Now, with budgets tight, if these projections were accurate, Obama could be facing real trouble. Of course, more Americans would be too.

A few weeks later, the secretive matter of who would replace Ben Bernanke, or whether he'd be replaced at all, was slowly moving toward a conclusion. The selection process had been delegated to Geithner in the late spring. Someone in Summers's role might otherwise have been involved, but Summers was the leading candidate to replace Bernanke. Larry felt it was knitted into his initial agreement to take the NEC job: barring extraordinary circ.u.mstances, he'd be a top choice for Bernanke's position. Maybe the president had said that, maybe he had just implied it. Maybe it was a case, as Daschle said often happened, of someone reading things into Obama's attentive acknowledgments that weren't always there. In any event, Summers was counting on the Bernanke job. It would be the triumphant capstone of his comeback and the high perch from which to complete his long career. Geithner, from the start, handled it deftly. He had the ever-popular Krueger solicit opinions about candidates from far and wide, including from Krugman and Stiglitz, and a.s.sembled a list of potential appointees. Summers was not concerned, even though he and Geithner were not getting along all that well. The March "showdown" meeting, and the disputes in its aftermath about the stress tests, had left a residue.

What was more, Geithner's star was rising in Obama's estimation, and on this matter he was the key voice Obama turned to in the Oval Office. The president's question: Whom did Geithner feel he could work with most effectively? Geithner said, according to those familiar with the discussions, that he didn't have a preference between Summers and Bernanke, though he felt Bernanke had done a very strong job, was a terrific partner, and had a great deal of credibility in the financial markets. Obama felt that last point suggested a kind of continuity that would be important for the recently stabilized markets. Winner: Bernanke.

Summers was outraged and petulant. He started to list demands to Rahm: A round of golf with Obama. He wanted to walk into major events, such as signature speeches or the State of the Union, with the cabinet, a privilege not given even to the senior-most advisory posts. And he wanted a car and driver, like Geithner had. The behavior was, for want of a better term, childish, and the Obama team's att.i.tude toward Larry began to shift from frustration, and sometimes fear, to eye-rolling incredulity.

As for the demands, Rahm balked. He could manage everything but the car and driver. No one in the West Wing had that. Summers would have none of it. So, for two weeks, as deputy chief of staff Jim Messina raced between the White House and the Baucus committee, he had to search for a car for Larry Summers. When he came up empty-handed, Summers reluctantly accepted two rounds of golf and preferred seating at the State of the Union as consolation.

But the issue of appeasing Summers went well beyond golf.

He was short-tempered in meetings, even more than usual, and began to launch a rearguard a.s.sault for even greater clout, using his broad mandate and closeness to the president to envelop various departments in the executive branch. Summers, who as part of his prenuptial agreement in taking the job had been a.s.sured that he would manage "all economic policy" information flowing to the president, was redefining that mandate to include environmental/energy issues, tax policy, and health care. He wanted what he called "content control" from all those departments. That meant any doc.u.ments, briefing materials, or reports from any of those areas came to him for review, and he'd decide how or whether they upstreamed to the president. In addition, he'd control access to Obama for top officials like energy/climate change czar Carol Browner and health care reform chief Nancy-Ann DeParle. Though Melody Barnes-a widely accomplished scholar, longtime chief counsel to Ted Kennedy, and top domestic policy aide from the campaign-sat atop the Domestic Policy Council (the ent.i.ty designed to oversee and integrate all domestic policy), she as well was no match for Summers, who now had control of virtually the entire domestic sh.o.r.eline.

Next stop, Orszag. Summers wanted "content control" over OMB. Anything intended for the president from OMB, as well as all budgetary decisions, would have to be reviewed first by him. Orszag would lose direct access to Obama; he'd have to go through Summers.

It didn't take long for Orszag to show up at Emanuel's office to tell him this was "outrageous." As compared with the departments of czars like Browner or DeParle, OMB's very purpose since its founding under Nixon was to be kind of management team for the president, distilling actions and options from across the government into their actual costs. Because there was always a limited budget, the OMB directors must keep a president, even with his awesome powers, ever in a conversation with measurable reality. Orszag said he'd be d.a.m.ned if his access was cut off and those choices were served in Summers's rhetorical brew.

Emanuel was sympathetic, but he asked Orszag to be understanding about how difficult it was to manage Summers.

"Come on, Peter, help me out here," he said.

Orszag was incredulous. Help you out? You're the chief of staff!

