Confidence Men Part 14

Which is why thirteen of the world's most powerful financial executives, and a handful of their lobbyists, were milling about the State Dining Room the morning of Wagoner's firing.

Despite Treasury's a.s.surances about Geithner's sympathies, they were worried about what the president would demand simply because the ma.s.ses wanted blood.

Until Obama arrived, everything was awkwardly convivial. Jamie Dimon, who'd spent years with Geithner in New York, had thought up an icebreaker, a way to keep things light, and handed the Treasury secretary an oversize novelty check made out for $25,000,000,000. Geithner smiled and joked about whether Dimon could make it a cas.h.i.+er's check. Under the public spotlight, Geithner was uneasy, both ingratiating and defensive, speaking in short bursts between pregnant pauses. But here, in a roomful of bankers-his longtime const.i.tuents-he was loquacious and at ease. There was good news to report to the CEOs, many of whom he'd worked beside and socialized with for years. Just four days ago he'd unveiled his Public-Private Investment Program, or PPIP-one those "Hobbit" programs, as Emanuel chided-for the government to partner with private investors in a "no-lose" proposition for them to purchase the toxic a.s.sets from bank balance sheets. That, combined with the stress tests, which were coming along nicely, would help the banks survive intact, he told a few CEOs, and earn their way to good health.

Then the room quieted. Obama had arrived, and everyone settled around a bare mahogany table, a single gla.s.s of water, no ice, before each Queen Anne chair.

The president was cool, not particularly friendly, even though he'd spent many hours with some of the CEOs, such as Dimon, at fund-raising extravaganzas during the campaign.

"His body language made it very clear that he was the president, he was in charge," said one of the partic.i.p.ants, and that he wanted to hash things out-what he felt, what they saw. The discussion moved swiftly across topics, such as the general soundness of the overall system and how to jump-start lending, before it came around to what was on everyone's mind: compensation.

The CEOs went into their traditional stance. "It's almost impossible to set caps; it's never worked, and you lose your best people," said one. "We're competing for talent on an international market," said another. Obama cut them off.

"Be careful how you make those statements, gentlemen. The public isn't buying that," he said. "My administration is the only thing between you and the pitchforks."

It was an attention grabber, no doubt, especially that carefully chosen last word.

But then Obama's flat tone turned to one of support, even sympathy. "You guys have an acute public relations problem that's turning into a political problem," he said. "And I want to help. But you need to show that you get that this is a crisis and that everyone has to make some sacrifices."

According to one of the partic.i.p.ants, he then said, "I'm not out there to go after you. I'm protecting you. But if I'm going to s.h.i.+eld you from public and congressional anger, you have to give me something to work with on these issues of compensation."

No suggestions were forthcoming from the bankers on what they might offer, and the president didn't seem to be championing any specific proposals. He had none: neither Geithner nor Summers believed compensation controls had any merit.

After a moment, the tension in the room seemed to lift: the bankers realized he was talking about voluntary limits on compensation until the storm of public anger pa.s.sed. It would be for show.

Nothing to worry about. Whereas Roosevelt had pushed for tough, viciously opposed reforms of Wall Street and famously said, "I welcome their hate," Obama was saying, "How can I help?" With palpable relief, the CEOs carried the discussion, talking, easily now, about credit conditions and how loan demand was soft because it should be: businesses were already overleveraged. "We don't want to be making bad loans," said one CEO, as his kindred from the more traditional banks, such as Minneapolis-based U.S. Bancorp or NatWest, nodded. "Much of our business is still old-fas.h.i.+oned lending."

Even among this golden thirteen, there were cla.s.s divisions. JPMorgan's Dimon, Goldman Sachs' Lloyd Blankfein, Morgan Stanley's John Mack, and Citigroup's Pandit stood atop the global behemoths of Wall Street, making much of their money and their stunning compensation on everything but traditional lending. They ran vast trading and financial gaming operations, focused mostly on the largely depersonalized flows of debt. Although Dimon asked the first question, the Elite Four didn't say much over nearly an hour, especially about the divisive issue of compensation.

There was, after all, no question that they and their kindred, who man the snowcapped peaks of private-equity and hedge funds, were the heirs to Milken. And that legacy is all about compensation, as anyone old enough to have been working on Wall Street in 1983-when all these CEOs were just getting started-could attest.

