The New New Deal (55 page)

“This is a very bad situation,” Harrison told his new employees. “You
don’t need an MBA to figure out that this has to change, or we’re in big trouble.”

Maybe the Energy Department should have foreseen these problems. But there’s no evidence that “crony capitalism” had anything to do with the original decision to approve the Solyndra loan, or any other loan for that matter. Rogers did tell me he once encountered White House pressure, when a uranium enrichment company called USEC was pursuing a loan for a nuclear fuel plant in Ohio, but even that tale illustrates the limits of political interference in Obamaworld. The president had promised to support the plant during his campaign, so after Rogers rejected the loan, he was summoned to explain his decision to Jarrett—in the Situation Room, of all places. (It looks exciting in the movies, with all those video screens and blinking lights, but the West Wing is so overcrowded that it’s sometimes used as an ordinary conference room.) Rogers explained his skepticism about USEC, a former government enterprise.
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For one thing, it would still be short of the cash it needed to complete the plant even if the loan went through, a neon red flag in project finance. Deals are supposed to cover the cigars for the closing dinner—in other words, everything.

“You realize the president made a campaign promise?” Jarrett asked.

Yes, Rogers did.

“Well, if you’re sure, you’re sure,” Jarrett said. “But you better be sure.”

Rogers was sure, and the White House let him make the call.

Nevertheless, Boehner and McConnell have slammed the White House over USEC, not for pushing a flimsy loan that could have cost taxpayers $2 billion, but for
rejecting
the flimsy loan.
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Both Republican leaders usually attack the administration for picking winners and losers, but USEC operates in Ohio and Kentucky. McConnell also urged Chu to approve a loan for an electric vehicle plant in his home state. “I hope you will realize the importance of such job creation to Kentucky,” he wrote.
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Politics aside, there were real tensions baked into the loan program, and it became a source of intense debate inside the administration.
The Energy Department was supposed to finance projects safe enough that taxpayers would get repaid, yet risky enough that banks wouldn’t finance them without federal help. So the budget monitors at OMB often delayed loans for months, demanding endless due diligence to make sure borrowers wouldn’t default. “It was a root canal every time,” an Energy Department official complains. And once OMB was finally satisfied a loan was safe, Treasury officials often asked: Then why does the government need to back it?

“You’re basically searching for Goldilocks projects—not too safe, not too risky, just right,” Klain says. “It’s a lot trickier than just giving people cash.”

Personalities inflamed the tensions. The head of the loan program, Jonathan Silver, was a brash Wall Street financier who was wearing a pink tie, monogrammed shirt, and bull-and-bear cuff links when I met him. He frequently antagonized the White House by demanding more autonomy to build his portfolio as he pleased, opening interagency meetings with long gripes about bureaucratic interference. On the other side of the debate, Summers was even less of a shrinking violet, and a harsh skeptic of government loans. He and Geithner intervened behind the scenes to kill a loan for Bloom Energy, the heavily hyped fuel cell company backed by the financier and Obama donor John Doerr. “Why the hell do they need our help?” Summers asked. Despite the loan program’s strong support in the clean-tech world, it was the only Recovery Act initiative scaled back after passage. Its $6 billion in reserves for bad loans shrank to $2.5 billion after it was raided to fund Cash for Clunkers in 2009 and the teachers jobs bill in 2010. Doerr and Al Gore both called to protest, but the White House held firm.

That $2.5 billion in reserves was still enough to finance nearly $40 billion worth of the most ambitious clean-energy projects in history, including a half dozen of the world’s largest solar plants and two of the nation’s first large-scale cellulosic ethanol plants. The Shepherds Flat wind farm in Oregon will also be the largest in the world, featuring 338 American-made General Electric wind turbines, generating enough green power to replace two coal plants. The first-of-its-kind Project Amp will install solar panels on over 750 commercial rooftops across
twenty-eight states, producing a nuclear reactor’s worth of green electricity. Silver built the loan office into the world’s largest project finance team, hiring scores of Wall Street veterans laid off during the financial crisis, and that team invested more in green energy than the next ten largest American funds combined. It backed all kinds of loans the private sector wouldn’t otherwise provide, for companies like Solyndra with innovative technologies, as well as projects like Shepherds Flat with relatively mature technologies but unprecedented scale.