Emanuel finally stepped in, and Summers backed off, at least for that day. But the ongoing push-and-shove atop the administration, without leadership from either the president or the chief of staff, was leaving lines of authority blurred, roles ill defined, and deepening questions of who-at any given moment-was in charge.

The president did not really have a coherent health care plan to sell. By setting overarching goals and then leaving the specifics of any bill largely to Congress, he had nothing to describe or champion as a better future, as Zeke Emanuel's C. It was just a jumble of proposals without a clear model of how to pay for reform and make good on his pledge to keep it "budget neutral."

Several skilled Washington managers-including former Treasury secretary Bob Rubin and former Reagan chief of staff Ken Duberstein, along with Podesta and Daschle-were, by midsummer, starting to offer advice on how to bring a modic.u.m of sound process to the White House. Without that, several of them stressed, an organization of hundreds of political appointees in the White House and across the tops of agencies couldn't possibly move in unison to a.s.sist the president in making sound decisions and carrying forward his dictates. Things get lost. Initiatives languish or vanish. Or, as was already the case on a host of issues, the White House gets OBE'd: "overtaken by events." The advice focused mostly on the top, the area they were all most familiar with: how to make certain that issues were debated, with options fully explored, and then distilled into a clear set of choices for the president. Once a decision was made, what would be the agreed-upon model of execution-one that pushes forward with constantly checked progress-to advance the leader's wishes?

They didn't make much headway. Emanuel, with his day-to-day focus on "getting points on the board," scrambled for quick results, trying to win each day's news cycle. As Bob Rubin told one of his many acolytes in the White House during a phone call, "Rahm's more inclined to want to get a bill pa.s.sed than really be worried about what's in the bill." Only a few people at the very top, such as Summers and Orszag, had begun to ask if the problem wasn't more fundamental. Maybe the issue wasn't just with the loosely organized and impulsive Emanuel, sitting atop a White House where roles, and lines of authority, were fuzzy. Maybe the problem was with the president himself, an inquisitive man who, as Axelrod said, "moved fluidly from one thing to another"-a fox, in the old Isaiah Berlin allegory, who moved lightly from one place of opportunity to another, rather than a hedgehog, who focused intently on a goal and pushed it through.

Either way, someone had to do something. So, in June, Tom Daschle teamed up with John Podesta, in essence, to run a policy process outside the White House. They pulled together a few leading experts on health care funding, carefully constructed a plan to tax high-end health insurance, so-called Cadillac plans, and then worked back channels with the various interest groups, including labor, to get it off the launch pad. Soon enough, the White House had a way to pay for nearly half its health insurance reform.

Meanwhile, more deals were quietly being negotiated with providers. On July 8 the hospitals secretly cut their deal with the team of Baucus, Messina, and now, DeParle, just as Tauzin had for the pharmaceutical companies the month before. They'd accept $155 billion in payment reductions over the coming ten years, provided that the bill had no "public option," which would have reimbursed hospitals at a lower rate than private insurers.

Axelrod and his political team never pulled together much of a plan to go over the heads of official Washington and speak directly to the American people. Not that this had not been suggested for months, since Tom Daschle, at the Health Care Summit, told Obama that if he didn't step forward to frame this debate, someone else would do it for him.

It just took a few months-until summer-for that to happen.

The Tea Party movement, fueled by Fox News, rose out of the heartland and spread. Talk of "death panels," another brilliant bit of rhetorical mischief from the Republican Party, dominated the airwaves. Obama and his surrogates spent much of July trying to wash the smell of death panels off their skin like someone who'd been in a bad run-in with a skunk.

In early August, as news of Tauzin's deal with PhRMA finally leaked out, the Obama team met in the Oval Office. If Obama was on the defensive, he'd lose all the swing votes, Daschle foretold. He was, and the votes were in flight. Even some solid Democratic supporters of health care reform were on the move. Nancy Pelosi felt she had to step in, to set some sort of anchor to keep the debates fixed and focused. Obama had said during the campaign that he was for a basic government-run health insurance plan for those who didn't have private insurance, that a "public option" would be a way "to keep health insurers honest." He hadn't offered much support for the idea since. Emanuel said, internally, that it was a nonstarter and was not a central plank for the internal plans coursing through the White House policy shops. What's more, the core of the deal cut with the hospitals, not yet revealed, had killed the public option.

