Speed Read

‘The Escape Artists’ Speed Read: Best Bits on How Obama Bungled Financial Reform

Noam Scheiber’s book offers a deft look at how the Obama administration bungled financial reform.

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Barack Obama isn’t Franklin Roosevelt, but he’s not Jimmy Carter either. His administration hasn’t been a total failure or a complete success, and the economy is still hovering somewhere between terrible and recovering. The Escape Artists, Noam Scheiber’s marvelous study of the Obama administration’s economic policy, captures this ambivalence, tracing the roundabout path that the White House economic team took in plotting recovery and capturing rare insights into how policy is actually made.

Confusion Between Economics and Politics

The most headline-grabbing part of Scheiber’s book is its chronicling of the process in which the stimulus plan was warped by political calculations. Although Obama had assumed that his economists were making recommendations purely based on financial policy, his team was also trying to also make a recommendation that it thought be politically safe. This meant that although a stimulus of $1.8 trillion would have been necessary to “heal the economy completely,” in the assessment of Christina Romer, chair of the Council of Economic Advisers, the most expensive option that the president was given was $800 billion. This meant that when it went to Congress, the administration lowballed its opening offer.

Boondoggles of the Stimulus

The stimulus package contained a variety of giveaways of limited efficacy. Among the least effective were a homebuyer tax credit favored by Johnny Isakson, a Republican senator from Georgia, and the replacement of certain tax breaks with the annual fix for the Alternative Minimum Tax, as advocated by the senior Republican on the Senate Finance Committee, Chuck Grassley of Iowa. These stayed in the bill but, to Rahm Emanuel’s fury, neither senator ended up voting for it. While it was one thing to make concessions to supporters on their pet issues, it was another thing to fill the bill with giveaways for those who opposed it.

Larry Summers Political Machinations

Perhaps the economic staffer most obsessed with political calculations was former Treasury secretary Larry Summers, who served as the director of the National Economic Council. As Scheiber reports, he so often cited Politico in meetings that White House Press Secretary Robert Gibbs would mock him over his reading habits. Gibbs was apparently prone to jokes that “he planned to go home and read the Financial Times so that he could be just as out of his depth” as Summers was opining on politics.

How Tim Geithner Influenced the President

Tim Geithner gained disproportionate influence with the president, not through the eloquence or weight of his arguments, but through silence. While many longtime Washington political figures enjoy the sound of their own voices, Geithner stayed quiet in meetings. He would only speak if he had something to say and would weigh in only when asked. The result endeared him to a president with a “deep aversion to blather” and who had come about the nickname of “No Drama Obama” honestly.

The Orszag “Mind Meld”

The other figure shaping finance policy with a close relationship with the president was Peter Orszag, the director of the Office of Management and Budget, with whom Obama had an “uncanny mind meld.” This gave Orszag disproportionate influence in the administration and enabled him to achieve far greater success pushing his antideficit agenda than he would have otherwise—especially considering he alienated all the other economic policymakers and political operatives in the administration.

Rahmbo Needs Ritalin

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As White House chief of staff, one of Rahm Emanuel’s biggest weakness was his “frenetic management style.” He would grab hold of an issue he considered gravely important, but then drop it for weeks or months, until suddenly returning to it when it returned to the news. The result enabled others in the administration, like Geithner, to play Emanuel adroitly. With sufficient patience, one could wait out one of Emanuel’s periodic bursts of enthusiasm and then have months of quiet to shape policy without interference from the West Wing. With financial overhaul involving a wide array of complex details, this handed a major advantage to those able to ignore the chief of staff’s current fixation.

Geithner Befriends the Chinese

As a young man, Tim Geithner lived in China for a time where he developed a trademark technique for making friends with Chinese who then still gawked at an American wandering the streets of Beijing. He would approach those staring with “a wild-and-crazy guy type dance move,” head bobbing and hips and shoulders swaying. This would enable him to break through the culture barrier and eventually cadge dinner invitations all over the Chinese capital, where he would practice his Mandarin over the meal.

Gensler Preaches the Gospel

One of the most successful bureaucratic infighters in the administration was Gary Gensler, the head of the Commodity Futures Trading Commission (CFTC). Like his predecessor in this role in the Clinton administration, Brooksley Born, Gensler pushed hard against policies that he thought were overly favorable to the financial industry. But unlike Born, Gensler was wildly successful. Gensler successfully made an end-run around other policymakers by appealing to the public to support his crusade for tighter regulation of derivatives. Through his campaign (the lynchpin was “a photocopied piechart” of the mix of derivatives in the United States), Gensler pushed the debate toward far tougher regulation and forced the Treasury to back him, rather than the other way around.

The Banks Win

Schieber offers his view on what the push for financial reform accomplished—and it was a victory for the banks. It didn’t reshape the financial system but merely tinkered around the edges, trimming some of the worst excesses but without making any dramatic reforms. Little was passed over the objections of the banks, and in Schieber’s view “the reforms might mitigate whatever crisis strikes in the next five to ten years. But they will not prevent it.” The result “denied the administration’s financial policies the legitimacy they badly needed.”