The following is an except from a book by former senior Obama policy advisor Natalie Miller-Stone, who served in the White House from 2009-2016. “Go Bold or Go Home” is scheduled for publication in September 2017:
“Crises are nothing new for the American presidency, but the enormity of the economic crisis that we, Team Obama, would inherit in January 2009 was something that none of us were truly prepared for. Classified, post-election briefings by the Bush administration were stark and hair-raising. The nation was closer to the brink than anyone dared think possible.
The twin blows of a Wall Street meltdown and the mortgage market debacle were rippling through the economy at frighteningly destructive speed. A collapse in demand, massive unemployment, a tidal wave of bankruptcies.
The Big Three were on the brink, promising to wreak devastation in the auto sector. States were hemorrhaging in red ink as tax receipts collapsed, threatening basic services. And the banks, even with TARP and the massive lending by the Fed, no one knew for sure how toxic their books really were, and how to untangle the mess of mortgage securitization. The briefings pointed out that the subprime lending crisis would not be contained. It would bleed into the mainstream and effect established borrowers, leading to a large-scale foreclosure crisis that would decimate the housing sector, with profound, if less well understood impacts across the nation.
After Lehman in September 2008, we knew that things would be bad if we won, but we didn’t think it would be this bad. We had campaigned hard and had a robust agenda to implement: affordable healthcare for every American; an aggressive and comprehensive approach to climate change; fixing the tax code so everyone paid their fair share; supporting unionization for exploited workers; promoting gender and racial equality, and of course immigration reform. And we urgently needed to let the world know that American was under new, less belligerent and unilateral management.
The economic crisis threatened to swallow that agenda whole as we inherited a sinking ship where, suddenly, no one was entirely sure we could save. It is not an exaggeration to say that in those dark days stoic faces and firm public statements were all that stood between the us and the abyss.
In early December 2008, the Transition’s economic team had updated its projections to brief the President-elect. The perilous data divided Obama supporters into two camps. There was the Geithner camp – the “first do no harm” crowd, which held that the banks were key to surviving the crisis, and that those very institutions were at a tipping point, and could go either way. Every effort had to be made to keep the financial system solvent and functioning, all to prevent a cascade of even more spectacular economic pain.
And then there were congressional Democratic leaders and progressive activists. Flushed with victory and commanding majorities, this cohort, led by Nancy Pelosi, wanted to use the crisis as an excuse for a very quick and robust increase in spending that would be the baseline for all future budgets, and take Wall Street to task for creating the crisis in the first place.
House Democrats already had a blue print for spending, essentially a combined wish list of almost every Democratic constituency, that the Speaker was ready to put to a vote. Action was more important that substance. “We could read the bill after we pass the bill,” she said. So long as people saw money flowing and perpetrators punished, confidence would be restored, while the most vulnerable would be cushioned with federal aid. Above all, progressive priorities needed to be moved through the legislative process with dispatch.
I didn’t know the President-elect as well back then, which is to say that through all the briefings I had participated in during the campaign, I didn’t fully understand how he made decisions. And here, now, before he was even sworn in, this president-in-waiting was formulating the most consequential decisions of his presidency. It was not hyperbole to say that how the President-elect chose his path in December 2008 would be the defining element if the success of his presidency. Perhaps only Lincoln and FDR had such a burden as they waited to assume office.
On December 28th, President-elect Obama called together his senior aides. The campaign high command, the Transition offices and expected White House staff and the economic team. He had read all the analysis. He had listened to all sides on the issues. He understood the political geography and the stakes, up to and including the very success of his presidency before it began. He laid out four points that would dictate our conduct and policy.
1. We would be governed by three words: Unity. Action. Results.
2. Despite the lopsided Democratic victory, every effort would be made to reach out to Republicans and interest groups that had opposed our campaign, take suggestions in good faith and incorporate them if it made sense. The crisis was a national crisis – an American crisis – and we needed to address it at that level. Partisanship and the blame game could wait.
3. This was not a time to be timid. “We go bold, or we go home,” the President-elect said. We will never have another opportunity, with as much trust from the people and flexibility in Congress as we do today. Whatever we do had to be big, impactful and focused.
4. We needed results. Structural changes to the economy would take time to shake out, but the initial actions from our team had to produce tangible outcomes that average Americans could see and feel. Far from abandoning our policy goals, decisive action on the economy in the here and now would engender the indispensable, long-term trust of Americans on issues we had campaigned on, regardless of what opponents would say.
