One way to judge the health of our political system is to divide the president’s agenda into three categories. First are the items that seem like they’d be hard to accomplish and actually are hard—health care reform and cap-and-trade come to mind. Then come the items that sound easy to the uninitiated but turn out to be pretty hard—like eliminating wasteful farm subsidies or obsolete weapons systems. Lots of presidents have taken on these programs only to find that they have powerful, well-organized defenders. Finally, there are some legislative goals that sound easy to accomplish, and normally are easy, until some unique brand of dysfunction intervenes—say, some senator takes a special interest in an obscure appointment.

Judging from all the build-up, the one thing tonight’s State of the Union address is sure to include is some presidential feistiness toward Wall Street. Rhetorically, the president has spent the last week throwing elbows at his banker adversaries. Obama announced at a press conference last Thursday that “If these folks want a fight, it’s a fight I’m ready to have.” The day before, he seemed ready to initiate the beat-down whether or not Wall Street wanted any part of it. “We’re about to get into a big fight with the banks,” he warned George Stephanopoulos. During a speech on Friday, Obama used some form of the word “fight” 14 times. “I can promise you, there will be more fights in the days ahead,” he said when turning to the topic of banks.

One obvious question when Connecticut Senator Chris Dodd announced his retirement last week was what impact it would have on the effort to reform Wall Street. Dodd is chairman of the Senate Banking Committee, and the bill he wrote last year is the most ambitious regulatory initiative pending in Congress. Anything that changed Dodd’s calculus could have huge implications, which is why I was intrigued by a headline in the following day’s Wall Street Journal proclaiming that, “Dodd's Retirement Muddles Financial Overhaul.”

My favorite moment from last month’s White House jobs summit came when the president asked if Washington had been doing something to discourage hiring. At this point, a man named Fred Lampropoulos, the CEO of a Utah-based medical device manufacturer, chimed in that yes, in fact, it had. “[T]here’s such an aggressive legislative agenda that businesspeople don’t really know what they ought to do,” Mr. Lampropoulos told the president, according to The New York Times. Political uncertainty, he said, “is really what’s holding back the jobs.”

In a year when the government enacted one of its largest-ever stimulus bills, guaranteed hundreds of billions of dollars in bank debt, bought hundreds of billions more in mortgage-backed securities, took 60 percent ownership of one car company and put up billions in financing for another, it’s not obvious why you’d dwell on an initiative that basically cost nothing. I nonetheless submit to you that the government’s stress tests—an eight-week effort to vet the balance sheets of the country’s biggest banks—was the single most consequential economic policy of 2009.

One of the themes that came up while I was profiling White House manufacturing czar Ron Bloom earlier this fall was managerial talent. A lot of people talk about reviving the domestic manufacturing sector, which has shed almost one-third of its manpower over the last eight years. But some of the people I spoke to asked a slightly different question: Even if you could reclaim a chunk of those blue-collar jobs, would you have the managers you need to supervise them?

It’s not obvious that you would. Since 1965, the percentage of graduates of highly-ranked business schools who go into consulting and financial services has doubled, from about one-third to about two-thirds. And while some of these consultants and financiers end up in the manufacturing sector, in some respects that’s the problem. Harvard business professor Rakesh Khurana, with whom I discussed these questions at length, observes that most of GM’s top executives in recent decades hailed from a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his failed predecessor, Rick Wagoner, both worked their way up from the company’s vaunted Treasurer’s office.) But these executives were frequently numb to the sorts of innovations that enable high-quality production at low cost. As Khurana quips, “That’s how you end up with GM rather than Toyota.” 

As of late this summer, Democrats in Washington shared a tidy consensus about the economy: The stimulus was working more or less on schedule, and the job market was gradually recovering. That meant the administration could start thinking about how to rein in the country’s yawning budget deficit, if not actually scale it back yet.

