[Pen-l] Larry is still at it

[Jim Devine <jdevine03@xxxxxxxxx>]

DealBook - A Financial News Service of The New York Times
June 8, 2009, 5:16 am
Obama’s Economic Circle Keeps Tensions Simmering

President Barack Obama was getting his daily economic briefing one
recent morning when a fly distracted him. The president swatted and
missed, just as the pest buzzed near the shoes of Lawrence H. Summers,
the chief White House economic adviser. “Couldn’t you aim a little
higher?” deadpanned Christina D. Romer, the chairwoman of the Council
of Economic Advisers.

Mrs. Romer was joking, she told The New York Times’s Jackie Calmes in
an interview, adding, “There are only a few times that I felt like
smacking Larry.” Yet few laughed in the president’s presence.

If the Oval Office incident was meant as a lighthearted moment, it
also exposed the underlying tensions that have gripped Mr. Obama’s
economic advisers as they have struggled with the gravest financial
crisis since the Depression, The Times said, citing several dozen
interviews with administration officials and others familiar with the
internal debates.

By all accounts, much of the tension derives from the president’s
choice of the brilliant but sometimes supercilious Mr. Summers to be
the director of the National Economic Council, making him the policy
impresario of the team. The widespread assumption, from Washington to
Wall Street, was that the job would be Mr. Summers’s way station until
the president could name him chairman of the Federal Reserve when Ben
S. Bernanke’s term expires early next year.

But Mr. Bernanke’s aggressive response to the crisis has so improved
his reputation that people close to Mr. Obama increasingly suggest the
president could well reappoint him in the interests of financial
stability — just as Presidents Ronald Reagan and Bill Clinton retained
Fed chiefs who had been picked by predecessors of the other party.

As for Mr. Summers, even as top administration officials acknowledge
the occasional strains among economic advisers, they say the president
is thrilled with the job Mr. Summers is doing in his current post,
according to The Times.

When Mr. Obama named his economic team last November, even some within
his circle questioned whether Mr. Summers, given his prickly
personality, could be an honest broker of other advisers’ ideas, as
National Economic Council directors are supposed to be. Mr. Summers
also had made it clear that he wanted to be Treasury secretary again,
as he was in the Clinton administration.

As messy as the process has sometimes been, officials say Mr. Summers
and his colleagues have worked through their differences. Often
arriving and leaving in the dark, sustained by coffee and the Diet
Cokes that fill Mr. Summers’s office refrigerator, they have produced
in six months an array of economic rescue plans that would be daunting
if spread over six years. With those, and the Fed’s efforts, the
economy shows signs of new life.

Along the way, Mr. Summers has forcefully debated the Treasury
secretary, his onetime protégé Timothy F. Geithner, over what to do
with troubled banks. He has clashed with Peter R. Orszag, the budget
director, over fiscal and health policy issues. He has collided with
Austan Goolsbee, an economist on the Council of Economic Advisers,
over whether to rescue Chrysler. And he and Mrs. Romer have squabbled
over how best to make the economic case for overhauling health care.

His argumentative style has contributed to delaying some actions,
officials say, like the Treasury-led overhaul of the bank bailout
program that was inherited from the Bush administration and an
overhaul of the financial regulatory system, which is now expected
later this month.

The disagreements are only natural, White House officials say. The
issues are big, and so are the personalities, as Mr. Obama intended.
He has said he wanted advisers who would be teammates as well as
rivals, long on experience and brainpower and able to air all sides of
an issue to help him decide.

“You can’t assemble a group of really brilliant people, and deal with
some of the most complex problems in our lifetimes and not have
disagreements,” David Axelrod, Mr. Obama’s senior political
strategist, told The Times. Mr. Axelrod, along with the White House
chief of staff, Rahm Emanuel, plays a big role in mediating among the
economic advisers and helps shape the decisions.

The president “invites debate but he doesn’t tolerate factionalism.
And ultimately everybody on the economic team knows that at the end of
the day we’re going to hold hands and jump together,” Mr. Axelrod
added.

People familiar with the deliberations told The Times that Mr. Summers
has been more populist than they expected for a right-of-center
economist, siding often with Mr. Obama’s political advisers. That has
given rise to speculation among colleagues, associates and banking
representatives that Mr. Summers is trying to win the Fed seat.

Mr. Summers, in an interview with Times, dismissed such talk as coming
from “people who disagree with me.” He added, “The advice I give is
based on determining the right course of economic action, recognizing
all the political factors.”

Some advisers complained that, under Mr. Summers, meetings became
“endless debating sessions,” a phrase used separately by two aides who
asked not to be named given the delicacy of internal matters, The
Times said. As Mr. Summers sees it, his penchant for debate — he was a
standout member of the debate team at the Massachusetts Institute of
Technology — fits the job.

“My approach in these things is to always be raising objections and
concerns,” he told The Times, “because if you haven’t anticipated the
objections and concerns, you haven’t minimized risks.”

Even colleagues who have tussled with Mr. Summers say the president
was right to bring him in to the White House inner circle during the
global crisis.