On January 2nd, a little more than three weeks from the Inauguration, the President-elect gathered his most senior advisors together to lay out the components of his plan.
1. A foreclosure holiday. Banks would immediately cease and desist from any further foreclosure action, providing temporary relief to beleaguered home owners.
2. The American Home Protection Act of 2009. Home prices had plummeted. Homeowners, through no fault of their own, were “underwater,” with their homes worth less than their mortgages. Wall Street and the mortgage industry, through securitization, had effectively destroyed the property title system, where it was unclear who owned what and was owed money.
We would start at zero. Each property would be assessed at is actual, current value, and a new, fixed 30 year mortgage, with identifiable and recordable chain of title, would be offered at the new, low rates created by the Fed’s zero interest policy. Housing values would be maintained. Homeowners would see a cash windfall from lower monthly payments. Confidence in the housing industry would be restored. Legitimate capital pools would be created by the new mortgages that would enhance lending capabilities.
The banks would scream bloody murder, of course, but our actions were only fair. The banks had been bailed out by the taxpayers for their own bad behavior. Now the banks would be passing on their good will, recognizing the changed economic environment in which we were all operating. The federal government would initially cover the spread between the old mortgage values and the new, to protect the liquidity of the banks. It would not be cheap, but it was necessary.
3. Unemployment Insurance/Expanded Federal Assistance. A guaranteed 99 weeks of unemployment insurance. New funding for food assistance and health benefits for those at risk.
4. Aid to States. To support essential public services and the social safety net for at least a year.
5. Aid to the “Big Three”. Detroit would not be allowed to go under. Untapped TARP funds would be used to support the American auto hub as they restructured through bankruptcy.
6. Infrastructure Development. Convene the 50 governors. Identify the top 5 infrastructure projects that were “shovel ready” and rapidly disperse federal funds to hire companies and workers to begin construction. Creation of a federal “Infrastructure Bank” that can prioritize and lend to eligible projects, matching public funds with private capital.
7. Temporarily Expand the Earned Income Tax Credit. The EITC is a refundable tax credit for the working poor. Raise the income threshold by 25 percent to capture a new cohort of taxpayers who have been affected by the downturn.
Seven steps, one package, with immediate, short-term and longer term economic impacts, each building on the other. The economic team estimated it would cost $1.5 trillion – blowing the doors off of any previous spending bill in American history.
Once briefed, advisors and advocates were ready to panic. The “recovery plan” had political catastrophe written all over it.
Americans were still furious over the TARP bailout, and now POTUS would be asking for another bailout of homeowners? A trillion dollar bailout? The Republicans would howl at a cost that was more than Afghan and Iraq wars combined with money left over and the “corporate welfare for Detroit.” It would be galling. The deficit for 2009/10 could climb to $1.6 trillion at least. Maybe even $2 trillion. No one knew. Was there really that much appetite in foreign markets for US debt at this unsustainable level? Wasn’t the Administration just rewarding even more bad behavior after what the banks had done, helping home owners who had bought more home than they could afford?
Worse, the base would be furious. The Speaker already had the wish list for the Democratic coalition, and now that was being set aside. Bailing out homeowners? How about those who didn’t own homes? What would be done for them? Democrats would howl that not enough was being done to those most at risk, and that Obama’s campaign promises on the environment, and climate change were being forgotten. Wall Street, an Obama ally during the campaign would deploy battalions of lobbyists to defeat the mortgage provision pleading the tender state of their finances.
It would be ugly.
But the President-elect was a rock. This was the plan. We go big, or we go home.
Over the next three weeks, the Transition team briefed congressional leaders, conducted outreach to Republicans and the business community, and began physically assembling the text of the bill. For all its breath and consequence, the legislation itself was a concise 25 pages. The truth was that the machinery to implement the bill didn’t exist. It would have to be built on the road. The bill – the American Economic Renewal Act (AERA) would be introduced on January 20th as HR-1 to symbolize the Administration’s sense of urgency.
After the Inauguration, the President and Administration went into overdrive, with a full court press with Democrats and Republicans alike. Despite angry political attacks writ large against the bill, individual Republicans found themselves between a rock and a hard place with constituents clamoring for mortgage relief and unemployment assistance, and governors begging for aid to stem the ocean of red ink. In addition, the construction industry conducted a large lobbying campaign of their own to access funding for large projects that would keep businesses afloat and keep employees on payrolls. In the end, the bill passed on Valentines Day, with 6 GOP Senators and 40 Republican House Members joining all Democrats in supporting the bill.