That year, Milken made $125 million. How much of a jump was it? The previous year, it was something of a scandal when John Gutfreund, the CEO of Salomon Brothers, made $3.1 million after, controversially, transforming his firm from a traditional Wall Street partners.h.i.+p, with the partners.h.i.+p's money on the investment table alongside that of its clients, to a publicly traded company investing other people's money.

Many Wall Streeters can remember, decades later, where they were when they read that morning's Wall Street Journal about Milken and did a double take. Once their shock subsided, the great migration began to, by any means necessary, "be like Mike," whose pay, incidentally, continued to rise.

The way this compensation frenzy raced through the professional cla.s.s-from investment managers first, to their client CEOs, paid by complex options triggers and golden parachutes, to the handsomely paid lawyers and accountants who worked to make sure every practice could be defended as legal-is the real story of how America's most precious a.s.set, its human capital, flowed in a torrent across three decades into financial engineering.

Bank of America's CEO, Ken Lewis-who made his money in an older, more linear fas.h.i.+on, by faithfully executing acquisitions for his charismatic boss, Hugh McColl, and then taking over Bank of America himself-glared at the Wall Streeters throughout the meeting. Lewis, who had long pined to use Bank of America's girth in traditional banking to buy a Wall Street firm, got his wish, and more than he bargained for, when Greg Fleming engineered the bank's purchase of Merrill Lynch. Six months later, Lewis's bank was struggling to manage nearly a hundred thousand foreclosures and a host of homeowners' suits, while its Merrill division, already catching the updraft of restored activities on the Street, was beginning to drive the bank's earnings. Not that the Mississippi-raised CEO was expected to issue many quarters from his executive suite. The brusque Lewis, unfamiliar with the signaling system of shared interests between Was.h.i.+ngton and New York, had famously botched his conversation with Paulson and Bernanke in December, saying he needed more federal money or else he'd back out of the Merrill deal. Lewis, with the ink barely dry on his Wall Street pa.s.s, had interpreted matters too literally: New York clearly made money, with Was.h.i.+ngton as its guarantor, and he wanted his money now-or else. Paulson was incredulous. The "or else" of Bank of America's retreat could make Merrill another Lehman and melt the fragile economy. Was.h.i.+ngton's support, in any event, couldn't be so bluntly reduced, like some covenant in a buyout deal that hadn't been fulfilled. Lewis got his money, $20 billion, and then a welter of shareholder suits and investigations. He would soon be demoted, from CEO to chairman, and then ousted.

But as the conversation of shared interest moved forward, Lewis couldn't help but blurt out that the banks shouldn't all be painted with the same brush, that "we in traditional banking didn't cause this disaster; it came from Wall Street!"

Silence. The issues of causation or urgent corrections in how the industry's leaders on Wall Street made their money were on Congress's agenda but not the administration's, to the delighted surprise of many of those attending.

The thirteen bankers, terrified an hour before, now closed the discussion with Geithner about what they should say as they emerged into the enormous reportorial scrum gathered outside. Much of this was actually plotted ahead of time between bank lobbyists and the White House. Whatever happened inside the "people's house," they would emerge with the overall message that "we are all in this together." And walking out of the portico, as the press crushed close, they said it, one after another.

That's the one-line version of the covenant between Was.h.i.+ngton and successive White Houses (that Lewis, clumsily, tried to turn into a cas.h.i.+er's check): "we're all in this together." Money will flow, as trillions of tax dollars had from capital to capital, D.C. to NYC, in the past year, but only under that gentle, inclusive phrase.

And then the CEOs boarded their private jets, convinced that they had nothing to worry about from the angry public and their congressional representatives.

"I think the administration agreed with our view that these crazy congressmen and their proposals to either nationalize the banks or cripple them with heavy taxes or compensation limits would throw the country in a deep depression," said one of the bankers after the meeting. "Lots of drama, but at day's end, nothing much changed."

And that was the goal: not to change the relations.h.i.+p between the U.S. government and the financial industry that had evolved across thirty years.

It was clear to the banks that this special relations.h.i.+p had never been as imperiled as it was in March of 2009, a time in which the industry was still vulnerable and dependent on government.

Add in the scandals of AIG and outrage over counterparty payments, and there was no better time in a generation to deal directly with the way this crossroads industry-with the role of a utility that powers the economy-had grown dizzyingly huge and profitable while disastrously underpricing risk across the American landscape.

