Believer: My Forty Years in Politics (48 page)

The president had been late for the auto meeting because of a prolonged national security session on ominous stirrings in North Korea. In the hours following the auto session, Obama would have a meeting on classified Bush-era documents related to torture and would host an online town hall meeting on the economy and another meeting on the retooling of U.S. strategy in Afghanistan and Pakistan. It was a typical day at the office for the president of the United States: confronting a parade of critical and complex matters, each of which demanded intense preparation and focus. Obama managed it with remarkable agility. Still, the pace was brutal and took its toll.

“I’m tired,” he confided during a brief lull after the meeting on Afghanistan and Pakistan. “It’s getting to the point where I am concerned I’ll make bad decisions.”

Yet decisions had to be made—and as we gathered that evening in the ornate Roosevelt Room, across the hall from the Oval, everyone felt the weight of the matter at hand. Without government intervention, there was no question that GM and Chrysler would go bust—and very quickly. And their collapse would create a wave of failures up and down the supply chain that fed the auto giants.

On the other hand, there was no guarantee that, even with government assistance, the auto companies would survive. We could be throwing good money after bad, and quite a lot of it. The Republicans, already on the march, would undoubtedly howl about the government taking a major stake in a private business. “Socialism!” they would proclaim, in horror. Yet the opposition was broader than that. Even Michigan appeared to have given up on what had long been its economic underpinning. Fresh polling data showed that a majority of voters there opposed any federal aid for the auto companies. Nationally, the numbers ran three to one against a bailout. I wasn’t urging the president to walk away, but I wanted him to understand what he was walking
into.

Gibbs, who functioned as both an all-purpose adviser and press secretary, spoke powerfully about specific towns in the industrial Midwest that, wholly dependent on the auto industry, would be wiped out by the collapse of GM and Chrysler. Robert, who was familiar with the region, having served as communications director for Michigan senator Debbie Stabenow, told the president, “Sir, these towns aren’t experiencing a recession. They’re already experiencing a depression. This would be more than they can bear.”

The president drilled deeper into the details of each company’s case and prospects for success. After ninety minutes, he made his decision.

“David, you raise the polling, and I get that. I understand it,” he said. “People look at these automakers, who have made a series of bad decisions over a long period of time, and ask why the American taxpayer should throw them a lifeline. But if GM and Chrysler go down, it’s not just their workers who will lose their jobs, but you’ll see job loss right down the supply chain. We could lose a million more jobs, in the middle of what already is the worst recession since the thirties. And we’d lose two iconic American companies. I mean, we
invented
the auto industry. That’s a big deal. No blank checks. But if we can leverage our help to force them to reorganize, streamline, and modernize their companies so as to make them competitive again, we have to try.”

It was a fateful decision. In a process shepherded by Obama’s auto task force, both companies went through bankruptcy, shed debt and failing product lines, renegotiated labor agreements, and replaced their management teams with aggressive new leadership. Chrysler formed a strategic alliance with Fiat, which, ultimately, took ownership of the firm. Within two years, the companies began growing again, restoring shifts at existing plants and building new ones. The American auto industry was resurgent.

Like most of the president’s early decisions on the economy, this one was fraught with uncertainty and political risk. Republican critics responded on cue, mocking GM as “Government Motors.” The criticism was muted, however, by the time the 2012 presidential election rolled around—especially in Ohio. The auto boom would be a factor in Obama’s capture of that pivotal state, where one in eight workers is engaged in some way in the auto industry, and folks remembered the bet he had placed on them.

 • • • 

The slow pace of recovery complicated another goal of Obama’s. “Before we’re done, we have to do something about the deficits,” he had told me early in the term. “I don’t want to leave the next president the kind of mess they handed to us.” We had campaigned on deficit reduction, but falling tax revenues and the additional spending contained within the Recovery Act had swelled the 2009 deficit to $1.4 trillion. The objective fact was that we needed to spend
more
money in the short run to add momentum to the flickering recovery while adopting a plan to curb debt in the long term by increasing revenues and trimming the potentially explosive growth of Social Security and Medicare. “We need to work the accelerator and brakes in the right sequence,” Obama said.

