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

by Ron Suskind

  On the other hand, Summers could just as easily lead the charge at Treasury, then move over to the Fed when Bernanke’s term was up at the end of 2009. Summers told Obama he would be very interested in the Fed job, a unique and prestigious position on the world stage. Summers had watched his old friend Greenspan turn the chairmanship into a seat of extraordinary, dynastic power. In twenty years on the job, Greenspan could lay claim to having been the most powerful public official of his era. At only fifty-three years old, Summers saw in the Fed post the long final chapter to a storied career. When Summers moved over, Geithner would move up.

  But then it all started to become complex math. The financial crisis was altering the country’s professional landscape. Citigroup, made a home for so many former Clintonites by Rubin and others, suddenly went from esteemed financial behemoth to bumbling charity case. The financial meltdown revealed a host of sins and perfidies, and Citi seemed to have plenty of every variety. It had loaded up on toxic mortgage assets rather late in the game, received the initial $25 billion in bailout money, and then another $25 billion to keep it afloat. It had seen fit, along the way, to dole out stunning compensation, including the $126 million to Rubin over a period of eight years. The mélange of greed, incompetence, and bailout funds was toxic. As late as early September, Rubin was actually talking to Obama about a taking a job in the administration: a “dollar-a-year” position as a presidential adviser, with an office in the West Wing. Now he was persona non grata, at least in public. The same was increasingly the case for Jack Lew, who had been well compensated in the past few years at Citi. If congressional Republicans dug into some of the activities occurring in departments beneath Lew—even if he didn’t know about them—it could get ugly. In mid-November, Lew reluctantly withdrew himself from consideration for the job he’d all but been offered: NEC chairman.

  There was one other twist. The prospect of selecting Hillary Clinton as secretary of state—speculated publicly, and much discussed internally by the Obama team, with high hopes—was increasingly seen as a strike against Summers. If he were put at Treasury, the president’s top two appointments would both be central actors of the Clinton era.

  Obama began to reconsider the mix, with an eye on the close bond between Summers and Geithner, something neither had with Volcker. This friendship might turn into an asset, encouraging close coordination between the White House and Treasury, as they worked together through the crisis. Obama was initially worried that Geithner might assume an overly subordinate manner with Summers, who had once been his boss. But the remark, from someone who knew the pair well, that Geithner could stand up to Summers and tell him he was “full of shit” allayed Obama’s worries. Both longtime tennis players, Summers and Geithner had played together for years, cementing a bond in athletic battle that Obama respected. He became enamored, as he thought about it, of the idea that Summers could spearhead economic debate within the White House while using his deep rapport with Geithner to keep the administration closely coordinated with Treasury’s emergency activities.

  When Obama suggested this arrangement, however, Summers demurred. Having once been Treasury secretary, he considered the NEC job a step down. He hinted that he might be less than ideal for the position, pointing out that his strong suit was not in evenhandedly distilling rival ideas into distinct, unbiased choices. This was what the NEC job demanded. Then, for good measure, Summers added conditions: he would manage all information regarding economic matters that passed to Obama, and he would be first among equals to replace Bernanke.

  Obama accepted his conditions.

  Many people with Obama’s ear advised the president-elect against Summers, among them several members of Team A. They said he was too divisive, too combative, and, to their knowledge, never a consensus builder—that his brilliance was rhetorical rather than substantive, that he had abandoned original research two decades ago, and that his track record over the years in major decisions had been disastrous.

  But for every voice testifying against Summers, there was one who said, simply, that he was brilliant and that the rest was irrelevant. Many of those voices came from Rubin’s B-Team and from Wall Street, which should have set off an alarm. But their message and the timbre of their voices, full of confidence and loyalty, were in the end more comforting than those of the ragtag A-Team, whose love seemed suddenly too tough.

  For Christina Romer it was love at first sight.

  She had seen the convention speech in 2004, and watched in awe the declaration of candidacy from the Illinois snows and his victory speech in Iowa.