Pelosi, meanwhile, saw how the public option terrified the insurers-an existential issue that brought them to the bargaining table, and kept them there. She didn't want to give that up, despite opposition from the American Medical a.s.sociation and other providers. She said that the public option was nonnegotiable-the only way, she felt, for the government to reshape the marketplace.

On balance, it was an utterly incoherent process, where the White House seemed to be of many minds, or none at all, with the House and Senate in open collision, and proposals to significantly reduce health care costs off the table. For opponents of health care reform, the tough decision was whether this should be called ObamaCare or PelosiCare. Both terms seemed to work in stirring up fear and pa.s.sion. The joyous anger on the right was palpable.

Dr. Jack Wennberg, founder, provocateur, and contrarian of the Dartmouth Atlas Project, prides himself on being precise, punctual, and not easily pleased. Of Norwegian stock, from parents who settled in upstate New York, Wennberg liked to hike (usually alone), read reams of medical data, and be on time.

And today, on a crisp, blue August sundown in the mountains near Hanover, New Hampshire, he was running late.

The event was a Friday evening party at an elementary school near Hanover being thrown by the family of his successor, Dr. Jim Weinstein. Just about everyone he knew would be there. That would include the roughly two hundred people, most from both Dartmouth's Atlas Project-the data-fed a.n.a.lytical engine for revolutionary disruptions in American medical care-and Dartmouth-Hitchc.o.c.k Medical Center, the huge, modern inst.i.tute that seemed to have been dropped by some extraterrestrial transport into a notch of hillside just outside of town.

Though it had only been two years since he'd pa.s.sed the torch to Weinstein, it had nonetheless been a period of transition. When the change was made official in 2007, many of those in the Dartmouth community quipped "it's about time"-Jack, after all, was seventy-three-while appreciating how unimaginable it was that anyone could replace Wennberg.

When he first attempted to publish papers in the late 1960s about the enormous disparities in both the frequency and cost of various procedures-with no discernible difference in outcomes-he was shooed away from established medical journals. When the journal Science did publish his work, the problem shifted: he was attacked. Nearly forty years later, he still was still being attacked, but now mostly out of frustration. Once Wennberg started the Center for Evaluative Clinical Services in 1988, he began attracting doctors and researchers of every stripe to Hanover as, specialty by specialty, they began to identify wide or stunning variations in medical practice and then "compare outcomes under controlled circ.u.mstances." The center began to publish the Dartmouth Atlas, doc.u.menting these variations in the way medical resources were used all over the country. One striking example was a thirty-three-fold difference between regions in the frequency of mastectomies and lumpectomies.

When Wennberg and CECS dug into the data on "elective" surgeries they came upon a vast, related line of research: how patients make, or more often don't make, their own decisions-even with elective procedures. Hence the Foundation for Informed Medical Decision Making, an organization that spearheaded the concept, now widely accepted if not often fully implemented, of "shared decision-making"-where patients are helped to actively a.s.sess the risks and rewards of procedures, rather than nodding along with a doctor's recommendation.

Each of these ideas, each step forward, was met with skepticism and often open hostility from the medical establishment. As Wennberg tirelessly stresses, the last thirty years has seen the growth of "investor medicine," where Wall Street looked with favor and enthusiasm on hospitals, pharmaceutical companies, and medical device makers. "It's become more about money and less about care," Wennberg said. "For a hospital to do something that may be good for patients but bad for its profits, it risks having its bonds downgraded or having its investors up in arms."

Nonetheless, the data was irrefutable, making the "Wennberg Variation" accepted dogma. Now Wennberg shared stages atop the profession with the likes of Dr. Paul Farmer, cofounder of Partners in Health and builder of hospitals and clinics in some of the most forbidding corners of the globe. Wennberg and Farmer had just won the annual Public Health Heroes Award at University of California, Berkeley, and Wennberg is finally being credited with forever changing American medicine.

But Wennberg's most auspicious contribution may be the man he helped create and was now hugging inside the auditorium of the elementary school, where a fund-raiser for special-needs children was about to start.

Weinstein, twenty years Wennberg's junior, had a tenured chair in orthopedics at the University of Iowa when he came to Dartmouth to do a fellowship in outcomes-based research in 1994. "As an orthopedic surgeon, I often didn't feel that my patients were getting the information they needed to make their decisions," Weinstein said in a recent interview. "They were talking to me, but maybe that wasn't good enough, because I was a surgeon and surgeons do what surgeons do. Maybe they weren't getting a fair shake."

