Gary Gensler quietly caught the 6:00 p.m. train back to Baltimore on May 26 and, like most days, sat alone reading doc.u.ments on trading strategies, even though it was a big day-maybe one of the biggest days of his life. He had been sworn in as head of the CFTC.

It had been a whirlwind two weeks of backroom deals, starting on the thirteenth. That's when Cantwell lifted her hold on him. It was all part of her final play to use the confirmation process to press forward on key policies. She told the White House that if they wanted her to lift her hold on Gensler, they'd have to affirm that all derivatives, including the over-the-counter derivatives, would have to be moved to open exchanges.

Gensler huddled with Summers, Geithner, Emanuel, and the team at Treasury. Though Geithner had been equivocal on such a move, Gensler had not been: after that first check with Geithner-"did you really mean what you said?"-Gensler stated in his testimony that electronic exchange trading was a key reform, even if it might mean billions in lost revenue to Wall Street. Acting as a liaison between Cantwell's office and the White House, Gensler crafted a position that would be acceptable to Cantwell. Senator Bernie Sanders might fuss-his anger at Wall Street and its many alumni in D.C. was visceral-but he'd eventually go along with Gensler's appointment as well.

In a press conference back on May 13, Geithner released an outline for the financial reforms being contemplated by the administration, including electronic exchanges, with public prices, for derivatives. "Significant gaps in the basic framework of oversight over critical inst.i.tutions" had helped cause the financial crisis, he told reporters. "A series of comprehensive reforms to create a stronger system, less vulnerable to crisis, with stronger protections for consumers and investors" would now be worked out with Congress.

Finally, after repeated threats from Congress, a policy-on what many argue is among the most complex and crucial issues preventing another financial disaster-took shape.

Cantwell happily lifted her hold on Gary Gensler.

Negotiations between the White House and Bernie Sanders progressed for the next week, but Cantwell had been the tough one. Bernie just needed to take a stand to make a point. His hold was finally lifted, and Gensler was approved by the Senate-the last of Obama's thirty-two major appointments to cross the threshold. The vote was a bipartisan 88 to 6.

The winding drama of Gensler's nomination, stretching back five months, caught the attention of a few reporters, mostly with the business press. But the lack of coverage in such a busy time belied the importance of the issues at hand.

The push-and-shove between the progressive senators Cantwell and Sanders and the White House, and the interplay of interests and personalities, was a lesson in the subtle ingenuity of the American form of government. If Gensler wanted this job, Cantwell made clear, he'd have to speak loudly and clearly. Gensler did. He said, in endless hearings before the Senate Finance Committee, that mistakes were made at the end of the Clinton era, something Summers and Geithner would never say. He said that regulating the $600 trillion derivatives market, where one $50 tank of gas supports $5,000 in derivatives trades, is the most important thing that can be done in this period to change a "Wall Street culture that has permeated" the economic life of the country. He said he'd push this trading out of the back room, the profitable shadow lands of over-the-counter trading, and onto exchanges, where the fundamental laws of transparency-of subjecting products to the tireless comparative judgments of bang-for-your-buck Americans-would reign.

In fact, by day's end he had gone further than any of the surprised progressives expected, especially from someone worth roughly $20 million from his eighteen years at Goldman Sachs. They couldn't quite figure out what had happened.

But those traveling on the Amtrak train out of Washington with Gensler that night might have been granted a clue. On the outskirts of Baltimore, Gensler hopped into a newspaper-and-coffee-cup-littered "station car" and then stopped by a Mexican restaurant for takeout.

His house, looking like an old dowager of plaster and unfulfilled promise, stately but in need of some loving care, sat in the middle of untended fields, ten acres in any direction. "I'm home-dinner!" he shouted, stepping into the dark foyer. Upstairs, stocking feet were already hitting the floor.

The hallways on the way to the kitchen were filled with paintings-large, sweeping canvases-a few of them depicting a raven-haired woman with delicate features. That'd be the mother of the raven-haired teenaged girls, now crowding into the kitchen, talking buoyantly about their day.

The self-portraits were of Francesca, an accomplished artist, before she got sick. She died in 2006 after a five-year battle with cancer, and Gary made sure those paintings were hung where everyone could see them, every day.

People tend not to change much in their productive middle age, especially when they live within certain strong, self-sustaining communities that provide their basic needs, where their friends and livelihoods and core a.s.sumptions reside in some workable combination. To take a stand that creates a breach within that community is quite rare. The cost is just too high.

