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

by Ron Suskind

  Bloomberg Television wanted to interview her about the one-year anniversary of the TARP program and the fact that she had made a cameo appearance in Michael Moore’s new movie, Capitalism: A Love Story. They opened by running the clip in which Moore asks where the $350 billion in TARP money thus far allocated had gone. Warren responds, “We don’t know,” at which point Moore does one of his quick cuts, making it sound as if the money was stolen. There is, not surprisingly, a bit more to that story. Warren was leading the charge against the Fed’s secrecy oaths to the banks and nonbanks that had received the funds—oaths Treasury supported. Their position was that revealing who got the grants, which amounted to more than the total annual discretionary spending of the U.S. government, would undermine confidence in those institutions.

  Bloomberg, hoping to get her to react to Moore, got a bright smile and an evenhanded “there are important issues and I’ll talk about them to anyone, anywhere with a camera.” Then Warren ran through an artful précis on how the banks were still holding the toxic assets, and how that left them in a default position of continuing to use government grants and funding to do everything but lend money.

  Afterward, she ran a few more rounds in the Senate before grabbing a salad in a cafeteria in the basement of Russell.

  “What I think about is a whole building of people like me. If we can get this thing off the ground, I’ll recruit them. But the idea is out there. They’ll come on their own. Because keeping people from getting taken—and they are being taken, just like someone broke into their house and stole their jewelry, or the TV, or the money they were saving for their kids’ college—is a way to help people. Really help them. And that’s why maybe you forgo some money you might make out in the world of ‘make and sell’ to come here—because this is public service as something of virtue.”

  She could have gone on like this all day, but she didn’t.

  She knew there was no clear precedent for some citizen, even a Harvard Law School professor, coming up with an idea for what government ought to be doing and, soon enough, sitting atop a bona fide federal agency built around her impulse in response to a crisis.

  “I know I’ve become a lightning rod. Oh yes, I’m finding out that I’m drawing strong reactions from people in the administration who you’d figure would be on my team. If I get taken down, that’s not a problem. Really, it’s not, as long as there’s an agency. Then an army will fill it.”

  Warren, after all, didn’t even live in Washington, and soon she was striding down the breezeway at Reagan National, right where Volcker was two hours before. And like Volcker, she came full circle to Obama and Summers.

  “You can’t run a policy based on a misdirection, on a fiction,” she said. “I don’t know what the president is thinking. I don’t see the president. He meets with bankers. He doesn’t meet with me. But if he’s involved in this at all, he’s got to know that his angry words at Wall Street, at their recklessness and dangerous incentives in compensation, about how they do their business in ways utterly divorced from what’s actually good for the economy—that he can’t just say that sort of thing, and then dump money in their laps and be credible. Tim and Larry’s whole plan is just like Argentina in the 1980s. There was this giant hole marked ‘Banks’ and the government just dumped money in that hole, as much as they had, while they lied about it. That’s what Larry thinks: that the U.S. is Argentina!”

  And then Elizabeth Warren started to sing “Don’t Cry for Me, Argentina.” She was doing this at one of the little standup tables near the gates, people passing by on either side. Several started to applaud, and that seemed to egg her on, working the verse, with Larry Summers in the role of Eva Perón.

  She shrugged and let out one of those big laughs. “Why not? He might understand things better as a woman.”

  By mid-October, all the providers had cut their deals. On the other side of the table was a conjunction of the White House team, led by DeParle; the Baucus team, led by Jon Selib (the senator’s chief of staff); and Liz Fowler, a former WellPoint executive now on the Finance Committee’s staff. Shuttling between the two groups was Messina. It was a straight pay-for-play arrangement. The subtext was a pricing formula: How much is it worth to you, provider, for the reform package not to deal seriously with the issue of cost, which stands to cripple your profits? Once a price is agreed upon, you pay a portion of it—often by agreeing to certain provisions for your Medicare and Medicaid disbursements—and those federal savings then pay for expanded insurance coverage. These deals were at the heart of the ten-year, $856 billion behemoth of a plan approved by the Baucus group in mid-September and now winding its way through the Senate.