Those in Congress who saw this rare opportunity, and reached to seize it, were generally excluded from White House councils and debates. A group of leading Democratic senators led by North Dakota's Byron Dorgan, along with Virginia's Jim Webb, Iowa's Tom Harkin, Michigan's Carl Levin, California's Dianne Feinstein, Vermont's Socialist Bernie Sanders, and Cantwell-the latter two who had put a hold on Gensler's nomination-had pressed to meet with Obama to discuss options for restructuring the collapsed financial industry since his inauguration.

As March arrived, an incensed Dorgan grabbed a speed-walking Emanuel in the halls of the Senate, all but shouting, "Where's my meeting with the president?"

Emanuel promised to get it scheduled, but when Dorgan heard back, he could hardly believe what Rahm was offering instead: a meeting with Summers. The reason Dorgan and others in his group wanted to meet directly with the president was precisely because they felt that it was Summers, Geithner, and Gensler who had been instrumental in creating the antecedents of the current financial crisis. With the expectation of a Treasury white paper on financial reform coming sometime in the spring, Dorgan and the group fired off an angry letter to Emanuel on March 12: "I am reiterating our request to meet with the President so we may have some meaningful and timely input into the formulation of that program . . . We know the President will get plenty of advice from Larry Summers and Secretary Geithner on this subject. We want him to have the benefit of our advice on these matters as well." When the senators finally got their brief meeting in the Oval Office on March 23 and laid out their proposals for rethinking the current regulatory model, Obama listened respectfully, but showed little reaction and offered no hint of the discussions that had been had in the marathon meeting of March 15.

In fact, the decision he had made in November to choose Geithner and Summers, and his penchant for wanting to convince his advisers of his rightness prior to making a major decision all but guaranteed that any such market interventions would place him in a position of having to out-debate much of his senior staff. That process, labored though it was, seemed to give Obama surety, a kind of hard-won confidence to act. A diverse array of perspectives is what presidents tend to want and, isolated in their White House bubble, often demand. Dorgan and his senators were not the only ones having trouble getting to Obama. As a senior Obama adviser later said, "The president was concerned about showing his uncertainty, or his lack of acquired knowledge on lots of these policies, to his own advisers-much less people from the outside." He was increasingly insulated by the end of March, with requests for meetings with him on domestic policies of all shapes being funneled to Summers. Larry would then decide if the interloper merited an audience with the president.

Of the many voices Obama was not hearing at this point, few might have proven as valuable as a longtime Ma.s.sachusetts representative named Edward Markey. A thirty-three-year veteran of the House, Markey was chairman of the House Energy Committee and was known for his work on environmental legislation.

On March 19, a week before Obama met with the thirteen bankers, Markey spoke from the House floor as one of three dozen cosponsors of HR 1586, the bill that would levy a 90 percent tax on bonuses for any executive of a company receiving at least $5 billion in TARP funds who made more than $250,000. "This is March Madness," he intoned. "You don't blow the big game and then still get a trophy. Not one single penny of taxpayer funds should be used to reward the reckless executives whose irresponsible risk-taking has done ma.s.sive damage to our economy. And this bill will ensure that they are not rewarded."

Markey could bid fair claim to being farther ahead of the curve on the financial crisis than almost any elected official in Was.h.i.+ngton. As the youthful chairman of the House Subcommittee on Telecommunications and Finance from 1987 to 1995, Markey had held five oversight hearings on the risks that financial derivatives posed to the markets, and then introduced the Derivatives Market Reform Act of 1994, which would have regulated derivatives transactions by affiliates of insurance companies such as AIG. It was defeated, as were similar bills he introduced in 1995, 1999, and March 2008-all killed by the financial lobby.

But times had changed. After HR 1586, the bill most reviled and feared by the thirteen bankers, pa.s.sed the House, Markey, again from the well of the chamber, added that "by the early 1990s it was already clear that the derivatives markets were too risky to remain unregulated and now the chickens have come home to roost. By pa.s.sing this bill today, the House is sending a strong signal that this type of behavior will not be tolerated. What we still need to do, however, is take up a comprehensive package of financial market reforms to address the recklessness that led us to our current crisis."

As for the "type of behavior" that "led us to our crisis," Markey could cite the moment he saw the culture s.h.i.+ft, like some geological event.

