Dec 02, 2011
Barack Obama is heading back onto the campaign trail, running as a champion of the middle class and even hoping to harness the Occupy movement's public anger at Wall Street.
But the higher he soars with his populist rhetoric, the more he calls attention to the enormous gap between the promise of hope and change that he campaigned on in 2008 and the actions he has taken as president -- especially regarding the economy, which is still stagnating, and Wall Street, which remains unpunished and unbowed even after causing the biggest financial crisis since the Great Depression.
As a result, voters will inevitably be asking themselves: Who is this guy, really? Does he mean what he says? Will he do what he says? And would a second-term Obama be different?One answer to why Obama underperformed is laid out in searing detail in Pulitzer Prize-winning reporter Ron Suskind's latest book, Confidence Men: Wall Street, Washington, and the Education of a President.
In the book, Suskind describes how Obama made the conscious choice to staff his economic team with former Clinton appointees whose sympathies were with Wall Street -- and that those men were unable to see how drastically out of whack the country's financial system had gotten both because they helped create it and because it had served them so well.
Then, rather than forcefully impose his campaign's populist vision on these men, Obama again consciously chose to defer to them repeatedly -- and tolerated it even when they slow-walked, pushed back against, or simply ignored his instructions.
In perhaps the broadest on-the-record denial from the White House, National Economic Council Director Gene Sperling told CNN: "The notion that this president was not leading and making the tough choices all along is just dead wrong, and I say that as somebody who's been here every moment... This president has been focused and tough and decisive in leading us in this economic team and I think that is the story, and anything else really does a disservice to this administration and the real record that has been established."
The White House pushback was followed by brickbats from some mainstream journalists -- particularly Slate's Jacob Weisberg.
But the attacks on the book only glanced off Suskind's central theme -- which is more subtle than his critics have made it out to be -- because that theme was derived directly from on-the-record interviews with key players, internal documents that Suskind brought to light, and the outcomes we've all seen with our own eyes.
And though the book focuses on the first two years of Obama's presidency, and a group of "confidence men" that is mostly gone now, the leadership style Suskind describes, and the strikingly similar makeup of Obama's new economic team, suggest that Obama is still incapable of -- or, alas, uninterested in -- acting on his own words.
"You do have to start asking yourself a pretty tough set of questions about what his fundamental views actually are on so many of these issues," says Suskind. "Did he ever believe that he was going to be doing many of those things that he inspired people with in the campaign?"
Mind The Gap
During his 2008 presidential campaign, Obama spoke eloquently and strikingly about the excesses of Wall Street.
In his September 2007 speech at the NASDAQ, Obama invoked FDR. "Amid a crisis of confidence Roosevelt called for a 're-appraisal of values,' " Obama said. FDR made clear "that in order for us to prosper as one nation, '...the responsible heads of finance and industry, instead of acting each for himself, must work together to achieve the common end.'"
This, he concluded, was "another moment that requires, in FDR's words, a re-appraisal of our values as a nation."
In the midst of the U.S. government's September 2008 bank bailout, Obama told a Nevada audience: "Let me be perfectly clear. The fact that we are in this mess is an outrage. It's an outrage because we did not get here by accident. This was not a normal part of the business cycle. This was not the actions of a few bad apples.
"This financial crisis is a direct result of the greed and irresponsibility that has dominated Washington and Wall Street for years."
And although he said it wasn't time yet, he promised: "There will be time to punish those who set this fire."
In October 2008, he promise to "take on the corruption in Washington and on Wall Street to make sure a crisis like this can never, ever happen again."
And one day before he was elected president, he told a Florida audience: "Tomorrow, you can turn the page on policies that have put the greed and irresponsibility of Wall Street before the hard work and sacrifice of folks on Main Street."
Obama's most seminal speech on the crisis was his March 2008 address at Cooper Union. There, he laid part of the blame for the disaster on Clinton-era financial deregulation, including the 1999 repeal of the 1933 Glass-Steagall Act. That repeal, which broke down barriers between commercial and investment banking, led to the growth of financial behemoths that were able to take enormous risks with impunity because they were "too big to fail."