Wennberg soon had another disciple, but one he noticed had a surprising ferocity. Wennberg learned that Weinstein had a daughter, Brianna, then nine, who had been diagnosed with leukemia when she was one. Weinstein had been on the receiving end of what Wennberg called "an uncontrolled experiment in medicine."

It had been h.e.l.l. There were complications from chemotherapy that had not been well explained. She was given the wrong drugs. And, most tragically, as a toddler she'd been treated with unnecessary radiation that caused extraordinary pain and ongoing disabilities.

What Weinstein had studied at Dartmouth, in terms of unnecessary procedures, he lived when he returned to Iowa. At one point an oncologist threatened to sue him for not accepting a cancer treatment protocol he was recommending. After two years back in Iowa, the Weinstein family moved to Hanover for good in late 1995. Brianna was eleven then. She died a year and a half later.

After her death, Weinstein said, he and his wife "felt it was our obligation to make it better for others. So I decided to try to change the world of medicine from within."

That is where Weinstein began to step beyond his mentor, Wennberg. He became the head of orthopedic surgery at Dartmouth and turned the department on its head. Back surgeries are among the most common, and lucrative, major medical procedures. What Weinstein discovered, using the might of Dartmouth Atlas research and data from within his own hospital, was that many back surgeries offer no lasting benefit to patients. The problem at Dartmouth, like that at hospitals across the country, is what happens once the hard truth is uncovered. There was a department full of surgeons who made their living from these operations. Opting for an array of less intrusive, less expensive, and less profitable alternatives-mostly various kinds of physical therapy-was a formula for economic ruin. Weinstein began what he called "a transition program" to bridge his department to a different model of medical practice. Some doctors left. Others managed on lower incomes. But over the years the situation stabilized. "We simply weren't going to do procedures that had no discernible value-period." Of course, Weinstein, having battled unnecessary treatments with his daughter, carried a tenor of moral authority in this conversation. He could not be opposed. And that made all the difference. "It's Jack's mission and my sadness that came together and gave me direction," Weinstein said. "She was so courageous. She never complained. She fought through all the pain, and the nonsense, and she taught me everything I'd need to know about living this gift of life to its fullest, and with purpose."

Soon Weinstein had gone national, as the princ.i.p.al investigator of the Spine Patient Outcomes Research Trial, one of the largest recent studies funded by National Inst.i.tutes of Health. The multiyear study examined a wide array of spinal surgeries, including the common surgery for lumbar disk herniation, and has found that nonoperative procedures are often a better choice. Slowly, procedures are beginning to change at many of the leading hospitals.

What Weinstein did for aching backs, along the way saving significant Medicare payments, was what enlivened Orszag and intrigued Obama: the possibility of reshaping medical practice in the United States through the power of evidence-based outcomes and data on comparative effectiveness.

It was, however, a long distance still between theory and practice. Though the data was pleasing to technocrats, it remained threatening to the long-established ways of the medical world. Change is hard, as Obama often said, and always driven, in Margaret Mead's famous quip, by small groups of committed people. In this case, it was two headstrong men and one brave young girl.

As the sun set, those two men were working hard at having a good time. This was the Tenth Annual Brie Fund Concert and Quilt Raffle, a tradition started by the Weinsteins after Brie's death to celebrate her memory and here-at the elementary school she attended-raise money for children with special needs, physical and cognitive, like those their daughter struggled with after her childhood radiation.

Brianna's younger sister, Shelsey, a senior at Middlebury College and the first cellist in their orchestra, played an original composition and joined other musicians for six selections, ending with the "Song of the Birds," by Pablo Casals, dedicated to her sister.

The day's big money-raiser is always an ample, colorful quilt made by Brianna's mother, Mimi Weinstein, in honor of her daughter. When Shelsey pulled the winning raffle ticket from the bucket, she looked twice at the name, surpressing disbelief, and then called out, "Jack and Corky Wennberg!" A crowded elementary school auditorium of onlookers gasped, then cheered, as one obstinate middle-aged man pa.s.sed a quilt, a st.i.tched emblem of his inspiration, to an old stick-in-the-mud, and everyone basked in the certainty of what inspiration, and irrefutable data, can achieve.

A team of senior advisers gathered in the Oval Office in August. Rahm Emanuel had been "begging" for a more modest approach to health care reform, dubbed the "t.i.tanic" plan. It would insure more than ten million Americans by widening previous congressional plans to expand coverage for children, and lift the number of single mothers eligible for Medicaid. It could get bipartisan support. "We've always done health insurance in groups: the elderly, the poor," he said, according to a partic.i.p.ant in the meeting. "And we can do it again, with a few large groups, like children. That brings us close to everyone."

