By Lambert Strether of Corrente.
A good servant moves silently — Bertie Wooster’s Jeeves is said to “shimmer” — anticipates their master’s wishes, and, above all, asks their master no awkward questions. Andrew Ross Sorkin, access journalist, is all that. However, where Jeeves would brush a crumb from Bertie’s sleeve, or straighten his cravat, Sorkin will silently service his master by satisfying needs much less mundane, and much higher on Maslow’s Hierarchy: No awkward questions prime among them.
You can find Sorkin’s lengthy and well-edited Sunday Magazine piece here (“President Obama Weighs His Economic Legacy“). I really ought to put on my yellow waders and go through it line by line, but when I PDFed it, it was nineteen pages long. So I’m going to take another approach. I’m going to look at these five topic areas:
- The Big Short Said Nothing Has Changed
- “TARP was Paid Back”
- “The Deficit Went Down”
- Presidents Should Be Graded on the Curve
- “Obama Lacked the Political Capital”
These topics are ordered from simple to complex; from what the moral of a movie was, to the nature and use of political capital. In each case, I’ll take Obama’s account of the topics, as quoted or paraphrased by Sorken, and contrast it a more (shall we say) realistic account, bridging the two with the sort of question that Sorkin, had that been his purpose, might have asked; and in each case I’ll underline the words that might have triggered a question. I hope the selection of topics and the accompanying analysis are such that you will be persuaded, even without a grand theory of Obama’s presidency, to trust both Sorkin and Obama on Obama’s “economic legacy” as far as you can throw a piano. So let’s take those topics in order.
The Big Short Said Nothing Has Changed
Here’s what Obama has to say about The Big Short:
[Obama] said that he liked the film “The Big Short” — a vivid portrayal of the 2008 crisis with a special emphasis on the avarice of its main architects — but not its ending. It suggests, wrongly, he said, that .
So here let me, on Sorkin’s behalf, ask my first question:
Q1: Mr. President, by “ending,” do you mean the very last sentence of the epilogue, or the entire epilogue?
Because Obama’s framing didn’t jibe with my recollection, I went and dug up the screenplay for The Big Short (PDF). Here’s the epilogue, in its entirety:
MUSIC: ORCHESTRAL THEME.
And then over black…
“When the dust settled from the collapse 5 trillion dollars in pension money, real estate value, 401k, savings, and bonds had disappeared. 8 million people lost their jobs, six million lost their homes. And that was just in the USA.”
“Charlie Geller and Jamie Shipley attempted to sue the ratings agencies but were laughed out of all law offices. Jamie still runs Brownfield with Ben Rickert but Charlie left New York to live in Charlotte and start a family. He did not go on Lithium.”
“Cynthia says Mark Baum actually became gracious after the collapse and never said “I told you so” to anyone. But he did give large sums of his money to a charity that helps people escape from cults. Danny, Vinny and Porter all still run a fund together and are as terrified as ever.”
“Michael Burry contacted the government several times to see if anyone wanted to interview him to find out how he knew the system would collapse years before anyone else. No one ever returned his calls. But he was audited four times and questioned by the FBI. The small investing he still does is all focused on one commodity: water.” [ulp]
After a beat…
“In 2015 several large banks began selling billions in something called a “bespoke tranche opportunity.” Which according to the Wall Street Journal is just another name for a CDO.”
Now, to be fair to Obama, the last sentence, beginning with “In 2015…,” could be read to suggest that “nothing has changed.” But I know what the Epilogue means to me. It means The crooks got away with it. And that’s what it means to Michael Burry, too:
Were you surprised no one went to jail?
I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula. The little guy will pay for it — the small investor, the borrower. Which is why the little guy needs to be warned to be more diligent and to be more suspicious of society’s sanctioned suits offering free money. It will always be seductive, but that’s the devil that wants your soul.
Of course, the official myth in Washington, to which all, including Obama, subscribe, is that no criminal wrongdoing took place. And so Sorkin helps Obama airbrush that unpleasant possibility away; down to the detail of a few paragraphs in a movie script.
“TARP was Paid Back”
Here’s what Gene Sperling has to say on the bailouts:
Gene Sperling, the former director of the National Economic Council who spent hours inside the Oval Office debating and devising the president’s economic strategy, told me, “If we were back in early 2009 — when we were coming to work every morning with clenched stomachs, with the economy losing 800,000 jobs a month and the Dow under 7,000 — and someone said that by your last year in office, unemployment would be 5 percent, the deficit would be under 3 percent, AIG would have turned a profit and , that would’ve been beyond anybody’s wildest expectations.”
(I pity Sperling’s nervous stomach. Of course, I pity the families of the jobless who committed suicide a good deal more.)
So let me, on Sorkin behalf, ask a second question:
Q2: Professor Sperling, how did “we” make our money back on the banks?
A question to which Steve Waldman of Interfluidity had the answer, back in 2011:
I find it really depressing that I have to write this. But it seems I have to write it.