"[I]nstead of establishing a 21st century regulatory framework, we simply dismantled the old one, aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight," Obama said. "In doing so we encouraged a winner take all, anything goes environment that helped foster devastating dislocations in our economy."
Among the foremost champions of that deregulatory regime were the key members of President Clinton's economic team, including Robert Rubin, who was Clinton's treasury secretary, Larry Summers, who succeeded Rubin, and Timothy Geithner, who worked directly under both of them.
But once Obama was elected, and was staring into the maw of staggeringly large financial crisis, he made a fateful decision: He left most of his progressive economic advisers behind -- including such liberal luminaries as Robert Reich and Joseph Stiglitz -- and chose to go with name brand Clinton officials instead. Summers became his chief economic adviser, Geithner became his Treasury secretary, and fellow Rubin protege Peter Orszag became his budget director. (According to Suskind, Obama even offered Rubin himself an office in the White House.)
The "bold visions of the campaign season... resolved into the serious, often risk-averse business of actually governing," Suskind writes. "In the midst of a battering economic storm, it no longer seemed like the right time to be making waves."
While the appointments of these men and a slew of similarly pedigreed subordinates reassured the financial markets, their leadership undermined Obama's populist promises.
Many of them had already spent their interregnum feeding at the Wall Street trough.
Summers was paid $5.2 million for his part-time work for a massive hedge fund in 2008 alone, according to financial disclosure forms that were released on a Friday night several months after his appointment. That same year, he also raked in more than $2.7 million in fees for speaking engagements at such places as Citigroup, Lehman Brothers, Merrill Lynch and Goldman Sachs. For one speech alone, Goldman Sachs paid him a cool $135,000.
Rubin, whose influence remained enormous among the new Obama appointees, left Treasury to join Citigroup, a mega-bank that took on ever-riskier, life-threatening stances during his tenure while he managed to snare $126 million in cash and stock.
(How could all this money not be corrupting? Why did Obama trust these guys? Those were questions I was asking from my perch at the Washington Post at the time, and they were never answered.)
Although Geithner didn't work directly for the banks, he regulated such firms as Citigroup and, as head of the New York Fed, helped engineer bailouts in the fall of 2008 that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs.
Rather than give this team clear marching orders, Obama asked them what he should do, according to Suskind's account. Not surprisingly, they were loath to suggest anything that would harm Wall Street, or, as they put it, spook the market.
Instead of "tough love", the Obama White House showered the banks in cash and federal guarantees to make sure they could "earn their way back to health". There was no "haircut", no restructuring of the banks or the system that had done so much harm. Even the bankers were surprised, according to Suskind.
Former Federal Reserve chairman Paul Volcker -- a relative progressive when compared to the advisers Obama chose to heed -- told Suskind what his advice to Obama had been: "Well, right now, when you have your chance, and their breasts are bared, you need to put a spear through the heart of all these guys on Wall Street that for years have been mostly debt merchants."
By late March 2009, public sentiment against the banks, which had been growing since the bailouts of the previous fall, had reached a fever pitch. But when the CEOs of the 13 largest banking institutions in the United States came to the White House, Obama's own tone was conciliatory.
"I want to help," he told them. "I'm not out there to go after you. I'm protecting you. But if I'm going to shield you from public and congressional anger, you have to give me something to work with on these issues of compensation."
The bankers offered a few empty promises about voluntary compensation limits and went on to book two of the most profitable years in Wall Street's history
There were things Obama and his staff could have pushed for much more aggressively. That list included breaking up the big banks or forcing banks to come to terms with the toxic assets still lurking in their portfolios. The White House team could have listened to the people who saw the crisis coming or had a history of taking on Wall Street. They could have replaced Ben Bernanke at the Federal Reserve, rather than renominating him.
Instead, as Suskind describes, bold action was consistently thwarted by one means or another.
Obama's management style made that easy. "He feels like he needs consensus to have the confidence of action," Suskind told HuffPost.