Obama resisted. The whole enterprise had been badly botched; that was indisputable. But he didn't want to retreat. He was the president, after all. Phil Schiliro, the head congressional liaison, laid out the grim outlines of a Congress in flight. If the swing votes such as Gra.s.sley or Enzi, or the Maine twins, Snowe and Collins, had ever been "possibles," they were now reaches. They had all been to town hall meetings in their states, crammed with new enthusiasts of government opposition-many of them self-defined as Tea Partiers, some not. But whatever they were labeled, these dissenters were having an effect. Everyone in the room agreed that health care reform had become a long shot.

Everyone, that is, except the president.

Obama looked around at grim faces, and reached back to see if he could touch the fire-the lightning strike that, as Axelrod said, had propelled a man just four years out of the Illinois Senate into the White House. Whether or not there'd been a "wisdom" to those crowds, in Iowa and everywhere else, Obama had to believe there was.

"Look, I feel lucky," Obama said to the dispirited group. "How can any of you not feel lucky? Just look at me. I was elected president of the United States."

The president had lost control of his White House; he had almost no process to translate his will into policy on the occasions when he could decide on a coherent path. But such decisions were rare. A group of four men, all seasoned Washington hands, had a.s.sumed enormous authority in his administration, and the women, who often were more attentive and purposeful in carrying out his wishes, were aggrieved. He was being reviled across much of the country and called a socialist, or worse. His approval ratings, in the 70s in February, had slipped to the signature tipping point of 50 percent, with 43 percent disapproving, in an authoritative Gallup poll of August 24 through August 26.

In a meeting in the Oval Office on September 1, Gibbs quipped about how bad the poll numbers were on health care reform, as others recounted how Obama and his main policy initiative were being framed, far and wide.

"This is about whether we're going to get big things done," Obama said. "I wasn't sent here to do school uniforms."

That barb was directed at Emanuel, who'd been filling the roles left untended by Obama, because someone had to make some decisions. All right, Emanuel said archly, "So, you still feeling lucky?"

"My name is Barack Hussein Obama and I'm sitting here," Obama answered evenly. "So, yeah, I'm feeling pretty good."

What lessons did Obama's days of greatest good fortune hold? When in trouble, dig deep and conjure a defining moment of oratory. It had always worked. It was who he was. As he had prepared his speech for the 2004 convention, some had asked if he was nervous. He laughed, "I've got this. In this, I'm Michael Jordan." He could still give a speech, d.a.m.n it, and that was exactly what he wanted to do. Emanuel now said he should wait. He'd get only one chance at a big health care speech. If he went for it, and it wasn't well received, it'd be a disaster. He would have dropped the last card in his hand. Obama seemed to say, How much worse could it get?

The health care speech, slated as a major address to a joint session on September 9, would have to be written fast, and it would have to be the best of his presidency, Obama told Favreau. This just seemed to fire up both men. It felt like the glory days, and Obama kept everyone at arm's length. Favreau, who had to fly to California for the wedding of another speechwriter on the staff, Ben Rhodes, worked over the long Labor Day weekend, sending Obama pages from a California hotel. Obama hunkered down. Axelrod dove in, too. They had received from Vicki Kennedy a letter Ted had written in the spring, to be released after his death (he died on August 25), calling health care "the great unfinished business of our society," something that was above all "a moral issue," touching "the fundamental principles of social justice and the character of our country." It would be a signature theme in the speech.

The president was suffused with a take-charge forcefulness that was uncommon-he was going to save this thing-and it went beyond what he would say. There had to be substance, so the speech didn't simply lift emotions without lasting effect. He wanted the White House to prepare a detailed plan of where it stood, especially on what he considered the all-important program of evidence-based practice of medicine. In June the president had read a New Yorker article by Atul Gawande that essentially applied Dartmouth's model to look at two counties in Texas with enormous variations in health care costs-one of them, the highest-cost county in the United States for Medicare-but negligible differences in the health of their populations. He ordered the entire senior staff to read it. The matter perplexed Orszag, as the article was just a narrative rendering of what he thought the president understood from their frequent discussions on the matter; Axelrod later said putting the latest findings "in that format was eye-opening for him." But it fired up Obama, and he pressed to add new powers to the Center for Medicare & Medicaid Innovation-which would allow them to direct vast annual payments for those programs around principles of comparative effectiveness-to the White House health care plan. And he wanted that plan, the fully articulated position of his administration on health care reform, to be released along with the speech. In a way, it was to be a detailed rendering of what Zeke Emanuel would call C: how health care in America will look when reform becomes real.

