Believer: My Forty Years in Politics

by David Axelrod

  Over the Treasury Department’s objections, I had included a line calling on Geithner to explore every avenue to block the AIG bonuses. Treasury’s objections had been rather vague, but soon after the president spoke, I learned that Geithner had known about the bonuses well in advance. Worse, he and Summers had quietly lobbied against an amendment to the Recovery Act that would have significantly restricted the payment of bonuses at AIG and other firms receiving Troubled Asset Relief Program, or TARP, funds. They believed any retroactive steps would violate existing contracts. Their quiet lobbying, however, flew in the face of the president’s strong denunciation of the bonuses. It made the president look like a phony, posturing to a receptive public while his operatives took the opposite tack out of view.

  I was livid, and confronted Geithner and Summers at one of Rahm’s morning meetings. Dancing around their subterfuge, they argued that it would be irresponsible, even illegal, for the administration to support “clawback” provisions denying the Wall Street players bonuses to which they were contractually entitled. Tim dismissed doing so as “Old Testament justice” that would satisfy the public bloodlust at the cost of the economy. “This would be the end of capitalism as we know it!” he barked.

  “I hate to break the news, Mr. Secretary,” I replied, “but capitalism isn’t trading very high right now!”

  • • •

  Within months, Geithner’s stress test and recapitalization plan had helped stabilize the banks. Yet, to the frustration of the president and to millions of Americans seeking loans for their homes and businesses, the capital was still not flowing. The financiers, gun-shy after their near-death experience and discouraged by independent government supervisors who had dropped the ball before the crisis, had tightened their standards for loans in response.

  Obama came to a morning meeting in the summer of 2009 with two clips from the same newspaper, one discussing the paucity of credit and the other announcing billions more in bonuses for Wall Street.

  “I can only imagine how people feel about this,” Obama told us. “I know how I feel about it. Loans are down and now the bankers are doing well again—thanks, in part to us—and they’re still not lending!”

  It would be an ongoing struggle.

  So, too, would be housing. This was ground zero for the crisis. Millions who had taken easy-money loans were now in default, and with the rash of foreclosures, home values plummeted. Many Americans who had thought of their homes as their nest eggs now found them worth less than their outstanding mortgages. Plus, with massive layoffs, millions more were facing foreclosure. In the past, it was new home construction that helped lead America out of recessions. This time, the housing industry was down and out.

  Obama returned to the issue again and again, and Treasury responded with an alphabet soup of programs called things such as HAMP and HARP. They set aside fifty billion dollars to help distressed homeowners refinance their loans at record low interest rates, part of an array of emergency measures undertaken to spur the economy. Yet much of the money never went out, and progress came at a glacial pace. Eventually, the aid would help millions, but the housing programs overpromised and underdelivered, as the president reminded us often.

  “I get these letters every day from people who should qualify for the mortgage mitigation program but are still turned down by the banks,” Obama complained at one economic briefing.

  “Mortgages are like unemployment,” Geithner responded. “It will trail.”

  • • •

  As we raced to pass the Recovery Act and restart lending, a third crisis was bearing down.

  With credit markets frozen and car sales at their lowest level in a quarter century, the automotive industry was forced to shed four hundred thousand jobs in 2008. The iconic American companies GM and Chrysler, two pillars of Detroit’s Big Three, were reeling. Under pressure from foreign competitors and hobbled by dated product lines, heavy debt, and labor obligations, GM and Chrysler were buckling even before the recession. Now they were teetering toward an outright collapse.

  The Detroit executives evoked about as much sympathy as their counterparts on Wall Street—particularly after traveling to Washington on private jets in the winter of 2008 to ask Congress to bail out their mismanaged companies. At our quiet urging, Bush had agreed to provide just enough loans from the TARP fund to keep GM and Chrysler alive for a few more months. With that life support now coming to an end, Obama had to decide what, if anything, to do.

  In the first weeks of the administration, Obama formally assigned Steven Rattner, a prominent New York private equity investor, and Ronald Bloom, who’d helped advise labor on the restructuring of the American steel industry, to head an auto task force that would work through the knotty issues at each company and make recommendations on how to proceed. Rattner and Bloom looked like an odd couple. Bloom, the old union man, was a no-frills guy. Rattner, a former New York Times reporter, looked every inch the successful financier he had become. They were backstopped by a brilliant, young White House staffer, Brian Deese—who became so steeped in the workings of the auto industry that I would forever after call him Diesel.

  By late March, after months of work and with the clock ticking, Rattner, Bloom, and Deese joined the daily economic briefing to report back to the president. For forty-five minutes, they put forth their findings and recommendations, which would require another sizable investment from the government—perhaps as much as eighty-eight billion dollars—to rescue GM and Chrysler. The government would buy a majority interest in GM as the company restructured; but Chrysler, the more fragile of the two companies, would need a partner to survive. Chrysler had announced a tentative partnership with Fiat two months earlier, but the details needed considerable work.

  Behind schedule and frustrated by the lack of time to deal with such weighty considerations, Obama adjourned the meeting until that evening. “I am not going to decide the future of the American auto industry on the basis of a half-hour discussion. I have more questions.”