It was in 1988, after the 1987 stock market crash, and the prosecution of insider trading and various securities frauds was well underway. "Something very basic, very fundamental, had changed on the Street, and we on the subcommittee couldn't put our finger on what was different," Markey recalled. So they decided to bring in an expert. Dennis Levine, one of the major Wall Streeters convicted of securities fraud, was serving time in New Jersey. Markey's staff got in touch with the Bureau of Prisons and arranged to have him transported for an afternoon to a subcommittee conference room. Levine, who couldn't be forced to cooperate, was asked what the subcommittee could do to persuade him to come. He said he'd do it for a McDonald's Big Mac, fries, and a chocolate shake. Once a self-proclaimed "Master of the Universe," those were the things he'd found he missed the most. Soon enough, Levine, in prison blues, was eating his Big Mac and describing how the rewards on Wall Street had suddenly grown so large, and the opportunities for self-dealing and misuse of insider information-so-called informational advantage-so widespread, that it would only get worse. "He said, we were 'just at the very start,' " Markey recalled, "and that they'd figured out how to turn the investing of others people's money into a kind of game, where they were constantly changing the rules in a way that was subtly fraudulent, against the basic principles of fairness or fiduciary duty. He said that with this much money to be made for doing very little, it was worth the risk of getting caught doing what you had to do, but that they were working on lowering that risk as well, with lawyers working overtime to make sure many of these activities were legal, or at least hard to prosecute." After an hour, Markey said that he and the committee members had heard enough and asked the felon what might be done. Levine, sucking on his shake, thought this over for a minute or two, and then said, "You need to send out a slew of indictments, all at once, and at three p.m. on a sunny day, have Federal Marshals perp-walk three hundred Wall Street executives out of their offices in handcuffs and out on the street, with lots of cameras rolling. Everyone else would say, 'If that happened to me, my mother would be so ashamed.'

"Levine was saying we should take a dramatic stand on principle to reverse the direction we were moving in . . . before things progressed any further and the problems got even bigger," Markey said. "Culture is destiny and the only way you create real change is by acting in a way that changes the culture."

Presidents are among the few mortals who are sometimes graced with chances to change a culture. Throughout a windswept March, the country had been working to dislodge some of the era's prevailing certainties about markets being efficient, about people-economically, at least-getting what they deserve, along with the concomitant belief that financial barons are brilliant and indispensable, and manufacturing executives are dinosaurs.

With the eyes of the country on him, Barack Obama ended the month by s.h.i.+elding Wall Street executives against these winds of cultural change, while he fired a man who had effectively managed four hundred thousand workers in their making of seven million cars a year-without ever bothering to meet him. At the same time, he agreed to try to bail out Chrysler, and eventually GM, by adopting the practices and principles of private equity in the use of government funds.

Improbable combinations, blended solutions, the integrating of opposites.

This was the Obama method, in his life and in his work. But he hadn't gotten elected simply to search for this clever version of the middle ground. He'd been elected at a time of peril to change the country's course.

By that measure, it would be easy to conclude that he missed some opportunities to show that America hadn't necessarily gone from a country that makes things to one that makes things up, and that facing the consequences for one's actions, at the heart of both a working democracy and effective capitalism, knows no boundaries. When the bankers arrived in the State Dining Room, sitting under a portrait of a glowering Lincoln, Obama had them scared and ready to do almost anything he said.

An hour later, they were upbeat, ready to fly home and commence business as usual.

The thirteen bankers, and especially the half dozen t.i.tans from New York, returned to their corner offices that afternoon with very strong feelings about one man in Was.h.i.+ngton: Tim Geithner.

"The sense of everyone after the big meeting was relief," said one of the bankers. "The president had us at a moment of real vulnerability. At that point, he could have ordered us to do just about anything, and we would have rolled over. But he didn't-he mostly wanted to help us out, to quell the mob. And the guy we figured we had to thank for that was Tim. He was our man in Was.h.i.+ngton."

In public life, const.i.tuencies are important. Geithner now had one: the powerful but reviled leaders of the nation's largest banks. He'd have been loath to claim their backing, just as they'd have known not to be demonstrative with support. It was, after all, a bond of mutual desperation: both Geithner and his silent backers were fighting for survival. As one banking lobbyist said, "If Tim were fired, we'd be in trouble; we knew that." Of course, he'd have plenty of job offers in New York.

Calls for Geithner's resignation, which first appeared after the February 10 press conference, had grown into a subject of mainstream discussion in the two weeks after mid-March's AIG explosion.

