About the Author
Bill Press is the author of seven books and the host of radio and television’s nationally syndicated The Bill Press Show. He is a former host of MSNBC’s Buchanan and Press and CNN’s Crossfire and The Spin Room, whose professional accolades include four Emmy Awards and a Golden Mike Award. He lives in Washington, DC.
Excerpt. © Reprinted by permission. All rights reserved.
Buyer’s Remorse ONE
Budget Battles and the Obama Economy
We start here because that’s where President Obama starts.
In any speech about his record as president, or in response to any question about his economic policies, Obama invariably starts off with some version of: “First, we saved the country from a Second Great Depression.”1
And, in a sense, that’s true. No president since Franklin Roosevelt had entered the Oval Office facing such economic disaster. Thanks to endemic foul play and often outright criminal behavior by leaders of financial institutions, brought on by a relaxing of controls on Wall Street that started under Bill Clinton and continued under George W. Bush, Obama inherited an economy in free fall.
In January 2009, he discovered things were far, far worse than most economists or the Bush administration were willing to admit when the bottom fell out in September 2008. Almost overnight, the GDP contracted by 5.1 percent, making the Great Recession the worst financial crisis since the Great Depression. According to the Department of Labor, 8.7 million jobs were lost from February 2008 through February 2010, and unemployment rose from 4.7 percent in November 2007 to a peak of 10 percent in October 2009.2
Acting quickly, Obama did manage to stanch the bleeding, avoid the “double-dip” recession many feared, and slowly put the economy back on the path to recovery. (European countries were less lucky. Addicted to austerity measures that further contracted the economy, England and the Eurozone experienced a double recession, and only narrowly avoided a “triple-dip.”)3 But, as would prove true of his handling of other challenges during his presidency, Obama’s response to the fiscal crisis was too tentative and too timid. In the end, his actions fell far short of what was needed and not only stunted and delayed the recovery but, in some areas, made matters worse.
As a result, today, seven years later, we are still not completely out of the hole. While financial markets have soared, the overall economy remains sluggish. Progress, while steady, has been slow. The income gap is wider than ever before. Wages are stagnant, and have been for over a decade. Forty-five million Americans are still stuck below the poverty line. As of this writing, job growth still hasn’t recovered to pre-recession levels: We are still 3 million jobs short of where we need to be. Some 8.5 million Americans are out of work. And consumer confidence remains low. Obama will leave office without bringing the country back to full economic recovery. In fact, under his watch, inequality grew even worse.4
Cast of Characters
On these economic matters, there’s little doubt where Obama first went wrong. It all began with the people he appointed to his team of economic advisers.
Trying to pull the country back from the economic brink, of course, was not how Barack Obama wanted to begin his presidency. He had other priorities in mind: health care; climate change; ending the wars in Iraq and Afghanistan; changing the poisonous atmosphere in Washington; and introducing a new era of postpartisan governance. But events forced his hand. With the entire economy about to go belly-up, Obama had no choice but to make that his first priority.
To do so, he needed a lot of help. After all, he wasn’t a businessman, manager, or economist. He had no experience in finance or Wall Street. He needed to recruit his own band of experts. That was not surprising. What was surprising was that, instead of reaching out to new people—fresh faces like him, who represented a clean break from the failed economic policies of the recent past—Obama surrounded himself with a couple of big Wall Street insiders and a gaggle of leftover Clinton and Bush administration officials. In other words, many of the very people whose reckless policies had caused this gigantic mess in the first place. And who now spent more time arguing among themselves than devising a solid recovery plan for the Obama administration.