While the mechanics of AERA implementation were being worked out, President Obama introduced his next set of bills in early March.
The “Tax Fairness and Simplification Act” fulfilled a core campaign promise to allow the highest income tax rates to return to pre-Bush levels. The bill also lowered the corporate tax rate for American companies through elimination of a series of deductions, making the US corporate tax rate competitive with other industrial nations. The bill kept intact key deductions for corporate R&D and a two-year, 100 percent deduction for expensing new purchases of capital equipment, a key objective for US manufacturers.
In tandem, POTUS submitted the “Healthcare Security Act” which allowed children up to the age of 26 to stay on their parent’s health insurance policies, expanded child health insurance availability, and for the first time, banned health insurance companies from discriminating against customers based on pre-existing conditions. President Obama called this “a down payment on comprehensive health care reform.”
Majority Leader Harry Reid combined the two bills for a floor vote, again testing Republican resolve, as he moved to keep his own troops in line – Members furious about the drop in corporate taxation.
Despite the near hysteria of the conservatives and the editorial pages of the Wall Street Journal regarding the dire impact of raising taxes during a recession, the US Chamber of Commerce came out in favor of the bill as the vote neared, while the liberal echo chamber made it all but impossible to oppose the health coverage expansion. In the end, Republicans, bitterly divided, broke again, with a minority of House and Senate GOPers backing the bill.
Over the summer recess in 2009, the Administration constructed a package of policies commonly referred to as the “Planting Seeds” initiative. The idea was to plant a flag of sorts – to get a message to our grassroots that campaign promises had not been forgotten. But in the tense environment in Washington, to move deliberately, garner success and support in tandem.
The Administration first asked Congress for $10 billion in funding for the new, Infrastructure Bank – which was already providing funding to the first 100 projects identified by governors – that would be dedicated to public/private partnerships on renewable energy.
In conjunction, the Administration sought authority for limited power to grant citizenship to the children of illegal immigrants who came to the country illegally with their parents, who would serve in the US military. Success in this pilot project could be expanded to other categories of illegal children who had demonstrated meritorious service, and a possible pathway to manage the issue of the children of illegal immigrants.
Rounding out the agenda, the Administration sought authority and funding to set up pilot programs in participating US states to test the functionality of the Massachusetts healthcare law, sponsored by former Republican governor Mitt Romney.
“Our national healthcare system is in dire need of reform. It’s too expensive, too many are left behind or bankrupted simply trying to care for their families. However, efforts have been underway to make a bad system better. Massachusetts, in a bipartisan manner, has set up a system worthy of our attention as a possible model for our national reform efforts. Lets test this in the laboratory of democracy in the states. Lets see what works best and adopt those practices. Lets reduced costs and improve coverage – for all Americans. Let’s have a system where, if you like you doctor you can keep your doctor, while expanding coverage to those who do not have health insurance.”
The measures passed both Houses of Congress in November 2009, and the President signed them on just before Thanksgiving.
In hindsight, those 12 months were the key to success. You could almost break it down in sequence: Election to Inauguration for critical initial planning; Inauguration to Mother’s Day for initial legislation and implantation, and then down payments on future policies in autumn.
It helped that the President’s biggest and most controversial bet paid off.
The foreclosure holiday and mortgage relief plan had been bitterly contested and divisive across the public spectrum, from politicians to economists. Academics warned of that the plan would incentivize homeowners to take even greater risks (moral hazard) once they realized there would be no real penalty for bad decision-making and the government would ultimately bail them out. Conservative pundits and politicians talked darkly about blatant socialism revealed.
But to the critics’ surprise, the mortgage plan was an unqualified success; indeed, it became the catalyst for a very powerful economic recovery.
It was all in the numbers for anyone who took the time to look. Roughly 125 million houses in the US. At least 70 percent had mortgages on those properties, properties that were rapidly sinking in value under the total of the mortgage note. Between 2008 and 2009, the average home price had lost 20 percent of its value. That was the median. Wilder variations were experienced in different markets. The Obama administration’s mandate to create new mortgage notes in line with new property values, and financing those notes at new, lower rates over 30 years unlocked the captive value of the properties.
