Wall Street Took a Beating at the Polls


Tuesday’s election was hardly a referendum on Wall Street.

But in Massachusetts, Ohio, California and elsewhere, the industry and its accompanying ideology were soundly beaten back. Candidates who built their resumes as industry scourges were able to leverage that experience to defeat opponents who they successfully labeled as too friendly to big financial interests.

Wall Street, as usual, spent an enormous amount of money—more than $400 million in 2012—and didn’t emerge with much to show for it.

The most obvious of the defeats came in Massachusetts, where Elizabeth Warren reclaimed the U.S. Senate seat once held by Edward Kennedy by beating Republican Scott Brown.

This was no fluke. Ms. Warren beat Mr. Brown handily, capturing 53.8% of the vote to Mr. Brown’s 46.2%, a margin bigger than any of the slew of last-minute polls suggested.

Associated Press

Democrat Elizabeth Warren unseated Republican Sen. Scott Brown and is a frontrunner to take a seat on the Senate Banking Committee.

Until 2008, Ms. Warren was a little-known, wonkish professor at Harvard who studied the economics of bankruptcy. But her appointment as a special Senate watchdog for the bank bailouts, her clashes with administration officials and the embrace of her Consumer Financial Protection Bureau catapulted her into the political limelight.

Mr. Brown, by contrast, was criticized for stalling and weakening key parts of the regulatory overhaul of Wall Street. It was an abrupt turnabout for a rising star in the party whose victory in a special election in early 2010 was a harbinger of the Republican surge to take the House later that year.

Now, in a nightmare scenario for Wall Street CEOs, Ms. Warren is a frontrunner to take a seat on the Senate Banking Committee.

Likewise in Ohio, Democrat Sherrod Brown fended off Josh Mandel in a race that ended up nearly as lopsided. Mr. Brown, who introduced legislation to break up the banks into smaller, less systemically important pieces, easily fended off Mr. Mandel, the state’s treasurer and the beneficiary of millions in contributions from sources outside of the state.

The final tally gave Mr. Brown the edge by a comfortable 5.2 points.

Mr. Brown may not directly owe his victory to Wall Street crusades. The race focused more on the 33-year-old Mr. Mandel’s inexperience and Mr. Brown’s broader political stances. But even in being relegated to the back burner, Mr. Brown’s bank bashing didn’t hurt his chances. Mr. Mandel either didn’t or couldn’t use it to effective advantage.

It should be noted that Massachusetts and Ohio ranked Nos. 1 and 4 in terms of money spent in the race with Mr. Brown in the Bay State and Mr. Mandel in the Buckeye State getting the lion’s share of Wall Street contributions, according to OpenSecrets.org.

Wall Street’s losses weren’t just about losing political power in higher office.

The industry collectively has long sought lighter taxes on personal income. Wall Street sees a lighter tax burden as an incentive to invest and innovate.

It wasn’t a philosophy that carried the day Tuesday. Across the nation, multiple proposals to raise taxes were approved by voters. In New Hampshire, a constitutional ban on income taxes was rejected.

In California, home to 88 of the 400 wealthiest Americans, according to Forbes, voters raised corporate taxes on businesses based out of state and raised income taxes on the wealthiest residents.

What’s more, the measure, which passed 53.9% to 46.1% statewide, received strong support in some of the counties where those tax increases will sting. In San Mateo, the home of Silicon Valley, the measure passed 63.2% to 36.8%. In Marin, where annual income ranks in the top 20 of all U.S. counties, the margin was even higher, 68.2% to 31.8%.

This isn’t to say Tuesday produced a national mandate for tax increases. South Dakota voters rejected a sales-tax increase. In Michigan, a proposal to eliminate the state’s flat income tax rate in favor of a graduated income tax rate didn’t even make the ballot.

They aren’t inconsequential developments, especially if you are a top broker in Flint, Mich., who spends money in Sioux Falls, S.D., but they hardly are enough to offset Tuesday’s multiple disappointments.

Not the least of which is the defeat of Mitt Romney, a former private-equity executive who promised to cut or at least review financial regulation while offering more tax breaks for investors. Mr. Romney was perhaps the best hope for Wall Street this fall. He was one of their own, so tantalizingly close to the biggest trading floor of all.

Ultimately, his defeat and those in smaller contests around the country may just be the result of a few bad breaks. Again, Wall Street’s issues weren’t at the top of the lists of voter concerns.

But given the uniformity of the defeats, Wall Street needs to ask itself why after spending an amount equivalent to a small nation’s GDP, its enemies are doing so well. Is it apathy among the voters, or tacit approval?

Write to David Weidner at david.weidner@dowjones.com

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