Without the guiding star of Obama's campaign promises, his economic team settled on what they called a "Hippocratic" motto: First, do no harm. Suskind writes that Volcker saw that as a formula for small, modest actions:
The "do no harm" school, he said, "always sounds reasonable" in that it calls for delay, until matters worsen to the point, "where they'll be consensus that we need to act in a forceful way. But you never get that consensus, because many of the actors, the institutions and so forth, will follow their self-interest right off the cliff." Every policy of consequence, meanwhile, is going to "do some harm, something government, mind you, can and should cushion." But there's no other way "to create the larger good, something you look back on with pride."
For a young, new president "with a powerful intellect but little experience, this stance was always available as a sensible course," Suskind writes. Over time, it "increasingly felt like a prudential path, rather than a backing away from history's call to arms."
Sometimes, despite all this, Obama seemed to be opting for more decisive action. That, Suskind writes, is when the staff became insubordinate, "relitigating" matters that had been settled, "slow-walking" decisions that had been made -- and in at least one case, outright ignoring what they were told.
The most graphic of many illustrations of this is Suskind's recounting of a March 15, 2009, meeting at which Obama expressed a desire to draw up plans to break up the banks, which he said would "strike a blow for prudence" and would "begin to change the reckless behavior of Wall Street and show that accountability flows in both directions."
Instead, his team (led in this case by chief of staff Rahm Emanuel, who from 1999 to 2002 made more than $18 million working for a financial services firm) wore down his request to a simpler directive: Draw up a plan for restructuring Citibank.
"Well, okay, so we do Citibank and we do it thoroughly and well," Obama said, according to the book. "That would show everybody that they can trust those guys in government to do a hard job, and do it right. And then we go back to Congress and get the money to do the wider job that really needs to be done."
Yet even that wouldn't happen. Geithner simply never went ahead with it, according to the book, opting instead for his preferred strategy of applying "stress tests" to the banks -- to find out how much capital they needed from the government and other sources to stay afloat.
That, in essence, is what Japan did for its two decades of stagnation, and we're now three years along on that same path.
Liberals like Paul Krugman were aghast as the details began to leak. "It's as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street," Krugman wrote in late March. "And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone."
The Citibank incident and others like it, Suskind writes, reflected a "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."
"The president had lost control of his White House; he had almost no process to translate his will into policy on the occasions when he could decide on a coherent path," Suskind writes. "But such decisions were rare."
Back in March 2010, I wrote for HuffPost that "people looking for the reasons why the Obama presidency has not lived up to its promise won't find the answer amid the minor rifts between key players..... The fact is that after a campaign that appealed so successfully to idealism, Obama hired a bunch of saboteurs of hope and change."
I was thinking of Emanuel in particular. But when it comes to the economy, Suskind describes Summers as the guy who really tied Obama up in knots.
Here's Suskind quoting Orszag -- on the record, by name: "Larry just didn't think the president knew what he was deciding," Orszag said. "The question is why didn't [Obama] stop it," he told Suskind. "People realized the process wasn't working, and they kept saying it.... but the president didn't say, Goddammit!... He didn't demand that it be changed . . . and that can't be healthy."
A few days after the book came out, Geithner publicly denied slow-walking any orders from Obama.
"I would never do that," he said. "I have spent my life in public service. It's my great privilege to serve this President, and I would never contemplate doing that. But, again, I lived the original, and the reality I lived, we all lived together, bears no relation to the sad little stories I heard reported from that book."
Summers, who has never said publicly whether he actually read the book, issued a statement saying that the "the hearsay attributed to me is a combination of fiction, distortion and words taken out of context."
Still, we don't have to take Suskind's word for it. Simply read the White House's own extraordinary February 2010 "annual review" memo, which top Obama adviser Pete Rouse prepared for the president. Suskind excerpts it in the book and the White House has not challenged its authenticity:
First there is deep dissatisfaction within the economic team with what is perceived to be Larry's imperious and heavy-handed direction of the economic policy process.
Second, when the economic team does not like a decision by the President, they have on occasion worked to re-litigate the overall policy.
Third, when the policy direction is firmly decided, there can be consideration/reconsideration of the details until to the very last moments.
