Second, when the economic team does not like a decision by the President, they have on occasion worked to re-litigate the overall policy.

Third, when the policy direction is firmly decided, there can be consideration/reconsideration of the details until to the very last moments.

Fourth, once a decision is made, implementation by the Department of the Treasury has at times been slow and uneven. These factors all adversely affect execution of the policy process.

In the lean, bloodless prose of management consulting, Rouse articulated what would traditionally be seen as insubordination, certainly in terms of the second and fourth items. The idea of an adviser working to reopen and "relitigate" policies because he disagreed with a presidential decision, or, as was the case with Citibank, ensuring that "implementation" was sufficiently "slow and uneven" to kill a presidential decision-or, in Rouse's terse term, "adversely affect execution"-amounted to fireable offenses. They had been willful.

The memo went on to discuss various remedies for the problems, including replacing Summers, and laid out the case both for and against: Larry Summers' large personality and intellectual brilliance lies at the core of any a.n.a.lysis of this problem. He occupies unique and important s.p.a.ce within the administration. A former Secretary of the Treasury, Larry accepted the NEC job, essentially a staff job, with the understanding it would be a short-term appointment. His persona, credibility and expertise are extraordinarily helpful to the new president, and the president relies heavily on Larry's intellect and economic council [sic].

But, the year one review goes on to state: The economic team dominated by Larry has too much "rolling dialogue" with POTUS on various economic policy matters, which strengthens Larry's power to shape policy. Larry on the other hand believes we have not lived up to our representations to him or established his primacy on the economic team. He dismisses the criticism that he doesn't run "an honest policy process" but rather feels our empowerment of Christie, Peter, Nancy-Ann, Volcker and Carol have complicated his job. To him any deficiency in the economic team is not solved by the addition of new personnel but rather by the establishment of "new rules of the road" that empower him to run the economic team as he sees fit.

Summers, having built capabilities since childhood for never, under any circ.u.mstances, admitting error, was once again embracing a writ of infallibility.

Meanwhile, his partner in shaping the administration's policy/politics calculus, Rahm Emanuel, was everywhere discussing error. Not his own-Emanuel was almost Summers's peer in never acknowledging a mistake he himself had made. No, it was the president's error in holding tight to the ideal of comprehensive health care reform, even after the Scott Brown surprise. Brown, after all, gained plenty of support billing himself as the "41st vote against health care reform," and this in the one state that had a program much like the plans that had been working their ways through Congress.

In a host of stories, Emanuel was cited, often through surrogates or not for attribution, as suggesting-as he had the previous summer-a scaled-back version of health care. Pelosi was vocal in her opposition to this, disparaging the chief of staff as an "incrementalist" while vowing that she would only support sweeping reform and calling his version "kiddie care."

The coup de grace was a column by Dana Milbank in the Washington Post on Sunday, February 21, headlined "Why Obama Needs Rahm at the Top." The column was almost a point-by-point reb.u.t.tal to criticisms of Emanuel that had been building inside the White House for a year but were only now-in the past month-starting to sprout up in news reports.

Emanuel later said he didn't cooperate with the story-a line seconded by Milbank-but Rahm could have hardly written the column better himself, laying out his case that, in Milbank's words, "Obama's first year fell apart in large part because he didn't follow his chief of staff's advice on crucial matters." And that "Emanuel is the only person keeping Obama from becoming Jimmy Carter." Noting that the "earthy and calculating" Rahm was the ideal counterpoint to an "airy and idealistic" Obama, the column listed a host of instances-including the proposal to close the Guantanamo Bay prison and the trial of 9/11 hijacker Khalid Sheikh Mohammed-where Obama erred because he ignored Emanuel's advice, culminating in "Obama's greatest mistake" of "failing to listen to Emanuel on health care." Then Rahm's "health care lite" position from the previous summer, of going to "a smaller bill with popular items," like widening coverage for young adults and children, was laid out, including the endgame of how "a politically-popular health care bill would have pa.s.sed long ago, leaving time for other attractive priorities." Instead, Milbank noted, "the president disregarded that strategy and sided with Capitol Hill liberals who hoped to ram a larger, less popular bill through Congress with Democratic votes only. The result was, as the world now knows, disastrous."