But that's what Gensler was now doing with one of country's most powerful, self-sustaining, play-for-keeps communities: Wall Street. Its ethos and ethics had altered the way people thought about hard work, honesty, self-reliance, and fair practice-what de Tocqueville once called America's admirable and accessible "bourgeois virtues." Wall Street had bet against people who believed in those sleepy mores, and year after year, it had won huge.

That Gensler, once numbered among its leaders, had now publicly turned on the Street was stunning enough; the rarity of such turn-and-fight moments had been a key to Wall Street's long run of success. Anyone credible enough to have a real effect would have to have made a lot of money, which he'd then have to claim was ill-gotten. On top of this he'd have to suffer a "you'll never have lunch in this town again" sanction from bustling New York. A lot to ask of anyone. But Gensler's challenge went beyond even that: if he became a crusader for reregulation, knowing what he knew, he could really hurt Wall Street.

There were those in New York who were already shorting such fears and chalking the whole mess up to naked ambition-something that would surely guide one of their own-by suggesting that Gensler had said whatever he had to say to get the job. That it was all talk.

Yet, if they had been around Gensler's kitchen table that night, a night made for self-congratulatory revelry, they'd have had cause for deep concern.

Because Gary Gensler fell into one of those discrete categories of people who create lasting change in Washington's marketplace of ideas. They tend to be either old and revered, like Volcker, who could use his una.s.sailable credibility, and the freedom of advanced years, to say convincingly what others couldn't; or like Elizabeth Warren, a mold-breaking oddity who'd emerged from nowhere to catch the public's imagination, a bit like Obama himself; or someone whose priorities had been altered by tragedy, and who had become suffused with the heroic zeal that sometimes emerges from grief.

Gensler was in that third category. The best day of his life, he'd often say, was the day he met Francesca, and many of his worst were littered over the five years of running between hospitals, as he learned hard lessons about risks that can't be managed and things even money can't buy.

And that's why, in the past two years, he'd so often be seen running for trains, or grabbing teacher calls midmeeting, pulling himself away from the complex, oh-so-important discussions of Washington's policy mandarins about the economy or the financial system or the endless tinkering with incentives to make people do something unwillingly, or unwittingly, in society's wider interests. In fact, so much of the middling intellectual compet.i.tions in Washington's policy shops of this era were about managing risks and the things money could buy, just like those in the competing capital to the north. Many of the a.n.a.lyses that Obama was having difficulty mastering to Summers's dissatisfaction would, no doubt, be in this category.

But adversity had forced Gensler to glimpse something larger. That was why he'd spent a few hours pushing around this morning's swearing-in so that all three girls could be there, and not miss their most important cla.s.ses; and why he made sure, though he didn't need to, that they'd wear something stylish when they stood next to him as he raised his hand and swore to uphold the Const.i.tution and the laws of the land.

They knew Dad had a big job. But doing those things, and making sure to rush home on his big day to eat quesadillas with them in the messy, momless kitchen, was to make sure his girls knew something that, incidentally, many Americans were hoping to learn from their inspiring leader: no matter what, there would always be someone there watching over them.

Enough was enough, Rahm Emanuel decided. Something needed to be done. He summoned the two competing super-egos, Summers and Orszag, and told them to make peace. After all, they were each responsible for huge swaths of the federal government. And they were fighting at every turn.

After a bit of delicate negotiations, it was decided that they'd meet once a week for dinner and see how it worked.

So, that night, Orszag settled into a white-clothed table at the Bombay Club, a posh Indian restaurant across Lafayette Park, a favorite of lobbyists and White House officials.

Summers walked in, slightly late, but not impolitely so, and met Orszag at the table.

And then it was the two of them.

Orszag hoped that this time the White House would be less fraught with strife than the last go-round during the 1990s. Summers said it kind of came with the territory.

This talk of their shared history seemed to thaw things out. They both grabbed from the plate of flatbreads that everyone gets served-the restaurant is known for it-and tore corners at the discus-size breads.

"You know, Peter, we're really home alone."

Over the past few months, Summers had said this, in a stage whisper, to Orszag and others as they left the morning economic briefings in the Oval Office. The topics varied: taxes, deficits, the economy, economics in general.

"I mean it," Summers stressed. "We're home alone. There's no adult in charge. Clinton would never have made these mistakes."

