Believer: My Forty Years in Politics (44 page)

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After the election, the transition team was headquartered in secure offices in a federal building in downtown Chicago. It was in the plaza below where, six years earlier, a little-known state senator had made his stand against the impending war in Iraq. Now, as president-elect, Obama was forging the national security team he would need to end it.

Long before the election, he had sent out a feeler to Secretary of Defense Robert Gates about staying on in the new administration. Barack respected Gates and felt his institutional credibility and knowledge would be critical to implementing the Iraq transition and the strategic change in Afghanistan. As a lifelong Republican and a fixture in every Republican White House since Reagan’s, he would also confer a spirit of bipartisanship in national security. Six days after the election, Obama and Gates met at a fire station at Reagan Airport and sealed the deal.

The big surprise was Barack’s choice for the other major national security position. “I think I am going to ask Hillary to be secretary of state,” he told me. I was stunned. I knew that, despite their battles, Barack respected Hillary. During our travels after the primaries, he had once mentioned that he would like to find a role for her, perhaps on the Supreme Court. There were obvious plusses to having Hillary inside the tent rather than in the Senate, where she might become a competing force—but secretary of state? That’s not just inside the tent, but center ring. I knew Barack revered Lincoln and had devoured
Team of Rivals
, Doris Kearns Goodwin’s riveting history of that era. Still, how could he make this former rival the top foreign policy appointee when she had run ads questioning his preparedness to be commander in chief?

Barack was unconcerned and undeterred. “Well, we were friends before we were opponents,” he explained. “She’s very smart. She’s tough, and I believe that if she’s on the team, she’ll be loyal. We have an economic crisis that is going to be taking up a bunch of my time, at least in the near term. I need someone who is instantly recognized and respected around the world in that spot. When she lands someplace, they’ll know her. They’ll know they’re not getting the B-Team.” Barack also believed that the choice would convey a powerful message about our democracy when two opponents, having battled so fiercely, could unite after the election for the good of the country.

Hillary initially turned Obama down. “She said she’s tired, which I, of all people, understand,” he reported. “But I wasn’t going to let her off the hook. I asked her to sleep on it.” Eventually, Hillary relented, and the warm partnership they built would become one of the inspiring subplots of my time in the administration.

Barack’s other major focus was on forging a strong economic team, the urgency of which was clearer by the day. The October job numbers, reported a few days after the election, were catastrophic, with another 240,000 jobs lost—we would learn two months later that the actual number of jobs lost was actually 423,000. In November, we would lose another half million, the worst monthly loss in thirty-four years.

Between campaign stops in New York in mid-October, Obama held a private meeting at the W Hotel, where we were staying. He filled me in later that evening. “I just met a guy I think you would really like,” he said. “Very smart, thoughtful, unassuming guy. He spent time overseas as a kid, so we had that in common. Plays basketball. But what I liked the most about him was that he spent the whole hour trying to persuade me why I shouldn’t hire him.”

If that was Tim Geithner’s mission, he failed miserably. Geithner, just a couple of weeks younger than Obama, had spent much of his career in public service. An expert in global finance, he had worked in the Treasury Department during the Clinton administration, rising to assistant secretary for international affairs. Now, as head of the New York Fed, he was as deeply involved as anyone in the efforts to stem the financial crisis. Rahm and others had urged Barack to consider Geithner for treasury secretary, and the president came away from their meeting favorably impressed.

Another candidate for treasury secretary was Geithner’s old boss Lawrence Summers, a renowned economist who held the job during the final years of Clinton’s presidency. Afterward, he returned to Harvard, where his rise and fall as university president had been a major national story. After five productive but controversial years, Summers was forced to resign after a speech in which he cited research on gender differences that, he believed, helped explain the lack of diversity in science and engineering programs. He made the point as part of an argument in favor of promoting such diversity, but Larry, who can be brusque and abrasive, had given an opening to the many faculty members he had rubbed the wrong way.