Obama, struggling to publicly clarify his own position on health care-and having been just treated, days before, to Rouse's latest incisive memo-was livid.

He summarily called Emanuel into his office and "really laid him out," according to one source close to the president who was familiar with the meeting. "The president laced into him along the lines of 'so tell me again how you're right and I'm wrong.' "

Emanuel was contrite. The president had had words with him before, said a senior official familiar with the matter, "but, always, a few weeks later, it was like they'd never talked. Emanuel was back in his usual form. The president's view, in general, was, 'Well, that's Rahm; he can't help himself.' "

Both men, after all, were under a great deal of pressure-something the president saw as born of extenuating circ.u.mstances. Just a few months before, in December, as issues both foreign and domestic crowded in on the White House, and no const.i.tuency or interest seemed capable of being satisfied, Obama and Emanuel joked that their fantasy was to someday open a T-shirt stand in Hawaii. And the key to their success, and psychic well-being, would be in limiting choices to only one size and one color. Morning meetings would start with Emanuel saying "white" and Obama, with a smile, responding "medium." The next day, they'd switch.

But the blow-up in February changed things.

The combination of Emanuel's public antics and Rouse's incisive memos seemed to have dislodged Obama, to have b.u.mped him forward into uncharted territory, even if it was just a few steps. Save Rouse and a few others, he was beginning to leave his staff behind.

Emanuel, when asked later about the Milbank column and the follow-up meeting in the Oval Office, didn't dispute the basic play of events, before noting simply, "I'm not let go."

"When this history is written, this will be seen as the start of the change," said a senior aide to Obama. "I think the president realized he needed a new senior staff-that he needed to start taking back ownership of his White House-and, for starters, he'd have to figure something out on health care on his own."

In a meeting in the Oval Office, Phil Schiliro suggested options for regaining primacy in the health care debate, one of which was a "meet the enemy" strategy. Obama immediately liked the idea. Just as he'd tried to reach back to the campaign for lessons and ways of engaging that might be useful for him as president, he was now reaching back to the early months of his presidency, when so much was possible. He felt that the summits from year one had gone well. Fine, Obama said, let's try it again, but this time the summit will be a debate. He'd be civil and welcoming as he met the Republicans under hot lights to hash it all out. There was plenty that the two parties agreed about-after all, health care largely comprised what had once been Republican proposals, such as the health exchanges. The areas of differences would be highlighted. It was a way to take control of the debate. A long discussion/debate, like the ones he'd mastered in seminar rooms at law school or community centers on the South Side, was his forte, something he was very good at. His advisers, virtually to a one, were nervous: this could backfire in all sorts of ways.

But desperation had created the seeds for growth. Consensus among his advisers, though desirable, was no longer a prerequisite for action.

On February 22, Obama led the Democratic leaders of both the Senate and the House to Blair House, across from the White House, to meet their opposite numbers in the Republican minority. It went well. Representative Paul Ryan, the rising Wisconsin Republican, and Tennessee's veteran senator Lamar Alexander made strong efforts for the Republicans, fencing with the president. But Obama was in rare form. When McCain offered an arch comment with a partisan edge, Obama dispatched him: "The campaign's over, John," leaving McCain to murmur, "I know it is." It was, however, a glimpse of Obama as the kind of confident public actor many had not seen since the campaign, this time engaging directly with the Republicans on the substance of the health care debate.

Obama was buoyed coming out of the meeting-his confidence up-and he felt the strength to turn to someone who he knew would be mercilessly honest with him: Nancy Pelosi.