Leading the team was former Clinton Treasury secretary Larry Summers, whose specialty seems to be pissing people off. Everything about Summers should mark him as the last person on earth Barack Obama would agree to be in the same room with, let alone make his chief financial adviser. At Treasury during the Clinton years, he helped trigger the 2008 recession by advocating repeal of the Glass-Steagall Act, the New Deal–era legislation that had put up a wall between commercial and investment banks to prevent reckless speculation. He also blocked efforts by the much-more-prescient Brooksley Born, head of the Commodity Futures Trading Commission, to regulate derivatives, the financial instruments that did so much damage in 2008.5
He spent his next five years as president of Harvard, before being forced to resign after making disparaging remarks about women and African-Americans, while losing Harvard about $1.8 billion through risky investments. Summers then moved to Wall Street, where he made millions as partner in a hedge fund, advising major financial institutions including Goldman Sachs, JPMorgan Chase, Citigroup, Merrill Lynch, and Lehman Brothers—the very firms he was expected to crack down on later. But didn’t.6
Given that checkered past, you’d think Larry Summers would be persona non grata around the Obama White House. Instead, he emerged as Obama’s first choice for Treasury secretary, and probably would have landed the job were it not for Hillary Clinton. Once she emerged as the leading candidate for secretary of state, Obama’s advisers decided it wouldn’t look good to have two top Clintonites in the cabinet. So Summers was named chairman of the president’s internal, powerful National Economic Council, instead.7
Note: Whatever magic Summers worked on Obama did not dissipate even after two contentious years as chair of the NEC. In mid-2013, Obama stunned the financial world by openly floating the name of Summers as a leading candidate to replace Ben Bernanke as chairman of the Federal Reserve. A vocal outcry from progressives, the media, and veteran Fed-watchers finally forced him to throw Summers overboard and nominate Janet Yellen.8
Obama’s number-two choice as Treasury secretary was Tim Geithner, another Clinton alumnus and Wall Street insider—and another big mistake. During the Clinton administration, Geithner had worked briefly at Treasury under Summers and Secretary Robert Rubin (the two guys we have to thank for financial deregulation) before becoming head of the New York Federal Reserve. In his book Revival, Richard Wolffe reports that another reason Geithner became Treasury secretary was that he told Obama that was the only job he’d leave the New York Reserve for—whereas Summers, desperate to redeem himself after his humiliating departure from Harvard, was willing to take anything.9
Still, Geithner was a strange choice. At the New York Fed, he had worked closely with Treasury Secretary Hank Paulson on two major decisions in the early crisis period: letting Lehman Brothers collapse, yet bailing out the giant insurance company AIG. Major AIG shareholder Hank Greenberg alleges that Geithner, Hank Paulson, and Fed chair Ben Bernanke actually acted illegally by deciding to “rescue” AIG, while in effect funneling whatever financial resources the company still held to big banks. In June 2015, federal judge Thomas Wheeler agreed with Greenberg that the Fed had exceeded its legal authority, arguing that “there is nothing in the Federal Reserve Act or in any federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the Government were the owner.” In addition, Judge Wheeler concluded that “the Government treated AIG much more harshly than other institutions in need of financial assistance” and that this treatment “was misguided and had no legitimate purpose.” As of this writing, the case is under appeal.10
In any event, at Treasury, Geithner was expected to coddle his former Wall Street drinking buddies. Which he did, and then some.
And Geithner wasn’t a one-off. Late in his term, Obama tried to smuggle Antonio Weiss, another Wall Street insider, into his administration. A senior investment banker at Lazard, Weiss was nominated as undersecretary of Treasury for domestic finance, but he was shot down by Senators Elizabeth Warren and Bernie Sanders, who claimed he didn’t have enough regulatory experience and was too close to the financial industry. In January 2015, realizing he could never win Senate confirmation, Weiss withdrew his name from consideration and accepted a position as counselor to Geithner’s successor, Treasury Secretary Jack Lew.11
Back to 2009. Three more Clinton White House survivors also made the president’s economic team: Gene Sperling, Bruce Reed, and the aforementioned Jack Lew. Having once helped Bill Clinton reach a historic budget compromise in 1997 with Newt Gingrich, this trio of Clintonites believed they could pull the same rabbit out of the hat with John Boehner, and convinced Barack Obama to try, time and again. As we will soon see, that was a nonstarter. Republicans in Congress were now much more extreme than before. So extreme, in fact, that Speaker Boehner was unable to deliver his own caucus for any deal he might want to make with the president. But that didn’t stop the White House from trying. And trying. And trying.12
One addition to the gaggle of leftover hard-liners was Peter Orszag, who left his job as head of the Congressional Budget Office to become Obama’s first director of the Office of Management and Budget. He quickly gained a reputation as the administration’s chief deficit hawk. He even looked the part. And he gets credit or blame for convincing Obama to accept cuts in Social Security benefits and extension of the Bush tax cuts as part of a compromise with congressional Republicans.13
Rounding out the team were two new faces who brought a more practical and progressive approach to economic policy, and who often disagreed with Summers and Geithner. Austan Goolsbee, chief economic adviser of the Obama presidential campaign, moved into the White House as one of three members of the Council of Economic Advisers. And Christina Romer, economist from UC Berkeley and expert on the Great Depression, was appointed chair of the Council of Economic Advisers. She, especially, clashed with Summers, as we will see in a moment.14
What was Obama thinking? Take the most serious crisis facing a new administration and put a motley collection of economists who don’t like or trust each other in charge—and what can you expect? The result was what Wolffe calls “the most dysfunctional group of the president’s advisers.” Senator Elizabeth Warren summed it up best, when she told Salon magazine: “He picked his economic team and when the going got tough, his economic team picked Wall Street. That’s right. They protected Wall Street. Not families who were losing their homes. Not people who lost their jobs. Not young people who were struggling to get an education. And it happened over and over and over.”15
First Round: The Stimulus
Obama not only inherited a state of economic disaster from George W. Bush. He was also saddled with a major element of Bush’s unfinished economic agenda: the $700 billion Troubled Asset Relief Program, passed by Congress and signed into law by Bush in October 2008. As sold to Congress, the purpose of TARP was to protect the economy from total collapse by bailing out Wall Street firms and buying substantial shares of their equity and troubled assets.