Having read about the Harvard controversy and Larry’s role as treasury secretary in deregulating a financial sector that was now imploding, I wasn’t particularly well disposed toward him. So when I first met him during a campaign meeting of Obama’s unofficial economic advisers, I was pleasantly surprised. Robert Rubin, Summers’s venerated predecessor as treasury secretary, took issue with Obama’s focus on the middle class, arguing that Obama should cast himself as a “pro-growth Democrat,” without making what Rubin regarded as class distinctions. Summers challenged him. “Bob, it really is a problem that the middle class is being squeezed,” said Summers, who had written as much in his columns in the
Financial Times
. “We need growth, but the growth we’ve been getting isn’t producing the kind of gains for people in the middle it once did. It seems to me that this is a problem and we ought to be addressing that.”

Larry wanted his old job back. Given the magnitude of the problems we would be facing, his experience and powerful intellect appealed to Barack, but Obama also liked Geithner’s freshness and his unassuming style. Barack and Rahm arrived at a Solomonic decision: appoint Geithner as treasury secretary and ask Summers to serve as director of the National Economic Council and the president’s chief economic adviser. On paper, it would be a step down for Summers. This was a
staff
job, not a cabinet position, and Larry was taken aback by the suggestion. Then Rahm sweetened the pot, assuring Summers that he would succeed Ben Bernanke as chair of the Federal Reserve when his term expired in 2010. With that, Larry agreed to accept the lower-profile appointment.

Obama filled out the team with two more economists, Peter Orszag as budget director and Christina Romer as chair of his Council of Economic Advisers. Orszag, a wunderkind in the Clinton administration, was an expert on the economics of health care. Romer, a professor from UC Berkeley, was known for her writings on the Great Depression, which seemed increasingly relevant. The CEA chairmanship had been coveted by Austan Goolsbee, the University of Chicago economist who had advised us since the Senate campaign. But Barack was hell-bent on diversity, and Goolsbee had to settle for a seat on the CEA under Romer.

On December 16, the new economic team gathered in Chicago for the first time to brief the president-elect, Biden, and the senior staff on the new economic realities we would inherit. Before the larger meeting, some of us were given a preview of the group’s forecast, and it was jaw-dropping. “Here’s the problem, folks,” I said. “The American people know it’s bad, but they have no idea it’s
this
bad. They haven’t had that ‘holy shit!’ moment where someone tells them the full extent of the problem. Somehow we have to get that news out so we establish the baseline we’re walking into and lay the foundation for the steps we’ll need to take.”

The briefing with Obama, in a packed, windowless conference room of our transition headquarters, was, if possible, even starker.

It opened with a presentation by Romer, whose cheery, Julia Child–like affect seemed rather incongruous given the bleak news she was delivering. She displayed a series of charts, all with lots of lines heading downward. Romer compared the projected trajectory of the current economy with previous recessions in the United States. “In short, Mr. President, this is likely to be the deepest recession we’ve faced since the 1930s.”

Summers picked up the narrative, elaborating on the impact of these trends charted by Romer. He described a massive projected loss of economic activity, and its impacts. “Given what Christy described, Mr. President, we will see a significant decline in output that will mean the loss of millions of additional jobs,” he said. “And unless we intervene aggressively and replace some of that lost output, there is a one-in-three chance of a second Great Depression.”

A second Great Depression?
Never had any of us anticipated a cataclysm of that magnitude. For all the lofty plans we had made, it was clear that we would be arriving in Washington as a triage unit, with the immediate and all-consuming priority of keeping the American economy from going under.

Summers added an unhappy historical note about recessions triggered by financial crises. Because of constricted lending, he said, recovery tended to be slower and more challenging than the usual “V-shaped” comebacks associated with other recessions.

When it came to bad news, Geithner was not to be outdone. Despite the initial steps by the Bush administration and the Fed to undergird the financial industry, he said, that industry’s desperate attempt to spin off failing subprime mortgages into other complex financial offerings was dragging down banks and financial institutions worldwide. “The banks are very fragile,” reported our future treasury secretary. “No one is lending, and there is a real chance that the system could collapse.”

