Confidence Men: Wall Street, Washington, and the Education of a President

Wow. This is an incredible book. Hard to put down. It goes through the first couple of years of the Obama administration, primarily discussing how he handled the financial meltdown and stabilization. (We can’t say recovery yet because so far there has been no recovery.)

A lot of what’s in here is the author’s (and other’s) opinion of why people made decisions. But on the specific facts, what people said, what people did, how people were treated – none of that has been disputed by the principals covered. And those facts alone are incredibly damning.

The president turned the economy over to Sumners, Geithner, & Emanuel – three people who helped eviscerate FDR’s financial reform at the end of the Clinton Administration. And then were cheerleaders for Wall St. as it went wild over the last decade. A President who wanted to truly get all views day in and day out would have had one of those three, but then had Volker in one of the roles and third person as chief of staff.

The president also comes across as someone who allowed those three to seal him off in a bubble where they determined what was presented to the President. And then, in many cases, ignored the decision of the President and continued with what they thought was the best policy.

The clear conclusion of the book, although Suskind never explicitly says it, is that President Obama is a poor manager. That’s not terribly surprising, it’s a super difficult job managing the people at that level and Obama didn’t have any experience at this level. (The same is true of Bush where Cheney, Rumsfield, & Co. ran things.)

It’s a sad picture of something we all had such high hopes for. But it is a fascinating read. And it provides a lot of context for the disappointments of the last 2½ years.

Krueger put it to Obama bluntly. The American workforce was on an unsustainable course: overworked, heavily stressed, inadequately insured against rising health costs, and moving more deeply into debt each year.



I’m a professor of civil reengineering at Princeton. And I was up at Yale the other day and they’ve given up teaching civil engineering. There are just two old geezers like me up at Harvard, and once they’re gone that’ll be it. There’s hardly an elite university in the United States that pays attention to civil engineering. What’s the result? We hardly know how to build bridges; they tend to fall down. It’s cost twice as much to build that new bridge across the Potomac as it would have cost if it was built in Europe . . . I assure you, I know . . . and besides our bridges are ugly and theirs are beautiful.’ ”



But that’s what Gensler was now doing with one of country’s most powerful, self-sustaining, play-for-keeps communities: Wall Street. Its ethos and ethics had altered the way people thought about hard work, honesty, self-reliance, and fair practice-what de Tocqueville once called America’s admirable and accessible “bourgeois virtues.” Wall Street had bet against people who believed in those sleepy mores, and year after year, it had won huge.



While Orszag wouldn’t publicly affirm Summers’s critique of the president’s abilities-saying later, “I don’t want to go there”-he wouldn’t disagree, either. He sat in meeting after meeting where the president would cover the same issue, or controversy, or policy dilemma, and “relitigate” it, in the president’s parlance, over and over. Decisions were left unmade; policies drifted without direction. It wasn’t a matter of intellectual framing. The president seemed to grasp the nature of key policy dilemmas, like a journalist, or narrator, or skilled observer. The problem was in guiding the analysis toward what a president is paid, and elected, to do: make tough decisions.



“For Washington to not demand anything when it saved us, even stuff that we know is for our long-term good, was one of the stupidest moves in modern times. I figured Obama understood that-it wasn’t a nuanced point-and that he’d act as we started to pull out of the abyss six months ago. But he didn’t, and I don’t know who to thank. I feel like I should go over and hug Tim. It’s a shame we can’t pay him, ’cause that’s a guy who really earned a big-time bonus.”



“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. Tim and Larry’s whole plan is just like Argentina in the 1980s. There was this giant hole marked ‘Banks’ and the government just dumped money in that hole, as much as they had, while they lied about it. That’s what Larry thinks: that the U.S. is Argentina!”



