Brown win could spark Obama war on Wall Street

January 20, 2010

Scott Brown’s stunning capture of the Massachusetts Senate seat held for decades by Ted Kennedy was a political black swan, a near-unpredictable event.

The result ends the Democratic supermajority in the Senate and leaves key parts of the Obama agenda in deep trouble. But the biggest loser just might be Wall Street. Desperate Democrats may see anti-bank populism as a way of holding power as the November midterm elections approach.

The last days of the heated Senate race saw the first attempts at that political gambit. Democratic candidate Martha Coakley’s allies in Washington, both the White House and national Democratic officials, used President Barack Obama’s proposed bank tax as a cudgel to bash Brown via emailings and telephone calls.

But the game was probably over by then for Coakley. A combination of high unemployment, an unpopular healthcare reform bill and the candidate’s own lack of charisma and effective experience were more than enough to clinch an easy Brown victory.

A historic victory, really. It is hard to overstate just how “blue” a state Massachusetts is. Obama won it by 26 percentage points in 2008. Until now the state’s 10 U.S House members, two U.S. senators and all statewide officers were Democrats. The state hasn’t had a Republican U.S. senator since 1979. And, of course, the seat Brown captured had been held by the late Edward Kennedy since 1962.

Now Brown’s victory threatens the healthcare reform bill that Kennedy championed on his deathbed. Democrats could still ram it through before Brown makes it to Washington. But potential legal challenges make that unlikely.

As it is, Brown’s election is enough of a systemic shock to freeze the political process on Capitol Hill. Moderate Democrats in both chambers are nervous about their previous “yes” votes for healthcare. They may be unwilling to make any more. The prospects look even bleaker for cap-and-trade energy legislation, a bill with even less support than healthcare.

Financial reform legislation was already likely to get milder rather than stronger. But not so the rhetoric. Unable to trumpet the economy, hitting Wall Street is one of the few political bullets Democrats have left.

So expect the Obama administration to go all out for the bank tax with increasingly harsh words for big financial institutions. Democrats may also be more willing to consider controversial proposals banks hate, like letting judges rework mortgages. But given the Massachusetts precedent, it may not be enough to save the party from a wipeout in the fall.

31 comments

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Mr. Buffet had an interesting discussion on CNBC this morning, with regard to the “Bank Tax” – Since he is one of Obama’s advisors (sic) maybe this idea will go away like all of Obama’s other corrupt policies.

Anyway, he stated, the bank, insurance and auto bailouts were done for every bodies benefit, had we not stabilized the system back in September and October of 2008, everything and everybody would be much worse off. He stated that many of the banks didn’t need the money, and that those are the ones that have already paid it back at a profit for the federal government, yet these are the banks that are being singled out as justification of this tax, all the while the companies that truly are broken, haven’t paid it back or continue to get more, because they are still losing money, are the benefactors.

I might add, if you further burden banks, or any other company, what are they going to do? Either: A) Take more risk to offset the loss (new taxes) or B) Pass it on to customers, because it is simply a new additional cost of doing business that must be paid for.

Posted by Ed753 | Report as abusive

Ed, your B) option gets repeated by lots of people, but doesn’t hold water. If the bank tries to pass it on to customers, the customers can leave for another bank at any time. This isn’t an industry-wide tax, it’s a targeted one.

Also, the way the tax is constructed makes *any* passing on unlikely.

As a former banker you may rest assured that the banks WILL pass tax to it’s customers. I have seen it. Where there is a new tax passed on any large company bank or not it will be passed on.

Posted by Ernest A. Hathcock | Report as abusive

If these major banking institutions try to pass this on to the customers why wouldn’t the customers just go to a community bank or credit union and drop them? A weak argument just like the ‘we’ll lose talent’ argument when it comes to wages.

Posted by Guy Montag | Report as abusive

We voted for Obama expecting Muhammad Ali, instead we got Steve Urkel. Unless he gets his act together pronto, he his destined to be remembered as Carter II.

Ram it to em, the arrogant mothers.

Plenty of community banks just begging for the buiness.