She was. From this point, with so much of the original bill gone, they just had to ram home whatever they could preserve. Giving up, or going back to the drawing board, as Rahm's plan would have required, could be politically disastrous. If she and Obama just went for it, without reservation, progressives would support them for their ideological clarity, and moderates would join in, simply having nowhere else to go. It would be messy, but politics is messy-by design. You can't preplay the game, Pelosi urged. Let's just get on the field and start playing.

"You go through the gate. If the gate's closed, you go over the fence," Pelosi said to a group of supporters in San Francisco in late January. "If the fence is too high, we'll pole-vault in. If that doesn't work, we'll parachute in. But we're going to get health care reform pa.s.sed for the American people."

In the ensuing month, that riff had gone viral. Now Obama and Pelosi were working in concert. "I think [Pelosi] is the one who has kept the steel in the president's back-and I think she represents that to Harry Reid, too," said Pelosi's friend, Representative Anna Eshoo.

Shucking off his White House handlers, Obama lunged forward to see what he could salvage. A bloodbath ensued. The only way forward was through the loophole known as reconciliation, a parliamentary mechanism to force matters when budgets need to be pa.s.sed to stop a government shutdown. The unpalatable Senate bill, which included a slew of infamous backroom deals (the "Cornhusker Kickback," the "Louisiana Purchase"), would have to be used. With no Republican votes in the Senate, reconciliation allowed Democrats to pa.s.s the bill without needing a supermajority. In exchange for safe pa.s.sage by the House, the Senate adopted amendments to the financing of the bill that required only a simple 51-vote majority.

But there were small skirmishes to be navigated. Bart Stupak led a team of pro-life Democrats in threatening to vote against the bill if it included certain language regarding insurance coverage for abortions.

Pelosi intended to win, at all costs, and began relentlessly culling together votes. On March 12 she dispatched a memo to members of the House caucus saying, "We have to just rip the Band-Aid off and have a vote."

In the last week, Pelosi needed to wrangle together 68 votes. With a March 21 vote scheduled, she got members, one by one, to make private commitments. Obama started politicking harder. He canceled trips, and called or spoke with each of the 68 undecideds, one phone call after another. Perhaps the most dramatic reversal was Dennis Kucinich, the feisty Ohio progressive who had opposed the bill due to its not including a public option. On March 17, with four days to go, he flew with Obama on Air Force One. After the flight, he announced he would vote for the bill.

It was a watershed moment.

Health care had already been stripped to the bone, a shadow of the once-sweeping comprehensive plans in which reductions on health care costs would pay for the moral might of universal coverage.

After all the madness, it was, in fact, just as Daschle had warned in April of 2009, when he said, "You don't want to be doing this a year from now." With no Republicans-as Daschle had also predicted-a stripped-down bill pa.s.sed the Senate under reconciliation.

After pa.s.sing the filibuster-proof Senate in December by a margin of 6039, the bill pa.s.sed the House on March 21 at midnight, with a vote of 219 to 212. Republicans opposed the legislation in lockstep, denouncing it as socialism, and 34 Democrats joined in voting against it.

Obama called a press conference in the East Room of the White House and delivered his culminating remarks. "After nearly a hundred years of talk and frustration," he said, referring to the first signature attempt to reform health care by Teddy Roosevelt, "we proved we are still a people capable of doing big things."

But by the time it pa.s.sed, almost no one could feel great about it. The process had been so ugly-and the end product so convoluted-that even its fiercest apologists would acknowledge that it was a bill that was only a start.

In Obama's mind, it didn't matter. The bill had pa.s.sed, and not only had he saved face but the bill "would lead," he'd later say, "to a better system."

Two days later, on March 23, Obama raised a pen to accomplish something that had flummoxed presidents for generations.

By signing into law the Patient Protection and Affordable Care Act, comprehensive health care reform, he guaranteed access to coverage for millions of uninsured Americans.