No "adult in charge" of the world's mightiest nation at its time of peril? It bespeaks a crisis-of a president overmatched, unable to fulfill the duties of his office, and a nightmare no one wants to acknowledge in daylight.

While Orszag wouldn't publicly affirm Summers's critique of the president's abilities-saying later, "I don't want to go there"-he wouldn't disagree, either. He sat in meeting after meeting where the president would cover the same issue, or controversy, or policy dilemma, and "relitigate" it, in the president's parlance, over and over. Decisions were left unmade; policies drifted without direction. It wasn't a matter of intellectual framing. The president seemed to grasp the nature of key policy dilemmas, like a journalist, or narrator, or skilled observer. The problem was in guiding the a.n.a.lysis toward what a president is paid, and elected, to do: make tough decisions.

Still, Orszag admired the president both he and Summers were there to serve. He knew that if he and Summers went down this path, they'd end up fighting.

And they were here, breaking bread, to stop all the fighting. So Orszag nodded, and changed the subject.

13.

Filling the Void.

Rahm Emanuel was getting antsy. The emergency issues of pushing through a stimulus package and stabilizing the financial system had, he felt, been accomplished. The $787 billion stimulus was the only big-ticket item they'd be getting through Congress, at least for the foreseeable future. The stress tests, meanwhile, had the desired effect: by receiving the Good Housekeeping seal of approval from the government, an implicit grant of a federal backstop for any new investors, banks that pa.s.sed the tests quickly raised capital and so did the ones that didn't. They seemed out of danger, if not yet starting to haul in the strong profits that were sure to come.

It was a Monday in late spring when the senior staff, both policy and political, joined the president in the Roosevelt Room. Emanuel had orchestrated the meeting to discuss what "the next big thing" ought to be.

A similar meeting in February-when the president decided to go with sweeping health care reform instead of financial reform or a comprehensive energy and environmental program-had been premature. At least that was Emanuel's view. It was a time of crisis, of having to think day to day-"with no playbook, no blueprint," Emanuel would later recall-of a collapsed financial system and fast-sinking economy. Now, if those twin crises had not necessarily been solved, their situations had at least been stabilized.

Emanuel felt it was the moment to make a choice about priorities. It was no secret that he thought the president had chosen wrong in making health care his top agenda item. But so little of substance had happened since February on health care that it was as though Obama had not chosen at all. That was the unspoken opening premise of the day's discussion: hitting the "Restart" b.u.t.ton. It was as though the February discussion were being rerun or, in Obama's parlance, "relitigated."

Teams advocating health care reform and a large energy/environmental program argued their sides. Then Emanuel made his play, one he'd been carefully considering over the past month: financial reform.

"I argued for financial reform for mainly political reasons," he later recalled. "Having done a stimulus and the bank TARP, this was no money" coming from Congress. "Unlike health care or energy," he said, a tough, sweeping plan for fundamental financial reform needed no funding, no "ask" from stingy lawmakers. Emanuel had stepped up in mid-May, with the president otherwise occupied, to get something out in public with the release of Treasury's blueprint. It was Emanuel acting like a president, taking the helm, but it was like pulling teeth. Treasury was understaffed and unenthusiastic, and he'd gotten pushback, with Deputy Secretary Neal Wolin moaning at one point that "this stuff is really hard." Emanuel's response had been fierce. He pointed to a nearby desk and shouted, "Well, Neal, then sit down and start f.u.c.king typing."

But the effort opened Emanuel's eyes to what a plan could look like, and as he stressed in the Roosevelt Room, "We know what we have to do [on financial reform], there aren't any great mysteries here."

The president looked on, asking questions about where different policies-health care, environment/energy-might move from here, how an "action plan" might proceed for each. But as the meeting stretched on, the issue of financial reform took center stage. Again, as in the March showdown about restructuring Citi and other large banks, the key interplay was between Emanuel, Summers, and Geithner, three men who, along with Orszag, were firmly guiding the White House. In that earlier instance, Emanuel had sided with Geithner against Summers's enthusiasm, shared by Obama, for a broad and expensive restructuring of the financial system. Now it was Geithner and Summers against Emanuel. Both men said that undertaking financial reform now would "create an overhang of regulatory doubt" that would slow economic activity when they needed a restored and confident financial sector to drive economic activity.