But in senior staff meetings without the president attending, Rahm Emanuel dissented. He felt it would be smarter to remain less specific, as the White House had been to that point, and just release a two-page paper, with a few bullet points and no details.

Orszag disagreed. So did Dan Pfeiffer, the deputy press secretary. "I can't believe we're releasing a two-page thing when the president keeps talking about releasing his full plan in the speech," Pfeiffer said in one meeting. The White House had a plan pulled together, ready for dissemination.

When Orszag was about to say as much in a meeting with the president, just days before the speech, Emanuel glared at him with what Orszag later recalled as a "do not do that" look. The OMB director put a lid on it.

Meanwhile, the president moved, unaware, thinking his comprehensive proposal was to be released along with the speech, which was turning into a tour de force.

Obama worked furiously on the speech and was still rewriting key pa.s.sages on Tuesday, the eighth. Emanuel was screaming-they needed to see "at least one final draft before it's delivered." They would get it for only a few hours on Wednesday afternoon before it had to be finalized and printed for the press. This was an adolescent rebellion against the naysayers, such as Emanuel, who were constantly a.s.sessing the political landscape and saying what could, and mostly what couldn't, be done. On Wednesday, Obama was adding lines, including a few of the most memorable ones. While the facade of his address to Congress was rooted entirely in pragmatism, its beating heart was something much more profound. The speech confronted a more fundamental question: the ident.i.ty of government in the modern era.

Unlike at Obama's previous attempts at rhetorical conceptualizing, his audience had become wary. He had to convince rather than drum up. At first he appeared to be going through the motions, laying out his case for reform. "The time for bickering is over. The time for games is pa.s.sed. Now is the season for action," Obama declared, a secure applause line before "Now is the time to deliver on health care!" Midway through, while the president was countering a Republican claim that reform would cover illegal immigrants, a shout came from the audience: "You lie!" It was Joe Wilson, a Republican congressman from South Carolina.

Obama continued undeterred, churning his way slowly toward his dramatic conclusion. The third act of the speech was a show-stopper. Invoking Kennedy, thoughtfulness, and basic decency, Obama made the most compelling case for liberalism that has been made in recent memory. "We did not come to fear the future. We came here to shape it. I still believe we can act even when it's hard. I still believe we can replace acrimony with civility, and gridlock with progress. I still believe we can do great things, and that here and now we will meet history's test."

Still, the speech was light on substance-many proposals were offered, not all of them fitted inside a sweeping, carefully crafted plan. There was no news, about something Obama was strongly for or against, that prompted surprise. But as is the case with leadership, the content of the speech was secondary to the tone. For the first time since Mana.s.sas, Obama sounded like a man ready to lead. His words were authoritative and moving, making a case not just for health care, but for the community of states and a powerful ethic of shared purpose.

The next morning, Favreau received a note from the president complimenting him on the job. He was sure he knew what the president was thinking. They were all thinking it. They'd recaptured the magic. "Just like the campaign," Favreau wrote back.

Barney Frank, trailed by an aide, was standing in front of a church talking to a cop.

"Excuse me, can you tell me where Wall Street is?"

The heavyset cop, gut over his belt, looked this way and that.

"Let me see, I know it's near here somewhere, but . . ."

Frank stormed off in midsentence.

"All these d.a.m.n cops are from Staten Island. None of them know where the h.e.l.l Wall Street is."

It was September 14, the one-year anniversary of the Lehman Brothers bankruptcy that set off the Great Panic, and the Washingtonians had descended on Wall Street.

Or close to Wall Street.

Barney Frank, the forceful chairman of the House Financial Services Committee and arguably Congress's most powerful single actor in reforming Wall Street, continued to wander the caverns of Lower Manhattan, talking nonstop.

"This time, we've got 'em, we're gonna get reform, something through, October or November . . . wait a minute, Broad Street? . . . No, Wall Street lost it, they have no clout . . . the only issue is the Consumer Bureau, because that's the one where I have to fight community banks on, they don't like it . . . hold on, where the h.e.l.l are we? . . . But when it comes to derivatives, and all those other issues, they're done. These people have no clout . . . Okay, I think I'm getting close . . . There'll be some loopholes they can exploit if the FDIC and the SEC don't significantly increase capital requirements . . ."