“To not see this coming, and not start to act, even back in November, after we got slaughtered in the governors’ races, wasn’t an asleep-at-the-switch issue,” said a close aide to Obama. “It was utter incompetence. This is what political aides get paid for. This is their job.” In January-with two weeks, still, until the day of the special election-the White House called Coakley’s campaign strategist, Dennis Newman, to see what help Washington could offer. He said they were fine. Nothing was done.



yelling, ‘We have no fucking credibility!’ Seeing Democrats and Republicans going at the same unresolved issues, side by side, highlighted that this might have been the only area of actual bipartisanship-the kind of bipartisanship the president was searching endlessly for. But here was our guy getting pilloried.”



This is, of course, the way criminal syndicates rise up. It’s an issue of might. If the government, with its power of law and prosecution, can’t challenge them, they spread, and their influence deepens. The large banks and their companions, unregulated hedge funds, had increasingly taken ownership of the trading enterprise, opened new casinos dealing with the more complex, often shadowy realm of debt, and figured out ways to rig it on their behalf. For the clients and smaller competitors, this hard reality first brought frustration, then, year by year, acquiescence, and finally a kind of furtive participation. If it’s not going to change, then why not be part of it? If they didn’t sign on, their competitor would. The aim for clients is to be large enough, or strategically important enough, that Goldman sees them as valued partners and protects them or, even better, gives them a cut.



One other thing “all the latest reforms” shared was they were all battered, or already buried, because none of them, including his amendment, “have really been supported by the president-not really.”



After an hour of discussion, Krueger asked the undergraduates to introduce themselves and say something about their plans or their goals. About half were economics majors, but the other half were spread across many disciplines-history, philosophy, biology. One after another, they said they planned on going to Wall Street. All of them.

8 Community Comments, Facebook Comments

  1. allyncooper says:

    Definitely have to take a read on this when I get time. The subject of how decisions are made and policies developed is a source of both fascination and dismay.

    Years ago I read “The Best and the Brightest” by David Haberstam  which chronicled the men around LBJ ( the Bundys, Dean Rusk, MacNamara, and others) who led us down the path of our disastrous Vietnam involvement.

    Of note there was one credible voice of dissent in that elite inner circle of policy makers, Under Secretary of State George Ball, but he was overruled by the others.  

    • DavidThi808 says:

      The credible voices of dissent are the ones shut out once it came time to fill the senior policy positions. Volcker and others were pushed to the side once the election was over.

      • allyncooper says:

        He was the Under Secretary of State for Economic and Agricultural Affairs in the administrations of John F. Kennedy and Lyndon B. Johnson. He is well known for his opposition to escalation in the Vietnam War. After Kennedy decided to send 16,000 “trainers” to Vietnam, “Ball, the one dissenter in Kennedy’s entourage, pleaded with JFK to recall France’s devastating defeat in 1954 at Dien Bien Phu and throughout Indochina. ‘Within five years we’ll have 300,000 men in the paddies and jungles and never find them again.'”[2] In response to this prediction, “JFK laughed and replied, ‘Well, George, you’re supposed one of the smartest guys in town, but you’re crazier than hell. That will never happen.'”[3]

  2. DanleySteel says:

    Dave–

    Maybe you found some important insights in this book, but I expect if I get around to it, I won’t. I read this review of it by Brad DeLong a few weeks back, and basically wrote it off.

    http://www.huffingtonpost.com/

    DeLong agrees that there were some decisions made that one has to wonder at–but he couldn’t find anything in “Confidence Men” to help explain any of them.

    Do you think President Obama’s first term, on domestic issues, compares favorably or unfavorably to President Clinton’s?  

    • DavidThi808 says:

      The writer clearly likes and respects the people that were at the top. That may color his view of their competence. He also talks a lot about other questions he would like answered (some are good ones) and what policies he thinks the administration should have followed (again some are reasonable).

      But he never speaks to what I think is the core impression of the book – that Obama is a poor manager and because of that you have Geitner/Emanuel/Summers running economic policy and insuring that Obama only heard what the three of them wanted to hear.

      I think he compares very poorly to Clinton. Clinton faced a different problem but Clinton listened to a wide range of people, worked through what to do, than laid down what the administration policy was going to be (give the bond market what it wanted). And he then had his decision carried out.