The bill promised to expand coverage to thirty million uninsured by providing subsidies to lower- and middle-cla.s.s Americans while expanding Medicare.

Perhaps the most important aspect of the reform was the "individual mandate," a component of reform that Obama had vociferously opposed in the primary against Hillary, but had replaced the failed "public option" as the cornerstone of the legislation.

That "mandate" required all Americans to buy insurance-some of whom had voluntarily opted not to-or pay a fine. That stipulation would prove legally problematic down the road, but with the law on the books, Obama had accomplished his goal.

The legislation would be more accurately defined as "insurance" reform than "health care" reform, since the centerpiece was mainly an expansion of the private insurance industry.

The grand ideals of cutting costs while improving care-a promise carried in the Dartmouth data and examples of signature hospitals that had managed this feat by embracing concepts of "comparative effectiveness" and "evidence-based" practice-was left to pilot programs and some new powers accorded to Centers for Medicare & Medicaid Services. CMS, which administered the huge government health programs, had limited authority to use its payments to reward or penalize based on these principles. A prime target of this financial encouragement would be doctors and hospitals that banded together into Accountability Care Organizations, or ACOs, where they could keep the savings resulting from an embrace of "best practices" and related efficiencies in providing care. Of course, it was just a start: the ACOs, in several years, were expected to comprise only 1 percent of overall care.

And so with dignitaries looking on, Obama signed the bill with twenty-two separate pens. He had sacrificed a great deal-some would say too much-but his dream, his "legacy," was carved onto a hard partisan landscape.

With health care done, Peter Orszag began to think of "when" rather than "if." When would he leave-how soon and under what terms.

The battle over health care reform, as much as any legislative battle in recent history, had bludgeoned the public discourse so thoroughly that many politicians on both sides of the aisle, as well as everyone in the administration, were simply relieved to have it over.

Orszag would be in that category, even if he was having trouble mustering the enthusiasm that was gushing forth from colleagues in the White House and from many press accounts full of Rooseveltian parallels.

Maybe Orszag was just too close to it. He had come to work for Obama with an almost messianic hope that, finally, comparative effectiveness and efficiencies would bring better health care to America at lower cost, savings that would make universal coverage affordable. Along the way, his beloved federal budget would be saved from its so-called unsustainable future.

The law, at day's end, relied on projections-and no one knew better than Orszag how hard it was to project a year or two into the future, much less ten or twenty. If thirty-two million of the uninsured, out of nearly forty-six million, ended up with insurance after the law's full implementation kicked in in 2014, the power of diversified and distributed risk-the miracle, always, of insurance-would help measurably, if modestly, with overall costs.

The law's newly formed Center for Medicare & Medicaid Innovation, within CMS, would become a vehicle for rewarding best practices in the funding and reimburs.e.m.e.nt choices made by government for Medicare, Medicaid, and the Children's Health Insurance Program. If so, there was a chance that some of the efficiencies would take hold. The same was true of the accountability care organizations (ACOs), a rather clumsy term for a network of hospitals and doctors and related health care providers that shared the responsibility in caring for a group-with a minimum set at five thousand Medicare beneficiaries across three years. The key incentive is that those ACOs that saved money, while meeting "quality targets," got to keep a part of the savings; the idea was that they'd do this by relying more on the overall wellness of their population and focusing on preventative care, and less on the expensive and exhaustive testing and procedures that defined the fee-for-service model.

At least that was the concept. But the start would be small. The Department of Health and Human Services estimated that, in the first three years, ACOs could save Medicare as much as $960 million. That would amount to less than 1 percent of Medicare spending.

As for Orszag's beloved "safe harbors"-where providers who embraced evidence-based, best practices would qualify for lowered insurance rates-and a related provision for the creation of special medical courts? Pilot programs.

