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

by Ron Suskind

  Krueger asked a few questions, trying to press Newport and Clifton to dig deeper.

  “A big issue we find with confidence,” Clifton added, “is the question of whether people take ownership of what they say. Look, we all say all sorts of things for all sorts of reasons. But the key is whether, for better or for worse, you take ownership of your words. If you do—or, as a leader, if you make sure your people do—then you usually have a pretty high confidence reading, even if you make mistakes. It’s kind of the straight-shooter thing. People like that.”

  After dinner Krueger made his way back from Georgetown toward the building where he’d been renting an apartment. After a lengthy run working at Treasury, he was finally ready to leave.

  It was a warm evening in early October, a good night for walking, especially when life changes were afoot. In a few weeks he would return to Princeton, and he’d been trying to think about the last two years in Washington, and about the Barack Obama he first met in 2007.

  He felt there was a clarity of thought and purpose to that earlier version that was increasingly difficult to find in the years he saw the president in his White House environs. He wasn’t sure why there had been a change, if in fact there had been, and he was not blaming Obama. But somehow the president had lost ownership of his words and, eventually, his deeds.

  After a few blocks of quiet strolling, he thought of all the experiments over the years which had resulted in academic disputes, including a few he’d had with other prominent professors on how questions were asked in surveys, or whether the selection of those being questioned skewed results toward certain responses.

  In a particular dispute years back, Krueger eventually found something wrong in the methodology, that the data were being corrupted by the respondents’ subtle urge to show the questioner that they were motivated and resourceful, when they actually were often dispirited and without energy.

  “What we found was that in the early data, we were relying on seemingly strong responses from those surveyed that were meaningless. We were being misled by thorough but meaningless data. The statisticians call it ‘noise.’ We were living off the noise.”

  And that brought him back to present tense, and his past two years in Washington. As he walked, he tried to count the number of times that days or weeks rose up and down, relief to despair, on vast and wildly imperfect data. GDP or unemployment rates—imperfect measurements to start with—are often quietly changed several months after their news cycle-driving “release” has already had a profound effect on politics, public statements, quickly fashioned policies, and, by association, public confidence.

  Then, he smiled, a researcher to the last.

  “I think that happens to a lot of good people, in these times, when they come to this town. Our president may just be the most recent example. They think they’re seeing things clearly. But they’re living off the noise.”

  Larry Summers’s exit from the White House, scheduled for shortly after the midterms—though it ended up not taking place until early 2011—provided a certain catharsis. The departure brought finality to the first phase of the Obama presidency.

  The degree to which Summers’s exit was organic is debatable. The restructuring plan concocted by Rouse starting at the beginning of the year suggested that Summers would need either to leave or accept a modified position, with his far-reaching post at NEC becoming administratively untenable. Summers contended that the exit was beyond amicable and that, in fact, the president pleaded with him to continue in his capacity.

  What is not debated is the esteem that Obama continued to hold for Summers. When the announcement of Summers’s departure was made public, Obama issued a lengthy statement in admiration of his service:

  “I will always be grateful that at a time of great peril for our country, a man of Larry’s brilliance, experience and judgment was willing to answer the call and lead our economic team. Over the past two years, he has helped guide us from the depths of the worst recession since the 1930s to renewed growth. And while we have much work ahead to repair the damage done by the recession, we are on a better path thanks in no small measure to Larry’s wise counsel. We will miss him here at the White House, but I look forward to soliciting his continued advice and his counsel on an informal basis, and appreciate that he has agreed to serve as a member of the President’s Economic Advisory Board.”

  That public encomium was reflected privately, where Obama showed a begrudging fondness for Summers. Valerie Jarrett, when talking about the conflicts within the economic team, was quick to note, “The president considers Larry to be a friend.” Shortly before the midterms, Obama had inadvertently channeled George Bush praising FEMA director Michael Brown following the Katrina disaster, when, in an appearance on The Daily Show, he told Jon Stewart that Summers had done “a heckuva job.” When the audience scoffed aloud at the connection, Obama quickly, but unconvincingly, recovered, with a forceful “Pun intended!”

  Obama’s private admiration and public defense of the controversial Summers was made all the more poignant by the not-so-subtle slight Summers had shared with Orszag and others. Every time he riffed about being “home alone” with no one in charge, and declared that “Clinton would never have made these mistakes,” he impugned the president’s intellect and management skills. These, of course, were the very qualities Obama was publicly praising in Summers.

  Later, in an interview, Summers was asked about his “home alone” riff, which was read back to him in full thus: “We’re home alone. There’s no adult in charge. Clinton would never have made these mistakes.” In the interview, Summers at first shouted, “I never said it!” but then it was made clear to him that others had heard it and some—like Orszag—could even cite a specific instance, May 26, 2009, at the Bombay Club, when they’d discussed it. At that point Summers assumed ownership of the acerbic assessment and, after a few moments, offered this response about what he meant when he gave it: “What I’m happy to say is, the problems were immense, they came from a number of very different sources, they were all coming at once, and there were not very many of us, and people were pulled in many many different directions. And we couldn’t make . . . That meant it wasn’t possible to give—there were five issues at once, that were more important than any issue in a typical year of American economic management, and there certainly weren’t five times as many of us. And that’s what I must have been referring to.”

