After countless rehearsals of the options, Obama wanted to hear a broader range of voices. So in April, a dinner was set up at the White House with the president and a clutch of big-name economists: Paul Krugman, Joseph Stiglitz, Jeffrey Sachs, Alan Blinder, Kenneth Rogoff. “That turned out to be a defining moment in the debate,” Geithner told me. “Partly because they were all disagreeing with each other, and partly because they knew what they were against but not exactly what they were for and what it entailed—except Krugman. He was the only one willing to say, ‘Look, there’s a good case for nationalizing, but if you do, you have to understand two things: One, it’s incredibly expensive, it’ll cost trillions; and two, you have to guarantee everything.’ ” Once again, Obama cast his lot with Geithner.
Indeed, the president’s support for his Treasury secretary has been unwavering. (Axelrod would laugh at rumors that Geithner was about to get the boot: “Don’t these people realize they have a man-crush on each other?”) And Obama’s loyalty has been repaid with results. Geithner’s stabilization plan is now widely regarded as having worked—mainly thanks to the once-derided “stress tests” that he imposed on the banks, which showed the world that their circumstances weren’t as dire as many feared and let them raise the requisite capital to get back on their feet. By this spring, the big banks had paid back virtually all the TARP money they’d received, and the cost of the bailout to taxpayers was smaller than that of the S&L crisis of the early nineties.
Yet the success of the Geithner plan did nothing to stem the populist tide swelling in the country. Actually, you could argue that it did the opposite. A surging stock market and the return of Wall Street to hyperprofitability sent a galling message to Main Street: The scoundrels who caused the financial crisis were flying high again, having paid no price for their perfidy. And because it was Geithner who had assisted them in getting airborne, he deserved nearly as much scorn—and received it in many quarters on the left.
Tim Geithner: “There’s a myth about the president being in this vise grip, being pulled to the right by me and Larry, that I’ve worked at Goldman Sachs all my life.”
Geithner considers such thinking illogical. His objective was to rescue the economy from ruin, and if the “price” was that a bunch of bankers benefited, he was happy to pay it. But Geithner was smart enough to realize that the simmering wrath of voters could complicate the politics around his efforts considerably. So the secretary ventured to Harlem to ask Bill Clinton’s advice as to what might be done to cool the cauldron. According to Jonathan Alter’s new book, The Promise, Clinton told him that his options were limited.
“You could pull Lloyd Blankfein into a dark alley and slit his throat,” Clinton said, “and it would satisfy [people] for two days, and then the bloodlust would rise again.”
Geithner may not have had a motive to take the blade to Blankfein, but he certainly had ample opportunity. Official Treasury calendars for the first seven months of 2009 show that Goldman’s CEO had either spoken on the phone or met with the secretary a staggering 22 times. The frequency of the contacts owed nothing to conspiracy (or a previous employment contract). It reflected Blankfein’s alpha-dog status in the industry—a designation that he and JPMorgan’s Dimon both ostentatiously lay claim to. “No one asked them to be our role models, no one voted them in,” says a rival CEO. “But they’ve graciously decided to take that on.”
Blankfein and Dimon share the crown warily, uneasily. At a recent industry event in Washington, Dimon was giving a presentation and struggling with his laptop when Blankfein cracked from the audience, “I’m feeling a bit better about my competitive position”—to which Dimon cheekily shot back, “Just doing God’s work up here, Lloyd.”
Like most Wall Street honchos, Blankfein and Dimon are Democrats and once-upon-a-time Obama fans. After getting to know the candidate, whom he’d met years earlier when they both were living in Chicago, Dimon was so smitten that he brought his family to Washington for three full days during the inauguration. And while Blankfein’s connection was less personal, no corporation in America crammed more dough into Obama’s campaign coffers than Goldman.
It didn’t take long, though, before both men were having qualms about Obama and his team. In mid-March 2009, when the news broke about AIG executives’ having scored $165 million in bonuses even as their firm’s implosion threatened to trigger a worldwide financial apocalypse, Wall Street watched as Summers declared that although the bonuses were “outrageous,” the sanctity of contracts meant that nothing could be done—only to see Obama announce the next day that he’d instructed Geithner to use “every single legal avenue” to recoup the cash. In short order, the House, in a lather, pushed through a bill to tax bonuses of executives at bailed-out firms at 90 percent. (It died a silent death in the Senate.)