Daniel W. Drezner

Wall Street’s pro-cyclical politics

Wall Street’s pro-cyclical politics

In the wake of financial regulation moving its way through Congress, both the Washington Post and Politico have stories out on Wall Street’s backlash against the Democrats.  The Post‘s lead: 

A revolt among big donors on Wall Street is hurting fundraising for the Democrats’ two congressional campaign committees, with contributions from the world’s financial capital down 65 percent from two years ago.

The drop in support comes from many of the same bankers, hedge fund executives and financial services chief executives who are most upset about the financial regulatory reform bill that House Democrats passed last week with almost no Republican support. The Senate expects to take up the measure this month.

This fundraising free fall from the New York area has left Democrats with diminished resources to defend their House and Senate majorities in November’s midterm elections. Although the Democratic Senatorial Campaign Committee and the Democratic Congressional Campaign Committee have seen just a 16 percent drop in overall donations compared with this stage of the 2008 campaign, party leaders are concerned about the loss of big-dollar donors.

And now Politico: 

With the financial reform bill likely to hit President Barack Obama’s desk in coming weeks, Wall Street’s top political players are warning Democrats to brace themselves for the next phase of the fight: the fundraising blowback.

Democrats who backed the bill  are finding big banks far less eager to host fundraisers and provide campaign cash heading into the tightly contested midterm elections this fall, insiders say.

Some banks, in fact, have discussed not attending or hosting fundraisers at all for the next few months. Goldman Sachs is already staying away from all fundraisers, according to two sources. The company would not comment.

“I think at least in the short term there is going to be a great deal of frustration with people who were beating the hell out of us — then turning around and asking for money,” said a senior executive of a Wall Street bank.

Based on these stories, when if the Democrats get hammered come November, expect a lot of pixels and ink spilled on the awesome power of the financial sector to get what it wants in Washington.  And don’t believe a word of it. 

This is the lobbying equivalent of a good but struggling baseball club calling a team meeting right before they play the worst ballclub in the league.  That is to say, sports managers often save their rousing speeches before a game they’re pretty likely to win, so they can claim that their motivation was what led their team to victory. 

As Charlie Cook notes, the Democrats are heading into a Category 5 political disaster come November.  This has nothing to do with FinReg, and everything to do with a struggling economy, an ecological disaster in the Gulf, fired-up conservatives, and disaffected liberals.  Wall Street antipathy is really the least of their problems. 

I’m laying this marker down now — unless we see some shocking upsets among the New York delegation (the real target of Wall Street’s ire), analysts who proclaim the awesome political power of financial sector will be doing so with sloppy facts and sloppy argumentation. 

In recent years, I’ve seen some very… let’s say exaggerated arguments about the power of political lobbies in Washington.  They do possess political influence, but much of that influence rests on the perception that they can make or break electoral fortunes.  In Wall Street’s case, however, they’re pushing on a door that was already wide open. 

Which is not surprising.  Powerful interests tend to apportion their money to candidates they think will win.  Indeed, to use a term of art, Wall Street’s political preferences appear to be — dare I say it — pro-cyclical.