Meanwhile, the law's expansion of coverage was, some critics were already contending, an inverted version of the "starve the beast" concept that far-right Republicans had long embraced: namely, cut taxes, starving the government of revenue, and the ensuing budgetary crisis will force government to make deep cuts and shrink dramatically. Health care reform's version: the widened government mandate to cover everyone-especially as baby boomers aged, by the thousands per day, into Medicare-would soon enough turn the lack of serious cost controls into an existential budgetary crisis for America. Then something drastic would have to be done. The key: it would be government's problem to solve. Somehow finding a way to make universal coverage affordable was now on their ledger, an ent.i.tlement.

After nearly twenty years in government, and though only forty-one years old, Orszag had lost his appet.i.te for that battle, or for the American government's ongoing and, it would seem, deepening bouts with budget crises.

And a big one was coming. Since the transition days, he'd warned that if health care reform didn't dramatically bend the "cost curve," rising Medicare and Medicaid costs would combine with deficits from the ongoing recession to make the 20102011 fiscal year budget a backbreaker.

The bottom line was that the budgetary issues had been pushed along, Kick the Can style, as the need for stimulus and the attempts to push through sweeping reforms took priority. The administration's pitch was always the same: We'll build a brick wall down the road. It'll be solid and credible and unbudgeable. Until then, the administration will spend freely, as is needed in a recession.

Biden had been brilliant in December, negotiating a raised debt ceiling in exchange for the creation of a bipartisan National Commission on Fiscal Responsibility, headed by retired Wyoming Republican senator Alan Simpson and Erskine Bowles, Clinton's former chief of staff, an all-around responsible appointee, to shape a plan for a sustainable fiscal future.

But Orszag knew that the plan's nonbinding recommendations, due out in December 2010, wouldn't be embraced unless there was a sufficient political rationale at that moment. Brick wall? More like a discussion of where such a wall might be placed, if that.

Orszag decided he wouldn't stick around to fight that battle. Soon, he was sitting in the Oval Office.

Obama said he didn't want him to leave. Orszag stuck with substance. He discussed his concerns that they'd left themselves in a budgetary vise-that delaying the pain of real fiscal rigor, the setting of nonbinding placeholders such as the Simpson-Bowles commission, and Orszag's sense that they'd be ducking the tough choices again-meant he'd "have trouble selling" the coming year's budget. The president looked at him skeptically. He knew Orszag was displeased where things were going on the budget, but, Obama said, "we can work those things out-it's still early."

Then Orszag took it down one more step. "I come in every day with a lump in my chest," he told the president. The tension, the chaos, the infighting, especially the battles with Summers-it had all made life hard to tolerate in the White House, Orszag said. It wasn't that he was unfamiliar with a high-pressure, high-stakes effort, after six years in the Clinton administration. But this was different. "I think there are going to be some changes coming in terms of personnel that'll be helpful with all that," Obama said.

The president had received a few more memos from Rouse. Without giving Orszag the specifics, he wanted to let his...o...b..director know that there might be some departures among the senior staff that might provide relief. "I don't want you to feel that way, Peter," Obama said, genuinely concerned. "I really don't."

Sitting with Obama, Orszag couldn't help but think of what the president might have accomplished if, as Orszag said, he had a "proper process to fill his needs."

And thinking of the president's fortunes brought him back to Summers's a.s.sessment-expressed in many ways until this spring-that they were "home alone."

He'd thought about it, and turned it over in his head countless times, in the tumultuous year and a half since joining the administration.

Orszag felt the president had great "raw ability," but was stymied by a process that Summers, for the most part, oversaw, like "someone stealing gas from your gas tank and then criticizing you for not being able to drive your car."

In economic policy meetings without the president, Summers would joke that they were all caught in "relitigation roulette," where the outcomes of important policies-like a spinning roulette wheel-were left to blind chance.

But Orszag and others said that the quip was something of a misdirection on Summers's part, as Larry stood in a central role in determining those outcomes.