  Health care reform had officially become health insurance reform. The providers were no longer up nights worrying, and they certainly had not welcomed Ignagni back into their midst. She and the insurers were on their own. She was alone in saying what no one wanted to hear: that there was little real cost control in any of the bills.

  She’d heard that inside the White House, aggrieved that the champions of coverage had killed his dream of containing costs, Orszag was calling Pelosi’s House bill a “liberal fantasy” of glut and expansion.

  Ignagni set up a meeting with him. The Senate bill, she contended, wasn’t all that much better. AHIP had been working on the numbers for weeks, and they showed a significant rise in costs. Orszag could read data points on health care costs as well as anyone. Ignagni’s numbers were interesting, no doubt. But as long as her data had the AHIP logo at the top of the page, its findings would be discredited.

  So she opted for a third party: PricewaterhouseCoopers. When the accounting firm came back with numbers showing rising costs much like AHIP’s, Ignagni contacted DeParle, ready to show her both the AHIP and the PricewaterhouseCoopers numbers. Hoping to stop the release of these figures in a public report, DeParle invited her back to the White House.

  Again, Ignagni presented her findings. Obama’s health care team was interested, but nothing changed in terms of the basic calculus they and Baucus were using. It was full steam ahead.

  On Monday, October 12, amid the Senate’s efforts to sell the Baucus proposal, the PricewaterhouseCoopers report was released. The bottom line: by 2019 Baucus’s cost projections were undershooting the typical family premium by a whopping $4,000. “The report makes clear that several major provisions in the current legislative proposal will cause health care costs to increase far faster and higher than they would under the current system,” Ignagni asserted in a statement.

  AHIP, now on the offensive, was prepared to circulate the report in advertisements and memos to congressional leaders. Nancy-Ann DeParle tried her best to deflate the report, snidely undercutting the legitimacy of PricewaterhouseCoopers by remarking that the firm “specialize in tax shelters. Clearly, this is not their area of expertise.”

  But the report was a potent weapon, easily swung by Republicans and some Democrats. Everyone in the provider community knew the White House wasn’t focused on cost. Now that inattention was being called out publicly.

  Behind the scenes, the White House expressed its acute displeasure to Pricewaterhouse, which does an enormous amount of business with the U.S. government. Then, on October 13, a day after the report’s release, PwC issued a baffling reversal, distancing themselves from the study and claiming that AHIP had directed the consulting firm to focus on only certain aspects of the proposed bill.

  Ignagni and AHIP were now seen as toying with the cost numbers to “kill the bill.” Ignagni fought back with futility.

  That Saturday, after finishing a run in the cold fall morning, Ignagni returned to her house to hear the president’s weekly radio address. With Afghanistan, the economy, and joblessness all over the news, Ignagni was eager to hear what the president had to say about anything but health care reform.

  “The history is clear: For decades, rising health care costs have unleashed havoc on families, businesses, and the economy,” Obama said. “And for decades, w
henever we have tried to reform the system, the insurance companies have done everything in their considerable power to stop us.

  “It’s smoke and mirrors. It’s bogus. And it’s all too familiar. Every time we get close to passing reform, the insurance companies produce these phony studies as a prescription and say, ‘Take one of these, and call us in a decade.’ Well, not this time.”

  Ignagni could not understand what she was hearing, literally. She was legally deaf and required the use of a hearing aid. After picking up her aid off the kitchen counter and turning up the volume, she listened in more closely:

  “. . . those who would bend the truth or break it to score political points and stop our progress as a country.” The president went on to accuse the insurance industry of broadly “filling the airwaves with deceptive and dishonest ads,” deliberately creating reports, such as the PwC Senate bill study, “designed to mislead the American people.”