By way of example, a homeowner who had financed a $350,000 note at seven percent in 2007 paid $2,300 a month. Under the President’s plan, that same house in 2009 – valued at $300,000 – could be re-financed at its current value at 3 percent, for a new monthly payment of $1,300 – providing a $1,000 per month extra income. While the amounts changed depending on home price, up to 80 million Americans would see savings.
These new lower payments created under the mortgage plan acted like a huge tax cut for American homeowners, who now had more disposable income to spend, save or invest. New, neutral or positive equity in homes again provided a source of credit for a child’s education or to open a small business. Neighborhoods were spared the blight of mass foreclosures. The housing industry, staggering under weight of the crisis, was cushioned.
This was costly, at least in the short term. Government funding was the bridge between the banks and failure during the mortgage re-financings. But program requirements mandating that homeowners pay a portion of any profit on a refinanced home sale to a government fund to recoup costs both prevented a new housing bubble and laid the groundwork for the government to be reimbursed for what was essentially a massive bridge loan between banks and homeowners.
The twisted maze of securitizations, which went global, had to be unwound, and the costs of doing so was more expensive than originally believed. But with government assistance and stress tests, the banks and the financial industry returned to health by the end of 2009, staging a comeback that would only grow over the next eight years. Once healthy, the banks also settled accounts with the government on bad mortgage lending practices, paying fines that defrayed the costs of the mortgage plan.
At the same time, initiatives to aid states and individuals provided a bridge enabling critical services for those most at risk. Detroit was kept from the brink, given time to work through restructuring plans. The new Infrastructure Bank gained credibility by rapidly deploying capital to pre-cleared, major projects in all 50 states. Additional appropriations by Congress allowed the Bank to target secondary projects throughout the nation with the addition of private capital funding, sharing the risk and reward of infrastructure improvement.
Tax simplification and measured steps toward addressing a healthcare overhaul and climate issues reassured companies that policies changes would be public, measured and predictable, while the Fed’s zero interest rate policy made cheap mortgages possible super charged the stock market.
The combined results were immediate.
QIII growth, the first post-recession growth number, was a respectable 3.0 percent. In QIV growth topped 4.5 percent. At 2009’s end, economists expected QI ’10 growth to be between 4-5 percent, as companies replenished inventories, took advantage of tax preferences, and engaged in highly focused and cautious steps to meet a stable consumer demand. Unemployment, which had touched 10.2 percent, was dropping as the job market showed signs of life.
In 2010, the President consolidated his gains. There was no disputing that the economy was in full recovery, even with higher tax rates for the richest Americans. Unemployment was falling. Organic growth was taking over.
In the State of the Union that year, POTUS again went big, proposing to revamp education standards nationwide, and reorganize aid for higher education to make it more accessible for Americans. He proposed the “Efficiency in Government Act” which sought broad powers to overhaul and reorganize the federal bureaucracy, eliminating duplicate programs, combining departments, upgrading customer service, accountability and transparency to improve citizen trust in government as a good steward of taxpayer money. Looking at the deteriorating, long-term budget trends, the President presented an offer to Republicans from the podium of the House, a deal that would reign in entitlement spending for a complete overhaul in the tax code to make it more progressive and reduce income inequality.
Recognizing the 10 states that had joined in on the healthcare pilot project, and trumpeting their varying successes, the President called for a national effort to consolidate those best practices so that all Americans could enjoy efficient, comprehensive lower cost health insurance.
The Obama agenda again fractured Republicans, forced the Party onto the defensive, defending millionaires’ rights to tax breaks, while arguing against common sense changes to health insurance on cost estimates. Deficits and spending were high, yes, but there was no arguing that Obama was getting results, and the long-term trends were moving in the right direction.
In the midterms in November, Pelosi lost 15 seats in House. Harry Reid lost two seats in the Senate. A setback but a minor one. For all intents and purposes, the die was cast.
From 2009 on, economic growth never dipped below 3 percent. In the 2010-13 time period, it was as high as 5 percent in some quarters. Business creation and housing starts were up, as were tax revenues to federal coffers. Unemployment continued to nudge down, with 200-400,000 jobs being created each month. The deficit, which had been $1.6 trillion in 2009, had dropped to 600 billion in 2012; still high historically, but also one of the biggest drops in annual deficits in recent history.
In 2012, POTUS ran on an agenda of “Unfinished Business;” the policies he had promised in 2008, but which had to be delayed during the economic crisis. Now, having returned America to growth and prosperity, it was time to for the best “turn around team in America” to take on comprehensive health care and immigration reform, while taking steps to reign in spending and ensuring a safe retirement for the next generation.
