While Bush Fiddled

By Dan Froomkin
Special to washingtonpost.com
Tuesday, October 14, 2008; 12:56 PM

Here's something to ponder: What would have happened if President Bush had listened to Paul Krugman three weeks ago instead of Henry Paulson?

Krugman -- a Princeton economist, New York Times columnist and newly-minted Nobel Prize winner -- was one of many financial experts who cast doubt on the original bailout plan that the Treasury secretary and his ostensible boss agitatedly insisted was the only way to avoid utter disaster.

How things have changed. Bush made it official this morning that his administration has now come around to the Krugman view -- that a partial nationalization of the banking industry is actually the best approach.

Back on September 22, in a column headlined " Cash for Trash," Krugman wrote that Paulson's bailout plan, "as far as I can see, doesn't make sense." Instead, he called for the government to provide capital to financial firms and get a share in ownership in return.

"Basically, after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world Americans have to do exactly what it says now now now," Krugman wrote.

"But I'd urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. . . . [I]f this plan goes through in anything like its current form, we'll all be very sorry in the not-too-distant future."

The day that column was published, the Dow was at 11,143. A little over two weeks later -- after the original plan was enacted, and before it became clear that Bush was going to adopt the new one -- the Dow had lost one fourth of its value.

Deborah Solomon, Damian Paletta, Jon Hilsenrath and Aaron Lucchetti write in the Wall Street Journal: "President George W. Bush announced Tuesday morning that the U.S. government is taking stakes in the nation's top financial institutions as part of a new plan to restore confidence to the battered U.S. banking system, a far-reaching effort that puts the government's guarantee behind the basic plumbing of financial markets."

But as they write, some critics "say Treasury should have formulated a comprehensive plan earlier in the crisis. Even if this move helps mend credit markets, the economy is likely to suffer in the months ahead from the aftershocks of the recent turmoil.

"The government's new focus is raising questions about why it didn't adopt such an approach sooner. Mr. Paulson actively opposed the idea of investing in banks because he worried about picking winners and losers, though Fed Chairman Ben Bernanke was an early advocate. Mr. Paulson was also concerned banks wouldn't participate because of the perceived stigma and the potential for the government to meddle in their affairs, according to people familiar with the matter.

"Senior executives and advisers to some of the nation's leading banks pitched such a plan at various points earlier this summer but were rebuffed by officials at Treasury and the Fed, according to people familiar with the matter. Instead, Treasury initially marched ahead with a plan to buy distressed assets directly from banks.

"House Democratic leaders, including Speaker Nancy Pelosi and House Financial Services Committee Chairman Barney Frank, held a closed-door session Monday with 11 economists and other advisers. The group threw its weight behind Treasury's decision to inject capital into the banking system.

"'The consensus was so strong towards direct equity injections that there was literally no dissension on the point,' said one of the invited economists, Jared Bernstein of the liberal Economic Policy Institute. 'The only head-scratching is why did it take us so long to get here?'"

Frank James blogs for Tribune: "It took the Bush Administration longer than many experts believe it should have taken to get there, but today's big news is that the administration has finally arrived at the point many economists weeks ago urged it to get to: direct injections of cash into the banking system and in turn taking ownership stakes in some of the nation's largest banks."

Michael Oneal, Jill Zuckman and Laurie Goering write for the Chicago Tribune: "The equity strategy had been anathema to Paulson and other administration officials until now because they weren't sure it would work and were worried about the government getting involved in private companies. But last week's collapse in all financial markets, from stocks to bonds, made it clear that he would have to join Europe in more drastic intervention."

Howard Schneider, David Cho and Neil Irwin write in The Washington Post: "President Bush said this morning that the administration's 'unprecedented and aggressive' plan to partly nationalize nine major banks was an 'essential short-term measure to ensure the viability' of a battered financial system. . . .

"'The government's role will be limited and temporary,' Bush said from the Rose Garden. 'These measures are not intended to take over the free market, but to preserve it.' . . .

