The Powerless Presidency

By Ryan Lizza, The New Yorker

06 March 13

ast Friday's press conference by Barack Obama marked the end of an era. It was March 1st, the day that the sequester was set to kick in, and the President had just come from a meeting with congressional leaders in the Oval Office. On the eve of previous fiscal deadlines, the White House and Congress often found a way to reach a deal, even if it was only a patchwork solution or a temporary fix. Not this time.

A deal on the sequester was never really possible. Back in January, in return for agreeing to raise the debt ceiling for a few months, conservative House Republicans demanded that their leaders, John Boehner and Eric Cantor, allow the trillion dollars of cuts in the sequester to take effect. The White House, which wanted additional revenue as part of the replacement for the sequester, saw the G.O.P.'s all-cuts approach as a nonstarter, which means that sequestration is likely here to stay. (I wrote about the House G.O.P.'s road to the sequester in an article about Cantor last week.) When one considers that the alternative scenario was for House Republicans to precipitate a government default and a potential global financial crisis, the sequester cuts and the estimated three-quarters of a million jobs that they will cost this year are not so bad.

At Obama's press conference, after he explained the negative effects of sequestration, he cast blame on the Republicans, and a reporter challenged his analysis. "It sounds like you're saying that this is a Republican problem and not one that you bear any responsibility for," she said to the President.

Obama seemed taken aback. "Well, Julie, give me an example of what I might do."

Obama's slightly testy response is worth considering. I don't remember a President ever publicly expressing a similar sentiment. All Presidents come to appreciate the limits of the power of their office, and there are reams of quotes from Presidents privately expressing disdain for Congress's unwillingness to bend to their will. But rarely do they ventilate such thoughts in public.

A little later, Obama, using a reference from "Star Wars" (with some "Star Trek" mixed in), went even further, giving a short lesson on the separation of powers:

I know that this has been some of the conventional wisdom that's been floating around Washington, that somehow, even though most people agree that I'm being reasonable, that most people agree I'm presenting a fair deal, the fact that they don't take it means that I should somehow do a Jedi mind-meld with these folks and convince them to do what's right. Well, they're elected. We have a constitutional system of government. The Speaker of the House and the leader of the Senate and all those folks have responsibilities….

This idea that somehow there's a secret formula or secret sauce to get Speaker Boehner or Mitch McConnell to say, You know what, Mr. President, you're right, we should close some tax loopholes for the well-off and well-connected in exchange for some serious entitlement reform and spending cuts of programs we don't need. I think if there was a secret way to do that, I would have tried it. I would have done it.

The tendency of many Washington pundits, especially those who cover the White House, is to invest the Presidency with far more power that the Constitution gives it. The idea that the Presidency and Congress are co-equal branches of government is the most basic fact of our system, and yet it is often absent from political coverage of standoffs between the two branches. If only Obama would lead, this fiscal mess would be solved! If only he would socialize more with legislators the way L.B.J. did, his agenda would pass!

The pundits are not alone in assuming that the President is all-powerful. Indeed, the fact that Barack Obama now so appreciates the limits of his office and his lack of Jedi powers is rich with irony. As I've written about before, the premise of Obamaism - from his famous convention speech in 2004, through his primary challenge to Hillary Clinton, in 2008, right up until the later half of his first term - was that Obama was a politician uniquely suited to transform American politics by breaking through the polarization in Washington and bringing the two parties together.

Obama's theme of post-partisanship and unity as a substitute for political ideology has always had its critics. Sean Wilentz, writing in The New Republic, in 2011, noted that Obama

had arrived on the national stage, after all, with his speech at the Democratic National Convention in 2004 proclaiming that there was "not a liberal America and a conservative America - there's the United States of America."

As president, Obama would not only reach across the aisle, listen to the Republicans, and credit their good ideas, but also demonstrate that the division between the parties was exaggerated if not false, as many Americans, younger voters above all, fervently believed. Divisive and hot-tempered partisanship would give way to healing and temperate leadership, not least by means of Obama's eloquence, rational policies, and good faith.

Needless to say, that didn't happen. In reviewing the history of the politics of post-partisanship, Wilentz argues that Presidents who have used post-partisanship as merely a rhetorical device have been more successful than those who truly believed in the idea.

That Obama, who started his Presidency as a true believer, has now given up on the idea that he has any special powers to change the minds of his fiercest critics is probably a good thing. His devotion to post-partisan governance has long fed two mistaken ideas: that the differences between the parties are minor, and that divided government is inherently good for the country.