“Larry Summers is one of the world’s most brilliant economists,” Mr.
Orszag, who along with Mr. Geithner, successfully resisted Mr.
Summers’s attempts early on to control their access to Mr. Obama, told
The Times. “He enriches any discussion he participates in, which is
particularly valuable given the complexity and importance of the
challenges currently facing us.”

Mr. Summers, the only top economic adviser with a West Wing office,
sees the president more than the others and controls the daily
economic briefings. By all accounts he has worked hard to disprove
early talk that he would not be good at the job, even poking fun at
himself.

Just after his 54th birthday on Nov. 30, when the new team was working
in Mr. Obama’s transition headquarters in Chicago, Mr. Geithner
brought a cupcake and the group sang “Happy Birthday.” As they ended,
Mr. Summers rang out, “for he’s an unpleasant fellow,” instead of “for
he’s a jolly good fellow.”

Few issues have been as contentious as the effort to overhaul the bank
bailout program. Mr. Summers left some colleagues believing that he
favored nationalizing some big banks, as many liberals wanted.
Insiders say that Mr. Geithner would counter that nationalizing banks
might sound appealing politically but where would the government get
the legions of bank managers it would need? And what would be the exit
strategy?

In the interview with The Times, Mr. Summers denied that he favored
nationalizing banks but acknowledged that he explored the idea so that
the president had all options. At the time, the Treasury and the Fed
were conducting “stress tests” of the big banks’ books, and it was not
clear that some banks would be judged viable.

“Nationalization is a term that has become meaningless because people
use it in different ways,” he told The Times. “I certainly favored
identifying every possibility and presenting every option to the
president in response to possible contingencies.”

Mutual acquaintances say that the longtime friendship between Mr.
Summers and the 47-year-old Mr. Geithner has been strained, but that
their relationship would be even worse were it not for Mr. Geithner’s
even temperament and his history with Mr. Summers. “I am completely
comfortable pushing back at him,” Mr. Geithner told The Times in an
interview.

“Larry will come to any issue and say, well, here’s all the 16 reasons
why there’s problems with that proposal. If he’s got ideas,
particularly if I think they won’t work, I say to him, ‘Well, why
don’t you make the case against it, Larry, because you’re pretty good
at making the case against anything.’ ”

But, Mr. Geithner told The Times, that trait makes Mr. Summers a good
director of the economic council because “he is better than anybody
else on the planet at framing the case for and against any particular
issue and reducing something to a set of concrete options.”

Mr. Summers and Mr. Geithner have generally agreed that the government
should not dictate executive pay and other management policies at
companies receiving government aid.

Mr. Axelrod and other political advisers generally have taken the
other side, joined by Austan Goolsbee, the former University of
Chicago economist who was Mr. Obama’s campaign adviser and now sits
with Mrs. Romer on the Council of Economic Advisers. If taxpayers bail
out companies, this group says, then the government should set tough
conditions on pay and dividends.

Mr. Goolsbee and Mr. Summers also clashed in March over whether to
bail out Chrysler and ease its merger with Fiat, or to let the
automaker fail.

Mr. Summers, along with Mr. Geithner and the political advisers,
favored giving Chrysler a second chance. “My judgment, and Tim’s
judgment, was that given all the equities involved, and given the
potentially traumatic effects on confidence, that it was much better
to try to save Chrysler if a reasonable merger agreement could be
reached,” he told The Times.

Mr. Goolsbee argued that rescuing the financial system was one thing,
since credit is the economy’s lifeblood, but the government should not
run an auto company. Saving Chrysler, he added, could further harm
General Motors, which stood to gain market share.

The arguments became so heated that Mr. Summers stormed from one
meeting, a witness said. While he later included Mr. Goolsbee’s
objections in a memorandum for Mr. Obama, he excluded Mr. Goolsbee
from the decisive meeting with the president.

There, Mrs. Romer expressed the objections from the Council of
Economic Advisers, but made a point of naming the absent Mr. Goolsbee.
That prompted Mr. Obama to ask, “Where is Austan?” He had the aide
summoned to state his case, in what some aides took as a rebuke to Mr.
Summers. The discussion continued that evening, and Mr. Obama decided
on the course Mr. Summers supported.

Mrs. Romer, the only woman among the top advisers, said that Mr.
Summers, as a fellow economist, had been “incredibly inclusive” and
“listens to the economic arguments.” Their clashes have come when he
takes a more political view.

A recent example involved a report by Mrs. Romer, released last
Tuesday, that analyzed the administration’s economic case for
overhauling the health care system. Mr. Summers pressed Mrs. Romer to
make the argument that health care reforms could make American
businesses more competitive globally, adding that it was among the
political advisers’ favorite “talking points.”

He did so again when Mrs. Romer outlined her final draft at a recent
well-attended meeting. She cut him off, saying that some of his own
staff agreed the point did not belong in the paper.

“I’m not going to put schlocky arguments in there,” she said.

“I’m not making a schlocky argument,” he replied.

Mrs. Romer said later that the exchange was “good-natured,” no
different than “a typical seminar where I come from” in academia. The
point Mr. Summers sought was not in her paper Tuesday.

* Copyright 2009 The New York Times Company
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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