I was a witness to a different and truer picture. I saw the president make a series of politically toxic decisions to rescue the financial industry and the larger economy from a far more devastating crisis. I saw him reject seductive answers that had strong, populist appeal for fear of retarding recovery not just for Wall Street, but for the entire country. I saw him thinking past the crisis to how we would rebuild the economy, using the leverage of recovery funds to promote higher educational standards, new energy industries, and more efficient health care delivery. And, yes, I saw him take on powerful forces to promote fair, open, and transparent markets in which the interests of consumers and the economy would be protected.
I also saw him steer the country past a second Great Depression and on an undeniable path to recovery.
• • •
Larry Summers and the economic team believed it was essential for the government to move quickly with a stimulus plan, the bigger the better. The proposed package would include tax cuts for the middle class and the working poor, a basket of accelerated investment tax credits for business, aid to state and local governments, expanded food stamps and unemployment benefits, and funding for backlogged infrastructure projects to revive a moribund construction industry. True to Obama’s Chicago mandate, it also would include an array of investments in education, health care, and clean energy technology, which would spark activity in the short run but also plant seeds of longer-term progress and growth.
Obama and Biden would hit the road to promote the plan’s regional benefits and the 3.5 million jobs we said it would “save or create.” All of us who spoke for the new administration ran the gauntlet of TV talk shows to advocate for the rescue plan. Rahm worked the phones and shuttled back and forth across Pennsylvania Avenue and the Capitol Rotunda, bargaining, cajoling, and pleading to wrangle votes. This meant beating back Congress’s reflexive instinct to lard the bill with indefensible pet projects, and balancing the more progressive and expansive ambitions of House Democrats with the concerns of a handful of Senate moderates, Republican and Democrat, over massive new spending.
Still, to Americans alarmed by record deficits and suspicious of government’s motives and capabilities, the plan would be polarizing, sending Democrats to one corner and Republicans to another. By its very nature, the package, a potpourri of tax cuts, state aid, social spending, and infrastructure projects, created the image of the typical pork-lined Washington bazaar. To a cynical public, it looked less like “Change We Can Believe In” than “Dollars We Can’t Afford,” which was another way of saying business as usual. Also, it gave an early opening to Republican leaders looking for a wedge to peel away support from the popular new president.
More than any substantive position of the campaign, it was Obama’s pledge to end the bitter partisan wrangling in Washington that had drawn frustrated Americans to his side. Yet it quickly became clear that the Republicans in Congress would hardly greet us with flowers, chocolates, and a new spirit of cooperation. A week after taking office, Obama asked for a meeting with the House Republican Caucus to plead his case for the Recovery Act. Then, just before he left the White House to brief them, the Associated Press reported that Republican leaders were already urging their caucus to oppose the plan. The president was heading off to present his case to a kangaroo court. “This shit’s not on the level, is it?” he asked as he walked out the door.
The Recovery Act would pass the House without a single Republican vote. In the Senate, three Republicans supported the emergency measure, enabling its passage. One of those Republicans, Arlen Specter of Pennsylvania, left the party a few months later, having become a pariah in his caucus for breaking ranks.
Could we have done more to secure Republican support? There is no doubt that in our haste to pass the plan, Rahm and our team worked more closely with the Democratic majorities in Congress. However, the near-unanimous Republican opposition was not in a fit of pique about being insufficiently consulted. Their opposition to the plan was a political strategy, hatched right from the start (one that would become a running story line throughout the Obama years). Mitch McConnell, the Senate Republican leader, explained as much in a newspaper interview a year later. “It was absolutely critical that everybody be together because if the proponents of the bill were able to say it was bipartisan, it tended to convey to the public that this is O.K., they must have figured it out,” said McConnell, boasting of the party discipline he had enforced.
We naïvely assumed that in a time of national emergency, Obama might find governing partners across the aisle to meet the crisis. After all, only a few months earlier, when Bush and Paulson were begging for bipartisan support to buttress the financial system, Obama and the Democratic leaders in Congress had answered their call. Now we were facing monolithic Republican opposition, and it was galling. Maybe this was what Hillary was talking about when she chided us during the campaign for “raising false hopes.”
By any fair measure, the Recovery Act would make a palpable and positive difference. Within months, the economy would be growing again, the hemorrhaging of jobs ended, and hiring resumed—albeit at a maddeningly slow and uneven pace. Whatever the macroeconomic indicators, though, trillions of dollars in wealth had been washed away in the storm, and Americans were not feeling that progress in their own lives. Having sat out the effort, the Republicans seized on the public’s sour mood. They would depict the Recovery Act as an emblem of profligacy—proof that Obama, who had run for president pledging fiscal responsibility, was just another spendthrift, big-government liberal. “Where are the jobs?” became the irksome mantra of the Republicans, though more than a few of them eagerly showed up smiling for the cameras at ribbon cuttings for Recovery Act projects in their districts. “These guys are shameless!” Obama said, flabbergasted after reading one such story.