  How had the providers been allowed to walk away from their many flip-flops on cost-reduction promises? And now this was being used to demolish insurance? Obama had made his move; the cost-versus-coverage debate had shifted completely. Back in February, when the president first decided to make health care reform his number-one priority, the view was that attacking rising costs, which were crushing both businesses and families, had the potential to be a truly bipartisan issue. Now that line of attack, never really tried, had been officially buried. It was all about expansion of coverage, and the insurers got to play the villain.

  It was Ignagni’s job in many ways to be the bad actor. That didn’t bother her. It would be hard for anyone not paid by the industry to argue with a straight face that insurance companies were not a huge part of the problem. But Ignagni’s strategy—to align with, rather than against, the White House—was a missed opportunity to fix the most fundamental issue in health care: cost.

  Now the White House could attack someone, the insurers, with an attractively high negative rating. The fact that insurers were talking about rigor on costs was beside the point. They were not to be trusted. That much was now clear.

  When Orszag thought of Summers’s “home alone” riff, he came back again and again to the morning economic briefings, an anchor of the president’s official duties almost every day. “The president thought those morning briefings were the best of the best, the finest economic minds that could be assembled. He’d say it all the time, how he’s consulted with the best experts. But it wasn’t the case.” Orszag found the meetings less and less useful. Some mornings he simply chose not to attend; on those he did, he often felt it was not time well spent.

  Krueger—who would sometimes fill in for Geithner, or visit the morning briefing to present a specially tailored research project—remarked that “Larry would frame an argument as A versus B, and that would sound right unless you were someone with deep enough mastery of an area to know that position D represented the real counterpoint and the best policy position was probably C.”

  The process inside the NEC was not all that strong. This was never Summers’s suit. In some instances, the topic for a briefing would be selected late and the materials swiftly and haphazardly prepared. In one such instance, in July, Krueger got a late-afternoon call from Jason Furman, Summers’s deputy at NEC. The next morning’s briefing was to deal with immigration. Could Krueger pull something together? It was already dinnertime. Krueger said he taught a class on immigration issues, and some of the economic effects, to Princeton freshmen. “I could bring some of those materials,” he said. Furman said that would be fine.

  Summers, with his rhetorical acrobatics, could paper over such gaps in preparation. This, in fact, was a point of great pride.

  Or so he explained in the fall of 2009 to Andrew Metrick, the Yale economist whose father had been number two at Bear Stearns. Metrick had joined Romer’s staff as chief economist. One day he found himself walking over to the Treasury Department with Summers, who’d taken a mentor’s shine to the youthful Metrick.

  “Larry was complaining about the position Treasury was taking on some issue, and how he couldn’t dislodge them from their position, that they just wouldn’t budge. I said, ‘Well, Larry, maybe they’re right.’ He just looked at me and said, ‘That’s not an issue. I can win any argument. I can win arguing either side. But then I sit back and think, “Which side did I win more soundly and fairly?” That’s usually the right answer.’ ”

  Metrick then recalled stopping and saying, “Larry, that sure places a lot of might on your internal discretion, and what you decide you want to decide.”

  Obama, propelled to office both through creating and being created by the bold expectations of a terrified nation, could hardly resist the neat fit Summers provided. Larry could win every argument, never flinched. As long as his own ambitions were salved, he’d make sure Obama felt sufficient confidence: that he had mastered the seminal issues, that as a young president he could succeed in office. But it was never enough to make the sweeping decisions that drive history’s arc. The president hewed more to a split-the-middle brand of blended solutions: a little of this offset with a little of that.

  Of course, Obama, with his great talent for spotting the play of historical forces and distilling it elegantly in his speeches, had to know deep down that blended, split-the-middle solutions allowed for three decades of disastrous drift in the health care and financial sectors and, more broadly, the U.S. economy. The problem now was that he had been found out. A select group of people who’d earned the certainty to make sweeping recommendations—such as Volcker, Warren, and Gensler—had stepped into the breach. All three of them, with their earned confidence and high purpose, raised questions about Obama’s claim to either quality.

