In My Time (81 page)

The country was fortunate that the president had such an outstanding economic team to work the crisis that confronted us. Eddie Lazear, chairman of the Council of Economic Advisers, was the kind of creative thinker who’s always appreciated, but never more so than in the unprecedented situation we faced. Ben Bernanke, chairman of the Federal Reserve, was a cool and thoughtful presence. He was a scholar of the Great Depression, and when he told you that the situation we were in might be even worse than that, you listened. I thought he had been a very effective chairman of the Council of Economic Advisors, and when I’d interviewed him as we were looking for a Federal Reserve chairman to
take over when Alan Greenspan left, I had been impressed. I was even more impressed during the crisis of 2008. His quiet manner may have obscured the very aggressive actions to which he committed the Fed in order to pull us away from the abyss. The role he played has, I think, been generally underappreciated.

Treasury Secretary Hank Paulson was a booming presence whose experience as chairman and chief executive officer of Goldman Sachs gave him a hands-on knowledge of Wall Street that no one else in the administration could match. It was invaluable as trouble piled upon trouble. As I watched Paulson work, I was also struck by the physical and emotional toll the crisis was taking on him. He described in the book he later wrote how lack of sleep caused him to have dry heaves several times a day. He sometimes stood in meetings because he was afraid if he sat down his back would spasm. Whatever the challenges he had faced running Goldman Sachs—and he had been an enormous success there—dealing with a crisis that affected the nation and the world was bigger.

I remember thinking how grounded the president was through the whole economic ordeal. He kept perspective and was very good at handling pressure. He dealt effectively with some of the most difficult and complex economic issues any president has had to face.

On Thursday, September 18, I was traveling when the president’s economic team was scheduled to present the rescue plan they had devised. Keith Hennessey, assistant to the president for economic policy, and Neil Patel, my chief domestic policy advisor, called me on Air Force Two to brief me on the details: a guarantee for money market deposits, an initiative to restore liquidity to the commercial paper market from the Federal Reserve, and the centerpiece, a plan to buy $700 billion of the mortgage-backed securities that were dragging down major institutions and causing credit to seize up. I had long been an advocate of keeping government intervention in the private sector to a minimum. What we were talking about now was the largest such intervention in the history of the republic, and I was a strong supporter. I told Hennessey he could tell the president I was behind the package, and I reinforced
that point in a private meeting with the president in the Oval Office the next morning. There was no other option.

I knew the Congress would be wary of such a plan. Republicans who were facing tough reelection battles would not be eager to cast a vote that looked like a Wall Street bailout at precisely the moment when so many Main Street businesses were severely hurting. We briefly contemplated not seeking congressional authority. When the Federal Deposit Insurance Corporation Act had been passed in 1991, it included language that would allow for a major injection of funds directly into the banking system with the approval of the president, the secretary of the Treasury, and a majority of the Federal Reserve Board should there be a threat to the integrity of our financial system. Ben Bernanke made clear, however, that he would feel much more comfortable with congressional approval, so we went to work trying to secure it.

Hank Paulson worked very well with congressional Democrats and spent much time with Speaker Pelosi, House banking chairman Barney Frank, and Majority Leader Steny Hoyer trying to put the package together. House Republicans felt out of the loop and were soon so angry that they were refusing to participate in meetings with Secretary Paulson. I got a call from House Minority Leader John Boehner asking me to come up to the Hill to brief the Republicans.

On Tuesday, September 23, I left the West Wing at 8:45 on my way to the Capitol. I had Keith Hennessey and Kevin Warsh, a member of the Federal Reserve board of directors, with me. When we walked into the large meeting room in the Capitol, the House Republican conference had already gathered and they gave me a very warm welcome, a standing ovation. They expressed the same support, giving me another ovation, as I left. But in between my coming and going, many members made it quite clear that they would not support the $700 billion Troubled Assets Relief Program, or TARP, as it was known. There were a number of problems, but the biggest was that we had allowed the package to be described as a “Wall Street bailout,” leaving the impression that we were giving taxpayer money to Wall Street fat cats rather than trying to prevent a total financial collapse. In addition, I don’t think we
had adequately conveyed to the public how serious the consequences of not acting could be. Joe Barton, an old friend and Republican member from Texas, stood up at the caucus meeting and after praising me to the skies blasted the TARP. He told me he’d had over four hundred calls into his district office on this issue and only four callers had urged him to support the bill. His experience was representative of what other Republican members were facing, and I understood their frustration and that of their constituents. So many people had paid so little attention to the risks they were assuming—and now the taxpayers were on the hook. I left the session thinking that if the vote had been held that day, we’d have been lucky to have fifty Republicans with us.