As the months went by, the Washington media, wont to filter everything through the prism of politics, began to question the wisdom and efficacy of the Recovery Act. Even after its positive effects were becoming evident, one of Washington’s most respected journalists parroted this ludicrous notion that had emerged from the GOP playbook.
“What are you going to do about the Recovery Act?” she asked me.
“What do you mean?”
“It’s a failure.”
“A failure?” I asked, incredulously. “Why?”
“Well, only thirty-eight percent of voters support it!”
It was a parable of life in our nation’s capital, where success is measured not by what you accomplish, but how voters feel about it at any given moment. Breathless and ubiquitous cable TV coverage and social media have created a permanent campaign mentality that treats every day in Washington as Election Day. The industry I helped build is now ready to mobilize at a moment’s notice, with ads, e-mails, and all the tools at its disposal to make incumbents pay for impolitic decisions, even when they are a courageous response to an urgent national need. For Obama, who draws a tight distinction between the demands of campaigning and the responsibilities of governing, the permanent campaign mode was a source of constant frustration.
“You know, I love this job,” he said, as we were waiting for a town hall meeting in Los Angeles during the first months, when he was wrestling with the economic crisis. “I love diving into problems. But dealing with some of the people you have to deal with and the whole cable thing wears you out. I’ll be honest—four years of this might be enough. I won’t be run out. But if we can turn the economy around and get some things like health care done, I could see walking away from it.”
I knew it was the weariness of the moment talking. It was hard to imagine this highly committed and intensely competitive man “walking away.” A few weeks earlier, Obama had told Matt Lauer of NBC that his failure to turn the economy around within three years would make his presidency a “one-term proposition.” Those words would come back to haunt him. Progress would come, but painfully slowly. Many c
orporations responded to the recession by “streamlining” their operations, meaning the permanent elimination of jobs. Even when the economy began to grow again, wary executives hoarded their cash rather than investing in new employees.
I had spent much of my life studying polls, and continued to devour them every day in the White House. Now I became a voracious reader of other numbers: the weekly unemployment claims, durable goods orders, manufacturing reports, the University of Michigan Consumer Sentiment Index, and an array of other arcane economic statistics and indexes that I scoured for any hint of good news. Of course, we all approached the monthly jobs report with a combination of anticipation and dread. Pummeled with a constant stream of bad news, you could leave yourself susceptible at times to unwarranted optimism. When Treasury officials bragged about the success of one of their early initiatives, Obama had a tart reply: “Let me say, you guys did a great job. Take a moment, give yourself a pat on the back, and figure out a way to put eight-point-four million people back to work!”
• • •
In early planning for the administration, I had suggested that we add a daily briefing on the economy to the president’s schedule, similar to the traditional national security briefing he would receive each day. Led by Larry Summers, these became the hub for rigorous strategic discussions.
Larry had a reputation for intellectual superiority, which didn’t bother me, because he actually was as smart as he thought. While his sometimes imperious style was a source of tension within the president’s economic team, I appreciated Larry, even when we disagreed, which was not infrequently. Larry playfully dubbed Rahm and me Tammany Hall, for injecting real-life political considerations into these economic discussions. He also worked to understand those considerations. His broad sweep and mastery of economics made him an indispensable asset to the president, though Obama, never intellectually overmatched, occasionally forced Larry to pause and utter some sentences rarely heard from him before, such as “I never thought of that!” or “I’ll have to get back to you.”
Even more interesting was the dynamic between Summers and Geithner, his onetime protégé. For the most part, they agreed on policy matters and worked together effectively, but there was no consensus between them on one of the most vital and vexing questions we faced: how to stabilize the banks so they would start lending again.
The fragility of the banks was a dark cloud hovering over the prospect of recovery. Obama didn’t have much patience for the bankers and speculators whose ruthless and reckless pursuit of personal gains he blamed for much of the crisis. He understood how angry the American people were at Wall Street for its costly excesses. Riding to its rescue was unquestionably bad politics, but he also knew that the country needed a flourishing financial sector, first to survive and then grow. “We have to fix this,” he told me, in the midst of the storm. “If we don’t, the whole thing falls apart.”
The responsibility for fixing it fell squarely on Geithner’s shoulders. At first blush, they weren’t particularly big shoulders. A slight man with an impish face and tousled hair, Geithner wasn’t an imposing figure in person or on television. Together, he and Summers looked a little like Laurel and Hardy. Yet Tim was a smart, strategic thinker who proved far tougher and more resilient than his boyish looks suggested—and he would need to be tough for the bruising battles ahead.
Geithner’s first major pronouncement on the banking crisis in early February fell well short of market expectations. It didn’t help that, on the eve of Tim’s speech, the president promised at a televised news conference that his treasury secretary would be “announcing some very clear and specific plans for how we are going to start loosening up credit once again.” Encouraged by the president’s comment, the frantic financial community anticipated aggressive steps to buy the toxic assets that littered their balance sheets. Instead, Geithner, nervous and unimposing, merely announced a general framework for action. The stock market plummeted upon the news. It was a striking reminder that, in our new roles, a few ill-chosen words could send armies marching and markets crashing. For the new secretary of treasury, it was a disaster. Weeks into the administration, the political community was already placing sell orders on Geithner. “I don’t think Tim’s going to make it,” Valerie confided, echoing the prevailing view in Washington.