He could tell he'd hit home, because there was an uncommon ruckus on the street even at 10:00 a.m. The president was due to speak in Federal Hall, the gold-domed neocolonial temple at the corner of Wall and Na.s.sau. It was a summit, of sorts, between America's two great capitals-one of private endeavor, the other of public purpose.

And it was a circus. Barney slipped in the nondescript side entrance of the New York Stock Exchange and soon stepped in front of CNBC's television cameras to talk about the day's events.

The mood on the network was ebullient. The market was back. Wall Street was roaring forward. Trading profits were high. JPMorgan and Goldman Sachs were soon to book record profits for the third quarter, ending September 30. The stock market had risen from 6,600 in early March to 9,000.

Frank said he was ready to start hearings next week to deal, piece by piece, with the major elements of financial reform.

"These issues are complicated," said CNBC's Erin Burkett. "It's tough. Very few people in the industry understand derivatives and what went wrong and how to deal with them. And you may be the only person in Washington who really, some people say, is capable of drafting a reform bill."

Frank, whose considerable ego had been piqued, offered no refutation-some of the derivatives offerings have thousand-page prospectuses, he said-before taking a halfhearted stab at modesty. "I think highly of Geithner and his staff, Ben Bernanke, Sheila Bair . . . um . . . Gary Gensler!"

In his office in Washington, Gary Gensler looked up at the screen. Wall Street's longtime cover story-derivatives and swaps are too complicated for anyone but them to understand-was at the core of "their leave us alone and let us charge whatever we decide" position. Of course, swaps and derivatives could be understood and regulated just like any other product. Gensler, in fact, was betting on it.

He would have killed to be in New York today. He'd bucked for one of the senior appointed jobs, and may have had one if Hillary had won. But in the months since his confirmation, he was beginning to see how his side-step into the regulatory realm, and an agency, the Commodity Futures Trading Commission, that not one person in a hundred could cite, might work out just fine. He was, after all, a regulator-not a political actor, like those appointees close to the president who were, at this moment, snaking through Manhattan traffic in Obama's motorcade, bound for Wall Street.

As a regulator, he could take the lead on issues of his choosing, which is what he'd done over the summer. In June's white paper on financial reform, many of the elements Frank was discussing on CNBC-resolution authority, a systemic risk regulator, a consumer agency-were noted. A key area, as well, was the regulation of derivatives. Despite what Geithner had said in his confirmation hearings, the white paper had not mentioned derivatives exchanges, only clearinghouses.

Geithner might have demurred with Cantwell on the phone as the vote on his confirmation approached, saying he hadn't meant to say he wanted to put derivatives on exchanges. But Gensler never did.

In August, he released a public letter on the position of the CFTC chairman, saying he would push for "transparent exchange trading" of derivatives. He was staking out a position beyond that of the Treasury Department. Geithner expressed displeasure, in his typically pa.s.sive-aggressive way. "You could have warned me," he reportedly told Gensler.

Barney Frank watched the give-and-take with acute interest. In an interview that the summer, he opined about Obama needing someone like a Joe Kennedy, Roosevelt's first head of the newly formed SEC, because "we're short on people who know how to play Wall Street's games." With all the anger at the industry, just about the only one of those people who could manage to slip through confirmation was Gensler. The idea that Geithner or Summers was like Joe Kennedy, something the president would later say, Frank found laughable.

Wall Street was now watching Gensler carefully. When he said he wanted to put derivatives on exchanges, a collective shudder ran through the largest five banks, which controlled nearly 90 percent of the financial industry's most lucrative, and dangerous, product. No matter how hard they pushed Geithner and various leaders of Congress not to tamper with their $40 billion a year in profits from selling shadowy, over-the-counter derivatives-whose secrecy, where buyer and seller were matched by an investment bank but never met, was the key to their profitability-Gensler kept pushing back. There was no way to control him. As a regulator, he was not directly susceptible to political pressure. And, in Gensler's case, he wasn't bucking for some future job on Wall Street. He had all the money he needed.

But it was more than that. To friends and colleagues, Gensler had committed the cardinal sin: suggesting that the money Wall Streeters made was ill-gotten, that the source of the riches was not the "efficient distribution of capital," as financial-sector CEOs liked to earnestly intone, but rather born of inefficiency.