Fourth, once a decision is made, implementation by the Department of the Treasury has at times been slow and uneven. These factors all adversely affect execution of the policy process.
Meet the New Team
Most of the members of Obama's initial economic team -- including Summers, Orszag and Emanuel -- are gone, now.
Geithner, notably, remains.
And in the end, three white, male Clinton appointees with close ties to Wall Street were replaced by -- you guessed it -- three other white male Clinton appointees with ties to Wall Street.
Chief of Staff Bill Daley, formerly Clinton's secretary of commerce, came back to the White House fresh off an $8.7 million-a-year job at JPMorgan Chase. His appointment, particularly delighted Wall Street.
National Economic Council Director Gene Sperling, who held the exact same job under Clinton, made $2.2 million in 2008 alone, including $887,727 from Goldman Sachs for a part-time job advising it on its charitable giving and $158,000 for speeches mostly to financial companies.
New budget chief Jack Lew, who also had the exact same job under Clinton, made millions in between his White House stints at Citigroup, including a $950,000 bonus in 2009not long after the bank received billions of taxpayer dollars. (Lew told a Senate panel last year that deregulation didn't lead to the financial crisis.)
By all accounts, they're a nicer bunch than the men they replaced. None of them is anywhere near as "imperious and heavy handed" as Summers, who Suskind actually caught musing that "One of the challenges in our society is that the truth is kind of a disequalizer." According to Summers, "One of the reasons that inequality has probably gone up in our society is that people are being treated closer to the way that they're supposed to be treated."
But are the new guys really philosophically different? Do they similarly defer to Wall Street? And block bold action? Were they hired to do so?
Because not much seemed to change after the old team left. In fact, many progressives felt that White House economic policy in the months-long debt ceiling debate actually hit a new low.
Part of that may have been political necessity. But even after the 2010 Republican House takeover, there were a lot of ways Obama could have successfully pursued his campaign-era agenda, and there are still even now several things he could do to goose the economy without Congress. But the White House doesn't act.
Edward Luce, the fearless Washington bureau chief of the Financial Times, recently wrote that the management problems continue.
Obama "remains unable to create a properly functioning White House," he wrote. "Much of governing is about managing. No one, so far, has been given the authority to restrain Mr Obama's inner circle. The effects have been sorely in evidence over the past 12 months." And, Luce concluded: "The plain fact is that Mr Obama prefers to campaign than govern."
The Bush White House famously had no real policymaking process at all -- something Suskind first exposed in a prescient January 2003 article in Esquire. But once the decision was made (perhaps inexplicably, probably by Dick Cheney) there was no second-guessing. Stuff happened.
When it comes to economic policy, at least, the Obama White House would appear to be the exact opposite: A lot of process, a few timid decisions, and almost no action.
The early-November de facto demotion of Daley, with most of his duties going to Rouse -- the writer of that memo, a veteran Obama aide with an unassuming demeanor and vast experience on the Hill -- could mean some changes ahead. But it's too soon to say, and Rouse is hardly considered the enforcer type.
The Suskind Factor
Like all of Suskind's recent books, Confidence Men doesn't just expose the secret goings-on that explain so much about how our government works. It also makes so much of the mainstream press coverage look shallow and credulous by comparison. That may go a long way toward explaining why his work sometimes gets a hostile reception in major media outlets.
Suskind's 2004 book, The Price of Loyalty: George W. Bush, the White House and the Education of Paul O'Neill, for instance, was the first truly damning expose of George W. Bush's White House, putting its author years ahead of most of his media colleagues in recognizing the depths of its dysfunction and deceit in the Bush/Cheney administration.
Time and again, Suskind's revelations have initially been pooh-poohed by reporters who couldn't recreate his reporting -- and then much later were recognized as being utterly correct.
In his 2006 book, The One Percent Doctrine: Deep Inside America's Pursuit of Its Enemies Since 9/11, for instance, Suskind reported that terror suspect Abu Zubaida was a mentally disturbed minor al Qaeda functionary who, when tortured, made up plots against imaginary targets -- and that, as a result "thousands of uniformed men and women" were sent on wild goose chases.