Emanuel, certainly as attentive to Wall Street's needs and concerns as the duo, was unconvinced. Wall Street always had a complaint, and left to its own devices, it probably wouldn't be driving the recovery anyway. This had been a problem since the previous fall, when Paulson offered the first $125 billion in capital infusions to nine of the largest banks. The idea was that they'd lend the money out, which the banks had committed to trying to do. They didn't, and until the economy rebounded, they wouldn't. Maybe even not then, considering how weighted their operations still were toward exotic trading games and overseas investment. In other words, for something that was chimerical, a long shot, Geithner and Summers were sacrificing an opportunity to show bold leadership. The push for really tough financial reform would be political gold, Emanuel said, because it "had a sense of Old Testament justice."

Others echoed this sentiment. Government's role was not to make the banks profitable, but to stabilize them; that had been accomplished. Of course, the financial sector would grouse and moan and conjure fearful scenarios of being paralyzed by "regulatory overhang." But antiWall Street sentiment still ran high. Congress was at the ready, offering, in this case, the prospect of bipartisan action. It was a rare moment, with populist energy in the two parties moving in concert, and with even traditionally antiregulatory Republicans saying now was a time for steely-eyed rules of the road for an out-of-control industry. Emanuel said that Republicans such as Alabama senator Richard Shelby, the party's top player on banking issues, would be with them, and other Republicans as well: reforms could be pushed through quickly, possibly with big majorities.

The arguments shifted to and fro. Again Obama sat back, peppering each side with leading questions that might help them square the circle and reach consensus. Of course, there was no consensus. Emanuel, in a rare break from both Geithner and Summers-so often his back-channel partners in shaping White House policy-was offering up a more dynamic, carpe-diem model, where a settled but still weakened banking industry would learn who was boss. He was "thinking about this politically," he said later, and "Old Testament justice" had its own, strong political track record.

As the meeting approached the hour-and-a-half mark, though, it was clear that Obama was leaning toward Summers and Geithner, who felt that regulatory actions would undermine confidence, rather than boost it. Any uncertainty, they felt, risked depressing economic activity. "Tim and Larry both argued against it," Emanuel recalled. They believed "it would take a year at minimum, that the overhang of regulatory doubt would slow everything down, and the president sided with them."

The result was inaction.

"I gave the president my view," he said tersely.

Spend time with anyone who is officially larger than life, and they're bound to be restored, hour by hour, to familiar human proportions.

How that shrinkage is managed, though, is crucial. As with so much else around Obama, this was not managed at all for either the thirteen bankers or the health care providers. Both groups had been granted extended face-to-face exposure to Obama. From there, the journeys of these two most powerful interest groups, each at the center of the two great tests of the Obama presidency, evolved along a similar arc. The health care providers were quaking with readily exploitable fear at the Health Care Summit, as were the thirteen bankers when they walked into their meeting. Obama went with hope and consensus, and then, as Daschle said, didn't do much.

As summer arrived, that fear had gone from both groups. Obama may have created a "s.p.a.ce" where solutions could happen, but when members of both interest groups saw him up close, and poked at him a bit, they found he exhibited certain human frailties that might be easily exploited. What they also saw-many of them managers in banking and health care with long experience-were that his words were not being translated into action. In fact, the actions of Obama's top lieutenants often seemed to contradict their boss's strong words and stated intentions.

While in many instances Obama expressed his desire to push forward major reforms to reorder and repair the financial system, the stress tests seemed to indicate otherwise. The banks were offered the sweet deals under Geithner's "Hobbit" programs. The PPIP, or the Public-Private Investment Program, was an arrangement in which the government matched and backstopped private investors who wanted to buy up troubled a.s.sets, to get the toxicity off the banks' balance sheets. No one even bothered to sign up. The stress tests had worked too well. With the government's replacement of Moody's and S&P, and with the a.s.sumption that anyone who invested in the federally endorsed banks would enjoy an implicit government guarantee, the banks quickly began to raise capital to repair their tier-one common capital shortfalls and pay back the TARP money. The incentives on that last part were quite acute: as soon as a bank paid back TARP funds it would wriggle free of the compensation caps-and steal talent from its compet.i.tors. Investing in the U.S. manufacturing or industrial sectors, and even in high tech, remained negligible, and there was no discernible b.u.mp in credit. The banks and their financial subsidiaries went back to earning money the way they had for much of the decade: through exotic, often computer-driven, trading.