I went back up to the Hill a few hours later for the weekly Senate Republican conference lunch. We had opposition to the TARP on the Senate side as well. Senator Jeff Sessions of Alabama, normally a solid supporter of the administration, spoke out strongly against the bill. But we also had support, and Sessions was followed by Judd Gregg of New Hampshire, Tom Coburn of Oklahoma, Mike Enzi of Wyoming, and Kit Bond of Missouri—all of whom spoke about why the bill was so important. I sat quietly and kept track. Eventually six senators spoke in favor and there’d been only one negative statement. I decided I didn’t need to say anything.

ON SEPTEMBER 24, 2008, Republican presidential nominee John McCain announced he was suspending his presidential campaign to come back to Washington to deal with the financial crisis. It was a move that frankly surprised many of us in the White House. After all, there really wasn’t much John could actually do, and it seemed pretty risky to announce the campaign suspension and head back to Washington without being clear about what you could actually deliver. But we wanted McCain to win, so when he asked the president to convene the congressional leadership in the Cabinet Room of the White House to discuss the financial crisis, the president did it. He called Senator Obama, McCain’s opponent, and asked him to be there as well. What unfolded that day in the West Wing was likely unique in the annals of American presidential contests.

The congressional leaders were assembled when the president and I walked into the Cabinet Room from the Oval Office. He went around to the right to his seat, greeting people on his way. I went around to the left to take my seat across the table from him. I’d been there just a few minutes when Senator Obama came around to shake hands and say hello. It was a thoughtful gesture, and he seemed very much at ease and in command of the situation. The president called on Speaker Pelosi to open the session for the Democrats, and she, in turn, deferred to Senate Majority Leader Harry Reid, who said, “Mr. President, we’ve decided that Senator Obama speaks for all of us.” Reid turned the floor over to Senator Obama, a step that immediately put the Democratic presidential nominee on a par with the most senior leaders in the room—and made him the president’s counterpart. Obama was eloquent, saying that we had to get the bill passed, emphasizing how serious the situation was, and offering to lend whatever support he could. He needled the Republicans a little for hanging back, not enough to give offense, but sufficient to put the ball back in our court.

When the president turned to Senator McCain to speak, he passed. Since he had called for the meeting in the first place, that was a surprise. After a few other people expressed their opinions, most of them negative, the president came back to McCain. This time he spoke, but only for himself. It was a marked contrast with Obama, whose words carried the authority of all the Democrats in the room. Senator McCain added nothing of substance. It was entirely unclear why he’d returned to Washington and why he’d wanted the congressional leadership called together. I left the Cabinet Room when the meeting was over thinking the Republican presidential ticket was in trouble.

The president and I kept working the phones, making calls to individual members of Congress, trying to convince them of the importance of this piece of legislation. I was successful in persuading Congresswoman Barbara Cubin, Wyoming’s sole member of the House, to agree to support the bill. Of course, she was retiring and didn’t have to worry about reelection. But I was happy to report to the president that I’d gotten 100 percent of the Wyoming House delegation to sign on. He hadn’t swayed anyone in the Texas delegation, a highly unusual situation.
When the vote was held on September 29, we got only 65 Republican votes, and the TARP package was defeated 205–228. The stock market fell 777 points that afternoon, the largest single-day drop in history.