Bush Treasury secretary Hank Paulson (and later Larry Summers) touted TARP as a clever, but expensive, way to save the financial industry and make a handsome profit for taxpayers at the same time. By January 2009, 61 percent of Americans opposed TARP, viewing it as nothing more than a plan to reward Wall Street firms with bailouts and bonuses in return for criminal behavior. Despite serious questions about how the money was distributed, who benefited from it, what lies were told to secure its passage, and the fact that its end result could only mean that banks would be bigger than ever, Obama, who had voted for TARP as a senator, decided not to interfere with the program—either because he felt the horse was already out of the barn, or because he didn’t dare take on the big dogs of Wall Street so early in his presidency.16
Instead, he decided to focus on the rest of the economy. His answer: the American Recovery and Reinvestment Act of 2009, or “Stimulus,” which he signed into law on February 17, 2009—a $787 billion program to create jobs and spur new investment, which passed the Senate with only three Republican votes.
Pumping $787 billion into the economy? Sounds like a lot of money, and it is. But that stimulus was actually much smaller than many leading economists—including Martin Feldstein (previously the chair of Ronald Reagan’s Council of Economic Advisers), the White House’s own Christina Romer, and the Nobel Prize–winning Paul Krugman—recommended at the time. In fact, debate over the size of the stimulus represented the first real test of Obama’s economic team—and in many ways revealed a weakness in governance that would mar his entire presidency.17
At his first meeting with his entire team of economic advisers in Chicago on December 16, 2008, President-elect Obama was handed a fifty-seven-page memo that described the serious fiscal crisis the nation faced and laid out two proposals for dealing with it: a $600 billion stimulus, or a $850 billion stimulus. However, as reported by both Ryan Lizza for the New Yorker and Noam Scheiber for the New Republic, by that time Obama was already shooting too low. He was working from options representing less than half of what Christina Romer had originally recommended as necessary.18
In the first draft of her memo to Obama, Romer proposed setting their sights high: “An ambitious goal,” she wrote, “would be to eliminate the output gap by 2011-Q1 [the first quarter of 2011], returning the economy to full employment by that date.” Getting there, she noted, would take a bold plan of action: “To achieve that magnitude of effective stimulus using a feasible combination of spending, taxes, and transfers to states and localities would require a package costing about $1.8 trillion over two years.”19
But Obama never saw those words. Putting political considerations above economic necessity, on the unproven theory that not even Democrats in Congress would vote for a stimulus so big, Summers rejected Romer’s $1.8 trillion target as impractical and bound to face certain defeat in Congress. In a second draft Romer pared the proposed stimulus down to $1.2 trillion, which Summers also dismissed as “non-planetary.” In the end, Romer reluctantly offered Obama only the two options noted above: $600 billion or $850 billion. Obama settled for $787 billion.
This was still $1 trillion short of what was needed, according to her estimate and those of many others, to jumpstart the American economy in this time of crisis, and it represented both an economic and political failure of leadership. Economically speaking, stimulus spending is based on the well-proven idea that the government must be the spender of last resort when the rest of the economy is in dire straits—the deeper the crisis, the greater the need for “countercyclical spending.” Besides, as any progressive or businesswoman worth his or her salt can tell you, money invested now in priorities like infrastructure, education, and energy efficiency will pay back massive dividends down ...
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