"Among the first to push the idea of injecting money into banks in exchange for an equity stake was Rep. Spencer Bachus (R-Ala.), who proposed the idea at a Sept. 18 night meeting on Capitol Hill that included legislators as well as Paulson and Bernanke.

"After Paulson described his plan for the Treasury to buy up mortgage backed securities, Bachus suggested there were certainly other ways to address the crisis. 'There has to be alternatives,' he recalled telling the group, in an account that is consistent with accounts of others who were present at the meeting. 'Why not inject capital into the institutions?'

"At the meeting, Rep. Barney Frank (D-Mass.) and Sen. Jack Reed (D-R.I.) expressed support for the idea, according to people at the meeting.

"But Treasury officials 'said this is a crisis and that there was no time,' Bachus said. Paulson 'was very fearful that if we didn't do something immediately, we were going to see terrible things happen. . . .

"'I do believe they had this one plan, and they were saying "This is it."' . . .

"'I do think there were some ideological predisposition against capital injections,' Sen. Charles E. Schumer (D-N.Y.) said of the meeting."

Another Nobel Slap at Bush

Holly Rosenkrantz writes for Bloomberg that Bush, "his approval ratings at historic lows and U.S. economy veering toward a recession, suffered another blow to his legacy yesterday when one of his most vociferous critics was awarded the Nobel Prize in economics.

"While the Nobel committee cited Princeton University Professor Paul Krugman for his analysis of international trade, he is probably most widely known for his critiques of Bush's policies from the war in Iraq to economics."

Rosenkrantz notes that Krugman follows Jimmy Carter and Al Gore as Bush critics who have won recent Nobels. Also on that list should be Mohamed ElBaradei, the International Atomic Energy Agency director who refused to believe Bush administration claims about Iraq and Iran.

The Accidental President

Sheryl Gay Stolberg writes in Saturday's New York Times: "Mr. Bush has been telling people privately that it's a good thing he's in charge.

"'He said that if it was going to happen at all, he was glad it was happening under his presidency, because he had a good group of people in D.C. working for him,' Dru Van Steenberg, one of several small-business owners who met with Mr. Bush in San Antonio earlier this week. The president expressed the same sentiment, others said, during a similar private session in Chantilly, Va., the next day.

"'He said that whoever was going to take over in January was going to have a huge crisis on their hands the day they come into office,' Ms. Van Steenberg added. 'He thought by this happening now, that perhaps everyone could see signs of improvement before the next president comes into office.'"

Dana Milbank writes in his Washington Post column on Saturday: "The country desperately needs strong leadership now, but there's none to be found at the White House. The president is voicing the right sentiments, even if his words (Thursday's 'we'll get through this deal') are characteristically clumsy. He's even affecting the right demeanor, between concern and confidence. But nobody seems to care.

"Maybe it's his approval rating, now trading at pennies on the dollar. Maybe it's because his credibility was shot by his administration's previous claims about Saddam's nukes and yellowcake and cakewalks and being greeted as liberators and mission accomplished."

Dan Eggen wrote in Saturday's Washington Post: "White House officials said Bush has sought to strike a balance during the crisis, offering encouragement when necessary while granting wide latitude to Treasury Secretary Henry M. Paulson Jr. and other key economic advisers. Press secretary Dana Perino characterized Bush's statement as 'reassuring, realistic and pragmatic,' and said the administration was seeking to be measured and responsible in its public comments. . . .

"But James A. Thurber, a presidential historian at American University, said Bush has failed to soothe the nation in a time of growing fear, comparing his remarks unfavorably with those of other presidents, including Roosevelt, Ronald Reagan and Bill Clinton. Thurber and other historians note that Bush is certainly capable of inspiration, exemplified by his post-9/11 speech at Ground Zero in New York.

"'In some of his presentations, including his address to the nation, he's caused more fear than anything else,' Thurber said. 'He had a chance to turn that around and be presidential and bring a little more assurance in the public mind about where we're going with this thing. But he hasn't done that.'"