  But her teenage son was a Hillary supporter. She was dumbstruck.

  “Yes, Hillary’s fine. But have you seen the speeches?”

  Romer loved the Cooper Union speech, but she was unsettled—as Hillary made her final push in Ohio and Pennsylvania, playing to union workers—to see Obama step back from his earlier statements in favor of NAFTA. She called up Austan Goolsbee, whom she knew from academic circles.

  “Don’t let him sink to that,” she told Goolsbee, a fellow free trade enthusiast. “Have him broaden the discussion about displaced workers and what government can do to help them.”

  Soon enough she was sending Goolsbee a steady stream of materials, adding to the Obama campaign’s economic potpourri her own notes and various handpicked academic reports. By June, however, Jason Furman had replaced Goolsbee as the campaign’s top economic adviser. He was calling the shots now, and Romer found herself out of the loop.

  That is, until a mysterious e-mail popped up in her account on November 16. She was sitting at her home in Berkeley with her husband, David, also an economics professor, when a note arrived from Michael Froman, with a strange tag: @NTT.org. She thought it might be someone looking for a job.

  “If it’s a job with Obama they want, I certainly can’t help them,” she thought.

  On a whim, David decided to Google the name Froman. “I think you might want to respond to this one,” he told her. “NTT stands for National Transition Team. Michael Froman is the head of hiring for the Obama transition team.”

  Curious just what in the world Froman might want, Romer made the call.

  “What kind of a job would you be interested in?” Froman asked, sending a thrill of excitement through Romer. She played her cards close.

  “Well, there are a few Fed governorships opening up,” she noted.

  “We had something else in mind,” Froman said. It was the chairmanship of the Council of Economic Advisers.

  Five days later Romer found herself on a plane to Chicago, like Orszag before her, on her way to meet the object of her political infatuation. But her excitement crowded out the obvious question: Why her? Obama had already surrounded himself with a healthy cast of top economic minds from the highest reaches of the private sector and academia. She had been an ardent supporter, sure, but hardly an instrumental adviser.

  The answer would only begin to dawn on her later in her West Wing tenure. Obama had a woman problem: too few of them in key jobs. There was Valerie Jarrett, but she’d been a friend of Michelle’s first. Speculation that Hillary would get the secretary of state job had begun circulating, but she wouldn’t really garner the administration any diversity points. She was “Hillary,” a single-name entity across the globe, and bringing her into the fold would be more about power than equal opportunity.

  It was on a Friday, November 21, that Romer first entered Obama’s curtain-sealed office in Chicago. Unlike Orszag, she was nervous about meeting Obama and she hadn’t even come with any ultimatum or conditions about taking the Council of Economic Advisers job. She was just elated to get to know the guy.

  But their first meeting would open on an odd note. Before exchanging hellos or even shaking hands, the president-elect delivered what seemed intended as a zinger.

  “It’s clear monetary policy has shot its wad.”

  It was a strange break from decorum for a man who had done so outstandingly well with women voters. The two had neve
r met before, and this made the salty, sexual language hard to read. Later it would seem a foreshadowing of something that came to irk many of the West Wing’s women: the president didn’t have particularly strong “women skills.” The guy’s-guy persona, which the message team would use to show Obama’s down-to-earth side, failed to account for at least one thing: What if you didn’t play basketball or golf? Still, for the moment, the comment didn’t faze Romer. She was curious to hear what he thought.

  “What do you mean?” she asked.

  Obama extended his hand, now ready to greet her.

  “I guess we need to focus on fiscal policy,” he said.

  “No, you’re wrong,” Romer corrected him. “There’s quite a bit we can still do monetarily, even with the historically low interest rates.”

  She described how, even with rates near zero, an expectation of coming inflation, and a rise in rates, prompts the use of cheap debt in more robust, and stimulatory, ways.