Axelrod and Jarrett looked on warily to see who might be joining the chorus. Geithner was getting attacked from both the far right and the far left-a dangerous combination. And congressional Democrats were on the phone filled with concern. Line it all up-from TurboTax, to the first press conference, to the AIG bonuses-and it was difficult not to pose a question about Obama's judgment in placing so much faith in this man to handle the most important challenges facing the country. Something had to be done. Geithner was hurting the president.

Obama was standing firm behind Geithner, but that clearly wasn't enough. Geithner had to survive, or not, on his own. At 4:00 p.m., a few hours after the bankers had departed-with their "we're all in this together" message looping through the news cycles-a delegation from the White House convened in the small conference room off Geithner's office at Treasury. Axelrod was there, along with Sarah Feinberg, Emanuel's top a.s.sistant. Waiting for them were senior officials from Treasury. Geithner had never appeared on one of Was.h.i.+ngton's signature Sunday morning news shows. For this coming Sunday, March 29, he'd been booked for two of them. ABC's This Week, with George Stephanopoulos, would be taping an interview with him at 8:00 a.m. The producers were already touting it as Geithner's first appearance on a Sunday morning show. NBC's Meet the Press would have him at 9:00 a.m., calling it his first "live" appearance on a Sunday show. The latter was the tougher venue, with the bigger audience. Geithner would have to stand on his own, under the hottest of lights.

Fortunately, the week had started on a positive note. A few days before, on Monday, March 23, the Public-Private Investment Program was formally released. This, in fact, was a rollout of the many specific details Obama had promised in his February 9 press conference. They weren't ready the next morning, as Obama had advertised-not nearly. It took six weeks to iron out the key features of the program, in consultation with other regulators and, crucially, with Wall Street pros, who offered counsel about what might excite investors.

This time the White House had been integrally involved in the rollout: weekend leaks of the program's strongest selling points to the investors; a column by Geithner in Monday morning's Wall Street Journal; and, not incidentally, a very strong set of favorable reactions from top officials at some of the country's largest banks, who were just then in negotiations over their upcoming meeting with Obama. All this, plus the weeks of calls from Treasury to Wall Street, so the program would curry a positive response, seemed to work. The further that one dug into its details, the more PPIP seemed like a giveaway to the banks. It just took a little digging. Geithner said it was a tough program, where investors would take the risk. Wall Street knew better. The market rose a stunning 497 points.

As the team settled that Friday afternoon in the Treasury secretary's conference room-Geithner was finis.h.i.+ng up a call in his office-Axelrod reached out for Krueger's hand. "I don't know anything about you," he said, without a smile, "but the fact that you've been nominated and are about to be confirmed shows that you pay your taxes." The comment was, at best, half in jest. As Obama's fiercest protectors, Axelrod and others on Obama's political staff were increasingly concerned that Geithner was a liability who not only stood in the way of tough, and politically advantageous, measures against Wall Street, but also drew the charge that the administration was in Wall Street's back pocket. He was a lightning rod, and the sparks were starting to hit Obama. Their view: botch the Sunday shows and get ready to pack your bags.

Geithner arrived and slumped into a chair. After a rough couple of weeks, he was tetchy and reflective. "Look, I don't want people feeling sorry for me. I don't want sympathy. I don't want anyone sending me Rudyard Kipling poems," he groused. "It's a tough job; I'm doing everything I can." He told them he'd just heard from his mother. "She said, 'Tim, remember the summer you worked at that bar and the owner said you weren't exactly the best bartender? Well, maybe this is like that, and this job just isn't for you.' " He shook his head. "My own mother!"

Treasury's spokeswoman Stephanie Cutter-a longtime operative among the Democrats, who'd worked atop the Kerry presidential campaign-was at her wit's end. She'd taken Geithner to a media trainer to improve his onscreen demeanor to little effect. Before meeting a delegation of reporters and photographers to roll out PPIP earlier in the week, his collar was hopelessly askew. Gene Sperling, an a.s.sistant Treasury secretary, offered him a collar stay, but he had only one. One is better than none, Geithner figured, and emerged at half-mast.