Poll Watch

Susan Page writes for USA Today about the latest Gallup Poll, which shows that only 16 percent of Americans express confidence in Bush and his team to fix the economy and 80 percent have no confidence. Furthermore, she notes: "Bush's job-approval rating matches his low of 25% while his disapproval has risen to a new high, 71%."

That is now the all-time high-water mark for presidential disapproval.

Anne E. Kornblut and Jon Cohen write in The Washington Post: "There is also near-universal concern for the direction of the nation's economy over the next few years, growing fear that the stock market will perform poorly, and worry that household finances will suffer, factors that contribute to President Bush's approval rating hitting another low.

"Twenty-three percent of all adults -- and 18 percent of political independents -- gave the president good marks, putting him within a point of Harry S. Truman's record low in a February 1952 Gallup poll. The low ratings continue to have a dampening effect on McCain: More than half of voters, 51 percent, said that McCain, if elected, would largely continue to lead the country in the direction Bush has, and those voters overwhelmingly prefer Obama."

Jonathan Darman writes for Newsweek: "Twenty-five percent of voters say they approve of the job President Bush is doing in the White House, a record low for any president in the Newsweek poll and close to the historic low-approval rating of 22 percent the Gallup poll recorded for President Truman, in 1952. Voters are crying out for change and, for now, believe that the Democratic presidential candidate has a greater likelihood of delivering it."

Albatross Watch

David Von Drehle writes for Time: "Republican nominee John McCain, in his latest attempt to restart a faltering effort, said the following about the U.S. at the end of the Bush years. Keep in mind as you read this that McCain is the nominee of the incumbent party:

"'Our economy is in crisis. Financial markets are collapsing. Credit is drying up. Your savings are in danger. Your retirement is at risk. Jobs are disappearing. The cost of health care, your children's college, gasoline and groceries are rising all the time with no end in sight. While your most important asset -- your home -- is losing value every day.'

"And, oh yes: 'Americans are fighting in two wars.'

"At least there was no plague of frogs. McCain is running in a relay, and the man who is supposed to hand him the baton is 80 yards up the track, carrying a dishwasher on his back, blindfolded. Oh, and he's also dead.

"Forget Sarah Palin and William Ayers and disaffected Hillary voters and the rest of this year's sideshows. Focus on the basics: any candidate seeking to extend his party's hold on the White House who must deliver a litany like that three weeks from Election Day is in a world of hurt."

John Farmer blogs for the Newark Star-Ledger: "The pundits say the guy beating John McCain out of the presidency this year is a brazen newcomer named Barack Obama. But the guy really beating McCain is the same one who beat him eight years ago - George W. Bush.

"It's the Bush record - the inept management of two wars, a drunken-sailor spending spree, the accumulation of a gargantuan federal debt to foreign lenders and now a collapsed economy - that's beating McCain. . . .

"Republican strategists admit, but only privately, that Bush is poison, so toxic that he could cost the GOP six to eight Senate seats and maybe 25 House seats as well as the Oval Office."

Beth Fouhy writes for the Associated Press that at a campaign rally yesterday, "McCain criticized Bush while pledging to enact new policies that would reverse the effects of the GOP president's two terms in office.

"'We cannot spend the next four years as we have spent much of the last eight: waiting for our luck to change,' McCain said while campaigning with running mate Sarah Palin. 'The hour is late; our troubles are getting worse; our enemies watch. We have to act immediately. We have to change direction now.'"

Foon Rhee blogs for the Boston Globe that the Democratic National Committee responded "with a web video trying again to link McCain to what polls shows is one of the most unpopular presidents in history. . . .

"McCain is . . . shown at the 2004 Republican convention imploring, 'Stand up. Stand up with our President and fight. We're Americans and we'll never surrender.'"

Iraq Watch

Karen DeYoung writes in The Washington Post: "With time running out for the conclusion of an agreement governing American forces in Iraq, nervous negotiators have begun examining alternatives that would allow U.S. troops to stay beyond the Dec. 31 deadline, according to U.S. and Iraqi officials. . . .