  The conversation soon turned to more familiar ground: Roosevelt. Romer, a scholar of the Depression, listened to Obama invoke FDR’s example as a model of crisis management. He praised the way Roosevelt took charge of the situation and let everyone know that “I’ll fight this thing with everything in my being. We’ll put the people first.” That, Obama added, “was how Roosevelt restored confidence.”

  Romer was impressed. With Rooseveltian fantasies dancing in her head, she said she would be honored to accept the job as chair of the Council of Economic Advisers. The president-elect had Rooseveltian fantasies of his own, and Romer later recalled that he seemed to understand that economic policies could often “have an impact beyond what was immediately quantifiable,” that “for a president to forcefully take a stand could really affect confidence.”

  With a kind of giddiness, Romer recounted the meeting highlights to her husband. “He’s even better than I expected,” she announced.

  But David Romer was more blown away by her brazenness than anything. “The first thing out of your mouth was ‘No, you’re wrong’?!”

  On Monday, November 24, Obama unveiled his newly minted economic team. The headline names were Summers, Geithner, and Romer. It was a markedly different group, compositionally and ideologically, from the A-Team Obama had showcased throughout his campaign. Summers would take the NEC chair, Geithner the top job at Treasury, and Romer the head role at CEA. As for the members of Team A, they would find themselves exiled to the hastily crafted President’s Economic Recovery Advisory Board.

  For all the infighting and acrimony that would plague the administration after the inauguration, the atmosphere of the transition was one of surprising camaraderie. As one high-ranking official put it, “We were actually working as a team in December.”

  Never was this feeling so palpable as on November 30, when Larry Summers turned fifty-four years old. Spirits were high as they gathered to celebrate in the Chicago transition office; Geithner even brought cupcakes for the career curmudgeon. Following a hearty rendition of the Happy Birthday song, Summers, without missing a beat, launched into his own solo verse: “For he’s an unpleasant fellow!”

  Everyone laughed. Looking back, Orszag would later say, “It was one of those moments where we felt like whatever happened before, it was okay. It was one of those moments in one of those windowless conference rooms.” There was something poignant about the self-awareness of the verse, something in the humility of self-deprecation that evoked a sense of new beginnings. The team had begun to gel, with good humor, around the quirkiness of its members.

  The moment would not last.

  Christina Romer was soon struggling to understand exactly what her role as head of the CEA entailed, and she was having serious reservations. The position, impressive as it had seemed, looked more and more insubstantial, a big title without much effective heft. In the coming months she would feel increasingly isolated in her job, excluded from the broader discussion by Summers, whose Kissingerian role at NEC had basically annexed her position in the sweep of its bureaucratic imperium. Later on she would go straight to Rahm Emanuel about the issue, although she had reservations about the president’s chief of staff, too. For the time being, however, she worked with Larry as best she could.

  She even had a degree of sympathy for the newly “mellowed” Summers. “He’s just not very good at politics,” she thought. “If he were the CEA chair, he would be saying the exact same things I am.” The issue of the moment, as the inauguration inched closer day by day, was the stimulus package. It was the seminal debate of the transition. The figure being thrown around early in December was $300–400 billion, but Romer didn’t have to crunch the numbers to know that wouldn’t be enough.

  “I think it should be bigger,” she told Summers, as the two set to drafting the memo they would pass on to Emanuel.

  “How much bigger?” Summers asked.

  “Eight hundred, at least.”

  “I agree,” Summers said, surprising Romer. Both of them knew that if the stimulus was going to have any real impact, it was going to need to be a politically unpopular number. They drafted the memo to include two options below $1 trillion. Romer pushed for a larger stimulus, at around $1.2 trillion.

  “All of these stimulus options are set up to achieve eight percent unemployment,” she exclaimed. “Since when is eight percent unemployment acceptable? We’ve spent the last few years at four percent!”