His favored a.n.a.logy was to an hourgla.s.s. Goldman Sachs and one or two other banks, such as Salomon Brothers, figured out a way, in the early 1980s, to begin to capture the shifting sands of capital pa.s.sing through the U.S. economy in an hourgla.s.s. Goldman, in effect, put its hands around the hourgla.s.s's chokepoint. For every hundred grains of sand that flowed through the chokepoint, say, they'd take one grain. Other financial firms of all kinds "saw this and said, 'Why should those guys have their hands around the only chokepoint,' and they started to create their own chokepoints above and below. Next thing you knew, there were ten chokepoints, and for every hundred grains, ten grains were being taken out, then twenty." By 2007, when the financial industry accounted for 41 percent of corporate profits in the United States, it was arguable that the figure was up to forty or so grains out of one hundred. The question was where did all those grains go, because at this rate the hourgla.s.s would soon be sandless. There was a twist covering that, too. Some of those forty grains went back into the domestic economy, from the consumption of that wealthy army managing the chokepoints. But lots of the wealth went into investments overseas, where returns were stronger than in the United States. And at the same time, the United States refilled the hourgla.s.s with sand, borrowing from other countries and going ever deeper into debt as it did.

The profits in this process flowed disproportionately to the chokepoint kings, who were also called "financial intermediaries." Not only did this type of intermediation not bring much value or growth to the U.S. economy, certainly not nearly as much as the intermediaries' dizzying compensation would suggest, but some, including Volcker, would contend the group had used their positioning and leverage to create a kind of financial cartel. The huge modern derivatives market, of course, was among the greatest of the intermediaries' inventions, where buyer and seller didn't know each other, and no one could figure out the obligations that each intermediary faced. Systemically speaking, a clot in one of the forty chokepoints could slow or stop the flow of sand through the other thirty-nine-meaning the flow of cash and credit through the economy. That, Gensler said, was more or less what happened in 2007, starting the first stages of the recession in December and then culminating with the crisis of the fall of 2008.

What Gensler and Volcker agreed on was that at this point government policy should be focused on how to reduce the might and number of these financial intermediaries. To use a phrase free-market deficit hawks had used for years, their idea was to "starve the beast," constraining how Wall Street made its money and thereby forcing firms to shrink. The endgame, both Gensler and Volcker agreed, might be to push the intermediaries into a choice: if they wanted to keep their jobs, they would have to find ways to invest, in patient and meaningful ways, in American innovation and lasting economic growth.

But Gensler went one step further than Volcker even. That was partly because, while Volcker had the luxury of moral high ground and the freedom of old age, Gensler had to do something harder: atone.

"I'm not smarter than other people," he said. "I didn't invent anything, or build anything, or create lots of good jobs for people to make good lives for themselves in America. I was just lucky enough to be there early, to get my hands around the chokepoint and hold on tight.

"There are people who are really hurting across the country," he continued quietly. "And to say no one knew, or no one's responsible, or we were all in this game together so buyer beware, is not right. The people who helped create the game, and I'm one of them, should say they're sorry and start making amends."

Gensler didn't say that sort of thing publicly, and if a Wall Street CEO had said it, which, speaking frankly, any number of them might have, it would have created havoc. Which is why the Street was handling the Gensler problem very delicately. Their lobbyists had advised them not to make a big stink about what Gensler had proposed, while saying they were in favor of regulation-you bet-and showing enthusiasm for things such as a systemic regulator or resolution authority. Yes, Washington could employ as many new regulators as it needed. But right now, as the industry, with government support, had begun to earn its way out of trouble, Washington shouldn't tamper with the way Wall Street made its money. Not now. What was past was finally past, already being forgotten as confidence returned. Add regulators if you want-regulators can be managed-but don't turn our beloved market principles against us.

"I don't think we can let everything that happened be so easily forgotten," said Gensler, polishing a speech he was due to give in Washington that afternoon, a speech no one would cover, with all of the focus on the goings-on in New York. "I mean, I just don't. I think we have to reform the system. And yes, we're talking in my little world about some paradigm shifts . . . It's okay to talk about paradigm shifts, to bring everything onto transparent electronic markets so people can see where it trades, and see if they're being ripped off, and can get a better price elsewhere. Then everybody says, well, but you'll thwart innovation. I don't think you thwarted innovation back when you had stock trading move to transparent exchanges. What it'll do, like it did then, is kill off some overly fat margins. I call that progress."

Moving between the two capitals, Barack Obama reviewed his Wall Street speech aboard Air Force One.