"I grew up under Bob Rubin," he'd regularly quip to the staff, "which means I'm in public only when absolutely necessary." But therein lay a key difference: Rubin's appearances, though rare, fit with a set of unspoken a.s.sumptions. With the exception of Summers's one-year term in 1999, almost all the Treasury secretaries since the 1970s had been well-polished CEOs, wealthy men. Geithner was a public servant who wore poorly fitting off-the-rack suits and got his hair cut, for less than $20 a pop, at a barbershop-a favorite of African Americans from the area-a few blocks from Treasury. Meanwhile, everyone thought he'd once worked for Goldman Sachs. No, Treasury officials would tell reporters at every turn: he'd been a public servant all his life. But none of it had any effect. a.s.sumptions are powerful once they settle. At a time when the president talked frequently about restoring confidence in the future of the economy and the soundness of the markets, he had a Treasury secretary who offered his own unique counterpoint: as an inarticulate, poorly tailored, uncertain young man-late thirties or so, it seemed-who was walking proof that all you need in life is to have once worked for Goldman Sachs.

After running through some expected questions, and appropriate answers, Axelrod cut to the marrow. "On Meet the Press, you'll be asked if you've discussed your resignation with the president."

Geithner was startled.

"Well, I'll say no," he said. "Because I haven't."

On Sunday, Tim Geithner hunched forward across the Meet the Press interview table, his large hands in front of him, like someone ready to fend off a blow. He survived twenty minutes of live questioning. At the end, the host, David Gregory, dropped the anvil: about calls for Geithner's resignation.

Tim Geithner was finally ready.

"David, when I came into this job, I knew two things. One is I knew we were starting with a set of enormously complicated challenges and a deep sense of anger and frustration about the burden Americans were bearing because of a long period of excessive risk-taking. And I knew we were going to face really tough choices. We were going to have to do things that are going to be deeply unpopular, hard to understand. We're not going to get it perfect everywhere. But this is a great privilege for me, a great honor to help this president do what it takes to help get this economy back on track."

Gregory nodded as, no doubt, did thirteen bankers, or their strategic aides, watching across the country. He'd pa.s.sed.

"Secretary Geithner, good luck with your very important work."

11.

Unresolved.

In early April, Obama's economic team congregated in the Oval Office for the morning briefing.

All the key players were there, except Geithner. After a few moments, the president talked about a resolution plan for Citigroup as a key item in his a.r.s.enal, and wondered how close it was to completion. Christina Romer and Larry Summers glanced at each other. They had been talking for nearly a month about how the Treasury Department seemed to be ignoring the president's clear, unequivocal orders involving Citigroup.

Geithner and his team were moving forward with their own favored policy, the stress tests, but they had done virtually nothing about a plan to wind down Citigroup.

Romer's mind raced. Wouldn't the president want to know if his orders had been ignored? Especially concerning one of the most important crises he would face in office?

"I'm sorry, Mr. President," she said, summoning her courage, "but there is no resolution plan for Citi."

Obama looked at her, stunned. "Well, there better be!" he said.

Romer immediately felt Emanuel's gaze. Something was clearly amiss.

When the meeting ended, Emanuel and Summers huddled. A short time later, Summers took Romer aside.

"You did something very consequential there, telling the president that there was no plan for Citi," Summers said. "Rahm was incensed that you told him that. That Tim wasn't here to defend himself. But I defended you. I told Rahm, 'She's right!' "

Treasury would in fact never move forward to carry out the president's wishes about Citigroup, as a potential first step in a wider restructuring of the banking sector.

The whole point of the executive enterprise is to carry forward the wishes of the president. "He's the duly-elected representative of the people. None of the rest of us are," said a top White House official on the subject. "We're there, at least we're supposed to be there, to serve at his pleasure, to carry out his will-because he carries the will of the people. Right around this time, you could see that starting not to happen."

When questioned later about the matter, Geithner initially said that a proposal for possibly closing Citi, as a first step to doing the same for other banks, was never seen as a "real alternative to the stress tests . . . there was no real alternative to the stress tests." The resolution of Citi or other banks was instead an issue to be seriously broached only "if the stress tests didn't work, and they did," and that most of the people in the room on March 15 "don't understand anything of what was happening about the substance of the choice, so they're crafting their memory . . . they're trying to create memory with the benefit of hindsight."

But in a half-hour interview largely on this matter, Geithner began to reveal the strategic complexities of his "plan beats no plan" dictum.