“Every bank wants to finance the second project,” Silver said. “We’re the bank that finances the first project.”

Summers just didn’t think the government belonged in the banking business. He was particularly galled by the $1.9 billion Shepherds Flat project, which would provide investors an expected 30 percent return on equity. “Larry didn’t get it, or didn’t want to get it,” one official says. “I wanted to grab him and say: You ignorant fuck! We
want
people to make money in clean energy!” Summers tried to kill the entire loan program, pushing to shift its funding into the renewable energy grants that Schumer was attacking in the press. They were creating more jobs at a faster pace than the loan guarantees, while requiring recipients to put more skin in the game.

Silver understood why his program was an inviting target. Companies were always complaining to Congress when they didn’t get loans, or didn’t get loans quickly enough, or their competitors got loans. The political system didn’t handle failure well, and failure was inevitable, because all banks make bad bets. It was a complex program, maybe too complex. But Silver was convinced that it was moving the country toward a low-carbon economy, carrying green technologies through the Valley of Death so that the private sector would finance them in the future.

“I’ll stipulate there’s a better way to do this: Put a price on carbon,” Silver told me. By making pollution expensive, a carbon price set through cap-and-trade or a tax on emissions would offset dirty energy’s market advantage. “But let me ask a question: Ya got one?” Silver continued. “No? Then this is the way to get clean energy to scale.”

Silver was so unpopular in the West Wing that Chu was warned not
to bring him to the Oval Office meeting to decide the fate of his program. But Obama decided not to kill it.

“We’re not going to relitigate this,” Obama said.

O
bama kicked off Recovery Summer with another trip to Columbus, to celebrate the 10,000th Recovery Act road project with more construction workers in hard hats.
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The stimulus, he said, was doing exactly what it was intended to do. “As my friend Joe Biden would say, this is a big”—he replaced the expletive with a smile—“deal.” He pointed out that the last time he visited Columbus, for the police graduation, the economy was shedding 700,000 jobs a month and shrinking at a Depression-level pace. Now it was adding jobs and growing.

Still, unemployment was a gruesome 9.9 percent. So it was a muted celebration.

“I’m under no illusion that we’re where we need to be,” the president said.

The Recovery Summer was pure politics, a transparent effort to sell the stimulus in an election year. Obama spent a grand total of fifty-eight minutes in Ohio, just long enough to speak and pose for pictures. But the problem with Recovery Summer was not that it reeked of politics; stimulus critics played politics, too. The problem with Recovery Summer was that it reeked of terrible politics, because as LaHood said in Columbus, “the economy is still lousy.”

And then, inconveniently, it got worse.

The recovery stalled during Recovery Summer. Home sales hit an all-time low after the homebuyer tax credits from the stimulus expired that spring. Job growth slowed to a crawl, and economists began to fear a double-dip recession.

“We went out there just as the bad news was mounting,” Klain says.

The main problem was a debt crisis in Greece that was dragging down global growth. Meanwhile, states were slashing their budgets
again, and Republicans were blocking Obama’s push for more fiscal relief. And the Fed, after its whatever-it-takes exertions to save the financial sector, was curiously passive about the moribund labor market. At their monthly lunches, Christy Romer prodded Bernanke: “You need to do more monetary stimulus.” But Bernanke didn’t want to unless he absolutely had to. As he reminded Romer, there were other ways to jolt the economy: “You need to do more fiscal stimulus!”

Eventually, Congress approved a bit more fiscal stimulus, the Fed approved a bit more monetary stimulus, and modest job growth resumed that fall. But not before Recovery Summer crashed and burned. People saw more Recovery Act projects, but they didn’t see more recovery. “If you look at what we said, we were right. The construction numbers went way up,” Klain says. “But we still got lampooned. The narrative was: Biden predicted recovery, and look what happened.”

