No Confidence

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BOOKS OCTOBER 13, 2011

No Confidence

Confidence Men: Wall Street, Washington, and the Education of a President
by Ron Suskind
Harper, 528 pp., $29.99

RON SUSKIND’S NEW book has already aroused intense controversy. The former investment banker Steven Rattner, who advised the Obama administration on the auto bailout, described Confidence Men as “a drive-by shooting of a president and his key economic advisers who deserve encomiums, not unfounded second guessing and inaccurate revisionist history.” Jacob Weisberg, the chairman of Slate and Robert Rubin’s co-autobiographer, in a scathing review entitled “Don’t Believe Ron Suskind,” accused the author of being a disreputable journalist that readers should no longer trust.

Before turning to the substance of Confidence Men, I want to comment on these charges against this author. I think the book is filled with minor errors–the former Citicorp CEO was Walter Wriston, not Walter Wristen–and the initial third of the book rehashes material that readers could find in earlier books about the Obama campaign and the financial crisis. But I would argue that the errors and the inflated narrative reflect the current practices of some large American publishers, who spend little time or money on copy-editing or fact-checking and rush books out without much editorial pressure. As far as I can tell, Suskind’s errors are not discrediting—no more than was Weisberg’s and Slate’s error in publishing, along with Weisberg’s review, a photograph of former Treasury Secretary Paul O’Neill labeled as Suskind.

The most serious complaint against Suskind is that in making the case that the women in the White House suffered from discrimination, he distorted a quotation from Obama’s former staffer Anita Dunn by leaving out part of what she said. In his book, Suskind quoted Dunn as follows: “This place would be in court for a hostile workplace … Because it actually fit all of the classic legal requirements for a genuinely hostile workplace to women.” What she actually said to him, on tape, was, “I remember once I told Valerie [Jarrett] that, I said if it weren’t for the president, this place would be in court for a hostile workplace. Because it actually fit all of the classic legal requirements for a genuinely hostile workplace to women.”  

Suskind should not have left out the first part of the quotation, but the omission doesn’t seem to me as serious as his critics insist. The phrase about the President is ambiguous—she could be taken to be saying that if it were not the White House (which is immune to these kind of civil complaints), the women would have been justified in suing; or that Obama prevented a disastrous situation from becoming even worse. More important, Suskind has plenty of other material in the book to show that the women felt they weren’t being treated fairly. He has Obama dismissing out of hand a suggestion from Christy Romer, the chair of the Council of Economic Advisors, that he seriously considers later when it is made by National Economic Council head Lawrence Summers.

I disagree with the way Suskind characterizes the role and the views of one key White House player, but in general his portrayal of intra-administration conflict conforms to what I have heard both personally and from reporters who have much greater access to the White House than I do. I don’t believe Suskind made things up. There are also invaluable long passages from interviews—for instance, a wonderful Shakespearean rant from former Federal Reserve Chairman Paul Volcker about financial engineers and the President’s astonishingly shallow reflections on why he ran into trouble during his first two years—whose authenticity has not been questioned. My own reservations about Suskind’s book concerns his interpretation of the facts and not the facts themselves.

Suskind portrays Obama as unable to exercise control over his senior White House staff and over Secretary of the Treasury Tim Geithner. (Summers describes White House meetings as being “home alone,” meaning without adult supervision.) Suskind presents advisers as at war with each other, and ready to ignore Obama’s wishes. He describes the administration’s attempts to win approval for health care reform and an economic stimulus, but his principal focus is on Obama’s failure during his first two years to bring an irresponsible Wall Street to account.

There are two key decisions that Suskind focuses on. The first was the question of what to do, in the spring of 2009, about the heavily indebted, and perhaps insolvent, big banks. Summers and Romer wanted to temporarily take over, shut down, and re-open the big banks under new management. Geithner, who as head of the New York Federal Reserve allowed Lehman Brothers to go under in September 2008, provoking a global credit freeze, feared that nationalizing the banks would set off another crisis of confidence in the financial sector. He wanted to relieve them of their bad loans and do “stress tests” on the banks and only take them over temporarily if they failed.

