Today, TRP’s Jason Rosenstock penned an article in American Banker where he discussed what a potential “blue wave" could mean for the financial services system after November’s midterm elections. "If one were to believe only the clickbait headlines, the ascendant Democratic majority in House is being built on a foundation of populist, anti-establishment socialists whose aim is to undermine and replace America's open-market system with a leftists command economy that will destroy our financial services system," said Rosenstock. "The truth, however, couldn't be more different." Rosenstock argues that the electoral math for next year should give pause to those in the industry who view a potential Democratic majority as "the end of days." He also astutely points out that the industry should begin thinking about pragmatism and bipartisan solutions. "Next year should be a time to build, not burn, bridges."
The article in its entirety can be read below.
By: Jason Rosenstock
Published: October 23 2018, 11:51am EDT
If one were to believe only the clickbait headlines, the ascendant Democratic majority in House is being built on a foundation of populist, anti-establishment socialists whose aim is to undermine and replace America’s open-market system with a leftist command economy that will destroy our financial services system.
The truth, however, couldn’t be more different.
Despite the cascade of predictions and headlines generated by surprise victories in New York and Massachusetts, the reality is that in contested primaries in 2018, the candidate endorsed by the Democratic Congressional Campaign Committee (the party establishment also known as the DCCC) won 95% of the time.
Above all else, the DCCC is charged with finding candidates who can win general elections in their districts, and a closer examination shows that of the 80+ seats on the DCCC’s “Red to Blue” list, 40% of the candidates have also been endorsed by the New Dems — the moderate, pro-growth wing of the Democratic party, with 68 members in the current Congress.
If one assumes that a “blue wave” in November entails similar results to the last mid-term Democratic wave in 2006, that should translate to a pick-up of around 30 seats, providing the Democrats with a 7-10 seat majority. For this to happen, it would mean about 40% of the candidates in the “Red to Blue” program need to win in November. And since about 40% of those “Red to Blue” candidates are New Dem endorsed, it seems like a fair assumption that there would be at least 14 new “New Dems” coming to Congress next year (40% of 40% of the total of Red to Blue Seats).
Of course, it is possible that a larger percentage of moderate Democrats could win, so let’s just assume that in the next Congress, the New Dems will have somewhere between 75-85 seats. And while many members of this moderate caucus have never served in the majority, there will be several veteran New Dems, including former chairman of the caucus Ron Kind and current Chair Jim Himes, who have not forgotten how a Democratic House majority form 2007-2010 led to an aggressive liberal agenda — the coda to which was the massive GOP blowout victory in 2010.
What does all this electoral math mean for next year? I would argue that it should give pause to those, especially for many in the financial services industry, who view a Democratic majority as the end of days.
Certainly, the more liberal members of the House will feel emboldened by the victory in November and will make themselves heard, but even when you have a proud progressive champion such as likely House Financial Services Chair Maxine Waters holding the gavel, you will need to look past the headlines. The politics of the Financial Services Committee has always been tricky, even more so as the furthest left-wing of the party becomes more reflexively opposed to certain segments of the financial services industry and more vocal in that opposition. I fully anticipate that Chair Waters, who has a strong history of deal-making, will want to accommodate both segments of her committee.
Additionally, the House leadership will also want to be responsive to the caucus as a whole, which given the expected narrow majority, will necessitate winning the support of moderates who face more political risk than their progressive colleagues.
This means that while there will certainly be a leftward tilt toward the agenda and makeup of legislative actions in the committees, the narrow margins on the House floor could allow the New Dems to have influence on that agenda since it would only take a fraction of the group to affect the outcome of votes – either procedural or substantive. However, it is important to keep in mind that this scenario means that the legislation the House will consider will often get pulled to the middle, rather than the fringe, as has been the case since 2011.
So rather than bunker down, industry should begin thinking about what type of pragmatic, common sense and bipartisan solutions they can identify and start working through the legislative process in 2019. Next year should be a time to build, not burn, bridges. There are a handful of must-pass bills that the committee and Congress will have to deal with in 2019 — but beyond that any success will likely be driven by proponent’s ability to build strong coalitions of support, ideally from across the whole spectrum of the House. That level of bipartisan support will be critical to moving legislation through the upper chamber, which is expected to be about as equally divided as it currently is, plus have the added complication of multiple members running for higher office. Truly technical corrections or regulatory relief that is supported by independent data are likely good areas to start.