam-packed schedule in New York for the next twenty-four hours: debate prep, an appearance on the Late Show with David Letterman, a speech at the annual meeting of the Clinton Global Initiative. But McCain was fixated on other things. Obama had phoned him an hour earlier; he’d missed the call, had no idea what it was about, and that unsettled him. And then there was the financial crisis, which he was sure would be the death of his campaign.

  Earlier that morning, McCain had met with thirteen Republican CEOs and Wall Street tycoons—including Steve Schwarzman of the Blackstone Group, Henry Kravis of KKR, John Thain of Merrill Lynch, and Jimmy Lee of JPMorgan Chase—who were, at least nominally, economic advisers to his campaign. Almost to a person, their view of the severity of the crisis was identical to Paulson’s. And despite their free-market pedigrees, so was their conviction that a massive government intervention was required, and pronto, to keep the world from self-immolating.

  Up in the suite, the fog of pessimism, both economic and political, was thick as porridge. For the next several hours, McCain and his advisers grappled with how to respond to the Paulson plan and to the crisis more broadly. In other circumstances, a massive federal bailout bill would be the kind of thing McCain would oppose on instinct and on principle; and he knew that many grassroots Republicans were against it.

  Yet from the rambling, chaotic conversation, agreement emerged on three interlocking points that suggested a different course. First, if what they’d just heard from the financial hot shots was to be believed, the risk of an imminent global meltdown unless the government acted was high. Second, the Paulson plan didn’t have the votes to pass. And third, if the bill went down and the economy cratered, Republicans—and McCain in particular—would be blamed and the election over. “Checkmate,” said Schmidt.

  Presidential campaigns are routinely consumed with faux existential crises, but this was a real one. Casting about for salvation, McCain briefly latched on to the idea of joining forces with Senator Clinton on a piece of legislation she’d introduced to ameliorate the epidemic of foreclosures that were plaguing the housing market. Impulsively, McCain grabbed his cell phone and called her; two minutes later he hung up and told the group, “She doesn’t want to do it.”

  To Schmidt, Davis, and Salter, there seemed only one plausible route to survival: McCain had to fly to Washington and stitch together a passable bill. Schmidt pointed out that Harry Reid had been quoted the previous day saying, “We need the Republican nominee for president to let us know where he stands and what we should do.” The ball was being handed to McCain, Schmidt said. He should take it and run for daylight—not only steaming into the capital to save c
apitalism, but suspending his campaign, pulling his ads from the air, and calling for the first debate to be postponed until an agreement on the bailout had been brokered.

  “It’s a big risk,” McCain mused. “It’s a big gamble.” But gradually he warmed to the notion. McCain’s instinct when he saw a problem was to charge straight at it and try to solve it. He started thinking, I can do this. I can cut this deal.

  In the early afternoon, with no final decision made, Team McCain headed to the Morgan Library and Museum on Madison Avenue for McCain’s debate prep session. His maiden face-off with Obama was set to take place two days later, but this was to be McCain’s first full dress rehearsal. The campaign had built a mock-up stage and had camera crews in place to document the proceedings. Former Ohio congressman Rob Portman was on hand to play Obama.

  McCain was grouchy about the prep session from the get-go. When his aides tried to do a formal introduction of the candidates, McCain snapped, “We don’t need to worry about that crap. It’s just bullshit. I’m here at the podium, let’s just do the debate.”

  But they didn’t get too far—the interruptions were ceaseless, as McCain’s aides scrambled to figure out the details of how the campaign suspension might work. Finally, Schmidt interrupted and told McCain that they needed to decide. Are we doing this? he asked.

  Charlie Black and Brett O’Donnell, McCain’s debate coach, had doubts about pulling out of the showdown in Oxford. If you say you’re not going to do the debate and then end up doing it, they argued, you’re going to look like a fool. But McCain brushed them off. Convinced that the gamble was worth it, he was all in.