Obama initially sided with Summers and Romer. He thought that by restructuring the banks, the government could “strike a blow for prudence” and “begin to change the reckless behavior of Wall Street and show millions of unemployed Americans that accountability flows in both directions.” But after much discussion, Obama decided on a middle course. The government would temporarily take over Citibank, which seemed to be the most mismanaged of the big banks, and use it as an example to scare the other banks into compliance with a bold reform agenda. But Geithner, who was the most intimately involved with the execution of the policy, balked at even doing that; the administration ended up doing exactly what the Treasury Secretary and not the President wanted. Obama let the matter pass and went on to other things.

The second key decision concerned the question of when to propose financial reforms, and what kind of reforms to propose. According to Suskind, Geithner and Summers wanted to delay introducing reforms for fear of shaking the financial sector’s confidence, but the former Fed Chair Paul Volcker and Chief of Staff Rahm Emanuel wanted to press ahead, and to propose reforms that would dramatically restrain the banks from repeating the errors that had led up to the crash. “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,” Volcker tells Suskind. Emanuel argued that reforming the banks would be “political gold.”

Obama initially sided with Summers and Geithner. At a meeting with bankers, he sounded a sympathetic note. One banker who was present told Suskind that “The president had us at a moment of real vulnerability. At that point, he could have ordered us to do just about anything, and we would have rolled over. But he didn’t. He mostly wanted to help us out, to quell the mob.” But as voters began complaining about the administration’s ties to Wall Street, and as Scott Brown threatened to win a Senate seat in Massachusetts, Obama embraced a tougher stand. At a press conference in January 2010, he announced his support for a “Volcker Rule” that would forbid the banks from engaging in propriety trading with their depositors’ savings.  

Democrats in Congress followed suit by introducing additional proposals that would detach the rating agencies from the banks whose offerings they rated, and would subject derivatives to open trading on exchanges. But in the months that followed, Obama allowed these reforms either to be gutted or watered down. Some measures remained in the bill, including the creation of a Consumer Finance Protection Bureau, but the financial services lobby and Republican House majority have been able to delay implementation of many of these provisions; and after the elections next year, they may be in a position to defund, amend, or repeal most of them.

According to Geithner’s theory of investor confidence, the administration simply had no alternative to coddling the big banks with low-interest money, easy-to-pass stress tests, and less than onerous regulations. But other countries, including Great Britain, followed a strategy of selective bank takeovers without creating a new crisis of confidence. Geithner’s fears were understandable, given his role in Lehman’s bankruptcy, but should not have been the basis for the Obama administration’s policy. That they were reflects Geithner’s power within the administration, and also Obama’s reluctance to get into a public fight with the banks.

Suskind suggests that the failure to tame the banks has already opened the economy to the kind of abuses that led to the financial crash in 2007-2008. That is not quite right. What it has allowed, and the Fed’s easy money policy has encouraged, is the continuation of speculation—say, in currency values—that has no effect, good or bad, on the economy. But in the long run, the absence of controls over propriety trading and the erosion of the regulatory structure erected in Dodd-Frank could open the economy to the kind of speculative enthusiasms that fed the subprime housing boom.

The greatest immediate damage has been political. By not going after Wall Street when it was vulnerable—and that would have included investigations and prosecutions—Obama revived the financial lobby, and made serious reform efforts difficult, if not impossible. And by adopting policies that appeared to let Wall Street off easy, the administration opened the door to the right-wing populism of the Tea Party, and imperiled his and his party’s chances of remaining in power. If the Republicans do win the White House and Congress in 2012, then all of Obama’s precious achievements will be jeopardized—from financial reform to affordable health care. Bad political choices can undermine the best of policies.

Suskind pays considerably less attention to the debate over an economic stimulus. That may be because this debate does not lend itself to dramatic portrayal, or because of the prevailing view that the financial crisis was the sole cause of the downturn. In fact, the economic slowdown preceded the financial crisis. It had to be addressed by stimulating demand for goods and services through government spending. Inside the White House, only Romer seems to have understood how important the stimulus was to the recovery. She backed a $1.2 trillion stimulus initially (as opposed to the $800 billion stimulus, only $500 billion of which was actual spending, that the administration proposed). Over the next two years, she kept pressing for stimulus spending to increase demand and create jobs.

Romer was opposed by Emanuel (who thought any attempt to get Congress to agree to new spending was foolhardy) and Geithner, and the Office of Management and Budget Director Peter Orszag (who was worried about deficits). Obama agreed with Romer’s critics. At a White House meeting in November 2009, when Obama rejected any stimulus, Romer blurted out, “That is oh so wrong.”  Obama fired back, “it’s not just wrong, it’s oh so wrong?” And then he exclaimed, “Enough! I’ve said it before, I’ll say it again. It’s not going to happen. We can’t go back to Congress again. We just can’t!”