A fundamental fact of modern political life is that the only way to advance a coherent agenda in Washington is through partisan dominance. When Obama had large Democratic majorities in Congress during his first two years in office, he led one of the most successful legislative periods in modern history. After he lost the House, his agenda froze and the current status quo of serial fiscal crises began. Like it or not, for many years, Washington has been most productive when one party controlled both Congress and the White House.

The boring fact of our system is that congressional math is the best predictor of a President's success. This idea is not nearly as sexy as the notion that great Presidents are great because they twist arms in backrooms and inspire the American people to rise up and force Congress to bend to their will. But even the Presidents who are remembered for their relentless congressional lobbying and socializing were more often than not successful for more mundane reasons - like arithmetic.

Lyndon Johnson's celebrated legislative achievements were in reality only a function of the congressional election results - not his powers of persuasion. In 1965 and 1966, after the enormous Democratic gains of the 1964 election, Johnson was a towering figure who passed sweeping legislation. In 1967 and 1968, after he lost forty-eight Democrats in the House, he was a midget.

Each President is conflicted about how much to advertise the limits of his power. On one hand, pretending the office is more powerful than it is can have some benefits; in politics, perception is often reality. But, as Obama seems to have learned, reminding the public of the limits of the office can also help keep expectations more realistic.

Given all this, it's depressing but not entirely surprising that there are already stories about the White House looking beyond the current Congress, and focussing on winning back the House in 2014, so that Obama's last two years in office can be spent working with a Democratic majority. At his press conference on Friday, Obama hinted as much. He told reporters that while he can't "force Congress to do the right thing," perhaps "the American people may have the capacity to do that."

Another Wall Street Whistleblower Gets Reamed

By Matt Taibbi, Rolling Stone

06 March 13

great many people around the county were rightfully shocked and horrified by the recent excellent and hard-hitting PBS documentary, The Untouchables, which looked at the problem of high-ranking Wall Street crooks going unpunished in the wake of the financial crisis. The PBS piece certainly rattled some cages, particularly in Washington, in a way that few media efforts succeed in doing. (Scroll to the end of this post to watch the full documentary.)

Now, two very interesting and upsetting footnotes to that groundbreaking documentary have emerged in the last weeks.

The first involves one of the people interviewed for the story, a former high-ranking executive from Countrywide financial who turned whistleblower named Michael Winston. You can see Michael's segment of The Untouchables at around the 4:20 mark of the piece. The story Winston told during the documentary is essentially an eyewitness account of the beginning of the financial crisis.

When I spoke to him last week, Winston was still as amazed and repulsed by what he saw at Angelo Mozilo's crooked subprime mortgage company as he was when he worked there. Winston, who had worked for years at high-level positions at companies like Motorola and Lockheed before joining Countrywide in the 2000s, described a moment in his first months at the company, when he rolled into the parking lot at the company headquarters.

"There was a guy there, a well-dressed guy, standing next to a car that had a vanity plate," he said. "And the plate read, 'FUND'EM.'"

Winston, curious, asked the guy what the plate meant. The man laughed and said, "That's Angelo Mozilo's growth strategy for 2006." Here's how Winston described the rest of the story to PBS – i.e. what happened when he asked the man to elaborate:

"What if the person doesn't have a job?"

"Fund 'em," the – the guy said.

And I said, "What if he has no income?"

"Fund 'em."

"What if he has no assets?" And he said, "Fund 'em."

Later on, Winston would hear that the company's unofficial policy was that if a loan applicant could "fog a mirror," he would be given a loan.

This kind of information is absolutely crucial to understanding what caused the subprime crisis. There are people out there still willing to argue that the government somehow "forced the banks to lend" to unworthy applicants. In reality, it was unscrupulous companies like Countrywide that were cranking out loans en masse, knowing that these loans would be unloaded down the line, first to banks and then to sucker investors like pension funds and foreign trade unions, almost as soon as they were created.

Winston was a witness to all of this. Eventually, he would be asked by the firm to present false information to the Moody's ratings agency, which was about to give Countrywide a negative rating because of some trouble the company was having in working a smooth succession from one set of company leaders to another.

When Winston refused, he was essentially stripped of his normal responsibilities and had his corporate budget slashed. When Bank of America took over the company, Winston's job was terminated. He sued, and in one of the few positive outcomes for any white-collar whistleblower anywhere in the post-financial-crisis universe, won a $3.8 million wrongful termination suit against Bank of America last February.