In June 2012, President Obama enjoyed an approval rating of 61 percent, which held mostly steady through the election. Republicans nominated former Pennsylvania Senator Rick Santorum to oppose Obama. In November, Obama carried all of his 2008 states, adding Georgia, Missouri and Montana. He won with 55 percent of the vote. The Senate and House stayed in Democratic hands, with small gains.
The election provided the President with a clear mandate.
By the end of 2013, comprehensive healthcare reform was law. Progressive insistence on a “single payer” system had allowed the President to work with moderate Democrats and a handful of Republicans on a hybrid system that incorporated parts of Romneycare with the Federal government’s own health care exchange structure. The final bill enjoyed more support from the public than from Republicans, passing with minor GOP support.
Immigration reform came shortly after. A trade off between border security and the a longer and narrower path to citizenship, which limited the ability of new citizens to bring relatives to the country. And with no other elections to win, the Administration aggressively pursued its climate change agenda, with a slew of rulings from a vastly empowered EPA.
The “six-year itch” killed the President’s majorities in Congress in 2014. The conservative Republican, Jeb Hensarling of Texas, became Speaker. In the Senate, South Carolina’s Jim DeMint became Majority Leader, both promising to roll back Obama policies.
After the midterms, the “Administrative state” – the vast apparatus of regulatory agencies under the President’s power – revealed a concerted effort, underway since the earliest days of the Administration, to assert federal authority in all areas of daily life. The remainder of Obama’s presidency was a tangle of daily fights with Congress, adjudicated by the judiciary, regarding primacy on these federal policies/intrusions.
It was loud, but it was a sideshow. The things that mattered were done. A more progressive tax system, national health care, immigration reform, a down payment on climate change. In his first campaign, the President had promised a fundamental transformation of America.
He had delivered.
But none of it – none of it, would have been possible without the decisions Obama made before he was even in office.
An untested man, faced with the grave national crisis, President Obama chose to chart an unconventional course. He suffered no lack of internal critics for doing so.
Putting off cherished progressive goals until the economic crisis had been addressed was a direct threat to progressive governance. What if the GOP won the next election? The time to act was “now” regardless of the economic situation. Even better, use the crisis to justify the progressive changes to taxes environment and healthcare. Never let a crisis go to waste, was the watch word.
Instead, Obama chose the “long game.” Fix the economy – through populist and progressive policies – earn the support of the American people for a job well done, and use that reputation for competence to tackle the holy grail of liberal orthodoxy.
The risks were high, as Obama’s internal critics pointed out. But the risks of failure for pursuing the progressive agenda regardless of what happened to the economy was itself an existential threat to the credibility of progressivism.
Could coherent progressive governance be successful upon a failing economy? Could all that needed to be done be accomplished quickly, efficiently and competently? What would be the risks of going it alone with only a Democratic majority if the GOP failed to join in? If there was no buy-in from the American people?
Looking back, just imagine the quagmire the President and Democrats would have been in had they passed Nancy Pelosi’s wish list for core constituencies under the guise of economic stimulus instead of real and tangible programs to aid working Americans? If the President had quickly moved on to health care and climate change, and financial regulation and immigration, without fixing the underlying economic problems?
What could they do? Blame Bush?
Certainly any public policy that did not enjoy a bipartisan majority in Congress or at least majority support among the people – as Medicare did in 1965 – would be a political and cultural fault line for the nation going forward, no different from the SCOTUS ruling on abortion in 1973, effectively took a combustible issue out of the legislative – and citizens realm, creating decades of acrimony.
You would hope that in that least attractive world, under those circumstances, that the programs enacted by virtual legislative fiat would operate better than advertised as the last hope to save progressive integrity. The worst of all worlds would have been a partisan vote in a divided country over social policies that failed on implementation, even as the economy continued to skid out of control.
Such an environment could have been the undoing of decades of progressive striving, potentially empowering a conservative renaissance. Imagine, the irony of the most progressive president in nearly 100 years undoing a century of progressive governance through rank arrogance and incompetence.
Happily, that is nothing more than a terrifying and unfulfilled hypothetical. Instead, today, in no small part due to President Obama’s success, a Democrat continues to occupy the Oval Office, cementing the policies that put down roots during his stewardship.
We are now a nation transformed….”