  The president had been late for the auto meeting because of a prolonged national security session on ominous stirrings in North Korea. In the hours following the auto session, Obama would have a meeting on classified Bush-era documents related to torture and would host an online town hall meeting on the economy and another meeting on the retooling of U.S. strategy in Afghanistan and Pakistan. It was a typical day at the office for the president of the United States: confronting a parade of critical and complex matters, each of which demanded intense preparation and focus. Obama managed it with remarkable agility. Still, the pace was brutal and took its toll.

  “I’m tired,” he confided during a brief lull after the meeting on Afghanistan and Pakistan. “It’s getting to the point where I am concerned I’ll make bad decisions.”

  Yet decisions had to be made—and as we gathered that evening in the ornate Roosevelt Room, across the hall from the Oval, everyone felt the weight of the matter at hand. Without government intervention, there was no question that GM and Chrysler would go bust—and very quickly. And their collapse would create a wave of failures up and down the supply chain that fed the auto giants.

  On the other hand, there was no guarantee that, even with government assistance, the auto companies would survive. We could be throwing good money after bad, and quite a lot of it. The Republicans, already on the march, would undoubtedly howl about the government taking a major stake in a private business. “Socialism!” they would proclaim, in horror. Yet the opposition was broader than that. Even Michigan appeared to have given up on what had long been its economic underpinning. Fresh polling data showed that a majority of voters there opposed any federal aid for the auto companies. Nationally, the numbers ran three to one against a bailout. I wasn’t urging the president to walk away, but I wanted him to understand what he was walking into.

  Gibbs, who functioned as both an all-purpose adviser and press secretary, spoke powerf
ully about specific towns in the industrial Midwest that, wholly dependent on the auto industry, would be wiped out by the collapse of GM and Chrysler. Robert, who was familiar with the region, having served as communications director for Michigan senator Debbie Stabenow, told the president, “Sir, these towns aren’t experiencing a recession. They’re already experiencing a depression. This would be more than they can bear.”

  The president drilled deeper into the details of each company’s case and prospects for success. After ninety minutes, he made his decision.

  “David, you raise the polling, and I get that. I understand it,” he said. “People look at these automakers, who have made a series of bad decisions over a long period of time, and ask why the American taxpayer should throw them a lifeline. But if GM and Chrysler go down, it’s not just their workers who will lose their jobs, but you’ll see job loss right down the supply chain. We could lose a million more jobs, in the middle of what already is the worst recession since the thirties. And we’d lose two iconic American companies. I mean, we invented the auto industry. That’s a big deal. No blank checks. But if we can leverage our help to force them to reorganize, streamline, and modernize their companies so as to make them competitive again, we have to try.”

  It was a fateful decision. In a process shepherded by Obama’s auto task force, both companies went through bankruptcy, shed debt and failing product lines, renegotiated labor agreements, and replaced their management teams with aggressive new leadership. Chrysler formed a strategic alliance with Fiat, which, ultimately, took ownership of the firm. Within two years, the companies began growing again, restoring shifts at existing plants and building new ones. The American auto industry was resurgent.

  Like most of the president’s early decisions on the economy, this one was fraught with uncertainty and political risk. Republican critics responded on cue, mocking GM as “Government Motors.” The criticism was muted, however, by the time the 2012 presidential election rolled around—especially in Ohio. The auto boom would be a factor in Obama’s capture of that pivotal state, where one in eight workers is engaged in some way in the auto industry, and folks remembered the bet he had placed on them.

  • • •

  The slow pace of recovery complicated another goal of Obama’s. “Before we’re done, we have to do something about the deficits,” he had told me early in the term. “I don’t want to leave the next president the kind of mess they handed to us.” We had campaigned on deficit reduction, but falling tax revenues and the additional spending contained within the Recovery Act had swelled the 2009 deficit to $1.4 trillion. The objective fact was that we needed to spend more money in the short run to add momentum to the flickering recovery while adopting a plan to curb debt in the long term by increasing revenues and trimming the potentially explosive growth of Social Security and Medicare. “We need to work the accelerator and brakes in the right sequence,” Obama said.

  Americans were desperate for jobs and growth, but panicked about deficits. Republicans had found their footing and invigorated their base by attacking Obama for overspending, and would oppose any proposal to reduce deficits by raising new revenues. Meanwhile, Democrats were loath to embrace any long-term solution that would tamper with Social Security or Medicare, which Americans regard as insurance programs for which they have already paid. It was hard to make the case for curbing the growth of benefits, even in the future, at a time when so many were worried about making ends meet. Besides, from time immemorial, the uncompromising protection of Social Security and Medicare had been a political winner for Democrats, and few were eager to stray from that position, even if some changes might be required to shore up the programs for the long haul.

  One day, in a senior advisers’ meeting, Obama wondered why these issues languished when demographic changes in an aging country screamed out for some adjustments. Why hadn’t the politicians acted? I was taken aback. “Because hard things are hard,” I told him. It is a hugely unpopular idea to trim the growth of benefits, I said, and politicians don’t opt to do hugely unpopular things. “Hard things are hard” became an ongoing joke after that, though the inherent wisdom of that mantra became clearer by the day. When I left the White House in 2011, I would give the president a desk plaque that read, “Hard Things Are Hard!”