How did he do it? "By willfully ignoring the president's wishes and relitigating again and again decisions the president had made because Larry didn't think they were well informed or this or that. And instead of actually coming back to him with more information, he came back to him with the same information, just repackaged a little."

What issues? Orszag, like others-including many of the women who thought Summers's "debate society" had hijacked their policies-can tick off a long list. Obama wanted to move forward on tough climate change legislation; Summers was opposed, telling Orszag, at one point, "we have to derail this!" It was derailed. A financial transactions tax on banks and financial inst.i.tutions, to try to tame the trading emphasis that has swept those industries and, along the way, raise money: Obama said, in one meeting, "we are going to do this!" Summers disagreed; it never materialized. The list goes on.

"Larry just didn't think the president knew what he was deciding," said Orszag. Sometimes, the result was just long delay. The president was, from early in the administration, pushing for discretionary freeze on spending. Orszag favored that as well and wanted to make a presentation on the matter. Summers said to him, "You can't just march in and make that argument and then have him make a decision because he doesn't know what he's deciding." In that instance, after long delays, the president did champion the discretionary freeze. But either delay or defeat of the president's wishes generally defined the course of events.

"The fundamental question is did the president want a check on his decisions ex post facto? Did he actually want the relitigation roulette, because he recognized that his instincts weren't correct? Or was this outright and willful" on Summers's part, that "I know more than the president, flat-out. That strikes me as more likely."

Even as Orszag sat with the president on that spring day in the Oval Office, he was perplexed, and all but exhausted with frustration. Word had circulated for months through the West Wing of Rouse's reorganization, with a special focus on an economic team which-with so many domestic crises-was the core operation of the Obama presidency.

"The question is why didn't [Obama] stop it. People knew. People realized the process wasn't working, and they kept saying it. By spring of 2010, when I was saying I just don't want to do this anymore, they kept saying they would fix it. And they set deadlines that were, of course, missed . . . but, the president didn't say, 'G.o.ddammit!'

"He didn't demand that it be changed," Orszag said, reflecting, a year later, on his tenure in the White House. "And that can't be healthy."

Which is why sitting with Obama, in this exit meeting, Orszag felt a kind of sadness. The promise of Grant Park, of the inauguration, of all those grand plans. It now seemed so far away.

"Peter, thanks for your hard work," the president said. "I want you to stay in touch with me."

"Of course, Mr. President."

16.

Mind the Gap.

The cost of not "using the crisis" in the early days of his presidency to retool the financial services industry-the power plant of the U.S. economy and, in large measure, of the American way of life-was being acutely felt by the spring of 2010.

After his interest in restructuring the industry, beginning with Citibank, was sidetracked, Obama fell back to the stance that meaningful reform would arrive as soon as the financial system was stabilized.

The industry managed to play to this conditionality to its fullest-saying it remained "fragile" across nearly a year, even as the largest banks were hauling in record profits.

This drew some angry words from the president, especially after another harvest of year-end bonuses was reported in January 2010. But whereas his opprobrium of the year before, when he called such bonuses "shameful," struck fear into the mercantile hearts of Wall Street, his words now had little effect.

The princes of New York had sized him up. He'd already been shorted by the Street.

While he was able to regain his footing to salvage health reform, winning a measurable victory-albeit far less grand than his Inaugural ambitions-financial reform was different. It always was. An individual's options for health insurance, sticker shock from a hospital bill, or fear of being left sick and not covered in old age always carried visceral relevance to daily life that was missing in regard to reforms of the way money and risk were managed.

Advantage Wall Street. The effects of its actions were pervasive, but felt secondhand, where the distressed party was often made to feel that a bad outcome was his fault.

The only things that carried health care's kind of day-to-day, kitchen-table relevance were low interest rates and the ups and downs of the stock market.

As long as those two, linked issues were in the plus column, people would feel a sense of some forward motion. Bernanke kept rates low. The Dow had rebounded from 6,200, its low in early March 2009, to 10,000 by the early spring of 2010.