What followed turned that tidy consensus into a pigsty. On October 2, the Labor Department announced that September’s job-loss total was roughly 60,000 higher than the previous month's, prompting a hastily convened powwow between the president, House Speaker Nancy Pelosi, and Senate Majority Leader Harry Reid. (The number has since been revised downward.) Then, in early November, Democratic candidates handily lost gubernatorial elections in New Jersey and Virginia, with independents deserting the party in droves. “For those up next year, it was a wake-up call on the deficit,” says one Senate Democratic aide. Suddenly, spending more money on jobs didn’t look so appetizing. That is, until the following Friday, when the next jobs report showed the unemployment rate jumping from 9.8 percent to 10.2 percent--clearing a psychological threshold that was no less terrifying for being foreseeable. And on and on it went. “The entire town is more schizophrenic than I’ve ever seen,” says one senior administration official. “Everyone cares about jobs, and everyone cares about fiscal discipline. The weight shifts week by week, unemployment report by unemployment report.”

A few weeks after the 2008 presidential election, United Steelworkers President Leo Gerard got a call from an Obama transition aide frantic for advice on the collapsing auto industry. Gerard put his numbers guy on the call, a former investment banker named Ron Bloom, who proceeded to offer a detailed disquisition on the financial situations of GM and Chrysler. Unlike other experts the transition team had consulted, Bloom was refreshingly blunt about the companies’ prospects, which he deemed grim. “We were like, ‘Wow, who is this guy?’” recalls the aide.

In the weeks ahead, Congress may finally provide American families with a seat at the financial regulatory table in Washington, D.C. If Congress passes the Consumer Financial Protection Agency (CFPA) Act of 2009, on which the House Financial Services recently reported favorably, it will establish, for the first time, a federal agency whose sole mandate is to evaluate financial products through the lens of consumer fairness. By putting the tools to evaluate loans in the hands of borrowers, it would also give families the chance, as well as the responsibility, to protect themselves.

For years, the consumer credit market has been broken. Healthy markets depend on full information between parties to contracts, but lenders have systematically hidden the costs and risks of consumer credit products while burying a wide assortment of tricks and traps in the fine print. The result is that consumers can’t compare the costs of different products or distinguish safe lenders from risky lenders. Because the costs and risks are so well-hidden, the broken market undermines real consumer choice, inhibits consumer-oriented innovation, and leads many borrowers to over-consume credit, putting themselves--and our whole economy--at risk.

It's safe to say there are not too many investment banking chieftains whose idea of a compliment was to tell you after a meeting that "you showed a certain amount of fingerspitzengefuhl in there." To which the appropriate response was, "Only a certain amount?" Followed by the inevitable rejoinder: "But were you effective?" Bruce Wasserstein, who died this week at 61, loved complexity and was a genuinely complex man himself. Like many of his former colleagues, clients, and competitors, I'll be trying to figure him out for years. And I'm looking over my shoulder, expecting his editorial comments any minute now.

For the handful of people in charge of saving the U.S. economy, it’s been a grueling season. The last eight months have featured endless back-and-forths, tense stalemates, and spirited confrontations. Larry Summers, the president’s chief economic adviser, has drawn blood with his lacerating quips. Treasury Secretary Timothy Geithner has dropped expletives to signal his frustration. Even their aides have gotten in on the action.

And, in those rare instances when the wonks get a break, they step outside their conference rooms, loosen their ties, and do the same thing all over again. On a tennis court. For years, Summers, Geithner, and a variety of deputies have stared each other down from opposite sides of a three-foot-high net. These tennis relationships have played out on courts from Jackson Hole, Wyoming, to Davos, Switzerland, and on pretty much every flat surface in Washington, D.C. It turns out that tennis is the unofficial sport of the Obama financial team. And, if you want to understand the way its members go at it behind closed doors, it’s worth watching them go at it with tightly strung rackets.

The shock of the financial meltdown has had congressional committees scrambling for their gavels for the better part of a year. Politicians have been discussing how to make sure that such a near-cataclysm never happens again, and, for the most part, they've focused on the need for new regulation. What's called for, President Obama said in March, is "a financial regulatory mechanism that prevents the kind of systemic risks that have done so much damage over the last several months."

But all the talk of regulation misses a key point: If we don't know which institutions are doing what--if we don't actually monitor what we've regulated--then that regulation won't work.