Bills that involve raising revenue have to originate in the House. Since the House had just killed the TARP package, we needed a way to start over in the Senate, where we knew we would have more support. We were able to use a tax bill that had already passed the House as a vehicle to try again. Watching the stock market slide nearly eight hundred points had an impact on a number of members who had voted no the first time around. It made clear the very real costs of a loss of confidence in America’s financial sector and drove home the imperative to act. On Wednesday, October 1, the Senate passed legislation that would enable the purchase of troubled assets, and the House passed it on Friday, October 3, by a vote of 263–171. Not long after passage, Secretary Paulson, Chairman Bernanke, and New York Fed Chairman Geithner recommended using $250 billion of the TARP for direct infusions of capital into the banking system. I agreed with this approach. We were facing a situation where the value of the troubled assets could have been as much as $5 trillion, and we did not want to run the risk of having our $700 billion disappear with no impact. On the other hand, if we put $1 into a bank, they could leverage that amount by ten to multiply the impact of the money.

TARP has remained controversial and was indeed an issue that many successful candidates used against incumbents who had supported it in the 2008 elections. But as I write this in 2011, it is clear that TARP was a success. According to economist Robert Samuelson, of the $245 billion invested in banks, Treasury has already recovered approximately $244 billion. Treasury expects ultimately to record an overall profit from the bank investments portion of TARP of
approximately $20 billion
.

Within a few weeks of the passage of the $700 billion program, General Motors informed us that without significant government intervention, they wouldn’t survive. There was language in the TARP legislation that would allow us to use a portion of the funds for a loan package for the automobile companies, but I had reservations about doing so.
Early in my congressional days, I had opposed the 1979 Chrysler loan guarantee, and I had continued throughout my career to be philosophically opposed to bailing out specific companies or industries. I believed our intervention in the financial sector was justified, because the federal government was responsible for maintaining the strength and viability of our economy, including our financial system and currency. Providing sufficient support to avoid the collapse of our banking system was something only the federal government could do. But, all things considered, companies in the private sector should be judged in the marketplace. Having the government intervene was not, in my opinion, a good idea.

The General Motors crisis came at the end of our administration and within a few weeks of our handover of power to the Obama-Biden team. The president decided that he did not want to pull the plug on General Motors as we were headed out the door. He wanted to give the incoming team time to decide on their policy options and therefore came up with a short-term package to keep GM afloat until the new administration had a chance to review the situation. Although I understood the reasoning, I would have preferred that the government not get involved and was disappointed—but not surprised—when the Obama administration significantly increased the government intervention in the automobile industry shortly after taking office.

AFTER HAVING BEEN HEAVILY involved in campaigning for many previous election cycles—midterms and presidential campaigns—I essentially sat out the campaign of 2008. I didn’t like being sidelined, but understood the reasoning behind it. After eight years there certainly was a sense of Bush-Cheney fatigue among the voters, and the McCain campaign wanted to distance their candidate from the White House and our policies. This made for some awkward moments. After the campaign’s tracking polls began to nosedive, for example, they quit sharing them with us. It also meant, though, that the American people didn’t get a chance to hear a solid defense of many of our policies, particularly concerning the War on Terror. Although Senator McCain was a solid supporter of what we were doing in Iraq and Afghanistan, he didn’t
defend our terrorist surveillance program with nearly the same enthusiasm, and he opposed the enhanced interrogation program. I thought Senator Obama’s views in these areas were misguided, and I regretted that no one was making the argument on the other side.

Since I wasn’t campaigning, I had more time for other activities, such as appreciating two grandsons who had been born since the last presidential election: Liz’s and her husband Phil’s fifth child, Richard Perry, and Mary’s and her partner Heather Poe’s first child, Sam. I was also able to be of use to my granddaughters. In August 2008, I got a call from Liz, who needed a favor. “Do you think you could request a meeting with the Jonas Brothers tomorrow?” she asked. “The who?” I asked. She explained that a musical group called the Jonas Brothers was filming a public service announcement at the White House. Her three daughters, who were big Jonas Brothers fans, had heard about the taping and asked if they could come watch. Liz had called a friend in the first lady’s office, but was told it was a closed set. That’s why she was calling me.