Between the gushing oil and the wilting recovery, Obama had a rough summer, too. He was mocked for golfing on tony Martha’s Vineyard while the economy tanked. “He created 70,000 new jobs this month,” Jay Leno said.
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“Too bad they’re all vacation planners for his family.” The White House put out word that he was pressing his economic team for bold new jobs ideas—he led a conference call from the Vineyard—but the sudden burst of activity just looked lame:
Now
he wanted ideas? Once the media decided he was drowning, every drip of bad news reinforced the narrative, especially after he defended the so-called Ground Zero mosque in Manhattan; during the spat, one poll found nearly half of Republican voters thought he was Muslim. As his approval ratings dipped into the low 40s, some Democrats began running ads bragging that they had stood up to the president. Even the artist behind the Obama campaign’s iconic “Hope” poster told reporters he was losing hope.

Republicans had a field day with Recovery Summer. “How was YOUR summer?” asked one GOP ad. “The Recovery Starts November 2.” Democrats had once crowed that the stimulus would be political gold; now almost half the Republican campaign ads attacked it, while Minnesota’s Jim Oberstar was the only congressional Democrat to tout
it. The House Republican committee borrowed Schumer’s wind farm rhetoric to produce absurd scare ads featuring red flags, menacing-sounding gongs, and Asian calligraphy fonts, accusing stimulus-supporting Democrats of outsourcing jobs to China.
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One ad ended with a cartoon image of Cultural Revolution–style upraised fists: “He’s created massive debt here, while he created renewable energy jobs
over there
. Baron Hill: For Indiana, or China?”

In Wisconsin, Republican Scott Walker made high-speed rail the centerpiece of his campaign for governor, vowing to send back the state’s $810 million award for a Milwaukee-to-Madison line. It was a perfect wedge issue for 2010: anti-Obama, antigovernment, anti-Madison’s citified professors and bureaucrats. At notrain.com, Walker posted video of Obama celebrating the stimulus, splicing in his own mockery. “Change isn’t easy,” the president said in one clip. “But stopping runaway government spending is,” Walker replied. John Kasich, the Republican candidate in Ohio, also pledged to kill the slow-speed 3-C line, and the Tea Partier Rick Scott, running in Florida, suggested he wasn’t a fan of the Tampa–Orlando bullet train.

Obama did find time that summer to sign the Dodd-Frank financial reforms, the most comprehensive rewrite of Wall Street regulations since the Depression. That was another big deal, ensuring stricter regulation of derivatives, hedge funds, and insurance companies like AIG, as well as a consumer financial protection agency that could rein in predatory mortgage lenders and credit card companies. Again, Republicans opposed the bill en masse, with only three GOP senators willing to support tougher financial rules after a financial meltdown. And again, the left accused Obama of selling out in his search for sixty votes, failing to crack down hard enough on too-big-to-fail banks or reinstate Depression-era financial laws.

“The president argues that this has been the biggest moment of progressive reform since the Great Society. And it’s true. But that’s a pretty low bar,” says the liberal activist Bob Borosage. “It’s been a tragically flawed moment. Great for the banks, not so great for the middle class.”

In a testy interview with the lefty comic Jon Stewart, Obama ridiculed
his base’s ingratitude: “We didn’t get 100 percent of what we wanted, we got 90 percent, so let’s focus on the 10 percent we didn’t get.”
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He felt like he had put out a raging fire, and his allies were yelling at him for hosing down their furniture. He mused that maybe his slogan should have been: Yes We Can, But It’s Not Going to Happen Overnight.

The root of Obama’s political problems was not a deep mystery. “You don’t have to be a savvy political analyst to say that if unemployment is 9.5 percent, the party in power is going to have some problems, regardless of how much progress we’ve made and how much worse it would be if the other side had been in charge,” he said.
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It’s a simplistic explanation, but the economy often is destiny for presidential popularity. That’s why Axelrod had warned Obama in December 2008 that the midterms already looked bleak.

But voters also had a skewed view of what Obama had done, which suggested a failure to communicate. For example, by a 52–19 margin, the electorate thought he had raised middle-class taxes, when in fact he had cut middle-class taxes.
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After the Recovery Summer, the president told the
New York Times
he might have been overconfident that good policy would translate into good politics.