The most astonishing exit-poll result from Tuesday's election wasn't that 35 percent of voters blamed Wall Street for our economic problems. It was that 56 percent of those voters supported Republicans, helping the GOP retake the House of Representatives. Even given the problems with exit polls, these results represent a tremendous failure for Democrats in an election where the economy was the top issue.
After all, these are the same Republicans who opposed the financial-reform legislation and who only a few months ago toured Wall Street, befriending the banks in exchange for campaign cash. The top two recipients of campaign money from bailed-out banks were John Boehner and Eric Cantor, the speaker- and majority leader-to-be, respectively. Since the passage of the Dodd-Frank legislation, donations to Republicans shifted dramatically -- GOP candidates received $7 of every $10 donated. The day after the election, the top Republican on the House Financial Services Committee immediately warned that he would act to protect banks from regulatory action.
Clearly, voter preference didn't match up with reality. Regardless of whether you think the financial-reform legislation did enough to rein in the banks, it's indisputable that the largest banks strongly opposed it and that the law is forcing changes in business practice and minimizing risk to banks and the public alike. Why did voters who blamed the banks support finance's closest political allies in the election?
The most obvious answer is incumbency. The current government is associated with the unfairly maligned Troubled Asset Relief Program (though it started, with bipartisan support, under President George W. Bush), and almost every program supported by the Democrats since has been unfairly tarred by Republicans as a bailout, leading low-information voters to punish the government. Republicans even argued that a plan for the government to seize a percentage of bank profits and create a fund to dissolve insolvent banks was a "bailout." Instead, Republicans pushed for -- and secured -- a provision to put taxpayer money on the line to shut down failing banks.
A second answer might be that those voters were right. There were Democrats who attempted to undermine financial reform, especially in the New Democrat Caucus, a group of conservative Democrats. A recent ProPublica investigation found that New Democrats, including many on the House Financial Services Committee, worked closely with financial-sector lobbyists. Some voters might have been trying to punish their Democratic representative for colluding with industry at the expense of affecting broader party alignment.
Democrats also point out that the poll doesn't really measure voters' motivation. A Senate Banking Committee aide says that "it's pretty clear that voters who swung Republican were motivated by factors other than financial reform," noting that 62 percent of independents support more regulation of banks. A Gallup poll from September found Dodd-Frank was approved by 61 percent of all voters.
Financial-reform strategists are looking at the bright side. "The good news for our side is that the majority of voters, correctly, blamed Wall Street for the economic crisis," says Lisa Donner, executive director of Americans for Financial Reform. "As a backdrop to the fight that is going to happen now to protect the good stuff that's in Dodd-Frank, it's a very important piece of information." Yet, she adds, Democrats didn't talk about their work on the issue enough and were victims of "fake populist rhetoric."
It's not as simple as targeting efforts by the banks themselves to seize the populist mantle, or merely bringing up the topic more often. Starting at the White House, Democrats say they need to articulate their priorities more clearly. From the beginning, the message has been mixed: In the early months of 2009, the administration successfully buttressed weakened banks through the crisis, which linked the president and the banks. Even though the policies adopted by the administration were designed to protect the real economy, the perception, which the administration was unable to dispel, was that they only benefited Wall Street.
Similarly, instead of adopting a consistent message on financial-reform legislation, President Obama strengthened his rhetoric as the political winds blew, supporting stronger policies only after Scott Brown's victory in Massachusetts and when the bill appeared imperiled this summer. The administration laid out broad principles of reform, but its ambiguous position within the legislative process allowed observers from all sides to see the worst.
Despite its popularity, Dodd-Frank never became a centerpiece of the Democrats' rhetoric. It was just one more item on the list of congressional votes ticked off by campaigning incumbents. That's partially because explaining the financial crisis and the response to it with any kind of meaningful detail is challenging. It's also because, as much as Democrats want to claim credit for their work on financial reform, they also fear being labeled "anti-business." It's a fear they need to set aside -- after all, businesses and banks are doing just fine. People aren't.
Some on the left pin the blame on Democratic policy-makers, especially Treasury Secretary Tim Geithner, whose work during the financial crisis has associated him with the banks in the public's view. It also doesn't help that he's not the most effective public communicator. That suggests the need for a greater public role for new voices on the White House economic team, including Elizabeth Warren and Austan Goolsbee, and more attention to a narrative of what went wrong at the banks and what's being done right now. Warren, charged with standing up the new Consumer Financial Protection Bureau, is especially well positioned to articulate an anti-bailout, pro-reform message, thanks to her independent criticism of the TARP program.
The current document mess in the housing market, combined with the pressing need to fix Fannie Mae and Freddie Mac, gives the Democrats an opportunity to regain lost ground on financial policy and demonstrate that their priorities begin with American families. That means finding a way to hold mortgage servicers to higher standards and ending the unsustainable status quo at Fannie Mae and Freddie Mac through reforms that identify and strengthen appropriate government roles in the housing market and eliminate unneeded subsidies. Implementing Dodd-Frank, a complex process of rule-writing and enforcement, is another venue for Democrats to show they've learned the lessons of the crisis.
These midterm election results should prompt introspection among the Democrats, who will need to turn around these numbers if they want to increase their support during the next election cycle. Democrats need to talk more often and more explicitly about what their financial policies are intended to do and take a harder line against members of their own party who undermine the goals of a fair, transparent, and sustainable financial system. A majority of voters believe Wall Street is the problem. To succeed, Democrats need voters to recognize their policies as the solution.
