Confidence Men: Wall Street, Washington, and the Education of a President pretty much boils down to Suskind's view that Obama's incompetent management blighted his first two years in particular by causing him to blow two key decisions: he didn't put Citicorp into Chapter 11 (or even Chrysler)  and in creating the Affordable Health Care Act (AHCA) he opted for coverage instead of cost reduction.

Punishing Citicorp ( or somebody)

And the score was....Geithner 1, Volker 0.

Suskind subscribes to the moral hazard school: when something's gone wrong, someone should suffer. Perhaps even  those responsible. Somehow I'm reminded of Shirley Jackson's The Lottery, but never mind.

In March 2009, at a major meeting the teams dealing respectively with the auto industry and with the banks/economy had a consensus that either Chrysler or Citicorp should go down. Maybe both. Arguments abounded but the winner was the ever popular moral hazard - capitalistic principles requires a victim, all agreed there should be a victim. But not who..

Obama left the meeting having agreed with a tentative majority for Chrysler walking the plank. Then that proposition was scuttled by someone who had actually had a beer with an auto worker.

The next agreed (?) proposition was that Chrysler would continue to make cars and that after Treasury could deal with some minor detail, called a stress test, Citicorp would be no more.

Obama returned to the meeting and said, "Ok, you've reached an agreement - so be it." Suskind clearly saw this as unpresidential, weak management. He should have forced them to implement the tentative agreement with which he'd agreed when he left the meeting.

Time passed, but not Citicorp whose executioner, Geithner, failed to wield the axe. OBTW it had passed the stress test. Kinda.

My view is at the bottom. Reading  is optional.

Lower health care costs or insure more people? 

Suskind and Peter Orszag were both entranced by the findings of a Dartmouth  medical/economic research team that states that held down medical costs were able to achieve health  outcomes approximately = to those of high cost states. And believed this was Obama's silver bullet. And could have been been incorporated in  the proposed health plan if  only Obama had lit a fire under Sen Baucus  whose proposal to reach a bi partisan proposal remained a proposal. Instead Team Obama turned to cutting deals with the cost creators : Pharma, hospitals, docs etc. whose unholy alliance spawned Harry and Louise. lo these many years ago.

Baucus never produced a single Republican vote never mind a bi -partisan proposal. With time passing, like his 60 votes in the Senate with Kennedy's death, Obama took the bird in the hand and passed the AHCA without the Dartmouth cost killer feature near to the heart of the Suszag

The End . or ...

Flavius says.  

Geithner was right in dragging his feet on leading Citicorp to the chopping block.. His criterion was what was most apt to cause the economy to resume growing. Suskind's, educated by Volker, was what was apt to scare the be- jesus out of capitalists so they didn't make more dumb decisions.

Geithner achieved his goal. Investors resumed financing banks.

Suskind's goal wasn't achieved and never will be. The concept of moral hazard died with Reagan's destruction of the high marginal tax bracket. When the top marginal rate was 90%,  the moral hazard was a myth. No sensible executive risked his company's existence for a  highly taxed couple of million dollar bonus. He needed the company for next year's $300 or $400K after tax.

Now that Blankfein is taking home a $60 million bonus he would be sad if his mistakes destroyed Goldman. But not poor.

You might ask whether a board might still award a $60M bonus if we returned to the pre-Reagan marginal rates. Answer NO. If Blankfein's only going to take home $6M- after -tax the mismatch between the company's expenditure and its motivational clout would be so extreme that the owners would replace the board. And his $6M wouldn't be enough for any CEO to risk his future employment.

So OK, Suskind was wrong about the moral hazard but wasn't he right that Obama failed when he gave in when the March meeting overrode his expressed preference? Short answer: No. His team of blue ribbon advisors had reached a decision. His decision was to accept it.  

Health insurance or lower costs

The Suszag yearned for the Dartmouth cost reduction. It would save money

Obama opted for insurance coverage. It would save lives.

If we do coverage first it will be good for human beings. It will save lives while we wait for some future administration willing to tackle costs.

If we do cost reduction first it will be good for the tax payers. Not for the people who will die because they don't have coverage.

Suszag have a respectable position. Obama's is the one I prefer.