Overall, the impression one gets from Suskind is that during Obama’s first two years, he was far more focused on issues other than jobs. It wasn’t just his healthcare bill. He also wanted to stage a battle over climate change. In December 2009, as unemployment threatened to turn upwards again, Obama’s advisors began to debate what measures to propose. Some proposed small bore measures to add jobs, but Summers countered, according to Suskind, that the only thing that would help was a large-scale stimulus that Congress would oppose. Obama remained passive. “The president,” Suskind writes, “listened, engaged, but wouldn’t make a decision. He was still looking for a consensus. None was forthcoming.”

Suskind attributes Obama’s failures in his first two years to his inability to rein in his feuding advisors and to get rid of those officials who had proven ineffective, including Summers and Emanuel. Suskind quotes with approval a memo that Senior White House aide Peter Rouse gave Obama describing his dysfunctional economic team:

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 [sic] 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.

Suskind concludes, “What Rouse knew was something presidents often learn slowly‚ in some cases, against their will: good process creates good outcomes. When a staff of thousands is designated to express the will of a single man, bad process can spell disaster, no matter the clarity of best intentions.” Obama, in other words, was a victim of bad process.

I find this part of Suskind’s book the least persuasive. Great presidents—Washington, Lincoln, Franklin Roosevelt—have had feuding advisors and cabinet officials, but managed to pick and choose what advice to follow.  Other presidents have benefited from particularly wise advisors. During his first term, Ronald Reagan had James Baker as his chief of staff. Obama has neither displayed great qualities of leadership nor enjoyed the counsel of a savvy advisor.

Suskind is particularly critical of Summers. By many accounts, Summers was not an effective manager. But, as Ezra Klein has argued, he cannot be blamed for many of the bad choices that Obama made. These were, if anything, more influenced by Geithner, who although less colorful than Summers, was far more powerful and seems to have had a clearer and more consistent point of view, to which Obama was finally won over. If Obama’s chief failures during his first two years were his unwillingness to go after Wall Street and to press aggressively for additional stimulus spending, these really cannot be laid at Summers’s door.

Suskind also includes in the White House’s “bad process” the way that women officials were treated. He presents evidence that the views of Romer, Elizabeth Warren (who introduced the idea of the Consumer Financial Protection Bureau), Sheila Bair, the former head of the Federal Deposit Insurance Corporation, and White House political advisor Dunn were given short shrift. But there is another reason why male officials might have slighted the views of these women. Each of these women was a dissenter to prevailing White House policies or politics: Warren, Bair, and Romer to economic policies, and Dunn to the administration’s avoidance of populist politics. As I could detect from the few conversations I had with White House officials, Romer was thought of as something of a crank for her pessimism about the economy.

Contrast the attitude toward them with the attitude toward White House aide Valerie Jarrett, who is known for her solicitous views toward business and for her untiring promotion of “brand Obama.” She does not seem to have been subject to discrimination. If anything, Jarrett remains one of the people closest to Obama. So sexism is too simple an explanation for what happened to Romer, Bair, Dunn, or Warren.

In the winter of 2011, Obama sat down for interviews with Suskind. Presidential interviews tend to be inconsequential, but not in this case. As Suskind requested that Obama talk about what the latter had learned in his first two years in office, it became apparent—at least to this reader—that he had learned very little. In explaining his difficulties, Obama singled out a failure of communication. “The area in my presidency where I think my management and understanding of the presidency evolved most, and where I think we made the most mistakes, was less on the policy front and more on the communications front,” Obama said. “I think I was so consumed with the problems in front of me that I didn’t step back and remember, What is the particular requirement of the president that no one else can do? And what the president can do, that nobody else can do, is tell a story to the American people about where we are and where we are going.”

In his interviews, Obama kept reverting to the same idea. The reason that he and his advisors had not been able to agree on a jobs program after unemployment began rising in December 2009 was that they didn’t “have a clean story that we wanted to tell against which we would measure various actions.” And he complained that “what was required to save the economy might not always match up with what would make for a good story.” I hadn’t heard this kind of language about storytelling for a decade. I first heard it from Democratic political consultants and activists in the 1980s. Unable to fathom Reagan’s continued popularity, they attributed it to his ability as an actor to frame his actions as a story. By telling an effective story, a politician could overcome the potential unpopularity of his views. He could convince voters to accept the discomforts of the present in the hope of a comfortable future.