Posted by horatioatthegate | Report as abusive

Indeed the Dems will now lash out at Wall Street and banksters, but like a 15 year kid in the ring with Mike Tyson. All the economy killing, market distorting, and government bankrupting taxpayer subsidies that Wall Street has captured under the “fool me twice Bush and Obama quack economistas administration” will be maintained.

Specifically, and the real list is even longer than this: the Fed overpaying for bank toxic assets, near zero rates to savers, the tapping into the FDIC guarantee TLGP, the artificial and the special favors for crony capitalistas. The attempted strong resisted recovery on all this will end up being chump change in comparison.

Posted by Russ Winter | Report as abusive

[...] stunning defeat is to find someone, anyone, who the voters hate and pile on? The notion of a “war on Wall Street” is absurd because it doesn’t address the real issue: regulatory reform is dying a slow [...]

RUN UP IN ‘EM OBAMA.

THESE ADDICTS NEED A INTERVENTION.

They don’t own this county.

Posted by Al Terring | Report as abusive

I love that the fact that any “tax” is automatically passed to consumers for payment. I guess that means that the cost of multi-million dollar bonuses are also getting passed to the consumers. The banking system has evolved into unregulated crony capitalism. “TBTF” was essentially criminal extortion of the taxpayers. I think the proposed bank bonus tax is far too meek a remedy to reform the financial system.

Posted by Dave | Report as abusive

I think we miss the point here why the hell is there not a cost for doing buisness anymore, why do I the customer have to eat it? I AM THE DAMN CUSTOMER !!! you go into a buisness expecting certain things, you adjust do it better cut back on unnecessary things….like say 20 billion in bonuses, I mean why do everday people have to learn how to manage their money but the rich butt wads can do whatever the hell they want and we foot the bill?

Posted by bankerssuck | Report as abusive

Hey Bankersuck

To answer your question is very easy. Because we have nothing but bought off whores that work for WS and do not represent the people who elected them.

Posted by gary | Report as abusive

I am a 14+ year military veteran in my 50s. This is not a country for the middle class anymore. Just a free-for-all that every blood sucking profiteer can have his way with. The country is ruled by corporate banks, Insurance, and military contractors with dubious moral character. Average citizen be damned.

Posted by Eddie | Report as abusive

Hey eddie! DAVs have been getting screwed to the walls for the longest time wirh either party in power. It’s the same with the elderly. Once their usefulness is over they are a liability for the government. They could take decommisioned military bases like Fort devens and put DAVs in there rent free. It would cost nothing!! Why don’t they do that? Because it would establish a precedent. Better to sell the land off to developers and bulldoze habitats for three thousand people. They’re the good guys with no brains…. and I’m sticking up for them. (the scumbags).

“In the U.S., runaway inequality nurtures extreme financial arrogance and misbehavior, which often bring about a crash. The next debate ought to be over What Americans Really Want Done about Wall Street and It’s Malignant Handiwork.” Kevin Phillips, author of Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism, and Wealth and Democracy.

Mr. Phillips has articulated how I feel concisely.

Posted by jahlove63 | Report as abusive

They are all owned by the corporations and Obama disgusts me, what a coward. I voted for him and what did I get but a warmongering, corporate grovelling, give the treasury to the banksters president. I would vote for him again if he clawed back the 24 trillion we have given the banks and give the money to the people to spend and thus recapitalize the banks. I would also vote for him if he issued an executive order allowing any american citizen access to the VA for healthcare. If
Bush can issue an executive order to have every american citizen spied on, Obama could issue an order giving us all healthcare.

Posted by Kathleen Shrum | Report as abusive

Folks, I don’t have all the answers. But it seems to me that being “President of these United States” is the toughest job around, short of being God. You run on what you believe in, begin to serve as you learn and adjust as the first year transpires. I voted Republican but closed ranks to support Obama just after the election and feel good about what our President has done, considering the hand he has been dealt. Think about it – could/would have anyone done better, considering? Seriously doubt it.

BA

Posted by BA | Report as abusive

I’m 58, a Nam Vet, and still working full time to make ends meet. I’ve never taken a dime of welfare, unemployment, and don’t plan to claim any SS bennies when and if they become available.