Americans were desperate for jobs and growth, but panicked about deficits. Republicans had found their footing and invigorated their base by attacking Obama for overspending, and would oppose any proposal to reduce deficits by raising new revenues. Meanwhile, Democrats were loath to embrace any long-term solution that would tamper with Social Security or Medicare, which Americans regard as insurance programs for which they have already paid. It was hard to make the case for curbing the growth of benefits, even in the future, at a time when so many were worried about making ends meet. Besides, from time immemorial, the uncompromising protection of Social Security and Medicare had been a political winner for Democrats, and few were eager to stray from that position, even if some changes might be required to shore up the programs for the long haul.

One day, in a senior advisers’ meeting, Obama wondered why these issues languished when demographic changes in an aging country screamed out for some adjustments. Why hadn’t the politicians acted? I was taken aback. “Because hard things are hard,” I told him. It is a hugely unpopular idea to trim the growth of benefits, I said, and politicians don’t opt to do hugely unpopular things. “Hard things are hard” became an ongoing joke after that, though the inherent wisdom of that mantra became clearer by the day. When I left the White House in 2011, I would give the president a desk plaque that read, “Hard Things Are Hard!”

Another “hard thing” Obama undertook in 2009 was a landmark financial reform law. Even before the crash of 2008, Obama had called for new rules adequate for the twenty-first century to prevent the bilking of consumers and the gaming of financial markets. Yet the crash made the need for such reforms painfully and unavoidably clear.

It was no coincidence that this rewrite would be the most comprehensive since the 1930s, the last time financial manipulation had brought down the economy on such a large scale. Now, with all the intricate new financial instruments and technology that had eluded oversight and regulation, there was an obvious need to protect consumers. Furthermore, there was a need to address the “too big to fail” dilemma to ensure that no single bank’s collapse could threaten the entire system or compel another widespread taxpayer bailout. Since the industry itself barely had a handle on all its machinations, writing the rules was a brutally complex undertaking. When Obama unveiled them in June 2009, Wall Street responded by deploying an army of lobbyists to help shape, if not stop, many of these reforms in a battle that would last more than a year.

It was infuriating but not surprising. Now back on their feet, the financiers would spend a fortune fighting the reforms the crisis demanded. It was one more irritant that would make Obama’s relationship with Wall Street and the larger business community an ongoing challenge. It was a matter of politics and principle. The president could hardly do the things required to bail out the financial industry from a mess of its own creation without, at the same time, strongly condemning their excesses. Beyond that, he had run on the promise to level a playing field that had been badly skewed under the “anything goes” policies of the Bush years. All this would come to a head in a
60 Minutes
interview in December 2009. In it, the president denounced firms that had taken emergency government loans to navigate the crisis while paying out billions of dollars in executive bonuses.

“I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” he said, in a quote that would be played back to me for years afterward by aggrieved financiers who felt he had tarred the entire industry with a broad brush.

Yet he had run promising a fair shake for everyday Americans, so one key provision of his financial reform package called for the creation of an independent Consumer Financial Protection Bureau to protect people from deceptive or unscrupulous practices by the issuers of credit cards, mortgages, and other loans. “We’ve had for 60 years a system of bank regulation under which the regulators view bankers as their constituency,” Summers said. “There is a good argument for an agency that has the consumer as its focus.”

Obama was enthusiastic. The crisis had laid bare the vulnerability of financial consumers, some of whom had shared their experiences with him on the campaign trail or in the letters he read at night. However, he didn’t need their testimony. He had his own. When I gave the president a copy of
The Big Short
, Michael Lewis’s riveting book about how mortgage scams had led to the financial crisis, Obama thumbed through it with a knowing smile.

“I lived this story,” he said. “I remember very well. Because of our student loans, Michelle and I could never catch up. So, some months, we paid our bills with credit cards. I went to refinance our condo and I was kind of surprised when they said, ‘You can get cash, too.’ So all of a sudden, my condo is worth fifty thousand dollars more and I can take forty thousand dollars in cash as a loan? I did it, but it seemed too good to be true. It was a racket.”