Well, just weeks after the PBS documentary aired, the Court of Appeals in the state of California suddenly took an interest in Winston's case. Normally, a court of appeals can only overturn a jury verdict in a case like this if there is a legal error. It's not supposed to relitigate the factual evidence.

Yet this is exactly what happened: The court decided that the evidence that Winston was wrongfully terminated was insufficient, and then from there determined that the "legal error" in the original Winston suit against Bank of America and Countrywide was that the judge in the case failed to throw out the jury's verdict:

In short, having scoured the record for evidence supporting the jury's verdict on the issue of causation, we have found none. It follows that the trial court erred in denying defendants' motion for judgment notwithstanding the verdict.

"I was flabbergasted," Winston says now. "Think of all the hard work the jury did, and [the court] overturns it just like that."

While it's impossible to say just exactly what a fair financial award should be for a person who reports bad corporate activity to the public, it's certainly true that when these whistleblower suits end in failure, it has a chilling effect on other people thinking about coming forward. Not many people are willing to risk their jobs if they think it will cost them every last dime in the end. This is just one more example of how hard it is for whistleblowers to come out even, even if they win jury trials.

That decision came down on February 19th, and is the first of the two interesting post-Untouchables footnotes.

The other involves some of the comments made by the head of the Justice Department's Criminal Division, Lanny Breuer, who said (as he has on other occasions, including after the recent non-prosecutions of HSBC and UBS for major scandals) that his Justice Department has to weigh the financial consequences of bringing prosecutions. Quoting from the PBS show, Breuer explained:

But in any given case, I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case, there's some huge economic effect - if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are affected badly - it's a factor we need to know and understand.

When Breuer said that, it raised a serious red flag on the Hill. A number of people in positions of power wanted to know just what "experts" people like Breuer had consulted with before deciding not to press charges in certain cases. Iowa Republican Senator Chuck Grassley and Ohio Democrat Sherrod Brown, specifically, sent Attorney General Eric Holder a letter asking a number of questions.

Among other things, the two Senators wanted to know if certain companies had been designated "Too Big to Jail." Then they had a series of very obvious and reasonable questions about those "experts":

4. Please provide the names of all outside experts consulted by the Justice Department in making prosecutorial decisions regarding financial institutions with over $1 billion in assets.

5. Please provide any compensation contracts for these individuals.

6. How did DOJ ensure that these experts provided unconflicted and unbiased advice to DOJ?

Well, at the end of last week, on February 27th, the Department of Justice sent Brown and Grassley a letter in return. The letter is, to describe it very generously, not terribly informative.

Most of the letter is just a long list of the many wondrous accomplishments the DOJ has secured under Eric Holder's watch, including felony manslaughter convictions against BP, or "fraud convictions for a board member of Goldman, Sachs," or the ongoing LIBOR investigation, or the prosecution in the Stanford Ponzi case. But the rest of the letter totally ignores the Brown/Grassley questions, particularly on the matter of which experts were and are being consulted.

On those questions, the DOJ would say only that "it is entirely appropriate for prosecutors to hear from subject matter experts at relevant regulatory authorities" and that...

When the Department consults with relevant regulatory authorities, or hears from companies who are targets of the Department's investigations and their counsel regarding potential collateral consequences of enforcement actions, neither those agencies nor the target companies receive any compensation from the Department.

That is one hell of a slippery piece of language. It's great that the Department of Justice is not paying, say, HSBC to consult with them on the question of whether or not HSBC should be prosecuted. What a relief! But that doesn't mean they're not paying someone else for that kind of advice.

The DOJ similarly blew off naming any individual experts and they refused absolutely to turn over information about any compensation they may have paid out to whomever it is who is whispering in their prosecutorial ears.

The two Senators late last week issued a blistering answer to the DOJ letter, saying, "the Justice Department's response is aggressively evasive," and that "the Department's only clear response was that it speaks to regulators and the banks themselves."

The Department of Justice is now saying that it misunderstood the two Senators, that it didn't know that they were asking for the actual names of those experts. Moreover, the Department claims it is working on answers to those queries.

In the meantime, Eric Holder is appearing before the Judiciary Committee this Wednesday, and it will be interesting to see how he handles questioning from Senator Grassley. It may get ugly before the answers actually come out, but it seems that someone is finally determined to get some real information.