In health care, Daschle's fears of April-that if Obama didn't step up and frame this debate, others would-became the hard realities of June. After the mishaps of the May letter on health care cost cutting-over what it meant and who'd said what-the realization dawning on the provider community was "What did it matter anyway?" The inability to frame and force acceptance of some of the era's strongest cost-saving ideas, many of them percolating for nearly two decades, meant that the battle between the two sides in the debate-cost versus coverage-was firmly tilted toward the latter. Orszag and Zeke Emanuel continued to push their concept of an "evidence-based safe harbor," an elegant construct where doctors could get by with lower malpractice premiums if they recommended procedures where there was actually evidence of effectiveness. In fact, the entire comparative-effectiveness mission, with its demonstrable cost savings, was under siege, as would be the case with any encampment left undefended. As Orszag, and later Obama, had long been saying, cost efficiencies are what should drive the expansion of coverage.

In an e-mail sent to the senior staff on June 8, Orszag elucidated how the cost argument was dissolving, both inside the White House and beyond it. Mostly, though, he and Zeke were left to watch as the expanded-coverage advocates-including Nancy-Ann DeParle-ascended. The unspoken default was to do coverage first, pushing the moral issue of universal coverage, and at some point in the future, maybe years from now, the expanded mandate would force a cost crisis that would finally bring all combatants to the table to change the way health care was delivered in America.

At that very moment, though, a visit to Max Baucus's office would have shown where the real action was occurring. Baucus had been holding regular hearings that were tapping the providers, insurers, and consumer groups and drawing almost daily media coverage. But the key events were not transpiring during the long hours of demonstrative debate in the committee's hearing room. They were happening in Baucus's warren of staff offices: providers were slipping in and out of there at all hours of the day.

Coordinating the action from the White House was Jim Messina, Baucus's former chief of staff, who was now deputy chief of staff under Rahm Emanuel. Messina's familiarity with Baucus and his people, seen as an advantage by the White House, had the effect of granting him wide lat.i.tude to cut deals. Baucus's interests and those of the White House, however, were not clearly aligned. The effect was forcefulness, but largely being led by Baucus.

Leading the way for the providers was, not surprisingly, Billy Tauzin. In June, Tauzin stood in Baucus's outer office waiting to iron out some details inside. Indeed, he had just cut a ten-year deal whereby PhRMA would provide $80 billion in cost reductions to ensure that no one from government, in the forthcoming plan, had any say over pharmaceutical costs. Other providers were right behind him. The receptionist gave Tauzin his cue to proceed inside. He smiled. "Still cancer-free. Lucky me!" Indeed.

On June 16 at the White House, David Axelrod reached for the remote and turned up the volume. Obama was doing a press conference outside, about a hundred yards away. The first question was, not surprisingly, about Iran. The streets of Tehran had been exploding for the past week in violent demonstrations about President Mahmoud Ahmadinejad and his allies' tampering with the current election. But beneath the b.l.o.o.d.y events was a startling subtext. Just ten days before, Obama had gone to Cairo to give one of his best, forward-leaning speeches. It was, in its way, a global corollary to the possibilities granted him on the domestic terrain at the start of his presidency. With demonstrations breaking across the globe, including in many Muslim-majority countries, when he won the election and, again, when he was sworn in, this was the speech everyone had been waiting for. It just was delayed, not happening until June 3.

Much like it was in the United States, the stunning speech was not followed with any carefully considered policy shifts. But what was clear was that the Iranians were leaping violently into some of the s.p.a.ce Obama had created.

Those on the streets of Tehran, getting slaughtered by the hard-liner Ahmadinejad's security forces, were clearly looking for some signal from Obama: some strong words of support, a suggestion that the United States was with them. The possibility that Obama could shape events across the world, especially in the Muslim world, with his words, was a victory that Americans had long been waiting for. In the global hearts-and-minds struggle, what could be more important?

The one question for a reporter was one word-"Iran?"-and the great hungry eye of the news turned to Obama. Everyone knew the subtext, and the news commentators, those who were actually paid to provide narration, could handle that. But just for good measure, Obama, as has so often been the case, decided to do a little narration himself.

"It was only-let's see-I think seven hours ago or eight hours ago when I-I have said before that I have deep concerns about the election," he began. "And I think that the world has deep concerns about the election. You've seen in Iran some initial reaction from the Supreme Leader that indicates he understands the Iranian people have deep concerns about the election. Now, it's not productive, given the history of U.S.-Iranian relations, to be seen as meddling-the U.S. president meddling in Iranian elections. What I will repeat and what I said yesterday is that when I see violence directed at peaceful protestors, when I see peaceful dissent being suppressed, wherever that takes place, it is of concern to me and it's of concern to the American people. That is not how governments should interact with their people."

