Suskind's Confidence Men Raises Questions About Obama's Credibility
http://www.huffingtonpost.com/dan-froomkin/suskinds-confidence-men-r_b_1123660.htmlObama 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.
The White House launched an aggressive counterattack when the book came out in September, initially centered around nitpicking over a few minor factual errors.
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."
"
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 protégé 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."