  While Summers wrestled with his discontent, Volcker had been all over the airwaves, and in the magazines, from the day of the Frank hearings on. Summers was opposed to Volcker’s idea of banning banks from proprietary trading. He had called around, and friends on Wall Street told him it was untenable to draw such a line with the volume and diversity of a major bank’s trading portfolio.

  But as Volcker was being lionized in public, Obama began to double back, wondering what his team thought of Volcker’s idea. Biden, who was an old friend of Volcker’s, stepped in during a White House meeting and said that the banks were strong enough to take some medicine now, even if it wasn’t fundamental change. They were making money again, gambling with depositors’ funds and with implicit, or explicit, support of the taxpayer. It wasn’t right. Obama nodded. Joe had said it, straight and true.

  On November 2, at a meeting of the PERAB, Obama called Volcker, Robert Wolf, and Summers together and said he wanted to try Volcker’s idea. It was clear that Wall Street was taking advantage of its protected status, drawing free money from the Fed window and making more risky bets with it. “They did this to themselves,” Obama said. The logistics of separating a bank’s trading accounts from those of its clients was difficult but doable, Wolf said. He’d help to work out the details.

  As they left the meeting, Summers turned angrily to Wolf. “You’re taking his side!”

  Wolf would have none of it. “Larry, I’m telling the president what I think. I’m not taking anyone’s side—not yours or Paul’s.”

  On November 5, the women prepared for their big night in the West Wing. After nearly eight months of growing strife in the White House’s so-called gender wars, the president was finally engaging.

  What had forced the issue? An October 24 New York Times story by Mark Leibovich titled “Man’s World at the White House?” Several of the women, who generally did not speak for attribution, were aggrieved about a mid-October basketball game held with congressional members and Hill staffers in which no woman was invited to play on either team. Obama immediately called the accusations “bunk,” saying that the players were largely drawn from a revolving congressional game, a list that had been reviewed by women on his staff.

  The day after the article appeared, Obama invited Domestic
Policy Council chairwoman Melody Barnes to join him for a round of golf—the first time he had included a woman in an outing all year—and it was decided that the women would join him for a dinner in the residence to air their concerns.

  Several hours before the dinner was to begin on the fifth, the president was confronted with a disaster. Nidal Malik Hasan, an American-born Muslim army major, had allegedly opened fire at Fort Hood, in Texas, killing thirteen and wounding twenty-nine others. Obama, having been briefed throughout the day, spoke at a previously scheduled event at the Department of the Interior and called the attacks “tragic” and “horrific.”

  “My immediate thoughts and prayers are with the wounded and with the families of the fallen and those who live and serve at Fort Hood,” he said. “These are men and women who have made the selfless and courageous decision to risk and at times give their lives to protect the rest of us on a daily basis. It’s difficult enough when we lose these brave Americans in battles overseas. It is horrifying that they should come under fire at an army base on American soil.”

  A dozen women, including virtually all the president’s senior female staffers, were sure the dinner would be canceled. But they gathered anyway for cocktails in the residence, a nice opportunity for all of them to be together, only to be surprised, and delighted, when the president managed to arrive twenty minutes late. Their meeting with him was clearly a priority, and it was not the first time Obama had heard directly about the gender issues. In June, the afternoon of the jobless recovery meeting, Valerie Jarrett told the president he needed to meet with Romer and that a space had been cleared on his schedule. Romer talked about the boys’ club problem for many of the women—the way they were excluded from key meetings or ignored when they attended; the bullying atmosphere that prevailed—as well as the specific issues for her. “Have you ever tried to get a word in edgewise when Larry and Tim get going?” The president was skeptical about there being a problem, but attentive. Romer brought matters full circle to him: “If you give power to Rahm or Larry,” she said, pointedly, “you’re responsible for their actions.”