"[E]ven if the sides reach a deal in the next few days or weeks, it is not clear that a formal status-of-forces agreement could be approved by the end of the year. Maliki has pledged to submit an accord to Iraq's divided parliament before he signs it -- a promise he reaffirmed last week during a visit to Grand Ayatollah Ali Sistani, Iraq's most influential Shiite cleric. Sistani has said he will not endorse any document without the support of Iraq's population and political factions.

"If the parliament refuses, Maliki would have 'no choice' but to request a U.N. extension 'because the American forces will lose their legal cover on Dec. 31,' he told the Times of London in a weekend interview. 'If that happens, according to international law, Iraqi law and American law, the U.S. forces will be confined to their bases and have to withdraw from Iraq,' Maliki said. . . .

"The Iraqi prime minister in August twice assured Bush -- once personally via videoconference and again through Secretary of State Condoleezza Rice during a visit to Baghdad -- that the deal was done, Iraqi and U.S. officials said."

Leila Fadel writes for McClatchy Newspapers that "an accord is unlikely before the end of this year, Iraq's Sunni Muslim vice president said Monday." Vice President Tariq al Hashimi "also warned that the security situation could worsen by the end if 2008, due to upcoming provincial elections and an unsure future for a U.S. sponsored mostly Sunni paramilitary groups

"Among the signs of increased violence is that al Qaida in Iraq, whose attacks dropped over the past year, is growing stronger as frustrations in the Sunni community fester, he said. That's mostly due to the Iraqi government's reluctance to absorb the more than 100,000-strong U.S. sponsored mostly Sunni paramilitary into government jobs and the Iraqi Security Forces, he said."

Peter W. Galbraith writes in the New York Review of Books: "Less violence . . . is not the same thing as success. The United States did not go to war in Iraq for the purpose of ending violence between contending sectarian forces. Success has to be measured against US objectives. John McCain proclaims his goal to be victory and says we are now winning in Iraq (a victory that will, of course, be lost if his allegedly pro-surrender opponent wins). He considers victory to be an Iraq that is 'a democratic ally.' George W. Bush has defined victory as a unified, democratic, and stable Iraq. Neither man has explained how he will transform Iraq's ruling theocrats into democrats, diminish Iran's vast influence in Baghdad, or reconcile Kurds and Sunnis to Iraq's new order. Remarkably, neither the Democrats nor the press has challenged them to do so. . . .

"George W. Bush has put the United States on the side of undemocratic Iraqis who are Iran's allies. John McCain would continue the same approach. It is hard to understand how this can be called a success -- or a path to victory."

Bush and Berlusconi

Italian Prime Minister Silvio Berlusconi was feted at the White House yesterday.

Dan Eggen writes for The Washington Post: "The fast friendship between Bush and Berlusconi was on full display during their brief press appearance, where they showered each other with accolades. Berlusconi talked about his 'love and esteem' for Bush and praised his 'sincere and pure feelings,' according to an English translation of his remarks.

"'He is a man of vision, he is an idealist,' Berlusconi said. 'He also has the courage of implementing what he believes is right.'"

Jeff Israely writes for Time: "George W. Bush's approval ratings are so low that you can almost picture the First Dog, Barney, barely able to muster a single wag of his pointy black tail when the Commander-in-Chief strides into the White House living room. So it seemed auspicious that rolling up to the South Lawn on Monday was the man who might just be President Bush's Last Best Friend on Earth. Italian Prime Minister Silvio Berlusconi arrived in Washington just in time for Columbus Day, and just in time to say what almost no other political figure would venture to say out loud right now: 'I'm 100% sure and positive that history will say that George W. Bush has been a great, very great President of the United States of America.'"