  In their final meeting, the two men had lunch. Obama handed Summers a new sterling-silver putter, saying it was to recognize him as not only a colleague, but a friend. Larry was grateful. Obama, gracious almost to a fault and offering more loyalty to those who’d served him than they often returned, had won over even the thorny Summers.

  It wasn’t until he left and got to the top of the stairs that Summers saw that the putter had been inscribed: Thank you, Larry—POTUS.

  “Why doesn’t business like me?” That question, pondered by the president privately, had come to a head by the fall of 2010. He was quick to point out that his administration had overseen the complete turnaround of the financial sector. Why, then, was the business community so frustrated with him?

  Within the corridors of American business there was a different feeling. Obama was an academic—albeit very smart—who didn’t understand, as the Calvin Coolidge quip so acutely summed up, that the “business of America is business.”

  Larry Fink had previously dismissed the Obama White House as being “all professors.” But beyond the policies the Obama administration enacted, Fink felt fatigued at what was perceived to be Obama’s Rooseveltian idealism. Any serious conversation about creating jobs needed to start not with federal programs or vouchers, but rather with a focus on how to get the economy growing again.

  That point was driven home during a series of perspective-forming meetings through the late fall leading up to the midterms. Rahm Emanuel, before making his grand exit, orchestrated several private one-on-ones for the president and leading busines
s magnates.

  First up was Warren Buffett, whom Obama had consulted at various points during the campaign. Buffett was direct, telling Obama that there were gaps in the housing market. There was an imbalance, and it would take at least two years to restore equilibrium, no matter what plans the government proposed.

  This leitmotif, the limitations of government, was difficult for Obama to reconcile. Having so eloquently defended liberalism, the humbling recession and the coming shift in American politics meant that an embrace of austerity, and more limited aspirations, would define the next two years.

  In a series of meeting with Larry Fink through the fall, Obama wondered aloud what he could do to better align himself with business.

  But that wasn’t the only reason Fink had been invited to meet with the president. It was an interview of sorts. Summers, with his adoration of Wall Street, had told Krueger that “Fink is the smartest man in the world.” Greg Fleming, who had known Fink for years as a close friend and business colleague, would differ with Summers. Fink was smart, but Fleming had learned, he said, that “it’s wrong to judge people’s intelligence by how much money they have—there’s not always a correlation.” Nonetheless, when Emanuel asked Summers who he thought would be best to replace him, Summers mentioned Fink. That’s all Emanuel needed to hear. He told Obama that Fink was his first choice to head the NEC.

  Which is why just a few days before he himself left for Chicago, Rahm Emanuel ushered Fink into the Oval Office for his first meeting with the president.

  Through September and October, Fink met with Obama and talked to him on the phone several times. He fretted about whether to take the job. Emanuel suggested that he could be NEC chief for a year, get seasoned in the ways of Washington, and then possibly be in line for Geithner’s job.

  But as October neared its end, BlackRock entered into negotiations to sell a major portion of its Bank of America shares, and had just raised $10 billion in equity. With those changes afoot, Fink told Obama it would be “immoral” for him to leave his post at BlackRock at this moment.

  Fink’s perception of the president had evolved dramatically since an interview he gave the previous November, when he ranted: “I’m frustrated with these academic economists. Goolsbee, Krugman, I haven’t spent a moment with the president . . . Not that I’ve sought it . . . But they don’t want to hear it. He’s a college professor, he’d reach out to John Sexton [the NYU president] before he reached out to a CEO. We have 3 trillion in assets—they don’t care what we think!” After his arrival at the Oval Office, though, he was impressed by the president’s grasp of financial arcana, as when he rattled off obscure housing statistics or spoke with Fink about industry jargon such as the “filtering process,” a housing term for the passage of houses through the marketplace. As for Obama’s policies, Fink said, “The president is much more of a centrist . . . in some ways he might even be called right of what used to be called center.”

  Grasping policy options had never been difficult for Obama. It was about leadership—and how he could wrangle the mighty universe of American business. Fink and Buffett knew more than anyone about that. But Fink also knew that government and Wall Street were different beasts, and he could be just as critical of his own capital as he was of Washington.

  “Wall Street’s confidence is buying back your shares; that does not add a job. Wall Street’s confidence is doing a merger; that destroys jobs.”

  On Tuesday, November 2, the American electorate showed a lack of confidence in Barack Obama and his Democratic Party. Voters came out in droves for Republicans. They picked up sixty-three seats in the House, the largest swing since 1948. The Republican Party took control of the House, having relinquished it to Nancy Pelosi and the Democrats for only four short years.

  A half dozen Senate seats also fell to Republicans, a feat, considering that only a third of the members were up for election.

  The counterpoint to Obama’s reform period featured a wide swath of characters. Many of the Republicans were business-owning “American Dream” candidates, especially in the congressional races, with the cash to finance juggernaut campaigns. Less prevalent, but still influential, were the Tea Party candidacies, many of whom fell short in the Republican primaries but pushed the nominee further right in the election.