The environment was so ugly that Tim asked me to call his wife, Carole, who had stayed behind in New York with their high school–age son. “She doesn’t get all of this and she’s really upset,” he said. “Can you just reassure her?”
Meanwhile, we still needed an answer on the banks, which was late in coming, in part, because of squabbling among our economic advisers. Summers and Christy Romer, who generally didn’t mix, were now allied in the view that we should buy the toxic assets and take over the worst of the failing megabanks, which the two believed were terminally ill. Geithner, who was less fatalistic about the underlying health of the banks, argued against “nationalization” on policy grounds. He also believed that such an approach would eventually run up against political impediments because it would require far more taxpayer money than Congress had authorized the administration to spend. While the team argued, the stock market continued to tumble and lending remained frozen. The bank crisis was a lead weight on the recovery, and the famously chill Obama was tired of waiting.
Determined to maintain his bond with the American people, the president had asked for ten representative letters each day from among the tens of thousands the White House received for him. The letters would be included in the thick packet of homework the president took back to the residence each night. After his children went to bed, he would cap off his already long and difficult day by reading dispiriting notes from struggling Americans who desperately feared for their families. Some had lost their jobs or homes. Others, small businessmen, were starving for loans. So many of them would detail their struggles and then plaintively ask the president, “Where’s my bailout?” Often he would respond by hand. Occasionally, he would phone the letter writer. Sometimes he would call me late at night. “I’m telling you, man, these letters just tear you up,” he said during one such conversation.
Moved by these stories of distress, Obama had had enough of the endless debate among his economic advisers. “We all look like we have our heads up our asses,” he told them. “I’m not going to be the president who sat here and fiddled while Rome burned. I’m tired of reading letters from people who are desperate for help and are looking to us for answers we don’t have.”
On Sunday, March 15, he summoned his economic advisers to a meeting, determined to force an answer on the banks. Despite the president’s obvious frustration, Geithner, Summers, and Romer continued to argue for several hours on the path forward. Finally, the president stood up. “I’m going to get a haircut and have dinner with my family,” he announced. “I’ll be back at seven. When I get back, I want a consensus.”
With the president gone, all hell broke loose. The problem, Tim argued, was that most banks were paralyzed because they didn’t know the full extent of their exposure to toxic assets. His bet was that the “stress test” audits would reveal to the banks and the world that most were in better shape than the markets feared. Once you wiped away the uncertainty, the banks would raise the private capital they needed to gird themselves against future crises. Larry and Christy remained skeptical and continued to favor aggressive action that would require more significant government intervention. Rahm clearly, repeatedly, and colorfully offered a dose of political reality, warning that we were not going to get “another fucking dime from Congress” for the banks. “Well, that’s no good,” Summers finally concluded. Geithner, red-faced with exasperation, exploded: “Well, welcome to my world, Larry!”
When the newly shorn president returned, the group had reached a grudging consensus. It was risky and depended on Geithner’s hopeful hunch about what the stress tests would reveal. If he was wrong—well, I pictured our a
dministration like the wayward Apollo 13 space capsule: instead of reentering the atmosphere and landing, we could skid off into the abyss, taking the economy with us.
Nationalizing the banks—and seeing the televised images of fired financial executives walking out of their offices with their belongings in cardboard boxes—would have better addressed the country’s fury, but Obama bought Geithner’s argument that such a step would carry significant economic risks and require more taxpayer dollars than Congress and the American people were willing to provide. Understanding the lousy politics, Obama placed a big bet on his embattled treasury secretary—and it would pay off, stabilizing the banks in a way that allowed the government to recoup taxpayers’ loans with interest.
Before that marathon Sunday meeting in the Roosevelt Room wound down, I raised another issue that struck me as a symbolic disaster.
The Washington Post had reported over the weekend that AIG, the giant insurer of banks at the heart of the financial meltdown, was poised to pay its executives $165 million in bonuses, despite record losses and a $170 billion in emergency government loans. I was outraged, and I was not alone. The bonuses would touch a raw nerve with a public already incensed by the avarice and recklessness they had seen. “This is going to be a huge problem,” I said, arguing that the president had to strongly condemn the bonuses, a sentiment he shared.
The White House had scheduled an event for the next day, the focus of which was on getting credit flowing again to small businesses. It would provide the president a natural opportunity to condemn the bonuses publicly, and he agreed to a statement that was direct and to the point: “[T]his is not just a matter of dollars and cents. It’s about our fundamental values. All across the country, there are people who are working hard and meeting their responsibilities every single day, without the benefit of government bailouts or multi-million dollar bonuses.” Contrasting AIG and the financial community with the struggling, responsible small business owners at his side—one of whom was keeping his doors open by working without pay—Obama concluded: “All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. That is an ethic that we have to demand.”
Believer: My Forty Years in Politics Page 44