Substantially all of the TARP funds advanced to banks have been paid back, with interest and sometimes even with a profit from sales of warrants. Most of the (much larger) extraordinary liquidity facilities advanced by the Fed have also been wound down without credit losses. So there really was no bailout, right? The banks took loans and paid them back. …
[Lambert here: That’s Sperling’s line.]
Cash is not king in financial markets. Risk is. The government bailed out major banks by assuming the downside risk of major banks when those risks were very large, for minimal compensation. In particular, the government 1) offered regulatory forbearance and tolerated generous valuations; 2) lent to financial institutions at or near risk-free interest rates against sketchy collateral (directly or via guarantee); 3) purchased preferred shares at modest dividend rates under TARP; 4) publicly certified the banks with stress tests and stated “no new Lehmans”. By these actions, the state assumed substantially all of the downside risk of the banking system. The market value of this risk-assumption by the government was more than the entire value of the major banks to their “private shareholders”. On commercial terms, the government paid for and ought to have owned several large banks lock, stock, and barrel. Instead, officials carefully engineered deals to avoid ownership and control.
But still. Everything worked out, right? It turns out that banks didn’t need to use the government’s giant insurance policy. It was just a panic after all!
Suppose my kid’s meth habit got the best of him. He needs to come up with $100K quick or his dealer’s gonna whack him. But he’s a good kid, really! Coulda happened to anyone. So I “lend” him the money, even though he has no visible means of support and the sketchiest loan sharks in town wouldn’t give him the time of day. Now I believe in bootstraps and hard work, individualism and self-reliance. So I tell my son. “Son, you are going to pay me back every penny of that loan. You are going to work it off. I have arranged with one of my golf buddies, a guy who owes me a favor or three, a job that pays $200K a year. You’d better show up every day at 9 a.m. and sit behind that desk, and get me back my money!” And he does! After a year, he’s made me whole. What a good kid.
No bail out, right? He paid me back every penny! Worked it off!
Bullshit. The opportunity I provided him, the $200K job that he would not have received without my intercession, was a huge grant. On the open market, if I were to accept bribes from the highest bidder to wangle the job from my friend, that opportunity would be worth more than the $100K advanced. I paid my son’s loan with my own money. I just obscured the cash flows, so my son and I can pretend and sustain our mutual self-regard and our righteous disdain for the moochers and the hippies and the riff-raff.
Now, to be fair, Sperling’s line is the Beltway line, and a great deal of effort went into creating that line, propagating it, and turning into conventional wisdom, as Yves shows here. And so, in line with what he conceives his duty to be, Sorkin shimmeringly purveys that line.
“The Deficit Went Down”
Sorkin captures a “frustrating” moment for Obama on Air Force One, when he looked like he was “stewing about something”:
[Obama] quickly returned to the topic of public perception. “If you ask the average person on the streets, ‘Have deficits gone down or up under Obama?’ probably 70 percent would say they’ve gone up,” Obama said, with — the deficit has in fact declined (by roughly three-quarters) since he took office, and polls do show that a large majority of Americans believe the opposite.
I won’t speculate why Americans believe as they do about the deficit. (Perhaps they think government is like a household?) However, a question that Sorkin might well have asked is this:
Q3: Mr. President, is a declining deficit necessarily a good thing?
And of course it isn’t. Leaving aside MMT, even the mainstream — Janet Yellen, Doug Elmendorf and Louise Sheiner, the occasional French mandarin, to pick some recent examples at random — is slowly coming round to the notion that monetary policy can’t do it alone, and in consequence deficits are neither good nor bad but policy makes them so.
Of course, Sorkin asks no such thing (even as, later in the interview, Obama laments the post-2010 lack of infrastructure spending even though interest rates were low).
“Presidents Should Be Graded on the Curve”
Here Sorkin focuses not on Obama’s frustrations, but on his feeling that he is underappreciated:
Obama was talking to me about the problem of political capital. His efforts to rebuild the U.S. economy from the 2008 financial crisis were being hit from left, right and center. And yet, by his own assessment, those efforts were vastly underappreciated. “I actually compare our economic performance to how, historically, countries that have wrenching financial crises perform,” he said. “By that measure, .”
(We’ll get to political capital in the next section.) Here’s the obvious question that Sorkin did not ask:
Q4: Mr. President, do you really believe that you managed the Great Recession better than FDR managed the Great Depression?
(“Modern history” begins in 1500, roughly.) But that would imply that Obama either had an unconventional definition of modern history, believed that the U.S. economy in the 1930s was not “large,” was throwing shade on Democratic icon FDR, or had an inflated sense of his own self-importance, and those are exactly the sort of awkward answers a trained servant doesn’t elicit. So Sorkin doesn’t go there. He also doesn’t ask a more subtle question:
Q5: Mr. President, do you believe that citizens should grade Presidents on the curve?
Because comforting as it may be for Obama, personally, to compare his performance to historical figures, that’s not what the average citizen does or should do. In the short run, we’re all alive, and our needs are met in absolute terms where concrete material benefits (say, wages) are central. If one loaf of bread is my minimum daily requirement, then it does me no good, no good at all, if President B gives me three-quarters of a loaf where President A gave me half of one, no matter that President B is better than President A in relative terms. It’s as if Roman citizens were to judge Claudius only relative to his predecessor, Caligula, instead of judging Claudius in his own right. But that’s how Obama would like to be judged.
