Friday, September 16, 2011
This does not pass the smell test. An Associated Press report on a to-be-released book by Ron Suskind tells us that Obama said that Geithner ignored his request to look into the feasibility of breaking up Citigroup (hat tip Buzz Potamkin):
A new book offering an insider’s account of the White House’s response to the financial crisis says that U.S. Treasury Secretary Tim Geithner ignored an order from President Barack Obama calling for reconstruction of major banks...
The book states Geithner and the Treasury Department ignored a March 2009 order to consider dissolving banking giant Citigroup while continuing stress tests on banks, which were laden with toxic mortgage assets. The directive from the president was one of the most important decisions during the first few months of his presidency.
In the book, Obama does not deny Suskind’s account, but does not reveal what he told Geithner when he found out. “Agitated may be too strong a word,” Suskind quotes Obama as saying. Obama says later in the book that he was trying to be decisive but “the speed with which the bureaucracy could exercise my decision was slower than I wanted.”
Geithner says in the book that he did not recall that Obama was mad at him about the Citigroup decision and rejected allegations contained in White House documents that his department had been slow to enact the president’s plans.
“I don’t slow walk the president on anything,” Geithner told Suskind.
“The Citbank incident, and others like it, reflected a more pernicious and personal dilemma emerging from inside the administration: that the young president’s authority was being systematically undermined or hedged by his seasoned advisers,” Suskind writes.
Suskind states that Obama accepts the blame for mismanagement in his administration while noting that restructuring the financial system was complicated and could have resulted in deeper financial harm.
One of the major complaints about Obama’s administration is that it was too easy on major financial institutions, including Citi. The president had wanted Treasury officials to focus on a proposal to dissolve the bank, but no plan was ever created, the book states.
Let’s be clear. I’m sure Suskind’s sources did indeed tell him what he reported in the book. But there is plenty of reason to believe that this idea, that Obama “ordered” a Citigroup resolution plan and Geithner ignored it, is just an effort to shift blame for an unpopular pro-bank strategy to Geithner.
Look at the spin: we are supposed to believe Obama wanted to be tougher with the banks and was thwarted by his Geithner. Does that mean we are also supposed to believe that Eric Holder also ignored Obama’s orders to prosecute?
The only problem with this effort at revisionist history is that it is completely out of synch with other actions the Administration took in February and March 2009 that had to have been approved by Obama. And his posture before this supposed Citigroup “decision” and after, has been consistently bank friendly. Obama knew from the example of the Roosevelt administration, which he claimed to have studied in preparing his inaugural address, that the time to undertake any aggressive action was at the very start of his term, in that critical speech. March was far too late to start studying the question of whether to nationalize Citigroup.
Remember, Obama has been on the defensive since mid 2010, when it looked like the Democratic party was going to take big mid-term losses and they turned out to be even worse than expected. The realization that the Administration’s poor policy choices were coming home to roost would no doubt lead to trying to shift blame off the President on to convenient scapegoats. That mid 2010 timeframe likely coincided with Suskind’s research and interviews. And the “inexperienced President” positioning also serves to explain why an order-bucking staffer like Geithner is still in the saddle. Obama has since leashed and collared his advisors; this failure to exercise a firm hand was a short-lived problem, although the early mistakes that resulted still haunt him. A clever story, no?
All we have to do is look at the bigger arc of the President’s financial services industry bait and switch to see that this “Geithner blew me off” account doesn’t hold up. Recall that during his campaign, Obama made a great show of having Paul Volcker, who clearly had the stature to stare down the banks, as an advisor. The assumption was that Volcker would be Treasury secretary or otherwise very influential (think Kissinger in his role as head of the NSA, which prior to his appointment, had never been a powerful position).
After the election, Obama named Geithner and Summers, two of the major architects of the deregulatory strategies that drove the global economy over the cliff, to his most senior economics/financial services positions. And to top it off, Geithner and Summers then were close allies and Summers was seen as a ruthless infighter, so together they were more formidable than either would have been individually. Volcker was given a role that was the equivalent of exiling him to Siberia, head of a newly-formed Financial Stability Oversight Council. Anyone who knew anything about the players could see that Obama had decided to throw his lot in with the banks.
