President Obama’s victory is rooted in his narrative on the economy and the middle class — and so are the victories of other Democratic winners, including Massachusetts Senator-elect Elizabeth Warren. Warren has long been an advocate for working families, but she is best known for promoting greater regulation of the banks and for helping create the Consumer Finance Protection Bureau (CFPB). Her race, and the grassroots support she garnered, has the same subterranean quality of Obama’s 2008 victory: though she outraised all Senate candidates, raking in a monstrous $39 million, the Federal Election Commission’s disclosure page tells us that a mere 1.5 percent (about $607,000) of Warren’s war chest came from political action committees, most of which are labor or women’s rights groups. The vast majority of her support came from tens of thousands of individuals, who all want Warren to give the banks hell.
Warren’s victory helps heal America’s hangover from 2008-2009, when Lehman Brothers shut its doors and the mortgage crisis reared its head. Even after the financial crisis was under control, Americans saw banks using Troubled Asset Relief Program (TARP) money to pay executive bonuses while the struggles of the middle class and poor grew. To voters Warren represented the antidote: it was high time to elect someone who will hold the banks to task.
So naturally Warren’s victory makes Wall Street nervous. Goldman Sachs, Bank of America and several others banks threw their support behind Warren’s opponent Scott Brown, but to no avail. According to Forbes, Dennis M. Kelleher of Better Markets, a non-profit focused on financial markets, says the financial industry has been dealt a crushing defeat after spending hundreds of millions to defeat Warren and Obama. And as CNBC’s Fast Money commentators pointed out the day after the election, banks are concerned about Warren’s victory and even more concerned about the prospect of her serving on the Senate Banking Committee, where she could wield more power in pursuing greater bank regulation.
But is Wall Street’s angst justified? True, Warren was elected by pure will of the people and without relying on any banks — but she is just one Senator. Congress is still rife with members, both Republican and Democrat, who rely heavily on the banks for their reelections. The Hill pointed out last week that incoming Democrats Chris Murphy of Connecticut and Joe Donnelly of Indiana are viewed by some as pro-business; and incumbent Democrat John Tester, who defended banks over a controversy involving debit card fees, narrowly won his reelection.
In addition, financial firms are likely to do everything in their power to keep Warren from holding a seat on the Senate Banking Committee, which would further empower her to promote greater regulation of the banks. The committee assignment is a genuine possibility, though it is primarily up to Democratic Senate Majority Leader Harry Reid. Reid would likely be amenable to the assignment, but it is worth noting that he like many Republicans and Democrats accepts money from banks. For example, in 2010, Reid received $5,000 from Goldman Sachs, along with several thousand from the Mortgage Bankers Association and the American Bankers Association.
And, the Democratic National Committee also accepts bank money freely. Twenty million dollars were funneled in from Bank of America and Wells Fargo to fund the Democratic National Convention.
Wall Street will also try to influence Obama’s nominee to replace Geithner and will continue supporting Democratic candidates. If his first-term picks for economic advisers offer any clues, the Obama administration may again be stacked with economic advisers like Larry Summers and Tim Geithner who are viewed as friendly to the banks. Geithner, along with Congressional Republicans and Wall Street, are among the reasons Warren was passed over head up the CFPB.
As Monica Potts wrote in her recent American Prospect piece, “There was huge public support for Warren to be appointed director [of the CFPB], but it was clear from the start that congressional Republicans would oppose her nomination. They associated her with an idea, a new regulatory body, that they loathed. Warren also had opposition inside the Obama administration; she’d publicly clashed with Treasury Secretary Timothy Geithner, who believed some of the reforms on credit cards, mortgages, and other consumer products Warren called for would cripple the still-fragile banks.”
Financial firms are already scrambling to rebuild relations with Obama and other Democrats again, after staunchly supporting Romney in this election. Going forward, we may see a rift between Democrats who fall in line with Warren’s philosophy and those want to keep Wall Street happy.