Orszag, who probably would have preferred a happier occasion to mark his fortieth birthday, anchored the grim presentation. “Between the money we’ll need to spend to stimulate the economy and the revenues we will lose because of the decreased output and higher unemployment, the short-term deficits are going to grow,” he said.

As I absorbed the impact of their words, two things occurred to me. One was that this was the first meeting I had attended in which everyone referred to Barack as Mr. President. The second was that it was a hell of a time to have acquired that title. I was sure I wasn’t the only one periodically gazing over at Obama to see how he was processing the news. If he was panicking or even taken aback, however, I couldn’t detect it. Just as we had seen during the most stressful moments of the campaign, Obama appeared calm, confident, and focused. “Well, it’s too late to ask for a recount, so we had better figure out what we’re going to do about this,” he said with a thin smile, the best he could muster under the circumstances.

For the next several hours, we discussed what was the first essential step to stem the bleeding. Summers and the group argued for a stimulus plan, a quick and substantial regimen of government spending to pump capital back into the economy. The consensus was clearly the bigger the stimulus, the better the result. Romer, however, noted the political problem I had reflected on earlier, and while it was amusing to hear this very proper professor rehearse my “holy shit” language, the challenge was not. How do you sell a massive spending plan to a country that had not yet grasped the magnitude of the crisis and that was already outraged by ballooning budget deficits?

We had promised to tame Bush’s record deficits, swollen by the cost of the wars and two substantial tax cuts. Now we were going to ask the Congress and the public to accept, as our very first act, a major, unfunded spending program that would only add to those deficits. There had already been talk in Washington of a record three-hundred-billion-dollar stimulus in the fall, to be voted on after the election, and that had stirred great angst. Two months later, we were discussing one that might be three times as large.

Obama asked Rahm what he thought was achievable in Congress. “Seven hundred fifty to eight hundred fifty billion, max,” he said. “And that will be a hard lift. But I’ll tell you, they will never accept anything with a
t
in front of it. They’re not going for a trillion.”

Summers said the nature of the spending was less important than the volume. While some initiatives, such as food stamps, were particularly effective because people would immediately spend the money, any dollar pumped back in the economy would help spur jobs and growth. “Well, let’s think carefully about the components of this package,” Obama said. “I want to make sure we invest in things that help in the short run but also have long-term benefits and fulfill some of the commitments we’ve made. Because my guess is that this is the last new spending we’re going to be able to do for some time.” He suggested as examples clean energy projects and information technology for health care. A major infrastructure program would be included to address the backlog of “shovel-ready” projects around the nation. To win Republican support and provide some relief to the middle class, tax cuts would also have to be part of this package.

Could it have been just six weeks since that sublime evening in Grant Park? It seemed like ancient history as we discussed emergency measures needed to save the American economy from collapse. It was a mission that would consume much of our time and political capital for months to come and, inevitably, shape the contours of the Obama years.

As we left the conference room, Obama commented, with no apparent self-pity, on the dismal hand we had drawn. “I’ll tell you one thing,” I said in response. “We’re going to have a one hell of a tough midterm election.” Yet that must have seemed like an eternity away as well as the least of our problems right then. He looked at me and just walked away.

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On January 4, I flew to Washington with the president-elect to build up support for his stimulus. His family had arrived the previous evening, so his daughters could get situated in their new school. The Bush administration had sent a jet from the presidential fleet to pick us up in Chicago. It was my first exposure to such travel, with well-appointed planes configured for comfort and work, and staffed by a wonderfully attentive navy crew. Barack spent some time at the desk in the office/cabin reserved for the president. When we landed, one of the long, black armored presidential limousines was waiting at the foot of the stairs. Settling into the plush backseats, our eyes were drawn to the phone between us, adorned with direct-dial buttons labeled with the names of Bush’s top aides. Barack glanced over and smiled. “This has been some trip, hasn’t it?” he said, a reference not just to the journey from Chicago to Washington, but from obscurity to the pinnacle of power.