It took the Washington Postthree years to finally catch up with his reporting -- but in the meantime, the mainstream media had allowed Bush to routinely cite Zubaida as his Exhibit A that torture worked, unhampered by reality.
Now, the same press corps that Suskind showed up so many times seems to delight in pointing out minor errors in his nearly 500-page tome.
Leading the recent charge against Suskind was Jacob Weisberg, the editor in chief of the Washington Post Company's Slate Group. In a column entitled Don't Believe Ron Suskind, Weisberg repeated White House talking points and accused Suskind of fabrication.
But Weisberg's stance is less surprising when one considers that Suskind's book is basically one long evisceration of all things Rubin, and Weisberg is close to Rubin -- having actually co-authored Rubin's 2003 autobiography.
(Weisberg, in an e-mail, insisted he had no ulterior motive. "I've long mistrusted Suskind's journalism. I picked up his new book and got even more suspicious," he wrote. "I think the guy is a lousy reporter and decided to say so with evidence. It's got nothing at all to do with Rubin or the White House. I did my own homework. I think you'll find that most of the errors I found in the book weren't caught by the White House or anyone else before me." As for whether it was a mistake not to disclose his ties to Rubin in his article, Weisberg wrote that "it had nothing to do with my story. But obviously isn't any kind of secret.")
Meanwhile, in a more rigorous critique, Washington Post columnist Ezra Klein, writing in the New York Review of Books, accused the book of "incoherence" largely based on what he called a contradiction between Suskind's description of Summers as all-powerful -- and Suskind's own reporting about the several times Summers' more progressive ideas were rejected as too radical.
But in the book, Suskind never suggested that Summers or Geithner won all their battles; what he described was an environment in which Summers or Geithner -- or Emanuel -- all won some and lost some; an environment in which any one of the old Clinton hands could shoot down a bold idea as untested, too radical, unsellable, or too likely to spook the markets.
The only consistent theme, especially when it came to dealing with Wall Street or job creation, was that whoever was most cautious tended to emerge the victor, either outright, by winning over the president, or because they could block the execution.
Klein also argued that, while Obama clearly underestimated the severity of the financial crisis, the insufficient response was largely the fault of Congress. "The president is but one actor in the drama of American politics, and he is quite constrained in his capacity to make -- or remake -- American policy," Klein wrote.
But Suskind documents case after case in which the White House didn't even try -- and certainly never came even close to twisting arms the way, say, Lyndon Johnson might have.
Words And Deeds
Politically, Obama's economic policy has been a disaster. There was enormous political will to make the banks pay for their mistakes back in 2009 -- and judging by the Occupy movement, it's still there. It remains unsatisfied.
Bolder action -- especially when it comes to reducing the principal on underwater mortgages -- would have hugely stimulated the economy. A larger stimulus, or a second one, would have created jobs.
Perhaps more than anything else, not living up to his word has hurt the president across the board.
"It's about the connection between word and deed," says Suskind. "At day's end, what got George W. Bush re-elected was straight-shooter credit."
Consider what progressive hero Elizabeth Warren told Suskind in a September 2009 interview:
"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."
So what does Obama need to do to persuade people that he means what he says? "Words are not enough," says Suskind.
"Right now, after the record that has expressed itself across four years, the only thing that will be proof of change is deeds -- meaning he takes on the assembled power of the financial capital in an 'either them or me' way."
He could also level with the public about the errors he made, and what he's learned from them.
He could fire Geithner -- like some people have been suggesting for nearly three years. (Although the New York Times recently wrote, in a gushing profile, that "Mr. Geithner's departure could signal additional instability to financial markets.")
Ultimately, the biggest question for voters who are troubled by Obama's failure to confront Wall Street despite his words is whether it reflects a weakness of character, a weakness of will, or a weakness in management style. Presumably the latter would be easier to correct in a second term.
But Suskind has no opinion -- and wonders if there's really much of a difference. Either way, it's a reflection of how Obama wields power. And until something dramatic happens, there's no reason to think it's going to change. "This White House," Suskind says, "is the one he constructed and presides over."
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