Petraeus Drama Competes for Obama Focus on Fiscal Cliff

Nov. 14 (Bloomberg) -- Bloomberg's Julianna Goldman previews President Obama's meeting with CEOs and business leaders to rally support for a solution of the fiscal cliff. She speaks on Bloomberg Television's "In The Loop."

President Barack Obama’s aides and Republican lawmakers insist the scandal enveloping former CIA Director David H. Petraeus and a top general won’t distract them from negotiating a way to avoid the fiscal cliff.

“I think the president and his staff is capable of putting forth a plan and dealing with this as well at the same time,” Republican Senator Marco Rubio of Florida said.

The disclosure of Petraeus’s affair with his biographer, Paula Broadwell, and a related investigation of Marine General John Allen, the president’s nominee to be NATO’s top commander, adds a layer of complication for Obama as he weighs an overhaul of his Cabinet at the start his second term and considers how to reach a deficit reduction deal with Congress to avert $607 billion in automatic tax increases and spending cuts next year.

Even as senior members of Congress from both parties raised questions about the Petraeus and Allen disclosures and scheduled hearings, Obama yesterday pressed ahead with a planned meeting with labor leaders and Democratic-leaning activists.

It was the first in a series of stakeholder sessions the president has set regarding the fiscal cliff.

He’s scheduled to talk today at the White House with a dozen corporate executives, including General Electric Co. Chief Executive Officer Jeffrey Immelt, and hold his first news conference since June. The meetings come before Obama sits down with Democratic and Republican congressional leaders Nov. 16 for an opening round of talks on taxes and spending.

CIA Director David Petraeus, testifies before the US Senate Intelligence Committee during a full committee hearing on "World Wide Threats" on Capitol Hill in Washington. Photo: Karen Bleier/AFP/Getty Images Close

CIA Director David Petraeus, testifies before the US Senate Intelligence Committee... Read More

Close
Open

CIA Director David Petraeus, testifies before the US Senate Intelligence Committee during a full committee hearing on "World Wide Threats" on Capitol Hill in Washington. Photo: Karen Bleier/AFP/Getty Images

Obama ‘Surprise’

The revelations about Petraeus were a “surprise” to Obama just after he won re-election, White House press secretary Jay Carney said yesterday. “But the President is focused on the agenda that he believes is important for this country that he has to carry out working with lawmakers here in Washington” on the economy.

Concern that a failure to reach an agreement on the trimming the nation’s debt may push the U.S. back into a recession has weighed on stock and bond markets.

The Standard & Poor’s 500 Index (SPX) has fallen almost 4 percent since the Nov. 6 election. Yields on 10-year U.S. Treasury notes have declined from 1.75 percent on Election Day to 1.59 percent yesterday. The yield curve, or difference in rates on two-year and 10-year debt, narrowed to the least since August in a sign that investors anticipate slower economic growth.

Acting Fast

Senator Jim DeMint, a South Carolina Republican, said Obama and lawmakers should act fast on the fiscal cliff.

“We should have acted long before, but we need to create some certainty out in the markets right now for business people,” DeMint said. “The quicker we do it, the better.”

Still, the resignation of Petraeus from the top job at the Central Intelligence Agency and the disclosure that Allen had been caught up in the investigation over his e-mail exchanges with a woman whose harassment complaint sparked the initial FBI investigation, is competing for official attention.

Senator Richard Durbin of Illinois, the chamber’s second ranking Democrat, said yesterday that “of course” the questions surrounding Petraeus’ resignation are a distraction.

“But I don’t think it’s going to stop us from dealing with putting the American economy back on its feet,” Durbin said. “That’s the president’s highest priority.”

Benghazi Investigation

The situation involving Petraeus also crosses with congressional investigations into security failures in Benghazi, Libya, that led to the death in September of four Americans including U.S. Ambassador Christopher Stevens. Petraeus had been scheduled testify on the matter before stepping down.

Senator Susan Collins of Maine, ranking Republican on Homeland Security and Governmental Affairs Committee, said she is “puzzled by much of what has occurred in the FBI investigation” and concerned about the possibility that classified information might have been compromised.

“There are so many unanswered questions at this point,” Collins said. “I will say that I think it is absolutely imperative that General Petraeus come and testify.”

Today, the Senate Homeland Security and Government Affairs Committee will hold a closed-door briefing on the Benghazi attack that may also touch on the Petraeus scandal. At least three congressional committees have scheduled hearings on Benghazi for tomorrow.

Bad Message

Retired Navy Admiral Dennis Blair, a former U.S. Director of National Intelligence, said the controversy shouldn’t harm Obama’s efforts to negotiate the fiscal cliff or govern in the long term and that the administration can find well qualified replacements for Petraeus and, if necessary, Allen.

Blair said in an interview the bigger issue raised by the Petraeus scandal is the message it sends internationally and the potential impact on U.S. national security interests.

“It’s awful from that point of view,” he said. Following the departures of Army generals David McKiernan and Stanley McChrystal as top commanders in Afghanistan, it provides “so much fodder for those who say the U.S. is not serious about its wars. There is a history of U.S. senior military leaders being replaced because they do not win. We are replacing them these days for bad magazine articles and personal indiscretions.”

Blair added that most people can’t understand the strains wartime commanders face from sending their people into harm’s way every day.

“It helps explain, although it does not excuse, the lapses we have observed,” he said.

‘Multiple Issues’

Richard Trumka, president of the AFL-CIO and one of of the participants in yesterday’s meeting with Obama at the White House, said Obama gave no indication that the Petraeus matter was diverting his focus.

Obama has shown that he’s “very capable of handling multiple issues,” Trumka said, citing the secret mission that killed Osama bin Laden as an example of Obama’s ability to juggle the demands of his job. “He was able to handle that and I think this is far less distracting than that ever could have been.”

Thomas “Mack” McLarty, former chief of staff for President Bill Clinton, said that while the rapidly unfolding Petraeus scandal is manageable for Obama, the real challenge is to stay “focused and on course” with the administration’s priorities.

“The facts as we know them now don’t directly touch a presidential decision,” McLarty said in an interview. “It is really a personal transgression and a tragedy.”

For Obama, the Petraeus controversy will be short-lived and the political and economic costs of failing to reach a deal on taxes and spending make the fiscal cliff “too important” to be overshadowed, said Thomas Mann, senior fellow of governance studies at the Brookings Institution in Washington.

To contact the reporters on this story: Margaret Talev in Washington at mtalev@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.