After praising Romer as a fine economist, he said she was of "no value on policy issues" of "financial rescue" and that "Larry and Rahm were the only ones that mattered in the debate. Larry's problem was that he had no alternative, ever," to the stress tests. "He was never willing to commit to an alternative, never came up with an alternative strategy."

But then Geithner went through the chain of events and meetings on this most portentous issue, saying that the consensus recollection "was largely true," from the president's ardor, starting in late February, to look at alternatives to solely relying on the "stress tests"-the only plan under way at that point. "He forced me and everyone to look at this thing from all angles, chew it over" and make everyone "go through that test: what is the alternative plan? Those who don't like it [the stress tests], what are you for?"

The problem, of course, was that the policy-making horsepower, in this instance, was at Treasury and the Fed, both of which were in concert to push forward a chosen policy that almost every other key person in the government was concerned about, from the president on down.

Geithner recalled a typical meeting in this period. "We'd be in the Oval Office, the president was worrying, the world was still burning, people wanted to light me on fire, and the president would say, 'Tim, what I want to know is, are you confident this plan [the stress tests] is going to work.'

"Normally, Larry would answer before I answered. He'd say, 'Mr. President, I'm closer to you on this. I want to be tougher.' And I'd say, 'There's nothing certain in life, but I'm very confident that our plan has a much better chance of working than any alternatives.'"

But, as Larry and Christina worked the phones in early March to try to gather the information they'd need to field, at very least, a strong counterproposal-if not the kind of fully rendered alternative plan that only Treasury could provide-Geithner felt the duo accentuated the financial crisis and actually "fed some of the pressure. They were perceived by the market as indulging in a lot of loose talk about haircuts [to investors holding debt in the banks] and that was very damaging to the markets."

When the meeting finally arrived, Geithner acknowledged that the core of the discussion was whether "we should preemptively nationalize and dismember banks" and that, afterward, Treasury didn't come up with a plan to dissolve Citi-but that sort of thing, like AIG, is "hard to preplan." Of course, coming up with a plan to avoid an AIG-style meltdown and "show what government can do" was precisely what the president was seeking. And, yes, at Treasury they were fearful of alerting Sheila Bair.

As to the issue of what the president said to him after he realized that his will had been ignored, and there was no Citibank resolution plan, Geithner said he didn't remember the president being angry at him, noting that "there were a lot of pointed rolling discussions through April," of "where are we, what's next, how's it going, and what's the thinking on alternatives" to only running the stress tests. Another proposal that got some traction was to match the dismissal of GM's Rick Wagoner with the firing of Bank of America CEO Ken Lewis.

But that proposal was more symbolic than substantive. On matters of substance, Geithner-with the implicit backing of Bernanke-held the cards.

Did that mean he inappropriately controlled the game, taking charge of one of the most important decisions of the Obama presidency? Geithner denied the charge, later made in internal White House doc.u.ments, that "once a decision is made, implementation by the Department of the Treasury has at times been slow and uneven," and that "these factors all adversely affect execution of the policy process." The parlance for that is "slow walking."

"I don't slow walk the president on anything," he said. "People who wanted to do other things often accused me of slow walking, but I would never do that." But Tim Geithner added, with some satisfaction, the battle over restructuring the financial industry "was resolved in the cla.s.sic way, that plan beats no plan.

"No one else had a plan." Including Barack Obama.

Summers and Romer were deeply concerned. They feared that in Geithner's hands the stress tests would be so easy that they would end up proving nothing, other than the administration's inability, or unwillingness-depending on how you saw it-to demand tough concessions from Wall Street.

On Easter Sunday, April 12, the two trekked to Geithner's conference room at Treasury, where they-along with Geithner and a dozen others, including former bankers such as Lee Sachs-went through the arcana of loan-to-equity ratios, deposits versus a.s.sets, and tiers of capital.

It was another marathon meeting. Now they were decidedly on Geithner's turf, and he was prepared. For every concern of Summers and Romer, Geithner and his team had a ready answer.

The discussion focused on so-called tier-one capital, the safest core capital of a bank, its cus.h.i.+on, which was usually in cash or cash equivalents such as Treasury bills. The stress tests needed to decide not only what banks could fairly count as tier-one capital but also what level was sufficient to stave off government action. Geithner and his team thought 4 percent of overall a.s.sets was fine. Summers and Romer were pus.h.i.+ng for 6 percent or even higher, considering the sluggishness of the economy and the heavy load of mortgage-related a.s.sets weighing down balance sheets.