Posted on 16 Jun 2009
In drafting its proposed revamp of financial-sector regulation, the Obama administration sought to leave few of the initial details to Congress, a risky strategy that could pin much of the plan's success or failure on the president himself.
The exhaustive series of meetings and nitty-gritty debates that forged the comprehensive plan -- to be presented to Congress Wednesday -- contrasts with the way the administration has approached other priorities, such as health care and energy policy. In those cases, the White House has left the fine print to be filled in by Congress.
The different approaches reflect how some of the administration's most senior officials are personally invested in the finance overhaul, worried that political tinkering by lawmakers could undermine their goals. Others say the package only works if all the pieces are designed to fit together.
"We identified lots of options and we approached some of them with presumptive answers, but in a way nothing was nailed down until it was all nailed down because so much of this is interconnected and interrelated," said Treasury Department Deputy Secretary Neal Wolin.
Roughly once a week, sometimes more, the team met with Treasury Secretary Timothy Geithner or National Economic Council Director Lawrence Summers to run through ideas. Mr. Summers became known for his ability to shred and discredit any idea presented, forcing aides to scramble to defend their proposals.
"The challenge for many people...is that he can argue both sides of an argument better than anyone," said Diana Farrell, deputy director of the NEC.
Officials now feel that this exercise with Mr. Summers, which left some red-faced at the time, will make it much easier to defend their ideas on Capitol Hill.
The plan would bring sweeping changes to the way financial markets are overseen, empowering federal regulators and limiting the amount of risk financial companies can extend. It also would allow the government to take over and break up large firms, boost consumer protections and push for changes in the way loans are securitized.
The core work was handled by a group of aides, led by Mr. Wolin and Ms. Farrell, that met most weekdays at 1 p.m. Because there were so many topics, officials broke discussions into groups. Sometimes meetings began with 15 priorities and officials only worked their way through four.
"It was a lot like doing dishes," said Ms. Farrell. "Just when you think you are done, and just as you are putting the last plate away, a whole new set of plates comes forward."
The team was built to have contrasting views so officials could debate a wide range of alternatives. Key players included Treasury Assistant Secretary Michael Barr, an expert on financial institutions and consumer protection; Cass Sunstein, a constitutional-law expert who joined the White House from Harvard Law School; and Patrick Parkinson, a markets expert who took a leave from the Federal Reserve to join the Treasury Department.
One debate that consumed the team was whether to oversee systemic risks through the Fed or give more power to a council of regulators. At a recent meeting, one aide said it was better to go to war against a committee than with one, an observation that led to a focus on giving the Fed more power.
The group also debated what to do with firms that pose a systemic risk to the economy. It was ultimately decided that the most efficient way to oversee such companies was to push them to register as "financial holding companies," which would bring them directly under Fed supervision.
People involved in the process described it as unique because, at least so far, insiders have driven the agenda without substantial pressure from outsiders.
"By no means were they saying 'Give us your ideas and we'll do what you want,'" said John Taylor, chief executive of the National Community Reinvestment Coalition, who met with the group several times. "We have no illusions."