      The book is really good, but it will leave you very disheartened.

      • DanleySteel says:

        I agree Mr. DeLong has deep professional respect for economists Geithner and Summers, and personal affection for Summers as well. But rather than taking the fact that his opinion is good to disqualify his opinion, I see his opinion of them as a good guide for what mine should be. At any rate, I think DeLong ought to know better than I do.

        Plus, he offers a good account of how the policy that has come from Obama on the economy has been a little soft (both by detailing the challenges involved, and by talking about Geithner’s new timidity about challenging banks, and Bernanke’s bizarre unconcern about employment) and giving credit where it is due. (Geithner did a terrific job restoring confidence in the industry with a strength-test for banks, when other options were blocked by Congress.)

        Oh, and I realize I left off a couple of the links I meant to share:

        one more from DeLong

        http://delong.typepad.com/sdj/

        and one from Ezra Klein

        http://www.nybooks.com/article

        I think you may have walked into a stronger opinion that you were expecting, so maybe I shouldn’t be too critical. But you tripped my BS meter w/ your thoughts on President Clinton. Your words

        “Clinton listened to a wide range of people, worked through what to do, than laid down what the administration policy was going to be (give the bond market what it wanted).”

        read like you got ’em straight out of Clinton’s autobiography, where he spends about as many pages touting his “success” on the budget as reviewing all the might-have-beens of that term. But if I treated him the way you treat Obama, I think I’d be saying his effort on gays in the military was a management fail. I’d be saying his health reform effort was a management fail. I’d talk about how he lost the messaging war around why his deficit policies supported the economy–most people connected the policy success with reduced entitlements, not with balanced budgets. I’d say, “Thanks to Clinton’s bad leadership a lot of people, even democrats, think the safety net is a major drag on the economy, and think Clinton would agree with them.” I’d argue that his not noticing or even really hand-wringing over Rwanda until it was over was a management fail. And to clinch it, I’d leave you to form your own opinions about whether Monica-gate was good leadership, or what it likely meant for the morale and perceptions of women working in President Clinton’s inner circle. Don’t get me wrong, I think President Clinton is a unusual character who did, on balance, a great job in the office, especially if you look at what he was working with.

        But “look at what he was working with” is something Suskind doesn’t do. Compare Clinton’s first term to President Obama’s first-term successes:

        Two Supremes, both great picks.

        Osama Bin Laden

        Lilly Ledbetter

        Consumer Financial Protection Bureau

        HCR

        Immediate engagement toward Libya and clear effort at a nuanced response to Arab Spring, despite embroilment in Iraq and afpak.

        Now top of my list for the fails of President Obama’s administration are:

        1. Too-soft a stance toward banking reform, especially sticking with Geithner and Bernanke, while ditching Summers, Volker, and Warren.

        2. Climate change action fail

        3. Messaging softness generally. (Although I’m seriously weighing whether a rope-a-dope ploy might be at work here…)

        Overall, the thing that convinced me (and you haven’t changed my mind) to not bother with the book is that its narrative doesn’t fit its own research. The narrative is a who-dunnit looking for scalps for bad policy, while the author’s own reporting shows a diverse array of White House experts mostly agreeing (effectively agreed, compared to, say, Sen. Ben Nelson), but prevented from acting by the intractability of Congress.

        Here’s one of Klein’s many examples of this kind of journalistic incoherence:

        When Obama angrily dismisses Romer’s umpteenth argument for more stimulus, it’s not because he disagrees. It’s because he can’t get it passed. “Enough!” Suskind quotes him as shouting. “I 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!”  

  3. Gypsy Chief says:

    except would say two good picks for SCOTUS. Failure to reign in Wall Street, pressure on state attorneys general to accept slaps-on-the-wrist settlements and horribly ineffective foreclosure mitigation will come back to bite the Obama administration. No wonder the 99% movement projects a plague on both your houses sentiment. A better book to read imo is Glenn Greenwald’s “With Liberty and Justice for Some” That said, thanks for this diary David.

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