The idea of a consumer financial protection agency was first proposed by Elizabeth Warren, the Harvard law professor and bankruptcy expert. Warren’s writings on the economic struggles of the squeezed middle class and the abuses of the financial industry had made her a hero to the Left, and a burden to Wall Street. Their antipathy only grew when Warren was named by Democrats in Congress to lead an oversight panel on the bank bailout program. From that perch, Warren had asked tough and sometimes embarrassing questions both of bankers and of government officials, including Geithner. Neither he nor Summers, who knew Warren from Harvard, were big fans. Meanwhile, I thought her background and sensibilities made Warren a splendid candidate to lead the new consumer agency, if Congress created one, and I told the president so.

I invited Warren to lunch in June 2010, as a final vote loomed on the financial reform law, and she wasn’t the least bit coy about her desire to lead the new consumer bureau. “I can do this or something else. But just between us, I’d rather do this than look over Tim Geithner’s shoulder for the next ten months,” she said pointedly. Elizabeth was tough and didn’t make any effort to hide it.

I delivered that message to the president, who was equally direct in his response. “Tell her to keep her mouth shut. She may well be the choice, but we can’t surface that now.” Understanding what an irritant Warren was to Wall Street and its allies in both parties, Obama didn’t want to signal that Warren was his candidate before the law passed and the agency was created. Afterward, he did appoint her to help organize the consumer bureau, a job she performed with great enthusiasm and skill, recruiting first-rate talent and laying a strong foundation. Still, after gauging the politics of the Hill, Obama concluded that Warren couldn’t win the Senate confirmation required to be the bureau’s permanent director. The president feared that such a battle could damage the bureau and complicate other administration priorities. It was a decision that disappointed many on the left. The president, though, had an alternative notion. “Why doesn’t Elizabeth think about going home to Massachusetts to run for the Senate?” Obama asked. Scott Brown, the Republican who had taken Ted Kennedy’s seat in a special election after Kennedy’s death, was up again in 2012. “She could win that.”

I took the suggestion to Warren, a neighbor in my Washington apartment building, who at first greeted it warily. Senate and Massachusetts Democrats lobbied her hard, and Warren warmed to the race. With Obama at the top of the ticket, she easily defeated Brown, taking her seat alongside the very senators who had resisted her appointment to lead the consumer bureau.

The episode was a parable about Obama and his approach to politics, dating back to his years in the Illinois legislature. He is both idealistic and pragmatic, progressive in his goals but practical in pursuing them. He liked Warren and valued her leadership for the consumer protection bureau, but he wasn’t going to sacrifice its creation or the larger financial reform law, or invite rearguard actions to undermine it after its passage, by surfacing her name too early or keeping her in place for too long. The Left was eager for the fight. Obama was playing for meaningful gains.

Ironically, Summers fell victim to that same sense of pragmatism. Despite his yeoman service, and Obama’s deep respect, Larry was twice passed over for the Fed chairmanship he had been promised when he agreed to serve in the White House. The first time, in the spring of 2009, Obama yielded to Geithner’s recommendation that he reappoint Bernanke in order to reassure the jittery markets. Four years later, when Bernanke retired, the president passed over Summers again, concerned that opposition from the Left, including Senator Warren, would make the nomination too heavy a lift, jeopardizing other priorities.

Obama had shown a willingness to make such sacrifices and strike hard bargains in order to achieve his larger goals, but he drew bright lines when he felt such concessions would undermine fundamental principles.

As the financial reform bill was winding its way through Congress, Obama instructed his team on his negotiating posture with Congress and insisted he would veto any bill that didn’t include the consumer bureau and the so-called Volcker Rule, which would bar banks and financial institutions whose deposits were federally guaranteed from gambling their own funds in the risky financial markets. “I’d rather bring a vote on a strong version and lose, having held up a principle,” he said. “Politically and substantively, I’d rather lose and fight the good fight. Let’s get an improvement on the status quo.”