Blowback on Wall Street from Scott Brown's election in Massachusetts

A problem with blowback is you can't be sure what it will hit. Scott Brown's election as the senator from Massachusetts to replace Ted Kennedy was blowback from the Obama administration's inattentiveness to the independent voters who put it in office. But that election led the administration to cater to those same independents by shifting focus away from health insurance reform and back toward Wall Street.

The big money lobbyists almost pulled it off. A quiet, but determined lobbying effort in the second half of 2009 had persuaded the administration and Congress to slide financial regulatory reform toward the back burner. Most Democratic political capital was committed to reforming health insurance. The Republicans, realizing that the Dems were tied up with Washington problems, set an ambush in Massachusetts. Just as inattentive deer don't survive the time in the fall when a lot of people wearing blaze orange enter the woods, Martha Coakley and the Dems paid the price for not staying alert.

Then, Barack Obama demonstrated why he was elected President. Two days after the debacle, the President announced a proposal to place new restrictions on the activities of big banks designed to prevent them from using federally insured deposits or loans from the Federal Reserve to engage in risky and speculative activities. Remember that last week, the administration proposed a tax that would fall primarily on big banks' short term borrowings (excluding customer deposits), thus discouraging them from using fast money leverage. Taking these two initiatives together, big banks will have powerful incentives to formally split their depositary and investment banking operations. Add the extensive regulation of bank holding companies that exists and the increased holding company regulation that may well be on the way, and you have a regulatory mix that would encourage a complete corporate breakup between depositary banks offering federally insured deposits and the Masters of the Universe who do the wild and woolly stuff.

Yesterday, the political theater was vivid, with Paul Volcker standing next to the President as he announced the proposal to revive, sub silentio, the Glass-Steagel Act. Volcker, a former Chairman of the Federal Reserve and an unyielding proponent of increased prudential regulation for banking, is widely reported to have been in the Democrats' gulag for the past year. It seems that Scott Brown unintentionally got Volcker sprung, and along with him serious intent to crack down on Wall Street.

That wasn't quite what the Republican agents provocateurs assisting Brown intended, either. But they placed their chips on the outrage of independents. Those who live by populist ire die by populist ire. Wall Street stands shoulder to shoulder with the federal government as a target of independents. The President and his aides know this, and they have turned their agenda on a dime to steer the pitchforks toward the big banks. If the Republicans use their 41-vote minority in the Senate to block the new, improved financial regulatory reform proposal, they will find themselves on the wrong side of pickup truck-driving insurgents. It's very unpleasant to be hit by a pickup truck.

The Ten Biggest Losers in the Massachusetts Special Senatorial Election

There was more than one loser when Scott Brown won yesterday's special election in Massachusetts to replace Ted Kennedy.

Barack Obama. His already complex job just became a lot more complicated.

Sarah Palin. She's been upstaged almost as badly as Barack Obama. The Republicans desperately need new, younger candidates. Scott Brown, although not entirely without baggage himself, doesn't need a battalion of bellhops the way Palin does, with McCain's former campaign staff carefully calibrating their telescopic sights to snipe at her, the issues from her family, the issues from her almost inlaws, those interesting reimbursements from the State of Alaska while she was governor, the photo of her with a dead, bloody caribou, and quitting the governorship promptly after attaining national stature and cashing in with a book contract, the Fox commentator deal, etc. Today, Brown didn't exactly deny harboring Presidential ambitions, so watch for Palin to sneak up on the rug he's standing on and give it a hard yank.

Mitt Romney, Mike Huckabee, Newt Gingrinch, et al. The old, white guys in the Republican Party are finished. The party's way back to the White House will be through a younger, fresher insurgent candidate who appeals to the ever fickle independents that are now the key to victory. Republican power brokers will be looking for ways to quietly offload those same old, same old guys.

White House staff. It is the way of Washington that someone take the fall for a disaster like Brown's successful guerilla campaign. The vicious flood of leaks over who's to blame and who was asleep at the switch indicate a fierce internecine battle among Team Obama. Sooner or later, someone will have to resign to spend more time with their family or pursue other interests.

Levi Johnston. Another guy who posed nude has suddenly gained the limelight. As Sarah Palin's public aura fades, so does Levi Johnston's. He's said he'd be content as an electrician. He'd better stay on track to get licensed.

The uninsured. Those without health insurance had better reach down for their bootstraps and pull hard, because they may be getting no other options.

The insured. Reality is that the insured and paying patients pay for the emergency room and pro bono care that the uninsured often rely on. Maybe your taxes won't be raised now, but your health care costs and insurance premiums will remain high and probably go higher.

Health care providers. With today's crazy quilt health care insurance/no insurance system likely to stay largely in place, and with taxpayers less likely to contribute to covering health care costs, the only remaining pool of cash to be tapped as health care costs inexorably rise is the dollar flow to health care providers. Reimbursement rates are likely to be squeezed. The plastic surgeons and neurosurgeons forced to trade down from Maseratis to Mercedeses won't get any sympathy. But pediatricians already sometimes vaccinate kids at cost, or even at a loss. And they and general practitioners scarcely make what executive assistants on Wall Street make. Cutting their reimbursements rates isn't likely to produce a good outcome.

Scott Brown's truck. Driving on the small town roads of Wrentham, Mass. doesn't put a lot of wear and tear on a motor vehicle, especially something as sturdy as a pickup truck. But D.C.'s potholes interspersed with short stretches of macadam are a very different story. When you idle a truck for eons in rush hour congestion and then drive it off a cliff every 50 feet, the tires, suspension, undercarriage, frame, and engine earn their keep. One D.C. mile is the same as 20 Wrentham miles. Senator Brown won't be able to add 200,000 D.C. miles to the truck.

And, oh yeah, Martha Coakley. It's hard to exclude the losing candidate from this list, but, all things considered, she's far from the biggest loser.