Obama paused as he crafted his finale.

"And my hope is, is that the Iranian people will make the right steps in order for them to be able to express their voices, to express their aspirations. I do believe that something has happened in Iran where there is a questioning of the kinds of antagonistic postures towards the international community that have taken place in the past, and that there are people who want to see greater openness and greater debate and want to see greater democracy. How that plays out over the next several days and several weeks is something ultimately for the Iranian people to decide. But I stand strongly with the universal principle that people's voices should be heard and not suppressed. Okay? All right. Thank you, guys."

Axelrod turned down the volume. The president, given a golden opportunity to use his bully pulpit to direct global events, had decided, instead, to do a bit of exposition about someone-a character named Barack Obama-who actually had no strong personal views on a rare democratic eruption in one of the world's two or three mostly strategically important dictatorships. The broader problem, of course, was the administration's lack of follow-through, where a stirring speech, Obama's strongest suit, was not integrated into any plan of action.

While the president suddenly seemed to be of many minds about Iran, his top political adviser was single-minded, thinking about the possibilities of "moral energy." "Clearly," Axelrod said, "the president has been in a conversation with those people on the streets in Tehran, certainly and powerfully since his Cairo speech." But, he wondered, was it possible to summon "a similar kind of moral energy on the domestic landscape, especially with health care. The question is how the president can talk over the heads of the interest groups and elected officials in Washington, right to the people, and make clear that health care is a moral issue."

A few minutes later, in his tiny office across the alleyway from the White House in the Eisenhower Executive Office Building, Zeke Emanuel was considering his day.

The eldest of the Emanuel brothers, Zeke was such a renowned student that his two younger brothers, Rahm and Ari-the latter a power agent in Hollywood upon whom a central character in the show Entourage is modeled-decided "Why bother?" Now Zeke, a doctor with a PhD in medical ethics, faced the odd denouement of being seen as a threat, as unmanageable, by many in the White House run by his brother. It was soon clear why: Zeke had spent several decades arriving at his conclusions on health care. He had trouble giving them up.

And one of the hard truths about health care was that most Americans were reasonably satisfied with their current situation and fearful of change in an area of such consequence. He explained that most people who had coverage, sadly, didn't care all that much about the one in eight who didn't-folks who mostly just went to the emergency rooms, at great expense, for their basic care.

Zeke looked down at his schedule. He'd had a Health Care Reform Team meeting at 11:00 and had just gotten back from lunch with Jon Kingsdale, founder of the Ma.s.sachusetts Health Connector, an agency that had helped implement that state's 2005 reform. He'd go over legislative strategy in congressional liaison Phil Schiliro's office at 5:00 and then meet with Vermont senator Bernie Sanders. He tore the schedule off the spindle and drew a bell curve, with A plus B on one side of the high hump and C down at the far tail.

"Do you know any chemistry? You know what that is? That might not be great art. This is the potential energy variant of a chemical reaction . . . so A plus B goes to C. But you need to add some energy to get over this hump, even if C is in a better s.p.a.ce and it's more stable and it's better and everything is more hunky dory. Getting over this [hump]-the question is, in our system, can we get over this pain, to get to C?"

Where would this energy come from?

"The president . . . it's the fact that everyone is scared of what we do if we don't reform, how bad it will be. Being scared of losing coverage . . . or my kid won't have coverage. It's all those things; that's the key. But you also need to believe in C." That, of course, would be a clear, vivid, and credible representation of what the future would look like.

As the president sat down for his morning economic briefing on June 18, there was a self-congratulatory air in the Oval Office. The day before, with the release of Treasury's eighty-eight-page white paper and a host of appearances and interviews by senior officials, the administration had taken its first, nascent steps on financial regulatory reform.

The president had led the brigade, with an interview on CNBC. "We want to do it right. We want to do it carefully. But we don't want to tilt at windmills," he said, in a comment that led the morning's papers.

No windmill tilting, meaning nothing too dramatic, despite most news establishments swallowing the president's top line about "the most sweeping set of regulations since the Great Depression." There hadn't really been any since then, so the bar was low. And it was further clear that the president wouldn't be engaging forcefully with Congress or expending political capital on the matter.