  Romer, in preparing a report for Obama, included the perspectives of several big-name economists who supported a larger stimulus: Stiglitz and Tyson, along with Ken Rogoff, a highly respected Harvard professor. But $1.2 trillion was going to be a political nonstarter, and in a sign of his increasingly dominant role, Summers chose not to include it in the materials for the president-elect.

  The fledgling transition team’s first major stimulus meeting took place on December 16, in snowy Chicago. For all the fierce internal debate, there wasn’t much the president-elect could do until January 20. Though his strong desire was to tackle health care in year one, Obama knew his first piece of legislation would have to address the financial crisis. Much of what ended up as the American Recovery and Reinvestment Act of 2009—the stimulus—was decided at this meeting.

  All eyes were on Romer, who had spent much of her career studying the effects of government spending under FDR. She opened the meeting, taking to heart David Axelrod’s message that the gravity of the situation could not be overstated.

  “Mr. President, this is your ‘holy shit’ moment,” she said in surprisingly strong language.

  She was right. The crisis was that big. She clicked and brought up a PowerPoint slide—something Summers disliked (“Don’t show what you are already saying anyway!”)—describing the difference between a severe recession and a depression. Only through major intervention, she explained, firmness and earned certainty in her voice, could they hope to prevent the latter.

  The effectiveness of stimulus spending was still considered the realm of unproven economics, but its detractors, in failing to take the “multiplier effect” into account, appeared to underestimate its value. Whatever dollar amount of stimulus passed through Congress would be only a fraction of the money actually added to the economy. Because Americans tended to spend more and save less than people in other countries, stimulus spending could be expected to go a long way, generating more actual value than it cost, as beneficiaries spent and the stimulus money passed from hand to hand.

  Inside Team Obama there was almost no discussion of whether to undertake a stimulus, just of how large it ought to be. The number had grown quickly. Clinton had attempted to pass $16 billion in stimulus after taking office in what, at the time, was considered a huge piece of legislation. Before this election, $100 billion had seemed to be the number. But now, with the economy speeding off a cliff, Congress was working with numbers closer to half a trillion. The key would be to fill the output gap, estimated to be around $2 trillion. Romer stressed that because of the multiplier effect, the stimulus didn�
��t need to be quite that large.

  For his part, Obama was surprisingly aloof in the conversation. Like McCain during the September meeting with Paulson, the president-elect now seemed disconnected and less than in control of the process. As the economic team hashed out the minutiae of a plan and tried to settle on a number, Obama’s contributions were rare.

  “There needs to be more inspiration here!” he said at one point.

  The team was sympathetic to Obama’s position, which demanded that he somehow deliver on the high rhetoric of his campaign, but it was taken aback all the same by how out of place the comment seemed in the middle of a discussion of quantifiable outcomes.

  The debate would ultimately hinge on whether the stimulus should exceed $1 trillion. As the resident expert, Romer had convincingly argued that $1.2 trillion would suffice. The forces pushing for a number in the billions, however, were strong. For one thing, there was the near-term issue of being able even to get such a monumental package through Congress. In the long run there was the worry of coming across as a tax-and-spend administration. As Peter Orszag said, “There was the concern that we would look wacko lefty.”

  Obama seemed persuaded that the stimulus did not need to exceed a trillion dollars. For him it was more about the symbolic content of the stimulus.

  “What about smart grids?” he asked at one meeting.

  The conversation then turned to an extended discussion with Carol Browner, Obama’s top adviser on energy and the environment, about the limitations of eminent domain. A smart grid would need to be implemented district by district, which, as part of the stimulus, was entirely unfeasible.

  Obama, frustrated, refused to let the topic go. “We need more moon shot,” he said.

  Members of the team were perplexed. How could the guy who had wowed them with his ability to synthesize ideas and move discussions forward get so hung up on something that everyone agreed was impossible? Yes, it was important for legislation to inspire, but couldn’t they hash out a basic plan first? For the first time in the transition, people started to wonder just how prepared the man at the helm really was.