by Jeff Sovern
I just finished listening to the audio version of Ron Suskind's Confidence Men: Wall Street, Washington, and the Education of a President. It purports to be a you-are-there Woodward-style account of the first two years of economic-policymaking in the Obama administration. You never know how much of this stuff to believe, given that the audio version, at least, generally does not indicate sources. Still,with that caveat, readers of the blog may be interested in at least a few items from the book:
- Treasury Secretary Timothy Geitner promised bankers while the Dodd-Frank Act was working its way through Congress that Elizabeth Warren would never become the director of the Consumer Financial Protection Bureau.
- Economic policy in the Obama administration was made very slowly in what appeared to be a failure of process. Strong personalities like Larry Summers frequently sought to "relitigate" matters on which the president had decided against them, with the result that the same issues were reviewed over and over. Summers even commented that they were 'home alone" without a grown up in charge. That may help explain why the administration moved so slowly to name leaders for the OCC and the CFPB.
- The book also describes how Goldman Sachs learned a couple of years before the subprime crisis exploded that there was a problem with some of the subprime mortgage originators (or maybe it was underwriters evaluating loans; books sometimes go a little fast when you're driving while listening to them) from which it was buying loans. Specifically, some originators sold Goldman loan pools in which a whopping 10% of the borrowers were not even making their first payments. Nevertheless, Goldman continued buying from them and selling to others. It has been reported elsewhere, of course, that Goldman went short on subprime loans for its own account. In other words, Goldman bet against subprime loans while continuing to sell them to others when it knew there were problems with them.