Deb Riechmann writes for the Associated Press from last night's White House dinner: "In his haste to honor Bush, Berlusconi accidentally bumped the podium from which he was speaking in the crowded dining room. It fell apart, leaving the grinning Italian to advance on the president with just its top and attached microphones. The crowd of prominent Americans, Italians, and Italian-Americans burst into appreciative laughter and applause.

"'I'm 100 percent confident that we'll be friends forever,' Berlusconi said."

Here's the video and the transcript.

Executive Power Watch

Henry Waxman's Oversight and Government Reform Committee is just out with a bipartisan report that finds that Bush made a "legally unprecedented and an inappropriate use of executive privilege" when he directed Attorney General Michael Mukasey to withhold special counsel Patrick Fitzgerald's interview of Vice President Cheney from the committee.

For background, see my Dec. 3 column, Bush Blocking Fitzgerald Cooperation, and my July 17 column, Mukasey the Obstructionist.

More tomorrow.

Karl Rove Watch

Mark Leibovich writes in the New York Times that Karl Rove "left the Bush administration 13 months ago, yet continues to loom over a campaign that has become the backdrop for his post-White House reinvention. . . .

"Mr. Rove's lingering impact, perceived power and even his bogyman status continue to place him in great demand, forming the basis of his lucrative post-White House career as a reported seven-figure author, six-figure television commentator and mid-five-figure speaker. . . .

"Two top McCain campaign aides, Steve Schmidt and Nicolle Wallace, worked closely with Mr. Rove in the White House and are commonly referred to as 'Rove protégés,' a designation that both dispute. Mr. McCain's top advisers shudder at the perception that Mr. Rove is calling shots for their campaign -- in part because his reputation is toxic among many swing voters, and perhaps the best-known victim of 'Rovian' hardball tactics was Mr. McCain himself in the 2000 Republican primary campaign."

Matt Taibbi writes about Rove in Rolling Stone: "His rise from the ashes is the scariest story of an already scary campaign season. Presidents come and go; they sit in a place where the law can still touch them, and they're subject to the vote once every four years. But Karl Rove is a revolutionary, a man who can't be stopped by anything except death and maybe -- maybe -- prison. Rove is trying to finish the work of Nixon and Bush: to achieve the supremacy of a peculiarly American form of Leninism, one that involves the drowning of the electoral process in idiot witch hunts and dirty tricks, the handing over of all policy to anyone with a dollar more than the next guy, and the total aggrandizement of incumbent power at the expense of an entire system of checks and balances. With Rove back in the mix, there's now a hell of a lot more at stake this November than there was when a batty, battle-scarred old poll-chaser like John McCain was the darkest figure on the ticket. Not to sound too alarmist, but Election Day now becomes a referendum on democracy itself."

The Sad Lot of the White House Correspondent

Rick Dunham of the Houston Chronicle filed a pool report about a "brief, bizarre" photo op at the International Monetary Fund on Saturday: "Ten -- count 'em, ten -- seconds after we were ushered in, we were ordered to leave. The whole thing was over in exactly 14 seconds, according to the count of the photo pool. . . .

"Finance ministers from the other countries looked alternately horrified and amused at the hubbub. The President gave one of his mischievous smiles."

Late Night Humor

Via U.S. News, David Letterman: "President Bush 'says he's going to tweak the financial package. . . . That's like the captain of the Titanic tweaking the brunch menu.' . . . Bush 'is trying to reassure Americans that things are going to get better soon. And I was thinking well sure, in three months he'll be out of office.'"

And Conan O'Brien: "This weekend, the leaders of the world's richest countries got together to discuss the global economic meltdown. . . . President Bush wanted to go to the meeting, but after last week the US is no longer one of the world's richest countries."

Cartoon Watch

Jim Morin on fear itself, Pat Bagley on how Bush happens, J.D. Crowe on Bush's pep talks, Steve Sack on Bush's retirement plan, David Horsey on Team Bush, Dwane Powell on Bushland, John Sherffius on Bush and nukes, Mike Keefe on going back to the Rovian barrel and Rex Babin on the everlasting hug.

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