Close observers can point to more evidence of Obama’s fealty to his financial lords and masters. He interrupted his campaign to whip aggressively for the TARP. Every single Obama appointee of any importance backed the strategy of protecting the banks, from the SEC to HUD to Treasury to DOJ. Don’t forget that Peter Orzag went to Citigroup after leaving, and Jack Lew came from the bank.
In addition, the idea that Obama directed Geithner in March 2009 to look into how to resolve Citigroup, and the implication, that that was a serious request that the President might act on, does not comport with the Administration’s actions that month. Remember, it was in early March that Team Obama went all in with its bank boosterism strategy. Indeed, a report on February 22 indicated clearly that the Obama Administration saw the “stress tests” which had been announced earlier that month and were being mistakenly assumed to be the real deal, as confidence building exercise:
Said one high-level official, “I think the market is missing that the whole intent of this process is to show that the banks have enough capital for even worse outcomes than we currently envision and to show there’s a program in place to give banks access to that capital if they need it.”
March 9 was the day that a memo from Citi CEO Vikram Pandit was leaked, saying the bank would be profitable for the first quarter of 2009. Bank stock prices jumped that day. The Obama administration piled on the momentum and continued to press even more aggressively the message of late February: the banks were going to be put through a tough process (we debunked that claim multiple times), the government had confidence in the system, and any banks that came up short had a path for strengthening its balance sheet.
So how do we interpret the report of the Obama demand and Geithner’s insubordination (which Geithner denies)? Remember, hese people are ALL adept bureaucratic infighters, which means masters of the strategic leak and PR cleanup after messes.
It is hard to imagine that Obama would tolerate Geithner blowing off a major request. The spin fed to Suskind, “Obama was a green executive,” stands in sharp contrast with reports of Obama’s arrogance (a common description of his private demeanor) and his famously well run campaign. And most important, the idea that a windup plan for Citi was a SERIOUS request (as in input for a decision as to whether or not to act) was inconsistent with the stress test/confidence building plan already in motion.
Thus a more logical explanation is that Obama did make a request, but it was understood by both Obama and Geithner to be a CYA exercise, something they could refer to if it ever proved necessary. Geithner gave it suitably low priority, particularly given that it would be a time consuming task and he was short staffed (there were numerous reports at the time of how Treasury had open positions). Obama was still miffed that it didn’t get done and chided Geithner about it.
Let’s consider the much less plausible idea that Obama really wanted a serious study. That would have been beyond the capability of Treasury staff to complete in quickly enough to be useful. The Administration needed outside help to design the stress tests and hired McKinsey; it would certainty have needed more horsepower to do this exercise on a timely basis. So Geithner and other regulators would likely have pushed back had Obama been earnest, particularly given the risk of leaks, the time required to do it right versus how rapidly events and existing action plans were moving forward.
Finally, it seems unlikely that anyone with experience in an organization would tolerate serious insubordination. By contrast, with a new team working together for the first time, Obama may well have cut some of the people working for him slack because dropped balls may have been due to things slipping between the cracks with the scramble of putting new programs and policies in place, or simple miscommunication (again, more likely with a new team). Those issues may explain lack of Obama follow up on other requests that are now being repositioned to prove his staff did him dirty and he can’t really be blamed for all the bad stuff that happened on his watch.
Put it another way: one of Obama’s striking characteristic is his shameless lying. While politicians are a famously untrustworthy breed, the magnitude of the gap between Obama’s campaign promises and his conduct is outside the pale. When asked about his repudiated campaign promises, Obama doesn’t try to say he’s honored them; he’s said that politicians lie. So his position is “Caveat emptor, you should have been smart enough not to believe me.” With that stance, there’s no reason to trust his self-justifying posturing via Suskind either.