Obama was using the concept of political storytelling in exactly the same way. True to form, he invoked Roosevelt and Reagan’s success. Roosevelt was able to remain popular even though “three-quarters of the things he did didn’t work,” because “he was able to project … ‘we are going to get through this.’” That was his story. Obama, Suskind, explained, admired “Reagan’s ability to project optimism when there may be no definable reason to be optimistic.” Reagan, Obama said, “was very comfortable in playing the role of president. And I think part of that really was his actor’s background.” Citing Reagan’s mastery of symbols and gestures, Obama remarked that “going forward as president, the symbols and gestures—what people are seeing coming out of this office—are at least as important as the policies we put forward.”

What can one say about the sheer silliness of this? Stories, symbols, and catchwords are important, but they merely dramatize how a politician sees the country and what a politician hopes to do. They can enliven what he wants to do—but if what he wants to do runs contrary to what people want, or what can be done, and if the results of his policies do not measure up to what he promises, and what people want, then even the most artful prose cannot rescue a president. Roosevelt’s “story” was successful because during his first term the unemployment rate was cut almost in half. Some of his programs failed, but by no means three-fourths of them. That first term saw tough banking reforms (which convinced the electorate that FDR was on their side rather than the banks), Social Security, the progressive income tax, the National Labor Relations Act, and so on. If unemployment had remained at 25 percent in 1936, then Roosevelt’s nostrums about “the only thing you have to fear is fear itself” would be recalled with the same scorn as Hoover’s assurances of prosperity.

Reagan, of course, preached optimism during the height of the recession of 1981-82, but he also insisted that by “staying the course” and retaining his policies, Americans would get through the recession. One can argue about who really deserves credit, Reagan or Volcker, for pulling America out of the stagflation from which it had suffered during the 1970s, but the fact is that it happened. And when Reagan ran in 1984 under the slogan, “It’s morning in America,” it wasn’t mindless optimism. America had gotten through a kind of night. So these politicians told stories, but the stories bore some relation to what they were doing, and what they were doing had the results that people wanted.

In fact, Obama had run for president and governed on the basis of a story—a story he articulated in his Democratic convention keynote address in 2004—of an America that is not red, blue, white, black, or brown, but a “United States of America.” This appeal resonated during the election, but as early as January 2009, when he was informed that Republicans as a bloc would oppose his stimulus program, he should have known that it had little basis in reality. He clung to it anyway. It governed his attitude toward Wall Street and toward the hard-line Republican opposition; and it led him to jeopardize his presidency and the country’s future. Yes, there was a failure of communication, but it was not because the President didn’t have a story. It was because the story was pure fiction.

Suskind’s book is being widely portrayed as critical of the Obama administration, but if you read the entire book, its message is that during Obama’s first two years he was foiled by his own inexperience as a manager and by a staff that didn’t do good by him, but that after the Democratic defeat in 2010 he learned from his failure. He replaced the toxic assets on his staff, and he set out on a new positive course, epitomized by the December deal accepting the Bush tax cuts in exchange for aid to the unemployed, and the appointment of William Daley as chief of staff. After a “clean sweep” of his White House staff, Obama, Suskind writes, was “now firmly along in a more dynamic ‘I’ll just do it myself’ model of leadership.”

In this respect, Suskind’s book is already dated. What the President has done since the November election has, if anything, worsened the country’s and his own situation. He made the December deal with the Republicans, he told Suskind, because he recognized “that, at this juncture, the country will feel better about itself … if they see Democrats and Republicans agreeing on anything.” But by robbing himself of revenues, Obama set the stage for the disastrous budget battles this year that have led to budget cuts at a time of a steep downturn, which have caused unemployment to rise again. His “clean sweep” left the two main proponents of a fictive centrism, Jarrett and Geithner, in place, and brought in a new ally in Daley. The new leadership has reinforced Obama’s worst political instincts, which became evident during the negotiations over the debt ceiling. Continued Republican intransigence and the looming election of 2012 may have finally energized him, and caused him to abandon his “story” of a united America, but it may be too late. Suskind may have set out to write a book about a president learning from his mistakes, but he may have ended up writing one about a failed presidency.

John B. Judis is a senior editor at The New Republic.

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