The plan was not deep, but it was wide, touching on almost every part of the nation's vast financial industry, from mortgages to capital requirements for banks, insurance regulation, and derivatives trading. It would give added regulatory authority to the Federal Reserve, create a new consumer financial products agency, like the one proposed by Elizabeth Warren, give the government power to take over troubled bank holding companies and investment firms, and require banks to keep a share, albeit only 5 percent, of the mortgage-backed securities they created and sold.

But early criticisms pointed out that the changes were around the margins, rather than fundamental or structural. There were no limits on size, no breaking up of large financial inst.i.tutions, and no remedy for the "too big to fail" dilemma. Standard, plain-vanilla derivatives were destined for clearinghouses and some to be traded on exchanges, but the large, profitable shadow markets for OTC derivatives-the complex "bespoke" products-remained largely untouched beyond added obligations to have trades reckoned by clearinghouses. Several stories, one in the Wall Street Journal, said that Wall Street let out a sigh of relief.

More than the substance of reform, which Obama largely left to Treasury, the president was particularly taken with Elizabeth Warren, whom he'd seen on television. "Wow, she's really something," he said, one telegenic law school professor sizing up another. "Really good. We should get her out there more often." Larry Summers and Anita Dunn, the communications chief, discussed for a moment how to get Warren more TV appearances, while Alan Krueger smiled to himself. It was good Geithner wasn't present. He despised the crusading Warren, head of the commission that oversaw TARP, who had grilled Geithner mercilessly in front of her committee.

Obama nodded to indicate he was ready. Krueger and the other labor specialist among the senior staff, Biden's chief economist Jared Bernstein, had been working with their staffs for weeks on one of the most wrenching briefings of the Obama presidency: the jobless recovery.

Bernstein started by defining a jobless recovery as a situation where unemployment remains high or even rises after the official National Bureau of Economic Research date that marks the bottom of a recessionary trough. So, what do you guys think? Obama asked them. Both felt that a jobless recovery was highly likely, and said that others in the administration agreed. A fresh internal forecast of the so-called Troika-Treasury, OMB, and Council of Economic Advisers-was predicting a whopping unemployment rate at 9.8 percent in 2010.

It was grim glimpse of the future for the Obama presidency: unemployment in 2010 of nearly 10 percent. Obama was pensive. Economics had never been his strong suit, but he could do the political math. That, at least, would mean a disastrous midterm. Unemployment so high would also be a drain on the budget, with a loss of tax revenues, a rise in unemployment benefits, and the cost of added services. Clearly, he said, that stimulus wasn't enough. No one needed to answer.

"All right, let's argue it out," he said, as Krueger pa.s.sed out a one-page briefing sheet. He knew, at this point, how Obama liked it. Not a dense a.n.a.lysis or lots of charts, but rather a few top-line ideas he could use to shape a discussion. It was t.i.tled "Jobless Recovery? Pro or Con," with "pro" bullet points: record low number of hours worked; record high number of permanent layoffs; last two recoveries were jobless. For "con," only one item: "companies are very lean, will find they are too lean and may want to hire."

"Larry, why don't you take that side," Obama said, and three economists hashed it out as Obama listened, throwing in a question or two.

Bernstein emphasized that the number of unemployed workers relative to vacancies had surged and that interest rates implied that aggregate demand would likely be low. Krueger talked about how many key industries-construction and state and local government-might end up shedding more jobs. When demand picked up, hours would rise, but with work hours at a record low, it wouldn't impact job numbers. He then posited that Americans might put up with European-style work hours after the recession. Maybe they'd even want them.

"No, no," Obama interjected. "Here people want the longer hours, because they want the money."

Summers cited Mark Zandi, Moody's chief economist, who'd been predicting a strong bounce-back. He brought in business cycle data, a few behavioral observations, and a few data points indicating that employers were already too lean.

After a bit, Obama shut it down. "Look, I hope Zandi's right that we'll have a quick bounce-back, but we clearly can't count on that." He ran through some obvious items: make sure Recovery Act money is doled out quickly with benefits for job creation; figure out ways to spur further infrastructure investment; look for other ways to increase job growth, such as clean energy. "But we should start talking about it, about a jobless recovery, so we're out in front of this thing."

Obama got up heavily. "Larry, if your arguments about a quick bounce-back turn out to be right, and I don't think they will be, I'll give you a $10 bonus."

Axelrod tried to get some shtick going: "You've offered the bonuses to Larry before. Don't think you've ever paid."

"Sure would be nice to pay this time," Obama said, quietly, almost to himself.