  Another “hard thing” Obama undertook in 2009 was a landmark financial reform law. Even before the crash of 2008, Obama had called for new rules adequate for the twenty-first century to prevent the bilking of consumers and the gaming of financial markets. Yet the crash made the need for such reforms painfully and unavoidably clear.

  It was no coincidence that this rewrite would be the most comprehensive since the 1930s, the last time financial manipulation had brought down the economy on such a large scale. Now, with all the intricate new financial instruments and technology that had eluded oversight and regulation, there was an obvious need to protect consumers. Furthermore, there was a need to address the “too big to fail” dilemma to ensure that no single bank’s collapse could threaten the entire system or compel another widespread taxpayer bailout. Since the industry itself barely had a handle on all its machinations, writing the rules was a brutally complex undertaking. When Obama unveiled them in June 2009, Wall Street responded by deploying an army of lobbyists to help shape, if not stop, many of these reforms in a battle that would last more than a year.

  It was infuriating but not surprising. Now back on their feet, the financiers would spend a fortune fighting the reforms the crisis demanded. It was one more irritant that would make Obama’s relationship with Wall Street and the larger business community an ongoing challenge. It was a matter of politics and principle. The president could hardly do the things required to bail out the financial industry from a mess of its own creation without, at the same time, strongly condemning their excesses. Beyond that, he had run on the promise to level a playing field that had been badly skewed under the “anything goes” policies of the Bush years. All this would come to a head in a 60 Minutes interview in December 2009. In it, the president denounced firms that had taken emergency government loans to navigate the crisis while paying out billions of dollars in executive bonuses.

  “I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” he said, in a quote that would be played back to me for years afterward by aggrieved financiers who felt he had tarred the entire industry with a broad brush.

  Yet he had run promising a fair shake for everyday Americans, so one key provision of his financial reform package called for the creation of an independent Consumer Financial Protection Bureau to protect people from deceptive or unscrupulous practices by the issuers of credit cards, mortgages, and other loans. “We’ve had for 60 years a system of bank regulation under which the regulators view bankers as their constituency,” Summers said. “There is a good argument for an agency that has the consumer as its focus.”

  Obama was enthusiastic. The crisis had laid bare the vulnerability of financial consumers, some of whom had shared their experiences with him on the campaign trail or in the letters he read at night. However, he didn’t need their testimony. He had his own. When I gave the president a copy of The Big Short, Michael Lewis’s riveting book about how mortgage scams had led to the financial crisis, Obama thumbed through it with a knowing smile.

  “I lived this story,” he said. “I remember very well. Because of our student loans, Michelle and I could never catch up. So, some months, we paid our bills with credit cards. I went to refinance our condo and I was kind of surprised when they said, ‘You can get cash, too.’ So all of a sudden, my condo is worth fifty thousand dollars more and I can take forty thousand dollars in cash as a loan? I did it, but it seemed too good to be true. It was a racket.”

  The idea of a consumer financial protection agency was first proposed by Elizabeth Warren, the Harvard law professor and bankruptcy expert. Warren’s writings on the economic struggles of the squeezed
middle class and the abuses of the financial industry had made her a hero to the Left, and a burden to Wall Street. Their antipathy only grew when Warren was named by Democrats in Congress to lead an oversight panel on the bank bailout program. From that perch, Warren had asked tough and sometimes embarrassing questions both of bankers and of government officials, including Geithner. Neither he nor Summers, who knew Warren from Harvard, were big fans. Meanwhile, I thought her background and sensibilities made Warren a splendid candidate to lead the new consumer agency, if Congress created one, and I told the president so.

  I invited Warren to lunch in June 2010, as a final vote loomed on the financial reform law, and she wasn’t the least bit coy about her desire to lead the new consumer bureau. “I can do this or something else. But just between us, I’d rather do this than look over Tim Geithner’s shoulder for the next ten months,” she said pointedly. Elizabeth was tough and didn’t make any effort to hide it.

  I delivered that message to the president, who was equally direct in his response. “Tell her to keep her mouth shut. She may well be the choice, but we can’t surface that now.” Understanding what an irritant Warren was to Wall Street and its allies in both parties, Obama didn’t want to signal that Warren was his candidate before the law passed and the agency was created. Afterward, he did appoint her to help organize the consumer bureau, a job she performed with great enthusiasm and skill, recruiting first-rate talent and laying a strong foundation. Still, after gauging the politics of the Hill, Obama concluded that Warren couldn’t win the Senate confirmation required to be the bureau’s permanent director. The president feared that such a battle could damage the bureau and complicate other administration priorities. It was a decision that disappointed many on the left. The president, though, had an alternative notion. “Why doesn’t Elizabeth think about going home to Massachusetts to run for the Senate?” Obama asked. Scott Brown, the Republican who had taken Ted Kennedy’s seat in a special election after Kennedy’s death, was up again in 2012. “She could win that.”