In about 8 years, my plan is to leave the US to find an alternate lifestyle elsewhere. There will be so many American freeloaders, cheats, liars, and thieves to support by that time it doesn’t make any sense to stick around…..I count government service “workers” (sic) among this illustrious group too. All I can do to keep from screaming obscentities 12 hours a day as my Marley Chain of useless hangers-on gets longer and longer every day. Hit the ball and drag every Charlies Dick is Harry. Cradle to grave entitlements need to be paid for by somebody. In another 8 years…it isn’t going to be me paying the freight…..and we wonder why our kids aren’t motivated. This is no longer the same Country I grew up in and fought for. I’m not planning to die here among all the whiners belly aching & complaining the line they’re in at the local hog trough is gettin too long.

The problems with our gummint can be solved only one way and it doesn’t have a thing to do with your foolish votes. Blue or Red, Red or Blue, the only difference between our system and a total dictatorship is a Party…..party on people!

Posted by Stan laCount | Report as abusive

What Bank Customers? If banks are not lending then they have no customers to pass any tax costs to.

Call this bailout interest and not a bailout tax. Everybody pays interest when they borrow funds.

Posted by se | Report as abusive

Mainstream Democrats going to war against Wall St, James? You may have overlooked the cadillac insurance Wall Street took out by positioning their own point guards in charge of Treasury.

But let’s say it could still happen… that’d be the day… that’d be the day everyone votes a 90% Democratic landslide.

And Wall Street knows it.

Posted by The Bell | Report as abusive

To Mr. Hathcock – ALL businesses (not just banks) pass on any taxes levied by the government, onto their customers…
Business does not pay taxes – they always build it into the price of their product – This is Economics 101…..
See: http://www.edgyinchina.org/
To Mr. LaCount – I’m much older (and a RVN vet like you) but I moved out 6 years ago….. Get with it pal….

I agree that there will be a movement toward punishing Wall St. by the Dems.
The bank tax is a joke, though, and everyone knows it. It will do nothing to repair Obama’s image. The biggest mistake this administration has made is understimating the average American’s understanding of what is really going on. Judging by the talk coming from the Dem leaders today, they still don’t get it at all, though. Clueless or in complete denial. The MA. vote was clearly not about health but about Obama’s immediate lack of principle. He was supposed to come into the Presidency swinging, not pandering.
I read through much of the comments on the HuffPost yesterday and there is HUGE disappointment in Obama’s own voter base. HUGE. And rightly so – at this point he appears to have been nothing but another slick-talking power seeker with close to Zero commitment to his campaign rhetoric.
I think at a minimum, Bernanke and Geithner have to go if Obama is to begin to regain some respect from his constituency. That would be a start, but the question is whether there’s someone in the Dem hierarchy both savvy AND courageous enough to get the message through to him.
Next, he needs to own up to his mistakes and reverse course on his (lack of) government transparency and war policies, and try to prosecute some of the wrongdoing that went on in the Financial industries over the past 10 years – but I doubt he has the balls to do that.
The vote went the way it did, not because of health care or because he’s another Jimmy Carter, but because so far he’s just a Big Business Trojan Horse and many are not fooled. They want to roll that horse right back out the gate.

Posted by Charles Cyrus | Report as abusive

Well… figure heads are figure heads.Isn’t this the way of American political history- maybe even world political history?Isn’t president Obama just one more in the growing line of talking heads presiding over the “rest of us”? The point being who’s really running the show – Wall street or the White house ?

Posted by joseph cosco | Report as abusive

The way I see it. Ordinary people have lost their jobs and wall street people are still getting all those bonus money after the Fed bailout. So people are angry, jealous, justified, or not, do not matter. You have to share the pain if everyone else is in pain. Now what? Obama either has to do:

1. Get jobs for the ordinary people, but hard to do though with record federal deficit. He has to show effort though. Health care reform is of secondary importance. He has to emphasize on the big picture now.
2. Take away (or confiscate) wall street bonus, and wrap the action within some acceptable American principles.
3. Real financial reform is also needed.

Really the quick kill is #2 and #3 together, but does he have the guts to take on the street? Voters are smart. If he is not serious, democrats will lose big in November.

Posted by chief | Report as abusive

Yes, the ship is sinking. Unfortunately for the U.S., those that can afford to leave the country to live out their golden years, will do so. That leaves just us rats to handle the mess. And talk about “competition;” anyone ever see the Mad Max movies from the ’80s???