The Street still focused on the profitable trading of debt securities. Even with the market's rebound, debt remained king, roaring back with a variety of successful arbitrages.

But, if nothing else, the public at large was beginning to better understand the meaning of the word "arbitrage," long at the center of the Wall Street lexicon. The famous phrase "mind the gap"-long heard on the London Underground system to alert riders to the treacherous little s.p.a.ce between train and platform, and now widely used-was particularly instructive. Arbitraging, in its many forms, is about minding the gaps-gaps between the way things are and the way they should be, or soon will be-all over the global economy, and then having the speed and flexibility to profit from them. These gaps, mishaps, irregularities, or, in economic parlance, "inefficiencies," are often small and ephemeral, which makes volume the key. A hundred basis points are nothing much on $1,000. Just 10 bucks. On a $100 million, it's real money; on $1 billion, that much more.

And that's the game, the goal of the relentless hustle: to s.n.a.t.c.h those few hundred basis points by swiftly pushing lots of capital into tiny cracks in the global markets, and then pulling it out just as fast. This doesn't create much of anything-such as new jobs, the way a company might with a fresh invention or a product launch, or even a service that fills a tangible need. It just profits the customer of the arbitrager, and the arb himself-most, still, are men-who's committed, with every available corpuscle, to find "risk-free profit at zero cost." That's the standard definition of arbitrage: it's also called something for nothing; or something gained from something else going terribly wrong.

The great arbitrage of the Great Panic and crash involved interest rates. The Fed's policy, from 2007 onward, was to depress interest rates, pushing them to the lowest levels on record. This was intended, of course, to spur lending and consumer spending as the country slipped into its deep recession. With household debt at a stunning 130 percent of GDP, low rates were seen as the best way to keep cash in people's pockets, as opposed to paying debt service, so they could spend it. They could refinance their existing debts at a lower rate, maybe pay some of them down, or get new credit at attractive rates to help stave off financial collapse, to keep their b.a.l.l.s rolling. All these things happened, but only very modestly. While the cost of funds for banks-something directly controlled by the Fed-dropped to less than 1 percent, the rates for mortgages, consumer credit, and small business loans didn't drop quite as much, and profit margins for the purveyors of debt, of all kinds, grew. But by early 2010 it was indisputable that this had not spurred fresh lending. Banks, both shadow and traditional, a.s.serted that individuals and companies, especially small businesses, were already carrying unsustainable levels of debt, and that quality customers were scarce. Mortgages, the lodestar of risk and reward in the debt world, were defaulting at record rates; car loans and credit card defaults were not far behind. The heightened risk of default meant there was little downward pressure on consumer credit rates, just better spreads on any loans that were being made.

Nonetheless, the Fed kept the spigot open, hoping for a change. It had become history's lowest-cost lender, sending off, between the fall of 2007 and the end of 2009, nearly $3.5 trillion in essentially interest-free money to banks, nonbanks, finance companies, state governments, investment trusts, foreign governments, or anyone hanging out a financial services shingle, many of whom would sign on to an arrangement where recipients could keep any profits gained from putting that money "to work," while the Fed ate any losses. Of course, for Bernanke there was a secondary, and largely unspoken, purpose of unleashing this river of free money: to help anyone in the management of money and risk earn his way out of trouble, and then some. This particularly troubled Paul Volcker. In an Oval Office meeting back in the spring of 2009, he saw this bank-support program launched and complained that government was doing too much to restore the existing, flawed system, and that banks were certain to use all that free money to churn up huge profits. "Does it have to be so frothy?" he queried the room, with evident frustration.

Geithner's position was: to be safe, yes, it does. On that score, the Fed's program, complemented by various grants and guarantees from Treasury, succeeded wildly.

By early 2010 the banks had, in fact, notched their easiest victory in years by simply lending that fresh Fed money back to the planet's largest, safest, and still hungriest customer for debt: the U.S. government itself.