“Obama Lacked the Political Capital”
And now to the vexed issue of Obama’s political capital. Here’s Obama’s case for the defense, as recorded by Sorkin:
Asked if he was frustrated by all the criticism, Obama insisted that he wasn’t, at least not personally. “It has frustrated me only insofar as it has shaped the political debate,” he said. “We were moving so fast early on that we couldn’t take victory laps. We couldn’t explain everything we were doing. I mean, one day we’re saving the banks; the next day we’re saving the auto industry; the next day we’re trying to see whether we can have some impact on the housing market.”
The result, he said, was that he lacked the political capital to do more. As his presidency nears its end, this has become an increasingly common refrain from Obama, who, despite his prodigious skills as an orator, has come to seem more confident about his achievements than about his ability to promote them. “I mean, the truth of the matter is that if we had been able to more effectively communicate all the steps we had taken to the swing voter,” he said, “then we might have maintained a majority in the House or the Senate.”
This is such densely packed material that I’m going to help Sorkin again out with several questions:
Q6: Mr. President, when you agreed with the Republicans that TARP should be passed, what policy concessions did you extract from them?
Because here’s Sorkin’s description of what went down:
The next day Obama found himself in the Cabinet Room just down the hall from the Oval Office, along with McCain and congressional leaders from both parties. Henry M. Paulson Jr., the Treasury secretary, was developing a bank bailout by which the Treasury would buy up to $700 billion in shaky mortgage-backed securities — “troubled assets” — a plan that eventually became the Troubled Asset Relief Program, or TARP. He needed votes, and Republicans weren’t going for it. Nobody wanted to be seen as a friend of the banks.
“We’re sitting around a table, McCain is on one side, I’m on the other, Bernanke and Paulson and President Bush,” Obama recalled. “Paulson says, ‘If we don’t take action now, we could go into a free fall.’ And given how bad the politics were, it was still very tempting for Nancy and Harry” — that is, the House speaker, Nancy Pelosi, and the Senate majority leader, Harry Reid — “to let the Republicans do what they needed to do.”
Many within Bush’s own party were supporting an alternative bill that was focused on mortgage-asset insurance and tax cuts. But Obama, convinced that anything short of a major bailout could lead to economic catastrophe, said Democrats should back Paulson’s plan. They did.
Obama had the Republicans by the short and curlies. An incoming President has more political capital than he will have at any other time. And yet, in Sorkin’s telling, Obama invested no capital at all. All Obama did was agree. He didn’t agree A in exchange for B. He “let the Republicans do what they needed to do.” DId he not have other ideas? Or was he, in policy terms, simply in alignment with them? Did he believe that all would be well in the garden? Was he keeping his powder dry? We don’t know. And Sorkin doesn’t ask the awkward question.
Here’s a second question, on the Democrats’ loss of the Senate in 2010:
Q7: Mr. President, who are “the swing voters” you would have liked to “explain” your policies to in 2010?
The quintessential 2010 race the Democrats lost in 2010 was in Massachusetts, where Martha Coakely lost the Senate race to Scott Brown. Why did they lose that race? Thomas Ferguson explains the loss:
Put simply, in 2004, 2006, and 2008, lower income Massachusetts towns produced substantially heavier majorities for Democrats than richer areas. But in 2010, patterns of voter turnout shifted dramatically: Voters did not turn out in poorer communities that normally give Democrats disproportionately heavy shares of the vote. The finding is consistent with the claim put forward by the chief pollster of the Democratic campaign, that the Obama administration’s unwillingness to face down the banks and slowness in dealing with the recession have demoralized the party’s electoral base.
It’s hard to see how even a President with Obama’s rhetorical skills could “explain” to a swing voter how he’s done such a good job when that same voter just lost their job and their house. What was Obama going to tell them? “Take one for the team”? In other words, the Democrats lost in 2010 on policy; wherever they invested their political capital, it wasn’t with voters. Of course, Sorkin never does think to ask you those pesky “swing voters” might have been. After all, the answer might have been awkward.
In fact, we might help Sorkin out with another, more generalized question:
Q8: Mr. President, if a thoroughly discredited opposition, the Senate, the House, the greatest orator of our time as President, the love of the media, and a mandate for “hope and change” don’t constitute sufficient “political capital,” what does?
And there isn’t really a good answer to that, is there?
So, that was fun!
Readers, I invite you to peruse Sorkin’s piece and devise your own questions. Believe me, it’s a target-rich environment.
 Some have called Sorkin “credulous”. Others have called him “a Wall Street concern troll.” Still others have called him “not exactly a Timesman” (that’s gotta sting). But I think all these criticisms are unfair. Sorkin simply has what is called, in the trade, a “service heart.”
 Of course, I know that the premise of Wodehouse’s Jeeves series is that Jeeves is, in fact, much smarter than Bertie, and constantly gets him out of scrapes. But we don’t think Sorkin’s smarter than Obama. Right?