How dare our elected representatives speak all these *ucking platitudes–Obama included and I voted and campaigned for him–and still allow the banks and big corporations to hold us hostage in our own country.

I heard on a public news station yesterday that big businesses owe the gov’t (translation–us)to the tune of $5 Billion for unpaid taxes. How is it that the IRS bloodhounds can sniff out average citizens but ignore the biggest pile of shit!! I say screw the bankruptcy code–let’s return to debtors’ prisons and we will see changes.

Posted by Stephanie | Report as abusive

First the people have to regain the power the constitution has given us as Americans. The best example of how to do this is by understanding how Mass elected Brown. Then the people have to get rid of the Fed. Just by accomplishing these two goals, the country will begin to move in the correct direction.

Posted by Kenny | Report as abusive

The citizens that do the right thing are always penalized. Only idiot banks would loan money to idiots that cannot repay the loan. In order to get this country on track again, Nafta and Cafta will have to be abolished. Remember the “sucking sound” Ross Perot talked about. Get rid of the IRS and have everyone pay a flat tax. These things will never be done because Wall Street owns Washington DC. Congress has no guts and is ran by lobbyists. When our government thinks “America First”, then, and only then, will this country recover. China and India are eating our lunch. Both parties are ALIKE.

Posted by Mike McCleese | Report as abusive

I transferred all my money to my local credit union two weeks ago. Forget the big banks who threaten to make your life more miserable!

Posted by Angela | Report as abusive

[...] on why you responded as you did.You can read the rest of Jimmy P’s post at the link below.SourceBrown win could spark Obama war on Wall Street – James Pethoukoukis, ReutersVN:F [1.8.0_1031]please wait…Rating: 0.0/10 (0 votes cast)VN:F [...]

Of course the cost of the tax is passed on to the customer. Of course, the gigantic bonuses is also passed onto the customer. The only difference is how much the money paid by the customer ultimately benefits the customer. In that case, the tax wins out over the bonus.

Of course this is less than ideal. Simply shutting investment banks off from the discount window will save more money than the tax would raise. Right now we are lending out more than 2 Trillion (with a T) dollars from the Fed, with a ZIRP. The government itself is paying around 3.5% on long term debt, so the net result is a cost of 70 Billion dollars per year. Simply reducing the amount going to investment banks will allow the money to either be saved or loaned to commercial bank. Lending to the commercial banks will have a greater benefit to the economy in terms of business and consumer lending.

If we reduce the amount we are lending to the new asset bubble, we will not only stall inflationary concerns, but also save the difference in interest. A very small reduction would save more than the tax would raise. Taxing them while giving them a larger subsidy is not the way forward.

1. End discount window access for investment banks and any firm that provides investment banking services.

2. Re-enact the Glass-Steagall Act.

3. Announce a no-bailout policy for investment banks. If they fail, they will be allowed to do so without intervention. With this explicit policy, the market will be far more careful about dealing with firms that rampantly speculate with high leverage.

4. No longer allow hedge funds and investment banks to have their income taxed at the preferred long term capital gains rate. This loophole has been unduly abused. With salaried and hourly median income Americans paying a 32.5% marginal federal tax rate, it is obscene that investment bankers and hedge fund managers only pay a 15% marginal rate.

These policies will save more taxpayer money than the proposed bank tax will raise, and also have more beneficial side effects than such a tax. The final policy will raise far more tax revenue and also have less negative side effects.

Posted by Dean | Report as abusive

[...] mean that Obama will declare war on Wall Street. Sure enough, in just 24 hours since his article (Brown win could spark Obama war on Wall Street) was posted, the President announced sweeping restrictions on size and scope of banks. The [...]

One thing that hasn’t been made clear to many people is that this tax isn’t something new. It was written into TARP from the beginning and is required by law. Obama’s not gunning for the banks. Congress is doing what it’s required to do.

The real Obama is coming out. He literally hates big business because he believes that most people are victoms of our capitalistic system. Profit is an evil thing. His definition of fairness is socialism. His programs will all be anti business and lead to more big government.

Posted by Mike B | Report as abusive