  Perhaps most interesting was the strain of Libertarian and Constitutionalist candidates who percolated to prominence in senatorial and gubernatorial elections. Rand Paul of Kentucky and Marco Rubio of Florida, both Senate victors, appeared to be the ones most suited to rise quickly. Young and charismatic, they harnessed support, deep-seated in the conservative psyche, for dramatically limited government. The 2006 midterms had been a referendum on Bush. Republicans were hoping these midterms were a referendum on liberalism.

  Of course, this view was myopic. If the election had proven anything, it was that American politics were still a realm of striking volatility. Obama had fallen from historic highs to crushing defeat in just two short years. But it was also a reminder that, from now on, anything could happen.

  Speaking at a press conference the day after the election, Obama expressed the unfamiliar emotions of a president coping with defeat.

  “I do think that, you know, this is a growth process and—and an evolution. And the relationship that I have had with the American people is one that was built slowly, peaked at this incredible high, and then during the course of the last two years, as we’ve together gone through some very difficult times, has gotten rockier and tougher.

  “And, you know, it’s going to, I’m sure, have some more ups and downs during the course of me being in this office.”

  20

  The Man They Elected

  Reflecting on the two years leading up to the midterm shellacking, President Obama focused most acutely on the portentous early days.

  “In the first six months, we were in uncharted territory. When we met every day with our economic team, and the markets are gyrating by hundreds of points every day, and nobody was sure how bad the banking crisis might get, I’m the first one to admit that at that stage, we were constantly working with probabilities. Every day having to make decisions . . . will the stress tests work? What would nationalization look like? Nobody has been through this since the 1930s.”

  That first six months, from the inauguration through the summer, was, of course, the seminal period in the Obama presidency, when the historic forces that converged on the newly elected president provided both challenges and opportunities. Decisions made, or not made, during that period on the largest issues—financial restructuring, the related issue of jobs, economic recovery, and health care—would, in essence, be the hand he’d have to play right up until the harsh electoral judgment.

  “I think at the time we had a spectrum of options,” he said about the enveloping crisis of a collapsed financial system. “Nobody wanted to do pure nationalization of the banks. Not only because philosophically that would have been a radical shift for America, but also because if you do it to one bank there would be capital flight, essentially. On the other hand you could end up like Japan. Zombie banks. That’s a classic example of where I made a decision based on having heard from everybody and gotten as much factual information as we could have, and then basically having 70 percent probability of this working, and understanding that there was a 30 percent chance it wouldn’t work, in which case we would have to go back in and try something new.”

  But even with those uncertainties, Obama did make a decision, one of the most important of his young presidency, in the seminal meeting on March 15, 2009. The decision was to continue with the stress tests while pulling together a plan to restructure many of the large, troubled banks starting with Citigroup. That directive, he discovered nearly a month later, had been ignored by the Treasury.

  When asked about how agitated he was at his Treasury secretary when he found this out, Obama said, “I’ll be honest, I don’t recall the exact conversations.”

  Then, recalling th
e matter—something never publicly disclosed—he said, “Agitated may be too strong a word. But I will say this,” he continued. “During this period, what we are increasingly recognizing is that there are no ideal options. And so, on something like a Citibank plan and doing a ‘good bank, bad bank’ structure, the technical constraints around how to execute are enormous. And typically, in these situations you might have one institution that you are dealing with. Here you had potentially fifty! And if you didn’t get it right, it could have made everything else worse.”

  This is precisely the fear that the president’s plan to close and then reopen Citibank was, in fact, meant to address. By handling Citibank effectively, Congress and the American people would see that “government could do this right,” as the president asserted that afternoon nearly two years before, killing off fear that if another financial institution failed, it would spark a financial crisis similar to what happened after Lehman. Then the White House could go back to Congress to restructure the banking system properly.

  But the Citibank incident, and others like it, reflected a more pernicious and personal dilemma emerging from inside the administration: that the young president’s authority was being systematically undermined or hedged by his seasoned advisers. On this issue, a matter perilously close to insubordination, the president was careful in his selection of each word: “What’s true is that I was often pushing, hard, and the speed with which the bureaucracy could exercise my decision was slower than I wanted. But I don’t think, it’s not clear to me—and I’ll have to reflect on this at some point—it’s not clear to me that that was necessarily because of a management problem, as it was that this is really hard stuff.”

  In poll after poll, across two years, Americans agreed, without regard to political party, about their most pressing concern: jobs.

  This was an area where the dysfunctions of an often leaderless White House were most pronounced. In the period from the fall of 2009 to the spring of 2010—when unemployment was just above or just below 10 percent, the highest level in nearly thirty years—the president and his economic team, led by Larry Summers, were locked in paralysis and constant “relitigation,” as the president often groused, over what to do. The policies that emerged from those endless hours were negligible. This was a central result of all the management woes. It wasn’t a matter of his policies not succeeding in Congress. Few policies of any real heft were even proposed.